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David Brown

The stage is set for another round of global interest rate easing very soon. Deal or no deal between the US and China in their fractious trade row, another US interest rate cut is on the cards.
Whether it comes at the Federal Open Markets Committee meeting on July 31, or even whether it is entirely appropriate, is another matter. More monetary overload is waiting in the wings and world markets are lapping it up.
It’s a shame it is not rubbing off on global manufacturing confidence. 
The Federal Reserve has ditched its long-held aversion to “irrational exuberance”.
The world must start growing again on a sustainable and robust basis without the crutch of near-zero interest rates. Countries need to start working together again.
The record US economic expansion, booming jobs growth, exultant global asset markets and a world awash in cheap money seem to have been conveniently overlooked.
Too-low inflation is the Fed’s main bugbear, even though the current US headline rate, at 1.8 per cent for May, hardly seems a major problem considering the Fed’s official 2 per cent CPI target.
If the Fed is worried about the lack of inflation, then it is looking in the wrong place.
Inflation pressures may not be showing up in the real economy in the shape of higher consumer prices and overheated domestic demand, but they are popping up by way of record-high stock prices and ultra-low bond yields.
The wall of monetary stimulus provided by the Fed over the past decade is driving a super-boom in financial markets above and beyond the self-sustaining recovery in economic growth for which it was first intended.

Blame it on the after-effects of the 2008 crash, but the world has become addicted to cheap and easy money.
The Fed, European Central Bank, Bank of Japan and their peers have become victims of their own success and locked into a global economic revitalisation, always on the lookout for the next fix of cheaper money.
Markets are bingeing to excess on the lavish flow of funds.
The world needs a new Marshall Plan, not lower interest rates
If policymakers are to break the dependency on ultra-low interest rates and bond yields, they need to start thinking outside the box.
Taxpayers and savers have borne too much of the burden of post-crash austerity, balance sheet deleveraging and debt deflation for too long.
If there was ever a need for higher bond yields and steeper yield curves, then there is good reason for a global stimulus plan that involves greater fiscal spending on public investment, infrastructure, health and education.




Investors and savers would appreciate the probable bounce in bond yields.
A peaceful end to the US-China trade war would be a good start.
If Washington and Beijing could quickly settle their differences over trade, global growth would have a good chance of recovery and it might take the pressure off central banks needing to stump up extra monetary impetus.
Trade woes will remain a drag on markets, despite US-China truce
They have scraped the bottom of the barrel on interest rates and going much further takes the world economy into the realm of dire risk. A sensible line has to be drawn soon.
Debate needs to be opened between governments and central banks about the best macroeconomic policy mix going forward.
Supranational organisations like the International Monetary Fund, World Bank and World Trade Organisation can help, bucking the trend away from isolationism towards better multilateral cooperation and policy harmonisation between major nations.

The world must start growing again on a sustainable and robust basis without the crutch of near-zero interest rates. Countries need to start working together again.
Beijing can play its part by optimising monetary and fiscal policies, which will help achieve China’s 6-6.5 per cent growth target this year.
Increased deficit spending, more interest rate cuts and a lower reserve ratio requirement for banks should do the trick.
The last thing China needs is a weaker currency, which simply draws fire from US President Donald Trump over currency manipulation. Beijing should stick by a stable renminbi policy.
The world can get out of the mess of ultra-low rates but it will take imagination, conviction and nerve to make a success of it in the next few years.
David Brown is the chief executive of New View Economics


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By waging war on Iran, Trump leaves the US economy more vulnerable

Iran war disruption just one of many threats to global markets

Macroscope

The global economy needs an end to the US-China trade war and increased spending on public services – not more interest rate cuts

Federal Reserve chairman Jerome Powell speaks at the Council on Foreign Relations in New York on June 25. Expectations are building that the Fed will cut rates later this year. Photo: Reuters

IMF Managing Director Christine Lagarde and U.S. Treasury Secretary Steven Mnuchin attend the IMF and World Bank's 2019 Annual Spring Meetings, in Washington, April 13, 2019. REUTERS/James Lawler Duggan

Sources: the Federal Reserve Bank of St Louis and the US Institute of Supply Management

Wealthy financial markets must start to pay their way to help the poor, and a global ‘Robin Hood’ tax is the way to do so

According to a recent US Joint Committee on Taxation estimate, a 0.1 per cent levy on US financial transactions could generate up to US$777 billion of additional revenue over the next decade. Wall Street could afford it. Photo: AFP

FILE - In this May 22, 2019, file photo, Democratic presidential candidate, Sen. Bernie Sanders, I-Vt., speaks at the Capitol in Washington. Sanders is set to give a major speech to rebut accusations by President Donald Trump and others that he is too liberal to win in a general election. During Wednesday's speech, which Sanders previewed in an interview with The Associated Press, he will define democratic socialism, the philosophy that has guided his political career. (AP Photo/J. Scott Applewhite, File)

Source: New View Economics

As the global economy slows, spare a thought for the world’s poorest

An Afghan child works at a brick factory in Kabul. As the global economic mood sours, the plight of the world’s poorest people is set to worsen. Photo: Xinhua

A Nepalese homeless man sits and waits for alms near Pashupatinath temple premises in Kathmandu, Nepal, Monday, Jan. 18, 2016. The world's political and business elite are being urged to do more than pay lip service to growing inequalities around the world as they head off for this week's World Economic Forum in the Swiss ski resort of Davos. According to Oxfam, the scale of the problem is increasingly stark: just 62 people, it says, own the same wealth as half the planet. The compares with 388 people just five years ago, when the global economy was just emerging from its deepest recession since World War II. (AP Photo/Niranjan Shrestha)

US-China trade war: ignore the hype, Trump and Xi are no closer to a deal, even if they are ‘friends’

US President Donald Trump with Chinese counterpart Xi Jinping at the G20 summit in Osaka. They might be ‘friends’, but are they any closer to a trade deal? Photo: Reuters

CLAREMONT, NH - MAY 19: South Bend, Indiana Mayor Pete Buttigieg speaks during a town hall with Fox News Channel on May 18, 2019 in Claremont, New Hampshire. Buttigieg, one of 23 Democrats seeking the 2020 presidential nomination, pitched four distinct tax hikes at the event when asked about the deficit. Sarah Rice/Getty Images/AFP == FOR NEWSPAPERS, INTERNET, TELCOS & TELEVISION USE ONLY ==

(FILES) In this file photo taken on March 8, 2018 Chinese police officers watch a cargo ship at a port in Qingdao in China's eastern Shandong province. The escalating trade confrontation between Washington and Beijing threatened to boil over on April 6, 2018 after President Donald Trump lashed out again and China called on the EU to join the battle, sending global stocks into the red. Trump remained defiant and said the pain of the dispute will pay off in the end, while China said that his administration would only "shoot itself in the foot" if it didn't back down from the "extremely wrong" threats. / AFP PHOTO / - / China OUT

Opinion

Business


The world has been awash with easy money for a decade and interest rates are already dangerously low. To boost bonds and reward savers, global stimulus should involve more coordinated spending on infrastructure, health and education



The world has been awash with easy money for a decade and interest rates are already dangerously low. To boost bonds and reward savers, global stimulus should involve more coordinated spending on infrastructure, health and education.


Central banks

US Federal Reserve

US-China trade war

US-China trade war: All stories

International Monetary Fund (IMF)

China economy

European Central Bank

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column