Friday, April 3

G20 junket summit

I didn’t expect much from what might cynically be described as a 2 day G20 junket summit so I was pleasantly surprised when I read about the overall result. Credit is due for the extra funding measures to be provided for the IMF to provide additional drawing facilities for developing nations and for agreed tighter regulatory measures over executive pay, hedge funds, credit ratings/banks and the long overdue proposed sanctions on known tax havens. The biggest obstacle remaining are those few very large and technically insolvent USA banks (from a total of over 8,000 banks) presiding over frozen credit markets which have kept interest rate spreads artificially high. But it now seems inevitable more control will be exercised over the Banks or even some nationalized, should the latest plan prove ineffective.

The Meeting of the G20 was symbolic in that:

It was more representative than previous G7 meetings dominated by the USA and excluding China. The G7 has literally become ‘dead in the water’ since it’s dominant members became heirs to a lack of good governance with reckless leveraged lending that successfully exported the toxic assets all over the globe as AA A rated securities to unsuspecting buyers; the genesis of the current crisis. Obama typified the new administrations fresh approach by stating he was there to listen.

Secondly it recognizes the reality of the global village. It might be good practice to grow your own where you can close to home, but there is no escaping our interconnectivity and the need to act in concert with one another. It is of particular importance for the ongoing developing nations which although culturally different need to work together for a more sustainable future. It is a lot easier to raise issues such as human rights and climate change and so on when you’re actively involved in a relationship than when you’re locked behind an iron curtain.

Finally it will form the groundwork for a more sustainable future since the exchange of fresh ideas from a much larger audience will become an oasis for new innovations. One that I like was fielded from Beijing’s Professor Yu Qiano, of Tsinhua University who, it was reported in the Australian Financial review of the 3rd April in an article entitled “G 20 politics thwarts innovation”, was concerned (and justifiably in my view) about an expanding USA treasury bubble (as a consequence of expanded public debt financing) leading to the dollar tumbling in value and causing havoc to Asian creditors with resultant higher inflation. His solution involves Asia ceasing to buy US Treasuries in favour of acquisitions into a special purpose vehicle whose purpose would be to fund future capital infrastructure projects within the USA supported by a guaranteed sovereign risk rating. These Funds received into the special purpose vehicle would therefore not be used as was past practice to fund over consumption but rather future investments in infrastructure. The indebtedness could be redeemed from a conversion to equity if the US government so desired at any time. It’s not an idea that is likely to pass through the current politics but that may change further down the track when inflation finally rears its head.

7 comments:

Seraphine said...

all this makes me want to eat potato chips.
G20 is finally mending the barn door now that the cat's out of the hat.
ya, i mixed metaphors.
and i only want the kind of potato chips that have the good fat.

Gary said...

I have to read it again to understand the proposal, but I agree with the sentiments that the G20 has potential.

I wonder how much relief in this economic crisis will go to the poorest countries?

Cart said...

I was impressed, at the intention at least, of a uniform code of regulation. Although I remain ignorant of how this will work I applaud even talk of essential regulation at this stage.

Seraphine said...

well, at least there are lots of dollars to go around. with any luck, all of us will soon become millionaires.

susan said...

Wise words, Lindsay. Greater inclusiveness is essential if we're going to do anything about the problems both economic and not in the coming years.

So far as the US zombie banks are concerned the people who've discussed receivership seem to have the best idea as seen with Washington Mutual last fall.

lindsaylobe said...

Hi Gary, Cart, Susan & Sera
Thanks for your thoughts- Sera-everyone is wiser after the event but its not too late to save the dollar. Cart – it is a beginning towards sensible co ordinated macro regulation in contrast to the free market monetarists over the past few decades.
Gary – increased drawing rights afforded developing nations from the Interntionl Monetary Fund will of great asistance. Hopeully this will be in tandem with fairer outcomes for their agriculture sectors decimated by protectionism in Europe/ USA. That action flattened developing nations efforts to sell their products to neighboring states at fair prices.
Susan - Action sooner than later I hope.
Best wishes

lindsaylobe said...

Hi Gary, Cart, Susan & Sera
Thanks for your thoughts- Sera-everyone is wiser after the event but its not too late to save the dollar. Cart – it is a beginning towards sensible co ordinated macro regulation in contrast to the free market monetarists over the past few decades.
Gary – increased drawing rights afforded developing nations from the Interntionl Monetary Fund will of great asistance. Hopeully this will be in tandem with fairer outcomes for their agriculture sectors decimated by protectionism in Europe/ USA. That action flattened developing nations efforts to sell their products to neighboring states at fair prices.
Susan - Action sooner than later I hope.
Best wishes