In London on April 2, 2009 the Group of Twenty Finance Ministers and Central Bank Governors summit met to discuss responses to the global financial crisis. The G-20 is a group of finance ministers and central bank governors from 20 economies, 19 of the world’s largest national economies and the European Union.
Desmond Lachman of the American Enterprise Institute said at the Heritage Foundation recently that today’s economy looks like the economy of the 1930’s. He said “there is a highly synchronized global economic bust, trade is down 40 percent from a year ago and there is a decline in output.” He continued, “there are two things driving the global economic crisis, an acid price bust and a credit crunch that we haven’t seen since the 1930’s.”
Lachman noted that there is a 50 percent decline in equity prices and households are cutting back. If the economy goes down further, equity will continue to go down, he argued. “We need a policy to stabilize the U.S. economy,” Lachman said.
“Three things the policy should include are a front-loaded and well-designed fiscal stimulus, a coherent plan to get credit flowing again and policies to stabilize the housing market,” Lachman believes. “The current stimulus is poorly designed and only 20 percent of it comes into play in 2009.”
“Geithner’s plan to get credit flowing is not attacking the key problem, which is banks solvency and he is repeating mistakes of Japan,” Lachman said. “I don’t expect much from the G-20 and it’s a great pity.”
George Mason University law professor Jeremy Rabkin
said at the Heritage event that “it’s very unlikely to see enhanced global governance as an outcome of the G-20.” He said the G-20 isn’t easier to get a consensus on but harder because 10 of the countries are third world.
He also said a short lesson on international relations is “crises doesn’t pull people together, it pulls them apart.” Rabkin said the equivalent of the G-20 was happening in the 1930’s and everyone was looking to the U.S. for leadership and President Roosevelt said I’m too busy.
“The public mood is distrustful of foreigners,” he argued. Rabkin also said some have suggested reinventing the International Monetary Fund.
He said “if you don’t trust the U.S. government and their offerings you can get it from the IMF, but the IMF is backed by the U.S. government.” “That’s like saying we can end the energy crisis by inventing cars that don’t require fuel,” he observed. Rabkin also said one thing we should pay attention to is the International Accounts Standard Board trying to set up regulatory standards to go into American law. He said “we should not allow that to happen and I don’t think it will happen next week but it is a red line we should pay attention to.”