Fast forward to today, and what do we see? Optimism, from leading economists including Ben Bernanke, for the coming fiscal year. An overall sense that the stimulus plan has shortened the duration and severity of the recession. In short, cautious celebration about the speed and efficiency of stimulus aid.
However, the G20 has yet to really address the underlying origins of the financial crisis. Or more specifically, there have been no resolute plans on implementing a system to avoid this situation in the future.
The housing crisis and subsequent lending freeze constituted major portions of the problem. So did unwarranted risk taking by people in the financial sector. Still further, there was a slower and even more alarming cause to the global credit crunch and recession.
For years now the United States has been invigorating the global economy privately and publically as a consumer. In this capacity, we have been spending too much and saving too little.
Another concern has also been where we are spending our money.
We've been fueling some of the world's largest economies (Germany, China, and Japan) by purchasing their exports. These countries seek to keep large trade surpluses and continually save their money.
At the same time, the U.S. has racked up a truly impressive amount of debt through over consumption. A debt which we then financed by selling Treasury Securities. The major foreign holders of these securities are China and Japan.
We've effectively been borrowing money from China and Japan to continue to purchase their exports. A practice alarmingly similar to the one in place after WWI where the U.S. invested in Germany, who proceeded to pay reparations to Western Europe, who proceeded to pay back the U.S. for wartime loans.
The extent of this detrimental, yet, cemented policy has been seen in recovery efforts as well. The U.S. has had to increase spending to finance recovery efforts here at home, and will need to account for that spending somehow; most likely through the issuing of Treasury Securities.
The core global consumer has been a role we shouldn't have played to begin with and now it's becoming a role we simply cannot play at all.
The only way out of this situation is for the G20 to convince countries with large trade surpluses to increase spending and consumption while simultaneously having the U.S. begin to spend less and save more.
Obama has specifically identified China as a country that would need to increase its social spending as a means of boosting their demand for imported goods. This would begin shifting the responsibility for economic recovery and expansion off of just the heavily indebted U.S.
This will be easier said than done. A number of countries are beginning to see this recent upturn as an exit sign. Japan has already suspended portions of a $169 billion stimulus plan, and Germany seems likely to restrain government spending. The effect of this on the fragile global economy is troubling enough. Once you consider the need of that money to spur on global spending it becomes truly terrible.
If we are unable to sway countries with major trade surpluses into taking more prominent roles as global consumers, we will likely have a slower ascent out of these turbulent times, and we'll possibly have worse crises to come.