A consensus seems to be building on what the G20 will achieve. The consensus seems to be that it will achieve nothing. But it goes further. A growing chorus of voices is saying that if it does achieve nothing, it will be a good thing too. Politicians only ever make things worse.

Meanwhile, the French President seems to want to appease the G20 critics. If you want nothing, he seems determined to grant that wish.

But they are wrong.

Nearly headless Nick Sarkozy is digging his heels in. He wants to see tougher rules on financial regulation, and if they are not granted, well, he may walk out.

The Times reported on the words of Xavier Musca, the French President’s chief of staff, who was asked if her boss really may storm out of the meeting. The reply: “A basic rule with nuclear deterrence is that you do not say at what point you will use the weapon.”

It’s a nice story, but it’s totally irrelevant. All the world’s leaders want to see tougher regulation on finance. There will be no justification for Mr Sarkozy to walk out. But it is something of a red herring. Just imagine, this crisis finally comes to an end, say, in the middle of next year. Whether there is tighter regulation or not, it will be a generation before the finance sectors repeat the mistakes of the build up to this crisis. Not even bankers are going to repeat the errors of the last few years in a hurry.

By threatening to throw his regulatory dummy out of the regulatory pram, Mr Sarkozy is doing nothing to try and ease the crisis. Rather, he is merely trying to make sure everyone knows the Anglo-Saxon economies are to blame. That is all.

Forget about the crisis and its possible effect. Let’s blame the Anglo-Saxons – that is much more fun.

But in a way, the backlash against bankers’ bonuses is a part of the same problem. When this column argues against this backlash, it does not go down well with readers.

Even so, the argument remains.

The causes of the crisis we are now suffering from are subtle.

In very few places will you hear about the single most important economic development of the last few years spelt out. The last few years have seen the world’s ability to produce goods and services rise enormously.

Sure, there was a debt bubble, and sure, bankers made mistakes. But, the last few years have also seen global capacity go through the roof.

But, if demand does not rise with this potential supply, there will be a recession, a nasty recession. This is what happened in the 1930s, and it is absolutely not what happened in the mid 1970s, early 1980s and early 1990s. These downturns had causes that were quite different, and the lessons that can be learnt from them are almost irrelevant to today’s crisis.

The bursting of the asset bubble was a symptom of this deeper change. In the US during the 1920s, house prices soared, and then equities. Both bubbles burst.

Some economists say Germany is just as much to blame for the crisis as the UK. That she saved too much, just as the UK spent too much. People laugh at that. How can that be? As Money Week said, it is like a fat man blaming thin people for his obesity because he felt it was necessary to eat all the spare food left over.

But actually, that analogy is wrong. If you produce more than you buy, then someone else must be buying more than you produce.

If all the world was like Germany, and as prudent, and saved, and relied on overseas demand, the world would sit in permanent depression.

The great breakthrough of the industrialised era was the ability to create money via debt. This ensured demand could keep pace with supply.

Before this innovation, economic growth was virtually non existent.

Without Anglo-Saxon borrowing, the global economy would have hit recession earlier in the decade.

Some may say it is wrong that banks are bailed out while Woolworth’s goes under, but if it wasn’t for the unsustainable credit boom, Woolworth’s would have gone bust years ago.

The global problem right now is lack of demand, and this lack of demand is caused by something positive, a rise in productive capacity.

That is why the G20 must agree to collectively boost demand. If instead it falls on countries like the UK and the US to boost demand, while the Eurozone sits behind the puritanical rhetoric of its central bank, then the crisis will deepen.

It appears the G20 has already agreed to increase funding to the IMF, and change the way the organization is structured, with China gaining more influence. This is a good thing. The IMF is hated in parts of the world. It is now changing, and if the G20 achieves nothing else, that alone should be celebrated. As a result, the complete collapse of some economies, with resultant horrendous hardship, will be avoided.

But the G20 needs to do more. It needs to agree on global efforts to boost global demand. But for as long as we argue about bank bonuses instead, and focus our efforts on bolting the stable door of regulation so tight that when the horse returns it may not be able to get back in, the crisis will not end.

© Investment & Business News 2013