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  1. Wealth
April 7, 2009

G20 was a busted flush

By Spear's

A suspicion remains that Brown is worried that the nadir of his career could be going to the IMF to find there’s nothing there.

G20s come and go, and this one came to London and went nowhere. The Big Deal was announced by host Prime Minister Gordon Brown: $1.1 trillion to save the world. The IMF gets a well-signalled $500 billion that could just as well have been handled by Royal Mail, second class.

A suspicion remains that Brown, who has been calling for this IMF top-up for months, is worried that the nadir of his career could be going cap-in-hand to the IMF to find there’s nothing there.

To put it in perspective, this $1.1 trillion is less than Brown’s bail-outs of certain British banks, and a lot less than Obama’s $9.7 trillion to bail out the American banks.

Then there’s another $250 billion for the IMF for ‘world trade’, no other details supplied, which is the equivalent of a drop in a bucket, and another $250 billion for world trade credits, a second drop in the bucket, and the final $100 billion for loans to Third World Countries fresh out of money, just a drip in this ever-empty bucket.

Brown concluded: ‘This is the day the world came together to fight against the global recession.’ Well, if that’s what they all came to London for, this G20 would have been better held one day earlier on 1 April, if you ask me.

What really happened took place in the week before. First, opinion polls showed the American taxpayer was getting very restless about the amounts of money being thrown around like confetti at bust banks, insurers and auto makers.

The same polls in Britain showed the same mood amongst the public, and then Her Majesty QE II played a master card, inviting the Governor of the Bank of England to tea at Buck. Pal. for un petit tête-à-tête à deux, for the first time in the Bank’s history since its formation in 1613, some first indeed.

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The next day, Mervyn King, freshly emboldened by his brush with the Royal Presence, told the Government flatly that there was no more money left to squander. Hurrah! Then Angela Merkel held the EU line: no more stimulus packages until the first lot of medicine has had time to work, or not.

The Germans are only too aware of the fact that the glue in the Eurozone is slowly slipping and they need to keep their powder dry. So the G20 had only one recession issue on the agenda, the IMF’s need for some more wedge, which everyone knew about for months already.

America’s leading economist on the recession issues was not impressed. Kenneth Rogoff at Yale pointed out the charade: ‘The rich countries are in denial about the depth of the problems remaining in their financial sectors. They want to congratulate themselves for taking the right steps already, as if the only problem now is how to help emerging markets.’

Well, that about says it all. Except Obama made a wise observation too, about the future: the world cannot look forward to American consumers pulling the world out of recession this time, they are too mired in debt.

The G20 closed with the usual bashing of hedge funds, off-shore tax havens and the need for much more regulation, all of which can be thought through much more carefully when this destructive recession is over, which it isn’t.

During March and now in April the stock market has gone through two sucker rallies; the first because Pandit at Citigroup said his bank had made money in January and February, which is a no-brainer after writing off $24.5 billion in December!

Then Barclays gleefully announced that it had passed its FSA stress-test without the elastic breaking. Oh please, any more of this and I’ll burst into tears!

What the stock market and every investor needs to focus on now is what is going to happen for the next six months and longer: increased bankruptcies, insolvencies, unemployment and endless profit warnings and cash calls.

The banks may be back on their knees by the third or fourth quarter, the Eurozone may be unwinding, and the political pressure on Brown, next election next June, and Merkel, next election in September, and Obama who completes his first year in January, may become too hot to handle when the civil strifers start marching in earnest this summer.

And there’s no perception yet of a very salutary realisation: all the cash that has gone to prop up banks, insurers and autos has been completely lost already.

As Henry Morgenthau, Roosevelt’s Treasury Secretary said in 1934: ‘From all the money we shelled out, we never got a dollar back!’ And if it’s all worse before the end of 2009, then what happens?

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