I was struck  - indeed almost made dizzy - by the contrasting interpretations the media delivered following the London G20 meeting.   In the end I wasn’t sure whether the media was even covering the same event.  This confusion continued till I realized that the contrasting commentary arose from more than a single consensus that Leaders, and in turn the media, concluded for this now completed meeting.

I should, before continuing, express abject apologies from my lengthy absence.  I cannot at this moment go into what we were ‘cooking up’, but I’m hopeful that my absence was worth the lengthy silence.

So back to the G20 London meeting.  As I was suggesting, the media was commenting on more than one consensus. consensus responds to different country motivations.  In addition, each tackles a different set of solutions to the global financial crisis.  We have multiple successful goals - or not.

The first consensus identified was “Avoiding the London 1933 Conference outcome”.  Prime Minister Brown was exceptionally alert to this outcome, as was President Obama.  To the extent that the global financial crisis will be ameliorated by ‘confidence’, the trumpeting of this consensus is crucial.  And it would appear that the triumphant-edge placed by the media on the London G20 arises from this conclusion and a review of the Leaders’ Statement. The G20 Leaders left the meeting in unity and with a strong statement even if largely rhetorical.

The next consensus was “the Washington Consensus is dead” declarations.  Prime Minister Brown and other European leaders - President Sarkozy and Chancellor Merkel - appeared to trumpet this consensus in their news conferences following the meeting. Though exactly what the leaders and commentators had in mind concerning the “Washington Consensus”, I’m not totally sure, but it was evident the leaders trumpeted the view that unfettered and unregulated capitalism à la Consensus was gone.  I must say such a view emanating from Gordon Brown seemed more than mildly strange.

This Consensus is all about financial regulation. Thus, statements about new regulation abound in the Leaders’ Statement.  There will be, it appears, new regulation of hedge funds, actions against tax havens, improving standards on valuation, “tough new principles on pay and compensation”, as the Statement heralded,  as well as regulatory oversight of the Credit Rating Agencies.  All in all, as the Leaders’ Statement declared, “… action to build a stronger more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens.”  All in all, much to be worked out with little or no detail here and from the US point of view, and far more critically,  no global regulator - whatever that was supposed to be.

Following on the heels of these two consensuses (yes, I looked it up and for the Latin lights in the crowd it is a 4th declension), there is third consensus, what I call “Beating the Great Recession” consensus.  This view was pushed most noticeably by the new American Administration.  In the “run up” to the Conference, US officials urged a coordinated fiscal stimulus approach to help extricate the global economy from downturns in economic growth,  trade and investment.  The negative response of some European leaders was “The Story” in the media preceding the actual Conference.  But coordinated fiscal stimulus was not the central thrust of the London Statement.  It would appear that the US Administration backed off this coordinated fiscal stimulus goal and left it to the Statement to express a collective need to “undertak[e] an unprecedented and concerted fiscal expansion,” - without collective commitment.  The Leaders’ Statement does set out a a list of resources that have been pledged that total US$1.1 trillion to aid the global economy.  Much of this lending is directed, somewhat surprisingly given the attitudes of countries toward the IMF in the recent past,  to the IMF. While certainly these sums are material, one does wonder how stimulative some off these resources are. One example will suffice.  There is a commitment to a new allocation of Special Drawing Rights for $250 billion but spread to some 185 countries - hmmmm.

The final consensus, is, I suppose, not really a consensus and not exactly expressed in the Leaders’ Statement at all. In fact it was more a proposal for a rethink of the US dollar as the global reserve currency.  This not yet identified and certainly not acted on consensus is what I would call “The Global Imbalances” Consensus.  Proposed by Russia slightly earlier,  the Governor of the Peoples Bank of China, Zhou Xiaochuan got quite some attention earlier with his posted speech on the need to move away from the US dollar as the global reserve currency.

While a proposal probably meriting discussion (although if the past is any indication the proposal will likely not bear much fruit) - it’s probably not now - and probably not from China.  As pointed out - indeed strongly pointed out by Paul Krugman - our own Nobel prize-winning columnist from the New York Times in his Friday April 3rd column - the proposal is a consequence of a China that is awash in US Treasury bills and facing an impeding and possibly severe US dollar devaluation. As Paul suggests, “So what Mr. Zhou’s proposal actually amounts to is a plea that someone rescue China from the consequences of its own investment mistakes.”  The deep problem of persistent imbalances  - huge US debt and huge China surplus will need to be addressed if we are to re-establish global economic and financial stability.  The US will have to consume less and China will have to save less.  These adjustments will not come overnight and not without pain, possibly a lot of it - but there is no consensus on this critical aspect of the global financial problem.  Certainly not yet from London.

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