Economic Outlook: A Steel Town summit

The Group of 20 summit in Pittsburgh this week has the potential to be one of the more extraordinary sessions since the group was formed in 1999.

Already unusual, as the second G20 meeting in the same calendar year, the session features an overflowing agenda as the sharpest economic downturn since the Great Depression begins to stage a turnaround.

In April in London, G20 leaders met to discuss staying the course on stimulus spending to prop up a weakened global economy that was -- although few knew it at the time -- just past its recessionary low. Leaders agreed to resist protectionist policies, a pledge that has since met with mixed results, and triple allocations to the International Monetary Fund in anticipation the lender of last resort would have a busy year.

But while central banks were practically in lockstep reducing key lending rates last spring, the new challenge is to manage the potential inflation that could escalate with the recovery -- but without setting the recovery back on its heels. This week's agenda focuses on how to unwind the programs central banks put in place with gusto (and fear) six months ago, and how to guide financial firms away from a culture of careless risk.

While European leaders have joined forces in an attempt to control executive paychecks that promote excessive risk-taking, the United States plans to focus on global trade imbalances that have created a sharp dichotomy between export-oriented manufacturing countries, like China, and import-oriented big-spending economies, like the United States.

"We're doing something that hasn't been done before," Treasury Secretary Timothy Geithner told The Washington Post Tuesday. "At the earliest stage of a recovery, we are working to get the world to embrace a framework to help prevent the next damaging bubble."

The current framework, many economists say, includes a propensity for creating bubbles.

It starts with the U.S. consumer buying cheap foreign goods. This creates massive wealth abroad, for example, in China.

China then tucks massive amounts of its wealth into U.S. Treasuries, flooding the U.S. economy with cheap money, which shows up as low interest rates for U.S. consumers -- which, of course, spurs more consumer spending.

"There is definitely a rift developing over how important the issue of global imbalances should play in this meeting," Cornell University trade expert Eswar Prasad told the Post.

The Chinese, Prasad said, will focus on reduction of the U.S. deficit, an acknowledgment that the imbalance can only go so far. The United States "wants to make this a broader discussion, by assigning responsibility to all parties," Prasad said.

Meanwhile, it appears to be no coincidence that President Barack Obama last week announced new tariffs for Chinese tires and steel, which could leverage the debate in Pittsburgh or come back to haunt the United States with a retaliatory reaction from China.

In Asian markets Wednesday, the Hang Seng index in Hong Kong slipped 0.49 percent. The Singapore Straits Times gained 0.01 percent. The S&P/ASX in Australia rose 1.51 percent. The stock market in Japan was closed for a holiday.

In midday trading in Europe, the FTSE 100 in Britain rose 0.46 percent. The DAX 30 in Germany rose 0.26 percent, while the CAC 40 in France rose 0.2 percent. The pan-European DJStoxx 600 rose 0.45 percent.