This weekend brought the results of two days of meetings of the financial ministers and central banks chiefs from the 20 “most significant” economies. The purpose of this visit to Russia was to set the agenda for the September G-20 meeting in St. Petersburg. Reuters posted a piece, “Text–Closing Communique From G20 finance Ministers Meeting,” which filters the results of two days discussions to seven main points. It is a WORTHLESS effort as the communique is filled with diplomatic language that assuages the egos and policies of every participant. The finance leaders OUGHT TO BE EMBARRASSED to release this nonsense. From Reuters:
- Point No. 3: “The global economy remains too weak and its recovery is still fragile and uneven”;
- Point No. 4: “We agreed that our near-term priority is to boost jobs and growth. We are committed to further reducing financial market fragmentation, moving ahead decisively with reforms towards a banking union in Europe ….” (YRA: This international conclave with no jurisdictional power promotes a resolution for Europe when the policy makers in Brussels cannot come to a suitable plan for a unified financial entity. We know this was the hand of Draghi because it had his beloved “fragmentation” injected into the statement. The words are so politically crafted that it lacks any sense of policy.)
- Point No. 6, in reference to the global imbalances and states: “This requires surplus economies to boost domestic sources of growth and deficit economies to increase national savings and enhance competitiveness. We reiterate our commitments to move toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals…. We will refrain from competitive devaluation.” And the standard line: “We will resist all forms of protectionism and keep our markets open.”
- Point No. 7, in a paean to the U.S. and Japan: “Monetary policy should be directed toward domestic price stability and continue to support economic recovery according to the respective mandates of central banks.”
This last point removes any global pressure on Japan as it attempts to stimulate growth through massive liquidity and a weaker YEN. This final point will not sit well with Obama’s union support and the U.S. automakers. Last week I cited a piece in which Ford’s main lobbyist is pushing the Obama Administration to take a firm position with Japan and its recent currency manipulation. U.S. automakers want President Obama to negotiate stringent penalties for any member of the planned Trans Pacific Partnership (TPP) who utilizes manipulation of currency values to attain a competitive advantage.
The effort to punish Japan could be sen in Wednesday’s HOUSE testimony of Chairman Bernanke
. Congressman Gary Peters of Michigan pressed Chairman Bernanke on whether or not Japan was manipulating its currency, similar to China. Bernanke did not waver in his answer that Japan was merely trying to break the back of the deflation that has plagued its economy. There might be some movement in the YEN
but for the rest of the world a healthy Japan would be worth the price. Chairman Bernanke added that an increase of Japanese prices would offset the currency impact. So we should see the Japanese policy as domestically driven. But Chairman Bernanke noted that the Congressman’s home being in Michigan, he understood his concerns. But for our purposes, the YEN
‘s depreciation is of concern to a very powerful political constituency of LABOR
After the G-20 photo-op was finished, everyone who attended received a trophy and a certificate acknowledging their efforts. A great chorus of Kumbaya resonated through the closing ceremonies.
***The results of the Japanese elections are in and I am posting a link to Observing Japan’s very solid analysis
of the results. Later this week I will analyze the potential impact on the YEN
, Nikkei and other Japanese instruments. Some pundits are trying to make this a mandate for ABE
, but I think Tobias offers a very measured analysis.
***Bernanke’s Senate Testimony Thursday
, revealed the formation of BATTLE LINES
in a coming war over the power of the TOO BIG TOO FAIL BANKS
. Senator Elizabeth Warren is initiating the fight to rein in the risk profile of the large money-centered banks and her attack is going to be centered on CAPITAL REGULATIONS
. Sen. Warren has enlisted support for this issue from both sides of the aisle and has the backing of Senior Senator John McCain, as well as many of the Tea Party powers. But using the capital regs as the lever to dislocate the banks power Sen.Warren will get the attention of the FED
. Both Warren and Senator Sherwood Brown tried to elicit an outright endorsement for their efforts from Chairman Bernanke. Mr. Bernanke was not taking the bait, but HE WAS NOT OPPOSED TO INCREASED CAPITAL STANDARDS
. He just wouldn’t sign on to an aggressive timetable.
Yet here is the way I see this. The FED wants tighter capital standards as it attempts to resolve its balance sheet issues as QE tapers. WHY? Because if the FED adopts a policy of allowing its TREASURY AND MBS holdings to roll off rather than be sold, it will take severe restraints on the leverage capabilities of the TBTF BANKS. If the $3.5 TRILLION in reserves is not leveraged, restraining the velocity of the reserves will create massive inflation. THE INFLATION MAY TAKE PLACE REGARDLESS BUT WITHOUT TIGHT MACROPRUDENTIAL CAPITAL REGULATIONS the QE impact will certainly end in disaster. METHINKS BERNANKE IS A BIG SUPPORTER OF THE NEWEST SENATOR FROM MASSACHUSETTS.
Tags: Bernanke, capital regulation, Elizabeth Warren, Fed, G-20, Japan, labor, manufacturing, MBS, Obama administration, QE, too big to fail, Treasury, Yen