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G20 and US: Going Separate Ways Highlights Prisoner’s Dilemma

Posted by Larry Doyle on June 7th, 2010 8:25 AM |

As we continue navigating the global economic landscape, national interests are now overwhelming coordinated global interests. How so?

Unlike the coordinated message at the widely publicized 2009 G20 summit held in London, the clashing of widely divergent national views at the 2010 G20 meeting held in Busan, South Korea is hardly melodious. The implications for global markets will be enormous.

Last year, the U.S. swapped all sorts of favors for a coordinated global fiscal stimulus; this year, the U.S., represented by Treasury Secretary Tim Geithner, is receiving the cold shoulder. Finance ministers from around the world are happy to go their own way in pursuit of what they believe to be their national interests. Can you blame them? (more…)

G-20 Preview: Prisoner’s Dilemma Revisited

Posted by Larry Doyle on September 21st, 2009 9:12 AM |

Should we expect any surprises emanating from the G-20 conference at the end of this week in Pittsburgh? Don’t count on it. The fact of the matter is the bulk of the work at these conferences is done beforehand, and the conference itself is more pomp and photo ops than anything else.

Getting the G-7 to agree on a wide array of economic issues is tough enough. To think the G-20 will not only fully agree on the importance of the underlying issues facing our global economy BUT then also implement the necessary changes is not likely. If this group of nations had the necessary degree of conviction and cooperation, perhaps we would not find ourselves in the current economic morass.

What are the main topics and initiatives the G-20 is already working on pre-conference? The Wall Street Journal provides a preview in writing, Nations Ready Big Changes to Global Economic Policy. Allow me to highlight and comment on the major initiatives.

1. Need for increased savings rate in United States.
This is occurring, but can and will it be sustained past the point of paying down our short term debt? Can the ‘wizards in Washington’ ever address our long term federal deficit? I am not optimistic. The inability to address our long term fiscal deficit is a pox on both sides of the aisle. In an attempt to make progress on it . . . hello higher taxes!!

2. Need for increased consumption in China.
We have not yet seen a real inclination by the Chinese to consume more. As many low income wage earners in China fight for a better life, I think this hope is a long range target rather than a near term reality.

3. Need for Europeans to invest more in their business infrastructure.
I am less optimistic on this than I am on the Chinese inititiative. Why These investment dollars would likely come at the expense of supporting social programs which are the very fabric of the European culture.

4. Europeans are pushing for substantive reforms on banker compensation.
The Wall Street lobby is already hard at work to maintain control of this issue. I have very mixed feelings on this topic. Ultimately, I believe the misalignment of risk and reward on Wall Street is nothing more than a failure of corporate governance. Until the boards of our largest banks embrace the need to change that fabric, I think compensation reform will be shallow.

5. The U.S. regulators are pushing for major banks to hold more capital to protect against systemic risk.
This is all well and good, but if the increased capital is not also correlated with the use of the capital then the systemic risk will not be alleviated. Our friends in Washington should invite Paul Volcker into this discussion and embrace his ideas to have Wall Street exit its hedge fund-like activities inside our major banks.

6. China continues to pursue an increased influence by developing nations within the IMF.
You can feel the impact of this shift already with the greenback declining in value.

MAJOR CHALLENGE: Make no mistake, our international brethren strongly believe the core of our current economic crisis resides here in the United States. That core encompasses the regulatory failings on Wall Street. Without real transparency on that front, Wall Street will continue to work diligently to maintain its ‘business as usual’ mantra which it believes is in its own self-interest.

Speaking of self-interest, that is the base principle in which economic institutions tend to act. With no real enforcement to change behaviors (and the G-20 has never had real teeth on the enforcement front), the economic leaders of the countries will ‘smile for the camera’ but then return home to continue pursuing their self-interests and remain prisoners to each other. That pursuit of self-interest is the very essence of “The Prisoner’s Dilemma” which I highlighted last January.

LD

Related Sense on Cents Commentary:
   Increasing Chinese Protectionsim: A Real ‘Prisoner’s Dilemma’ (June 23, 2009)

Things You May Have Missed

Posted by Larry Doyle on April 7th, 2009 10:08 AM |

The stream of data and market moving news is non-stop. I found these items of interest and look to share them with you as I believe they provide interesting insights and perspectives from around the world. I beg your indulgence if some of these items are not news to you, but if they are I hope they help you “navigate the economic landscape.”

1. Australia’s central bank cut its overnight lending rate to 3%, the lowest level in 49 years. While that rate is one of the highest rates in the developed world, it was widely expected to be left unchanged.  Australia has had one of the strongest economies in the world. This cut is an indication the Australian central bank believes their economy is slipping into a recession.

2. Japan’s exports are reported to be down 40% versus a year ago. Additionally, Japan’s industrial production is reported to be down 30+% during the same time period. These economic figures are significantly weaker than most other developed economies. As a frame of reference, most other developed economies’ industrial production is down 10-15%. Clearly, Japan is so dependent on exports and it is now paying the price of not having more fully diversified its economic foundation.

3. Gold is now trading near $880/oz. A month ago this precious metal was trading slightly above $1000/oz. Why is gold down recently? Coming out of the G-20, there are expectations that the IMF may sell some gold reserves to raise funds for low-income countries. I commented the other day that gold is not perfectly correlated with inflation due to changing fundamentals and technical variables in the gold market. This development with the IMF is a perfect case in point of my assertion. (more…)

Tune in Sunday Evening to NoQuarter Radio’s Sense on Cents with Larry Doyle

Posted by Larry Doyle on April 5th, 2009 7:10 AM |

Please join us Sunday evening (tonight!) from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. With the stock market near 12 year lows, what is driving soc-promo5the flows? What is truly going on in the economy? Where are markets headed? What came out of the G-20 Summit? How about the FASB’s easing of mark-to-market? So much to cover.

These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins.

Tonight I will be speaking with Phil Trupp, a journalist/author with more than 30 years of professional experience writing for several prestigious newspapers and magazines in the world. Over the years, his investigative reporting and columns have led to congressional hearings on coal mine safety, corruption in the trucking industry, poverty in America, environmental hazards, and global warming, among other controversial issues. Trupp’s financial journalism background includes a seven-year stint as Washington correspondent and assistant bureau chief for Fairchild Publications, and as a reporter at the Washington Evening Star.

Phil Trupp is currently writing MONEY ON ICE: How Ordinary Investors Beat the Biggest Fraud in Wall Street History. It is an exposure of the Auction Rate Securities scandal in which 146,000 investors have been bilked out of $336 billion.

As a reminder, all NoQuarter Radio programming is archived and can be played back at any time. Just go to the NoQuarter Radio site and look for previous episodes. In addition, each program is available as a podcast on iTunes.

Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA blog for providing such a vibrant vehicle as NoQuarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!

G-20: Commitments, Comments, Questions!!

Posted by Larry Doyle on April 2nd, 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? (more…)






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