There have been exaggerated claims and criticisms for the Group of 20 major nations economic summit that was called to fight the global economic crisis. It most certainly did not start any "new world order" in the global financial system, as British Prime Minister Gordon Brown and President Nicolas Sarkozy of France both claimed.
The grandiloquent Brown, in fact, is fast becoming the Walter Mitty of global finance. Every couple of months he announces new plans or proposals that his admirers claim have solved the economic crisis -- but they never do.
Sarkozy and his main ally, Chancellor Angela Merkel of Germany, did not risk confronting the United States head-on at the summit, as they had threatened to do. They got their way in blocking U.S. President Obama's demand for yet another $1 trillion-plus global economic stimulus plan to pump demand back into the world system. However, Sarkozy and Merkel did agree to pump $1 trillion in funds from the major national governments into the International Monetary Fund and the World Bank to boost world trade.
It remains to be seen if that will do any good. The World Bank's general record has been very poor over the decades. And none of Obama's trillion-dollar nostrums have worked so far.
The U.S. new jobless figures released Friday for March were at 663,000. It was the fourth month in a row that the number of people cast out of work has been above 650,000. More than 2.6 million Americans have now lost their jobs since Obama won the U.S. presidential election on Nov. 4. He didn't cause the economic crisis he inherited from his predecessor, President George W. Bush. But so far it has only gotten far worse rather than better during his first 100 days in office.
In the short term at least, however, Obama came out of the G20 conference as a significant winner. He agreed to Sarkozy and Merkel's demands to put pressure on nations that have long prospered as tax havens to reveal at last full details of the fortunes hidden away in their vaults and accounting records. Switzerland, Costa Rica, the Cayman Islands, Lichtenstein and many other such havens will now have to come clean or face the genuine fury of the United States and the 27 EU nations combined.
The dollar did not come under any direct attack at the London summit, although the recent soft-spoken warnings about pulling out of it by Chinese Premier Wen Jiabao and People's Bank of China Governor Zhou Xiaochuan will not go away magically. That threat is still there.
But Obama proved a skillful negotiator in London at averting a head-on clash between Chinese President Hu Jintao and Sarkozy of France on the tax-havens issue. He came out of his first major diplomatic test with his stature enhanced rather than diminished. It remains to be seen how President Hu of China and President Dmitry Medvedev of Russia sized up the new American president.
Obama wants to rein in the excesses of the U.S. banking system, so agreeing with France and Germany to open up the hidden tax havens around the world was a natural concession for him to make. In return, he and Brown got $1 trillion pumped into the World Bank and the IMF.
The summit also contained a sop for the suffering nations of the developing world: They were promised $250 billion in stimulus aid over the next two years. This is in fact a lot less than it looks. First, in these pre- and proto-inflationary times, even $250 billion isn't what it used to be, especially when it's spread around nations with around 2 billion people in them.
Second, the money hasn't been given yet, and such pledges to the developing world usually trickle down in far slower and smaller amounts than as they are originally and proudly promised.
Third, if the Obama-Brown grand stimulus plan doesn't work, all the credit packages in the world won't prevent the poor, developing economies from getting sucked down the black hole with all the rich ones.
As we have previously noted in these columns, the greatest danger facing the world is not the collapse of demand or lack of liquidity, but far too much artificial liquidity being pumped into the U.S. and global economic systems, setting off a potential world-encircling plague of hyperinflation. By committing to the printing of at least $1.1 trillion in more theoretical banknotes, the G20 may have brought that catastrophe dangerously closer rather than banishing it.
In the short term at least, however, global investors and markets reacted favorably to the decisions made in London and, for both better and worse, they were not negligible. No new world economic order or world government was crafted in the London conference. How effective its conclusions will be in restoring prosperity and stability to the world has yet to be seen.