Is there anything more irrelevant than G7?

Monday, February 11, 2008

Well, the big event of the weekend has come and gone, and lo and behold not much has changed. Yes, the G7 group of finance ministers and central bankers gathered for a spot of sushi and karaoke in Tokyo over the weekend, a confabulation that appeared to generate little of interest other than perhaps a few sore heads among the attendees.

Sure, they issued a statement, and golly, wasn't it swell. Here's a brief summary in the rhetorical style of Boris Johnson:

"Blimey, things are going a bit wobbly, aren't they? It's a jolly good thing each of us is doing...his...er...part. 'Tis a pity that a few bad eggs are spoiling the party for everyone. Do let's have a chat and see if we can't put things right. That quango we set up in October has been frightfully busy quangoing. It'll be brilliant when they can tell us all about their adventure.

Those pesky exchange rates really oughtn't to move around too much. China's been a real trooper, and if they could do even more, we'd all be chuffed to bits. Crikey, a tank of petrol's a bit dear nowadays, isn't it? Someone really ought to have a look into that and see what can be done. But really, everyone should just be a good chap and not be so selfish.

Oh, have you seen that the daffs have started blooming already? Perhaps there's something to this global warming mularkey after all. Sadly, those lucky folk who live where it's warm all year seem to be in a spot of bother. We really must do something about that one of those days. Unless we get blown up first."

Meanwhile, in a sign of the deep regard in which 20th century institutions are held by the world's emerging economic powerhouses, CIC's Lou Jiwei flicked a rhetorical V-sign at the IMF recently. Blimey!

All of this posturing, with the attendant issuance of pompous, self-referential communiques by grandees unable to meaningfully impact the environment they inhabit, led Macro Man to wonder over the weekend: is there anything more irrelevant in today's world than the G7?

He thought about it over the weekend, and came up with the following brief list of entities whose irrelevance, if not eclipsing that of the G7, nevertheless gives it a run for its money:

* Organizing Committee for the New England Patriots 2008 Super Bowl Parade

* Voting Panel for 2007-08 "Best Screenplay" award

* Broker Joe

* The Bank of Japan (OK, maybe this is double-counting them)

* The IMF (As Brad Setser has noted, SWFs are organizing bigger bailouts than the IMF ever did)

* Quant funds?

* The US Congress (it's good to know that investigating steroids in baseball and secret taping in the NFL is more important than investigating WTF is going on in Iraq and Guantanamo.)

* The UK Border and Immigration Agency. On second thought, they are fine, upstanding people who are dedicated to securing the borders of this wonderful country. Now, please can I have indefinite leave to remain?

Reader suggestions to add to this list are welcome; answers on a postcard, or failing that, the comments section.

Posted by Macro Man at 8:06 AM  

9 comments:

Hi MM,

in a piece published on Saturday, February 9th, 2008, Mr. Federico Rampini (one of the most influential columnist writing for the Italian newspaper “La Repubblica”, based in Bejing) mentioned a piece of research from GS apparently suggesting a long Indian rupee vs. short Chinese renmimbi strategy. The rationale is as follows: both countries are facing rising inflation pressures, but India is said to be less dependent on exports than China is. Indian monetary authorities would therefore have much more room than their Chinese counterparts for raising domestic rates, which could lead to rupee appreciating vs. renmimbi… What do you think of that?

As for as your list is concerned, my entry is “all Italian MPs from 1948 on…”

AT

Anonymous said...
10:54 AM  

AT, good call on Italian parliamentarians.

As for INR, India may well be less dependent on foreign demand for exports...but the converse of that is that it is much more reliant on foreign demand for financial assets. I'll let you judge for yourself whether that's a good tradeoff or not in this environment.

Macro Man said...
12:46 PM  

The whole system is so brutally manipulated its hysterical. Its nothing but an inflation machine.

James said...
4:10 PM  

Macro Scenario for Golf Council Countries (maybe too naive?):

Assuming strong balance surpluses, a weak USD, low US interest rates and higher inflation. Could that signal a strategy where oil in the ground is more valuable than petrodollars that need to be recycled? In other words, why pump it if you can't invest the proceedings in a meaningful way.

Alternatively, they could allow lower oil prices by pumping more oil out of the ground (assuming they have the power to do so), hence support the weak US economy by increased capital inflows, i.e. support the dollar, stabilize interest rates, ease inflation and free themselves and their recycled petrodollars from a hostile situation. This dynamic could also trigger other countries to keep financing the deficit and support the USD.

Any ideas? I think it sums up to the question: how aligned are the interests of GCC and US?

MP said...
4:29 PM  

Macro Scenario for Golf Council Countries (maybe too naive?):

Assuming strong balance surpluses, a weak USD, low US interest rates and higher inflation. Could that signal a strategy where oil in the ground is more valuable than petrodollars that need to be recycled? In other words, why pump it if you can't invest the proceedings in a meaningful way.

Alternatively, they could allow lower oil prices by pumping more oil out of the ground (assuming they have the power to do so), hence support the weak US economy by increased capital inflows, i.e. support the dollar, stabilize interest rates, ease inflation and free themselves and their recycled petrodollars from a hostile situation. This dynamic could also trigger other countries to keep financing the deficit and support the USD.

Any ideas? I think it sums up to the question: how aligned are the interests of GCC and US?

Anonymous said...
4:31 PM  

MP, I think the Gulf states (or at least those with active investm,ent authorities) look at it a different way: they are sitting on gajillions of US dollars (or a commodity that can be easily turned into US dollars); that is why they6 are relatively aggressive in diversifyign away from US dollars. Saudi is a notable exception o this policy, however.

In terms of simply 'pumping more oil', I don't think it's that simple; those Gulf states in the GCC are, from what I can make out, running at close to full capacity. There probably is slack from Iran and Iraq, but we'll need a world a bit more perfect than the one we've got before that is entering world markets at full capacity.

As for how aligned are the interests of the US and the GCC, I can think of many answers, which range from "very" to "not very muchy at all." I'm nor sure, frankly, what the right one is.

Macro Man said...
7:24 PM  

I absolutely agree with your points, thats why I put up the dilemma of being in such a hostile situation like the Gulf States (billions of USD denominated investments). It's a game theory kind of dilemma and I am not sure what's the best solution for the hostile players is (suppose I am not the only one around). Obviously diversification of reserves is not possible in the short term (at least not without high costs) and on the other side keeping on with the same pattern (Bretton Woods II) also looks like a loosing position. I assume that the route of unwinding the imbalances will be the one of least pain and maximum control of the process.

BTW: Thanks for the best global macro trading blog ever and the great insights. Thumbs up.

MP said...
9:31 PM  

in a past life, i was involved in the g-7 process (back when it arguably was still relevant ... ). and i loved the idea of doing a communique boris johnston style. its almost better than your poems ...

bsetser

Anonymous said...
11:33 PM  

.

The US Congress (it's good to know that investigating steroids in baseball and secret taping in the NFL is more important than investigating WTF is going on in Iraq and Guantanamo.)


Congress always have their priorities in order
.

devaney said...
2:06 AM  

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