Amid a withering global economy, leaders of the world’s 20 largest industrial and emerging economies are set to meet in Washington, D.C., on Saturday. But President-elect Barack Obama will stay far from the fray.
Obama will send only a team of surrogates to the G-20 economic summit. The event will be largely focused on the worldwide financial meltdown and fears of a looming depression, according to experts.
While some global finance experts say the summit could marginally benefit from a show of leadership from Obama, few are surprised the incoming president is avoiding the painful conference.
“If you’re Obama, you want your fingerprints nowhere near this thing,” said Charles Freeman, Freeman Chair in China Studies at the Center for Strategic and International Studies (CSIS). “It can only go badly. You’ll take up the process when it’s launched and more stable down the road.
“You know, there’s only one president and [Obama is] pretty glad it ain’t him right now,” added Freeman, a former assistant U.S. trade representative for China.
Obama officials released a statement earlier this week saying former Secretary of State Madeleine Albright and former Republican Rep. Jim Leach will be available for unofficial meetings on Obama's behalf at the G-20 summit.
Grant Aldonas, senior adviser at CSIS, set the tone of crisis for the G-20 summit at a press briefing Thursday.
“We’re at a point where there is a severe depression ahead of us, and it is largely one that will grind away at most of the progress that has been made toward trade and investment liberalization over the last 40 years,” he said.
Aldonas, a former undersecretary of commerce, added ominously: “I think everything I see out there right now is that politicians, both in the United States and elsewhere, aren’t taking this, frankly, seriously enough.”
Freeman said he senses among the international representatives attending the G-20 summit “a desire to vent at the U.S. for creating this crisis, and a desire by Russia and some others to at least speak out against the American style of capitalism and American greed, all things that created this crisis.
“If there is significant relatively public angst that comes out of it -- and disunion between the parties at this event -- I think that markets will react very, very badly,” he concluded.
Another panel member, Steven Schrage, Scholl Chair in International Business at CSIS, advised: “We need to restructure the system.” The former trade and economic adviser to Mitt Romney during Romney’s recent presidential campaign, noted, however, that there are hazardous stumbling blocks.
“I think there are two core problems with viewing this upcoming meeting … both of which have to do with timing -- first of all with crisis timing,” Schrage said. “You know, Bretton Woods was after the dust had long settled on the Great Depression – they were years into planning …
“This is weeks after, you know, the initial hit, and I’d say we’re in the beginning or, at best, the end of the beginning of the current crisis. So having some broad restructuring at this point would be kind of like being in the middle of a five-alarm fire, calling together the fire chiefs and trying to restructure the fire department,” Schrage concluded.
The Bretton Woods conference was a gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, N.H., to regulate the international monetary and financial order after World War II.
Show Me the Money
Simon Serfaty, Brzezinski Chair in Global Security and Geo-strategy at CSIS, zeroed in on the potential enhanced role of the International Monetary Fund (IMF) in defusing the march toward global recession or even depression.
“The only problem with that is that it would take a heck of a lot of money,” said Serfaty. “There is $250 billion worth of resources at the IMF; only $100 billion is usable. The IMF would probably need 10 times that amount -- $1 trillion -- to be able to do the job that is going to be allocated to it. Who is going to give the money is an interesting dilemma.
“The Europeans will not – and I’m satisfied that the U.S. will not finance it in any case to make it available. Maybe the Chinese will. They are the new Germany of 2010. Expectations are, in a sense, too high. Let’s take our time. The meeting is a good thing to hold, but there will be others,” Serfaty concluded.
Freeman, however, is anything but certain that China will pitch in.
The initial reactions from the Chinese government were not particularly positive to injecting a huge amount into the IMF, he noted. “[British Prime Minister] Gordon Brown came out very forcefully and said what we need is the Chinese to put $2 trillion, or something like that, in the IMF, and I think that was pretty quickly rebuffed.”
Regarding U.S. hopes for China’s posture, Freeman said: “I think the United States government is very anxious that the Chinese government not do anything precipitous with respect to the assets it already holds of agency and Treasury debt.”
As to what the Chinese are looking for, Freeman opined: “What they really want ultimately is an early warning system. They were surprised a little bit at what came down. So, ultimately, they want whatever new architecture to have the early warning system.
“I’m not sure that includes government-sponsored or multilateral-sponsored rating agencies or otherwise, but I do think that ultimately they want more foreseeability and, ironically, transparency as part of the process,” he said.
U.S. Treasury to the Rescue?
“You have to appreciate the fact that the Treasury still has enormous resources to try and affect the outcome of this,” said Aldonas. “Even when things are going negatively in the U.S. economy, people underestimate the basic power of this $14 trillion juggernaut where people still have to get up and go to work every day.
“But the point is that under those circumstances, what [President] Bush and the Treasury do makes a huge difference under these circumstances,” he said.
This latter notion probably goes a long way in explaining why the G-20 group is taking the time and effort to cozy up to the lame-duck U.S. president.
But is throwing yet more fortune at the problem the real solution?
Aldonas expressed some doubt that the tactic has proven its worth at the domestic U.S. level, much less on a global playing field.
“There’s just not the appreciation that these ideas, like an economic stimulus, are going to make a difference,” Aldonas noted.
“Let me just make a point about that in our own domestic context. Think about cutting – I mean this very seriously – cutting gasoline prices. For people on the low end in the United States -- guess what, they don’t pay taxes -- so a tax-cut stimulus, even pushing a check out to them, is not as helpful as gasoline prices dropping by 60 percent, given how they’ve got to get around, get their kids to school, get to work, all the rest of that kind of stuff.
“That’s already happened. You already have that stimulus in the market. And yet we’re continuing to see that downward spiral. It would lead you to question whether the idea of stimulus is a good idea,” Aldonas concluded.
Freeman expressed cynicism on the subject as well.
“There’s a lot of talk about the failure of markets and all this other stuff, and we need more regulation,” Freeman noted, “without focusing on the fact that what created the bubble was massive intervention in the housing market and the United States government effectively granting consumers the right to spend much more than they could possibility ever pay back.
“That’s not market activity. That’s intervention. That’s excessive regulation. So I mean we’re getting into a question of – and everybody is sort of – the initial reaction is, we’ve got to have more market intervention, we’ve got to have more government spending. We’ve seen this movie before, and it was black and white,” Freeman added.
So What Will the Summit Accomplish?
Schrage said that the summit conferees will be looking at three key areas: A common understanding of the causes of the crisis; Looking at what’s been done so far in terms of freeing up liquidity;
The overall themes they’re running through -- continuing to open markets, standing by the developing world, and not over-regulating.
As to real substance, “That’s going to be punted to the next administration, the next team to go forward,” he said.
Echoing a general sentiment of the panel, he added: “The markets are very jittery right now. If they see the Europeans and the United States can’t agree on a way forward, it could have a really devastating short-term effect.”
Freeman ended on yet another unsettling note: “Clearly there is going to be an effort to use this forum and succeeding forums to restructure the global financial architecture in ways that reduces U.S. dominance …
“And whether or not Europe comes to the fore and European-style regulation becomes more prominent in that is one question, but really the role of Asia, and particularly China, is the thing to be keying in on,” he concluded
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