That eternal truth was especially evident this week in Frankfurt, Germany, where the European Central Bank gathered the world's senior finance officials to discuss lessons from the 2008-2009 financial crisis -- and where Ben Bernanke, chairman of the Federal Reserve, offered his latest defense of the Fed's recent and much-criticized plan to revive U.S. economic growth.
The Fed this month launched an eight-month, $600 billion program of buying U.S. government bonds in a bid to drive down long-term interest rates and make it easier for banks to lend to businesses. The hope is that this will get businesses to create jobs on a massive scale and build new momentum for the American economic recovery.
That has angered many U.S. partner/rivals, including Brazil and Germany. That's because the program has driven down the value of the U.S. dollar against their currencies, giving American goods a competitive edge in the global marketplace. And the lowering of U.S. interest rates prompts investors to move large amounts of money to other countries where they can get higher returns. This makes emerging economies worry about asset bubbles -- like the pre-crisis real estate bubble in the U.S. -- that can burst and wreak a lot of damage.
Kai Pfaffenbach, AP / Getty Images
Federal Reserve Chairman Ben Bernanke delivers his keynote speech at the sixth European Central Bank Central Banking conference in Frankfurt, Germany, on Friday.
On one level, Bernanke's speech on Friday was an argument for why the Fed had to take action in the face of unemployment that has stubbornly stayed near 10 percent for about a year and a half, with many of the jobless out of work for more than half a year.
"On its current economic trajectory, the United States runs the risk of seeing millions of workers unemployed or underemployed for many years," Bernanke said. "As a society, we should find that outcome unacceptable."
He also took a swipe at critics of the Fed policy who complain about the lower dollar -- especially China, which has accumulated more than $2.6 trillion in foreign reserves, most of it U.S. cash and bonds, as part of its effort to keep the Chinese yuan artificially low against the dollar as a way of helping Chinese exports.
"This strategy, which allows a country's producers to operate at a greater scale and to produce a more diverse set of products than domestic demand alone might sustain, has been viewed as promoting economic growth and, more broadly, as making an important contribution to the development of a number of countries," Bernanke acknowledged. "However, increasingly over time, the strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy."
That "leads to uneven burdens of adjustment among countries," with players like the U.S. "bearing the greatest burden" because they allow exchange-rate flexibility, he noted.
But Bernanke had a broader, if less combustive, message that many headline writers caught up in the policy fight are likely to miss.
The Fed and fellow central banks, as well as policymakers in governments around the world, worked together during the intense moments of the financial crisis because the only way to fight an economic calamity of global scale was to do so as a team. The Fed coordinated its responses with 14 other central banks in the biggest, deepest monetary collaboration in history.
And the world got back on its feet.
But "in recent months," Bernanke noted in Frankfurt, "that sense of common purpose has waned."
"Tensions among nations over economic policies have emerged and intensified, potentially threatening our ability to find global solutions to global problems," he said.
These tensions are among the most powerful economic forces today.
They were the biggest reason the G-20 economic summit last week in South Korea, attended by President Barack Obama, failed to produce accord on nearly all the currency, trade, monetary policy and fiscal differences roiling the world.
They are among the biggest reasons global trade talks have been frozen for more than three years, because no government wants to make compromises on the likes of farm subsidies or clothing tariffs when its people are already hurting economically.
They are even at work within economic blocs like the European Union, which was constructed on the notion that its members could compete better with the U.S., Japan and China by combining economic forces.
As International Monetary Fund chief Dominique Strauss-Kahn said in Frankfurt, "With so many European countries under pressure from all sides, these challenges are more urgent than ever."
"If unaddressed, Europe's social model could unravel," said Strauss-Kahn, who also happens to be a once and probably future presidential candidate in France. "The only answer is more cooperation and greater integration."
But the European leaders have been sounding less and less cooperative.
Sponsored Links
Bernanke argued that one reason for all the stress is that some economies, like China and India, have "recouped their losses" from the crisis and are again growing quickly, while the U.S., Europeans and other advanced economies "have lagged behind.""But at a deeper level, the tensions arise from the lack of an agreed-upon framework to ensure that national policies take appropriate account of interdependencies across countries and the interests of the international system as a whole," Bernanke said.
So he wants countries to work together in forming a new system that "more consistently aligns the interests of individual countries with the interests of the global economy as a whole."
The problem is that until the tension diminishes, that is what they are least likely to do.