How G20 should tackle this economic crisis

•    The US is calling for increased public spending.
•    Some European governments stress the need to change the rules governing financial markets.
•    German Chancellor Angela Merkel said the issue is not to spend more, but to put in place a system that would help prevent similar crises in the future.

To tackle this economic crisis, the G20 has an agenda of above different views, to be agreed upon.

Generally it is thought that this is an economic recession, which only lasts a couple of years, though this is not a recession but a depression.

The difference between the two is that recession is temporarily, but depression is structural. The world has too much production capacity from everything cars, electronics, houses, offices, shopping malls, you name it.

Unfortunately Governments still don’t believe we yet have entered the economic stage of depression. They still apply measures that could have worked in a recession, but are inadequate to tackle this depression.

Instead of allowing nature to correct the excesses that were caused during the '90s bubble in dotcoms, it then was thought that applying a lose money approach would solve that recession. Contrary to what was envisioned this approach worsened the economic landscape and turned it in the largest speculative rush in history. For about four years, the lending rate was kept too low, below the level of consumer price inflation. In other words, money in fact was given away. No wonder people borrowed too much. This created a new even larger bubble that took place in the housing-market. And since housing is the core asset of most families, when this bubble popped, it caused far more damage than the implosion of the stock market in 2000.

From a Macro-economic point of view: Our civilization is rotten to the bone. All created wealth during the last two decennia was bogus. We all have been living beyond our means as a result of the debt-fuelled consumer binge.  Borrow and spend today, pay tomorrow, whether never ‘tomorrow’ would come. With the consequence that now the day of reckoning has arrived.

Regulators unfortunately still have no idea what went wrong and where they should talk about. They don’t understand what is happening, let alone knowing what should be done to tackle this crisis. THIS IS VERY FRIGHTENING!

This economic crisis was in the making for over more than ten years and no regulator had the insight and/or courage to use his responsibility and apply self-discipline by calling for more prudence to save our world from financial disaster.
The market became flooded with derivatives, hedge funds and structured products that all aided to inflate the bubble of this financial crisis. It was an open invitation for the awesome disaster we face today.
Wall Street, and greedy bankers got the upper hand, letting everyone believe that this was the new economic era in which things were different. The sky was the limit, which never is. They all jumped on the bandwagon and lined their pockets with fat commissions and bonus-payments, whether never the day of reckoning would arrive.

Now more than 6 month in the crisis, regulators still don’t have a clue about what is taking place, they should have developed their thinking a little further. Regrettably they continue to misinterpret what factually caused this credit crunch in the first place, let alone they understand how to act. They thought it was a liquidity problem. So, they injected trillions of dollars to 'solve' the problem. And still think the problem will disappear if a few trillions more are spent. It was: too much spending that caused this crisis. Apparently they don’t realize one cannot drain an inundated country by adding more water!

My suggestion; let regulators look at what happened in Japan the past 20 years, and let them try to avoid their mistakes and those made after the dotcom bubble after the 90s. Banks were prevented from going broke by injecting an excess of money. Result so far: No improvement, still the same recession that in fact is a depression.
Please follow the lead proposed by German Chancellor Angela Merkel, and wait until Mr Market has finished his job by eliminating all excess capacity.
Don’t follow the US - FED who favour inflation, to compensate for the loss of $50 trillion in assets that disappeared from the world market.