The 2016 G7 Summit – A Study in Impotence (#6)
The latest G7 Summit just ended in Shima, Japan on May 27, 2016.
The leaders of the 7 most developed economies issued a joint declaration that highlighted the key issues they had identified, and agreed, needed to be addressed on a top priority basis. The first of utmost importance was of course, the problems of the faltering global economy, in which a rather strident note was struck by the multiple use of the word ‘crisis’, in reference to its current status.
The leaders proposed to do everything possible, policy-wise, to try and resuscitate the moribund global economy by stimulating the slack global demand, and by curtailing excess capacity. The problem with that collectively impotent consensus is, that over the last 7+ years, that is precisely what they have all been trying to do, rather desperately, through their aggressive QEs and their ultra low interest rates. The net result of that extensive exercise, over the past 7+ years, has been that at the end of May 2016, they find themselves in Japan, the home of the most aggressive QE program ever, in the history of modern economics (the irony of it obviously escapes them), lamenting the lack of demand, the excess capacity, and the probability of another crisis.
The one leader who was the most freaked out about the impending crisis was the host of the Summit itself, Japan’s Prime Minister, Shinzo Abe.
Prime Minister Abe came to power in December 2014 and pledged to do whatever it took to break Japan out of the grip of decades old deflationary drift. Soon thereafter, in early 2013, the PM launched, what would turn out to be the most aggressive QE (Quantative Easing) policy undertaken by any country, at any time, to try and stimulate economic growth and achieve at least a minimum 2% inflation rate (reminiscent of the Fed’s efforts and the European Bank’s efforts, with similar failure rates).
To do the job properly and without any hesitancy, Shinzo Abe recruited a fellow samurai, Haruhiko Karudo, as the Governor of the Bank of Japan, and launched a three prong attack (the three arrows) to get Japan going again. His bold (perhaps a bit reckless) economic plan came to be known as “Abenomics”.
At the 2016, G7 Summit, Shinzo Abe had to de-facto admit to his fellow leaders that none of it worked, as Japan’s economy never did truly revive, and in fact has tended to keep slipping into embarrassingly frequent recessions.
The failure of Abenomics is of hara-kiri inducing proportions. In their madcap bid to break Japan free of the decades long grip of deflation, Abe and Kuroda pulled out all the stops on the printing presses, printing Trillions upon Trillions of Yen, driving the Yen down, and the debt up, till it rose to be, above the unprecedented nosebleed level of 400% of GDP, by far the highest of any economy in the World.
After all that insane level of money printing, and ‘negative rates’ thrown in for good measure, lately when the numbers came in, the economy was still at recession level, and the Yen had bobbed up like a damn cork in the water, negating all the hoped for benefit from the entire exercise. No wonder Abe was freaked.
To a lesser extent his guests (the other G7 leaders) were in a similar position. After years of QE and ultra low interest rates (over 7 years), their economies were also still struggling, as they continued to stimulate and ease. That is why they were a bit reluctant to respond favourably to Abe’s strident calls for even greater easing efforts, but did agree to try and do more.
The irony of it all obviously escaped them all. After 7+ years of actively intervening in, and manipulating, their largely (cough-cough) “free markets”, here they were, de-facto agreeing that none of it had really worked (that bit of facing an impending crisis), and still talking and proposing to do that, more of, which had not really worked!
And doing it all in Japan, the home of the most outrageous QE program ever undertaken, and with present the King of QE himself, Shinzo Abe, who was unarguably the personification of QE failure. Yet, zombie like they all emerged from the Summit declaring ‘to do more’ of all their previously failed policies and practices.
It is simply stunning.
The other commitments made by the G7 leaders were equally futile and impotent:
To press China (without mentioning China of course, decorum has to be maintained) to not be hostile and aggressive in South China Sea, and to work towards a peaceful resolution of the territorial disputes, with all its neighbors in the region. Now, they must know a China that we don’t know, for the real China has as about as much appetite for diplomacy in that region as Putin has for giving up Crimea. Oh, that was the other item on the wish list.
To keep pressure on Russia to give up annexed Crimea, and the immediate withdrawal from East Ukraine. We can only imagine the prolonged raucous laughter in the Kremlin, ending with sputtering, deep breaths, and the wiping of tears from the eyes.
To demand North Korea to ‘fully comply’ with UN sanctions, stop missile launches and ‘other provocative actions’. Again, we don’t know which brand of sake was served, and in what quantity, at the Summit in Shima, Japan, but one would have to be pretty inebriated to imagine that North Korea would even consider complying with anything the West and Japan were proposing, requesting, demanding etc. The only thing we can imagine the cherub faced North Korean leader doing, on hearing this, is to go ballistic, and order the aimless launch of a number of missiles in random directions, just to show what he and his country really think of these requests.
And lastly (as far our commentary goes) all the leaders agreed that ‘Brexit’ would be bad for the global economy. Once again, this is also an issue where the result of the Referendum is not in their control, but in the control of the people of Briton. We understand it is one of the expected platitudes that politicians have to make, even though there is precious little that can be done by them regarding the outcome. But in this case enough has been said on the potential for damage from Brexit, from most or all the attending leaders, that including it in the declaration is a tad redundant.
We understand, the G7 leaders are all well meaning and doing their best. But to observe the zombie-like responses to age old problems is disheartening, for truly nothing is going to change.
All the problems being addressed are long-in-the-tooth, and unchanged. The fact that after meeting and discussing them at length, the G7 leaders can only come up with this hopeless and unimaginative wish list, means that when they meet next, these problems and worse, shall surely be still on the agenda.
Considering the massive problems in the World today, and the potential for another impending global economic crisis, at the very least, the G7 leaders could have given some thought to alternative solutions, than the tried, tested and definitely failed solutions that they came up with. The Summit was an exercise in futile diplomacy with impotent proposals as solutions.