Simon Johnson sums up the recent G8 in part as "lamer than advertized" and in total as "an expensive flop." He complains that the issue of cross border resolution for failed banks didn't even come up. But he reserves his harshest criticism for Brown and Sarkozy's joint article Wednesday in the WSJ on the role of speculation in the oil market, which he finds to be disingenuous.
>But, more generally, the G8 - and its members this week - are disingenuous when they speak about energy prices, in three ways. They are trying hard to talk up the market, with regard to global growth. At the same time, the hard data continue to disappoint. Naturally, this causes volatility in oil prices. They claim to see no link between their failure to converge on climate change/environmental policies and what happens to energy prices. The extent to which industrialized countries' effectively control carbon emissions will have a big impact on the longer-run demand for oil. Flip-flopping on this issue discourages investment in the energy sector (regular and alternative), and thus directly and indirectly contributes to oil price volatility. The very cheap money policies of leading central banks, including the Fed, the Bank of England and arguably also the European Central Bank, lower the funding costs for big players who want to take large positions in commodities markets. Essentially, we are providing the credit that makes big speculative positions possible. Add to this mix a "too big to fail" attitude and a "yes we can, recapitalize through trading profits" deal with policymakers, and you see why major financial firms are likely to place huge commodity bets in the months ahead. The G8, separately and jointly, destabilizes energy prices and refuses to even talk about this reality - taking the view that being more candid would just upset consumer, business, and investor confidence. They gamble, on energy and more broadly, that the road to recovery runs parallel with pretending there are no problems. The true speculators here are your elected representatives.
The true speculators here are your elected representatives.
They don't know any better and neither do their economic advisors. The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
