G20 leaders fiddle as market volatility peaks

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The much hyped G20 summit meet at Seoul started off  on 11th Nov with many expectations and closed this Friday with a whimper, postponing the action to be taken,  for the Doha Summit to be held in the middle of next year. Heavyweights such as Barack Obama, Hu Jintao, Angela Merkel, Manmohan Singh, Sarkozy and Cameron arrived at no important conclusion as per a Reuters report dated 12th of Nov which highlights the Main points of G20 Seoul Summit Document  



Usually such summits  of  G20 heads of states provide opportunity for political leaders to cut through red-tape and take concrete steps, as in the Pittsburgh summit witnessed after the 2008 credit crisis.  There had been already too many expectations therefore, and the stage was rightly set at Seoul for discussing and addressing a new framework of  Global  monetary policy at Seoul. Unfortunately that did not happen.

The US moving away from the global consensus on tight monetary policy was the principal reason for the talks to be indecisive. For months it had been widely anticipated that  the days of the global recession  were over and the Federal Reserve would mop up the extra liquidity  from the markets and move on to the  next phase of deficit and debt reduction . The G7 allies like Germany and the UK had already taken strong steps
 in that direction and the US  was supposed to follow suit after the 1.7 billion infusion of TARP funds were over in March 2010.

However that did not happen. Apprehending that the US slow-down could be longer than anticipated, the Fed went in for the next phase of Quantitative easing QE2 of $600 billion to be released in installments of $75 billion each month. This evoked sharp reaction from across the world and Germany, China, Brazil, Korea were strident in criticizing the US for adding liquidity to the already volatile situation in the world's currency and commodity markets.

The US President Barack Obama   defended the Fed's policy  but had little to offer on how to  contain the surge of volatility that was hitting the world's currency and commodity  markets. He also said that  US cannot afford to be the world's largest consumer and trade imbalances must be addressed to by appropriate appreciation of the currency that China held back for so many years. The Chinese hit back saying that the US could not force others to drink bitter medicine for its own problems. However this pow wow between the major nations of the world on currency valuation,trade imbalances left out a major topic that needed resolution immediately.

The issue of volatility was left to market forces and though acknowledged as a potential threat had no concrete steps or even a road map drawn  to counter it. This undoubtedly was the biggest failure of the G20 summit of Seoul  and may haunt the leaders in the winter of 2010 which may see a lot of commodity volatility.