Thursday 2 April 2009

G20: It demonstrates how witless politicians are

Finally the g20 meets today. There have been high hopes that this real summit can reach agreement on major issues that will help to slow the slide into Global Depression and perhaps even mark the bottom of the market so to speak.

However, what has been disturbing the past week or so is the divergent politics which are driving the agenda rather than facing up to real problems.

1. Tax Havens - Tax havens did not cause this recession and persecuting them is not going to cure it either. This is a political grab at trying to secure more tax base. it will fail and is the wrong move in any event. What logically you need to do is grow your own tax base, not try to steal someone else's. Why has this even made it onto the agenda? it is the politics of socialist envy.

2. Hedge Funds - Ooh, the bad guys. You know, the ones who said all the banks were broke and full of toxic assets and were proved right. hedge funds account for a small fraction of international financial flows, why all the attention? Again, they did not make the banks invest in sub-prime toxic assets and derivatives.

3. World Trade - Hooray at last, yes increasing trade will help the world recover. Finishing off Doha trade talks should be a huge priority. I hope they can do it.

4. Financial Regulation - Well this is a two edged sword, the right regulation is needed. The regulation of derivatives which has been lacking and support for the ratings agencies to make the markets work again. The idea should be to make the markets far more transparent, not to limit them.

5. Global Stimulus - Well the US and UK have come dangerously close to doing more than enough. The Euro area and China really do need to do more to stimulate demand. You can't save car factories is no one wants to buy their cars.

6. Global Currency - A crazy theoretical idea, but really, are the Chinese going to really undermine their dollar assets when they follow this logic through. How can a real 'world bank' work in conjunction with the world's democracies - already the European Bank is struggling to reconcile the different parts of the Euro area alone


AntiCitizenOne said...

Need to scrap Basel 2, and fast.

Mick said...

Hear hear.
We seem to have heard very little about the ratings agencies who, in my mind, had a large hand in the build up to this crisis. Is there any talk of, for example, forcing them to change their fees/comp structures to mirror the reliability of their ratings in the mid/long term. Or when the next class of complicated assets crosses their desk, are they just going to give the vendor the benefit of the doubt and whack a AAA rating on it to keep them sweet?
Doesn't have the political splash of 'cracking down' on tax havens, but would be an order of magnitude more useful in the real world.

Mark Wadsworth said...

Good summary, I broadly agree to all that, with one minor quibble...

This whole Doha talks stuff is a complete waste of time. We know this as a simple fact. The best you can hope for is bilateral treaties or trading blocs, which are hardly the solution.

The easiest and best solution is, as usual, the simplest; each country could just scrap all import barriers and see what happens (but it's difficult to do this once you've got lots of bi-lateral treaties in place or you're in the EU, NAFTA etc).

CityUnslicker said...

ACO - yup, think that has been done by default in many respects.

Mick - Quite, making people believe in the ratings agencies is key to generating confidence in the market.

MW - Hey, trade rounds have worked in the past, even if bilaterals are easier to come by. Your further point is economic sense and political nonsense.

Steven_L said...

CU, i totally disagree with you about the tax haven thing.

I have nothing but respect for Obama for having the guts to look under the rock and see what sort of creepy balance sheets come crawling out.

On gobal currency - why do the Chinese need the IMF to manage their FX reserves???

Savonarola said...

If the idea of a 'world currency' remains just that, the possibility exists that the Chinese will build up future reserves in currencies other than $ and will include gold bullion in the mix.

The Chinese like gold. The 2500 year history of gold as a store of value may not be over. The Chinese have long memories.

CityUnslicker said...

Steven-L - Well, as I said, show me how tax havens caused this crisis? Why are they now at fault - this is political covering fire.

Savonarola - I have come round to the idea that Gold is overdone. No one wants to go back to a gold standard except investors who own gold and stand to make a fortune out of it. Gold has a use as a store of value, but is not intrinsically needed in the global economy.

Steven_L said...

I'll be the first to admit I don't really understand the issue CU, it just struck me as brave and I'm an inquisitive sort of chap. I'm actually becoming very impressed with President Obama.

I'm not that afraid of this tax haven/hedge fund stuff anyway which is why all my money went into Man Group shares.

Time to start buying irrational fear.

Odin's Raven said...

Surely, anything Brown associates himself with is likely to be a failure?

T'old 'un said...

Money is a token, used instead of barter, to exchange the result of the expenditure of energy in producing something (sheep/turnip/coal/smelted irom/ represents work done. It is in effect the means of exchanging parcels of energy.
That is all than money is.
No matter how many G20s or G40s or even G strings are held, no one will ever find a way of lending "work that has not been done" to some other person/body. Much less find a way of getting back more tokens "for work that has been done" than they lent out in the first place.
The present mess will be repeated over and over, each time worse than the last, until "capitalism" is replaced by a sensible system. There never can be a system devised in which people expect a free ride.

Bill Quango MP said...

T'old 'un said...No matter how many G20s or G40s or even G strings are held, no one will ever find a way of lending "work that has not been done" to some other person/body. Much less find a way of getting back more tokens "for work that has been done" than they lent out in the first place.

You've not seen my MP expense claims then?

Midas said...

"The G20 countries will also beef up the Financial Stability Forum – the Basel-based grouping of central bankers, finance ministries and national regulators – giving it sweeping new powers to oversee the world's financial markets.

Re-named the Financial Stability Board, the body, which now includes all the G20 countries, as well as the original G8 members, will coordinate action across international borders."

Why do they notjust call it Bilderberg?

Savonarola said...

The gold standard is history. Agreed.

But gold as a store of value is what the Chinese are looking for. Whether this as a component of another fiat currency or held in their vaults.

Gold cycles span decades and centuries. Chinese think this way.

Bloody weird. Have just read G20 statement. IMF may flog gold.

Confirms why I have 15% in gold and gold shares.

Judy said...

Can I get a 101 on the IMF?

Balance sheet?

And the Gold reserves?

Are they sitting in hyperspace somewhere?

Didn't Gordo flog all UK gold some time ago?

diogenes said...

if you didn't see Mandy on C4 news not denying we might go to the IMF you should, Apparently going to the IMF is now "de-stigmatised". Since Timms said much the same in the Commons we really are up sh*8 creek

Newmania said...

Yes some sanity here having just watched the BBC gush fest I wondered if the world had gone mad I only I could save it ( Happens a lot actually )

What bothers me is that there is supply as well as demand and this sort of photo op stuff leaves it out of the equation.
If there can be wolrd talks about printing money ( which is what they are virtually doing ), why not wolrd talks about proper debt management by \Nations which woudl, entail proper cuts whoch would energise ecionmies which would increase confidence and so on.

The EU deals with proper house keeping so why not the world , at least mention it

Or is that stupid , honestly I `1m like a pensioner in Currys here m, I `d believe anything

Newmania said...

Oh by the way "Liberal conspiracy" have just banned me !
Yipee !

CityUnslicker said...

The initial wash of joy from this will be very short-lived I think.

Anonymous said...

As a matter of curiosity why is tackling tax havens "brave"? Apart from having an incompetent foreign policy and rolling out a plan that is simply begging to be gamed - the Geithner plan - what exactly has Obama done to "impress" you?

monoi said...

"The Euro area and China really do need to do more to stimulate demand. You can't save car factories is no one wants to buy their cars."

You can't save car factories when there has been overcapacity for years.

Good money (in a manner of speaking) after bad.

Demetrius said...

The Royal Opera and the The Royal Ballet are currently doing a double bill of "Dido And Aeneas" by Purcell, and "Acis And Galatea" by Handel. It is an interesting attempt to present two ancient pieces in a modern, multi art form.

It was on the stage of the Royal Opera that the ladies of the G20 Leaders were posed for a PR photocall. They were not nymphs, but I suppose one or two could have ambitions to be Queenly in their living arrangements, and were wheeled out to do their duty by their economies and their creditors. I hope they were treated to some free fizz in the champagne bar.

It reminds me of the occasion when King George V entertained the King of Sweden by taking him to watch Verdi's "The Masked Ball", the plot of which concerned the assassination of a King of Sweden, but then, His Majesty had to rely on his advisers, knowing little about operas.

"Dido And Aeneas" is about the Queen of Carthage, swept off her feet by an adventurer displaced from his homeland, who then dies in misery when he is persuaded that the Gods need him to get going fast, or else. A wicked witch is at the root of the problems. It is a story of false hopes and deceptions.

"Acis And Galatea" is about a shepherd and a nymph who enjoy forbidden love, only to be destroyed by the arrival of a one eyed monster, Polyphemus, who turns up singing "No Joys Shall Last", and puts Acis into a terminal condition, permanent. Galatea, remembering she is divine turns Acis into an ever flowing fountain. It is supposed to be a happy ending.

HMS "Galatea" was an A Class Cruiser during World War II. In August 1941 Churchill and Roosevelt met aboard HMS "Prince of Wales" to sign the Atlantic Charter. In December 1941 HMS "Galatea" was sunk by a German submarine, and around the same time, of course, the HMS "Prince of Wales" was sunk by the Japanese. Also, on 7th December 1941, the Japanese attacked Pearl Harbour.

Nothing like a nice omen from the classics, is there now?

Bill Quango MP said...

HMS "Galatea" sank in 3 minutes with the loss of about 3/4 of the crew.
U557, which sank the cruiser, was sunk by an Italian MTB on the way home and lost with all hands.

Which doesn't tell us much, except in the event of hostilities, join the army.

Moggs Tigerpaw said...

T'old 'un "No matter how many G20s or G40s or even G strings are held, no one will ever find a way of lending "work that has not been done" to some other person/body."

Forgive me if that sounds plain dumb.

Isn't that called a promise? like "Ill babysit with your lot, so you can go out for a meal this week if you babysit with mine next week"

...or is it something terribly complicated I couldn't understand?

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