The G20 Summit London.

On April 2nd 2009 the leaders of the Group of 20 nations will hold an emergency meeting in London. Between them these leaders represent around one third of the worlds population so the agenda is expected to be diverse and wide ranging. However the main topic for discussion is to be the global recession, how to tackle it and what, if any, changes need to be made to global financial regulations to prevent it happening again. At present the main regulatory body for global financial markets is the International Monetary Fund (IMF). While there are a million and one reasons you can object to the IMF on purely financial matters they are the gold standard issuing yearly reports on the health of it's members economy's and the world economy as a whole.

• In 2004 the IMF warned that the world economy, especially the US and UK economies, were experiencing a credit bubble and when that bubble bursts it would cause a widespread recession.


• In 2005 the IMF warned that the world economy, especially the US and UK economies, were experiencing a credit bubble and when that bubble bursts it would cause a widespread recession.


• In 2006 the IMF warned that the world economy, especially the US and UK economies, were experiencing a credit bubble and when that bubble bursts it would cause a widespread recession.


• In 2007 the IMF warned that the world economy, especially the US and UK economies, were experiencing a credit bubble and when that bubble bursts it would cause a widespread recession.

With warnings that clear and that specific it seems the only reason the regulatory system ran into problems was either that they were using words that were too long and too complicated for a certain world leader to understand or other world leaders were deliberately ignoring the warnings in order to further their own political agendas. In the case of the UK the answer to that question is obvious because some of you may remember that when the credit bubble burst something strange happened to Gordon Brown the Prime Minister. He actually started smiling. The reason for this peculiar reaction to an apparent global financial meltdown was simple. Brown and his government had taken the IMF's warnings on board, run extensive computer models to predict the shape of the expected recession and simply sat back waiting for it to happen. They did this because the UK Treasury had predicted an appropriately named "W" shaped recession which looks something like this;

As you can see this recession model features a sharp decline followed by a small recovery before another small decline before a large recovery. Brown was more then happy for this type of recession to happen because he would be able to use the panic at the first decline to drive through some of his command economic policies such as nationalising most of Britain's banks and bringing global financial markets under tighter government control. Domestically he would also be able to exploit the social unrest caused by the recession to drive through a raft of totalitarian polices such as a national database to combat increased levels of domestic violence, tighter immigration controls in response to increased racism, more regulation of trade unions and new police powers to combat increased level of crime etc. Then when he'd completed his power grab the economy would experience a mini-recovery just as Britain was holding a General Election leading to Gordon Brown being swept back into power by voters grateful that his economic and social policies had saved the world from disaster.

Unfortunately for Mr Brown things didn't work out quite like that and the world ended up with a "U" shaped recession which looks something like this;

As you can see this is pretty much the same as the W-shaped recession with a sharp decline in 2008/09 followed by an equally sharp recovery in 2011/12. In fact the only real difference between the two recession models is that rather going to the polls on the crest of a mini-recovery in this model Gordon Brown would be facing a General Election just as the world economy was hitting it's dead point. Faced with the possibility of losing that election Brown tried to fake the 2010 mini-recovery by cutting taxes and borrowing money to boost public spending under the guise of a fiscal stimulus package. This move instantly put the UK economy out of step with the world economy and left it with a unique recession graph which will look something like this;

Compared to the U-shaped graph this is very bad indeed. It features the same steep decline before a smaller recovery in mid-late 2010 followed by a possible small dip in 2011. The really worrying bit comes in 2012 because when the world economy a sharp recovery Britain will only be experiencing a gradual recovery with low rates of growth. It is at this time of fragile growth that Britain's debt repayments will kick in forcing the government to increase spending at a time of decreased income.

Having made this incredible gamble the only way Britain could stop Brown's stimulus package from ruining the UK economy was to get all the other G20 nations to sign up to a similar program of fiscal stimulus in something of an economic suicide pact. It was easy to get the Chinese to sign up because with their massive currency reserves they would be the country lending most of the money and gaining the most geo-political power when the time comes for those debts to be repaid. Other, less Communist, countries needed much more persuading so this is what Brown set about doing in a number of ways;

1. Making this recession sound far worse then it really is by comparing it to the Great Depression and Japan's Lost decade.


2. Visiting lots of world leaders and droning on at them in meaningless technical jargon until they'd agree to any idea of his just to shut him up.


3. Calling an emergency G20 Summit in London before bombarding visiting delegates with conflict information until they'd become so paranoid they'd think the sky was falling and the world was about to end.

Although the Summit is still a week away it is fair to say that Britain's strategy has not been that successful with only President Obama of the United States believing there is a need to further fiscal stimulus but I think this is more to do with the panic of a new president then any form long term political or economic strategy.

In summary I can see no need for the G20 to either tighten regulation of the global financial markets or commit to another round of stimulus spending. This is not the start of a Great Depression nor is it the end of the world. It is a nasty recession that will end naturally in 2012. If you're pissed off about that imagine how I feel. Back in 2006, before the Brits bravely bailed me out with the Bristol Abuse Case, I'd just placed a close associate in a £200 per week apprenticeship with a successful property firm. That business was already deleveraging and building up a rental portfolio to manage cash flow in lean times. While my associate was off learning the business I would have been learning accountancy skills with the whole scheme coming on line just as the UK property market was hitting it's dead point.

All in all I think the Brits should count themselves jolly lucky they're only being asked to shed a bit of dead weight rather then provide a full, like for like replacement.

*Graphs only designed to illustrate trend rather the show detail.