G-20 Meeting Won’t Make a Positive Difference

I’m not sure whether you’ve noticed or not, but we’ve focused on the property market over the last couple of weeks…

Oh, you have noticed. Good, well, you may – or may not – be pleased to know we’re taking a break from it for today at least.

That’s because we’re not sure if there’s that much more to say. If you think we’ve missed something let me know. But check out the articles that have been posted to the Money Morning website first, and also take a look at the comments made by other Money Morning readers.

If I find anything else exciting to write on property I’ll let you know.

But before I put property to rest, one quick thing. Apparently the property bulls aren’t happy with Money Morning speaking its mind on the property market.

After having everything their own way for the last thirty years to spruik property investing, and spreading fibs about prices always rising, and doubling every 7-10 years, they don’t like the idea that someone’s gate-crashed the party to tell the guests their drinks have been spiked.

Once the ‘high’ wears off, we’ll guarantee the party won’t look quite so ‘groovy.’

But just to keep the property spruikers happy, perhaps they’d rather read the following story from The Sunday Telegraph, “Housing prices set to soar” while you read today’s Money Morning…

This past weekend will long be remembered.

Put the dates 4-5 September 2009 in your diary and make a note of what you were doing on those momentous days.

Those dates will be remembered just as readily as 15th November 2008, 18-19 November 2006, 23rd November 2002, and of course, 25th October 2000.

But just in case the excitement has got the better of you, I’ll refresh your memory.

All those dates are significant as the dates when the G-20 met to discuss… well, all sorts of frightfully important stuff.

The latest effort was to pat themselves on the back for a job well done of, erm, spending lots of money. It was their “unprecedented, decisive and concerted policy action” that “helped to arrest the decline and boost global demand.”

Naturally, that was the ’saving the world from itself’ bit, now they’ve got to ’save the world from itself – again.’ Phew! Is there no rest for the superheroes of government?

The Justice League has got nothing on these guys.

“We will work to achieve high, stable and sustainable growth, which will require orderly rebalancing in global demand, removal of domestic barriers and promotion of the efficient functioning of global markets. The need to combat climate change is urgent, and we will work towards a successful outcome in Copenhagen.”

They even managed to slip in a reference to ‘climate change’ without pausing for breath.

Nice work.

But do you think any of it will work? Will they actually achieve anything? Well, let’s judge that against the following excerpt from the communiqué of the 26-27 October 2003 meeting of the G-20 finance ministers:

“We reviewed the current world economic situation and noted that, while risks remain, a global economic recovery is underway, aided by supportive macroeconomic policies in many countries. We welcomed the recent positive performance of several economies… We emphasized the need to reduce fiscal and external vulnerabilities and imbalances in both industrial and emerging market economies. We agreed that the adjustment of significant imbalances in systemically important regions or countries requires robust implementation of appropriate policies. Further efforts, including the acceleration of structural reforms to foster potential growth and improve macroeconomic stability, are needed… We reaffirm our mandate to review and promote crisis prevention and resolution measures. We encourage the IMF to continue to enhance its capacity to identify vulnerabilities, such as currency and other balance sheet mismatches.”

You see, when bureaucrats and politicians talk about “macroeconomic stability” and “crisis prevention” what they really mean is they’ll have a lot of meetings to discuss things they know nothing about, take some advice from special interest groups who also don’t know anything apart from what benefits them, and then deliver a policy that makes the situation worse.

Simply because they either don’t know, or don’t want to know what they are doing wrong. Or if they do know then they just want to postpone the consequences to a later date.

That’s why last weekend’s G-20 meeting won’t make a jot of difference to anything? Well, it won’t make a positive difference anyway.

A negative difference is completely plausible.

If we take the October 2003 G-20 meeting and relate it back to the stock market, we could say they picked the start of the bull-run pretty well…

The only problem is, while they claimed to be looking at ways to reduce “fiscal and external vulnerabilities”, it was actually a continuation of half-witted and disastrous fiscal and monetary policies that guaranteed a collapse of the global economy.

It was just a matter of time before it happened.

But look at the chart again. It was about four years between the early stages of a bull run that saw stock markets double to when the backside fell out of the economy from late 2007.

In fact, the S&P/ASX200 index retraced from the 2007 high back to near the low of 2003 in less than twelve months.

It’s why all this talk about ‘green shoots of recovery’ is so misguided. Sure, things may look great, and the economy may look as though it has recovered. But it’s recovering due to the same things that made the economy recover last time…

And the time before that. Easy credit, over regulation and government interference that’s just making the global economy even more fragile than before.

So why should anyone seriously believe the ‘G-20 Justice League’ will get it right this time?

You shouldn’t. Remember, although the faces at the meeting may be difference from those at the 2003 meeting, the members are still cut from the same cloth – politicians and bureaucrats that have some bizarre belief that they can influence and control the actions of six billion people.

No one in their right mind could sanely believe they could do that – except a pollie. But, reader, that’s exactly why government meddling in markets always leads to failure.

Contrary to popular belief, governments haven’t deregulated markets at all over the last ten years.

Regulation has increased everywhere, not just in financial markets. It is this increase in legislation and rules and regulations that makes it harder to identify flaws in any market.

To sidetrack for one moment, Storm Financial is a perfect example. We’ve been told endless times that Australia has the best financial regulation in the world. So how come Storm Financial was able to succeed and thrive? Wouldn’t world class regulation have prevented this?

Well, it wasn’t despite the regulation, it was because of it. I won’t go into the details today, instead I’ll leave that topic for another time.

So, we should be worried by the G-20 Justice League’s “Declaration on Further Steps to Strengthen the Financial System.” It will be these “Steps” that are more likely to form the groundwork for the next economic crash.

Will it take four years for this one to happen? Maybe, maybe not.

But it’s not just the big picture economic fundamentals. That’s something which history tells us the politicians will always get wrong.

It’s the desire by the pollies and bureaucrats to micro-manage the economy that’s just as bad:

“Global standards on pay structure, including on deferral, effective clawback, the relationship between fixed and variable remuneration, and guaranteed bonuses, to ensure compensation practices are aligned with long-term value creation and financial stability.”

Seriously, do you really want politicians setting pay scales? I mean, they’ve already institutionalized unemployment by creating minimum wage levels.

Now they want to strike at the other end by creating more unemployment with a ‘maximum’ wage policy.

Any interference by a government into private enterprise merely distorts the market. It will bring more of those unintended consequences which will require further legislation.

Executives salaries are a perfect example. Look at any annual report now and nearly the first quarter of it is spent explaining how senior management is paid. Far from it being beneficial to shareholders, the mass of information just makes the shareholder take less interest in how the executives are paid, not more.

And for the executives they’re covered. They can claim that everyone is aware of the remuneration scale and therefore no-one can complain.

It’s just as crazy as the idea that publishing salaries would keep the lid on executive pay. Executives would be ‘embarrassed’ we were told if they were overpaid because now everyone would know.

Well, that wasn’t the effect at all was it? No, because all it did was let every executive see how much everyone else was being paid which resulted in salaries being driven higher.

Now the pollies want to have another go at it. Guess what, we’ll probably just see another expansion in executive salaries.

Anyway, it’s not possible, and neither is it desirable, for glorified pen-pushers to set wages policies.

Once governments have set minimum and maximum pay scales the pincer movement will be complete and everyone’s pay will be set not by your individual effort, instead it will be set by a control-freak in Canberra who believes he/she alone is the best person to determine how much your labour is worth.

If you think we’re drawing a long bow between the G-20 Justice League meeting and your pay packet, then that’s fine.

But there is little doubt governments worldwide are using the collapse in financial markets to increase their stranglehold on markets and individuals.

So while the mainstream press gets excited about economic and political summits, for the rest of us we should be very cautious about what kind of hare-brained and half-baked schemes that emerge from this most recent talk-fest.

Because the odds are, whatever happens, it will end up with you paying for it. The Henry Tax Review is likely to be the stage where everything is revealed.

Other Stuff on the Markets

The S&P/ASX200 climbed 0.13% on Friday, while on Wall Street the Dow Jones Industrial Average added 96 points. In Europe the FTSE100 added 1.15% and the CAC40 gained 1.27%.

The price of gold in Australian dollars is trading at $1,169.61, while in US Dollars it is trading at $994.40.

The Aussie dollar strengthened versus the US dollar and Japanese Yen, trading at USD$0.8505, and JPY79.13.

Crude oil closed at USD$68.02.

For the biggest movers on the market yesterday click here…