CENTRAL BANKS HAVE IMPLICITLY ADMITTED THAT QE ACHIEVED LITTLE OTHER THAN AN OUTSIZED BOUT OF WHAT SOME MIGHT CALL ‘HYPER- INFLATION’ IN ASSET PRICES...
projects are initialized and implemented can in fact foster corruption, though he also advocated applying some latitude in dealing with corruption, in so far as completely eradicating corruption leads to stagnation, instead of encouraging countries to face up to and learn to deal with such problems. Last but not least Hirschman also outlined the concept of “possibilism”, which is an approach to escaping ‘straitjacketing concepts’ such as perceived “absolute obstacles, imaginary dilemmas and one- way sequences”, noting that such “obstacles” can often turn out to be an asset or, at the very least, a spur for change. Hirschman also argued that such “inverted sequences” should not be seen as having primacy over ‘orderly sequences’, but rather as a means to ‘increase the number of ways in which the occurrence of change can be visualized’. In a world where there is far too much advocacy masquerading as analysis, and where political debate all too often descends into self-righteous mud-slinging which is very counterproductive, the risk of hurtling towards a ‘hiding hand’ moment on global debt levels is rising.
What distinguishes the current juncture from the period between the end of the Cold War and the pandemic needs some consideration. The technology boom (or fourth ‘industrial revolution’) was borne on the wings of the end of the Cold War, facilitating a sharp reduction in defence spending, and the liberalization of communications technology regulation and security, and in more general terms the boom in globalization. The pendulum on this has already swung sharply back to prioritizing security, with geopolitical tensions forcing increased spending on defence, which also serves to dampen the downward pressure on prices from technological advances. For the time being at least, there is only upward pressure on prices from both the AI boom and the Energy transition, notably these distinguish themselves from the
dot.com bubble boom by dint of being very capital intensive, in total contrast to the initial technological revolution. If there was some debatable discipline in government spending prior to the pandemic, it has all but disappeared due to the boom in pandemic era spending and associated jump in debt levels. As importantly, central banks have implicitly admitted that QE achieved little other than an outsized bout of what some might call ‘hyper-inflation’ in asset prices, and exacerbated inequality, and they really have no idea how to put this ‘genie’ back in the bottle. But their biggest concern is probably that, with inflation likely to remain well above post-GFC and pre-pandemic levels, and if the global economy sees a sharp downturn, there is little in either the fiscal or monetary policy cupboard which could effectively soften the blow. The ‘hiding hand’ in that instance may well have to be some form of debt repudiation.
Marc Ostwald E:
marc.ostwald@admisi.com T: +44(0) 20 7716 8534
27 | ADMISI - The Ghost In The Machine | Q4 Edition 2024
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