G7 Meeting Highlights & Opinion on Abe's Economic Distress Call

by the Curmudgeon with Victor Sperandeo

Introduction:

The Curmudgeon reviews the main accomplishments of the recently completed G7 meeting in Japan, while Victor weighs in with his incisive comments on Japan PM Abe's comments. We wish all U.S. readers a very pleasant, happy and safe Memorial Day weekend.

G7 Meeting Summary:

After a two-day meeting in Japan, the finance ministers of the Group of Seven (G7) advanced economies (Canada, France, Germany, Italy, Japan, United Kingdom and the United States) vowed on Friday to increase global economic growth, despite underlying differences on issues related to currency intervention and monetary policy.

“Global growth remains moderate and below potential, while risks of weak growth persist,” the G7 ministers said in a 32-page declaration. “Global growth is our urgent priority.” Do you really take them seriously? (see Victor's comments below)

The G7 leaders also discussed various trade issues, monetary policies Finance ministers also commented on foreign exchange rates and the need to avoid “competitive devaluation” of national currencies, while at the same time warning against volatile exchange-rate moves.

Finance ministers on Friday pledged a more powerful and balanced mix of monetary policy to achieve balanced growth in a global economy struggling to regain momentum. The International Monetary Fund (IMF) projects global growth in 2016 to be a modest 3.2%, broadly in line with last year’s advance.

G-7 leaders warned on Friday that a British vote to leave the EU next month would seriously threaten the world economy, as they promised "more forceful" policies to boost global growth but papered over differences about fiscal stimulus.

"There are potential shocks of a non-economic origin," the leaders said in a declaration issued during their summit in Ise-Shima, central Japan. "A U.K. exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create, and is a further serious risk to growth."

The two-day meetings covered a broad range of topics outside of economics and monetary policy, such as ongoing concerns over Russia, North Korea and maritime disputes concerning China's territorial expansion in the South China Sea. The Chinese government said on Friday it was “extremely dissatisfied” with the G7’s comments on the South China Sea.

G7 Leaders Group Photo

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Victor's Comments:

At the G7 Summit meeting on May 26^th, Japan's Prime Minister of Japan Shinzo Abe made a startling statement, as noted in the FT (on line subscription required):

"The global outlook is as grim as it was after the Lehman Brothers crises in 2008,” he said. “We agreed that the world economy faces big risks,” Mr. Abe added.

Mr. Abe told the FT that the G7 leaders had agreed to put together an “Ise-Shima economic initiative” that would spread his “Abenomics” stimulus to the world. Evidently, Abe was trying to gain support to increase stimulus even more, in order to revive global prosperity.

After 7.5 years of zero (or negative) interest rates, extraordinary monetary stimulus and debt creation, Abe's grim message was truly remarkable. It was hard to accept for many of the G7 leaders, like Germany's Chancellor Angela Merkel and UK's PM David Cameron. A British government spokesman told the FT that Mr. Cameron did not share Mr. Abe’s gloom. “The prime minister made positive noises about the global economy,” he said.

In a WSJ editorial May 24^th, Abe stated:

The summit's main focus will be on revitalizing the global economy, aiming to bring together monetary policies with accelerated structural reforms and flexible fiscal policies in a well-balanced cooperative way. We also see opportunities to address challenges in key areas, including infrastructure, terrorism, global health and international maritime laws. (China's claim on South China Sea territory).

This is basically the "same old, same old" talking points that never go anywhere. With all the monetary stimulus global central banks have thrown at the world economies, it's still as weak as it was at the nadir of the “great recession?” It appears the only result of central bank largesse has been to create asset bubbles. The mentality of these globalists are to do MORE of the same, instead of creating better policies that actually work.

The slogan Caveat Emptor¹ might be appropriate here. Our leaders (“men of distinction”) seem to care more about pursuing their agenda's and power, rather than what works and is good for their people.

Note 1. A warning that notifies a buyer that the goods he or she is buying are "as is," or subject to all defects.

Closing Quote:

Perhaps, a different message is more appropriate than Abe's warning to the G7 participants. Consider this quote from Benjamin Disraeli² in 1828:

"In politics experiments mean revolutions."

Note 2. Benjamin Disraeli was a 19^th century British politician and writer, who twice served as UK Prime Minister. The quote is from Disraeli's book, “The Voyage of Captain Popanilla,” which is a satire on utilitarianism.

Good luck and till next time...

The Curmudgeon
ajwdct@sbumail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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