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November 17, 2008
It was not Bretton Woods Mark 11 by any means, but the G20 did take positive steps. It has a reform agenda and a second summit is envisioned next year after Obama becomes President of the US when the details are to be worked out to ensure pro-growth policies.
Its communique said they agreed that the economic crisis real, serious and immediate, that there was a need for measures to boost economic growth (lower interest rates, cutting taxes, increasing public spending), an acceptance of the need for a greater regulation of financial capitalism (more accountable to investors and more transparent to regulators), and consideration of a revival of the stalled Doha round of trade talks.
No supra-national authority over global financial markets though, or a new system of capital controls. Will the credit default swaps market be bought under regulatory control?
So it is goodbye to the old G7 and hello to the G20, which includes China, India, Brazil and Indonesia - as well as energy-rich nations such as Russia and Saudi Arabia. That is a shift in international power relations away from America's traditional global economic dominance and makes Asia the centre of gravity.
The G20 communique says:
We noted that the current financial crisis is largely a result of excessive risk taking and faulty risk management practices in financial markets, inconsistent macroeconomic policies, which gave rise to domestic and external imbalances, as well as deficiencies in financial regulation and supervision in some advanced countries.
Really? Wasn't it the US that was the cause of the financial crisis caused by financial weapons of mass destruction? Wasn't the US the source of the credit bubble? Wasn't it lax monetary policy in the US that fuelled the credit bubble. Didn't the US oppose additional regulation of US financial derivatives? This is a financial crisis that has crippled developed nations of the G7. It was the US that broke the china in the financial shop whilst talking about market discipline.
It is difficult to be impressed by this vanilla offering of strengthening co-operative efforts to bolster growth whilst avoiding specific commitments and deferring detailed decisions on new regulations. They offered a united front but offered promises of future co-operation. So what are pro-growth, stimulus policies in the US----bailing the big three car makers? What is it in Australia----clean energy investment such as building new transmissions lines to harness the capacity of wind power and geothermal to the national electricity grid?
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so the inflation genie has been bottled. Recession is the new nastie and national economic policy has switched from cutting spending to spend spend spend.
that was quick.