http://www.nytimes.com/2009/04/22/business/22markets.html?ref=business
My comments on the updated position of the global financial crisis :-
My comments on the update situation :
It has been some 5 years since the global financial crisis first started to engulf the world and caused unspeakable misery on the human race as a whole. Most unfortunately, my humble predictions as set out in the conclusion of my economic essay ( Section ( 14 ) ) below has become a sad reality. Specifically, I predicted that it may take up to 5 years for the world economy to start its upward trend from the dismal depression caused by the global financial crisis.
There are definitely evidence of a bottoming out but only feeble signs of a sustained recovery. I sincerely hope that my worst case scenario prediction of a 10 years recovery cycle will not come true.
In view of the continuing crisis, it may serve a good purpose to revisit my essay on the basic economic principles from the lay person's point of view. Needless to say, your comments will be most appreciated.
JKHC ( May 31, 2013 ).
My comments on the latest situation :
According to the US Treasury the employment situation in USA is steadily on the recovery track. Therefore, they had previously indicated that the quantitative easing measure of Government bonds buying might be slowly wound down. However, they also decided to delay its implementation at this point in time which is a welcoming move. So, the long awaited recovery is finally on the way and my humble prediction of the 5 years' global economic recovery from the 2008 global financial crisis seems to be realising to my great delight ( certainly everyone should be delighted ). Please refer to the following news link from The New York Times for further details :-
http://www.nytimes.com/2013/09/19/business/economy/fed-in-surprise-move-postpones-retreat-from-stimulus-campaign.html?nl=todaysheadlines&emc=edit_th_20130919&_r=1&
JKHC ( Sept., 22, 2013 )
Link to my economic essay - 2008 Economic & Financial Tsunami - An Overview for the Lay Person :-
https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxqa2hjbGlmZXN0eWxlfGd4OjY4MWY3YTM5ZDFmY2NmZTU
After all the excitement generated by the G20 summit has died down we are still faced with the stark reality of a volatile stock market as well as a growing army of the unemployed ( see above link to The New York Times report ). This kind of roller coaster rides in the financial market can be expected before the optimistic sentiments supported by a complete restoration of consumer confidence in the financial system return for good. It will take a tremendous push in confidence to revive the Wall Street bull which seems to be dead to many investors at the moment.
I am not retracting my assertion that the recession has bottomed out nor am I saying that the results of the G20 summit are not generating the required uplifting effects on the global economy. Apart from the fact that positive economic measures take time to work ( this is the famous or infamous - depending on how you look at it - time lag concept in economics ) there is also the most important element of consumer confidence not having been fully restored. The time lag in the manifestation of the positive results of the good economic measures lead to consumers doubting that the recession has actually bottomed out. Therefore, most of them will hold back their spending plans out of conservatism and hold a wait and see attitude. This unfortunate but understandable consumer reaction has the undesirable effect of counteracting the positive efforts of all government spending aimed at revitalizing the economy. This is also the main reason why no interference with the normal working of the economy should be made unless it is absolutely necessary in a market or capitalistic economy. It also highlights the defect of a planned or socialist economy. Nobody is to blame for this less than perfect situation which must be rectified before the global economy can get back on an upward trend.
So, where does the key to breaking this vicious circle created by the time lag effect lie ? In my humble opinion, the key lies in the rethinking or realignment of our value judgment or our value system. The concept of maximization of utility ( satisfaction ) or profit as has been generally accepted for more than 240 years since Adam Smith is actually letting us down. This maximization concept while holding true with the individual ( microeconomics ) spells disaster for the economy as a whole ( macroeconomics ). The hard lesson economists have learned from the Great Depression of the 1930s is this. Savings are good for the individual but bad for the economy at large. This is a well known paradox in economics called the PARADOX OF THRIFT. Being thrifty at the micro level is a virtue but it is a public vice when practiced by society as a whole on the macro level because the latter situation inevitably leads to a multiple ( under the ECONOMIC MULTIPLIER EFFECT - in this particular case, NEGATIVE MULTIPLIER EFFECT ) or more than proportional reduction in total national consumption that creates a miserable army of the unemployed. All these basic economic concepts are explained in the lay person's terms in my article - 2008 Economic & Financial Tsunami - An Overview for the Lay Person - here ( http://sites.google.com/site/jkhclifestyle/Home/2008-economic---financial-tsunami ) or access my website by clicking on the title of this blog and going to the navigation bar on the left hand side of my home page.
So, what is this rethinking or realignment of value that I am advocating ? It is simply this. While maximization of utility and profit is good and is a basic human economic right there is no need to maximize 100% which will bring about sorrow and misery for everyone. In fact, I would go so far as to argue that 100% maximization of utility or profit is another form of greed that the black sheep of the financial world have been guilty of and that has brought us to our present predicament.
Let us take a simple example. As the global economy free falls as in the past 8 months or so the property prices also fall drastically. All the prospective buyers will maintain a wait and see attitude. As some desperate sellers are eager to sell due the need for cash brought about by the financial tsunami prices of properties will crash. This is because buyers want to own a house for a song. In other words, buyers want to benefit ( as they are fully entitled to ) at the misfortune of sellers. Of course, there is a bottom line to any fall which is the cost of building those houses. When the bottom line is reached no one will build any new houses because no profit can be made. This will ultimately cause a shortage of supply and a gradual rise of the house prices due to deferred or built up demand. Sadly though millions of building workers and those in related industries will join the growing army of the unemployed before the bottom line is reached at which time the value of the properties currently owned by the well off sector of the population will also hit the bottom doing nobody any good. The message here is to buy when there is a reasonable rate of return on your investment. You can't win them all ( 100% ). Let us say you may not be able to buy the house you like when the price falls further because others may grab the bargain before you do. Also, if you earn every single cent from everyone on earth you will lose all your business ( in the case of running a business ) because you are such a perfect ( 100% ) business entrepreneur that you make the entire global population go bankrupt. Again, the clear message is leave something for others or you will ultimately suffer from your 100% maximization of profit at others' expense. The same reasoning applies to the ideal situation of an exact balance of payment in international trade between countries ( see my article mentioned above ).
Similarly, to hold back your original travelling plans, buying a new car every 5 years or reducing the frequency of your restaurant patronage will create the same multiple shrinkage in consumer spending and hence greater unemployment. Am I advocating spending beyond our means then ? Certainly not. I am just appealing to the still well off sector of the population to stick to your original spending patterns. This is the best and most moral thing to do to save the world from a deep recession and to help alleviate unemployment. I appreciate the financial hurt you rich guys have suffered through the endless greed of the black sheep of Wall Street. Yours truly has also met the same fate. My wife has bought a lot of HSBC Bank shares at around $100 ( Hong Kong currency ) per share. Now, the share is just half of that value. I contributed the entire sum for the current rights issue just to heal her wounded pride. Really, it is nothing more than their pride that the well off sector of the global village was hit badly by the financial tsunami. Most rich people cannot spend all their wealth in their own life time anyway. Besides, if we don't stick to our original spending plans we can never be certain whether or not we will be healthy enough or still alive to enjoy using our hard earned dollars when the present crisis is over. Of course, I sincerely hope and pray that we all will be. The only certain thing at this point in time is that the global financial crisis will never be over without our earnest efforts to save it from further free fall. In my humble opinion, any successful rescue plan must entail some revolutionary reasoning or a revaluation of our value system as outlined above.
To recapitulate, the realignment of our value judgment needed to overcome the financial tsunami is this. Don't aim at 100% maximization of our utility or profit. If we wait for others to spend first and they wait for us to do the same the economy will never improve regardless of how much government spending is injected into the economy. Furthermore, private consumption is always superior to government spending because the individual knows exactly what he or she needs so that there will not be any wastage. Then, the main bulk of private consumption is related to consumer products that can create immediate employment and a direct boost to business and consumer confidence. Besides, what the government spends will be ultimately borne by all of us - the taxpayers. Rather do our part in the normal way by keeping to our original spending plans. This is my earnest appeal to the rich and privileged sector of the global village. Of course, faith in the market system and the goodwill of our fellow citizens is required. A lack of faith in the future of our economy reflects on a lack of confidence in the collective power and potential of the whole human kind especially in ourselves. Please spend and prop up the economy and the global economy will be back to her healthy and normal self in no time !
JKHC.
Monday, April 20, 2009
Tuesday, April 14, 2009
The Financial Tsunami ( FT ) - The Way Forward ( 19 ) - Scattering of the Stars
http://www.nytimes.com/2009/04/12/business/12wall.html?_r=1&th&emc=th
According to the New York Times ( see above link ) the top talents on Wall Street are scattering to the wind because of government scrutiny of the top financial firms ( in particular the crackdown on excessive remuneration packages to top executives ) where our present predicament of the global financial crisis has originated.
There seems to be a sense of sympathy and a lot of lamentation on this scattering of the star performers on Wall Street as if the new regulatory measures had forced the exodus of our best financial talents and that we had done them a great injustice.
This kind of attitude we can do better without. If the so called talents left their fold for greener pastures ( or more greenbacks - unlimited remuneration ) they are totally justified in pursuing their personal goals. However, we must respect history and learn from our mistakes or else we all risk endless future catastrophes of a similar nature.
The basis for both democracy and free enterprise is the sanctity of basic human rights but that is not to say that the public interest must be sacrificed for the unfettered exercise of our insatiable greed for individual wealth at the expense of our fellow citizens. It is time for a more moral team of financial talents to take the helm of the Wall Street financial engine - an enlightened bunch who do not labour purely for personal gains but do hold the ideal of striving for the greater good of society as a whole and a fair go for our fellow citizens. By all means reward the talented. After all, this is the best part of a market economy in terms of incentive for personal efforts which will ultimately lead to efficiency and an optimum distribution and utilization of always limited economic resources including the most valuable category of them all - brain power or talented human resources. The catch word here is " LIMITED " without which there would not have been any need for the vital discipline of ECONOMICS. If our resources were unlimited we could just waste them to our heart's content without the fear of hanging ourselves high and dry in times of scarcity because there would never be any shortage.
Similarly, there can be no unlimited reward of efforts. The top financial talents are all supposed to be experts in economics so how could they have missed this most basic of all economic concepts of " LIMITED " everything ? The short and simple answer lies in another evil concept - DOUBLE STANDARDS. For the black sheep of our talented financial genius it has always been " LIMITED " reward for everyone else but themselves based on the basic economic principle of SCARCITY. Perhaps, I have underrated their wisdom. They are, in fact, working hard on applying this sacred economic principle. Based on the principle of SCARCITY, the less for other people the more for themselves - this is perfect logic !
I have yet to hear from any Wall Street star performer about their talented ideas on how to save ourselves from our present predicament so graciously bestowed upon us by the SCATTERING STARS OF WALL STREET. Not to say positive proposals to save the world from another Great Depression just give us their insights into their dirty tricks that had reaped themselves billions of dollars in remuneration would be a good start. This would help us to put in the right kind of regulatory system in the global financial system to prevent more future disasters.
I hereby challenge any one of the SCATTERING STARS OF WALL STREET to put up an open defense for their heinous crimes if you dare ! Or are you all standing by your Fifth Amendment right on silence lest you may incriminate yourselves ?
JKHC.
According to the New York Times ( see above link ) the top talents on Wall Street are scattering to the wind because of government scrutiny of the top financial firms ( in particular the crackdown on excessive remuneration packages to top executives ) where our present predicament of the global financial crisis has originated.
There seems to be a sense of sympathy and a lot of lamentation on this scattering of the star performers on Wall Street as if the new regulatory measures had forced the exodus of our best financial talents and that we had done them a great injustice.
This kind of attitude we can do better without. If the so called talents left their fold for greener pastures ( or more greenbacks - unlimited remuneration ) they are totally justified in pursuing their personal goals. However, we must respect history and learn from our mistakes or else we all risk endless future catastrophes of a similar nature.
The basis for both democracy and free enterprise is the sanctity of basic human rights but that is not to say that the public interest must be sacrificed for the unfettered exercise of our insatiable greed for individual wealth at the expense of our fellow citizens. It is time for a more moral team of financial talents to take the helm of the Wall Street financial engine - an enlightened bunch who do not labour purely for personal gains but do hold the ideal of striving for the greater good of society as a whole and a fair go for our fellow citizens. By all means reward the talented. After all, this is the best part of a market economy in terms of incentive for personal efforts which will ultimately lead to efficiency and an optimum distribution and utilization of always limited economic resources including the most valuable category of them all - brain power or talented human resources. The catch word here is " LIMITED " without which there would not have been any need for the vital discipline of ECONOMICS. If our resources were unlimited we could just waste them to our heart's content without the fear of hanging ourselves high and dry in times of scarcity because there would never be any shortage.
Similarly, there can be no unlimited reward of efforts. The top financial talents are all supposed to be experts in economics so how could they have missed this most basic of all economic concepts of " LIMITED " everything ? The short and simple answer lies in another evil concept - DOUBLE STANDARDS. For the black sheep of our talented financial genius it has always been " LIMITED " reward for everyone else but themselves based on the basic economic principle of SCARCITY. Perhaps, I have underrated their wisdom. They are, in fact, working hard on applying this sacred economic principle. Based on the principle of SCARCITY, the less for other people the more for themselves - this is perfect logic !
I have yet to hear from any Wall Street star performer about their talented ideas on how to save ourselves from our present predicament so graciously bestowed upon us by the SCATTERING STARS OF WALL STREET. Not to say positive proposals to save the world from another Great Depression just give us their insights into their dirty tricks that had reaped themselves billions of dollars in remuneration would be a good start. This would help us to put in the right kind of regulatory system in the global financial system to prevent more future disasters.
I hereby challenge any one of the SCATTERING STARS OF WALL STREET to put up an open defense for their heinous crimes if you dare ! Or are you all standing by your Fifth Amendment right on silence lest you may incriminate yourselves ?
JKHC.
Thursday, April 2, 2009
The Financial Tsunami ( FT ) - The Way Forward ( 18 ) - One Giant Leap for Mankind
http://news.bbc.co.uk/2/hi/business/7979606.stm
Amid all the unfavourable talks of unbridgeable differences and threatened walkouts by France and strong opposition in further fiscal spending by Germany the G20 summit in London ended happily as ONE GIANT LEAP FOR MANKIND ! A big sigh of relief from every global citizen is now on the cards. Nor is this relief just a psychological one. Like a sweetener to any national budget this global budget for our future presented something positive for each one of us. I seldom praise the politicians but I have to say for once that G20 leaders did not let us down at the extremely critical moment which could mean make or break to our world economy. Luckily, thanks to the prevailing of common sense among all participating countries representing two-thirds of the total global population, 90% of world productive power and 80% 0f total world trade WE HAVE MADE It at least for the time being. I can comfortably say as I so boldly predicted in my article - " 2008 Economic & Financial Tsunami - An Overview for the Lay Person " ( accessible on my website by clicking on the title of this blog or any other blog on this FORUM ) that a stablization of the global economic tailspin within 3 months of the inauguration of the Obama administration should lead to a relatively bearable recession of possibly 3 years. I am really optimistic that my prediction will more or less hold true.
The implications of the measures declared in the G20 joint communique ( as per link above ) will certainly be far reaching. It is not an overstatement in any sense to say that it is ONE GIANT LEAP FOR MANKIND. Never before have the world leaders shown such common sense and wisdom coupled with foresight and great humanity. There is, indeed, a unity of purpose and forsaking of narrow national interest and pride. It is also pragmatic and far reaching and thus should form a solid foundation for the strengthening of global co-operation in future that will hopefully give rise to some form of proto global utopia operating on an enlightened form of capitaliism ( not just laissez faire devoid of human feelings and consisting of raw materialism motivated by greed and a blind search for efficiency ).
Having sung praises for the positive and encouraging measures outlined in the G20 statement I must raise some, shall we say, comments on the less than perfect aspects of the G20 proposals. For one thing, there is not yet a formal admission ( in the statement at least ) that the present dysfunctional mechanism of the international financial institutions like IMF, World Bank and other Multilateral Development Banks ( Asia Development Bank, etc. ) is the result of unfair representation of the majority of countries affected by the policies of such organizations. They are mainly private vehicles for the rich countries which have all the say. The only reference to this sensitive subject is in clause ( 20 ) : - " We agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based process ". This is definitely an improvement but does not correct the " rich boys club " syndrome in a fundamental way. Perhaps, the abolition of veto rights of the rich nations ( as I humbly suggested ) will enable these international financial institutions to function properly for the greater good than simply serving narrow national interest of the rich countries.
The second of my comments or reservations on the G20 statement is their rather empty " to do whatever is necessary " stance in fiscal spending to revive the global economic growth. In clause ( 6 ) of the statement G20 declared that : - " We are committed ( did not say how ? ) to deliver the scale of sustained fiscal effort to restore growth." Nor was there any definite promise to co-ordinate those efforts. Without overall planning and each country setting her own priority I am afraid there is an unacceptable risk of overall failure in stimulating growth based on scattered and isolated fiscal spending plans left to the fancy of individual nations. Although it would be too much to ask of every nation to give up their own budgetary policies I would expect at least some small % such as 10% to 15 % of each country's budget for the next 3 years be planned on a joint internationally coordinated efforts. When the global economy has recovered to her old healthy self such strict international budgetary co-ordination could then be relaxed.
All in all, the G20 summit has done exceedingly well and its achievement is beyond our most optimistic expectations. If all the measures are successfully implemented there will be a really bright future for the global economy and a completely new page for international co-operation. The world will undoubtedly be a better place operating on an enlightened market mechanism with a human heart and a higher level of moral code. My sincere congratulations to all world leaders for exercising their wisdom and common sense. I will be writing a more detailed analysis and implications of the G2o communique but before finishing today's blog I must compare my own proposals to those in the communique to hopefully improve my understanding of the rationale behind the declared G20 measures. So, here it is : -
The paramount goals of the G20 summit are clearly set out in clause (4 ) : - They are as follows
( a ) Restore confidence - ( my ( A ) ( 1 ) )
( b ) Repair financial system - ( my ( A ) ( 2 ) )
( c ) Reform financial regulatory system - ( my ( A ) ( 3 ) )
( d ) Reject protectionism - ( my ( B ) ( 1 ) )
( e ) Build a green and sustainable recovery - ( my ( B ) ( 6 ) )
I am so glad to say that I have not missed any of these paramount goals. These are so basic in economics that I should have my degree in economics stripped off had I missed anyone of the above. My related proposals ( reference number in my yesterday's blog are given in parenthesis after each of the above goals ).
My proposals that are " accepted " or appearing in the relevant clause of the G20 communique : -
( 1 ) Keep the credit flowing - ( A ) ( 2 ) - Clause ( 8 ) : - " Our actions to restore growth cannot be effective until we restore domestic lending and international capital flow."
( 2 ) Overhaul the financial regulatory system - ( A ) ( 4 ) : -
I proposed the setting up of international financial regulatory and monitoring body. Clause ( 15 ) : - " - to establish a new Financial Stability Board ( FSB ) with a strengthened mandate .....that FSB should collaborate with IMF to provide early warning of marcroeconomic and financial risks and actions needed to address them ".
( 3 ) Under my ( A ) ( 4 ) I also moved to regulate hedge funds and crack down on tax havens. Clause ( 15 ) also proposed : - " to extend our regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds ."
( 4 ) Under my ( A ) ( 4 ) I proposed crackdown on tax haven operations. Clause ( 15 ) likewise proposed this : - " to take actions against non-cooperative jurisdictions including tax havens ."
( 5 ) Again, under my ( A ) ( 4 ) I proposed banning of conflict of interests in respect of multiple financial roles. Clause ( 15 ) said this : - " to extend regulatory oversight and registration of Credit Rating Agencies to ensure they meet the international code of practice, in particular to prevent unacceptable conflicts of interest ."
( 6 ) Refrain from accusations and counter accusations - my proposal in ( B ) ( 3 )
No finger pointing or even implications of fault finding can be found in the communique to create a total sense of unity and pragmatism.
( 7 ) Promote an enlightened form of capitalism - one of my long-term proposals in ( B ) ( 5 )
By helping the poor nations for whom 100 billion have been set aside mainly through sale of IMF gold and international contribution to 500 billion extra SDR to IMF to boost total available emergency funding for countries in trouble through IMF rescue efforts the foundation of an enlightened form of capitalism has been solidly laid. There were many repeated mention of taking the interests of poor nations and the underprivileged sectors of the global population as well into consideration. This is truly a new era for raising the standard of international morality and social responsibility.
( 8 ) Don't delay the environmental measures in the name of expedience - another one of my long-term proposals in ( B ) ( 6 ).
Clause ( 4 ) clearly stated in paramount goal ( e ) of G20 that " build a green and sustainable recovery. "
My proposals not appearing in G20 communique are as follows :-
( i ) The issue of FT rescue bonds to raise rescue fund in a wise manner. My proposal in ( A ) ( 6 ).
( ii ) The capping and investigation of CEO remuneration. My proposal in ( A ) ( 4 ).
( iii ) Boost public spending on the rescue package wisely - my proposal in ( A ) ( 5 ). There was, in fact, disappointingly little on this important aspect of the rescue efforts probably because of French & German opposition to further fiscal spending before the reformed financial regulatory system is put in place. Hopefully, the important topic will feature prominently in the Fall 2009 follow-up summit and the G20 financial ministers meeting in early 2010.
Perhaps, the most encouraging consensus was the setting of a 2 % global economic growth rate by the end of 2010 as declared in clause ( 10 ). All in all the G20 summit in London is successful beyond preliminary expectations. I would not hesitate to award a 70 % grading for the G20 efforts. As for my own proposals and predictions, it is for the readers to decide. See you all soon at my next blog !
JKHC.
Amid all the unfavourable talks of unbridgeable differences and threatened walkouts by France and strong opposition in further fiscal spending by Germany the G20 summit in London ended happily as ONE GIANT LEAP FOR MANKIND ! A big sigh of relief from every global citizen is now on the cards. Nor is this relief just a psychological one. Like a sweetener to any national budget this global budget for our future presented something positive for each one of us. I seldom praise the politicians but I have to say for once that G20 leaders did not let us down at the extremely critical moment which could mean make or break to our world economy. Luckily, thanks to the prevailing of common sense among all participating countries representing two-thirds of the total global population, 90% of world productive power and 80% 0f total world trade WE HAVE MADE It at least for the time being. I can comfortably say as I so boldly predicted in my article - " 2008 Economic & Financial Tsunami - An Overview for the Lay Person " ( accessible on my website by clicking on the title of this blog or any other blog on this FORUM ) that a stablization of the global economic tailspin within 3 months of the inauguration of the Obama administration should lead to a relatively bearable recession of possibly 3 years. I am really optimistic that my prediction will more or less hold true.
The implications of the measures declared in the G20 joint communique ( as per link above ) will certainly be far reaching. It is not an overstatement in any sense to say that it is ONE GIANT LEAP FOR MANKIND. Never before have the world leaders shown such common sense and wisdom coupled with foresight and great humanity. There is, indeed, a unity of purpose and forsaking of narrow national interest and pride. It is also pragmatic and far reaching and thus should form a solid foundation for the strengthening of global co-operation in future that will hopefully give rise to some form of proto global utopia operating on an enlightened form of capitaliism ( not just laissez faire devoid of human feelings and consisting of raw materialism motivated by greed and a blind search for efficiency ).
Having sung praises for the positive and encouraging measures outlined in the G20 statement I must raise some, shall we say, comments on the less than perfect aspects of the G20 proposals. For one thing, there is not yet a formal admission ( in the statement at least ) that the present dysfunctional mechanism of the international financial institutions like IMF, World Bank and other Multilateral Development Banks ( Asia Development Bank, etc. ) is the result of unfair representation of the majority of countries affected by the policies of such organizations. They are mainly private vehicles for the rich countries which have all the say. The only reference to this sensitive subject is in clause ( 20 ) : - " We agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based process ". This is definitely an improvement but does not correct the " rich boys club " syndrome in a fundamental way. Perhaps, the abolition of veto rights of the rich nations ( as I humbly suggested ) will enable these international financial institutions to function properly for the greater good than simply serving narrow national interest of the rich countries.
The second of my comments or reservations on the G20 statement is their rather empty " to do whatever is necessary " stance in fiscal spending to revive the global economic growth. In clause ( 6 ) of the statement G20 declared that : - " We are committed ( did not say how ? ) to deliver the scale of sustained fiscal effort to restore growth." Nor was there any definite promise to co-ordinate those efforts. Without overall planning and each country setting her own priority I am afraid there is an unacceptable risk of overall failure in stimulating growth based on scattered and isolated fiscal spending plans left to the fancy of individual nations. Although it would be too much to ask of every nation to give up their own budgetary policies I would expect at least some small % such as 10% to 15 % of each country's budget for the next 3 years be planned on a joint internationally coordinated efforts. When the global economy has recovered to her old healthy self such strict international budgetary co-ordination could then be relaxed.
All in all, the G20 summit has done exceedingly well and its achievement is beyond our most optimistic expectations. If all the measures are successfully implemented there will be a really bright future for the global economy and a completely new page for international co-operation. The world will undoubtedly be a better place operating on an enlightened market mechanism with a human heart and a higher level of moral code. My sincere congratulations to all world leaders for exercising their wisdom and common sense. I will be writing a more detailed analysis and implications of the G2o communique but before finishing today's blog I must compare my own proposals to those in the communique to hopefully improve my understanding of the rationale behind the declared G20 measures. So, here it is : -
The paramount goals of the G20 summit are clearly set out in clause (4 ) : - They are as follows
( a ) Restore confidence - ( my ( A ) ( 1 ) )
( b ) Repair financial system - ( my ( A ) ( 2 ) )
( c ) Reform financial regulatory system - ( my ( A ) ( 3 ) )
( d ) Reject protectionism - ( my ( B ) ( 1 ) )
( e ) Build a green and sustainable recovery - ( my ( B ) ( 6 ) )
I am so glad to say that I have not missed any of these paramount goals. These are so basic in economics that I should have my degree in economics stripped off had I missed anyone of the above. My related proposals ( reference number in my yesterday's blog are given in parenthesis after each of the above goals ).
My proposals that are " accepted " or appearing in the relevant clause of the G20 communique : -
( 1 ) Keep the credit flowing - ( A ) ( 2 ) - Clause ( 8 ) : - " Our actions to restore growth cannot be effective until we restore domestic lending and international capital flow."
( 2 ) Overhaul the financial regulatory system - ( A ) ( 4 ) : -
I proposed the setting up of international financial regulatory and monitoring body. Clause ( 15 ) : - " - to establish a new Financial Stability Board ( FSB ) with a strengthened mandate .....that FSB should collaborate with IMF to provide early warning of marcroeconomic and financial risks and actions needed to address them ".
( 3 ) Under my ( A ) ( 4 ) I also moved to regulate hedge funds and crack down on tax havens. Clause ( 15 ) also proposed : - " to extend our regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds ."
( 4 ) Under my ( A ) ( 4 ) I proposed crackdown on tax haven operations. Clause ( 15 ) likewise proposed this : - " to take actions against non-cooperative jurisdictions including tax havens ."
( 5 ) Again, under my ( A ) ( 4 ) I proposed banning of conflict of interests in respect of multiple financial roles. Clause ( 15 ) said this : - " to extend regulatory oversight and registration of Credit Rating Agencies to ensure they meet the international code of practice, in particular to prevent unacceptable conflicts of interest ."
( 6 ) Refrain from accusations and counter accusations - my proposal in ( B ) ( 3 )
No finger pointing or even implications of fault finding can be found in the communique to create a total sense of unity and pragmatism.
( 7 ) Promote an enlightened form of capitalism - one of my long-term proposals in ( B ) ( 5 )
By helping the poor nations for whom 100 billion have been set aside mainly through sale of IMF gold and international contribution to 500 billion extra SDR to IMF to boost total available emergency funding for countries in trouble through IMF rescue efforts the foundation of an enlightened form of capitalism has been solidly laid. There were many repeated mention of taking the interests of poor nations and the underprivileged sectors of the global population as well into consideration. This is truly a new era for raising the standard of international morality and social responsibility.
( 8 ) Don't delay the environmental measures in the name of expedience - another one of my long-term proposals in ( B ) ( 6 ).
Clause ( 4 ) clearly stated in paramount goal ( e ) of G20 that " build a green and sustainable recovery. "
My proposals not appearing in G20 communique are as follows :-
( i ) The issue of FT rescue bonds to raise rescue fund in a wise manner. My proposal in ( A ) ( 6 ).
( ii ) The capping and investigation of CEO remuneration. My proposal in ( A ) ( 4 ).
( iii ) Boost public spending on the rescue package wisely - my proposal in ( A ) ( 5 ). There was, in fact, disappointingly little on this important aspect of the rescue efforts probably because of French & German opposition to further fiscal spending before the reformed financial regulatory system is put in place. Hopefully, the important topic will feature prominently in the Fall 2009 follow-up summit and the G20 financial ministers meeting in early 2010.
Perhaps, the most encouraging consensus was the setting of a 2 % global economic growth rate by the end of 2010 as declared in clause ( 10 ). All in all the G20 summit in London is successful beyond preliminary expectations. I would not hesitate to award a 70 % grading for the G20 efforts. As for my own proposals and predictions, it is for the readers to decide. See you all soon at my next blog !
JKHC.
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