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G-20: Commitments, Comments, Questions!!

Posted by Larry Doyle on April 2, 2009 1:14 PM |

British Prime Minister Gordon Brown just delivered a statement highlighting the results of the G-20 conference in London.  There must have been a lot of work done behind the scenes over the last few months because it’s hard to imagine there was a lot of debate over issues within a 36 hour time frame at this conference.  I will grant the world’s political leaders their due as it is most important at times like these to convey a strong, uniform front. 

Let’s review the objectives and commitments, each followed by questions and/or comments that I have:

1. Address countries providing tax havens.
My question:  who will police?

2. Develop a Financial Accounting Stability Board to regulate currently unregulated financial entities, primarily hedge funds. 
My questions: how will it be staffed, operated, and judgments adjudicated? (I don’t like FASB as the acronym to be confused with Federal Accounting Standards Board)

3. Develop global policies and outline to address compensation
My questions: who and how will this be implemented? how will it be regulated? will there be punishments for those not participating?

4. Develop a global systemic risk oversight body. 
My Question: who and how?

5. Develop a common global approach to address toxic assets within the banks.
My Questions: will this approach be akin to the FASB relaxation of the mark-to-market? How will it be implemented? Will it employ free market principles or manipulate those principles?

6. Utlilize a global growth and recovery stimulus plan of $5 trillion via global central banks.
My Question: will every country and region go along with this?

7. Global central banks will maintain a fiscal expansionary posture.
My Question: what if inflation increases?

8. The IMF and other international agencies will receive $1 trillion. $750 billion directed to the IMF, $250 billion of which will be in the form of Special Drawing Rights. The G-20 will look for these international institutions to strengthen their independence.  The G-20 looks for emerging economies and developing countries to get a greater voice in these international institutions. 
My Comment: China just won BIG RIGHT HERE!!

9. The G-20 countries will look to kickstart international trade.
My Question/Comment: Congratulations!! How do they plan on doing this in the face of the global protectionist measures and financial protectionism being enacted everywhere?  

10. The G-20 will meet in New York City again in September.
My Comment: is this really a very good idea? Can you imagine the rioting that may ensue there? I wonder if body piercing is optional to get involved in the fun?

In summary, the global equity markets are responding positively to these commitments along with the relaxation of the mark-to- market. I am concerned that free market principles have taken a back seat to potentially excessive political and accounting manipulation.  That said, the global economy and global banking system will receive significant hard dollars along with significant accounting cover to help itself heal. My personal opinion is world leaders are trying to buy time but will risk real inflation to heal the global recession.

I will say, though, there will certainly not be a dearth of material for Sense on Cents to address as we navigate the economic landscape!!

LD

  • LD,
    I wonder what you make of this part of the statement:
    – “Central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.”
    As far as I can determine, most of those policy instruments have been pulled off the shelf already. It seems to me that printing more cash is the solution their leaning toward.

  • Larry Doyle

    Expansionary = keeping interest rates low for a protracted period = ultimate inflation. The fact that this is a gloablly coordinated approach is very scary. Where does one hide?

    Too much debt around the world is dealt with
    1. restructuring
    2. default
    3. devalue (print more $$ which means inflation)

  • lizzy

    I have never heard of such total nonsense. From where did all this sudden globalism spring? It is almost as bad as all the green stuff sprouting beneath our feet. Do they truly expect us to take such idiocy seriously?

  • Larry Doyle

    Lizzy,

    As i think this through. Everybody gets something they wanted. U.S wants global stimulus. Ok, done. Asia wants to pick up influence in the IMF and move to SDRs. OK, done.
    Europe wants more regulation. Ok, done.

    Tax havens, compensation, toxic assets…easy sells for everybody.

    Ultimately it is all about the execution!!

    Is the IMF going to tell the Federal Reserve what it is supposed to be doing? …Hello…

    What happened to our country?






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