Saturday, January 21, 2017

THE ONLY GAME IN TOWN, economic stability at all costs

THE ONLY GAME IN TOWN: Central Banks, Instability, and Avoiding the Next Collapse

Random House
$28 hardcover, available now

Rating: 4* of five

The Publisher Says: Our current economic path is coming to an end. The signposts are all around us: sluggish growth, rising inequality, stubbornly high pockets of unemployment, and jittery financial markets, to name a few. Soon we will reach a fork in the road: One path leads to renewed growth, prosperity, and financial stability, the other to recession and market disorder.

In The Only Game in Town, El-Erian casts his gaze toward the future of the global economy and markets, outlining the choices we face both individually and collectively in an era of economic uncertainty and financial insecurity. Beginning with their response to the 2008 global crisis, El-Erian explains how and why our central banks became the critical policy actors—and, most important, why they cannot continue is this role alone. They saved the financial system from collapse in 2008 and a multiyear economic depression, but lack the tools to enable a return to high inclusive growth and durable financial stability. The time has come for a policy handoff, from a prolonged period of monetary policy experimentation to a strategy that better targets what ails economies and distorts the financial sector—before we stumble into another crisis.

The future, critically, is not predestined. It is up to us to decide where we will go from here as households, investors, companies, and governments. Using a mix of insights from economics, finance, and behavioral science, this book gives us the tools we need to properly understand this turning point, prepare for it, and come out of it stronger. A comprehensive, controversial look at the realities of our global economy and markets, The Only Game in Town is required reading for investors, policymakers, and anyone interested in the future.

My Review: For those who remember the Bush Crash of 2008, and who really *got* what was at stake, have you ever wondered why we're not all eating snakes we trap in the back yard and dandelion greens grubbed up from the front lawn?
Ever since the 2008 global financial crisis, central banks had ventured, not by choice but by necessity, ever deeper into the unfamiliar and tricky terrain of “unconventional monetary policies.” They floored interest rates, heavily intervened in the functioning of markets, and pursued large-scale programs that outcompeted one another in purchasing securities in the marketplace; to top it all off, they aggressively sought to manipulate investor expectations and portfolio decisions.
That's why.

But the casino always wins the end. In the case of the economy, in fact in the case of any and every complex human-designed system, the casino is entropy: Chaos and confusion will always triumph. Builders create magnificence; entropy carts it away.
As stable as it may seem on the surface to some, the current configuration of the global economy and the financial system is getting harder to maintain. Below the fa├žade of the unusual calm of the last few years, interrupted by relatively few bouts of instability since 2008–09, tensions are rising and the effectiveness of central banks is coming under stress, so much so as to raise serious questions about the durability of the current path that the global economy is on.
And there it is: the central question this book aims to address. This is definitely well within Author El-Erian's capabilities. I didn't feel that the aim as stated was fully met. I wonder, though, if there is a way for the aim to be fully met absent a clear prescriptive course being outlined in great detail. Such a feat is beyond the capabilities of any mere mortal.

Author El-Erian has a quietly skeptical view of the incoming administration's economic policy. A modest stock-market rally doesn't seem to be within the author's hopes for a policy-driven course that, by its clarity and conciseness, would push stock values higher in a natural and sustainable way.
One road out of the T junction ahead involves a restoration of high-inclusive growth that creates jobs, reduces the risk of financial instability, and counters excessive inequality. It is a path that also lowers political tensions, eases governance dysfunction, and holds the hope of defusing some of the world’s geopolitical threats. The other road is the one of even lower growth, persistently high unemployment, and still worsening inequality. It is a road that involves renewed global financial instability, fuels political extremism, and erodes social cohesion as well as integrity.
My sense is that Author El-Erian does not see the positive as the likely course the US and world economies will take.

I am a pessimist in matters economic, so I tend to agree; I am deeply, deeply pessimistic about the incoming administration's intentions and aims, so I am almost certain that the deepest and darkest of economic nights is falling.

I read this book with a kind of knock-kneed pants-wetting childlike terror. If the grown-ups don't know how to fix it, all I can do is try to survive it. That's probably not the best way to persuade people to pick the book up. I can tell you that, having faced my fear, I not only don't feel better, I feel more afraid...but I also feel more able to watch the train speed ahead toward the collapsing bridge without the added stress of being awakened from a sound sleep by the squealing of the brakes and the screams of the dying in the cars ahead of me.

Author El-Erian falls short on the spotting of side-switches. I am not at all sure that he sees any. It is the function of this book not to comfort but to spur the reader into action. Take the advice of Mavis Staples: Touch A Hand, Make A Friend. We will get through the coming night better together.


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