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Expectations come down to earth
November 17, 2008
One of the fears expressed about the weekend Group of 20 summit in Washington was that expectations might soar too high. All the talk of a new Bretton Woods was worrying, many observers reckoned. It would most likely come to nothing and, when it did, that would be another setback to confidence.
The fears were a little overstated – not because the summit achieved much but because, in the US at least, this climactic moment came and went without anyone really noticing.
You might have thought that an emergency gathering of leaders from the world’s 20 main rich and emerging economies, with the global economy poised for its worst slump since the Great Depression, would have aroused some interest. The event was deemed unworthy of the main section of Saturday’s New York Times. (Room was found on the front page for a story about how hard it is to open the “clamshell” packaging of toys and electronic gadgets. The summit, “A crisis in finance”, made page 3 of the business section.) On television news, world leaders’ efforts to stave off disaster were displaced by speculation about Hillary Clinton’s next job and by fires in California (four firemen injured).
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The G20 was not one of the finest weekends in US economic history.
And now only a couple of days later comes the news (on German ZDF TV today) that Obama is opting not only for protectionism but also for a greater role for the state, in an attempt to avoid the recession in the USA becoming deeper and longer-lasting.
Detroit will be bailed out, to protect the US automakers from extinction by the destructive forces of unfettered US free-market capitalism. The state will become the motor of the US economy: state spending will grow, and the state will become the “locomotive” that will keep the US economy moving. That will no doubt mean big tax cuts for Americans (two thirds of the US GDP is generated by domestic demand) and massive spending on infrastructure projects. These are conventional Keynesian measures to deal with a recession. The end justifies the means, imo:
that is, the goal is to avoid the human misery that would be caused by mass unemployment in the USA.
P.S. There now a $14T mountain of US consumer debt: it won’t be easy to find foreign buyers for that, in view of the subprime fiasco.
Posted by: J.J. | November 17th, 2008 at 10:08 am | Report this commentThe bite (and truth) of the cartoon would be greatly increased by having half the engines mounted the wrong way on the wings.
Anyway, what can you expect by a conference called by that pathetic lump, George Bush?
Obama will be more open to needed change.
Posted by: JOHN CHUCKMAN, TORONTO | November 17th, 2008 at 3:02 pm | Report this commentTo John Chuckman: if Le Figaro is to be believed Bush was pressured into holding the G20 meeting.
Even then he wanted to hold it late December/early Jan. Sarkozy pressed for a 2008 meeting because he has to give up the seat held by the France as EU President at the end of December (he gave that to Zapatero of Spain). He pressed for last weekend because it coincided with the French Socialist Party convention and he wanted to upstage them. Small-minded or what?
On the main issue the final text of the meeting is full of ambitious promises. Cynically, it may be just another inter-governmental statement which will lie untouched. The more hopeful view is that the reality of the current situation will drive at least some of the promises forward.
When they next meet, Obama will be there, but he will already have committed the US to protectionism, if JJ is right. What to do in that event?
Posted by: Derek Tunnicliffe | November 17th, 2008 at 6:48 pm | Report this commentI think there has been a rush to attribute protectionist tendencies to Obama.
Of course, Democrats have traditionally been more inclined that way, but today’s Democrats are a very different party, and Obama is a very different Democrat.
Even if there is some protection towards industries like car building, I don’t believe that precludes stronger integrated international controls in finance.
I can certainly accept that Bush was pressured on holding the meeting. The man is a parody of John Wayne who was a parody.
I genuinely believe Obama is an open person, ready to do what will work best.
He may well be open to arguments like Sarkozy’s.
I hope so.
I truly want to see the United States better integrated into regulating affairs in a the world that its behaviors so greatly affect.
Obama could be just the man to make some achievements that way.
Posted by: JOHN CHUCKMAN, TORONTO | November 17th, 2008 at 7:00 pm | Report this commentIn my opinion, the fact that we even had a G-20 meeting is a big plus ( thanks to Sarkozy and Brown ) ,now they must close the deal in 100 days :
Transparency = Hedge-Funds ,over the counter and Dark Markets must explain their tricks under the Light, that would be a huge change, with global standards for accounting -in theory - we could do away with the Oil and Gas speculators and shorters , whoaaaa ! we just saved 1 trillion dollars for the Global Economy!
Credit Rating Agencies would stop lying to ignorant little workers and retirees about their AAA ratings or “Total Junk Stocks and Bonds under Silks and Smokes ”
Shared Information would create stability and Warnings on time to avoid another meltdown.
Supervisory Colleges can avoid over-risk bets and crisis.
IMF ,World Bank and FSF,etc., could get some real cash from the Oil producers in the Middle East ( the best customers of the Hedge-Funds and Investment Bankers which are the ones who pushed all these credit-default swaps and mortgage back securities wrapped in AAA ” bunga-lunga hocus-pocus ” papers and sold as the 8th wonder of the Universe,when in reality they knew they were worthless and bogus repossessed sub-prime mortgages passed on and on to create fake fees,commissions and bonuses, a real criminal fraud.
so all in all, it’s a very important start, until then we need quick solutions and new Energy Alternatives with Solar,Wind,Fuel-Cells,electric plug-in cars,Geothermal,new synthetic jet-fuels,etc…. in essence : JOBS, JOBS and then more JOBS.
Posted by: financialtools1@gmail.com | November 17th, 2008 at 7:59 pm | Report this commentPerhaps the lack of coverage reflected exactly how much confidence there was that the G-20 would take any effective action, as opposed to providing photo-ops and material for learned comment.
Posted by: algasema | November 18th, 2008 at 6:34 pm | Report this commentThere’s a word in German “Chefsache” which applied to a particular policy, situation or topic means that the head of government is dealing with it personally. Example: I saw Chancellor Angela Merkel on German TV declaring that she had made the Opel problem “Chefsache” (the Opel car company is asking for the govt to stand surety for ca. €1B).
It seems to me that Sarkozy made the G20 “Chefsache”and possibly Merkel has done so as well. Sarkozy is keeping up the tempo, there’s an action plan in place and the second meeting of the G20 (or maybe it will only be the G19?) will be held next spring in Europe.
An overhaul of the finance sector will take place imo and that means that a.o. every player (banks, insurance companies, hedge funds etc) in the financial markets, every financial product and every rating agency will come under scrutiny and supervision (Aufsicht).
The USA may, under pressure from Wall Street, choose to make its own arrangements, and bear the consequences of such a decision, but Sarkozy
and Merkel are, from what I have seen on TV, totally determined to ensure that the Eurozone will not be caught up in another crisis like this one.
Note: The Fed makes its own decisions on monetary policy and interest rates and these decisions affect the ROW, which has already suffered two booms and busts since 1999, because of mismanagement of the US economy and the poor judgment resp. lack of action on the part of the Fed, imo. So, it is hardly be surprising that there is already talk of creating a reserve currency consisting of a basket of currencies, in order to avoid repeated crises in the global economy, caused by it being taken on roller-coaster rides by the dollar and its “custodians”.
Posted by: J.J. | November 18th, 2008 at 8:48 pm | Report this comment