Judging from the comments in the popular media, the G20 is focused on:
- Tighter hedge fund regulations
- Tighter regulations against ‘tax havens’
- Co-operation to ’save the world’ from the global recession
- Funding for the IMF
“Poor old hedge funds” - they certainly have had their share of troubles: massive losses; withdrawals; and now they are being blamed for causing the current crisis. In truth, all they did was participate in ‘opportunities’ to make money; and when the process came undone, those on the wrong side took their losses. You don’t hear of a single fund asking for a bailout because of their losses.
I doubt that the US will support the French and German call for strict regulations - the US political scene is not quite ready for that.
Germany and France are calling for specific measures against tax havens.
I can’t see it. While the US may bully Hong Kong, Singapore, and Switzerland into disclosing the tax affairs of US citizens, it is unlikely to agree to measures that will affect its own tax havens. Putting aside the havens outside the US but ‘controlled’ by the US, foreign nationals make use of the havens in Delaware, Florida, Nevada and Wyoming (see http://www.lectlaw.com/filesh/bbg33.htm).
The same can be said for a united global attempt for global monetization. Here Germany will stand firm against the US, UK and France. Merkel (the German Chancellor) still takes the long-term view that resorting to the printing press is more trouble than it is worth.
The one concerted action that should come from G20 is the additional funding for the IMF. There is some talk that it will become the de facto ‘World Central Bank’.
The upshot of all this is probably a positive effect on the S&P and a negative one on the US dollar.
Prior to G20, China and Russia had been suggesting that the US$ lose its reserve currency status. The US will give this suggestion short shrift. But that won’t stop the US$ from falling. Consider these facts.
- In 2001, the US$ reserves held as a total of global reserves was 55.8%; in 2008, it was around 40%.
- Iran, the second largest oil producing country in OPEC has announced that all future oil transactions will be in non-US$ currencies.
- Kuwait de-pegged from the US$ in favour of a basket of commodities in May 2007.
What is holding up the US$ is China’s continuing purchase of US securities. The US and China remind me of two drunks crossing the street and leaning on one another for support. At some stage, the more sober drunk (China) will realize that he has a better chance alone of making it across the road. If and when that day comes, you will see the US$ nose-dive.
Refer this blog post to a friend or colleague…
