“No New Initiatives”? Thank God!
Once again, an innocent city was overrun by a bunch of gasbags (h/t to Bill Fleckenstein for this apt description) from the political and bureaucratic realms for one of their regular shrimpfests, where they get to stuff their faces with fine wine and expensive food items, all paid for by the serfs. We consider most of these people a virulent danger to the market economy and liberty, so excuse our less than complimentary language.
Gabfest of the gasbags in Shanghai
Photo credit: Rolex Dela Pena / AFP
Remember the “900 plans”? Back in September of 2014, the G20 decided that governments would magically “produce economic growth”, with the help of no fewer than 900 plans (no, we’re not joking). As the newspapers reported at the time:
“….the meeting of finance ministers and central bank governors issued a formal communique that commits to actions to lift growth. Central to the agenda is a growth ambition agreed in February to add 2 per cent over the next five years to collective growth when compared to a “business as usual” scenario without new action. G20 members have submitted about 900 plans to reach the target.”
We felt fatally reminded of the Soviet Union’s 5 year plan hatchery GOSPLAN (as you will see below, our intuition was spot-on) and suspected that the success rate would be very similar. And it was, indeed. This particular G20 meeting actually scared us a bit, because they suddenly seemed to become active. A great many initiatives absolutely certain to hamper economic growth and concurrently undermine individual liberty were discussed. Only a few weeks earlier we had confidently written:
“There is only one good thing about G20 (and similar) meetings: almost nothing ever comes of them.”
The notion that governments could simply decree “economic growth” into being didn’t want to go away – but by November 2014, 900 plans had at least been cut down to “only” 800 plans – while the bureaucrat-politicians were becoming more ambitious with their “growth targets”. And then they literally adopted a Stalinesque 5-year plan!
Old Soviet poster: “The victory of the 5-year plan is a blow to capitalism!”
““Under pressure to jolt the lethargic world economy back to life, leaders of G-20 nations on Sunday finalized a plan to boost global GDP by more than $2 trillion over five years. […] “The G-20 communique says if the $2 trillion initiative is fully implemented, it will lift global GDP by 2.1 percent above expected levels by 2018 and create millions of jobs. Abbott said countries agreed on more than 800 new measures to spur the global economy, which the IMF describes as facing a “new mediocre.” “People right around the world are going to be better off,” he said.
That was then. Are “people around the world better off”? We’re not sure, but we suspect not. Luckily, the G 20 are now back to business-as-usual. Instead of making 5 year plans buttressed by 800-900 individual bureaucratic “initiatives”, they are back to doing absolutely nothing, apart from wining and dining on the taxpayer’s dime. That is irksome enough, but it is still a lot cheaper and safer than having them actually “do something”. According to press reports:
“G20 discussions were back in international media headlines during the last week, as Shanghai hosted the first major meeting of China’s 2016 G20 Presidency. The concluding statement issued by finance ministers and central bank governors on Saturday was strong on rhetoric, and Chinese leadership has managed to insert a sense of momentum back into G20 discussions. But the meeting will disappoint the many who called for the G20 to be more active in addressing economic vulnerabilities and risks. In particular, on the main substantive issue for the meeting, that of calls for greater fiscal action, a lack of consensus has led to the finance ministers and central bank governors kicking the can down the road.”
Phew! – Look at the dude from France – he’s evidently enjoying himself. And there’s Draghi – how has he escaped from his straight-jacket?
Photo credit: Rolex Dela Pena / AFP
Not a single mention of 900 plans, 800 plans, or an overarching 5 year plan! Only “strong rhetoric”. Hallelujah!
Don’t Break Out the Champagne Just Yet
However, it is too early to celebrate this seeming display of complete passivity. Establishment mouthpieces are already busy pleading for more action from assorted central planners. And the Financial Times warns us: “G20: not as bland as it seems”. It starts out well enough:
“It is easy to dismiss gatherings of global policymakers as ineffective and last weekend’s G20 meeting fits the bill. There were no new initiatives, no co-ordinated plan to deal with what, according to some data and many forecasters, is starting to look like a gloomy slide into worldwide recession. The great and the good that gathered in Shanghai offered only the same old bromides about the need for global co-ordination, a more active fiscal policy and greater infrastructure spending.”
As long as they’re only “bromides”, we can all feel fairly safe…but:
“But even if policymakers do not always have the answer or choose to do little — as was the case in Shanghai — it would be rash of investors to believe their tool kits are empty.”
This is a warning one should certainly take seriously. Reuters notes that more and more people are beginning to warn that money printing and deficit spending are counter-productive – most prominently, Germany’s minister of finance:
“The widely predicted failure of G20 leaders to agree on bold new steps to reinvigorate the world economy at a meeting in Shanghai this weekend puts the onus firmly back on central bankers. But after years of increasingly desperate attempts to kick-start growth there is fear among bankers and top finance officials that monetary policy is running out of effective ammunition and future stimulus efforts could even be harmful.
“Monetary policy is extremely accommodative to the point that it may even be counterproductive in terms of negative side effects on banks, policies and growth,” German Finance Minister Wolfgang Schaeuble said at the G20 meeting.”Fiscal as well as monetary policies have reached their limits,” he said. “If you want the real economy to grow, there are no shortcuts which avoid reforms.”
The G20 acknowledged that monetary policy alone is not enough to combat rising global risks but leaders failed to outline concrete steps, making only vague and general pledges.
Teutonic stimulus party pooper Wolfgang Schaeuble
Photo credit: Andrew Harrer / Bloomberg
Several other observers have echoed Mr. Schaeuble’s views. So far, so good. However, economists are already urging the monetary bureaucrats to forcibly dispense more NIRP happiness – and worse:
“Economists say that central banks could force commercial lenders to offer loans at a negative interest rate in return for guaranteed earnings, stimulating both growth and investment. That would force central banks to take big losses.
They say a last resort would be to offer “helicopter money”, free cash provided to all euro zone citizens with the aim of stimulating spending and inflation.
This was suggested by former Fed chairman Ben Bernanke in 2002 as an effective way to fight deflation but European policymakers have not seriously discussed the idea.”
The fact that “European policymakers have not seriously discussed the idea” (allegedly) offers only very little consolation. There once was a time when no-one “seriously discussed” QE or negative interest rates – and yet, here we are.
Countries producing approximately 23% of global economic output (as measured by GDP) are now suffering negative interest rate regimes imposed by their central bankers.
The serfs – this is to say, the part of the population that actually creates the planet’s wealth and is “tax-farmed” by the ruling class – can count themselves lucky that nothing concrete has emerged at the recent G20 pow-wow. However, the helicopter money threat becomes ever more palpable. If this harebrained idea is ever implemented, it is bound to undermine genuine wealth creation beyond the point of no return.
Chart by: WSJ