The G-7 meeting was the last chance for action before the global recession

On Friday the Group of Seven Finance Ministers and Central Bank Governors includes Canada, France, Germany, Italy, Japan, the United Kingdom and the US.  (The G-8 includes Russia)  They labored and brought forth this, which the weekend meeting of the IMF endorsed.  What does this mean, if anything?  We will find out what investors think of this on Monday.  See this for an analysis of the IMF meeting.

G-7 Finance Ministers and Central Bank Governors Plan of Action, 10 October 2008 — The statement consists of three sections.

  1. The preamble
  2. The Action statement (bold slogans)
  3. Wishful yearnings

The preamble

The G-7 agrees today that the current situation calls for urgent and exceptional action.  We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth.

The Action statement (bold slogans)

We agree to:

  1. Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.
  2. Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.
  3. Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.
  4. Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.
  5. Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets.

Wishful yearnings (we’re doing the opposite of #1, #2 will be mostly ignored, #3 is the big one)

  1. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.
  2. The actions should be taken in ways that protect taxpayers and avoid potentially damaging effects on other countries.
  3. We will use macroeconomic policy tools as necessary and appropriate.
  4.  We strongly support the IMF’s critical role in assisting countries affected by this turmoil.
  5. We will accelerate full implementation of the Financial Stability Forum recommendations and we are committed to the pressing need for reform of the financial system.
  6. We will strengthen further our cooperation and work with others to accomplish this plan.

Afterword

If you are new to this site, please glance at the archives below.  You may find answers to your questions in these, such as the causes of the present crisis.  I have been writing about these events for several years; since November 2007 on this site.  As you will see explained in these posts, the magnitude of the events now happening is beyond what most Americans have — or can — imagine.

Please share your comments by posting below.  Please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest these days:

3 thoughts on “The G-7 meeting was the last chance for action before the global recession

  1. Fabius, I’m an engineer and I don’t want to interrupt expert conversations here, but am I right in thinking that the G-7 meeting was a big disappointment for all of us? Last week in my office, EVERYONE sold all of their shares, cancelled big purchases, changed their pension pots, etc. The man at the desk to my left bought £30000 in gold bonds in his lunch break. And I suspect that the G-7 announcement has made tomorrow even worse.

    Is this a good time to revive the cash economy? If governments bought corporate bonds in return for truckloads of bills, to be distributed in tomorrow’s payroll, and if welfare was paid in paper money, then general transactions could avoid banks completely. Paper money is good at foreign ports so shippers could work on a cash basis. I know crates of paper don’t move as quickly as electrons, but at least they still move without a banker’s permission.

    Physical cash has a feel-good factor too and would insulate businesses from banking risk, so we’d have fewer lay-offs and more production. As you see, I don’t quite think of the financial system as being a cardiac arrest victim, more like a rabies case which has infected the amateur investors around me.

    I’ve been wrong often enough but I don’t think ordinary people are going to really trust in bankers’ electrons or words for a generation, however laws are improved. That just leaves God, and cash.
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    Fabius Maximus replies: We will learn tomorrow how people react to the G7/IMF results.

    I doubt that “EVERYONE sold all of their shares.” If more than a tiny fraction of investors did so, the market will have crashed and closed. If everyone was selling, who was buying?

    We could just as easily go to a cash-based economy as a steam-based one.

    “trust in bankers’ electrons or words for a generation. That just leaves God, and cash.”

    Cash is not longer gold coins, so “trust in cash” means “trust in government.” That’s why the governments of the world are guaranteeing their banks.

  2. FM : let’s see now… these G7 or G8 meetings are held behind closed doors, aren’t they?…

    So, are these finance ministers & central bank governors doin’ all they can for the rest of us powerless people ’round the world or are they keepin’ their cards to ’emselves in order to secure some vested interests, especially after this economic/ financial debacle’s over? Just my two yen.

    To all : Educate me on the workings of institutions such as these, anyone?
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    Fabius Maximus replies: Easy to explain, if I may paraphrase the words of a distinguished advisor to humanity:

    “At these meetings the Wise gather to heal the disorders of the world. To do so they must have power, the power to order all things as they will, for that good only the Wise can see: Knowledge and Order.”

    This crisis offers an opportunity for them, for news days are coming.

    {the words quoted are those of Saruman the White, Saruman the Wise}

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