It's getting to him. All these months of being out on a limb. Sometimes its a lonely job being right. While I don't go one hundred per cent of the way down the road with his bubblenomics, I'm prepared to go ninety five, especially if the housing situation deteriorates. He is also right about the structural imbalances. He only has to wise up to the demographic backdrop and he's got it all. But seriously folks, he has to be one of the best 'instinctive' economists (the natural) working out there. He's feeling lonely. He has got a feedback slot on the Global Economics Team page here. Let him know you're listening:
I’m tired of being so negative on the macro outlook. We all are. But I must confess it’s finally starting to get to me, purportedly one of the most bearish of the lot. It’s not that I’ve lost my sense of conviction. It’s actually a more disturbing thought -- that after all these years, I’m starting to sense that no one is really listening.
Sure, financial markets have been in a three-year funk -- a huge post-bubble correction in world equity markets and an equally extraordinary surge in bonds. Over the same time frame, the global economy has been in one recession and is back on the brink of another one right now (see my April 4 dispatch, “The Global Double Dip”). Yet convictions are still deep that these disruptions are temporary, not systemic, and that they have now gone on for long enough. As such, most investors, policy makers, and politicians remain convinced that mean reversion is imminent -- that fundamental macro relationships are about to return to their longer-term trends. Over the years, these are the gut feelings I have learned to respect the most. And yet now I find myself at odds with those very instincts. That troubles me. It forces me to ask myself repeatedly these days -- what am I missing?
Here’s where I believe nobody really seems to care. America has had an ever-growing balance-of-payments deficit for most of the past 20 years and it hasn’t been much of a problem -- either to the US or to the rest of the world. What I’m missing, the critique goes, is that there’s nothing wrong with this arrangement. Lacking in demand of its own, the world has, in effect, been perfectly content to finance the profligacy of a saving-short US economy.
I have to confess that it’s at this point where I just lose it. I have the same problem with this logic that I did with bubblenomics in the late 1990s. Just because imbalances and excesses endure for longer than fundamentals suggest doesn’t mean we have the fundamentals wrong. Conversely, it may well mean that financial markets simply have asset valuation wrong -- that today’s dollar bubble is nothing more than the functional equivalent of the Nasdaq bubble some three years ago. To me, this is the most glaring example of a dysfunctional world. What concerns me most is that there’s nothing stable about the current imbalances in the global economy. Courtesy of a rapidly deteriorating US saving position, these imbalances can only get worse until something gives. I guess what I must be missing is the infinite tolerance of an ever-elastic US-centric world.
“It’s all the war” is the most common refrain I hear these days. In a postwar world, the argument goes, the combination of lower oil prices and a diminished “uncertainty factor” should provide a sharp boost to today’s weakened global economy. At that point, the combination of policy traction and the animal spirits of pent-up demand are expected to kick in -- precisely the opposite of what I expect and yet the perfect antidote to the angst that is currently gripping the world. I have no problem with the concept of postwar relief. But I have yet to figure out how it heals what is truly ailing a dysfunctional global economy. That’s the quick fix that I guess I must be missing.
Source: Morgan Stanley Global Economic Forum
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