6/29/2010
By Brian Sozzi, Research Analyst

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When a person gets their expectations up, it sets the stage for a letdown when the actual outcome turns out to be the opposite.  Heading into the G20 this past weekend, there was considerable anticipation in the air. Finance ministers and central bank governors were supposedly going to outline tough coordinated banking standards and some form of programs to bring down runaway deficits.  Unfortunately, the event was an outright flop, a true waste of time if you ask yours truly.  The G20 put on the table measures to reign in debt, but there was disagreement prevalent as to whether increased government spending should be more of a focus instead of deficit control.  The fact violence occurred while the people of power met and there were more headlines detailing that the U.S. lost its bid for the World Cup underscores the lack of substance that stemmed from the gathering.  This ultimately speaks to a larger issue at hand; for example who is Germany to sit there and tell leaders in Japan what to do about tackling its excessive debt position.

All in all, the G20 result wasn't worth the petro used by the jets to fly world leaders to Canada.  I personally, and maybe this is a reflection of my intense nature, found more enjoyment in watching the protestors light cars on fire.  No, I do not condone people running roughshod over personal or public property, but at least those standing up for what they perceive to be injustices displayed  a pulse and a little bit of heart.  Those donning suits and stuffy dresses while discussing the World Cup no less, disseminated weak comments that matched the overall disappointment of the event.  Collectively, the G20 represents 85% of the world economy and if I am a country in the 15% minority, there is no way a sense of confidence was instilled by Monday morning.  Just sneak a glimpse at the key comments/takeaways from the event...

Takeaways/Comments

* The U.S. joined other countries by endorsing a goal of cutting government deficits in half by 2013 and stabilizing the ratio of debt to GDP by 2016.  The funny item about these goals...the timetable was stated as an expectation rather than a firm mandate.  In fact, Japan is not included in any of the expected target reductions because let's face it, its debt is simply out of control.  I encourage readers to Google "economic statistics" for each country in the G20 to get a feel for how utterly asinine such deficit reduction goals are in theory.  It's halfway through 2010 and our President and his cronies are still extolling the virtues of government spending to spur economic prosperity instead of fiscal prudence and lower taxes.  I am no Einstein (though I like to think I am), but commonsense implies that in order to reign in a deficit a country needs to clamp down on spending, not pass a major new healthcare entitlement program.
* It was the first time the G20 has set dates for deficit reduction, but the timetable was non-binding and will not require new policy actions.  If you are internet savvy, understanding the following response should be easy.  "LOL"
* "To be honest, it was more than I expected" noted German Chancellor Angela Merkel.  Expect nothing and when slightly more than nothing is accomplished, it appears to be a victory.  Gotcha.

The Cold Hard Truth

The point being made here is that I think the G20 meeting was more dangerous than some believe.  By outlining deficit reduction targets that will not be met, world leaders are playing a game of chicken with debt markets.  For what it's worth, I'd bet my house on Mr. Market getting it all correct rather than our profligate spending, Democratic led government and international partners which spent like drunken sailors at topless establishments.

Some Not so Fun Facts of the Heavy Hitters at the G20

Canada
* Canada debt forecast at 79.3% of gross domestic product for 2010, 68.9% by 2014.
* Canadian 2010 deficit forecast at $53.8 billion, less than 3% of GDP this year.
* Canada's deficit is expected to whittle down to a near-balanced position by mid-decade.

U.K.
* British 2010/11 debt-to-GDP forecast at 61.9%, rising to 67.4%by 2015/2016.
* Britain's budget deficit, or its public sector net borrowing, is forecast to be £149-billion, or 10.1% of GDP, falling to £20-billion, or 1.1% of GDP, in 2015/2016.

Germany
* German public debt-to-GDP forecast at 76.5% for 2010, forecast at 82% for 2013.
* German 2010 total public deficit forecast at 5.5% of GDP, forecast at just under 3% of GDP for 2013

United States
* U.S. public debt forecast at 63.6% of gross domestic product for 2010, 72.9% for 2015.
* U.S. 2010 deficit forecast at US$1.56 trillion, or 10.6% of GDP, for 2010; forecast at U.S. $752 billion for 2015.

France
* France's public debt-to-GDP ratio is forecast at 83.2% for 2010 and at 86.6% in 2013.
* France's deficit is forecast at 8% of GDP for 2010, 6% in 2011 and 4.6% in 2012.

Japan
* Japan's public debt-to-nominal GDP is forecast at 171.1% for 2010/11, forecast at 184.3% to 197% for 2015/2016.

Brian Sozzi
Wall Street Strategies