The Group of 20 Summit being held in Pittsburgh is probably 3-4 months too late for the politicians to make much of an impact.

The time has gone for their words to have an impact beyond voters and the media.

Financial groups are back on the road to health, to varying degrees; markets are up, money is being raised from share and bond issues, replacing in many cases the money that bankers would normally be eager to lend: they instead are playing short-term games in shares, bonds and commodities, using the cheap money on offer from the Fed, the ECB and the banks of England and Japan.

To have had a real impact, the G-20 leaders should have met in June or July (very soon after the April meeting) to maintain the pace of reform: the recovery in financial markets has drained much of the impetus for re-regulation and change.

Wayne Swan was talking about executive pay, as are the French and the Germans. It’s no longer the issue. The big issues are reforming the IMF to allow China and India to have more influence (The UK and France are objecting because they look like being the losers). As well there’s a move from the US to try and get co-ordinated action on correcting global imbalances (code for getting China to spend more, but will the US cut its spending?). All good stuff for final statements, but nothing of substance for the markets.

That recovery in markets is based on shifting sands that could drain away again. In fact, there now seems to be the start of another bout of concern in markets with US bond rates down, despite the weak dollar, oil, gold and copper prices drifting lower and some important economic figures in the US (sales of existing houses) and Japan (exports) surprising by being worse than expected.

It’s nothing concrete, but when the US 10-year bond rate falls to 3.37%, as it did overnight, after a couple of big bond sales to finance the ever-increasing deficit, and oil falls to about $US66 ($A75.80) a barrel as traders start selling, it pays to sit up and take notice as many sharemarkets are now trading at high valuations compared to outlook for the various economies in the next year. Tokyo fell 2.5% just after the opening, Australia was down 1%.

Its a financial “con game” if you like where the central banks willingly allow banks to use the tens of billions of dollars pumped into the varying financial systems to make money in everyway possible, and in doing so replenish their own capital levels and reserves, thereby encouraging them to trust one another and build up lending.

The words from the G-20 leaders meeting won’t penetrate this wordless charade: they can’t be allowed to, central banks won’t let them, yet.

Why was underlined this week by the Fed, which again reminded everyone of the utter weakness of the US economy when it said:

“The (open market) committee will maintain the target range for the federal funds rate at 0 to 1/4% and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Japan is like that: exports slid again in August for a second month in a row and there are now growing fears the economy will slide back into negative growth in coming months.

But on the global economy, the time for political statements has long gone: the world economy has escaped Armageddon (we had a reminder in London overnight of how close we came). It is now down to the bureaucrats in national finance ministries, central banks and other regulators to hammer out the new rules for international banks.

But don’t tell the Germans or the French: they still believe some sort of control on pay levels for bankers and others in finance, will some how change the world and make it all a safer place.

Far from it, even if the inmates are back running riot in the asylum, bidding up their own pay and conditions, blowing out risk again and churning clients’ money to earn profits and big bonuses.

All that will stop eventually when central banks in the US, Europe, the UK and Japan take away the free money jar, and start asking banks to pay market rates: that will crimp everyone’s comeback.

That has started happening; quietly, over the past 36 hours, a major liquidity measure has been cut back by the Fed, the ECB, the Bank of England and the Swiss National Bank.

The US Federal Reserve said it would start scaling back its short-term cash auctions in early 2010, while the European Central Bank, the Swiss National Bank and the Bank of England announced they would reduce their moves to ensure dollar liquidity.

They all have reduced their sales of US dollars under various swap arrangements: they were made late last year and then rolled over, to maintain high levels of US dollar liquidity outside the US during the depths of the crisis. Our Reserve Bank stopped its sales of US dollars under the same scheme a few months ago when demand dried up because US dollars were more freely available in the currency markets.

It’s not a huge move; it’s a small. but significant one: The US has already ended the guarantee on money market mutual funds.

The much discussed “exit strategies” from central banks are likely to appear in drops and drabs over the next year as they judge conditions have improved to the point where they can happen, which is when the RBA here will lift interest rates.

But this morning in the UK the BBC revealed in the third part of its series The Love of Money that the UK economy came close to freezing.

Bank of England governor Mervyn King said two UK banks came close to collapse in early October of last year as the post-Lehman Brothers financial crisis pushed the banking system to the brink.

King told the BBC that the Royal Bank of Scotland Group PLC and HBOS had difficulty obtaining funding and that on October 5-6, the banks weren’t confident they could get to the end of the day.

He said had the banks gone under, deposit accounts would have been frozen and it would have essentially ended the ability for salaries to be paid, so many would have been without the ability to pay bills to businesses.

“Two of our major banks which had had difficulty in obtaining funding could raise money only for one week then only for one day, and then on that Monday and Tuesday it was not possible even for those two banks really to be confident they could get to the end of the day,” the BBC quoted King as saying in the interview.

It’s safe to say that had that happened, the rest of the world would have shut down (because it would have come as the world was still adjusting to the failure of Lehman, the takeover of AIG, the bailouts in the US of Merrill Lynch and the collapse of Washington Mutual.

That tells us more about why the work going on behind the scenes to boost bank capital and other rules changes, is more important than what comes from the G-20.

The bureaucrats will come up with the rules, it will be up to the politicians at the meeting, and especially in the US, Japan, the UK and Europe, to support the changes, otherwise all the fine words in the final statements of the Pittsburg meeting, won’t mean a thing.

Already we are seeing the corrupting power of political donations and privilege in the US where democrats from President Obama’s party have started watering down the changes proposed by his administration. In Europe, the UK fears that France and Germany really want to discredit and white-ant London’s dominant role in financial services, with considerable justification given how hypocritical the Merkel and Sarkozy governments have been throughout the crisis.