Future Global Trends: G20 Economic Collaboration – What Outcomes?

'I think a new world order is emerging and with it the foundations of a new and progressive era of international cooperation,’ British Prime Minister Gordon Brown

Current State of the World Economy
With a true global recession, the EU members are truly in denial of their economies, blinded by their anti-American sentiment and unwillingness to provide substantial stimulus packages, surprisingly EU majority views elected partial agreement to initiatives proposed by the US.

G20 – Surprises, Sidebars and Redirection
The G20 Group represents nearly 85 percent of the global output and two-thirds of the world’s population. So, agreement to strategies, pledges and side bar activities are important to observe and monitor. Here are some of the key outcomes from the meeting:

1. EU Central Bank lowered rates, finally

2. World Trade Organization predicts global trade will decline between 2% and 10%

3. China demonstrates resolve: China is executing a new strategy: bypass the US dollar and allow other countries to by their imports directly in Yuan. In March, China swapped $10 billion worth of Yuan with Argentina

4. Brazil, China, India and Russia released their own joint communiqué, calling for a larger role in the IMF.

5. EU intransigence in contributing to the worldwide stimulus package was founded in parochial views: Germany was adamant about spending anymore money that was pledged, most EU countries did not contribute 2 percent of their GDP to a stimulus package, the EU Central Bank did not drop interests until AFTER the G20 meeting, and EU nations claim that increased spending on social welfare and unemployment is a form of stimulus.

6. Surprisingly, The leaders agreed to another major Indian demand by deciding to sell IMF gold reserves to raise $6 billion that will go toward helping out the world's poorest countries with cheap loans over the next two to three years.

7. Protectionism rising: An emergency summit of G20 leaders, last November, met to avoid protectionist measures. Despite G20 collective pledges, protectionism is emerging. The World Bank released a study that indicates 17 of the Group of 20 developed and developing countries have implemented trade-restricting measures, including the US.

8. An announcement of another $5 trillion will be spent toward a 'concerted fiscal expansion' by member-countries of the G20.


G20 Pledge Dashboard
What is being hailed a great success in the media, worldwide, is in reality a mixed patchwork of agreements and partial agreements that may or may not move the world economy out of the most severe recession since 1983. President Obama underscored the obvious anti-American sentiment during the G-20 Meeting. In an oblique way he answered the initial question: Are we collaborating with friends or enemies?



For more discussion, see Fortune’s “G20 Winners and Losers”: http://tinyurl.com/cdyc92

The Real Issues for the US

"We did OK." President Barack Obama

US Economy
During the 1980’s, the US was faced with twin fiscal and current-account deficits and was able to finance this burden with assistance from key allies and strategic partners like, Japan, Germany and the UK. In the 21st century, the US is again faced with twin deficits, but geo-political rivals such as China, Russia or the OPEC centric countries will deliver the financing. So what will be the immediate outcomes?

Ben Bernanke said; “We’ll see the recession coming to the end probably this year, obviously recovery beginning next year. This decline will begin to moderate and we'll begin to see a leveling off." And reaction to the G20 meeting was mixed and generally positive. The announcements on the Dow Industrial Average and US labor rates were mixed news at best. The Dow increased above 8000, had a positive psychological value, but will the momentum be sustained? While, April US labor statistics showed an increase in the unemployed [when will we see an uptick in employment?].

Another factor under consideration is FASB’s “mark-to-market” rule. This US Accounting standard may be politically motivated to change, regarding the “mark-to-market” valuation of toxic assets. The bankers blame the application of this rule as the cause of reserve valuations that are linked to market prices. However, US Banks are still holding onto assets waiting for the real estate market to go up before accounting for these toxic assets.

US Corporations
So what is a key linchpin to a better economy? Lending to business, especially small business. In the US, small business growth drives the employment, innovation and vitality of the US economy. Bank lending will be a key success factor.

The second area of growth is in global trade. With protectionism rising and anti-American sentiment continuing to rise, this will be a steep climb and will take time to achieve. So, if you make business successful, the benefit will be the upsurge or increase in the economy as a whole.

Perceived Issues for the Taxpayers
There is already a growing discontent among Americans that taxes are too high, as are interest rates on credit cards, while at the same there appears to be little help on foreclosures, medical insurance, medical costs or educational costs. Unemployment continues to rise and more and more families are exhausting their savings and retirement funds. The US taxpayer is literally carrying the world economy once again.

Next Blog: What are other Influencing Trends: Energy?
Source: Jarvis Business Solutions, LLC, © 2009, www.jbshq.com