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Pittsburgh
25 September 2009
The leaders of the world's wealthiest nations and key emerging
economies are in Pittsburgh, assessing efforts to fight the recession,
and seeking ways to prevent future financial problems. A key U.S. official says the G20 leaders are close to
a consensus on the crucial task of reforming financial regulations.
U.S.
Treasury Secretary Timothy Geithner says it is urgent to fix the flawed
financial system while the pain of the down turn is still fresh in
everyone's mind.
"We are not going to walk away from the
greatest economic crisis since the great depression and leave
unchanged, leave in place the tragic vulnerabilities that caused this
crisis," he said.
Geithner told journalists that the progress
on financial reform includes the contentious issue of the huge bonuses
paid to bankers.
German and French officials argue these
bonuses prompted bankers to take reckless risks in pursuit of
short-term profits. Those profits turned to massive losses in some
cases, threatening to bring down the financial system.
Leslie
Gelb of the Council on Foreign Relations says public anger at the
bankers strengthens the hand of those arguing for tougher regulation.
"The
recent experience with financial greed and irresponsibility will push
the center of gravity in this debate more toward regulation," said
Gelb. "The fact is that regulators should have caught what these banks
were doing."
But U.S. officials say a better way to prevent
economic problems is to require banks to keep larger reserves to cover
losses from bad loans or failed investments.
The secretary-general of the Organization for Economic Cooperation and Development, Angel Gurria, agrees.
"Strengthening
the banks capital," said Gurria. "The story of the banks is capital,
capital, capital, that is the big solution."
Besides
strengthening banks and regulation, many G20 nations have been trying
to strengthen their economies by spending huge sums building roads,
bridges and other public works projects. They also slashed interest
rates to historic lows.
At the Pittsburgh meeting, leaders are trying to figure out when they should cut back these stimulus efforts.
The
head of the International Monetary Fund Dominique Strauss-Kahn, says
not quite yet. "It is not the time for advanced economies to organize
an exit strategy. We have to think about it, but not implement it now,"
he said.
Economists say if the stimulus programs end too soon
the economy could relapse into recession. But if these expensive public
works programs go on too long, they push nations deeper into debt,
while low interest rates eventually raise the risk of inflation.
Large trade imbalances are another issue under discussion here.
China
for example sells more than it buys on international markets, while the
United States is in the opposite position, running up a huge trade
deficit.
Some economists say this is one of the economic imbalances that contributed to the recession.
Secretary Geithner says the recession is forcing American consumers to cut their spending.
"For
too long, Americans were buying too much, and saving too little ?that
is no longer an option for us or for the rest of the world," he said.
Geithner
says major exporters will have to look elsewhere for markets for their
products, perhaps boosting demand in their own nations.
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