A Turning Point?

from President Obama‘s press conference on the results of the recently concluded G20 Summit Meeting in London:

Earlier today, we finished a very productive summit that will be, I believe, a turning point in our pursuit of global economic recovery. By any measure, the London summit was historic. It was historic because of the size and the scope of the challenges that we face, and because of the timeliness and magnitude of our response.

The G-20 is made up of the finance ministers and central bank governors of 19 countries plus a representative of the European Union, established in 1999 “to bring together systemically important industrialized and developing economies to discuss key issues in the global economy”. The G20 had high hopes for its recent summit meeting in London.

The G-20 will need to send a strong signal that it is prepared to take whatever further actions are necessary to stabilise the financial system and to provide further macroeconomic support.

What happened? Was it really a turning point? Here are comments on the major G20 promises from me and others.

G20 communique:

The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.

The Telegraph:

The truth, however, which is probably as alarming to economists as it is to voters, is that for all the big numbers trotted out on the day, barely a penny or cent in fresh cash was actually stumped up by the nations. Dissect the $1.1 trillion and soon enough you realise the vast majority was already committed some weeks or months ago. Moreover, most of the cash is a contingent liability, in other words it will only be called upon if the IMF’s prospective loans to struggling economies actually default − something that is highly unlikely.

Chris Floyd‘s version:

We, the Leaders of the Group of Twenty, will use every cent we don’t possess to rescue corporate capitalism from its contradictions and set the world economy back onto the path of unsustainable growth. We have already spent trillions of dollars of your money on bailing out the banks, so that they can be returned to their proper functions of fleecing the poor and wrecking the Earth’s living systems. Now we’re going to spend another $1.1 trillion. As an exemplary punishment for their long record of promoting crises, we will give the IMF and the World Bank even more of your money. These actions constitute the greatest mobilisation of resources to support global financial flows in modern times.

G20 communique:

We agree to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission. . .that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them . . .that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them. . .to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds. . .to endorse and implement the FSF’s tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms.

“To provide early warning of macroeconomic and financial risks” — gotta love it. Translation: The US Council of Economic Advisers (for one national example of highly-trained professional economists) can’t cut the mustard and isn’t able to detect “macroeconomic and financial risks” — we need an international board. The US CEA:

The Council of Economic Advisers assists the President with the development and implementation of our nation’s economic policy. Led by a Chair and two members, the Council consists of a team of highly-trained professional economists, forecasters and statistical experts who draw upon evidence-based research to provide the President with thorough and timely economic analysis.

So this new international committee is going to over-ride the greed of politicians everywhere? I don’t think so. Here’s William Kaufman on the subject:

If you’re looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.
The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric “neoliberalism.”
The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain’s chief economic advisor.
But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism — fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with “progressive” politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer.

The G20 communique again:

We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential.

Oh sure, economic imperialism, the preying of the rich countries on the poor, will be overturned. Every financial baron is going to reform, stop extracting resources from poor countries and raise the wages of every wage slave. Again, I don’t think so. Economic imperialism, from encarta:

Since the end of World War II, when most of the formal empires were dissolved, what might be called modern economic imperialism has come to predominate. Control is exercised informally and less overtly. The U.S., for instance, exerts considerable influence over certain Third World nations, as a result of its national economic power and its dominance of certain international financial organizations, such as the World Bank and the International Monetary Fund. Similarly, European powers have continued to affect significantly the politics and the economics of their former colonies, and they have consequently been accused of neocolonialism—the exercise of effective sovereignty without the formality of colonial rule.

G20 communique:

[Finally,] We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.

Chris Floyd’s version:

Oh – and we nearly forgot. We must do something about the environment. We don’t have any definite plans as yet, but we’ll think of something in due course.

A turning point?
“Beyond the rhetoric the summit took no action.”–Jean Pisani-Ferry, Director, Bruegel, and Professor of Economics, Université Paris-Dauphine
“The G20 Summit last Thursday was projected as a success because it agreed to provide US$1 trillion to help developing countries. The reality is far more sobering.”–The Malaysia Star