Why aren’t the financial markets in uproar at the loss of so many supposed certainties? On Brexit, El-Erian says politicians were smart to slow down the process, extend the timetable and avoid being forced into decisions by markets. It allowed investors to stop obsessing over “hard” and “soft” forms of exit and think in terms of “slow Brexit”.
“We are still now in the pause phase, including up to and after your general election. Thereafter markets will slowly, and I stress slowly, start to get impatient and start to pay more attention than they have before now to negotiating stances on both sides.”
Similarly with Trump: the protectionist part of his campaign, which was meant to be scary for markets, looks less frightening today. In fact, says El-Erian, protectionism was never a “day one” problem: “He inherited a spaghetti bowl of trade agreements.” At the end of the day, El-Erian expects concessions that allow the president to say trade is “still free but fairer”.
What was the day one issue? “The legacy of too many years of low growth and insufficiently inclusive growth: that the breakage to the system accumulates over time and it’s very hard to predict tipping points.”
This is the nub of El-Erian’s analysis of why the developed world is approaching a fork in the road. The inequality generated by the current low-growth climate has three elements: inequality of wealth, income and opportunity. The last of the three – manifested in high youth unemployment in many eurozone countries, for example – is the most explosive element.
“The minute you to start talking about the inequality of opportunity, you fuel the politics of anger. The politics of anger have a tendency to produce improbable results. The major risk is that we don’t know how much we’ve strained the underlying system. But what we do know is we are getting signals that suggest it’s under enormous stress, which means the probability of either a policy mistake or market accident goes up.”
Could you phrase this in the form of an anime gif?