On The only game in town. Central banks, instability and avoiding the next collapse by Mohamed El-Erian
Reading this booking was like being on top of an eagle that is, for hundreds of pages, elegantly gliding over the clouds while surveying the landscape.
Analytical eyes that don’t blink while observing, down on Earth, how rivers of cash are belched out from the FED and the BEC, trying to flood a sterile economy. Mountains of zombie governments and zombie banks doing nothing except extending checks and pretending they are working. Tangled jungles of economic activity and asymmetrical opportunities under which rich people are butchering 99% of the fauna without any tax to stop them. Even the blurred horizon is here, appearing far away between the lines of an immense desert and the dark clouds of the future.
Is it a good book about our economy? I think so. Particularly because it does an extremely balanced exercise of summarizing and dissecting our economic reality in a very hygienic way that, on purpose, doesn’t leave room for errors or polemics. A cold writing style that is not my cup of tea, but which does a fairly good job of leading our thoughts through what happened, what is happening, and what might happen in the coming years.
Indeed, it is pretty obvious that Mohamed El-Erian is not an ex-finance minister like Varoufakis, looking for a fight; nor a journalist like Paul Mason trying to stun the world; and much less an economist columnist trying to get readers to keep up his popularity. No. One can tell that Mr. El-Erian comes from higher lands where demigods are too busy trying to manage trillions of dollars. Of course, the downside of this economical way of talking is that the reader, from time to time, misses hearing more human words such as «catastrophe», «depression» or «manipulation». Instead, it comes totally naturally for the author, in his characteristic moderate and well-balanced attitude, to keep hammering us with concepts like «new normal», «secular stagnation» or «repressing volatility».
I was surprised that I enjoyed a whole book built on vague ideas and political correctness. But somehow, Mr. Mohamed El-Erian succeeds in showing us this economic landscape through his 20/20 eagle-like vision while we, the regular workers, are dying in this land called the 21st century. Don’t get me wrong, I don’t blame him for living in a higher dimension than me. Life is what it is, and it is also gratifying to see super rich people talking about our reality. It was also gratifying that the eagle that has written this book was a decent one and not just a shark trying to manipulate markets. Mohamed El-Erian doesn’t do that in this book. At least, not too much. Having said that, I couldn’t help but smile from time to time when he tried to sell us on the boring idea that Bernanke and Draghi saved us from hell and despair. As if they both held the world on their backs by sheer willpower.
«Avoiding the next collapse». That’s the subtitle of a book. A correct and a precise one. A subtitle that communicates the feeling of a paper that is optimistic, because it believes things can be improved by our actions, but at the same time communicates a scary story. Particularly when he talks about the «T» shape junction as a metaphor of the outcome of our future and also when he uses the concept of bimodal distribution as the new way of analyzing the markets (that’s to say, with a huge uncertainty).
Central Banks. Those are the real protagonists of this book. Particularly the FED and ECB. Two giants that have stepped in our society with a protagonism like never before, dwarfing all the other institutions, including governments. Actually, and following Mohamed El-Erian’s thoughts, I should say that they are not giants but just two massive cyclopes, since they only have one good skill and are totally incapable of seeing/helping most parts of our society. Minimum wages can’t be lifted up by them. Unbalanced flows of money between countries can’t be managed by them. Education can’t be redesigned by them. But that’s what they are: central banks that only know how to open or shut the damps that regulate money flows. Sometimes watering our fields, sometimes just containing inflation. But giants or cyclopes, the truth is that after nine years of unconventional economic policies, the landscape has been flooded, many mountains (hedge funds) have disappeared under so much water, and probably too many crappy business-ships are floating happily on a sea of misallocated money and ultra-low interests. But how long can this repression of the market’s instincts last? Will new technologies rescue us from this lack of real growth? These are uncharted waters and Mr. El-Erien doesn’t pretend to know all the answers, but by lifting us up, high in the sky, he allows us to take a very long perspective where things make more sense and massive «geographical» transformation of our reality can be seen.
One last thought borrowed from the book: you remember Ali leaning back on the ropes, receiving punches from Foreman, round after round and finally knocking down the exhausted and perplexed giant? Well, now consider that we are the smart and resilient Ali and the huge Foreman is the ominous future.
How to knock him down?
Juan 胡安Torregrosa Pisonero
Shenzhen, April 15 2016