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MACROECONOMICS

The Resilience of Globalization and Representative Governments

Resilience, Globalization, Representative, Governments, Macroeconomics, fx trader, forex

The high level of anxiety among investors is masked by the rise of equities.   As political issues dominate many discussions, the pessimism is palpable.  It is fully understandable.  The economic crisis lingers for many.  

Traditional political elites appear to be at a loss. Many fear that the rise of populism and nationalism is sweeping across the world. Democracy is under threat.  In recent years, many investors have become familiar with central bank stress tests of financial institutions.  Now it seems as if circumstances are stress testing the world our parents and grandparents created after WWII. 

The consensus narrative stands on two legs.  The first is that many have cried wolf for several years, which not only make people less sensitive to more claims but leaves us emotionally and mentally unprepared when the real wolf appears.  

Consider that some have been claiming for many years that the world is experiencing a hegemonic stability crisis.  The US is no longer stronger enough or no longer has the will to lead.  Five years ago, we were told, there was a vacuum in international politics as countries pursued their own interests.  If that were truly the case, then the revival of the 1920's America First, and the seemingly unilateral thrust of the new administration would not be as unsettling. 

Many have been predicting the demise of European integration for years.  It has been derided as a loose veneer for German hegemony.   Within two months of the slim majority of the UK voters rejecting continued EU membership in what was offered as a non-binding referendum, Nobel-prize winning economist Joseph Stiglitz joined the chorus of those predicting the demise of the monetary union, which we are told is a threat to the EU (The Euro:  How a Common Currency Threatens the Future of Europe).  Three years earlier (2013), Jens Nordvig, a noted currency strategist, warned us of the demise of the euro (The Fall of the Euro:  Reinventing the Eurozone and the Future of Global Investing).  

Similarly, many analysts and journalists have been infatuated with the idea of currency wars since 2010 when Brazil's Finance Minister Mantega accused the US over its pursuit of unorthodox monetary policy.  Yet, the G7 and the G20 have denied it.  Recall that during his campaign in 2012, Japan's Abe and some of his advisers seemed too close to seeking a competitive devaluation, and the G7 signed a new protocol reaffirming the principle of letting the markets determine exchange values, except in extraordinary circumstances.  The comments and tweets by Trump could represent a new assault on these principles, which we have compared to an arms control agreement.   

In addition to crying wolf, the other leg on which the current consensus narrative stands is the lack of faith in the representative institutions.  Many armchair diplomats see Russian President Putin and Chinese President Xi as the only strong leaders in the world.  Often in these accounts, there is an envy given the backdrop of messy democratic politics.   There is also a new genre of books that question the merits of elections and representative government.  Many of those who are staunch believers of the representative government as a means and an end in itself have little faith in the durability of those institutions.

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