- The upcoming G-20 summit in London is widely anticipated. And we doubt it'll disappoint—at least in terms of drama.
- Ultimately, no international agency can enforce G-20 promises. Countries will do what's in their own best interests. It's more important to separate action from hyperbole when thinking about stock market ramifications.
- Through this crisis, the world's governments have acted in concert to a greater extent than ever before—both monetarily and fiscally. And free trade remains largely intact.
- Eventually, stimulus measures will take hold, and when they do, economies across the globe are largely well-positioned for recovery.
The Group of 20 (G-20)—or the bloated version of the Group of Seven (G-7)—will meet in London this Thursday. Tensions are running high as street protestors await controversy to ooze from officially sealed doors and windows. And fanning the flames, politicians have pinned the free world's hopes to a laundry list of ambitious, paradigm-shifting [insert jargony goals here].
Oh, the drama as our strapping leaders flex for their constituencies! The UK's Gordon Brown has called to fundamentally reorder the financial system, à la Bretton Woods. French president, Nicolas Sarkozy, claims he'll "walk out" on the talks if things aren't moving quickly enough. China wants more influence at the International Monetary Fund (IMF).
And don't forget America's new president. Seeing EU stimulus spending lagging, the Obama administration has requested commitments for more. Naturally, the EU countries will have none of it. They don't take orders from those arrogant Americans! Will our youthful president have the moxie to stand up to his crotchety foes in this, his grand international debut? The intrigue is thicker than week-old porridge—worthy of our greatest soap operas.
But like the soaps, summit drama generally falls short of real action—tune in next time to find out whether Mandy will leave Zeke to marry Sergio! Ultimately, after this episode's credits roll, no international agency can enforce G-20 promises. Countries will do what's in their own best interests. Maybe that means tougher regulation or freer trade or more stimulus. In any case, it's more important to separate today's action from hyperbole when thinking about stock market ramifications. What are these countries really doing?
Actually, they're doing quite a bit. The world's governments have acted in concert to a greater extent than ever before—both monetarily and fiscally. And those fiscal laggards the US is complaining about? Well, they may be a bit behind, but they do have spending packages in place and appear increasingly open to moving beyond comfort zones. The traditionally conservative European Central Bank (ECB) recently announced it would consider expanding its balance sheet to include corporate bonds—a significant step and perhaps indicative of their true stimulus posture.
Free trade is another area worthy of our attention. We've heard some protectionist barking, even witnessed a few nips. But there haven't yet been any drastic measures, like those sparking the Great Depression's Smoot-Hawley tariff war. Mexico's recent retaliatory tariffs on $2.4 billion of US goods make up less than 1% of total trade ($368 billion in 2008) between the two countries.
Taken as a whole, global stimulus has been massive, with or without the G-20. Trade has fallen (as one would expect during a severe recession), but protectionism isn't out of control. Eventually, stimulus measures will take hold, and when they do, economies across the globe are largely well-positioned for recovery—soapy antics at international conferences notwithstanding.