G20 meetings - where is the macro talk?

The G20 meeting was upstaged by the new knowledge on the nuclear ambitions of Iran, but there was not much meat coming from this meeting. Yes, there was talk about new guidelines for restricting pay of bankers, a timetable for regulatory reform, and a framework for balanced growth, but no progress was made on trade or climate change. Why regulate banker's pay? This institutions are weaker than countries and easier to solve. You lend them money and you get to control the rules. The G20 can control the bonus culture, but it still has not focused clearly on the root cause of the problems. The G20 allowed the flood of capital into deficit countries. The savings imbalance and loose monetary policies of the last ten years problem are the root causes which were barely touched.

Gordon Brown suggested that the G20 should be the world's main economic governing council. So much for the great talk about multilateralism at the UN. The G20 is now more equal than the rest of the world (i.e. the UN) for making policy. There is nothing wrong with that given it represents so much of the global economy. So much for the G8. This is fine given it was a EU dominated construct. The G20 is taking over from the developed world as expected given the shift if economic power. The issue is that this "organization" was not set-up to provide for global policy coordination. It is good for joint discussions but not for setting and directing policy. So what has happened to the IMF which has the cash for lending. What is its role within the G20 construct? The G20 agreed that emerging countries should be given more say within the IMF. They will get a 5% tranfer in quotes at the IMF and 3% at the World Bank. They are on track to make a final decision by January 2011. This is moving fast.

We will have a more uncertain and confused international financial environment if we move forward with this type of talk from the G20 without clarity of their overall role.

The G20 declared that they will develop goals to counter destabilizing economic imbalances, the Framework for Strong Sustainable and Balanced Growth. The countries will have shared policy objectives. What does that mean?

One of the destabilizing imbalances was the loose monetary policy of the US which has been repeated again. Once the Fed lowers rates, there is an effect on other country's monetary policy. They will usually have to lower rates or there is a feedback effect to the rest of the world. The 800 lb gorilla gets to sit where it wants and everyone else has to adjust. The other issue with the global imbalances has been the continued use of monetary policy to promote exchange rate policies that foster exports. There is no change suggested at this G20 meeting.