G-20 communique abandoning stimulus in about face
The Financial Times points us to the G-20 communique abandoning stimulus because “they recognize financial market concerns”:
Finance ministers from the world’s leading economies ripped up their support for fiscal stimulus on Saturday, recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.
The meeting of the Group of 20 finance ministers and central bank governors in Busan, South Korea, also dropped proposals for a global banking levy, instead giving countries leeway to do what they thought best for their domestic circumstances.
The communiqué of the meeting made it clear that the G20 no longer thought that expansionary fiscal policy was sustainable or effective in fostering an economic recovery because investors were no longer confident about some countries’ public finances. “The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability,” the communiqué stated…
“Financial market concerns” are what? The economy, which is ultimately Main Street? Or profit for the industry? And how do you help your Congressman and Senator see the differences enough to help your own situation with making enough to live somewhat comfortably?
The proper response should be an increase in taxes for the rich and corporations.
“recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.”
looks like the tail wagging the dog to me.
Looks like the leash and choke collar to me. 🙁
Oh Boy! 1937 all over again!!
Luckily the world has enough flashpoints that we can get the Big War going again and jumpstart the economy just like we did in 39-41 and set a stage for post-war prosperity!
Too bad about the 10s or 100s of miiions of war casualties. But as they say “You can’t make a Military-Industrial Omelet without breaking some Civilian and Draftee Eggs!
This wasn’t supposed to happen. When I was growing up we were faced with two potential outcomes: post atomic apocalypse; or the Jetsons plus Tomorrowland. Even when the world seemed to be becoming apart in 1968 no one thought we would just revert to McKinley and Hoover and turn the world back over to the J.P. Morgans.
Forward into the Gilded Age! Maybe like J.D. Rockefeller did back in the day, they will throw dimes from their limousines as they pass by.
It’s capitalism, private capital calls the shots.
That is coming with the tax sunsets, and new health care tax increases. So we will see if it works, and will know in about 1.5 to 2 years.
what’s funny about that… as i am sure you already know.. is that the “capitalists” like to brag about free enterprise.
the one thing they can’t understand… besides their constant favor seeking from the government… is that free enterprise would work just as well with a government sector, and taxes, in which the rules applied to everyone and the taxes were set for everyone without special loopholes. then “government” would be no different from the laws of physics. just a cost of doing business.
of course capitalists would lobby for a special exemption from the law of gravity if god was looking for campaign contributions.
***The proper response should be an increase in taxes for the rich and corporations.***
A perfectly valid approach to deficit reduction. And as long as the taxes are on income/profits one that neither Keynesians nor conservatives should object to. Lowers deficits and doesn’t interfere with hiring or investment since those are expenses (well, OK, in the US, new equipment may be subject to bizarre depreciation rules that defer charging the expenses).
Of course, the deficit hawks don’t really care about lowering deficits. What they really want is to keep income taxes low and screw ordinary Americans to the greatest extent possible. I don’t think they will find the idea of actually lowering deficits other than by gutting social program to be remotely accepable.
It should be pointed out, that this isn’t really much about the US. It is about the EU and their neighbors. And the non-US/European members of the G20 probably are not going to pay one bit of attention to it anyway. Even if they did, China is probably the only one that matters. And, because their stimulus worked, unlike everyone else on the planet, the current Chinese problem is how to cool an overheated economy, not how to stimulate a moribund economy.
And yes, Paul Krugman is probably correct. This is incredibly stupid. http://krugman.blogs.nytimes.com/2010/06/06/lost-decade-here-we-come/
I’m guessing that one or more major European (?) banks have quietly made it known that if the Euro is not stabilized, they will be going under shortly. But that’s just an uninformed guess.
Oh Boy! 1937 all over again!!
Are they raising taxes? Every country can’t be a net borrower. Something has to give. So far we and others are borrowing money for nothing. You don’t expect this to last forever do you? At some point all the welfare state countries need to roll up their sleeves and do some work to generate economic activity. The low hanging fruit I think is to lower reguation to create activity where it was prohibited before.
isn’t really much about the US?
have your heard about the big Deficit Commission? or what happened to the Big Stimulus?
seems to me this is all part of a previously prepared plan, and that it’s motives are not “obvious.”
hate to sound paranoid, but when people who are not stupid do something stupid, you oughta look twice. now,maybe they are stupid, or bought by the stupids, or maybe, as my old friend Jimi said the other day, this has more to do with power than even money.
***isn’t really much about the US?***
The US certainly has a rightwing scumbag problem. No doubt about that.
But RWSBs couldn’t care less what G20 policy is because the US is all that matters. In their minds if its foreign, isn’t run by some sort of sociopathic autocrat or military clique and you can’t invade it for some reason, it doesn’t exist.
judging from “jesus” above, they are all welfare states that don’t do any work. except sell us mercedes.
How conveniently unspecific and vague.
OK, first off, the FT, along with a good bit of the press, has noticed what is new about the G20 text, and missed what has always been in there. Just ahead of the austerity bit is a welcome to determined efforts by the EU, ECB and IMF (lending, lending and lending, respectively, in the case of Greece), and “we stand ready to safeguard recovery and strengthen prospects for growth and jobs.” This latter bit is open to interpretation, of course, but is drawn from a letter from Treasury Secretary Geithner to his G20 buddies dated last Thursday, in which he calls for European surplus countries, Japan and China to gin up demand and keep the recovery going. The communique has plenty of room in it for expansionary policy.
Just don’t expect much more of such policy outside the US. Germany, of course, was cobbling away on an austerity package and Japan’s new cabinet called for fiscal reform in the same weekend.
What we have here is a recognition that the US will remain the US, dedicated to growth, so that other countries can dedicate themselves to living off of US policy “leakage”.
As to the “market” imperative to run austere budgets, Germany’s ten-year is currently yielding 2.55%, vs 3.19% for the US ten-year. Japan’s ten, of course, is at 1.20%.
maybe you can explain to the layman what the thought process is in the mind of “the markets” regarding government debt.
A question so broad as to boggle the mind. Can you narrow that down?
The following companies have already gotten a special exemption from the law of gravity from God:
Lockheed, Boeing, Desault, Raytheon, British Aerospace, Virgin Galatic (pending), SAAB, Folker…the list is rather lengthy…
Now some companies decided it was cheaper to ask for an exemption from the Devil. Well I will give you the partial list and you can figure out who made the right choice to lobby…Sikorsky, Bell Helicopter, Eurocopter, Baumgartl, Oboronprom, Vought,etc…
Islam will change
i actually don’t get your point. if it’s about defense spending… well okay.
but if its a matter of “flying,” you know, i did a bit of that myself. and if you think you’ve got an exemption from God on gravity you are about to be in big trouble.
two questions for the amateur:
first, exactly what ‘this therefore this” is going throught he minds of whoever “the market” is that is worried about government debt. are they thinking that the debt is going to be financed by inflation and that will destroy the value of the bods they hold?
second… would they accept higher taxes as a sign of “austerity” or “responsibility”?
in other words “what are they tninking?” be as fair to them as you can. do they have a rational case or are they just panicking at their own rhetoric?
Its not about defense spending, otherwise I refuse to explain this….I flew fixed wing and since I never got a personel exemption from the big guy I always respected gravity. BUt it was a joke….
best not to explain a joke. but as we have seen, you are not the only one whose jokes fail to lighten up their target audience.
OK just to get my priors out there, there is a pernicious bit of folklore regarding markets, which treats markets as sentient. There is no “mind of the market”. Expression like “what the market is telling me” represent a weakness in understanding. People think (some of them, anyhow) and they don’t all think the same thing. The net result of the thinking of those who have money in financial markets (weighted by the amount of that money they move in any market) is the price of financial assets. There are those things which are relate to trade – price, volume, rate of change, volatility – and there is the anthropomorphic nonsense that you read about in most opinion regarding financial markets. Standard finanical math regarding price and things related to price tells you where the opinions of people moving money through the market meet.
So, interest rates across the Treasury curve are historically fairly low. Real interest rates are less low, given that inflation is fairly low, too, but still, real interest rates are low, too. The math suggests that, on balance, there is no overwhelming concern that the inflation will get out of hand, or that US Treasuries carry much default risk. The CDO market offers a similar read regarding default risk.
So there is no “panic” except in the rush to Treasuries every time a bad headline hits the tape.
The case against deficits is being made without reference to current Treasury market pricing. I have no beef against asking “what if?”. However, “what if” arguments are necessarily made in the absence of evidence – they are counterfactual, for now.
That’s the root of Krugman’s point about “conventional wisdom”. Conventional wisdom – among those who argue that the deficit is a risk, not among those who move money through the market every day – is a counterfactual wisdom. It assumes things not in evidence. Conventional wisdom is making an argument for innoculation, when there is a risk that the innoculation will make the patient sick, and when we don’t have good evidence that the disease against which the innoculation works is a risk right now. Waiting for a healthier patient before administering the innoculation might be prudent.
We’ve seen a number of sudden swings in interest rates, CDO pricing and the like, which remind us that conventional wisdom is not utterly without basis. It is possible for rates on Treasuries to rise sharply. Probably not right now, though. Domestic money is funding much more of the Treasury deficit right now than it did during lower-savings years. China seems to be less interested in euro-denominated assets. Iran, too. Those facts make a sudden swing in Treasury rates unlikely.
If I were to guess, I’d guess that the point at which Treasury rates first get going will be a fairly conventional point. Some day, the Fed will make clear that rates are going to rise within 3 or 4 months. That will change funding costs for investment positions, and there will be a sudden adjustment in rates. That time will be roughly coincident with the apparent approach of trend-like growth, which is also historically associated with rising real rates. It will then matter far more whether the US has arranged to have a cyclically-adjusted budget gap nearer balance than is now the case.
thank you for this. i wish you would keep going. but for the record let me state that i am not one of those who think “the market” is sentient. and that was why i was asking you what “exactly” do they mean when they say the market is anxious…
i take it you are saying the market is not anxious now, but could become so, and you even point at what i think “they” are saying they might get anxious about: some time in the future the budget gap might become unsustainable. that is certainly the story we have been getting from Peterson for twenty years. “they” do not seem to consider the possibility of raising taxes to pay for “the gap” or cutting any spending that someone makes a profit on (defense as opposed to “welfare,” though why they don’t see Medical Care as a profit opportunity is not clear to me.)
so if you would indulge me a bit further… is there a “narrative” that explains the rationale of the “the market” … or is it that the propaganda has begun to feed on itself?
these are questions… i am trying to overcome my own rude dismissal of the whole idea.
Ditto for me…
And the consequences if it doesn’t? Let the chips fall where they may, but no whinning if it gets ugly!