Investors and economists have been sounding the alarm about the recession. But one economist who has seen the indicators rise for months says this recession is not what we are used to.
The economist is Mohamed El-Erian, former CEO of PIMCO. He also chaired former President Barack Obama’s Global Development Council and authored several best-sellers on economics. In short, he’s one of the best observers of the Fed and the live markets, and he hasn’t liked what he’s seen in a long time.
There is a tendency to see economic problems as “temporary and rapidly changing,” El-Erian wrote in a commentary. Foreign affairsreferring to the Federal Reserve’s original view that inflation would be temporary or acknowledging that the recession would be temporary.
He continued: “The world is not about to fall again. “It’s in the midst of a major economic and financial transition.”
He also explained in economics that a recession occurs when a business reaches its end and before the next one can run away, but he said this time there will be no more “economic wheel,” as he sees the world. major changes that “will go beyond the current business.” He highlighted three factors that indicate that global economic change is underway.
Three major factors are changing the world economy
The first change, El-Erian says, is the change from lack of enough to lack of enough. The second is the end of unlimited money supply from central banks. And the third is the weak growth of financial markets.
That helps explain “many of the unusual economic events of the last few years,” he wrote, and looking ahead he sees increasing uncertainty as the economic crisis “gets exponentially more violent.” Researchers are not aware of this, he added.
The first change was driven by the crisis of the epidemic, since the whole system stopped and was encouraged by the government, or what El-Erian called “big donations,” which led to “a necessary increase before it happened.”
But over time, El-Erian said, it became clear that the issue of giving “came from the plague itself.” It’s linked to Russia’s invasion of Ukraine which has led to sanctions and political conflict, and a shortage of workers which has led to an epidemic. This supply chain disruption led to “proximization,” a permanent move by companies to move their production closer to home, instead of rebuilding supply chains for the 2019 era. This reflects a shift in the “characteristics of globalization.”
“To make matters worse, this change in the global economy comes at the same time that central banks are changing their approach,” El-Erian said. As he has been for months now, El-Erian criticized the Federal Reserve primarily for being too slow to recognize the rising inflation that was settling in the economy, and then for its aggressive rise to make up for lost time.
As inflation rose, the Fed began to rise even more—and the last four increases were all 75 basis points that raised the federal funds rate to 3.75% to 4%. But this radical change brought about a third problem, El-Erian writes. “The markets realized that the Fed wanted to make up for lost time and began to worry that it would keep rates higher for longer than would be good for the economy. The result was a financial market meltdown.”
Markets have been taught to expect easy money from central banks, he said, and the “wrong” has been “a lot of the global economy” to enter wealth management, private equity and hedge funds, among a few others. – regulated entities. What has happened in the markets since the easy money period ended this year can be understood as a large sector looking for a new home, financially wise. He is weak at this point.
“The deterioration of the financial system also affects the work of central banks,” he said. “Instead of facing their usual dilemma—how to reduce inflation without harming economic growth and employment—the Fed is now faced with a three-pronged challenge: how to reduce inflation, protect growth and jobs, and ensure financial stability.” “
El-Erian is not alone in citing several threats to the future of the global economy. Former economist Nouriel Roubini and financial historian Adam Tooze are two other prominent voices warning about the risks of convergence. Roubini has just written a new book called “MEGATHREATS” about the 10 biggest economic problems facing the world, while Tooze announced the term “polycrisis” to describe a group of problems related to the increase.
Roubini himself said Chance recently that he and Tooze are describing similar events, although they did not touch on El-Erian’s objections. However, like El-Erian, Roubini explained that several factors are at play, and because they are so interconnected, they create a domino effect, which contributes to the collapse of the economy.
“If you raise interest rates, you can also have problems with stock markets, bond markets, credit markets, and commodity prices that lead to economic and economic damage,” Roubini said. Chance. However, he explained that raising prices would help to fight inflation, even risking a severe downturn, all of which are caused by “risks” in the supply chain.
Going forward, El-Erian concluded, this change means that the economic impact will be difficult to explain. And it doesn’t mean one simple outcome, but to show “bad outcomes”—so that one bad event can lead to another.
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