Crisis fatigue — synchronized slowdown or the great stagnation?
Did you know that global growth below 3% is considered a global recession by the IMF? And that the IMF cut its global growth projection for 2019 to 3% in October, but stopped short of calling the current global economic climate a recession (perhaps in an effort to avoid a self-fulfilling prophecy), instead opting for the non-committal “synchronized slowdown”?
In any event, for a global recession followed by a decade of weak and declining growth, “global stagnation” is more apt. Such was the depth, breadth, and severity of the Global Financial Crisis (GFC) / Great Recession, that it elicited probably the most intense and coordinated global policy response ever, ushering in an era of Unconventional Monetary Policies (UMPs, aka printing), which in some form persists today (given the relatively muted growth effect). Why then, have we not seen even an acknowledgment from world leaders and multilateral institutions, that there is a crisis in the first place, let alone a synchronized policy response of any magnitude?
The growth whipsaw of the 2008–09 Great Recession as seen in the chart above, belies the obvious endurance of that crisis’ malignancy — not to mention its shape shifting, which perhaps has infected our policymakers with crisis fatigue, or maybe even (willful?) crisis blindness.
What if the appropriate policy response is not yet known, precluding any public admission of the crisis’ existence?
The underlying causes of today’s economic malaise include, but are much more complex and geographically dispersed than its initial trigger. The (largely experimental) policy response to the GFC (UMPs), intended to kickstart growth by driving investment and consumption via credit expansion, instead inflated asset prices (owned mainly by the already-rich, coincidentally?), spawned the obscene levels of inequality, which ultimately underpinned unbelievable political upsets globally.
The consequential surge of insularity, and the concomitant retreat in multilateralism in and of itself fuels this global stagnation, and the de facto denial of its very existence. Absent the necessary synchronized (again, experimental) policy response, this Great Stagnation will be our new normal in the next decade, characterized by:
· more geopolitical posturing and tensions,
· recessionary levels of international trade, investment and therefore growth
· the certainty of chronic uncertainty, and
· persistent inequality and poverty
all of which create the feedback mechanism to feed this loop, until it snaps. Which it will, at some point — perhaps when electorates worldwide wake up to the failure of the far-everything, and moderation becomes the new extremism.
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