The G20 Communique: A Viewer’s Guide

The draft G20 communique, as published on the FT’s website, is not encouraging. To be sure, there are humorous moments, such as:

each of us commits to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy;

Major countries have never allowed this and never will, despite a long tradition of such statements (e.g., ask about whether Gordon Brown welcomed frank assessments of the UK economy during the time he was chair of a ministerial committee that oversees the IMF).  Asserting something blandly in a communique does not make it true, but it does – amazingly – often convince much of the media to applaud politely.  Watching the spinmeisters at work is always entertaining although, under these circumstances, also more than a little scary.

On the real substance, the G20 punts on most of the big issues – as predicted, the language on monetary policy and fiscal policy is completely vacuous (paragraphs 3 and 4; the Europeans won big and the US lost on these issues), and the “regulatory reform” initiative amounts to building more ornate structures (we’re to get a new Financial Stability Board?!?) on the same weak foundations that got us into trouble.  There is simply nothing substantive here that would not have happened without the G20 process; under current dire circumstances, window dressing is not a good reason to hold a summit.

Only three interesting points are apparently still open for discussion, all about some dimension of the IMF.First, how much additional funding will the IMF get (paragraph 6)?  The debate is apparently still somewhere between an additional $250bn and $750bn.  This is the most interesting headline number to watch for.  If it’s only $250bn, that’s disappointing, and if they can’t give an exact predicted number (i.e., they fudge the blank currently in the communique), that’s a disaster.

Second, what is the form of increased funding for the IMF?  Paragraph 6 mentions borrowing in the market and paragraph 8 mentions a general SDR allocation (this is essentially an increase in reserves for countries; stronger countries could lend these to weaker countries and it could make a difference within Europe).  Both could be significant departures from past practice, if done at scale.  Keeping this language in the communique would be good (and, of course, you leak a communique in order to make it harder to take them out…); large specific numbers would be better.

Third, what will be the extent of financial support for the IMF from emerging markets with deep pockets (link is to a NYT article framing the issue this morning)?  We will see that in their contributions to the expanded New Arrangements to Borrow (paragraph 6).  If the summit ends without firm commitments from China and Saudi Arabia (again, it’s all about seeing exact numbers), that is not good.

The big test of the summit’s IMF-centric approach will be whether the IMF can get its increased resources lent out (paragraph 7), particularly on newly generous terms “for countries with strong policies”?  This will happen quickly if it happens at all, and the body language of emerging markets at the G20 – including whether Mexico, Brazil and others sign up for the new facility – should give us early indications. 

The failure to mention the need to restore IMF staffing resources in the communique is, of course, between incomprehensible and irresponsible – details here (the IMF needs more people; the ill-timed budget cuts of 2008 must be undone as a matter of international priority).  If the G20 wants its IMF-centric approach to be taken seriously, heads of government need to focus on how the job gets done, not just on slogans and wishful thinking. 

The least surprising news is of course in paragraph 24 – the G20 will meet again before the end of the year.  Once started, this kind of summiteering tends to go on for a long while.

50 thoughts on “The G20 Communique: A Viewer’s Guide

  1. Simon and James,

    Do you do requests? (It’s not entirely off topic either at least I don’t think so.) I was wondering: Would you comment on the extent to which this crisis is the result of the US abusing its position as the owner of the world’s de facto currency standard and what you think of Joseph Stiglitz’s suggestion of a new currency standard controlled by an institution like the IMF (not the politics but the economics)?

  2. Thanks, Simon, for another insightful post. I am going to repeat my question, though, which I posed first in response to your piece in the Atlantic and “Is The G20 Summit Worth Holding?” on this blog: Why do you think the volume of IMF resources are crucial? Nobody wants IMF loans with conditionalities, and only those who are both politically dependend on the US and economically in terribly bad shape are taking them. Pakistan, Colombia, maybe Turkey …
    So why do we need 500bn more?

  3. I would second Mark’s request for a comment along these lines. In its broad strokes the argument that interests me is that the U.S.’s exceptional status has been a wedge driving the destabilization of globalization, by sustaining a US trade deficit as a long-term structural feature of the economy. This leads the U.S. in the direction of the financialization of its economy, and to vast capital holdings in the low-cost industrial economies. Huge sums flow towards the highest-return (and highest risk, since these are dynamically reflexive) investments which are in finance, not the real economy. Everyone else emulates the strategy, to keep money flowing into their own economies, but they don’t have the world-reserve safety net of the U.S. dollar. As an East-Asian financial authority suggested, in a moment of schadenfreude, the U.S. should try the IMF solution–which the whole world now concerts to call insanely Hooverite. Slash spending in education, and the safety net. Break up and sell its financial institutions and most valuable public utilities to foreign owners. Gut its environmental protections. Lift all limits to foreign ownership in the economy. Oh, but you can goose your “investments” in military spending and the policing. And if you refuse to do all this, we’ll denounce you for supporting terrorism and have our military do the job for you.

    The U.S. wrote the rules, enforced them, and disproportionately benefitted from them (in the upper echelons of the economy); then the oligarchs got too corrupt even to manage a rigged casino. The global financial order cannot be allowed to serve the interest of one sub-class (financial) of one country’s elites.

    The irony of the whole thing is, even if you stipulated (I don’t) the aggregate optimal utility argument for globalization, no country needed free-trade and globalization less than the U.S. did. And no country’s working and middle-classes have lost more.

    The IMF, World Bank, WTO, on this view, are as much a part of the recolonization of the U.S. as they are in the rest of the world.

  4. My take is that this has everything to do with dollar seniorage (and ponzi schemes in general) and that the expanded SDR will become the global reserve currency but only after rapid and violent devaluation of the dollar emerging due to a confluence of forces despite everyone not wanting to rock the boat.

  5. Unless the IMF gets off the “eliminate the entirety of your safety net and privatize EVERYTHING”, then the IMF can go f*ck itself.

    All the IMF does is demand that country’s auction off all their natural resources to outside interests and terminate all social spending and replace it with private bids instead. No public ANYTHING is to be allowed.

    Again, the IMF, unless it entirely changes its tune, can go f*ck itself

  6. It strikes me that the IMF faces a paradox that is similar to US banks when it comes to lending:

    Anyone who needs the loans is of dubious creditworthiness, and anyone who doesn’t need them wouldn’t take them because of the IMF’s predatory reputation as a lender and fear of being unable to repay the loan in a world-wide economic contraction.

    The problem with IMF loans is that you may borrow, but if your currency depreciates, repayment is terrible. What if, for example, the US slams on the currency breaks (as it did in the early 80s), leaving countries that had matched US monetary expansion with their own expanding currency at a time when the reserve currency is rapidly revaluing? A fightening prospect.

    As to the thought of a world-wide reserve currency – heaven help us! If such a currency were controlled by the IMF, and the world was heading into a Global Uber-Depression, exactly what would it take for the IMF (G20?) to agree on the level of monetary expansion necessary to avoid catastrophe? HOW LONG would it take such an entity to schedule meetings, attend the meetings, get drunk on expensive wine, and delay their decisions till next time?

  7. The U.S. has been resistant to globalization for too long. Our political structure has been too effective at swaying public opinion on the issue and as a result American’s see global cooperation as a threat to our status in the world. So we have skewed global economic institutions to work institutionalize global dependence on our markets. I don’t think any part of this will be changed by the summit. Especially considering the challenges already face the soon to be failed summit there is a great (and short) story about it here:

  8. The US resistant to globalization?

    Exactly how? In terms of barriers to foreign ownership? In terms of import tariffs and quotas? In terms of international capital flows?

    Or do you mean that the US has welcomed economic globalization and the pressures it creates on certain domestic groups (such as low wages), but has been extremely resistant to international economic regulation.

    It is not that the US has resisted globalization, but rather that it has embraced globalization in a lopsided and asymmetric manner that has created severe instability – all the while advantaging certain economic groups (namely, financial interests).

  9. I would suggest watching the European response to the G20 meetings….what do “the people” think? I can assure you that the overall position of the European community will be “this is a U.S. problem, that has infected us all”. I believe that’s in act, correct. WE, i Europe didn’t create this mess, America did.

  10. Good description of the role of IMF. We are very happy in Argentina after we got rid of its horrendous policies that got us in our 2001 crisis.
    We are way better now without the “guide” of US.

  11. I’m encouraged by the higher end of “between an additional $250bn and $750bn”. I feel like China has everything to lose in not making a hefty contribution–and their brat-like behavior is not really a model of global leadership–that is sustainable. SDRs? Give me a break.

  12. The subprime mortgage meltdown was the catalyst, but there was plenty of fuel for the crisis strewn around the globe: housing bubbles in Ireland and Spain, OPEC nations spending as if oil prices would remain permanently high, unbalanced capital flows, etc.

    Whether America created this mess or not the world still looks for American to lead the way to recovery. There’s a time and place for placing blame — history books? — but now is the time to work together to fix this mess.

  13. Paul, Here’s something you need to know about the US: If it doesn’t benefit them financially in ANY way, deal them out. Forget about doing whats “right”. The only “right” thing to do, in their view, is what benefits the U.S. financially. And if that means stealing, killing, or decieving…thats fine. If it requires a level playing field where “the best man/country or idea wins”…forget it, if your dealing with the American Financial Terrorists. Face reality. THEY are not our friends, nor will they ever be. My advice? Pull the plug on the American disease…loan them no more money. The are bankrupt….pull the plug and force them back into the real world. Maybe the killing will stop…we’ll see.

  14. Phil, America has finally revealed itself to be exactly what we all suspected: a nation not to be trusted, infected by a group of idiots. You, and your government were complicit in this disaster, and you have been “caught”. It may be a good opportunity to admit what you are: a group of international financial terrorists who have successfully STOLEN trillions of dollars from the “other” 95% of us on the planet. There were literally THOUSANDS of you Americans that were involved in this deception. FACE REALITY: YOUR ACTIONS COST US ALL A FORTUNE. And it was done on purpose, with criminal intent, and for the sole financial benefit of the americans. You robbed us. WE WILL NEVER FORGET WHAT YOU DID. NEVER. Our children will never forget this either. YOU did this with intent, and in an effort to STEAL our savings. YOU are a disgrace. Bt you don’t care about that: Because you are AMERICANS, and thats what you DO. Congrats. But….pathetic. And you all walk around asking why the world hates you? Are you kidding?

  15. Adios You seem angry, and I understand. But have you considered that all of us, as Americans, may not be responsible? We try to do what’s right as well, but we live under a monopolistic regime? We are in the midst of trying to do whats right, but it often back-fires.

  16. HSG, have you given any thought to your tax payments? You know, those payments that you make every year that go towards murdering children in Asia? Congrats America, you have: 1. Collapsed the global economy. 2. KILLED tens of thousands of children in the middle east, who did NOTHING to you. Good job. Please take your military bases, your fraudulent investments, your greed and malfeasance AND JUMP OFF THE TOP FLOOR OF THE N.Y. STOCK EXCHANGE. Thanks.

  17. Phil,
    Those of us, outside the US, that lost everything due to American corrupt investment scams, don’t care two hoots about who was to blame. YOU AMERICA are to blame. But, “blame” is a truly american response to all problems. Tell me, how does explaining to my family who’s to “blame” put food on our table here in Norway? We bought into your toxic, BS investments. So, we now get to starve…a mistake I will never make again.

  18. Rarnim,

    I’m no Simon, but I disagree w/ your assessment:

    “only those who are both politically dependend on the US and economically in terribly bad shape are taking them. Pakistan, Colombia, maybe Turkey”

    Think the most of East Europe. Think UK. Think Ireland. Think Denmark (once it falls, and fall it will!). Think Austria. Think club-med – before this is over.

    The potential list is long and it is by no means limited to the countries/criteria you mention.

    Practically the only ones missing are the countries who already had their major banking crises in the 90s or 00s.

    Many others will eventually approach the limit of being able to borrow from the private market and will have to consider the IMF option.

  19. Adios,

    Europe is a powerful place in its own right, and needs to accept responsibility here. I’m not suggesting that the US is innocent. We’re not, obviously. But to suggest that the US “caused” Europe’s problems is a total abdication of responsibility. University students sometimes die from drinking too much alcohol. It’s a common response to blame the people who provided them the alcohol. That is appropriate, but only to a limit. Although the student may have received the alcohol from others, he willingly drank it. Europe is hardly full of ignorant fools. Yes, the US contributed to Europe’s problems, but your governments and banks seem to have been quite willing to go along for the ride on the way up. Maintain your focus closer to home for finding fixes to your problems. You’re more likely to be able to fix your own house than to contribute to us fixing ours (regardless of how much ours needs fixing), and your house needs fixing as well. Blaming “the other guy” is a weak path to any solution.

  20. Adios Amigos,

    I can understand your pain. I understand how xBMSes were sold on lies all over the world.

    The people responsible for this should be taken to justice and sentenced, but as it is a de facto standard in the US financial system, they are getting bonuses.

    However, I kindly ask you to tone down the rhetoric. I believe Simon, James and the rest of the gang are one of the good guys here. American? Yes. Blinded by their one-sided superiority of the American solutions? Yes, but still trying to do the good thing. You should watch Simon Johnson on PBS interview with Bill Moyers, if you don’t believe me.

    Now, I’m all for exposing and plastering all over the world the corrupt practices of US investment banks, US financial anti-regulators (anti, because they only tore down regulations), US federal bankers (hey, let’s print more money and inflate a housing bubble), US financial watchdogs (‘please don’t bother us, we’re on a coffee break’), US rating agencies (more like ‘lying agencies’) and the rest.

    But you will not get the audience desired on this forum, only get lost in noise.

    I propose you post to many different forums, with links to documentaries like House of Cards (CNBC, 2009) which explains in layman terms how the swindle happened, write to newspapers, talk to reporters.

    The information needs to get out there.

    People don’t have enough of understanding who were one of the major guilty parties in worsening this mess and making it global through systemic lies.

    But spamming this forum with the same stuff, I don’t think it’s going to do much else, except waste your efforts, I’m afraid.

  21. Boris,

    I’m a European. Are Europeans guilty? Yes!!! Esp. UK, Irish, Icelandish and German banks who leveraged themselves to the gilt! (ref: leverage ratios of international banks, FT).

    I also believe Europe should take responsibility. Esp UK and Germany.

    However, I disagree on whether QE is ‘the only way’ to or even ‘a way’ to take responsibility.

    However, this is in fact what the US administration and this blog appears to be saying: print money! inflate us out of this bubble.

    Another look at being responsible is:

    – accept you were wrong
    – accept your growth was too much debt driven
    – accept the losses, write them down
    – shrink the economy
    – build it anew – hopefully more sound the next time around

    Still I must remind all of us, it was US and UK were the xBMS/CDO/CLO/CDS derivative madness started and were the all the systemic lies were being fed from (ref: CNBC, PBS, FT, Barron’s, Forbes).

    Using your analogy:

    University students were sold lemonade and it was labeled lemonade, but it contained toxic poison, causing blindness and death – only with delay.

    Now, I don’t know about your sense of justice or what kind of a judicial system you operate in the USA, but in Europe that’s not only morally abhorrent, it is plain illegal. You can’t sell stuff as something it clearly is NOT.

    I think all of the financial credit rating agency employees should go to debt servitude for the rest of their lives pay back at least a portion of the debt they owe through their lies to Americans and the rest of the world (ref: Satyijit Das research, Michael Lewis research, PBS research, CNBC research, etc).

    The same goes for AIG employees (aka the CDS mosnter), all investment banking derivative sales desks – ALL of whom were proven to be engaged knowingly in systemic fraud through worthless derivative sales (ref: see above).

    They all knew it was going to blow up, they just wanted to make a quick buck before it happened.

    These people are guilty and should be tried and stripped of all their wealth.

    They are the real Madoffs – and the US financial watchdogs and regulators were the willing accomplices to all this.

  22. Boris,
    The “assets” that are imploding our pension funds were mortgage backed securities that were originated in the US, by US mortgage originators, on homes in the US, “Underwritten” (and I use that term loosely, my 5-year old daughter could probably make better credit decisions than an underwriter in the US) by US based banksters, rated AAA by ALL THREE US BASED RATINGS AGENCIES in various different portfolios, the borrowers are Americans who were encouraged to outright lie on the mortgage application documents, and, obviously, they did in a BIG way lie to get the financing, the US based originators had a nick-name for these products “Liar Loans”, this is what the people originated this nonsense called the loans WHILE THEY WERE BEING ORIGINATED. So, they KNEW this was nonsense. And then, the US based I-Banks decided to put credit enhancements on the portfolios (to deceive innocent parties) fro an insurance carrier that had leveraged it’s balance sheet up to roughly 40:1. This was all being done under the watchful eyes of perhaps a half-a-dozen US regulators. So, Boris, this was what, Norway’s fault your saying? Oh….great. I guess all those children laying dead in the street in Iraq are our fault also then….right? I feel bad for Boris, because until you realize that Americans have now proven themselves to be exactly what most of us now realize they are, financial terrorists, you are doomed to be “taken” by them over and over. Washington just handed out what? $800 billion TO THE EXACT PARTIES WHO PERPETRATED THE FRAUD. Call it a reward. Are you still asleep Boris?

  23. AnttiK, The americans citizens were ALL a-hole deep in this disaster, so, what….we, “the robbed” should’t let them know how we all really feel about them? What is unfortunate is that the rest of the world isn’t doing EXACTLY what I’m doing, it’s called telling them the truth. When Washington is burning, I will offer the American people my congrats, but not until then.

  24. Sorry to hear of all the pain. Would you like a solution we could expect the G20 to agree on?

    OK set up a second IMF type entity based on Euros and Chinese Renmimbi (NO US dollars). Now provide the international support functions in a manner which does not cause actions to funnel dollars into the Wall St bank black hole. How about it Europe and China? Are you serious about another international currency or just belly-aching?

    Surely the rest of the world can manage this? Then we can stop blaming ordinary Americans for the problems ably put in place by the US banks AND by the European banks eager to gobble up as much of the funds/profits as they could get.

    Come on G20 stop posing for press releases and do something worth while.

    Maybe Simon would respond on the option of a non-dollar 2nd IMF?

    Any comments?

  25. Not,
    Ordinary Americans ARE the ones who have been living their lives on credit….that now they seem to NOT be able &/or willing to repay. Was it perhaps martians from outer space that signed for all those mortgages that where they all LIED about their incomes? Those WERE “ordinary americans”, weren’t they? The bottom line is that it is clearly unwise to do any more business with these “ordinary americans”. They ran us over, and now they are running and hiding. They are all running around claiming that they, personally, weren’t responsible for anything. Typical american response. Steal everything, then blame everyone else. THEY TOOK THE MONEY. PERIOD.

  26. Hey Adios Amigos I hear you but there are 315 million Americans. I’m sure you don’t mean to bad-mouth every one of them. Even the ones who aren’t delinquent on their debts? There are several European financial organizations such as UBS who got in for their piece of the action? I think it would help your case if you sharpened your focus?

    However what about the non-dollar copy IMF suggestion? Maybe we can make a better tomorrow and if you see the US$ as the problem then what?

  27. Simon and James-

    It struck me this morning that the issues for the G20 are a type of prisoner’s dilemma, i.e. Coordination leads to the best outcome for the group, but coordination is difficult to achieve given the individual incentives.

    Does this strike you as a productive way to frame and communicate the problem?

  28. DEAR SIR,






    AVERAGE OF YEAR 1999 IN $ – 09
    AVERAGE OF YEAR 2000 IN $ – 10
    AVERAGE OF YEAR 2001 IN $ – 11
    AVERAGE OF YEAR 2002 IN $ – 12
    AVERAGE OF YEAR 2003 IN $ – 13
    AVERAGE OF YEAR 2004 IN $ – 14
    AVERAGE OF YEAR 2005 IN $ – 15
    AVERAGE OF YEAR 2006 IN $ – 16
    AVERAGE OF YEAR 2007 IN $ – 17
    AVERAGE OF YEAR 2008 IN $ – 18

    = 50% DIFF OF ( $ 0.5 ) + $13.5.
    = $ 0.25 + $13.5
    = $13.75





    CONTACT NUMBER :- 0919322991262, 0912223882785.

  29. Not, the problem here is greed, plain and simple. You must admid this: this is without a doubt the largest financial fraud in the history of mankind. Where was it started, who benefited, who’s government allowed it to happen and in fact supported it thru legislation? AMERICA. You know, when Paulson found out that some of the States Department Of Banking didn’t want these liar loans originated in their state, he had congress pass some federal laws REQUIRING these states to allow these fraudulent transactions to happen? When the individual state regulators did NOT want these kinds of loans happening in their states, the Fed’s stepped and and forced them to allow it by passing overiding federal laws. Are ya tellin’ me NO ONE knew these were bad loans? THEY ALL KNEW. Paulson and his crew need to be strung up. And who benefitted during the meltdown? GOLDMAN SACHS…..didn’t Hank work there for a while….like he was the CEO. Do you think he may still have a few stock shares of Goldman in one of those Blind Trusts that Washington has been buffaloing all of you with for decades? Do ya think Hank was going to allow himself to get wiped out?

  30. this time we dont need a civil war to create confederat money the money will create a cival war i would rather spend a chicken for some corn

  31. when they paint themselves into a corner they are like a animal thats cornered in a corner or a prostitute on the corner or any body that corners the market or maby cuts corners or sets in a corner or corners a page in a book or better yet get eats the gunk in the corner of your eye or hits there head on the corner of the coffee table

  32. when they paint themselves into a corner they are like a animal thats cornered in a corner or a prostitute on the corner or any body that corners the market or maby cuts corners or sets in a corner or corners a page in a book or better yet get eats the gunk in the corner of your eye or hits there head on the corner of the coffee table

  33. dont believe me there like the xrated movies or the railway crossing sign orsign on the x or x marks the spot or x wife or or a pair of opened sissors or the danger sign

  34. SJ: “and the “regulatory reform” initiative amounts to building more ornate structures (we’re to get a new Financial Stability Board?!?) on the same weak foundations that got us into trouble. ”

    That which was signed was a pledge. Which means the signatories will make their best effort to establish regulatory guidelines that safeguard (supposedly) the functioning of International Finance.

    One cannot expect more. Regulatory guidelines, for them to function strictly on an international level, must become statutes (of law). A prosecutor must be able to indict a supposed perpetrator/transgressor (of crime/regulatory transgression) at a national court. Designing and implementing such a treaty would have been as difficult as was establishing the UN. It was not on for reasons of practicality.

    So, what the world gets is an oversight body that can blow the whistle. The G20 elephant gave birth to a mouse, perhaps …

    Given that the major centers of financial engineering are the UK and the US, it is important that regulations be enacted into regulatory law in these countries. But, such will not be an obligation. Which makes implementation of the guidelines a bit onerous.

    Let’s presume that the SEC limits strictly bank leverage borrowing to 10 times its reserves. But the British regulatory equivalent of the SEC (the Financial Services Authority) decides to limit the leveraging to 30 times an UK bank’s reserves. This gives a UK bank a decisive competitive advantage to raise money for investment purposes. (This leveraging ratio was a key component of the SubPrime Mess.) And the US can do nothing about it.

    The G20 document has no teeth, but it does allow whatever oversight agency to blow loudly a whistle such that disturbing exceptions to the norm, as the example above, are brought to attention. It is then up to the Finance Ministers to bring the matter up at the international meetings that will supposedly discuss matters of the Oversight Authority.

    Then again, maybe they won’t and Hi-Finance will be, once again, Business As Usual.

    This is international finance regulation, of a sort. It is not as harsh and strict as domestic finance regulation can be. After all, without law statutes in the matter any regulation whatsoever is just a wordy document.

    Whilst the cat’s away the mice can and will play …

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