The abrupt fall from grace of Dominic Cummings, the much-admired and much-loathed adviser to UK Prime Minister Boris Johnson, has sparked all sorts of theories as to what was behind it, and with good reason.
Cummings’ actions have been divisive and often controversial, starting with his choice of “misfits and weirdos” to replace civil servants whom he sacked unceremoniously, to the famous drive he took across the country while both he and his wife were ill with Covid-19 and a national lockdown was in place.
With the eyes on the US presidential election and the second wave of Covid-19, investors around the world can be forgiven if they have missed two important warnings from emerging markets.
However, with the election (almost) out of the way, it may be time to go through the rest of the news flow and think properly about the two events that may have been overlooked: the postponing of the world’s biggest stock listing (China’s Ant Group), and the firing of the governor of the Turkish central bank.
The world is slowly coming to terms with the idea that Covid-19 is here to stay and we will have to somehow learn to live with it.
Coupled with the imperative to try to slow down global warming to avoid a climate catastrophe hitting today’s young, this has huge implications not only for our way of life but also for our economies, the way we shop and very likely our diets.
This “like-no-other” Covid-19 pandemic is clearly a dangerously unique event, with ongoing severe economic and social consequences all around the globe. Nassim Taleb has famously described the Black Swan and more recently, BIS researchers pointed to the Green Swan in reference to the impact of climate change.
But the Covid-19 Swan is quite a combination of colours. It is an ongoing emergency situation, with fear often overcoming hope while anxiety heightens amid a decline in living standards.
As a second wave of the Covid-19 pandemic is taking hold of Europe, the European Union, with its high welfare and healthcare standards, seems to be able to withstand it better than the US.
But if in terms of public health this may be true, in economic terms EU politicians and policymakers should use this once-in-a-lifetime opportunity to understand that the EU risks falling behind the US and China — and to take measures to prevent that.
Despite central banks keeping interest rates at the lowest levels in history and buying debt like there’s no tomorrow, the mountain of debt is not getting any smaller. Emerging markets are, as usual, the place where people are looking for the first signs of trouble.
UK chancellor Rishi Sunak seems to be trying to build for himself the image of a man who is not afraid to “tell it like it is” when the situation requires it. But his actions show that he is prepared to sacrifice long-term economic development for a short-term boost for his Conservative party.
If after the great financial crisis of 2007-2009 the word “extraordinary” characterised monetary policy, the Covid-19 pandemic calls for a much stronger adjective: “unprecedented”.
As the world has never before been faced with an instance when virtually all economic activity stopped for a certain period of time, this is an appropriate word. However, in monetary policy really very little can be said to be truly “unprecedented”.
For example, take modern monetary theory (MMT) — a theory about how to have your (monetary) cake and eat it, which (simplistically) states that if a country can print its own currency, that country will never default on its debt because it can create as much currency as it wants to and use it to pay back the debt.
Major central banks, to a certain degree, have already begun versions of MMT.