Euro coin and United States dollar bill.

Comments 15

政策大分歧

Dec 2, 2015 Mohamed A. El-Erian

华盛顿—未来几周，美联储和欧洲央行可能会采取极其不同的政策。美联储即将提高利率，这是近十年来的第一次。与此同时，欧洲央行预计将采取更多非常规手段让利率朝反方向运动，即使这意味着给某些已经处于负名义收益率的政府债券造成进一步下跌压力。

实施这些政策的两家央行都是在执政立法机关的授权下追求国内目标。问题在于几乎没有可以用来管理这一日益严重的分歧所造成的国际影响的有序机制。

美联储是在响应美国坚挺的就业创造指标和其他经济正在复苏的信号（尽管复苏势头不强）。美联储也认识到，如果利率保持在人为的低水平，将给金融稳定造成风险，因此预计它将在12月15—16日的美联储公开市场委员会政策制定会议上提高利率。决定提高利率不仅意味着美联储不再踩下金融刺激油门，也意味着它向着为期多年的总体政策立场正常化过程迈出了第一步。

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

Featured

Why Is Bangladesh Booming?

Apr 23, 2018 Kaushik Basu
What’s Been Stopping the Left?

Apr 10, 2018 Dani Rodrik
Political Machismo

Apr 10, 2018 Ian Buruma
Will China Really Supplant US Economic Hegemony?

Apr 2, 2018 Kenneth Rogoff
Should Tech Companies Be More Tightly Regulated?

Mar 30, 2018 Simon Johnson

Mohamed A. El-Erian

Writing for PS since 2010
98 Commentaries

Mohamed A. El-Erian, Chief Economic Adviser at Allianz, the corporate parent of PIMCO where he served as CEO and co-Chief Investment Officer, was Chairman of US President Barack Obama’s Global Development Council. He previously served as CEO of the Harvard Management Company and Deputy Director at the International Monetary Fund. He was named one of Foreign Policy’s Top 100 Global Thinkers in 2009, 2010, 2011, and 2012. He is the author, most recently, of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

Adam Cohn/Flickr

0 Comments on this paragraph, 20 in all 20 Comments on this article

Frans Verhagen Dec 22, 2015

Why not tackle the unjust, unsustainable and, therefore, unstable international monetary system itself by transforming it? Transformation, not reform, can happen by seriously considering the introduction of a monetary standard and of an international currency. SDRs can be expanded in such a way that they start functioning as Keynes’s bankcor as a first step towards transformation. The next and crucial step is the search for a 21st monetary standard.

Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation" has presented the conceptual, institutional, ethical and strategic dimensions of a monetary standard based upon a specific tonnage of CO2e per person. This carbon-based international monetary system (www.timun.net) with 100% reserve banking and a credit- as opposed to the present debt-based financial system would transform the global financial, economic and commercial systems because the monetary system like glue binds them together in an integrated global governance system.
Robert Lunn Dec 16, 2015

"Of course, none of these outcomes is preordained. Politicians on both sides of the Atlantic have the ability to lower the risk of instability by implementing structural reforms, ensuring more balanced aggregate demand, removing pockets of excessive indebtedness, and smoothing out the mechanisms of multilateral and regional governance."

Okay, then why are they not doing it? Some "cost" of these policies not accounted for or are they just trying to make us unhappy?
Robert Lunn Dec 6, 2015

One more thing. If dollar debt held in emerging economies and other areas where dollar income off sets are low, just how large might that be. If it's large enough to argue rates in dollars are not as lows as one may understand, it seems risky. Brazil dollar borrowers don't think rates are too high for example.
Combine this with energy sector and we suddenly have the beginning of more asset write offs, which often never take place. We end up wondering why too much capacity exists, again when the cure was a bail out rather than allowing markets to clear.
- Steve Hurst Dec 6, 2015
  
  Robert - I see ECB ongoing QE as a form of subsidy to allow prevarication on reforms. As the good Doc points out EU (principlally the EZ) is a different animal to the US and progress is correspondingly slower. I dont have a problem with guvnts wanting to say where money goes, its part of their character (sticky fingers), you have to expect it. I quite agree smoothing things out can become fiddling whilst Rome burns. It took a decade for the imbalances in the EZ to manifest. The gap filled by debt has been bodged and will return. The US has a common currency and wealth transfer wealthy to poor areas inbuilt. The EZ has no such mechanism, only localised debt growth. I view Draghi's ongoing QE as an attempt to paper over the cracks of the EZ imbalances and the concurrent problem of overdue labour reform in countries such as Spain, Greece, France et al. He has done a remarkable job but the underlying problems remain and solving them is outwith his role. Regards
- Robert Lunn Dec 6, 2015
  
  Steve Hurst- markets can be difficult, thin and consequently volatile. Smoothing things out possibly or the old " specialist" system may do more good then harm. When these actions take the form of QE, they become discriminating. The Fed is returning well over 100 billion dollars to treasury annually through the carry trade QE enables. ( congress is trying to tap this for the highway bill.) QE more than encourages a form of rent seeking to get asset prices higher. As it is sterilized, it discriminates. Government picking where the money goes is a bit too much.
- Steve Hurst Dec 6, 2015
  
  I dont have a problem with intervention, or with opposing 'the market clearing' 'problems' as the market is in part opportunistic, short term, irrational and crude. I have a problem when intervention becomes ongoing subsidy. Intervention in a market is not a lot different than regualtion of a market, both are strategic actions. It depends on the nature of the intervention
Jan Vannieuwkerke Dec 6, 2015

But the ECB did less then markets expected. Probably because the ECB policy doesn't work...The ECB brought the horse to the water but the horse does not drink. Europe has hardly benefited from low oil prices, low interest rates and abundant liquidity. So the ECB has now been helping the FED: the US dollar has weakened and the rate increase the FED is most likely to decide will not harm the dollar much since higher rates are already calculated in. Therefore I believe there is not much policy difference.
Robert Lunn Dec 6, 2015

The notion that the ability of banks and brokerages holding inventory dampens volatility seems silly. Anyone who has spent time looking at this can see these inventories are being held by the weakest hands in the chain.
More broadly, we seem to hear continual whining about market intervention. However, almost all experts seem to portray what the Fed, Ecb or fiscal counter parts will do to influence global interest rates and/or currency markets.
Why can't we at least get some analysis comparing where markets will go without intervention and why. If rebalancing has to occur, which is true and continual, allow the markets to set those prices. If that proves to be uncomfortable or unwise, explain the impact of intervention.
At times, it seems we've given up on market price discovery.
Thank you.
douglas ungredda Dec 6, 2015

Putting it differently, the US is running the risk of reviewing a rerun of the Swiss Franc sudden appreciation movie, which in the en will put a break on the America's real sector performance. Its about expectations and if the Fed increases its rates, even at a modest pace, the psichological momentum could shift and take hold in a way such that carry forward positions form Euros or Japanese Yens into Dollars could impose the dollar vis a vis major currencies. In the end it could accelerate what the fed tried to avoid all along, undue credit expansion aided by strong inflows in its capital accounts.
Steve Hurst Dec 6, 2015

The ECB doubling down is an action to compensate for the lack of reform in some EZ economies. All this does is allow procrastination on reform although it very laudably gifts time. I cannot see the sleepy giant that is the EZzzzzzz waking up until reform is addressed. France being an obvious case
peter fairley Dec 5, 2015

I always like Dr El-Erian's comments but I never feel it is actionable intelligence for making investment decisions. Here he gives us 3 possible outcomes for the overall world economy. I guess he is a bit clear about going long the dollar, but that is not news, and he actually is saying USA will not put up with too strong a dollar...also notable currency specialists are saying wait for a pullback as 'long the dollar ' is a crowded trade right now.
lakshma reddy Dec 3, 2015

There will certainly disturbance in the global economic and financial readjustment some to the advantage and some to the disadvantage and overall redistributed fall in growth rate for the time being.

Their will be dollor appreciation vis vis it's debtors as the demand for repayment of dollor debt will raise.there will simultaneously a rush for yuan debt to repay dolor debt.while appreciation of dolor is a temporary phase followed by deflation of American economy simultaneously excess money in market unless it finds other profitable markets with with increased interest costs.

The QE of EU ECB in the face of Yuan as reserve currency from a near future date as per IMF may not yield the desired stimulus except increasing the debt levels and excess unemployed money.
Added to it the global conflicts and sanctions will add fuel to the rise of more protectionist trends and retaliatory political decisions inflicting the damage to the free movement of capital and labor to the levelling of gaps between the production and consumption leading the deflation in many advanced countries.

We need a more mature leadership to steer clear of political and military conflicts and ease the global free trade under UN agencies even by lovingly surrendering some of the national Egos.is there any possibility for such mature global leadership and loving surrender of national Egos?
Margaret Bowker Dec 3, 2015

The markets are dropping, the ECB extended, but didn't increase and this is the season for retail to shine and for exports not to be encumbered. It would be disturbing if the Fed changed gear too rapidly, and went from nearly everyone being dovish to the majority being hawkish without a period of evenly balanced opinion. There should be a tendency to emulate the stated policy of future very gradual rises in the ending of the non-rise age. Let the hawks gain confidence but not control this time.
Barry McHugh Dec 2, 2015

In a world where economic prospects are linked to international capital flows and debt concerns, the importance of current account maintenance is higher. Thus US policy makers will be looking to (1) home economy strength and (2) what it needs to do to maintain its current account in the long term. Thus the prospects of more inflows in the short term as EU eases + as rates rise in the US means that the US doesn't need to front run the EU, as to do so risks heaps of cap inflows now and none later. There are other issues with the returns of retirement funds falling behind but they are probably secondary.
Paul Friesen Dec 2, 2015

Raising interest rates now is a really bad idea. Just as the world economy is showing scattered, uneven signs of just possibly coming around, they talk of dumping a big bucket of cold water on it. U.S. companies and workers should be marching in the streets to oppose this, which will push the U.S. dollar even higher and cut exports.
Alessandro Daliana Dec 2, 2015

Quite well expressed, Mr. El-Arian. However, I think there is important factor you are leaving which is outside of US and European policy-makers' hands: the devaluation of emerging market currencies which results from a lowering of raw material prices. The increase in the value of the USD is not only a consequence of the relative strength of the US economy but also - if not more so - the result of raw material material prices.

Let's face reality. The Fed's QE policies did little, or nothing, for the US economy during the recovery but did flood emerging markets with cheap USDs that reaped a higher rate of return than if invested domestically. More recently, with the slow down of the emerging markets those dollars are coming back home. Every day the financial press informs us of how much money has been withdrawn from one EM fund or another. Likewise, as the US economy improves so do tax revenues, reducing deficits, and reducing the amount of funding required. The less US bonds held by EM governments the lower their currencies go. At some point, the remaining USD denominated debt in EM will be unserviceable causing another financial crisis which investment firms and banks will take advantage of for the benefit of their shareholders/owners. However, the risks associated with these new investments will be mitigated by doing them through the Renminbi, through China, with the expectation that blending these instruments with domestic Chinese investments will protect US investors. Thank you IMF for making the Renminbi a reserve currency.

So what is point? My point is that no matter how apparently misguided policy maker decision making may seem it is always with an intent. In this case, after the GFC there is a need to de-risk financial markets and this is best done by distributing the risk through major financial centers that have a strong economic inter-dependence with regional economic partners. As we used to say in the 1980s, a multipolar world. In this case, an economically multipolar world.

In the interim, as USDs leave EM the EUR will flow in in its place. Now that the impact of European Austerity policies has completely subjugated the old continent to Protest-style economics and shifted their economic base from production to consumption. The UK can Brexit and Germany can keep everyone else in line. So Europe is now pursuing US type policies with a 5 year lag which means invest in European companies for the next few years until China is strong enough to move in.
Paul Daley Dec 2, 2015

Actually, the FED could strike a balance all by its lonesome if it had a channel to the real economy that by-passed asset markets. For instance, If it could lend directly to taxpayers through the IRS withholding system then it could sustain demand for goods and services with new lending in that channel while it withdrew support for asset prices by selling off a portion of its bond portfolio. That would also help restore the balance between asset prices and income flows and curtail the risk of a future crash. And It would be much easier than attempting to coordinate policy internationally with a passel of central banks.

If we should have learned one lesson in the past 30 years, it is that neither the FED nor any other central bank is really well-equipped to manage a modern economy, either alone or collectively. They all need channels that allow them to by-pass asset markets and lend directly to the real economy. Otherwise, they will simply continue to play asset market games, inflating asset prices and then managing the crashes that follow.
- Joe Bongiovanni Dec 6, 2015
  
  Sooo, if 'the Fed' had a transmission mechanism between policy objective and outcome, we'd all be better off. Granted. and it is thus that all this 'public money', and 'helicopter money' discussion comes into existence, unfortunately as if the CB should/could be acting that way, given their construct.
  The FRBS (the system) is the body that 'monetizes currency bills into circulation. It does that by making it a debt. Because ALL money in circulation is based on debt-contracts.
  So, this WAN that the Fed could just hurl bundles of purchasing power onto a national economy is a bit of a stretch. But only from an administartive perspective.
  Policy wise, it works.
  The body that can issue equity-based monies into the economy is the national government (vis., the Greenback Dollars), and the mechanism for doing exactly that has been laid out in proposed legislation a couple of years ago by Congressman Dennis Kucinich.
  https://www.govtrack.us/congress/bills/112/hr2990/text
  If you really want a transmission mechanism that can advance ANY national economic objectives forward, it's already been written.
  For the Money System Common.
- Paul Friesen Dec 2, 2015
  
  Sounds like an interesting idea. I certainly agree that a way to get money created by central banks out into the real economy is needed. At the zero lower bound, the traditional way of doing it just does'nt work, and that is the root of the problems we have had for several years now.
  I have mostly thought in terms of "helicopter money", where the central bank would create money and just distribute it somehow, but this would require big legal changes. Perhaps your idea is more politically possible.
  I am not sure exactly how you imagine it working, though. An equal loan for all taxpayers? Relate it to income somehow? What about those who refused to pay it bacK? Or would these loans only be given to taxpayers who requested them and passed some sort of credit check?
Robert O'Regan Dec 2, 2015

The international community has taken the bait; the US dollar will rise, 'currency mismatches' will benefit the US multinationals only as will the market volatility, The ECB and the Fed are not acting independently; the resulting currency changes will provide good deals for the US multinationals. The ECB has been suckered again.