STAFF NEWS & ANALYSIS
G-20 Nations Ready to Take 'Urgent' Action
By - November 10, 2008

The G-20 Group of industrial nations stands ready to `urgently' take measures to resolve the global credit crisis, according to a statement issued by the group. G-20 nations must seek to foment growth through both monetary and fiscal policies, according to a written statement made at the end of meeting of finance ministers in Sao Paulo. – Bloomberg

Dominant Social Theme: Be grateful that so many groups stand ready to rescue the world.

Free-Market Analysis: It is hard to keep track of all the international organizations these days. Once upon a time, the United Nations was going to provide a central forum for these sorts of activities, but no more, apparently. The UN, perhaps because of endless corruption, has apparently been superseded by numerous other international venues in dizzying succession. What is most amusing, though perhaps disquieting, is that not even the major players can keep track of them at this point. American President George W. Bush is said to have become so confused in a recent conversation with the current Australian Prime Minister that he asked exactly what the G20 was – he had little idea – though its meeting was hyped by mainstream media around the world.

We can't blame President Bush for his confusion. We're confused too. We went to Wikipedia to try to sort it all out. First we read up on the G20.

The G20 (Group of 20) is a group of 20 economies, comprised of 19 of the world's largest national economies, plus the European Union. These 20 economies are amongst the world's most strategically important and influential. Collectively, the G20 economies comprise 90% of global gross national product, 80% of world trade (including EU intra-trade) and two-thirds of the world's population. The G20 is a forum for cooperation and consultation on matters pertaining to the international financial system. It studies, reviews, and promotes discussion among key industrial and emerging market countries of policy issues pertaining to the promotion of international financial stability, and seeks to address issues that go beyond the responsibilities of any one organization. The G20, which superseded the Group of 33, which had itself superseded the G22, was foreshadowed at the Cologne Summit of the G7 in June 1999, but was formally established at the G7 Finance Ministers' meeting on September 26, 1999. The inaugural meeting took place on December 15-16, 1999 in Berlin.

Okay, if you read the above excerpt, it gives rise to certain questions, especially about antecedents. What was the Group of 33? And before that, what was the G22? So many Gs, so little time …

The Group of 33 was an international grouping which existed briefly in 1999, comprising the thirty-three leading national economies of the world. It superseded the Group of 22 in early 1999, and was itself superseded by the present Group of 20 later in the year. Several seminars of the Group of 33 on the international financial architecture were convened at the initiative of the finance ministers and central bank governors of the G7. The first meeting was hosted by Germany in Bonn on March 11, 1999.

So the G33 doesn't seem to have lasted that long, though the blurb does yield up some interesting information. Apparently the G33 was convened at least in part at the initiative of "central bank governors." Did these governors play a role in the initial G22? Let's see …

The establishment on a temporary basis of the Group of 22 (referred to also as the "Willard Group") was announced by President Clinton and the other leaders of APEC countries at their meeting in Vancouver in November 1997, when they agreed to organize a gathering of finance ministers and central bank governors to advance the reform of the architecture of the global financial system. The Group of 22 comprised finance ministers and central bank governors from the G8 industrial countries and 14 other countries. It first met on April 16, 1998 in Washington, D.C. to examine issues related to the stability of the international financial system and effective functioning of global capital markets. It was superseded first by the Group of 33 (G-33) and then by the Group of 20 (G-20)."

Wow, so even before the "Gs" there was another name entirely. "Willard." Wonder if Willard was a person or a place. Maybe the "Gs" were the idea of Willard. But maybe not. Somehow it seems American President William Jefferson Clinton was involved. Interestingly, it looks as if central banking governors were not involved with the initial meeting. Instead, according to the above squib, the governors were to be "invited in."

Interestingly, when the governors did meet, they discussed issues related to the stability of the international financial system and effective functioning of global capital markets. Talk about foresight! Way back in the late 1990s, the Group of 22 or Willard Group was discussing the potential crisis of world markets.

This provides us with two speculations when it comes to concluding what the G20 is and why it got started. Either central bankers have incredible foresight or they know the system is inherently unstable. Perhaps, to give them credit, we will accept a little of both. But actually we lean to the latter. Anyone involved with the current economic system has to realize that it is like a top spinning off-center, bound eventually to tip over.

After Thoughts

Knowing the system has problems, why do central bankers constantly discuss it and tinker with it? These sage individuals know a good bit about economic stability, no doubt. They are the inheritors of a 19th century gold standard that served very well. They surely know about Scottish free-banking which showed remarkable stability for several centuries. Then there is the history of American wild cat banking before the civil war, certainly not a perfect system but one that for the most part involved regional rather than national or international panics. (In other words, if one region was doing badly, people could always pick up and move to another.)

In any event, it seems to us that the Gs ought to convene a council of banking historians who could remind us all of what has worked historically and what has not. Such a discussion would invariably center around the instability of fiat money and how such financial regimes as we have now eventually self destruct. Not with some regularity, mind you, but inevitably. Such a discussion would be more fruitful than the one that the G20 continues to have – on how to prop up a failing system. We bet that if they come to an impasse, they will do what they seem to do best – create yet another working group with yet a different numeral.

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