"While seemingly elegant in theory, globalization suffers in practice. That is the lesson of Brexit and of the rise of Donald Trump in the United States. And it also underpins the increasingly virulent anti-China backlash now sweeping the world. Those who worship at the altar of free trade, including me, must come to grips with this glaring disconnect."
In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates – one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis.
"The global financial markets have suffered sharp declines lately, with stocks plunging across Europe, Japan and the United States last week. Some players once again tried to link the global rout with China. However, such claims are unwarranted and playing the blame game in the face of challenges is useless."
"By now, it’s an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization. A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake."
History has not been kind to major trade blunders. Just as the Smoot-Hawley Tariff Act of 1930 sparked a global trade war that may well have put the “great” in the Great Depression, Congressional enactment of enforceable currency rules today could spark retaliatory actions that might devastate the free flow of trade that a sluggish global economy desperately needs.
The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.
In the QE era, monetary policy has lost any semblance of discipline and coherence. As Draghi attempts to deliver on his nearly two-and-a-half-year-old commitment, the limits of his promise – like comparable assurances by the Fed and the BOJ – could become glaringly apparent. Like lemmings at the cliff’s edge, central banks seem steeped in denial of the risks they face.
A Fool’s paradise is what the once great “land of opportunity” is in real danger of becoming if the adults don’t stop acting like children and actually care about what’s beneath the headlines or between the book covers.Rather than the headlines of who’s between the covers with who. Today far too many are only taking in the “headlines” along with what’s known as “headline numbers.” This is an abject lesson in Tom Foolery.
America’s Federal Reserve is headed down a familiar — and highly dangerous — path. Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-2009. The consequences could be similarly catastrophic.The Fed’s incrementalism of 2004-2006 was a policy blunder of epic proportions. The Fed seems poised to make a similar — and possibly even more serious — misstep in the current environment. In these days of froth, the persistence of extraordinary policy accommodation in a financial system flooded with liquidity poses a great danger.