Inflation Is the Taboo Subject at the G20
In the five-star Westin Hotel in Paris Friday, the world's top central bankers met to discuss the risks facing the global economy in 2011.
At the top of the agenda — according to the French hosts of the G20 — are global imbalances.
The market, on the other hand, wanted to hear everyone's views about rising inflation and the pressure higher prices are putting on central banks to consider tightening ultra-loose monetary policy.
It is not often you see Federal Reserve Chairman Bernanke, European Central Bank President Jean-Claude Trichet, Bank of England Governor Mervyn King, and French Economy Minister Christine Lagarde joined in debate with the bosses of the People's Bank of China, the Bank of Japan and the Banque of France. So, when you do, it pays to listen to what it being said.
But sometimes what is not being said is more important.
Lagarde is calling for a set of indicators that would allow us to monitor global imbalances in a more coherent way.
A deal could be done over the weekend, as long as China's huge reserves are left off the table, of course. In this context, Bernanke took to the stage to give the world a history lesson on how global imbalances came about.
Bernanke discussed capital flowsand how these are causing problems for both the developed and developing world, which are both growing at very different speeds.
His message was simple: more savings in highly-indebted nations, more spending in those with huge reserves and current account surpluses.
King called for global cooperation to be as much of an imperative as it was at the height of the crisis, warning failure to act could lead to further crises.
Don't Mention Inflation
What became clear following the second history lesson of the afternoon was that no one was going to discuss the big issue of inflation.
The debate over inflation in the US and Europe has been driven, to a large extent, by events more than 75 years ago.
In the US, where helicopter Bernanke used his analysis of the Great Depression to do everything possible to avoid deflation, the debate centered on ultra-loose policy, quantitative easing and how to keep growth going at any cost.
In the euro zone, where Germany remains haunted by the hyper-inflation of the Weimar Republic, the debate focused on austerity measures and controlling inflationary expectations.
While the rhetoric has been different on both sides of the Atlantic, the actions of both the Fed and ECB have been similar, combining historically low interest rates and extraordinary measures aimed at pumping liquidity into the system and avoiding a return to an economic crisis.
The question for the market now is when will the Fed, ECB and BoE follow the PBOC and begin tightening policy and what impact any move would have on asset prices, growth and unemployment.
Unfortunately, you will never get an answer to that question from a finance minister and six central bankers sharing a stage in front of TV cameras.