G20 in Town to Talk About Currencies and Stimulus Packages
by Raphie De Santos - 3rd November 2009
The G20 – the finance ministers of the world’s major economies – come
to St Andrews this week end in the midst of the greatest financial and
economic crisis that the world has faced since the 1930s. What will these
people who control 85% of the world's wealth but only sixty-five percent
of the world population be talking about?
The meeting of the G20 heads of state at last September’s meeting in
Pittsburgh decided under heavy guidance by the United States a series
of major financial reforms – an increase in the amount of capital (real
cash) bank’s require and a maximum leverage ratio a bank can have (how
many times this capital can be bet on financial markets and loans). But
these reforms are not to be introduced until three or fours year’s time
when the G20 ministers hope the financial crisis will have passed. Just
now introducing these reforms would lead to more bank bail outs from
governments which they could not fund from borrowing or from further
cuts in public services because of the resistance they may face from
the wider population.
This summit will be about the problems the global capitalist economy
faces today. So far about $ one trillion has been spent on global stimulus
programmes. These have mainly been subsidies for car purchase and subsidies
to the housing market. The stimulus programmes together with massive
bank bailouts from governments have stopped the world’s economy slipping
into a global depression matching the 1930s one.
Governments are faced with a dilemma: withdrawal of the stimulus programmes
could lead to a further collapse of the world economy as consumer and
corporate credit has dried up because the banks are carrying out very
little lending. But a continuation of the stimulus programmes – a subsidy
that will have to be paid by public sector cuts and tax rises – cannot
be financed and leaves no money for further bank bailouts if there is
bursting of the asset bubble that has built up since March 2009. The
$700 trillion of unregulated derivatives could swing like a ball and
chain and pull the whole financial system to a standstill again.
The second major issues is the question of the weakness of the US dollar
and Chinese currency. The dollar has weakened as interest rates have
been cut and speculators have borrowed dollars and exchanged them for
the currencies of other countries to buy assets in those countries.
The falling dollar had pushed the recovery in US manufacturing by making
US exports cheaper. The US economy is 70% driven by consumer spending
and credit and this is still at very low levels because of high unemployment
and a damaged banking system. The Chinese currency is kept artificially
low by the Chinese government’s reserves - this to boost its exports.
Europe and other manufacturing countries want to see the US and Chinese
currencies strengthen to boost their exports. But a strengthening dollar
would bring the faltering US economy to a halt. It would also see speculators
sell the assets in other countries and buyback the dollars they borrowed
causing the asset bubble to burst and a new financial crisis.
The summit will be about inter country haggling on these two issues rather
than putting forward the policies necessary to lift the world out of
poverty.
There are clearly enough resources to do this. On top of the$ one trillion
spent on stimulus packages the International Monetary Fund (IMF) estimates
that by the end of 2010 governments and banks will have lost an incredible
$4 trillion worldwide. This would wipe out the debt of the entire poor
world and leave plenty left over for development programmes.
An annual 5% tax on the world’s billionaires would be enough to provide
clean running water, sustainable housing, food, education, heath care
and culture for the entire world’s population.
We need a society that uses all its resources for its entire people instead
of one that see nations arguing with each other to preserve their rich
elites.