All hail to the G20 Finance Ministers and Central Bank Governors, for according to the communiqué from G20 meeting in Washington, they have saved the world from a financial crisis and will now lead us into a new era of growing global trade. Of course if the G20 actually functioned properly in the first place we would not be in the mess we are in now, but I guess they don’t talk about that much at the meeting.
The latest G20 meeting in Washington was another mutual back slapping exercise, where government bureaucrats and politicians gathered together to agree that they were legends and to issue the infamous G20 communiqué which true to form, was full of self praise.
Worst of all however is that the G20 communiqué is accepted by the mainstream media as fact and receives very little scrutiny. How often for example do you read articles where the policies of the G20 are seriously questioned?
So what did the G20 have to say about themselves this time? Well here are some highlights from the communiqué released on April 23.
Firstly the self praise:
” We, the G20 Finance Ministers and Central Bank Governors, met in Washington D.C. to ensure the global economic recovery and the transition to a strong, sustainable and balanced growth as well as
our agendas for the financial regulatory reform and international financial institutions remain on track.”
“The global recovery has progressed better than previously anticipated largely due to the G20’s unprecedented and concerted policy effort. However, it is proceeding at different speeds within and across regions, and unemployment is still high in many economies. We recognize that in such circumstances different policy responses are required”
So according to the G20 finance ministers and central bankers they have been largely responsible for recovery of the global economy because they are simply too clever for words.
Well if that is true, then I have few questions:
1. If finance ministers and central bankers are so competent then why didn’t they spot the financial crisis coming and take measures to prevent the global recession?
2. Why didn’t they implement the financial regulatory reforms they are talking about now, before the crisis?
Apart from the self praise, the communiqué from the April G20 meeting is full of the usual clichés about the global economy and hardly worth talking about, but one passage that did catch my eye was this one:
“Our Framework for Strong, Sustainable and Balanced Growth for the global economy is a key mechanism through which we will continue to work together to address the challenges associated with achieving a durable recovery and our shared objectives.”
Shared objectives? Does anyone seriously believe that China and the U.S. have shared objectives that will lead to balanced growth? In fact I seriously doubt that the G20 have any significant shared objectives apart from keeping the G20 leaders in power, and trying to grab as much power as possible.
At present the global economy is slowly recovering, but the big spending policies of the G20 are going to cause problems for many member nations in years ahead.
So rather than lavish themselves with praise, perhaps the G20 meeting member’s could show a little more humility and acknowledge the fact that all they have really done so far is spend their way of of trouble. Maybe their policies have worked, but I reckon it is far too early to declare mission accomplished at this stage.
This leads me onto the subject of the Chinese economy, which after all is largely one of the reasons the global economy is growing again and the main reason Australia has so far, avoided a lengthy recession.
There are mainly two views of the Chinese economy doing the rounds at the moment. The first view is that basically the sky is the limit when it comes to the Chinese economy and that for the next few decades, China will see it’s economy grow by 5% or more per year and eventually replace the United States as the world’s number one economy.
The other view is that China’s economy is in a bubble, and that sooner or later the bubble will burst. At best the Chinese economy will have a few bad years and then start to recover, at worst China will spiral into a severe recession and will face years of economic contraction.
My own view is that there is no such thing as a miracle economy or an economy that will never have a recession. Therefore as I have mentioned quite a few times, I believe that the Chinese economy is overheated and at some point it will cool.
If that happens relatively soon then maybe the fallout will not be that severe in terms of the impact on the global economy, however I fear the impact on the Australian economy will be quite severe as I wrote back in January in: When the Chinese economy slows, Australia’s may tumble.
But at this stage the consensus view from the Government, Reserve Bank and the Treasury is that Australia has nothing to worry about because the Chinese economy will fuel a decades long commodities boom. (and hence the reason the Rudd Government seems confident enough to keep on spending)
Even most Australian economists and financial commentators seem to be hooked on the notion that all we basically need to do in Australia is control inflation and house prices.
Maybe they are right and I am simply being too cautious. Perhaps the Chinese economy will continue to surge ahead and has many years of strong and sustainable growth ahead of it.
For the time being I will remain cautious in regards to the outlook for the Chinese economy, commodities (expect oil), Australian stocks and gold.
But what do readers think? Is the Chinese economy overheating or simply in the midst of a decades long growth phrase? Has the G20 saved the day or simply spent a lot of money to artificially create growth? Is the Australian economy doing great or are we setting ourselves up for an almighty fall if the Chinese economy slows?
Over to you…..