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.
Ensuring a Stronger and Fairer Global Recovery
Although tough trade-offs are sometimes unavoidable, there is a way for policymakers to maintain a robust global economic recovery in 2021 and beyond while simultaneously pulling up disadvantaged countries, groups, and regions. But it will require both national and international policy adaptations.
The US Recovery’s Promising Moment
Recent macroeconomic figures and the accelerating pace of COVID-19 vaccination suggest that optimism about the US economy's prospects is justified. But to avoid snatching defeat from the jaws of victory, policymakers must press ahead with measures to lock in robust, sustainable, and inclusive long-term growth.
Are Inflation Fears Justified?
In the near term, markets should not be too worried about a possible spike in demand driving up inflation and interest rates, causing asset prices to fall across the board. But longer-term inflation risks are skewed much more to the upside than many investors and policymakers seem to realize.
Pulling Up the Inflation Anchor
Rather than worrying about the prospects of higher long-term expected inflation, the US Federal Reserve is exuding confidence that it can maintain price stability should the need ever arise. It should think again, before the inflation genie has escaped from the bottle.
Before his death on February 6, George P. Shultz, a former US Secretary of the Treasury and Secretary of State, co-authored a final commentary warning of the dangers posed by the vast increase in US government spending in recent years, including during the COVID-19 crisis.
No One Is Safe Until Everyone Is Safe
Minimizing the risk of yet more destabilizing COVID-19 variants is crucial if countries are to turn the corner on a shock that has wrecked lives and livelihoods. The alternative is to adopt a bunker-like approach and sharply curtail the inward and outward flow of citizens, residents, and visitors.
Will Inflation Make a Comeback?
Economic forecasting models have long been notoriously inaccurate in predicting inflation, and COVID-19 has further complicated the challenge. Those who heed current consensus forecasts of persistently low price growth could be in for a rude awakening.
The Perils of an Uneven Global Recovery
Heightened global economic risks mean that many poorer countries could take years to return to their pre-pandemic growth trajectories. And if higher inflation leads the US Federal Reserve to raise rates somewhat sooner than it currently plans, emerging markets will be hit particularly hard.
England’s Lockdown Lessons
Although some remain inclined to point the finger at the UK government’s missteps in tackling the COVID-19 pandemic, the explanation for its evolving approach is more complex. It also holds important lessons for managing future crises.
A Post-COVID Labor Revival?
In contrast to the US recession that followed the 2008 global financial crisis, the COVID-19 downturn has elicited strong public support for workers, especially those in essential jobs. Perhaps, at long last, that sentiment will translate into concrete policies that strengthen labor rather than capital.
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 Big Bounce-Back?
Following the 2008 financial crisis, many policymakers failed to focus sufficiently on securing robust, inclusive, and sustainable long-term growth. To avoid repeating this mistake in 2021 as the world emerges from the COVID-19 pandemic, governments must act early and decisively in three areas.
The Quiet Financial Crisis
The global COVID-19 pandemic has resulted in soaring infection rates, widespread lockdowns, record-shattering declines in output, and spiking poverty. But, in addition to these trends, a quieter crisis now gaining momentum could jeopardize economic recovery prospects for years to come.
A Fairer Way to Help Developing Economies Decarbonize
Global carbon pricing is an essential part of any long-term solution to the climate crisis. But advanced economies also need to provide the developing world with highly concessional financing and technical expertise to help it decarbonize – all guided by a World Carbon Bank.
Fast and Slow in “The Queen’s Gambit”
Super-fast computer programs and massive databases have had a profound impact on professional chess in recent years. But, despite the threat of cheating, the game is currently in remarkable creative and economic health – not least because it is fantastically suited to the online world.
Avoiding America’s Vicious COVID Cycle
The United States has the means not only to arrest current negative public-health and economic dynamics but also to transform them into a virtuous cycle. But this will require sustained and simultaneous efforts in four areas.
The Debt Dogs that Didn’t Bark
If global growth resumes in 2021, aided by the rollout of vaccines and the Fed’s continued commitment to ultra-low interest rates, some developing countries may be able to avoid default, because yield-hungry investors will continue to buy their bonds. But other countries will not be so lucky.
The Pandemic Public-Debt Dilemma
Much of the conventional wisdom about how governments should manage the COVID-19 economic fallout is perfectly appropriate for advanced economies, but dangerous elsewhere. Even if developing and emerging economies could simply borrow and spend more to weather the storm, doing so could jeopardize their long-term economic prospects.
The Infrastructure Spending Challenge
Macroeconomists broadly agree that productive infrastructure spending is welcome after a deep recession, especially when interest rates are at record lows. But in advanced economies, any new project typically requires navigating difficult right-of-way issues, environmental concerns, and objections from apprehensive citizens.
How Much Debt Is Too Much?
The new conventional wisdom in these unconventional times is that advanced-economy governments can take advantage of today's ultra-low interest rates to borrow and spend without limit in order to support the economy. But the fact is that there is always a limit, and it may come into view sooner than many realize.
Making Sense of Sky-High Stock Prices
Many have been puzzled that the world’s stock markets haven’t collapsed in the face of the COVID-19 pandemic and the economic downturn it has wrought. But with interest rates low and likely to stay there, equities will continue to look attractive, particularly when compared to bonds.
Why Biden Can Overcome Political Gridlock
According to conventional wisdom, US President-elect Biden will find himself immediately paralyzed because Republicans will follow the same obstructionist playbook they used to sabotage Barack Obama’s administration. But there are five new features of US political dynamics that this argument has overlooked.
The Calm Before the Exchange-Rate Storm?
Core dollar exchange rates have so far been surprisingly stable during the pandemic, most likely because major central banks’ policy interest rates are effectively frozen at or near zero. But although the current stasis could last awhile, it will not last forever.
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.
The Pandemic’s Complex Cocktail
Over the past few years, investors have tended to be richly rewarded for setting aside traditional determinants of market value and focusing on just one thing: plentiful and predictable liquidity injections into the marketplace. But this dynamic cannot last forever, and it may confront a moment of truth in the fourth quarter of 2020.
The Stock-Market Disconnect
The best explanation for why stock markets remain so bullish despite a massive recession is that major publicly traded companies have not borne the brunt of the pandemic's economic fallout. But having been spared by the virus, they could soon find themselves squarely in the sights of a populist backlash.
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.
The COVID Silver Linings Playbook
The old adage that every crisis represents an opportunity is certainly true in the case of COVID-19. Now that the pandemic has lasted longer and wrought more destruction than many initially anticipated, it is all the more important that policymakers seize on the positive trends it has incidentally set in motion.
The Uncertainty Pandemic
Policymakers’ most important task is to try to reduce the massive lingering uncertainty regarding COVID-19 while continuing to provide emergency relief to the hardest-hit individuals and economic sectors. But the insecurity fueled by the pandemic is likely to weigh on the global economy long after the worst is in the past.
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.
How to Count Humans
A major new study based on a somewhat original methodology forecasts that global population will peak well before the end of this century. Although the usual caveats apply, the authors have offered fruitful new ways to grasp crucial policy questions.
Reading the Dollar Doldrums
A sharp decline in the relative value of the dollar this year has been met with cheers from those hoping for a short-term boost to the US economy, and with hand-wringing by those worried about the currency's global standing. But while both views reflect underlying truths, neither tells the whole story.
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.