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Busch: G20 Equals Juice

On the surface, the G20 Finance Minister Meetings appeared to do very little substantive work last weekend. To no one's surprise the leaders pledged to keep emergency support for their economies in place, but couldn't come to a consensus on how to curb excessive banker bonuses and make banks safer. They charged the Financial Stability Board to study this regulatory issue and come back 16 days to report at the G20 leaders' summit in Pittsburgh.

On the exit strategies, this would be a case of making a major decision by not acting. "Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand. Financial markets are stabilizing and the global economy is improving, but we remain cautious about the outlook for growth and jobs, and are particularly concerned about the impact on many low income countries. We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies, consistent with price stability and long-term fiscal sustainability, until recovery is secure."

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There will be a bifurcation on exit strategies. Globally, governments will keep credit and fiscal support programs in place until the recovery is secure. Globally, central banks will keep credit and monetary support programs in place until the recovery is secure. Obviously, this comes down to how each will interpret this security and the time frame in which they will act.

G20 Finance Ministers
AP
G20 Finance Ministers

Can I see a show of hands on who thinks the governments will begin an exit strategy first? No, not one? Due to election cycles and unemployment, the government time frame will lag any central bank time frame by months, if not by years.

This is bullish for equities and gold as it means that the juice or stimulus will continue to flow into the economy regardless of any risks to inflation. The fact that this is a global phenomenon means that its effect will be more substantial and potent. The opportunity for this "Great Recession" to turn into a decade long "Great Depression" is waning as the stimulus will stay in place for a long time.

With the United States pumping the most, its currency has the most to lose. This is why the large holders of US dollars like China, Russia, and India are upset with the current structure utilizing the greenback as the world's reserve currency. The UN Conference on Trade and Development or UNCTAD is the first official institution to back up those concerns and advocate for a new system. In a report , UNCTAD said the system of currencies and capital rules is not working properly. More importantly, it said that the present world's currency reserve system needs wholesale reconsideration.

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As markets have reduced the fear and focused on normalization, the overwhelming reality of the weekend's G20 meeting is that governments and central banks are pumping stimulus hard and will continue to do so for the foreseeable future.

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Andrew Busch
Andrew Busch

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Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece andreach him here and you can follow him on Twitter athttp://twitter.com/abusch .