Steve Pearlstein thinks so:

What emerged yesterday from the G-20 ... amounts more to reform than to revolution. Member countries committed themselves to adding $850 billion to the resources available to the IMF and regional development banks to mount rescues of countries in financial distress, with instructions that the money be used not only for traditional purposes such as debt rollover, bank recapitalization and balance-of-payments support, but also for more "flexible" goals such as stimulus spending, infrastructure investment, trade finance and social support.

And just as the old G-7 has given way to the enlarged G-20, the governance structure of the fund and the bank will be revised to give the bigger developing countries the authority they now deserve.

It may suit the politics of Europe to portray all this as a blow to Washington's power and prestige, but the reality may be quite different. In fact, the shift is perfectly in keeping with the new emphasis on the developing world that Obama brings to international economic policy. And if any countries are likely to lose out in the restructuring, they are those of "old Europe" that, by dint of history, now wield power far in excess of their importance in the global economy.

Indeed, while European leaders were crowing that they had successfully beat back calls to step up efforts to stimulate their economies, that's not exactly true. Yesterday's big boost in funding for the IMF could well translate into hundreds of billions of dollars in fresh financing for Eastern European countries that, for political reasons, leaders of Western Europe have been unwilling to offer directly. Yesterday's communique also contains a carefully worded commitment for all countries (read: France and Germany) to increase stimulus spending if the IMF finds that current policies prove insufficient to get their economies growing again.

The G-20 just released its final communique, summarizing the agreements made during the one-day conference. And, it's a doozy.

The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.

It's certainly on an "unprecedented scale." Plus, it's the first global action plan to really emerge from a G-20 conference -- note the sale of gold to shore up developing economies. See more detailed analysis from FP bloggers throughout the day. 

The World Bank's crystal ball is not emitting pleasant forecasts this morning, with the release of the latest Global Economic Prospects Report: "Global GDP is expected to contract by 1.7 percent in 2009, which would be the first decline in world output on record," the report concludes. Developed economies will fall into "deep recession" -- witness Japan's 12.1 percent drop in GDP in the 4th quarter of 2008, or worse still, 21 and 25 percent drops in South Korea and Japan respectively. Ouch.

By region, Eastern Europe and Central Asia are worst off thanks to their coming into the crisis with deficits and a binge of foreign cash (which, as you guessed, has now fled.) Latin America will suffer; so will Africa as commodity prices will stay low, trade slows, and foreign investment dries up. East Asia will be hit by the 6.1 percent gutting of global trade expected in 2009. 84 of 109 developing countries are expected to face "financing gaps" in their government budgets this year. 

The good news? A modest recovery might be coming in 2010..."However, continued banking problems or even new waves of tension in financial markets could lead to stagnation in global GDP or even to another year of decline in 2010."

Whisky anyone?

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In the upcoming issue of The Atlantic, Simon Johnson -- M.I.T. professor, awesome financial-collapse blogger, and former chief economist for the I.M.F. -- has a must-read. The nutgraf(s):

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Johnson shows how financial firms became more and more profitable, and a bigger and bigger part of the U.S. economy. More capital meant more political capital, he argues, which eventually meant nobody prevented the melt-down. The same political entrenchment makes fixing the banks difficult. 

The obvious solution to the financial crisis, Johnson says -- informed by his time at the I.M.F. -- is simple. The United States should determine which banks can't survive and temporarily nationalize them, instead of simply recapitalizing them, he says. But the relationship between top financiers and the government means this won't happen -- at least not unless things get much worse.

Still, his article includes a list of the policies (or lack thereof) which most contributed to the bubble and burst. It's a great crib sheet of what Capitol Hill and the G-20 Summit will tackle, piece by piece, to reform the system. 

• insistence on free movement of capital across borders;

• the repeal of Depression-era regulations separating commercial and investment banking;

• a congressional ban on the regulation of credit-default swaps;

• major increases in the amount of leverage allowed to investment banks;

• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

• an international agreement to allow banks to measure their own riskiness;

• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

It's fascinating, scary reading. 

For the past few months, the in-vogue comparison for the U.S. financial crisis and government intervention has been the "lost decade" in Japan. But, over at Marginal Revolution, Tyler Cowen toys with the comparison between the current U.S. fiscal stimulus and the Bundesbank's massive spending policy just after German reunification. He writes:

The results were less than wonderful.  The higher demand boosted measured gdp growth in the short run (bananas and porn, plus reconstruction) but Germany fell into economic stagnation.  The new demands took the West German economy only so far.  The higher taxes and debt then kept the German economy down for many years.  Few Germans were happy with the economic fallout from this "stimulus."  And that was with a relatively well-functioning financial system and a reasonable amount of initial optimism.

You can list many dissimilarities between German unification and the current U.S. situation (and in the comments I am sure you will).  Still, as historical examples go, I believe this one has some relevance.  When European leaders are skeptical about fiscal stimulus, they have some reasons, some of them quite recent.

Cowen gets to the real utility of the comparison at the end there: It helps to explain why many European leaders are hesitant to pony up billions of Euros to stimulate their economies. 

Photo: Flickr user gavinandrewstewart

You may have seen that Matt Drudge has a screaming headline up right now, BEIJING TO PITCH NEW GLOBAL CURRENCY; DUMP DOLLAR." (Drudge links to a muuh more carefully worded Financial Times story.)

This strikes me as a significant moment, but let's hang on a second before we lose our heads.

The story, also reported by the Wall Street Journal, is based on this rather mildly worded speech by Zhou Xiaochuan, the head of China's central bank.

In it, Zhou asks, "What kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF?"

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis called again for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.

Though Zhou does not say so explicitly, the clear implication is that the dollar isn't doing these things. Interestingly, he cites John Maynard Keynes:

Back to the 1940s, Keynes had already proposed to introduce an international currency unit named "Bancor", based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may be more farsighted.

[T]he technical and political hurdles to implementing China's recommendation are enormous, so even if backed by other nations, the proposal is unlikely to change the dollar's role in the short term. ... The central banker's proposal reflects both China's desire to hold its $1.95 trillion in reserves in something other than U.S. dollars and the fact that Beijing has few alternatives. With more U.S. dollars continuing to pour into China from trade and investment, Beijing has no realistic option other than storing them in U.S. debt.

Looks like you can hang on to those greenbacks for a little while longer.

There is a lot that was audaciously optimistic about Zimbabwean President Robert Mugabe's plea today for $5 billion to restart the country's troubled economy. He seemed confident that donors would trust his government to dole out aid. He asked for assistance in the area of "governance" (while opposition activists were being simultaneously disappeared). Wackiest of all was a claim than Zimbabwe's can cut its 230 million percent inflation rate to just 10 (no million) percent in just a few months.

If only it were all so easy. Apparently not yielding to Mugabe's assesment of sanctions on his regime as "inhumane, cruel, and unwarranted," at least one donor -- the United States -- has already rejected the calls for aid. "We have not yet seen sufficient evidence from the government of Zimbabwe that they are firmly and irrevocably on a path to inclusive and effective governance as well as respect for human rights and the rule of law," U.S. State Department spokesman Robert Wood said today.

As to fixing the economy -- the country needs a miracle as much as it does $5 billion. Even the government is running on fumes -- cigarette fumes, to be specific. As Finance Minister Tendai Biti told CNN, "indirect taxes made up of customs and excise duty have contributed 88 percent of government revenue, which means that the government has been literally sustained by beer and cigarettes." In such a state, and amid a global financial crisis, Zimbabwe is unlikely to find much support from its neighbor for adopting the South African Rand. No wonder Mugabe conceded the finance ministry to the opposition in this coalition government. 

All this creates a devil of a conundrum. To be certain, Zimbabwe needs help and lots of it. The country and its people are in a desperate state. But perhaps first, Zimbabwean policymakers need a reality check.

DESMOND KWANDE/AFP/Getty Images

Last night, NBC late-night comedian Jay Leno -- hosting U.S. President Barack Obama this week -- riffed extensively on the international implications of the increasingly catastrophic AIG bailout during his monologue:

[The AIG executives] bankrupt the company, took $170 billion of our dollars and they're giving out bonuses. You know the main thing they want to reward their people for? Convincing the Treasury Department to give $170 billion dollars to a failing company, so they can give out bonuses for a job well done. You know what "AIG" stands for -- anybody know? Adventures in Greed.

They don't have to account for any of us. Now it turns out they gave $35 billion -- not million, $35 billion -- of our money to bail out European banks. See, this is how a global economy works. Our hard-earned tax dollars are used to bail out German banks for making bad investments in American companies that shut down because the Japanese owners moved the whole thing to India, China, and Mexico. Boy, you thought St. Patrick drove the snakes out of Ireland? Let's send him down to Wall Street!

Turns out, Leno's right. This week, AIG released a document listing the "financial counterparties" who received $101 billion directly from the U.S. government's "emergency loan." AIG used more than of half the Treasury funds to pay down money owed for things like credit default swaps -- most of which went to foreign companies' coffers. Using data BusinessWeek broke down, we made the above chart.  

Funny how the comedians are besting the finance experts now, huh?

Oddly parallel stories in the New York Times and the Washington Post today say more or less that Chinese firms are snapping up everything in sight now that the financial crisis has given them a competitive edge.

"The sheer scope of the agreements," the Post's Ariana Eunjung Cha declares, "marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States."

And for the Times, Keith Bradsher makes the case that China is using the crisis to retool:

The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development.

Construction has already begun on new highways and rail lines that are likely to permanently reduce transportation costs.

And while American leaders struggle to revive lending — in the latest effort with a $15 billion program to help small businesses — Chinese banks lent more in the last three months than in the preceding 12 months.

China is also making it easier for companies to acquire foreign firms:

The [commerce] ministry is now leading its first mergers and acquisitions delegation of corporate executives to Europe; the executives are looking at companies in the automotive, textiles, food, energy, machinery, electronics and environmental protection sectors.

Delve a little deeper into Bradsher's story, however, and there's less here than meets the eye. There's still the fact that some 20 million migrant workers have lost their jobs. "The social safety net of pensions, health care and education barely exists," Bradsher notes. And China is losing some of its low-tech industries to countries with even less weaker labor and environmental laws. Exports fell more than 25 percent in February.

Nor can we assume that China's economic stewards really have a handle on the economic zeitgeist. The Financial Times reports today that the country "has lost tens of billions of dollars of its foreign exchange reserves through a poorly timed diversification into global equities just before world markets collapsed last year." 

The bottom line: Be skeptical of claims that China is taking over the world right now. If anything, Beijing's list of domestic problems is getting longer, not shorter.

I had always put Kazakh President Nursultan Nazarbayev in the megamaniacal but ultimately pragmatic class of dictators rather than the batshit crazy naming-months-after-himself kind. That was before I heard his idea for solving the global financial crisis:

"In our view, we must create a single world currency under the aegis of the United Nations," Nazarbayev said on Tuesday, a day before a major economic conference opens in his Central Asian country.

"We must make a transition to an absolutely new global currency system based on legitimacy and, in view of all countries, one single monetary system," he told a meeting of the Eurasian Association of Universities.

This is the first time Nazarbayev has spoken publicly about the need for a single world currency although he has previously written about it.

He first called for the creation of a worldwide currency, to be called "acmetal" - a combination of "acme," a Greek word meaning the peak or the best, and "capital" - in an article published last month.

In the article in Russia's Rossiskaya Gazeta, Nazarbayev suggested that once a single currency system was in place, the world might consider changing the term used to describe global finance from "capitalism" to "acmetalism."

This comes from Luke Allnutt RFE/RL's excellent TransMission blog, who notes that Genghis Khan had a similar idea.

Nazarbayev's book "The Kazakhstan Way," (featuring an intro by Margaret Thatcher!) has been sitting unread on my bookshelf since I snagged it off the FP review pile last year. If it's full of ideas this good I may have to move it up on my list. 

The United Nations' International Labor Organization (word file courtesy of Dani Rodrik) is keeping tabs on the world's stimulus packages. The charts make for interesting reading, filled with fun depressing financial crisis factoids.

For instance: Which countries haven't sorted out or passed their packages yet? Austria, Denmark, Greece, Iceland (no money to spend?), Ireland, New Zealand, Poland, Sweden, and Turkey.

Who's spending the most, in terms of percentage of G.D.P.? Spain (8.1 percent), China (6.9), and the United States (5.5). Brazil's the biggest cheapskate. Its $4 billion package amounts to a mere two-tenths of a percent of G.D.P.

Already, the blogosphere's parsed the data to decide which countries are pulling their weight and which are relying on others to do the spending for them.

Justin Fox at Time's The Curious Capitalist praises the U.S. and China and derides, well, everyone else:

"The concern is that if we in the U.S. do lots of stimulating and other economies don't, much of the money will just leak out overseas as we spend on imports but others don't buy our exports. China seems to be doing its part, but most of the developed world is not."

Ezra Klein agrees:

"We're doing a lot. China is doing a lot. Everyone else isn't....the global economy will be slower than it needs to be, which means national economies will be slower than they need to be (if Caterpillar's international sales sag, they'll cut U.S. jobs)."

Singled out for specific vitriol in the blogosphere is the Eurozone -- in particular, Germany, which has come under regular fire from the likes of Paul Krugman et. al. for free-riding on others' efforts. 

Megan McArdle writes:

"Europe is dropping the ball here. The euro area is being notably stingy with both fiscal and monetary stimulus, and I'm not the only one who's stonkered by it.  If fiscal policy remains too tight, it threatens the very union they're supposed to be protecting--how long can Greece and Italy, Ireland and Spain, suffer under a tight regime before one of them pulls out?  And if one of them pulls out, the other weak sisters will pay sharply higher interest rates to compensate for currency risk, probably forcing them out as well."

If there's already global tension over which countries need to do more, just think when the arguments inevitably begin over who started it...

Andreas Rentz/Getty Images

In his first on-the-record meeting with the media, held Wednesday, CIA Director Leon Panetta discussed the destabilizing effects of the global economic crisis. After he expressed particular concern over potential trouble in Argentina, Ecuador, and Venezuela, the Argentines are not happy. Yesterday President Cristina Fernández de Kirchner summoned the U.S. Ambassador to discuss the CIA director's comments, and speaking at a news conference, Foreign Minister Jorge Taiana had this to say:

We consider the statements an unacceptable interference in the internal affairs of our country, even more so coming from an agency that has a sad history of interference in the internal affairs in the countries in the region."

While economists are predicting that Argentina's GDP will contract next year, none of them seem to be forecasting this sort of doomsday scenario. Ambassador Earl Wayne claims that Panetta's statements do not reflect the U.S. government's official position, but rather the CIA chief was merely recounting the opinion of a "foreign source." Even if that is true, it's hard not to get the feeling that the CIA is once again causing trouble in Latin America.

Paul J. Richards/GETTYIMAGES

Two days after Venezuela celebrated the passage of a referendum to remove term limits, the country still seems to be shaking off a hangover. Analysts the world over are mulling over the Venezuela's rising inflation, alarming debt burden, and perceived fiscal shortfall as oil prices fall to dismal lows.

Putting it more frankly, a former Venezuelan central bank official says the country is headed for certain stagflation. "A model based on the state entrepreneurial role is being depleted," he told El Universal. Rough words for a President who has nationalized the oil industry, among others, and may soon do the same in banking.

But if the markets say anything, it is that Chavez will simply have to start reigning in his popular but extensive spending -- something he'd avoided doing until the votes were cast. The country's currency rose on precisely those hopes yesterday.

From the looks of it, Hugo Chavez did indeed enjoy the hell-of-a party in Caracas on Sunday night, celebrating his big win. Good thing. One of the catchier slogans of the campaign, "Oh, ah, Chavez no se va!", is Venezuela's reality: Chavez isn't going anywhere. Is he sure it's a job he wants anymore? La recesion, tampoco, no se va...

Photo: THOMAS COEX/AFP/Getty Images

The Russian central bank appears to have avoided a currency crisis this week, at least temporarily. Policymakers virtually painted a target on the ruble by announcing in late January that they had established a new floor on the currency in order to stabilize its slide. In fact, the opposite happened. Within days investors pushed the currency's value down against the floor, threatening to cause another large selloff of foreign exchange reserves in its defense.

After losing over a third of the country's reserves since August and having the government's debt rating lowered by Fitch last week, the central bank made a change of course by tightening interest rates, making speculation more costly and easing the pressure to draw down official reserves. The move even caused the ruble yesterday to make its biggest gains against the dollar and euro in the past two years, signaling a temporary stabilization.

While they are not out of the woods yet, the Russians seem to have finally taken a step in the right direction. And at time when everyone is focused on the mounting woes in the world economy, any good news on the economic front is welcome.

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