G20 Promises Much — Can Its Members Deliver?

If the deficit-shrinking plan promoted at the summit by Canada actually comes to pass, the most advanced of the G20 would cut their budget deficits in half by 2013.

June 28, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user paul (dex)

The nations of the developed world and the big-shot developing nations (the G20, that is), meeting in Toronto over the weekend, have promised to reduce their assorted budget deficit, especially among the wealthiest members: the United States and Canada, the nations of western Europe, and Japan. If the deficit-shrinking plan promoted at the summit by Canada actually comes to pass, the most advanced of the G20 would cut their budget deficits in half by 2013.

It counts as good intentions, anyway. Canada, for one, ought to be able to grow out of half of its deficit by that time, but most of the rest of the promisers aren’t going to be so lucky. The U.S. Congress seems unlikely to have the political will for any such reduction in the next three years, regardless of which party is in charge, and neither will the boss nations of Europe, who have their own expensive problems to solve (first Greece, then Spain?).

Budget debt, that is, public debt, is only part of the problem for the G20 countries in any case. Add private debt and the monster grows quite large, surprisingly so in some places. As a percentage of GDP, overall debt — every kind of debt, all added together — is 296 percent in the United States.

That sounds bad, but then again the debt load of supposedly more fiscally careful Germany is 286 percent of GDP. Much of the rest of Europe has more: 315 percent for Spain; 322 percent for France; 366 percent for Italy. That paragon of financial restraint, Switzerland, has a total debt load of 314 percent of GDP. But none compare to Japan, with its debt of 471 percent of GDP. Japan also has the bonus problem of no population growth, either by natural increase or immigration, to help it grow out of its debt. (All figures according to global consultancy McKinsey & Co.)

Consumer Sentiment Rises With Any Good News

Reuters/University of Michigan’s Consumer Sentiment Index rose to 76.0 for the final June reading, up from 75.5 at mid-June, 73.6 in final May, 73.3 in mid-May, and 72.2 in final April. That’s a two-year high for the index.

Still, according to the report, the improvement hasn’t been so much because of a particular warm feeling about the economy on the part of consumers, but because any improvement, however small, is a welcome development in the current economic climate. “Overall, confidence is strong enough to support the continued growth in consumption, although the pace of growth will slow into the start of 2011,” observed Richard Curtin, the survey’s chief economist, in a statement on Friday.

Also, consumers might be feeling reasonably good about keeping their jobs, if they have jobs. But one component of the index, the expectations component, took a step back in June. In other words, few expect the economic picture, especially employment, to improve in a meaningful way during the rest of this year.

1Q10 Revised Downward

The Bureau of Economic Analysis has revised its estimated quarter-over-quarter increase for the U.S. gross domestic product during 1Q10 to an annualized 2.7 percent, a figure it released on Friday. The previous estimate had been 3 percent annualized growth.

“The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a deceleration in nonresidential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in personal consumption expenditures,” the BEA noted in a statement.

Wall Street gyrated a lot on Friday, but barely moved in any direction when all was said and done. The Dow Jones Industrial Average lost 8.99 points, or 0.09 percent, but the S&P 500 was up 0.29 percent and the Nasdaq gained 0.27 percent.