David Cameron reckons these G20 jaunts are a waste of time. Judging by the latest attempt to present unity when actually there is profound disagreement, you can understand our PM’s reservations.
The reason why this column is a fan of the G20 meetings has little to do with economics. Churchill, a man whose economic judgement was woeful, provides the best explanation: It is “better to jaw-jaw than to war-war,” he said. For as long as the world’s leaders are communicating via words rather than guns, we should be grateful. Of course, in a way, economics does come back into it. Economic growth requires international cooperation.
By the way, we could present a similar argument for the EU, for as long as the EU is strong, the chances of a major war in Europe are slim.
But from an economic point of view, the disagreement is profound. Austerity is the new watchword. Germany is Europe’s creditor, China is the world’s creditor, and when you are in debt and the bank says jump, you jump.
Keynesian economics, which enjoyed a brief reprieve last year, is out. Preaching the gospel of fiscal stimulus is as fashionable as flares. But the bottoms of Barack Obama’s trousers are so wide, he is in danger of tripping over them.
Ms Merkel and Mr Obama made a statement saying they agreed, but the truth is, they don’t.
Germany is hell bent on its economic model of pushing exports, even though such a model would be unsustainable if applied across the world. China has allowed the yuan to appreciate, but the cap on its new price to the dollar is so low that in terms of likely impact, ranks alongside bringing Emile Heskey on as substitute for England.
Now in the US there is talk of hitting the economic nuclear button. Quantitative easing may be returning, but on a scale which dwarfs what we have seen so far.
US inflation is close to negative, the US M3 money supply is contracting faster than a boa constrictor on speed, the printing press at the Fed is the only resort.
Writing in The Telegraph, Ambrose Evans-Pritchard quoted a report from RBS predicting that the Fed chairman Ben Bernanke is set for ‘monster money- printing’. Mr Bernanke once said: “The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost.” As an academic, Bernanke earned the reputation of being the world’s pre-eminent expert on the causes of the Great Depression. He is a disciple of Milton Friedman who said that in the event of a repeat of the conditions of the 1930s, the Fed could always scatter money from a helicopter.
Given that the global money supply is contracting. Given that global capacity greatly exceeds demand, it would be possible for mass quantitative easing without inflation. Such a programme could perhaps fund tax cuts, creating the demand the world needs.
But it is far from sure that the QE should be provided by the Fed. The creation of money is a good idea, but it is the ECB and central bank in China that need to be stimulating demand. But persuading them to do that would be like trying to persuade a teenager to wear his or her parents’ old flares to a party.
© Investment & Business News 2013