On Monday and Tuesday of this week, Treasury Secretary Geithner – and Secretary of State Clinton – meet with a high-level Chinese delegation. (Could someone please update the Treasury’s schedule of events? At 7am on Monday it still shows last week’s agenda; update, 9am, this is now fixed – thanks).
According to official previews (i.e., the apparent contents of background briefings given to wire services), the economic topics are China’s concerns about the value of the dollar (i.e., their investments in the U.S.) and the amount of debt that the U.S. will issue this year.
This is absurd. Continue reading
The G7 was originally conceived as a form of steering committee for the world economy (antecedents). Existing formal governance mechanisms, around the IMF and the UN, seemed too cumbersome (and too inclusive) during the 1970s, with the breakdown of fixed exchange rates, assorted oil shocks, and the broader shift of economic initiative towards Western Europe and Japan.
And the G7 had some significant moments, particularly with regard to moving exchange rates in the 1980s. More broadly, behind the scenes, it served as a communication mechanism between the world’s largest economies (“coordination” is a dirty word in G7 policymaking circles). And it was probably a good thing in the 1990s that Russia wanted to join the G7 – hence the G8 once a year, although many of the most important technical meetings are just the G7.
But today, honestly, what’s the point? Continue reading
At 12:30pm on Wednesday at the White House (someone: please update the Treasury’s schedule of events), President Obama is due to “unveil” his proposals for reforming the functioning of our financial system. The content has already been foreshadowed in some detail, most notably by the Geithner-Summers op ed in the Washington Post on Monday, but what the President himself stresses is still important – everyone who matters for the reform of financial regulation will be in attendance and his remarks (and perhaps those of Secretary Geithner) can absolutely set the tone of the debate.
In particular, the implicit story the President tells will frame our collective discussions going forward and – on some points – could even help tip the balance against established lobbies.
There are at least 10 important questions the President may address or shy away from tomorrow. Add your own suggestions below. Continue reading
If you’d like to attend the G8 Ministers of Finance meeting this weekend, the Italian Ministry of Finance has put out a handy travel guide.
Alternatively, take a look at my preview on The New Republic’s website. Our leadership appears to be resting on its laurels after the April G20 summit – or perhaps they think the next G20 summit in September is the place for real discussion. Regulatory reform still needs (a) to happen in a meaningful sense for the financial sectors in all industrial countries, and (b) to be closely coordinated across countries – if your bank is too big to fail in my country, whose problem is that and whose taxpayers are on the hook? But gone completely from the G7/G8 ministerial level is any sense of urgency; all we’ll hear is self-congratulation.
And in terms of macroeconomic policy, discussed in a piece with Peter Boone on the NYT’s Economix this morning, current global early warning signs (higher oil and other commodity prices; rising long-term yields) are being interpreted by policymakers as indicators of success and return to “normalcy”. It reminds me of official discussions in early 2007 – no matter what weakness you could point out in US housing and European banking, leading G7 policymakers were completely in denial, with articulate arguments about why they were right.
Incrementalism is the preferred policymaking culture of G7 ministries of finance and central banks, and they are very much back in that mode. But if you put incrementalism together with refusing to really change the rules for banks and huge, unconditional support for credit that is hard to withdraw, what do you get?
By Simon Johnson
With our myriad banking problems, rapidly rising unemployment, looming political battles over the budget and much more on the pressing domestic agenda, is the G20 summit in London (dinner Wednesday and meeting Thursday) really worth all the time and effort that the President and his team have devoted to it? And, granted that President Obama has to attend this heads of government meeting for protocol reasons, is there much that this summit can realistically achieve – i.e., are there actions that will be taken as a result of the summit that would not otherwise have happened and that can really make a difference to the parlous state of our economy?
These are all reasonable questions. And the answer is simple: in terms of the obvious major issues of the day, this summit is unlikely to achieve much.
But every global economic recovery has to start somewhere and it probably has to begin small. And there are some slight glimmers of hope because (a) President Obama is taking a global leadership role, (b) he is doing this in a creative way that might seem surprising, but which should reduce the chance of a further global meltdown. Continue reading
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. Continue reading
At the end of last week, Senators Dodd and Schumer signalled that financial elite solidarity has broken; “nationalization” is no longer taboo. The consensus is dead (check with Barney Frank), crazy ideas abound, and long live what new policy approach? Here’s five sets of issues to guide your viewing this week as we slip and slide sideways into our future. Continue reading