“But the global economy is far from solid ground”, the IMF said, in a cautionary bulletin on Wednesday, documenting the same “out of the trade frying pan and into the pandemic fire” dynamic I’ve been bemoaning for weeks.
“While some uncertainties have receded, new ones have emerged”, Managing Director Kristalina Georgieva lamented. “The truth is that uncertainty is becoming the new normal”.
Go figure. Blame what you will, but one explanation for persistent uneasiness across the global economy is that the task of reining in globalization and “correcting” the perceived ills of an increasingly interconnected world has been entrusted to enterprising, right-wing populists, who, starting in 2015, launched a concerted (albeit somewhat disjointed across geographies) effort to capitalize politically on a palpable sense of disaffection among the purportedly “forgotten” middle class in western democracies.
We’ve now lurched backward, in a misguided quest to roll back time, rekindle noxious nationalism and make mercantilism “great” again.
The predictable result in 2019 was the slowest global growth since the crisis and a contraction in global trade. An overreliance on monetary policy (facilitated in part by the possibly spurious notion that it was the wisdom of policymakers and not a variety of structural disinflationary impulses, that was responsible for the Great Moderation) has left central banks devoid of ammunition in the face of a biological threat to growth, and the decision to jettison Keynes has left a generation of politicians with the mistaken belief that government intervention should not (or even cannot) be used to stimulate demand.
And so, we find ourselves hemmed in, on one side by our own deeply ingrained prejudices against any ideas that challenge the very same combination of policies (e.g., unfettered, free-market capitalism and non-existent regulations) which led to the financial crisis, and on the other by a virus we know very little about. Here’s Georgieva again:
The coronavirus is our most pressing uncertainty: a global health emergency we did not anticipate in January. It is a stark reminder of how a fragile recovery could be threatened by unforeseen events. There are a number of scenarios, depending on how quickly the spread of the virus is contained. If the disruptions from the virus end quickly, we expect the Chinese economy to bounce back soon. The result would be a sharp drop in GDP growth in China in the first quarter of 2020, but only a small reduction for the entire year. Spillovers to other countries would remain relatively minor and short-lived, mostly through temporary supply chain disruptions, tourism, and travel restrictions.
However, a long-lasting and more severe outbreak would result in a sharper and more protracted growth slowdown in China. Its global impact would be amplified through more substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China.
Even in the best-case scenarios, however, the projected rate of global growth is still modest in too many parts of the world.
And over the medium term, growth is expected to remain below historical averages.
It’s extremely ironic that traders and investors who, almost by definition, worship unrestrained capitalism and subjugate all other concerns to the relentless pursuit of profits, are now praying for fiscal stimulus from the world’s largest command economy.
There’s a lesson in there, somewhere, but you can be sure nobody will internalize it, including and especially folks like Leon Cooperman who, now that Elizabeth Warren’s chances of winning the White House seem remote, is using his CNBC appearances to berate Bernie Sanders.
“I look at Bernie Sanders as a bigger threat than the coronavirus”, Cooperman said yesterday on the network. “How’s that?”, he asked Scott Wapner.
Cooperman went on to downplay the virus by explaining that medial experts will almost surely take care of it, but when it comes to Sanders, well, that’s an entirely different story, Leon reckons.
“[Sanders] is not a socialist. He’s a communist”, Leon declared. “Socialists advocate a redistribution of wealth. Communists advocate nationalizing the means of production and tearing down the house that wealth has built”.
Again, it’s extremely ironic, given that kind of rhetoric, that Wall Street spends each and every day praying for China to unleash fiscal stimulus. You could annotate a chart of S&P futures with Bloomberg headlines about stimulus out of Beijing. Believe me, I know. I do it all the time.
Called out on the fact that Michael Bloomberg (who Leon supports) is in favor of a financial transactions tax, something Cooperman does not favor from Warren or Sanders, he essentially argued that Bloomberg has no choice but to advocate for “leftist” policies. “He’s trying to court the party”, Cooperman explained.
To be clear, the most irritating (indeed, insulting) part about Cooperman’s CNBC cameos isn’t so much hearing a billionaire tell us that he doesn’t want to pay more taxes. I’m not a billionaire, and I don’t want to pay more taxes either.
Rather, what makes Leon the personification of “nails on a chalkboard” is his demeanor and general cadence, which suggests he believes the billionaire class should be entitled to exercise a kind of benign paternalism over everyone else, in the course of vetoing candidates who favor redistributive policies.
In any event, America’s wealthy will be more than happy to book any gains from the appreciation of financial assets tied to what will almost surely be a large, state-sponsored fiscal stimulus push out of Beijing.
See, when it comes to capital markets in the west, state intervention is fine as long as it’s carried out somewhere else, in the service of rescuing the global cycle and prolonging the expansion – something developed market central banks have struggled mightily to do, even after pumping trillions upon trillions of liquidity into the system and cutting rates some 800 times since the crisis.