What's Interesting Is How Little We Learned in 2011

That said, we took a look back at the G-20 finance ministers and central bankers' meeting in Washington last weekend.

The Hidden Cost of Volatility Drag

One thing that emerged from these meetings is how little they've learned since their last conference three years ago. In fact, most were more concerned with what to do about Europe than with coordinated monetary and fiscal actions.

A Promise Too Little, Too Late?

Bridgewater Associates' Ray Dalio noted that the promise of a Plan B, which includes measures like backstopping banks, facilitating restructurings, and building pan-European institutions, might or might not be delivered. He also expressed concern that these countries are still working on a plan to address their economic problems.

Global Fiscal and Monetary Policies Remain Ineffective

Bridgewater's Jason Rotenberg added that global fiscal and monetary policies will remain ineffective unless debtor-developing countries can correctly calculate the mix of fiscal transfers, debt restructuring, and printing money needed to manage this successfully. If finance ministers fail to do these things well, there may be too little or too much fiscal and monetary stimulation, leading to inflationary or deflationary spirals.

Too Little, Too Late

Bridgewater's Cole Morris noted that even assuming European handling of the European debt problem is as good as promised, there will still be a) too much indebtedness to allow normal debt growth, b) fiscal contractions, c) inadequate and poorly measured monetary policies, and d) structural imbalances. This means we believe it's too little.

Three Scenarios to Consider

Bridgewater's Ray Dalio also suggested considering the following three scenarios: What if TARP had been postponed another month? What would have happened without the program in place? And what if the banking system didn't wait for policy makers to understand the problems and coordinate actions?

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