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I know you can't bear the suspense. The award for "Best Prepared Country Going Into the Crisis" goes to... Canada. And what a goodie-two-shoes economy it turns out to be.

The more you look at this country's numbers, the more you understand why Gordon Brown relegated Canada to "second tier" status in the diplomatic preparations for the Summit. It was the only bit of one-upmanship with the Canadians he could still win.

Next time the prime minister talks about every country being brought down by this crisis - or the chancellor suggests that everyone made the same mistakes - remember Canada. Nowhere is immune, but by most key measures, the Canadians are coming out of this crisis in a league of their own.

Take the banking system. Canada's banks have not just had fewer bailouts than other countries. They've had none. Zero. Not a dime.

That may change - the five banks that dominate Canada's banking sector have had to write down large losses on subprime and the like. But so far they've done without government handouts. And they have raised about £5bn in equity since October. Their shares have fallen sharply, but by 40-50% - not 80-90% as they have in Britain and the US.

As the , of the seven institutions in the world that still retain a triple-A Moody's credit rating, two are Canadian banks. And as their competitors have tumbled, so they have ascended the global rankings: all five Canadian banks now rank in the world top 50.

Didn't they pay a price for that boring banking - the distinct lack of securitisation and innovation? Well, it's true, Canada didn't have a nationwide house price bubble in the lead up to this crisis. And they didn't have the same kind of rise in personal debt. That's one reason the IMF used words like "resilient" and "well-placed" in its .

You can see the results of this rather old-style approach in Canada's boringly consistent rate of growth. On average, between 2001 and 2007, its economy grew by 2.6%.

Across the ocean, the City was a hotbed of global financial innovation, and we were riding a heady stock market and housing boom on a sea of debt. The result? Average economic growth between 2001 and 2007 of, er, 2.6%.

Of course, Canada has been hit by this crisis - about a third of its GDP is taken up with exports to the US. The economy shrank slightly last year and the consensus is for a decline of 1.8% this year. But it looks set to have the shallowest recession of all the G7 economies, with the smallest decline in activity in 2009 and fastest growth in 2010.

Despite the openness of its economy, Canada has not even been part of the global trade imbalances I keep going on about. It had a modest surplus in the years leading up to the crisis - now it's moving into deficit.

I'm sure someone will write to tell me the blot on Canada's economic record, the fatal policy error that will cause me to sheepishly revoke its award in a few days' time. But I haven't found it yet.

Its sober management of the public finances has even left it room for a decent-sized stimulus package for this year and next. Net debt last year was an irritating 22% of GDP.

And the most impressive thing of all about Canada's position is that you are probably reading about it for the first time. Canadians are so sensible they even have the sense not to brag, in case things turn out badly for them after all.

If the UK had these vital statistics, by now the world would be sick of hearing about them. But on top of everything else, the Canadians have guarded against hubris as well.

Goodie-two-shoes is right. If I were Gordon Brown, I'd be wishing Canada wasn't coming at all.

They won't be giving out awards at the G20 summit this Thursday, but what if they did...?

The week's first award is for Most Promising Display of Global Economic Leadership and it goes to the Chinese.

Take the issue of fiscal stimulus, now jokingly referred to by officials as the "story that will not die". While America and Europe have been publicly squabbling over who will stimulate when and at what cost, China has quietly accepted that it needs to do more than its fair share.

According to the IMF, China's active measures to stimulate its economy come to 3.2% of GDP this year, by far the most of any major G20 economy. The average is just under 2%. And China is already planning stimulus of 2.7% of GDP next year, compared to a G20 average of 1.3%.

In many ways, that is as it should be. After all, the Chinese are the ones with all the money these days. Their foreign exchange reserves alone are close to $2 trillion.

You might also say that China's actions are down to self-interest rather than global statesmanship. After all, they need to keep their economy going just as much as everyone else does, probably more.

If you look at history, an economic slowdown after a period of rising expectations and dramatic growth is a prime recipe for revolution.

But by actively pushing up domestic demand, the Chinese are at least looking to participate in the re-balancing of global demand that most economists would say is the only sustainable path out of this mess. And they are not (so far) looking to devalue their way to recovery.

As I've noted before, this crisis has pointed up the costs of an imbalanced global economy for savers and spenders alike. Borrower countries like Britain and America are suffering, but so are those that sold to them: the big exporter, saver, nations like Japan, China and Germany.

One of the many reasons the Americans are focused on getting other countries to do their part at the G20 is that they know a recovery built on the US consumer (and taxpayer) isn't going to stand the global economy in very good stead in the future.

Every government needs to prop up domestic demand, but saver countries need to do the most. Germany has done more here than you might think: it has stimulus plans worth 2% of GDP next year.

But, buried in the y was an astonishing rebuff to the re-balancing scenario outlined above.

Angela Merkel told the paper: "the German economy is very reliant on exports, and this isn't something you can change in two years." So far, so unexceptional. But note the rejoinder: "and it is not something we even want to change".

Charles Dumas, of Lombard Street Research, has pointed out that more than 80% of Germany's growth since 2001 has been accounted for by exports (and much of the rest was export-related spending and investment).

That is a tribute to the imbalances in the global economy that helped create this crisis, and which are leading Germany to have one of the steepest economic declines of any European economy. Yet, amazingly, it is not something the German government would like to change.

Contrast that with China, which not only takes dramatic steps to boost domestic demand but openly debates how to create a better system in future.

At the recent meeting of G20 finance ministers and central bankers in Horsham, Zhou Xiaochuan, the governor of the Chinese Central Bank, talked about creating a system more similar to Keynes' original scheme in 1944, where it's not just deficit countries that face pressure to rebalance their economies.

Last week , in a short paper laying out the case for a new international reserve currency based on the IMF's internal unit of account, the Special Drawing Right.

I'll say more about the ins and outs of this proposal in another post. Let me just say here that while the markets have understandably focused on the short-term impact on the dollar, the long-term implications for China of such a system would be no less challenging.

In the lead-up to the summit, many G20 officials, including Mervyn King, have been talking about the need for a better mechanism to prevent global imbalances building up in the future, not just in banking but at the level of global trade and capital flows.

Here is a senior Chinese official promoting an ambitious long-term solution that would have made it quite difficult for economies like China to exist. If there had been a Keynes-style global currency system, China would have had to rein in exports and cut domestic saving a long time ago. There would have been no wall of cash looking for safe, or pseudo-safe, assets in countries like the US. And we wouldn't be where we are today.

Maybe Governor Zhou is making mischief at America's expense. Maybe he hasn't gone back to the Keynesian roots of his idea to see where, exactly it would lead (though I would find that very surprising).

Regardless, set against the rather unstatesmanlike behaviour of many of those coming to London this week, in my book it still counts as a reason to give China the prize.
Tomorrow I'll be awarding the prize for the G20 Economy Best Prepared for the Global Crisis. Watch this space. Clue: it isn't the UK.

Everyone's been hit by this crisis, but a severe recession for all the emerging market economies isn't a forgone conclusion. That's the surprising lesson which I drew from a special G20 Business Breakfast which I hosted in Canary Wharf on Thursday.

What was special about this event was that the ´óÏó´«Ã½ had brought together to talk with bankers, economists and others about how the crisis had affected them - and what, if anything, the could do to help.

I wasn't surprised to hear some say that they didn't expect much to come out of the summit that would affect them. Yuri Lirmak, a Russian businessman now struggling to pay a 28% interest rate on standard working capital, said he felt the Russian business was "on its own now".

He agreed that there were some heady boom years for Russia before the crunch, but, "those days aren't coming back. This is the new reality." He didn't think the G20 leaders would deliver anything at all for him.

What I was surprised by was the amount of optimism around the room - not from the crisis-weary British bankers, but from the entrepreneurs.

The participants from Brazil and Turkey said that they had been affected, but so far not as badly as they'd feared. Brazil has been hit by the crisis, but not as badly as many - it has a strong economic policy and a large domestic market on its side.

Turkey's position looks a bit more perilous: much seems to depend on whether a big rescue package from the IMF comes through in the next few weeks.

The news from India was even brighter. One of the Indian entrepreneurs at the meeting, Saurabh Gupta, said he felt there were actually a lot of opportunities in the crisis for people like him. One side of his business had been killed by the credit crunch, but the other, internet marketing, was going strong.

A lot of businessmen I've spoken to say the crisis will be good for them - because it will kill off the weaker competition. When Mr Gupta said it this morning, I actually believed him.

What was the big "takeaway" from the breakfast? For me, it was that there's still everything to play for in the developing world.

For some parts of Africa, the downturn in the West has already hit them hard. Abdirashid Duale, a Somalian businessmen, told us how remittances to the Horn of Africa had been hit by the loss of construction jobs for foreign workers in countries like Britain and Dubai.

But other countries, like India, aren't necessarily facing a major slump. To avoid one, they need to see G20 leaders next week send the right signals on global stimulus, cough up more funds to the IMF, and stand by their promise to keep global markets open.

Or that's my take, at least.

Asked about budget policy, Mervyn King will usually politely refer inquiries to HM Treasury. After all, the independence of the Bank of England is a two-way street. Since he doesn't want ministers weighing in on monetary policy, he has usually shown them the courtesy of resisting commentary on the budget.

There have been exceptions. But none as pointed as , where he effectively said that the government would be mad to consider another large stimulus package.

Why change the habits of a decade? And why now - with Budget Day less than a month away?

There are two possible explanations. One is that he thinks the British budget is now in such a bad way that saying this is no longer controversial.

The other is that the governor wants to give public support to those in the government - notably in the Treasury - who are resisting calls for another fiscal stimulus on 22 April.

I suspect both are true. As I flagged up last week, the IMF now thinks the UK will have a deficit of 11% of GDP in 2010, compared with a G20 average of 6.3%. has since produced its own forecast for a deficit of more than 13% in 2010-11.

The fund's figures also showed that we have had the largest swing into the red since 2007 of any major G20 economy. Our borrowing will have risen by 6% of GDP per year, on average, between 2007 and 2010.

"Given how big these deficits are", King said this morning, "I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of the those deficits."

Many economists would consider that a simple statement of fact. When you are in a cavernous hole you think long and hard before digging a lot more, especially when you're a country hugely dependent on selling its government debt to foreigners.

Given the risks to the budget of failing to prevent a depression, there may come a time when the government has to contemplate another stimulus package. But anyone would say you'd need to tread cautiously.

Yet, clearly, Mervyn King is not just another City economist. He will have been well aware that this was consequential, especially with debates over fiscal stimulus likely to be front and centre at next week's G20 Summit.

And he didn't leave it there. He went on: "that's not to rule out targeted and selected measures... But I think the fiscal position in the UK is not one where we could say, well, why don't we just engage in another significant round of fiscal expansion?"

This is more words on fiscal policy than the governor has uttered in a long time. At a time when the Treasury is fighting to prevent another big stimulus going into the Budget, it is difficult to escape the conclusion that Mervyn King wanted everyone to know exactly which side he was on.

Even the fiscal activists at No 10 are not contemplating a US-style fiscal package. And as the IFS has noted repeatedly, last year's stimulus was itself a pretty feeble affair. The vast bulk of the rise in UK borrowing is due to things beyond the government's control, particularly the impact of the recession on revenues.

King is not saying the government should seek to prevent the automatic stabilisers from operating. High and rising deficits are inevitable for at least a couple of years. Though George Osborne has suggested otherwise, nor is he asserting that the earlier fiscal stimulus was a mistake.

The governor's remarks today are consistent with what . At that time he said a fiscal stimulus would be a "perfectly reasonable" response to the crisis, provided that it would it be "temporary, purely temporary", and "that it would be clear that there was a medium term plan to bring tax and spending back into a sustainable balance over the medium term."

You could say that today's comments are merely an updated version of this view. You could also, as I said at the start, say that they were a pretty uncontroversial description of Britain's fiscal position. But if there are senior members of the government who think a big second stimulus is a live issue, they've been put on notice that the governor doesn't agree.

The devil's not in the details. It's in the basic idea.

Like nearly every finance minister in the developed world, . It can't be done. Someone is going to end up sad - probably the voters.

We have fallen into the habit of taking the term "toxic" a bit too literally. These assets aren't bits of plutonium sitting in the vaults of the banks, infecting everything that comes close. They are simply assets. What's toxic about them is the fact that they don't have a market-clearing price.

Put it another way, there isn't a price that banks are willing to accept and investors are willing to pay. This is the problem that's bedevilling governments the world over and it's worth repeating. It's not that these assets have no value, as some would suggest, it's that there's no price that the banks are willing to accept.

So, all those governments have been looking for a way to bridge the gap between the banks and the market, without the taxpayer getting a raw deal. But I'm not sure there is one.

As my colleague, Robert Peston, pointed out this morning, whether or not taxpayers like it (and they don't), governments on both sides of the Atlantic are inevitably taking on a large chunk of the risks of these "toxic" investments. All that differs is the precise terms.

So, looking at a scheme like the Geithner "Public-Private Partnership Investment Programme", the only questions are: how much risk does it ask the private sector to accept? And what does the taxpayer get in return?

The answers are: the part of the scheme dealing with bank loans involves the private sector putting up $7 in equity for every $100 invested in these 'legacy' assets (a better name than toxic, perhaps). And the US taxpayer will have a 50/50 share in the upside.

That will be helpful - indeed, crucial - from a political standpoint. If you're going to provide tempting enough returns for investors to come in, you have to promise voters they will get a piece of the action.

The scheme has other plus points - for example, the fact that investors have to compete to buy the assets. This has all been carefully thought through.

There's no getting around the basic fact that 93% of the risk is being borne by the US government - 7% in the form of straight equity and the rest in the form of lending guaranteed by the government which is only secured by the asset being bought. If those loans turn out to be worth nothing, it's the taxpayer that's going to pay most of the price.

If you start from the position that banks cannot be allowed to go bankrupt, and they cannot be nationalised, this may be as good a scheme as you are likely to get. The problem, as I said at the start, is not the detail but the basic idea.

Geithner has to offer such attractive terms to private investors because he knows that without such enticement, the gap between them and the banks will be too large.

After all, why would the banks want to accept a low price, when the administration has shown it will do almost anything to avoid taking the banks into public hands?

Clever though it is, that is the basic incentive problem which this scheme cannot design away.

If the plan works, voters will conclude that the banks and the private investors have got something for nothing. They will be right. That is unavoidable - indeed, desirable.

What matters is whether it breaks the logjam in the US financial system. In that case, the US taxpayer will have got something for something, though the price for that something was extremely high.

Today's EU summit should have been a moment for Continental European leaders to savour. They warned about the dangers of Anglo-Saxon financial markets and now they've been proved right. And now, here's Gordon Brown, in Brussels, - and the market, where money is concerned, is not always right.

Of course, the British still quibble with some parts of the Euro diagnosis. For example, they don't want a new pan-European body for setting standards for national regulators to morph into something with sharper teeth. But that's only to be expected.

On the notion that there should be tighter constraints on what banks can do, and fewer cracks for things like hedge funds to fall between, the British are on side. What is more - so are the Americans.

It was only at l that European officials realised quite how much the US approach to international financial surveillance had changed.

Until recently the US administration was refusing to even allow the IMF to do a detailed inspection of its financial system - even as the US pushed the idea of such audits for everyone else.

But last weekend Treasury Secretary Geithner said he would be happy for an international body to do all the surveillance it liked. He supported a new system of international financial surveillance, with no double standard - every country should be subject to exactly the same rules. Ministers almost fell of their chairs.

We're not talking a global financial regulator. No-one wants that. But, as Jose Manual Barroso commented this morning, . And it is the direction of the EU.

As I said - it ought to be a moment to savour. But of course, this isn't a time for savouring anything. It's a time for preventing a global depression. On this more urgent territory, the EU - especially the Eurozone - is on the back foot. And thanks to the Americans, they can't use a juicy row over financial regulation as a distraction.

This isn't just about fiscal stimulus. There wasn't much discussion of that in Brussels. No point. National budget plans depend on domestic politics, not summits - especially not summits being held in London. Take France. Yesterday the IMF revealed for the first time [pdf file]. As I mentioned last week, these numbers have been the subject of considerable debate among G20 sherpahs.

What they show is that France is far behind its major G20 colleagues when it comes to discretionary fiscal stimulus - ie active measures to boost the economy like Gordon Brown's cut in VAT.

In 2009 the French government will be adding only 0.7% to GDP through such measures, compared to 2 % of GDP in the US and 1.4% in the UK. Only Italy has done less. The stimulus for 2010 in France is exactly the same.

When you take account of the so-called automatic stabilisers - like benefit spending, which tends to play a bigger role in the EU - the picture is a bit different. But France still lags behind. By 2010 it will be borrowing about 3.5% of GDP more than in 2007, compared to a rise of 6% of GDP in the US and a jaw-dropping 8.3% of GDP in the UK.

So far, the recession isn't hitting France as badly as some. But President Sarkozy may well find himself announcing extra stimulus plans. But, the day after , he's not going to use a summit in Brussels to do it.

A slightly different political equation comes into play for Germany. With the election later this year, Chancellor Angela Merkel cannot be seen to be leading calls for extra borrowing - even though her economy could be hit harder than any other EU country in 2009.

At Horsham and again today, far from talking up the stimulus issue, German officials have been in the odd position of understating the stimulus plans that they have in place.

The IMF analysis shows that Germany will have 1.5% of GDP in discretionary stimulus this year and 2% of GDP in 2010 - somewhat more than the G20 average.

In 2010 the IMF reckons Germany will be borrowing 5% of GDP more than in 2007. At least until Chancellor Merkel was forced to defend herself last weekend at No 10, you would never have got that impression from listening to German officials.

All of which is to say - there is going to be no great conversion by European governments between now and the London summit. As I have said many times before, no-one is going to arrive at the Excel Centre on 2 April with a revised budget in their briefcase, least of all Gordon Brown.

As the British are keen to point out, fiscal stimulus isn't the only game in town. If you're worried about preventing a depression, boosting the economy through monetary policy also matters (even if the credit crunch has left it less powerful than usual).

You can expect much emphasis on "the full range of macro-economic instruments" in next month's communiqué. But alas, monetary policy is a sore point in the Eurozone as well, especially in a week when both the Bank of Japan and the Federal Reserve joined the Bank of England in buying government bonds as part of a policy of quantitative easing.

I'm going to write about the ECB's problems with QE on another day. Let's just say the European Central Bank does not look forward to the prospect of choosing which Euro government bonds to buy. It's doing everything to persuade itself it doesn't have to.

Unconventional monetary policy is one of several challenges for the year ahead which the current set of EU institutions look ill-equipped to answer. How to bail out Eurozone governments that are not supposed to be bailed out is another one. These are not questions that are easily solved.

So yes, the battle over financial markets has been won by the dirigistes. But unfortunately that is yesterday's war. In the search for effective solutions to this global crisis, the EU is in danger of falling behind.

We've now had two weeks of quantitative easing in the UK. But as far as the world's concerned, this is Day One. That's because, as of today, the quantitative easers have the on their team.

The that it would start buying US long-dated Treasury bills as part of a nearly $1.2 trillion stimulus programme came as a shock. That appears to have been the intention.

In response to the news, 10 year government bond yields fell half a point and the dollar had its sharpest one day fall against the Euro that anyone can remember. Those two facts alone tell you almost everything you need to know about the upsides - and the downsides - of this important move.

The upside is a near-instantaneous improvement in borrowing conditions in corporate America, and another kick to the central bank's policy of complete monetary ease.

Wall Street certainly saw the bright side - the S&P 500 rose 1.6%. If you thought the US economy needed another shot in the arm, this could do the trick.

Trouble is - many people wonder whether it was needed. The Fed's own statement implicitly admitted that deflation now seems less of a threat: it simply said that inflation might be lower than it would like.

As the Fed chairman, Ben Bernanke, said in a TV interview earlier this week, most also see the recession bottoming out in the second half of the year.

Of course, the Fed has been buying private assets for some time - it announced a massive expansion of those programmes yesterday as well, bringing its total purchases of asset-backed securities up to $1.25tn in 2009.

It's also going to double its purchases of corporate debt to $200bn. Add those to the newly expanded $1tn Term Asset Backed Lending Facility (TALF) to support lending to the broader economy, and the $300bn in treasury purchases seems a drop in the bucket.

We had thought Bernanke was going to wait to see how all these other programmes worked out before launching government bond purchases as well. Why the change of heart? That's the question that has some international investors concerned.

One explanation is that the Fed is starting to worry about the quality of its balance sheet. As I've mentioned in previous posts, any central bank that loads its balance sheet with private debt is going to reach a point where people start to worry whether government assets are still risk-free. Any rise in the risk premium on government debt would hurt the broader economy and go directly against the central bank's efforts ease credit.

The Fed's balance sheet now stands at $1.9tn - up from roughly $900bn last August, or from 6% of GDP to nearly 14%. If it went to $3tn that would be more than 20% of GDP -the Bank of Japan took 10 years to reach 29% of GDP and much of that was government debt.

The Fed may well have been worried that announcing another $1tn spending spree, without any government debt on the list, would have been a step too far. Sure enough, there is a reference to monitoring the quality of its balance sheet in the Fed's statement, but you have to wonder whether $300bn in Treasuries is enough to allay concern.

We return to the bigger question - why have this new spending spree at all? The answer may be that the Fed - and the Administration more generally - is concerned that the apparent improvement in credit conditions the past few months is a false dawn.

Many of the G20 finance ministers and central bankers who gathered in Horsham last weekend worried openly that the world faced another round of global shocks in the coming months - as the full brunt of the crisis hits emerging market economies, particularly in Central and Eastern Europe.

Depending on how those problems are handled, the exposure of Western banks to those markets could trigger another downward lurch in financial confidence across the globe. Against that backdrop, the Fed doesn't want to give the impression its job is done.

Finally, there's the simple fact that the US Treasury needs the Fed to do more than other central banks, because it fears asking Congress for the cash to do it itself. Through its asset purchases and lending programmes the Fed is effectively doing a lot of the propping up of the financial sector that in countries like Britain is being done by the government itself.

At least one senior US official in Horsham last weekend remarked enviously that the British parliamentary system had its advantages.

If you buy all these arguments, the decision to buy $300bn in US government bonds seems almost a distraction. The bottom line is that the Fed is launching a massive new offensive against the financial crisis - at no small risk to itself - because it wants to prepare for the worst, and it's the only part of the US government that is free to act. No wonder the dollar fell.

Speeches by central bankers tend to be long on theory, short on concrete predictions. It goes with the territory.

Mervyn King's doesn't exactly break with that tradition. But it has some forthright advice for the G20 - and for Lord Turner, whose are out today.

His first message is take it slow. "Whatever exuberance - rational or irrational - that existed has been destroyed by the crisis. So we have time to reflect before we decide on the shape of a new regulatory system."

Translation: relax, no-one ever made a bad loan in a recession.

That could be taken as a gentle dig at those enthusiastic officials - Brits among them - who have wanted the G20 to produce a more detailed framework for international banking regulation than the broad outline agreed last weekend in Horsham.

The governor is backing the American view that this is something too important to rush.

In outlining the broad challenges for reform, the governor covers some well-trodden ground in a typically thoughtful way. But I was struck by the barely-concealed irritation at the idea that a few technical changes would have prevented the crisis. In fact, he thinks it would have taken a herculean and highly implausible act of political will.

Consider the problem of "procylicality", a fancy term for the idea that investors tend to be overoptimistic during the boom and excessively gloomy during the bust.

It's widely agreed that global monetary and regulatory policy was too procyclical in the lead-up to the crash. Interest rates were kept low, and most financial regulators did little to 'lean against the wind' as leverage - i.e. debt taken on to invest - was built up.

How could we have done things differently? Well, fiscal policy could have been a lot tighter in both the US and UK, but that's a story for another day.

Monetary policy could have been tighter. There was discussion of using interest rates to take the air out of the house price bubble on both sides of the Atlantic. But, as everyone now knows, the Bank of England ended up following the Greenspan view that it was easier to clean up after an asset boom than to prevent it from happening at all.

Sir John Gieve, the outgoing deputy governor, said baldly last month that this had now been proved wrong. It certainly sounds pretty stupid from the standpoint of 2009. But Gieve's erstwhile boss has had no such conversion. He still thinks the costs to the real economy would have been too high.

Jacking up policy rates might not even have had much impact on long-term lending rates, in a world of exuberance run amok. Would we really have sat by as unemployment rose, in the name of "restraining growth in financial sector balance sheets"? He thinks not.

Instead of distorting your monetary policy, he thinks you need another tool. And so do a lot of other people these days. Lord Turner will say the same later today.

But even countercyclical capital regulation is a lot easier said than done. Spanish bank regulators have been praised for their "dynamic-provisioning" approach, which made banks provision against profits in the good years, to build up reserves for the not so good ones. But that only seems to have given their larger banks an extra buffer going into the crisis of about 1.5% of assets. Most banks have lost a lot more than that.

There are other ways to be counter-cyclical; Turner will list a few. But King's larger point is that even with the best toolkit in the world we shouldn't fool ourselves that it would have been popular - or even politically feasible. Indeed, the more effective it was at damping the boom, the more the entire financial and political establishment would have been complaining about it and calling for repeal.

After all, it wasn't long ago that prominent Conservatives were calling for city regulation to have an even lighter touch and, as King himself notes, New York was beating itself up for being more heavy-handed than London. This was a time when "virtually the entire weight of opinion, not only in this country but also abroad, was in favour of the expansion of financial services".

The bottom line is that if we want to avoid the next bust we have to be prepared to pass up the boom. Is there any chance that we will be? The governor thinks that "simple and robust policy tools" will help. And a system of "constrained discretion".

But down the road, when memories of 2008 have faded, it is hard to believe they will be enough.

It seemed like a good idea at the time. Downing Street was ecstatic last year when Gordon Brown stole the second G20 Summit for himself. In the wake of the UK bank bailout plan, a London summit seemed another opportunity to show the British prime minister at the centre of global events.

After , feelings are more mixed. After all, it's no good being the global ringmaster if the result is indeed a circus.

Nearly further since they met in Washington. That makes the summit seem that much more important. It also makes the traditional content of meetings such as these look curiously beside the point.

Yes, we have to reform the global financial system to prevent the crisis being repeated. But what good are a set of "agreed principles" and "understandings" for future reform, if your main job these days is preventing your biggest banks from going down the drain?

In a few days the US Treasury Secretary, Tim Geithner, is going to provide details of his scheme for dealing with toxic US bank assets. If it adds up, that could do more to underpin confidence in the US and global financial system than anything agreed in Horsham.

In effect, this is the tension at the heart of this week's . The Americans don't deny the need for major reform, including more coordinated international surveillance (though they don't necessarily want the IMF to be in the front seat).

But they think the right kind of reform needs serious thought, whereas more global fiscal stimulus is a no-brainer.

Against this the Europeans can claim, with some justice, that the G20 is not the place to decide your national budget. They have passed a fair amount of fiscal stimulus - more than the Americans give them credit for.

In their view, if the crisis has forced some agreement on a road map for future reform, isn't the G20 Summit of 2009 precisely the time to put that in writing, before quieter economic times cause everyone to change their minds?

The trouble is, the areas of agreement are a little banal. Today's communique talked of the need for bank capital standards to be less pro-cyclical. These days, few would disagree.

It also talked about having the right system for handling toxic, or "impaired" assets. But how do you price them? Do you try to stick with the value on banks' own balance sheets, or go for something more realistic?

On this vexed but fundamental question the G20 is unsurprisingly silent, because everyone is doing different things and no-one knows which works best. You would be forgiven for wondering if it were worth mentioning at all.

In fact, there were probably only ever two areas where the G20 was in a position to deliver something of real value to the global economy here and now.

One they will achieve, a substantial increase in the IMF's resources for helping emerging market economies - probably $500bn, but ministers are saving the number for their bosses to "agree" in April (they won't have very much else).

The other contribution would have been an iron-clad commitment to keeping all their economies open in the months and years ahead. There will be language condemning protectionism - just as there was at the November meeting.

But talk is cheap. Agreeing to an absolute standstill on all trade and capital barriers - so that countries could not raise tariffs or other constraints from their current levels, even where permitted under WTO rules - would have meant something. Especially if it were policed by some independent international body.

If the Americans really wanted to focus on the immediate risks facing the global economy, championing such a standstill would have been a great way to prove it, even if it caused a bit of bother at home. But Secretary Geithner didn't even try, and nor did anyone else. What we had instead was Horsham.

You can take them to the Summit, but you can't make them jump. Gordon Brown's worst nightmare would be for G20 leaders to come to London next month and agree to not very much at all. That's still possible. But thanks to the US Treasury Secretary, Tim Geithner, we might at least get a juicy row.

Yesterday, Tim Geithner finally unveiled his wish-list for the , which he will be pushing hard at this weekend's of finance ministers and central bank governors in Sussex. He has, in the phrase beloved of US Treasury officials "committed substance". There's the usual boilerplate about "re-affirming commitments to" and "strengthening cooperation against". But there are also some real policy proposals - proposals with which (speak it softly) other parts of the G20 will not agree.

The International Monetary Fund is front and centre of these plans: that in itself marks a break with the past. US administrations have usually regarded the Fund with distrust - even while they were attempting to dictate its every move. Geithner wants to give it more firepower than even the Fund itself had called for.

As I have noted elsewhere, the Fund's Executive Board have asked for an extra $250bn to help emerging economies in trouble. But the US Treasury Secretary wants to give it an extra $500bn, by expanding the New Arrangements to Borrow, or NAB, a standing facility the IMF has to borrow from 26 economies, which now stands at only $50bn. He would even put the first $100bn in the pot himself (that sounds more generous than it is - for arcane reasons, as far as the Federal budget bean-counters are concerned, it wouldn't cost the US a dime).

This is music to the ears of British officials, who've spent months persuading the Americans of the case for more IMF cash. Now the US proposal is out there, the Summiteers can get on with the job of passing the hat.

Geithner said he would like to expand the list of lenders to include more of the G20. If you're listening, China, that means especially you. But if big emerging market economies are going to cough up more money to save the world, they will want a greater say in how that world is run - or failing that, at least the IMF. Right now China has less than 4% of the votes in the Fund, only slightly more than Switzerland. One question for the London Summit is how much the rich economies will have to loosen their grip on the international institutions to get the emerging economies to come along.

Among the rich economies, Japan has already agreed to lend the IMF an extra $100bn. It's unlikely to be asked to give any more. The big surplus economy that hasn't coughed up is Germany. With an election later this year, the Germans are shaping up to be the biggest potential spoilers of Gordon Brown's party.

Germany has never been a big fan of the IMF, although it likes the fact that the IMF puts tough conditions on its cash (unlike some). It's possible Chancellor Merkel and her EU colleagues will agree to put more into the pot. After all, as I've noted previously, it's in their own interest: nearly all of the countries likely to need help from the Fund in the next year or so are in Central and Eastern Europe. But after America's efforts this week to shame other economies into bigger stimulus packages, the Europeans may not be in the mood for a deal.

Larry Summers, President Obama's key economic advisor, beat the drum for more fiscal stimulus by other G20 governments in an with the Financial Times. Geithner followed this up yesterday with a number: he said that the 2% of global GDP stimulus called for by the IMF in 2009 and 2010 was a "reasonable benchmark", and he wants the IMF to report quarterly on government's efforts to get economic growth back to potential. He stopped short of insisting everyone sign up to 2%, but to cite that as a benchmark was inflammatory, because it threatens to open up a whole debate about burden-sharing at the Summit which the Europeans would rather not have.

The IMF reckons that between them the are implementing about $700bn in economic stimulus in 2009, which is about 1.4% of their GDP and just over 1% of the world's. Three countries - US, China and Japan - account for nearly two thirds of that total. The picture for 2010 is even more skewed, with the US accounting for 60% of the stimulus currently in train. By then, the IMF reckons there will be little, if any, extra stimulus operating in the UK. The additional stimulus in France will be just 0.7% in 2009 and 2010.

If the global economy is tanking, you might think it obvious that governments should do as much as their budget position will allow. And most economists would say that France and Germany could afford to do more. But of course it's not that simple. For one thing, all the US talk of "discretionary" stimulus packages leaves out all the stimulus that happens naturally as a result of a recession - like extra spending on unemployment benefits. Thanks to their larger welfare states, we know these automatic stabilisers are much larger in Europe than the US.

In fact, if you look at what's happening to the overall fiscal balance, the US isn't doing that much more than other countries. The deterioration in the German budget is going to be almost as large as America's, though of course Germany's entered the crisis in a stronger state.

The Americans accept some of this. They might even accept that they are going to have to have further stimulus packages if the recession turns out to be more prolonged. But Geithner's focus on the IMF and its analysis has put an uncomfortable weight on the institution's fiscal economists.

It is these hapless souls who have to work out what is and is not a stimulus in every country and estimate the global effect. These days, they are finding a lot of unwelcome diplomatic energy is being directed their way. There are other issues on the G20 agenda which I'll write about in the coming days. But Larry Summers used to joke that the IMF stood for It's Mostly Fiscal. Right now, it mostly is.

Say what you like about the , in launching its first £2bn purchase of government bonds today it is definitely ahead of the curve.

Even the , which has been several steps ahead of our central bank for most of this crisis, has yet to press the button on this form of QE.

The Fed has been buying up corporate bonds for several months, but the Chairman, Ben Bernanke has so far resisted calls to buy US government debt. Does he know something that Mervyn King doesn't?

When asked, Ben Bernanke says he has no ideological objection to buying government debt - he simply thinks that right now, it's more effective to tackle the corporate credit shortage directly.

There are several reasons the Bank can't follow his lead. One is simply that the US corporate bond market is much, much bigger relative to the size of the economy than ours is.

If the Bank of England tried to buy £75bn-worth of corporate bonds it would find itself buying up roughly the entire market. It would then be in the uncomfortable position of being the sole purchaser of the debt of some of Britain's biggest companies. (Incidentally, the pool of corporate assets to buy would expand greatly if they could buy up syndicated loans as well. They may do that some time in the future but that's not on the cards right now.)

Our central bank is also concerned about taking too much corporate risk onto its balance sheet. That doesn't seem to be much of a worry to the Fed (though some at Threadneedle Street wonder why not).

As I mentioned last week, the danger in taking on too much private sector risk is that you push up the risk premium on government debt, raising borrowing rates for everyone and defeating the whole exercise.

Of course there is the opposite risk, which you might call the price of QE's success. What if the policy succeeds - the economy recovers, interest rates go up, bond prices fall and the Bank ends up selling these assets back at a loss?

In a sense, that is an inherent part of the policy. It would certainly come as no surprise to Bank officials. That is why the Bank of England had to obtain an indemnity from the Treasury to make these purchases through a special subsidiary - the .

Any paper loss on these assets when they are sold back to the market will have to be made good by the Treasury, so there isn't a hole in the Bank of England's accounts. But it's part of the oddity of QE that the loss to the taxpayer, in this case, will also be the taxpayer's gain. For who will have benefited more from the initial fall in gilt yields than the government itself?

Think about it. For the next three months, the Bank of England's going to be buying up more medium-term gilts than the government is issuing. For decency's sake, the Bank has to wait until the debt has been on the market for all of a week, but the effect is the same.

If those purchases push up the price of gilts, that will make it cheaper for the government to borrow during this period than it would otherwise have been. That means the debt will cost us taxpayers less.

If and when gilt prices fall again, the Bank of England may have to sell them at a loss. But that loss is the mirror image of the earlier gain. You never know, we might even come out ahead. And we'd no longer be in a recession. It's a little Alice in Wonderland perhaps, but that's the nature of QE.

The often saves its best stuff for Friday afternoons. So it was last week, with the release of no fewer than eight weighty reports on the costs of so far. I wish I could tell you that I had now read every word. But I've read enough to think them worth sharing.

Here are the headlines for the UK.

The IMF reckons that the British government has spent nearly 20% of our GDP - £285bn - in up-front support for the financial sector since the crisis began. That compares to a figure of 6.3% of GDP for the US and an average of 5.2% for the advanced economies within the G20.

That's the money that has actually gone out the door. Adding up the "headline" amounts for all the various schemes to support the banking sector, the IMF reaches a grand total of 47.5% of GDP - or £684bn.

That sounds like a lot, but on this wider (probably less meaningful) measure, we're not even in the top three.

The Irish government, with its blanket guarantee for all the nation's retail deposits, has made financial sector promises with a paper value of 263% of GDP, while the headline commitments of both the US and Swedish governments come to upwards of 70% of GDP.

This study was completed at the end of February, so the UK figures don't include the most recent billions for RBS and Lloyds or the Asset Protection Scheme. Those would push the up-front cost up to well over £300bn and the broader "headline" number up to £1.3tn - closer to 100% of GDP. That might push us ahead of the US on this measure, but the US has also unveiled some big new programmes of its own since this study was done.

The big headline numbers sound breathtaking. But they haven't much value on their own, because you're throwing a lot of apples and oranges into the mix. These tallies don't come close to telling you the figure you really need to know, which is how much this is all going to cost us in the end.

For instance, by far the most expensive financial sector support policies to date have been the and the , both operated by the Bank of England. Between them, these two account for 85% of the up-front cost of the crisis identified by the IMF.

If you talked to officials at the Bank, they would tell you they expect to get the vast majority of that money back. The £185bn lent out in the Special Liquidity Scheme is lent against high-quality collateral, with "haircuts" (discounts) against market value which officials say are in a constant state of review.

On the other hand, programmes like the Asset Protection Scheme involve the government underwriting hundreds of billions of pounds' worth of debt, much of which cannot now be properly valued, still less sold.

No-one thinks they will cost the government the full headline amount being insured (£585bn so far, for RBS and Lloyds). But you wouldn't expect them to cost nothing, either. Since they are "contingent liabilities", zero might well be the figure that appears in the national accounts.

If you think that sounds mad, you will be interested to hear that , the EU's statistical body, is wondering the same thing. In the wake of the crisis, it's looking at the statistical treatment of all these support programmes, with a view to putting a lot of this on the government's balance sheet after all.

That could have some more horrendous consequences for the level of UK debt. But happily for the government, Eurostat is not known for its speed. It's still thinking about how to incorporate housing into the standard EU measure of inflation, , a change that was thought to be "imminent" when Gordon Brown changed the inflation target back in 2003.

To go back to the new IMF figures, you might say that Britain had got its bail-outs in early. We have poured more real money into the financial sector going into this crisis than other countries, but we should also get more back when (or is that "if"?) the markets recover.

Unless the Bank of England has got its lending terms hopelessly wrong, the Special Liquidity Scheme should make only a smallish loss - if not a profit.

So what about the net cost, once all of these various schemes and bail-outs have taken their course? An honest answer would be "nobody knows". But in this study, the IMF has a stab at something more precise.

When all is said and done, it thinks that the net cost to the UK taxpayer of the crisis in the financial sector will be around 9% of GDP. Funnily enough, that is not far off the guestimate that Goldman Sachs came up with earlier in the year. That's on the high side (the average for advanced G20 economies will be just over 7%), but it's not the highest - the net cost to the US is expected to be just under 13% of GDP.

Can we afford it? The IMF thinks we probably can - although, being the IMF, it does think that nearly all governments need to take an axe to their budgets once the crisis has passed.

There's some support here for the Gordon Brown line that we come into this with relatively low debt. Our public debt was 43% of GDP in 2006 - well below the 78% average for the richer G20 economies. By 2014, the Fund now reckons our debt will have risen to 77%.

You might think that sounds bad, but wait for it: by then, it thinks, the average will be 104% of GDP. It expects US debt to be touching 100% by 2014, and Japan's debt to be 222% (it's already 195%).

Of course, these latter forecasts aren't worth much - think how much the UK's forecasts for 2009 have changed in the past year, let alone those for 2014. But if he wants to feel better about the state of the public finances, Gordon Brown might want to take a look at this graph from the IMF report.

It shows what happened to Britain's debt in the first half of the 20th Century. Credit derivatives may have been "weapons of mass destruction" for the 21st Century financial system, but Hitler did a lot more damage to Britain's public accounts.

The Bank of England has on (see earlier post). The initial size of the scheme - £75bn over the next few months - is smaller than some analysts have suggested, but it's a lot more than if they were dipping their toes in the water.

To give some perspective, £75bn is the equivalent of about 5% of GDP. And the fact that the chancellor has authorised purchases up to £150bn shows that the Monetary Policy Committee (MPC) also knows it may have to do more.

In light of the discussion in my previous post, one quick conclusion I might draw from both the headline amounts and the content of the statements is that the MPC thinks that the asset price (or yield) effect of the policy is going to be more important than the traditional money channel.

I don't know for sure, of course - but, as we saw, if you thought that the money multiplier was in good shape, you would be talking much smaller amounts.

The Bank might demur. Officials tend to say that they don't care how it works if it achieves the right result. By making the purchases over several months, the MPC is also giving itself room to stop, if the effect is much greater than anyone expects.

But in his letter to the chancellor, the Governor, Mervyn King also highlights that £50bn of the total allowed purchases of £150bn should be of corporate securities, "in recognition of the importance of supporting the flow of corporate credit".

Given the size of the two markets and the dangers of taking too much corporate risk onto the Bank's balance sheet, the majority of the purchases will have to be gilts. They don't want to increase the risk premium on government assets, which would push up borrowing rates for everyone and defeat the purpose of the exercise.

But the governor's emphasis is striking. Of course, by emphasising the credit aspects to the policy, King also wants to draw as sharp a contrast as possible between this policy and a policy of printing money simply to finance government deficits. As he will continue to remind us, buying government bonds as part of QE is a means to an end. It is not, as in , an end in itself.

As I've discussed before, it's an important political and practical difference, even if the short-term effect of what the Bank is doing is the same: namely, monetising part of the government's debt.

This could be the day you've all been waiting for. The day that "quantitative easing" (QE) stops being a rather ugly talking point and becomes a reality.

Later today, all the signs are that the MPC will release a statement saying that they have authorised the Bank of England to start buying government and corporate securities on its behalf - paid for with money it has created for itself. The policymakers will probably vote to cut the Bank Rate to half a percent as well. Either way, it will be the move to QE that will be the big news.

I've explained in some previous posts exactly what this policy entails. In effect, by buying the assets, the Bank is trying to engineer an unexpected cash windfall for the institutions selling the bonds to the Bank. If that cash is spent or lent on to other parts of the economy, boosting 'broad money growth' (also known as credit growth) and the amount of activity in the economy, then the purchases will have done their job.

Today's big questions are (a) will it work? And (b) how much will the Bank need to spend? If you polled the brainiest economists in the land, I bet the answers you'd get would be: "maybe" and "we don't know". The demand for money is a fickle thing - it doesn't always do what you want it to do. Monetarists learned that one the hard way in the 1980s.

In his most recent press conference, the Bank's Governor, Mervyn King, seemed pretty confident that QE could work. But even he would admit he has no idea how long it will take - or how much money he will have to print to get there.

Depending on your point of view, there are two big reasons to think that QE will boost the economy. Trouble is, none is guaranteed to work - especially in today's unusual times.

First, and most talked about, is the direct "bank lending" channel for QE. The extra cash in banks' accounts encourages them to lend some of that money out, when that loan gets spent, another bank has more money in its account, some of which they lend out, and so on, and so on - until you end up with a much bigger increase in the amount of broad money (M4) in the economy than the initial deposit by the Bank. That's the "textbook" money multiplier.

Looking at the ratio of narrow money to GDP you might think that multiplier was pretty high - in the region of 15 (so every £1 spent by the Bank would increase the amount of broad money running around the economy by £15). If so, the Bank might not have to spend much at all.

But, we know that banks aren't too keen to lend at the moment. Will having some excess cash on deposit with the Bank of England make them any keener? Maybe not. In that case, the "money multiplier" could be quite small and the Bank would have to spend a lot more.

There's another complication - which is that even if you raised the broad money supply by the desired amount, we don't know exactly how much that will boost national income (GDP). That depends on not just the amount of money around but the speed it's moving around the economy - the velocity of circulation.

In these times of great economic uncertainty and fear about the health of the financial system, the velocity of money will almost certainly be lower than usual, meaning the Bank will need to engineer an even larger rise in broad money to have a given effect on national income, nominal GDP.

That leaves the second channel - the effect on asset prices. There are several different sides to this, but the basic idea is that by purchasing these bonds, the Bank of England will raise the price.

Why? Well, by buying the assets they've reduced the relative supply in the market. They might also have raised liquidity in that market and so made the asset more valuable to investors (this would apply to some corporate bond markets). Or they might have raised the price by increasing demand for those assets indirectly, by giving the sellers some spare cash to spend on something else. (Assuming they do anything with it - they, too, might simply hold on to the cash).

Now, the way bonds work, a higher price means lower borrowing costs for whoever is issuing that debt. Put it another way, if demand has gone up for corporate bonds (for any or all of the reasons above) then companies will need to pay less to raise a given amount of debt.

This asset price effect could be quite powerful, but only if the purchases are large enough to have a significant effect on the price of the assets in question. In the case of gilts, that might be a large number, but it will probably happen.

Of course, simply lowering gilt yields doesn't change much - you've just made it cheaper for the government to borrow, which is already doing plenty of. But you hope that by lowering gilt yields you might make other, higher yielding (corporate) assets more attractive, thereby raising their price as well.

How do you translate all of this theorising into hard numbers? With difficulty. But assume the goal is to raise nominal GDP by around £150bn - that's a common estimate for the shortfall in demand in the economy this year. If you think the money multiplier is alive and kicking and all the banks need is a gentle nudge to lend more, you might think that £10bn in bond purchases would be enough to achieve that.

But, if you think the money multiplier is all messed up because of the credit crunch, and a low velocity of money is going to blunt the policy even more, the ratio will move closer to 1 to 1. And the Bank might have to spend upwards of £100bn to get the desired effect.

It's even harder to produce sensible estimates of the asset price effect. The total stock of outstanding gilts was around £700bn at the end of 2008, and estimates of the amount to be issues this year are rising almost by the week. But how much the Bank affects gilt prices (and yields) through its purchases will be down to market psychology as much as straight arithmetic.

That poses a quandary of its own: the Bank doesn't want to overdo it on its first shopping spree, but if it seems too tentative about the whole endeavour, investors are less likely to think there's been a lasting change in the demand for bonds, and prices won't change.

Where does the Bank come out in all this? The phrase I have heard used by Bank officials more than once is "suck it and see". Given the nature of the stakes, you might find that a bit disturbing. I call it an honest assessment of where we are.

Update 1327: More, and a response to your comments in this post.

The prime minister will be pushing his vision of a "global new deal" at the White House today. One thing we can say for sure: he's given the a lot more thought than the president.

That's no reflection on Mr Obama. He has quite a lot else to do these days, and unlike Gordon Brown, he hasn't spent a large chunk of his life thinking about, say, the finer workings of the World Bank.

Usually the US president would be able to count on his Treasury Department to do his international economic thinking for him. But it is what you might call short-staffed. The two senior international posts in the department haven't been filled yet, and there's no-one on the immediate horizon.

The upshot is that many of the key summit negotiations are having to be handled by the Treasury secretary himself.

Tim Geithner is no slouch when it comes to the ins and outs of the international financial system. Among other things, he used to run part of the IMF. But he also has quite a lot on his plate (today it was launching a new $1tr lending facility with the Fed).

The same applies to Larry Summers, the president's key economic advisor, who will also be in part of today's meeting and knows the territory well.

It all makes today's meetings with the president and senior officials a lot more important than they would usually be. The British officials need to get the Americans to focus now, because they know they may not get a better chance.

PS In the next few weeks you're going to hear and read plenty about the issues facing the London Summiteers. I've just written an article for the on one key issue that's taking up a lot of the sherpas' time: beefing up the IMF. You can read it .

If you were looking for one headline to fit today's many and various market declines, it would be the Fragility of Hope.

So you thought HSBC was one bank to have come out of the past year pretty well? Turns out that 62% and they need to raise £12.5bn.

Or maybe you hoped that three government bailouts for AIG would be enough? Today the needy US insurance giant unveiled a for the last three months of 2008, and bailout number four: $30bn from the US Treasury to add to the $150bn it's already had. (Some say it's the third bailout, but I'm including the emergency support from the US central bank in September and October as numbers one and two.)

Banks led the falls in markets across Europe, but there was some bad news from the real economy as well. The Markit European Purchasing Managers Index was considered a possible green shoot when it rose in January. Today, we found out that it sunk back into the ground in February. Across the Continent, manufacturing is still getting it in the neck.

Finally, there was the hope that European leaders would come up with an ambitious plan for the Central and Eastern European economies at their yesterday.

I didn't think anyone was seriously expecting the EU to take the initiative on this (see my last post). But apparently they were. The zloty and forint fell by around 2% against the euro this morning, and the Czech currency was down sharply as well.

When the history of this crisis is written, I suspect the first few months of 2009 will go down as the time when the financial and economic sides of the crisis came together - and investors saw the truly global dimensions of the problem for the first time.

The global economic dominoes are starting to fall, even as individual governments still fumble for a solution to the first, financial sector phase of the crunch.

Gordon Brown heads to Washington tonight to plot a coordinated global response to the crisis with President Obama. With less than two weeks to go before the G20 finance ministers meet to prepare for the London Summit in early April, the prime minister wants to make sure they have something to say.

You can understand why. The G20 summit is the prime minister's last and best chance of .

But today's news from AIG, coupled with the hurried support packages for Citi, RBS and (probably) Lloyds, is a reminder to investors everywhere that a global solution is some way off. Save the world? We haven't even saved the banks.