Large Sarge
28th June 2010, 11:43 AM
G20: The Death Of Cooperation
Submitted by Tyler Durden on 06/28/2010 11:57 -0500
France Germany Isolationism Unemployment United Kingdom Vigilantes
Submitted by Thermidor
As I've mentioned in the past, the Pittsburgh's G20 at the end of 2008 filled me with real hope that global policy makers were willing and prepared to tackle the painful issues that lay at the root of the global crisis. I'm not talking about morally corrupt bankers or delinquent US home owners but rather the massive capital imbalances created by individual nations and their excess spending or saving. After all, if it weren't for the current account surplus countries and their cash, there wouldn't have been the cash to finance the consumption binge in the US, UK etc. Now its possible that even with aggressive policy steps, it might have been impossible for politicians to curb the squirrel-like savings habits of the German's or the gargantuan appetite of US consumers. However, it's absolutely certain that if policy makers shirk this responsibility in the face of domestic pressures, we are just heading towards the next crisis as clearly as night follows day.
That's why this weekend's G20 was so thoroughly depressing as it was clear that on issue after issue, there was NO meeting of minds and officials have just retreated to their various national corners. So the Germans rejected any US attempt to keep fiscal spending alive (PS the US is right) and seem to have won the debate so clearly in Europe that even France is planning a legal balanced budget rule. No one agreed on unified bank taxes, which offers up the risk of regulatory arbitrage as banks get pinned for various national spending programmes (PS looking for a $80-90bln tax in the US to pay for the extension of unemployment and $50bio for the states). Finally, they didn't even mention Basle III so god knows what the agenda is on that issue.
It appears that we have missed a once in a lifetime chance to address the real issues and as we stand here in the cold light of a post co-operative world, we should all be very afraid. What we have to look forward to is a Europe lead by Germany that like some dominatrix seems determined to impose impossible fiscal austerity on all its members. That will only lead to deflation and social unrest in its southern members as well as wannabes in the near east. It will also ensure that globally Europe becomes a global aggregate demand black hole. In this regard they will join the Asians who continue to pursue their mercantilist export policies, build more and more productive capacity, as they drag their feet on FX policy (China is so paranoid about FX that they even had a comment congratulating their recent step removed from the communiqué). This is a classic bridge to nowhere policy and just guarantees continued deflation in the traded goods sector. Finally, with all the good intent of its Pittsburgh G20 statement now in tatters, I expect the US to try and soldier on for a while as the one source of global demand. Unfortunately, this time with the bond vigilantes are already gathering and the politics of the Tea Baggers gaining momentum, the US is running out of options. Ultimately, as unemployment remains stubbornly high, deflation pressures become real and the economy slows, the outcome will almost certainly be increasing protectionism and isolationism. The rest of the world will only have itself to blame.
Submitted by Tyler Durden on 06/28/2010 11:57 -0500
France Germany Isolationism Unemployment United Kingdom Vigilantes
Submitted by Thermidor
As I've mentioned in the past, the Pittsburgh's G20 at the end of 2008 filled me with real hope that global policy makers were willing and prepared to tackle the painful issues that lay at the root of the global crisis. I'm not talking about morally corrupt bankers or delinquent US home owners but rather the massive capital imbalances created by individual nations and their excess spending or saving. After all, if it weren't for the current account surplus countries and their cash, there wouldn't have been the cash to finance the consumption binge in the US, UK etc. Now its possible that even with aggressive policy steps, it might have been impossible for politicians to curb the squirrel-like savings habits of the German's or the gargantuan appetite of US consumers. However, it's absolutely certain that if policy makers shirk this responsibility in the face of domestic pressures, we are just heading towards the next crisis as clearly as night follows day.
That's why this weekend's G20 was so thoroughly depressing as it was clear that on issue after issue, there was NO meeting of minds and officials have just retreated to their various national corners. So the Germans rejected any US attempt to keep fiscal spending alive (PS the US is right) and seem to have won the debate so clearly in Europe that even France is planning a legal balanced budget rule. No one agreed on unified bank taxes, which offers up the risk of regulatory arbitrage as banks get pinned for various national spending programmes (PS looking for a $80-90bln tax in the US to pay for the extension of unemployment and $50bio for the states). Finally, they didn't even mention Basle III so god knows what the agenda is on that issue.
It appears that we have missed a once in a lifetime chance to address the real issues and as we stand here in the cold light of a post co-operative world, we should all be very afraid. What we have to look forward to is a Europe lead by Germany that like some dominatrix seems determined to impose impossible fiscal austerity on all its members. That will only lead to deflation and social unrest in its southern members as well as wannabes in the near east. It will also ensure that globally Europe becomes a global aggregate demand black hole. In this regard they will join the Asians who continue to pursue their mercantilist export policies, build more and more productive capacity, as they drag their feet on FX policy (China is so paranoid about FX that they even had a comment congratulating their recent step removed from the communiqué). This is a classic bridge to nowhere policy and just guarantees continued deflation in the traded goods sector. Finally, with all the good intent of its Pittsburgh G20 statement now in tatters, I expect the US to try and soldier on for a while as the one source of global demand. Unfortunately, this time with the bond vigilantes are already gathering and the politics of the Tea Baggers gaining momentum, the US is running out of options. Ultimately, as unemployment remains stubbornly high, deflation pressures become real and the economy slows, the outcome will almost certainly be increasing protectionism and isolationism. The rest of the world will only have itself to blame.