Clouds Over 2022
Although major economies and markets fared well in 2021 despite all of the uncertainties surrounding new variants of the coronavirus, 2022 will bring new challenges. In addition to central banks shifting toward policy normalization, geopolitical and systemic risks are multiplying.
Why Italy's Presidential Election Matters
With its poor track record of managing EU funds, Italy’s recovery plan will be a major test for the future of EU policymaking more generally. While it is widely agreed that Prime Minister Mario Draghi must remain on the scene to oversee the plan’s implementation, in what capacity would he be most useful?
What South Africa Must Do
Locked in a low-growth trap, South Africa's fiscal and macroeconomic situation is unsustainable, not only economically but also politically. To salvage the country's democratic project, the government must offer a credible, comprehensive economic reform strategy.
Goldilocks Is Dying
Given today’s high debt ratios, supply-side risks, and ultra-loose monetary and fiscal policies, the rosy scenario that is currently priced into financial markets may turn out to be a pipe dream. Over the medium term, a variety of persistent negative supply shocks could turn today’s mild stagflation into a severe case.
The Looming Stagflationary Debt Crisis
Years of ultra-loose fiscal and monetary policies have put the global economy on track for a slow-motion train wreck in the coming years. When the crash comes, the stagflation of the 1970s will be combined with the spiraling debt crises of the post-2008 era, leaving major central banks in an impossible position.
A Fragile Recovery in 2021
Although 2020 ended with a flurry of announcements reporting promising results in COVID-19 vaccine trials, there is little reason to expect a robust economic recovery anytime soon. Defeating the virus remains a monumental task, and the wounds inflicted by the pandemic will not heal easily.
The US Election’s Chaos Quotient
While hoping for a conclusive outcome on November 3 (or immediately thereafter), market watchers unfortunately must prepare for the worst. After all, US President Donald Trump and the Republicans are not even hiding their plans to steal the election.
Why Biden Is Better Than Trump for the Economy
The presumption that Republicans are better than Democrats at economic stewardship is a longstanding myth that must be debunked. For all Americans who care about their and their children’s future, the right choice this November could not be clearer.
Is the Almighty Dollar Slipping?
Far from signaling its imminent demise as the main global reserve currency, the greenback's sharp depreciation is to be expected in the current macroeconomic context. The forces that could erode the dollar's hegemony remain slower-moving and farther off.
Revisiting the White Swans of 2020
At the start of the year, when COVID-19 was barely on anyone's radar outside of China, the global economy was entering a fraught phase, facing a range of potentially devastating tail risks. And though the pandemic has since turned the world on its head, all of these threats remain – and some have become more salient.
The Main Street Manifesto
The historic protests sweeping America were long overdue, not just as a response to racism and police violence, but also as a revolt against entrenched plutocracy. With a growing number of Americans falling into unemployment and economic insecurity, while major corporations take bailouts and slash labor costs, something had to give.
Europe’s Non-Hamiltonian Muddle
Although any joint EU action should be welcomed, the current COVID-19 response plan hardly amounts to a radical break with business as usual. Far from a long-awaited embrace of debt mutualization, the newly proposed European recovery fund risks being both politically unpalatable and economically inadequate.
The Coming Greater Depression of the 2020s
While there is never a good time for a pandemic, the COVID-19 crisis has arrived at a particularly bad moment for the global economy. The world has long been drifting into a perfect storm of financial, political, socioeconomic, and environmental risks, all of which are now growing even more acute.
A Greater Depression?
With the COVID-19 pandemic still spiraling out of control, the best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis. But given the flailing policy response so far, the chances of a far worse outcome are increasing by the day.
The White Swans of 2020
Financial markets remain blissfully in denial of the many predictable global crises that could come to a head this year, particularly in the months before the US presidential election. In addition to the increasingly obvious risks associated with climate change, at least four countries want to destabilize the US from within.
Financial Markets’ Iran Delusion
A restrained reprisal by Iran following the assassination of its top military commander has led markets to conclude that the latest threat to the global economy has been removed. But just because Iran and the United States have so far avoided a full-scale war does not mean that markets are out of the woods.
Trump Will Make China Great Again
Despite the latest Sino-American "skinny deal" to ease tensions over trade, technology, and other issues, it is now clear that the world's two largest economies have entered a new era of sustained competition. How the relationship will evolve depends greatly on America's political leadership – which does not bode well.
Why Financial Markets’ New Exuberance Is Irrational
Owing to a recent easing of both Sino-American tensions and monetary policies, many investors seem to be betting on another era of expansion for the global economy. But they would do well to remember that the fundamental risks to growth remain, and are actually getting worse.
The Allure and Limits of Monetized Fiscal Deficits
With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. When that happens, policymakers will almost certainly pursue some form of central-bank-financed stimulus, regardless of whether the situation calls for it.
Four Collision Courses for the Global Economy
Between US President Donald Trump's zero-sum disputes with China and Iran, UK Prime Minister Boris Johnson's brinkmanship with Parliament and the European Union, and Argentina's likely return to Peronist populism, the fate of the global economy is balancing on a knife edge. Any of these scenarios could lead to a crisis with rapid spillover effects.
The Anatomy of the Coming Recession
Unlike the 2008 global financial crisis, which was mostly a large negative aggregate demand shock, the next recession is likely to be caused by permanent negative supply shocks from the Sino-American trade and technology war. And trying to undo the damage through never-ending monetary and fiscal stimulus will not be an option.
The Great Crypto Heist
Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.
The Coming Sino-American Bust-Up
Whether or not US President Donald Trump and his Chinese counterpart, Xi Jinping, agree to another truce at the upcoming G20 summit in Osaka, the Sino-American conflict has already entered a dangerous new phase. Though a negotiated settlement or a managed continuation of the status quo are possible, a sharp escalation is now the most likely scenario.
The Growing Risk of a 2020 Recession and Crisis
Across the advanced economies, monetary and fiscal policymakers lack the tools needed to respond to another major downturn and financial crisis. Worse, while the world no longer needs to worry about a hawkish US Federal Reserve strangling growth, it now has an even bigger problem on its hands.
The Global Consequences of a Sino-American Cold War
What started as a trade war between the United States and China is quickly escalating into a death match for global economic, technological, and military dominance. If the two countries' leaders cannot manage the defining relationship of the twenty-first century responsibly, the entire world will bear the costs of their failure.
Bipolar Markets in the “New Mediocre”
After the global risk-off of late 2018, a newfound dovishness on the part of central bankers has combined with other positive developments to revive investors' animal spirits. But with a wide array of financial and political risks clearly in view, one should not assume that the current ebullience will last the year.
Understanding the Fed’s Dovish Turn
Over the past few years, the US Federal Reserve has been ahead of other major central banks in normalizing monetary policy. But now the Fed has abruptly put further interest-rate hikes on hold, owing to key changes in macroeconomic conditions and the political environment.
A Mixed Economic Bag in 2019
Since the global synchronized growth of 2017, economic conditions have been gradually weakening and will produce an across-the-board deceleration in the months ahead. Beyond that, the prospect for markets and national economies will depend on a broad range of factors, some of which do not bode well.
Trump vs. the Economy
Between publicly chastising US Federal Reserve Chair Jerome Powell and escalating his trade war with China, US President Donald Trump has finally rattled the markets. While investors were happy to look the other way during the first half of Trump's term, the dangerous spectacle unfolding in the White House can no longer be ignored.
Why Central Bank Digital Currencies Will Destroy Cryptocurrencies
Leading economic policymakers are now considering whether central banks should issue their own digital currencies, to be made available to everyone, rather than just to licensed commercial banks. The idea deserves serious consideration, as it would replace an inherently crisis-prone banking system and close the door on crypto-scammers.
The Big Blockchain Lie
Now that cryptocurrencies such as Bitcoin have plummeted from last year's absurdly high valuations, the techno-utopian mystique of so-called distributed-ledger technologies should be next. The promise to cure the world's ills through "decentralization" was just a ruse to separate retail investors from their hard-earned real money.
The Makings of a 2020 Recession and Financial Crisis
Although the global economy has been undergoing a sustained period of synchronized growth, it will inevitably lose steam as unsustainable fiscal policies in the US start to phase out. Come 2020, the stage will be set for another downturn – and, unlike in 2008, governments will lack the policy tools to manage it.
Trump May Kill the Global Recovery
In a sharp departure from this time last year, the global economy is now being buffeted by growing concerns over US President Donald Trump's trade war, fragile emerging markets, a slowdown in Europe, and other risks. It is safe to say that the period of low volatility and synchronized global growth is behind us.
Italy’s Slow-Motion Euro Train Wreck
Financial markets have finally woken up to the fact that Italy could soon be ruled by a populist government with designs to take the country out of the eurozone. And, given Italy's tepid economic performance since adopting the single currency a generation ago, there is little reason to think that the current crisis is a one-off event.
Initial Coin Scams
There are now nearly 1,600 cryptocurrencies, and the number continues to rise. It is time to start recognizing their issuers' utopian rhetoric for what it is: self-serving nonsense meant to separate credulous investors from their hard-earned savings.
The Blockchain Pipe Dream
Even after a sharp correction earlier this year, the price of Bitcoin and other cryptocurrencies has remained unsustainably high, and techno-libertarians have continued to insist that blockchain technologies will revolutionize the way business is done. In fact, blockchain might just be the most over-hyped technology of all time.
Blockchain’s Broken Promises
Boosters of blockchain technology compare its early days to the early days of the Internet. But whereas the Internet quickly gave rise to email, the World Wide Web, and millions of commercial ventures, blockchain's only application – cryptocurrencies such as Bitcoin – does not even fulfill its stated purpose.
Populist Plutocracy and the Future of America
In the first year of his presidency, Donald Trump has consistently sold out the blue-collar, socially conservative whites who brought him to power, while pursuing policies to enrich his fellow plutocrats. Sooner or later, Trump's core supporters will wake up to this fact, so it is worth asking how far he might go to keep them on his side.
The Plot Against America’s 99%
US President Donald Trump, in partnership with congressional Republicans, is pursuing tax cuts that will blow up the fiscal deficit and add to the public debt, while benefit the rich at the expense of middle- and working-class Americans. Once again, Trump has not hesitated to betray the people he conned into voting for him.
Three Scenarios for the Global Economy
The International Monetary Fund, which in recent years had characterized global growth as the “new mediocre,” recently upgraded its World Economic Outlook. But is the IMF right to think that the recent growth spurt will continue over the next few years, or is a temporary cyclical upswing about to be subdued by new tail risks?
The Mystery of the Missing Inflation
Since the summer of 2016, the global economy has been in a period of moderate expansion, yet inflation has yet to pick up in the advanced economies. The question that inflation-targeting central banks must confront is straightforward: why?