The G20 summit turned into talks about the global economy and how it may actually fall. To keep this fall from happening the G20 talked about measures to take to avoid a Global depression. Granted the leaders of wealthy countries just joined the summit in 2008, but talks while in a depression, qualifies for 20/20 hindsight. We are now in the Shouda, coulda, woulda zone.
Should not have made bad loans nor spent money needlessly. We could have taken a position to not be in the Middle East. Would have improved the home economy if we just regulated banks and placed a ban on the average American trying to own a home with a loan intended for investors.
It seems as though our governments do not plan for financial crises until they are in full swing. We should have a plan in place to counter or avoid this type of catastrophe.
First a little background on the G20 and why it is important to know what they are doing. G20 is the Group of Twenty Finance Ministers and Central Bank Governors from twenty economies, comprising of 19 countries plus the European Union. They formed in 1999 but the Heads of States began Summits in 2008.
The G20 was a direct outcome of the 1997 Asian Financial Crisis; the goal was to bring together advanced and emerging economies to stabilize the global financial market.
The twenty participants in alphabetical order are Argentina, Australia, Brazil, Canada, China, France, European Union, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, and the United States of America. The G20 represents 85% of global gross national product, 80% of world trade and two-thirds of the world population.
The G8 members are the wealthier nations of the G20. Their membership consists of Canada, France, Germany, Italy, Japan, Russia, United Kingdom, and The United States of America.
This master mind group does meet with opposition from liberals, conservatives and even an anarchist group called the “Black Bloc”, no one wants the G20 to meet because it seems to be moving towards a one World economy. I think the internet has already started a one World Economy.
The hot button with the G20 and the G8 is how to create a responsible banking system. Each of the G20’s home economy is suffering from not having a tighter reign over the banks in their perspective countries.
The G8, feeling the slump of the economy fell 18 billion dollars short of the 2005 pledge of 50 billion dollars in financial assistance to third world countries; with an extra 25 billion a year for Africa as a part of the overall 50 billion dollar increase in financial assistance by 2010. Only 11 billion was provided. Our recent bailouts are the reason for the lacking of the financial assistance.
Our economy in 2005 was brisk to say the least. New housing projects almost everywhere and sellers were so equity rich they would get more than five or six offers to sell, each offer edging the price higher and higher. Although at that time, many analysts could foresee this current down economy on the horizon.
One of the other topics of discussion was the Yuan. The G8 still are asking China to reevaluate the Yuan to make it stronger. This strengthening of the Yuan will make it easier for other exporting countries to compete with China.
The other hot button for the G20, creating the framework to impose a tax on banks, which will probably move levy on to consumers in the form of more fees. Angela Merkel, German Chancellor stated that there isn’t a common position in the G20, neither on a bank levy nor on a financial –transaction-tax. Of course everyone agreed that the countries that are most indebted and with the biggest deficits should reduce deficits.
There is a common position in the G8 that the time of expenditure programs has ended. They are now looking to introduce exit strategies. Before beginning any venture it is always wise to have at least three exit strategies planned.
On the Wall Street front although the New Reform Bill has made its way through Congress it will be awhile before implementation. What we will have is a new financial consumer watch dog, creation of a protocol for dismantling troubled financial firms and a mandate to have higher bank capital standards. This means they will have to have more money in the bank before they can loan money.
The New Reform will restrict derivatives dealing by banks and curb their proprietary trading to shield taxpayer backed deposits from more risky activities. The banks will be able to keep most swaps dealing activity in-house, although the riskiest trading would be pushed out into an affiliate. They will also be permitted small investments in hedge funds and private equity funds.
This new reform will bring about needed changes but with change there will also be problems created. The reform is to strengthen the banking system from the 1930’s to perform in our new millennium without choking off credit creation in the near future.
What does all this mean for stock market investors? Choppy waters ahead.
