You’d be entitled to ask if the finance ministers of the world’s top 20 economies wasted a good weekend in flying to Scotland for one of the more fruitless international gabfests of recent times.
It was the latest in a series of high level meetings that are supposed to be driving the world economy towards a better place, where economies nestle co-operatively, without too many nasty imbalances; surpluses matched by deficits elsewhere, growth purring along, banking systems solvent, prudently managed by far-sighted bankers intent on doing national good and currencies reflecting the relative health of the various economies.
Well, that’s the nirvana that some idealists want to emerge from the global crunch and recession. The reality will be less idealised and shabbier.
On the weekend, a day after US unemployment broke above the 10% mark for the first time in 26 years, and American consumer credit fell for an eighth month in a row, the longest series of declines every recorded, the G20 ministers met at St Andrews in Scotland in deference to the UK chairmanship of the group, and came up short.
Apart from the jet lag, frequent-flyer points and whatever duty-free they managed to jag there or on their return, it was a largely disappointing meeting and somewhat symbolic because of that. With the world no longer on the edge, the need for urgent, decisive action is no longer as pressing. According to one report:
Finance ministers and central bank governors of the Group of 20 leading nations launched a framework to promote a better balanced global economy on Saturday, but the meeting was overshadowed by a dispute about a global tax on financial transactions and little progress on financing efforts to reduce global warming.
The G20 agreed a detailed timetable for the new “framework for strong, sustainable and balanced growth” with finance ministers committing to have peer review and “more specific policy recommendations” in place by next November.
They hope that if all countries put political weight behind the negotiations over the next year, the world can recover without developing the huge trade and financial imbalances of the past decade. But there was no agreement on a specific set of common objectives, not a mechanism to resolve disputes.
An example of how difficult disputes are to resolve came as the G20 failed to make progress on climate finance. Ministers agreed only to keep working for an ambitious outcome at next month’s meeting in Copenhagen but could not agree on the amount of money developed countries will offer to poorer countries to help them reduce their carbon dioxide emissions.
Instead of being united by fear, the world’s major economies are now linked by their usual competing interests and agendas.
In fact what we had was a “back to normal” international talkfest. The markets have recovered, thanks to the cheap money bribe from central banks (predominantly the Bank of England, the ECB, the Bank of Japan and topping them all, the US Federal Reserve) which has powered trading in companies, commodities and anything else with a value.
Economic demand has re-awakened under the push of this flood of money, inventory rebuilding by businesses large and small, and, of course, the surge by China that has dragged the Asian region from the mire ahead of the rest of the world. Central banks from Australia, Japan, Europe, the UK and US last week told us more (and in depth) about their economies and the global economy than any statement from the G20 meeting. And, that’s a good thing because it shows how far we have come from the dark days of October-March.
Banks though remain stricken: five more failed in the US at the weekend, taking to 120 the number of collapses so far this year. Another 190,000 people lost their jobs in the US in October.
There were some analysts who saw a glimmer of hope in the US jobs figures, growth in part-time work, an uptick in hours worked and wages in some industries, and revisions that made the August and September figures better than expected (Earlier in the year it was revisions making the monthly reports worse).
But 8.2 million Americans have now lost their jobs since December 2007; and the broadest measure of US unemployment, including those wanting work but not searching recently and those forced to work part-time, passed the 10% mark 16 months ago. It’s now a miserable 17.5%, yet another unwanted record. The number of people who had been out of work for at least six months rose to a record 5.6 million, accounting for 35.6% of those people without a job.
US consumer credit fell $US14.8 billion ($A16.1 billion) , (or 7.2% annual) in September. That was after a better than revised fall of $9.86 billion. It was the eighth straight month fall, the longest series of declines on record since these figures first were kept back in 1943.
Taken together, the jobless figures and the weak consumer credit numbers tell us the wider US economy is in the midst of a very weak recovery, still lacking the necessary strength to produce real employment gains. It is not going to change quickly and there’s a rising fear that many of those 8.2 million people who have lost jobs will be unemployed for years, perhaps never again getting regular work.
President Obama has signed new laws extending unemployment benefits for a third time and extending a tax credit for new home buyers. It will need more than that to get America out of this rut.
No Wonder the US Treasury Secretary Timothy Geithner killed off that idea from UK Prime Minister Gordon Brown for a tax on international bank transactions.
“If we put the brakes on too quickly we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater,” Geithner said.
“It’s too early to start to lean against recovery.”
That’s what the G20 should really said with far more vigour in its post meeting statement. It’s also a message that should be heeded in Australia.
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