The rocky road to Seoul

As the G20 summit meeting in Seoul looms, things are looking a bit fraught, even though the recovery from the financial crisis is largely intact. The emerging economies are expanding strongly, Germany is pulling the Eurozone along and the UK is doing much better than expected. Even the US has seen its latest growth data (for Q3) revised upward, and employment rose in October, with the private sector leading the way. No, the reasons to be fearful are provided by the policymakers, who are starting to say, and in some cases to do, dangerous things. In a sense, the timing of the G20 couldn't be worse, because it will give the governments and central banks the opportunity to turn a non-crisis into a catastrophe.

Much (but by no means all) of the pre-summit contumely is directed at the US Federal Reserve's decision last week to proceed with a second round of quantitative easing. You only have to watch CNBC for five minutes, especially if Rick Santelli is on, to realise that the Fed's move is not widely supported even within the US business community. Outside the US, the reaction has been downright vitriolic, led by Brazil (on behalf of the emerging markets) and Germany, which still knows a bit about currency debasement and inflation. When the head of the Bundesbank describes the latest policy moves as "clueless", even a US central banker might be brought up short, though there is no reason to suppose that Bernanke will do anything other than robustly defend his decision as he tucks into the kimchi this weekend.

The unrelenting surge in the price of gold (another all-time high today), palladium and platinum (multi-year highs) and just about every other commodity you can name shows that investors have figured out the Fed's game as clearly as has the Bundesbank. Having sustained its standard of living (and fought a couple of wars) on borrowed money through the past decade and more, the US is now brazenly seeking to inflate away the debt burden. It's hardly surprising that the creditors (i.e. just about everyone else in the world) might be getting a little snippy.

It's one thing getting angry and lecturing the US, of course: not much harm can come of that. The problems will arise if other countries start to retaliate. There are a few worrying signs out there of countries starting to fight their own corner rather than look for co-operative solutions. Brazil is taking the capital controls route, and last week, in a blast from the very distant past, Canada's government blocked a takeover bid (by BHP Billiton for Potash Corp of Saskatchewan) on the grounds that domestic natural resources should remain in Canadian hands. If the free movement of capital and goods falls victim to the caprices of national governments, the prognosis for the next few years will get a whole lot gloomier.

And in a reminder that the last big mess still isn't close to being cleaned up, Ireland is teetering on the brink again, on fears that the Cowen government's austerity budgets will be defeated in the Dail. Ireland's CDS spreads blew out to new highs on Monday, signalling rising fears of default.

As they head for Seoul, not the world's most relaxing town, policymakers need to take a deep breath and remember the Hippocratic oath: "first, do no harm".