Seems to be some confusion about the $1 trln in "economic aid" announced by the G20.

The $500 up front to refinance the IMF is for governments to lend to governments. Not surprisingly at a meeting of G20 politicians, this was their No.1 priority.

But this is not stimulus, as I understand it. IMF money is primarily to bail out governments who are facing default and comes with strings attached.

Much of the rest of the $1 trln must cover the unspecified IMF sales of gold and printing of money via SDRs.

A fair chunk of this money will be lent to east European governments and will, I suspect, find its way to western banks via the refinancing of east European banks. Thus, the familiar bank bailout by another name.

The export credit insurance is the most important thing announced in London - as well as the most obscure.

Global trade has collapsed - evidenced by the stagnant seaways - because of the bank freeze. Ninety per cent of global trade happens on the basis that both parties are insured against non-payment. Without that insurance, no trade.

According to various reports, between $100 bln and 250 bln has been "allocated". Bear in mind the G20 doesn't have any money. This has to come from national governments or banks.

Thus the gleeful television and press reports have more to do with a pat on the back for a "good show, old chap". So far, we can rightly ask, "where's the beef (ye roast of olde England)".

No comments: