Friday, April 19, 2024
News and Views from the Global South
G20: Give or Take a Trillion or Two
Analysis by Sanjay Suri
- The ease with which leaders spoke of trillions of dollars at the G20 summit in London Thursday was no doubt intended to signal to the world just how serious leaders are about getting the economy right again. That these fabulous figures may never add up is another matter.
On early trading Friday morning, the markets showed no great excitement. The Financial Times index was in fact marginally down, after rising on hopes through Thursday that the leaders will somehow do something.
It just might be that what got through was not so much confidence as an anxiety to present it. Some of the additions seem to have counted in a touch of desperation.
British Prime Minister Gordon Brown produced the biggest figure of all – 5 trillion dollars. And a trillion, not to forget is a thousand billion, or a million million if you like. It takes all of 12 zeroes after one.
And the five trillion? It would be, Brown said, the absolute sum total of all financial stimulus in all forms in all countries by the end of 2010. For example the new capitalisation of banks in the U.S. and in Britain, measures like quantitative easing that mean in effect that governments simply print more currency notes, or generate new money electronically to swell availability for banks and bonds.
Some of these billions – and at the G20 billions sounded like small money – have come and disappeared. Take the 100 billion dollars or so of quantitative easing announced by the Bank of England. It was meant to inspire confidence. No one has seen either the money or the confidence.
And the U.S. fiscal stimulus, alongside the money going into the automobile industry seems not to have brought a fraction of the results it was intended to. With the first flows of that trillion as good as evaporating, Brown's total would include money that came and also went, almost soon as it came. Never mind where. But certainly not in a way that may have made a huge difference to the economy.
And given these early trends, it must take a lot of confidence for Brown to project that more such money will continue to come in all of the rest of this year, and all of the next. Gordon Brown may well go wrong by a few trillions here and there. At other times that would expose an economist to serious charges of error of judgment; now nobody minds too much whether trillions will add up to a total of five. And this is at least partly because governments now carry very little credibility.
And the lack of credibility in such figures might of itself undermine the confidence they were intended to instil.
The other trillion, a more precisely worked out 1.1 trillion dollars, was announced for the International Monetary Fund (IMF), regional development banks and international trade finance.
This includes 750 billion dollars in funding for the International Monetary Fund, 250 billion for trade finance and 100 billion for multilateral development banks.
Of this 500 billion dollars in loans will come from member countries, 100 billion each from the EU, the U.S. and Japan, and 40 billion from China. The rest, it is assumed, will come from somewhere else.
And now the IMF too is going the way of the U.S. and Britain by manufacturing money, for which the official euphemism is of course quantitative easing. And that will come by way of an extra 250 billion dollars in special drawing rights, a sort of lending currency that is the IMF's own.
The declared intention is that all this is for the poor. Another declaration comes that the IMF will also sell its gold to fund aid for poor countries. A lot of poor people in the world, and others not so poor but hit hard by recession will be looking to see how much of this money comes along to make anything better for them.
About half the world – more than 3 billion people – live on less than 2.50 dollars a day. And talking billions, that is a real figure.
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