So it was, after all, a storm in a teacup. Financial markets around the world have been going through a series of “taper tantrums” since May 21, when Ben Bernanke first mentioned the idea of gradually reducing or “tapering” the Federal Reserve Board’s monetary expansion. Throughout these four months, I have argued in this column that financial markets had grossly exaggerated or completely misunderstood the significance of Bernanke’s comments. This has turned out to be the case, as evidenced by the huge moves in share prices, currencies and bonds on Wednesday after the Fed announced that it would do exactly what Bernanke had suggested all along — namely, nothing.
The Davos economic forum, held every winter in the Swiss Alps, allows its participants to look down at the world from above: topographically because of the high-altitude location, but also symbolically, because of the high incomes, high status or high-minded rhetoric that characterize the jet-setting global elite dubbed “Davos Man” by the American political scientist, Samuel Huntington. This week, however, I discovered a sub-species of Davos Man with a very different perspective. At the “summer Davos” that the World Economic Forum now organizes every year in China, participants look at the world sideways, from the East instead of down. The shift in viewpoint is striking, even for people who travel frequently to Asia, as I do, but rarely experience such total immersion in the eastern elite’s hopes and fears.
The prospect of Congressional approval for a U.S. attack on Syria is probably good news for the world economy and financial markets, since the impact on the oil price of an intense but strictly time-limited military action is likely to be a classic case of “buy on the rumor and sell on the news.” History suggests that the moment U.S. bombs start raining down on Syria, oil prices will pull back and stock markets around the world will rise. But what about the bigger picture? How will a U.S. bombing campaign affect the stability of the Middle East and global geopolitics?
As the summer holidays wind down, the world is again moving into the financial Hurricane Season, which coincides uncannily with the meteorological hurricane season in the North Atlantic every autumn. Most great financial crises have occurred in the six weeks from late August to mid-October, for reasons I discussed in this column last September.
On the way to my holiday in Italy this year, I had an epiphany about the state of the world economy. I stopped for lunch in the truly miraculous Piazza dei Miracoli in Pisa, where Galileo Galilei is said to have dropped cannon-balls from the Leaning Tower to test his theories of motion. A few years later, Galileo invented the telescope to amass the detailed astronomical observations that were needed to prove beyond reasonable doubt the heliocentric theory of the universe — the idea that the earth revolves around the sun and not the other way round, as the Bible implied. Galileo was famously tried by the Inquisition for this heresy and decided to recant, presumably inspired by what happened to his fellow-mathematician Giordano Bruno, who was burnt at the stake for similar ideas. But after mechanically recanting, Galileo muttered under his breath the rebellious phrase for which he is still renowned: eppur si muove — “and yet it moves.”
It is now a week since Jeff Bezos, the founder of Amazon, announced that he was buying the Washington Post, in what could be the most exciting case of convergence between the new media and the old since the merger of AOL with Time Warner. But how might Bezos re-launch this venerable flagship of U.S. journalism? And what could his ownership of the Post mean for news businesses around the world?
The era of laissez-faire monetarism is over, as the world moves by small but inexorable steps towards a new kind of Keynesian demand management. One after another, governments and central banks in the leading economies are accepting a responsibility for managing unemployment that they abandoned in the 1970s, during the monetarist counter-revolution against Keynesian economics. On Wednesday it was Britain’s turn, as Mark Carney, the new governor of the Bank of England, joined Ben Bernanke in making the reduction of unemployment his main monetary policy goal.
Margaret Thatcher used to say that “There is no alternative” to whatever policy she believed in. But there is always an alternative to banging your head against a brick wall — you can stop banging your head against a brick wall. The G20 Finance Ministers’ meeting in Moscow last weekend may have marked such a moment of revelation, when governments around the world gave up on fiscal and financial austerity, and recognized that growth based on consumption, borrowing and rising house prices is better than no growth at all.
The bull market in global equities that started in the dark days of early 2009 passed a historic milestone this week. When the Standard & Poor’s 500 Index closed on Monday at 1682.5, this did not just represent a new record high and a full recovery from the swoon that Wall Street suffered after Ben Bernanke’s “tapering” comments in late May. More importantly, Monday’s record close marked the first time this key Wall Street index exceeded by more than 10 percent its peak at the climax of the last great bull market in March 2000.
Whenever Alan Greenspan was praised for delivering a clear message on U.S. monetary policy, he liked to reply something along the lines of: “If you think that, you have misunderstood what I said.” Ben Bernanke prefers the opposite approach. On May 22, he triggered one of biggest financial panics since 2008 by raising the possibility of reducing the Fed’s record-breaking monetary stimulus, while admitting that he had no idea when to start this process. He spent the subsequent six weeks trying to clear up the mess that he had created by explaining in painstaking detail the precise timing and conditions under which “tapering” might or might not take place. In the process he created even greater confusion and financial volatility. It now appears that he would have done much better for the world economy — and for his own reputation — by saving his breath and imitating Greenspan’s obfuscation.