“The longer and higher the dollar soars above the rest, the greater the risk of more prolonged global stagflation, debt problems in the developing world, more restrictions on the free flow of goods across borders, greater political turmoil in fragile economies and greater geopolitical conflicts,” he wrote in his Washing Post op-ed.
On Monday, El-Erian also noted that the recent strength of the U.S. dollar only adds to three key paradigm shifts that have made for an “uncomfortably high probability” of a global recession.
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First, he noted that central banks around the world have moved from supportive to restrictive policies practically in unison to counter inflation. Second, he explained that global economic growth is “slowing significantly” as the world’s three most important economies, the U.S., the E.U., and China, all continue to lose momentum.
And finally, he said that the process of globalization that helped bring about a deflationary trend worldwide over the past two-plus decades is now fading because of “persistent geopolitical tensions.”
“It’s not just about the big paradigm shifts,” El-Erian said. “This is about governments and central banks being sources of volatility rather than volatility suppressors. They are adding to the volatility, that’s particularly clear with the government in the U.K., but also in the U.S. with the Fed…it is quite a mess in some of these markets and these are the main markets for the global economy.”
Mohamed A. El-Erian
is Chief Economic Advisor at Allianz, the corporate parent of PIMCO where he formerly served as chief executive and co-chief investment officer. He chairs President Obama’s Global Development Council, is a columnist for Bloomberg View and a contributing editor at the Financial Times.
Mohamed on Twitter (@elerianm)
For background:https://www.theguardian.com/commentisfree/2022/sep/26/kwasi-kwarteng-uk-growth-policy-stagflation-mini-budget …@guardian #economy #markets #growth #inflation #EconTwitter
An example of how the turmoil in UK financial markets adversely impacts economic wellbeing.
If the turmoil continues, the average person will also be harmed by
Higher imported inflation;
More uncertain income prospects; and, to the extent they own financial assets,
Lower wealthRoom Rater Top Economist setup. A bookwall to aspire to. Proper depth. 10/10 @elerianm
Why Investors Are Facing Even More Market Instability
Frequent flyers are accustomed to turbulence on some flights. Indeed, many expect it. Despite such anticipation, however, the turbulence can once in a while create significant anxiety among even the most seasoned travelers.
This is what happened in markets last week. The “expected” turbulence, related in large part to three continuing paradigm shifts, was turbocharged by two less-anticipated factors, whose duration will play an important role in determining the orderly functioning of markets.
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Mohamed on Twitter (@elerianm)
For background:https://www.theguardian.com/commentisfree/2022/sep/26/kwasi-kwarteng-uk-growth-policy-stagflation-mini-budget …@guardian #economy #markets #growth #inflation #EconTwitter
An example of how the turmoil in UK financial markets adversely impacts economic wellbeing.
If the turmoil continues, the average person will also be harmed by
Higher imported inflation;
More uncertain income prospects; and, to the extent they own financial assets,
Lower wealthRoom Rater Top Economist setup. A bookwall to aspire to. Proper depth. 10/10 @elerianm
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