The Gold Standard  

While FT reports that Presidents Hu and Medvedev both warned on the impact of the crisis on the world and on the rising fiscal cost of it in general terms, it is good to focus on specific developments in both countries. Bloomberg has this news on Russia and this is Wall Street Journal’s piece on one of China’s asset management companies (AMC) extending deadline to redeem a bond by a small matter of another ten years.  See this too.

These bonds were issued in 1999 when AMCs were set up to buy up bad loans from Chinese banks. The article says that they had managed to recover only 20% of the loans! Now, imagine what would be the recovery rate on all the bad loans that might arise from the recent loan binge, if China enters a era of lower growth.

Even as this blog post in FT links to the remarks of Spencer Dale of the Bank of England (Chief Economist?) warning of bubble consequences of central banks’ asset purchases, it also says that

The leaders are also set to agree on delay pulling back from their stimulus packages until recovery is secured

There is an interesting discussion over at Real Economics on ‘Economist.com’ on whether central banks should prop (asset bubbles) and pop, not prop but pop, neither prop nor pop, etc. I have posted a comment too under ‘jeevatma’. The comments by a ‘central bank staffer’ cited from Bradford de Long’s is extremely good. Do not miss that.

I think the policymakers’ intent or statements are one thing but the action is going to be the key. My guess, at this stage, is that withdrawal of stimulus  - monetary and fiscal – would be delayed. This would become evident in 2010 and that would set the stage for the next round of action in bond market and currency markets. But, I think this is the story for 2010.

While the FT says sniping among leaders marred the spirit of co-operation, one should be more understanding of that in the context of the laudable decision to put G-20 at the centre of global economic summitteering. It has got its sceptics but there has to be  a beginning. That has been made. These remarks are to be kept in mind, however:

In a world of proliferating G-groups, the one to watch is that nicknamed “G2” between the US and China.

Many in Pittsburgh have remarked upon the size and sophistication of China’s delegation compared to any other participant barring the US.

“If you want to find out what the world is going to do then take the US position and take China’s position and draw a line somewhere in the middle,” said David Rothkopf a former senior official in the Clinton administration. “As regards the G20, it would have been more efficient to kick Canada and Italy out of the G8 and invite China and India to replace them. But intergovernmental co-operation always adds, it never subtracts.”

Interesting that the FT says that it has seen the official final communiqué and that it would call up on

surplus countries – China, Germany, Japan and oil exporters – urged to raise domestic demand and deficit countries asked to reduce budget and trade deficits once the world has secured a recovery.

Evidently, they have not seen this thoughtful piece by Gideon Rachman. If the elections on 27th September in Germany throw a surprise (i.e., Left parties doing better), then it would set the cat among pigeons in the global capital markets.

This report filed in India’s Business Standard makes for amusing reading. It makes it sound as though India drove the G-20 agenda! Of course, it can be seen here and here too. So, it appears that the Indian Government got the media to sing in one voice.

Interestingly, came across this link in Bruegel (European think-tank) to a conference held in New Delhi recently on the International Co-operation in times of global crisis with views from G-20 countries. Looks like some rich pickings are there. Have not gone through them yet.