Tuesday 17 Jul 2018 | 18:00 | SYDNEY
Tuesday 17 Jul 2018 | 18:00 | SYDNEY

World gatherings a distraction from domestic chores


Stephen Grenville

13 October 2008 10:17

There had been much eager anticipation that the G7 would come up with some coordinated action to fix the financial melt-down. Noted US economist Paul Krugman said 'now is the time for major action'. On Friday G7 met, agreed that 'urgent and exceptional action' is required, and…well, actually, they decided to go on doing what they had been doing beforehand, only more so.

The crisis has certainly illustrated the connectedness of financial markets. Nowhere is this better demonstrated than in Australia: without the US financial collapse, it’s hard to see why the Australian stock market, with its strong banks and booming resources sector, would fall so dramatically, with all the confidence-sapping effects that follow.

But just about all the policy responses have been essentially domestic actions: supplying liquidity, guaranteeing depositors, recapitalizing banks, bailing out failing financial institutions and getting monetary and fiscal policy re-set for the subdued environment.

None of the rest of us can provide any real help to the US as it grapples with its problems. If the US succeeds in quickly restoring the health of its financial sector and avoids a recession (a big ask), our own collateral problems would be over. So where is the big role for international coordination? What is happening in Washington is largely a diversion: little more than an opportunity to swap war stories and show off battle scars. The real job awaits when they all get home again.