Please find the complete interview here.
The fallacy of synchronized growth.
We have been hearing from international bodies, from central banks that we were living in a synchronized growth territory. That we were seeing developed markets grow faster than what was typical while emerging markets were also growing in tandem. And that
the economies were much healthier, that everything was much better, and that 2018 was a year in which we would see the confirmation of that synchronized growth trend and the reflation trade.
Well, it wasn’t the case. The case actually was that what we were being told was synchronized growth was actually synchronized debt growth. And that massive increase in debt that led to the highest level relative to GDP in history last year was creating massive problems, internal problems, in many economies that were getting used to cheap and easy money.
A very small, minuscule and completely moderate reduction in the balance sheet of the Federal Reserve of less than $260 billion, has created this reckoning. This reckoning that the reality that we were seeing globally was not a reality of higher growth, better
productivity, and more positive surprises. But the reality that it was just debt led bump up of a much clearer trend of secular stagnation.
So what happens is that we will likely see solutions that, instead of cleaning the system, will be solutions that will basically lead to more secular stagnation. Why?
Because what most central banks, what most governments will be doing, will be to try to avoid the pain. Avoid the pain of improving the economy.
What will they do then? What they will likely do is to perpetuate the problem via more demand-side policies. Therefore, this constant bailout of the less productive parts of the economies is actually more likely to be the “solution”.
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