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Column  |  China’s financial clout will be hard to reverse

Reuters Breakingviews |  4 March 2024

The ongoing debt crisis in developing countries has exposed an important but underappreciated fact about the global economy: China’s multi-decade emergence as the world’s premier exporter has made it into a superpower of international finance as well. The crisis has also revealed how unprepared the People’s Republic is for that role. Yet the unavoidable logic of international economics means that it will not be vacating it any time soon.

The “China shock” which followed the accession by the People’s Republic to the World Trade Organization (WTO) in 2001 is so famous that it has its own Wikipedia page, opens new tab. It is well deserved. China’s emergence as the workshop of the world comprehensively reshaped the global economy, raised the living standards of its 1.2 billion citizens faster than any other country in history, and provided manufactured goods to the rest of the world at unbeatable prices.

It also had some epoch-making negative effects, however. It played a leading role, opens new tab in accelerating the deindustrialisation of large parts of the United States, spurring a lurch into protectionism, and may have hastened the general political meltdown in several Western democracies.

Now a second China shock is quietly detonating in international finance.

You can read all about it and how the West can hope to handle it in my column  here.

Column  |  Multipolar world opens up surprising safe havens

Reuters Breakingviews |  17 November 2023

A quarter of a century ago, then-French Foreign Minister Hubert Védrine coined a new term to describe the United States: “l’hyperpuissance” – the world’s sole “hyperpower”. It was the guarantor of global security, the rule-maker for global trade, and the undisputed international hegemon.

Today, the “Pax Americana” lies in tatters; free trade is a fading dream; and summits such as this week’s meeting between Presidents Xi Jinping and Joe Biden set the world agenda. The days of America’s undisputed global dominance are over. Geopolitically, we live once more in a multipolar world.

Yet in international finance, the unipolar moment is more extreme than ever. The U.S. dollar remains the de facto global currency, while the United States is in a league of its own as the world’s biggest net debtor.

Take the country’s net international investment position (NIIP) - the benchmark metric of a nation’s overall balance sheet, which subtracts the sum of foreign investors’ financial claims on it from its own investors’ claims abroad. In June 2023 this stood at -$18 trillion, or a deficit equivalent to 67% of U.S. economic output. That is more than double the deficit of 33% a decade earlier, and more than seven times larger than in 2007. No other economy comes close when it comes to soaking up the savings of the world.

How did this astonishing disconnect between geopolitics and international financial flows develop – and how long can it last? The details of the U.S. NIIP tell an interesting and alarming tale.

I tell it in my column  here.

Column  |  Rich countries are stumbling into a debt trap

Reuters Breakingviews |  3 November 2023

“A billion here, a billion there”, Illinois Senator Everett Dirksen reputedly said of the U.S. budget deficit in the mid-1960s, “and pretty soon, you’re talking big money".

The senator would need to do some swift recalibrations were he confronted with today’s American public finances. Last month, the Congressional Budget Office (CBO) reported that the federal budget deficit for the fiscal year ending September 30 had hit $1.7 trillion. That’s close to 7% of GDP. Shortly afterwards, the International Monetary Fund forecast that the deficit will continue at the same level for at least the next five years. Meanwhile, government debt has tripled since the senator’s day to around 120% of GDP.

Investors don’t appear to share Senator Dirksen’s sense of irony in the face of these gargantuan numbers. After climbing steeply throughout 2022 and then stabilising in the first half of 2023, the market for U.S. Treasury bonds has sold off sharply again in the last three months, aggressively pushing up yields on long-dated bonds. Recent trading sessions have teetered on the disorderly, with the 30-year U.S Treasury yield rising above 5% amid intraday swings of 20 basis points or more.

I explain what this alarming picture means for investors and citizens in my column  here.

Column  |  The case for a career in bond investing

Reuters Breakingviews |  27 October 2023

Last week, I was tasked with convincing a class of brilliant young MBA students at one of Europe’s leading business schools that they should consider a career in bond investing. It was not an easy sell.

Bonds, I explained, traditionally serve three purposes. First, they deliver a positive income. That prompted polite guffaws. I should not have been surprised. In 2022, the aggregate U.S. market for fixed income securities notched up its worst annual performance since 1871, and U.S. Treasury bonds are currently on track for three consecutive calendar years of negative returns – something that has never happened before.

Bonds contribute capital stability, I parried, in contrast to flighty equities. More sniggers at the back. I sensed familiarity with the recent fate of fixed income benchmarks such as Austria’s hundred-year government bond. That security, which was issued in 2017, is down around 75% from its peak valuation in late 2020.

There was still fixed income’s trump card. Its third traditional function is as ballast: an asset class whose negative correlation with equities can diversify a portfolio and reduce overall risk without giving up returns. Then I remembered that in 2022 equities and bonds dropped in tandem, resulting in the worst performance for the classic 60:40 balanced portfolio since 1974.

The private equity session was about to start down the hall. Some of the more ambitious students were beginning to slink towards the door. It was time for a change of tack.

You can read the rest of my attempt to convince the students in my column here.

Column  |  The Queen’s question returns with a vengeance

Reuters Breakingviews |  6 October 2023

“Why did no one see it coming?” That was the question Queen Elizabeth famously posed to economists in November 2008, six weeks into the biggest financial crisis in history.

On that occasion, there was an obvious answer. The world’s leading central banks had spent the previous two decades focusing on low inflation, neglecting risks to financial stability.

The British monarch, who died a year ago, is no longer able to put experts on the spot. But her question is back with a vengeance.

This time, it is harder to dodge, since the thing policymakers failed to see coming was the resurgence of inflation itself – the very phenomenon that modern central banks are supposed to keep under control.

I explain what went wrong - and how it might be fixed - in my column here.

Column  |  The next revolution in monetary policy is underway

Reuters Breakingviews |  30 June 2023

Monetary policy, Milton Friedman said, acts on the economy with long and variable lags. Just as important for investors is that the reverse is also true. Monetary policy regimes evolve in response to the changing nature of prevailing economic challenges – though this also takes time. The great debate of the current era is whether the inflation-targeting central banks established in the 1990s are still fit for purpose in the ultra-financialised economies of the 2020s. In the past week, both the International Monetary Fund and the Bank for International Settlements have made striking interventions. Investors should take note. The next revolution in monetary policy may be brewing.

Start with the IMF. At the European Central Bank’s annual get-together in the Portuguese village of Sintra on Monday, Gita Gopinath, the fund’s deputy managing director, urged policymakers to confront what she called some “uncomfortable truths”. Foremost amongst these is that since central banks began hiking interest rates in late 2021 they have exposed a string of unexpected financial stresses.

Last October, UK markets descended into turmoil as margin calls on leveraged investment strategies caused British pension funds to panic-sell government bonds. A month later a default by a South Korean Legoland theme park developer triggered an economy-wide credit crunch in the Asian country. Jitters caused by higher borrowing costs also contributed to the failures of lenders like SVB Financial and Signature Bank in the United States and Credit Suisse in Europe.

Central banks can relatively easily limit the impact of problems arising in the financial sector. Containing the fallout from rate hikes in other parts of the economy is much more tricky, Gopinath warned.

As if on cue it seems that Thames Water – the UK’s largest water and sewage utility, responsible for supplying nearly a third of the population of England and all of London – is on the brink of insolvency. The root problem is its inability to service 14 billion pounds of debt accumulated during the low-interest rate era. The impact of inflation-fighting rate hikes has quite literally reached the capital’s kitchen sinks.

The rolling cascade of financial accidents has undermined the credibility of policymakers’ hawkish rhetoric. As a result, sizable gaps have regularly opened up between market expectations of future policy rates – as conveyed, for example, by Fed Funds futures in the United States – and central bankers’ own projections. Investors are sceptical that central banks can make good on their inflation-fighting promises.

I explain why they are right to be in my column here.

Column  |  Crypto is dead: long live crypto!

Reuters Breakingviews |  16 June 2023

Already reeling from the “Razzlekhan” scandal, punch-drunk from the collapse of TerraUSD, and floored by the implosion of FTX, cryptocurrencies were finally dealt a knockout blow last week by the U.S. Securities and Exchange Commission. The watchdog brought separate charges against two leading crypto companies, Binance and Coinbase Global, accusing them of operating unlicensed U.S. exchanges for unregistered financial securities and illegally commingling brokerage and clearing.

In truth, the market for digital tokens like bitcoin was already out for the count. Prices have collapsed since the peak of the speculative mania in November 2021. The combined value of cryptocurrencies is down by nearly two-thirds. Trading volumes are less than 10% of their peak.

In retrospect, it is obvious that these electronic securities were the most extreme beneficiaries of the “everything bubble” which propelled the valuations of financial assets with negligible or even non-existent cash flows to astronomical heights. The end of near-zero interest rates, quantitative easing and pandemic-era fiscal stimulus has sent prices crashing back to earth. Rising real interest rates have proved to be kryptonite for crypto, as for so many other speculative assets.

Yet investors should think twice before writing crypto off completely. The normalisation of interest rates may have done for crypto in its most recent incarnation as a get-rich-quick scheme. But it might also be exactly what is needed to resurrect its original sales pitch as the technological breakthrough that would facilitate the global circulation of privately issued currencies capable of transferring economic value across time and space more safely, efficiently and freely than ever before.

That may sound like a tall order. If crypto is to rise once more from the canvas, it will need to extricate itself from the reputational mire of a market structure that SEC Chairman Gary Gensler last week described as “rife with fraud, abuse, and noncompliance”. Digital currencies will also need to convince central bankers that they are not a threat to monetary policy or existing payments systems – something Facebook owner Meta Platforms’ ill-fated Libra project, for example, failed to do.

Yet the underlying structural drivers of crypto’s popularity remain as powerful as ever.

I explain how that is in my column here.

Column  |  Securonomics is a fuzzy new lodestar for investors

Reuters Breakingviews |  2 June 2023

“Globalisation, as we once knew it, is dead.” This blunt assessment, delivered last week in Washington by Rachel Reeves, the UK Labour Party’s shadow Chancellor of the Exchequer, is the simplest summary of what has happened to the framework that has governed global economic policy for the past three decades.

The former Bank of England economist also coined the catchiest term for what is taking globalisation’s place: securonomics. In short, it means national security trumps economic efficiency. During the era of free trade and financial liberalisation, the politicians danced to the economists’ tune. Now it’s the other way round. To say this volte-face is important for investors is a colossal understatement. Almost nothing matters more.

The definitive account of the principles governing the new policy landscape was set out by the White House at the end of April. Tellingly, it came not from the U.S. Treasury Secretary or the U.S. Trade Representative, but from the country’s top securocrat, Jake Sullivan. President Joe Biden’s National Security Advisor explained that the era of unqualified support for free markets is over.

Domestically, industrial policy is back. The state will explicitly subsidise “specific sectors that are foundational to economic growth (or) strategic from a national security perspective,” Sullivan explained. That principle underpins the Biden administration’s two main pieces of economic legislation of the past twelve months, the CHIPS and Science Act and the Inflation Reduction Act, which aim to bolster the United States’ semiconductor and green energy industries, respectively.

Internationally, meanwhile, free trade is no longer the pole star. Securing supply chains will take priority over minimising costs, and bilateral or regional trade agreements will be designed to support foreign and environmental policy. Friendshoring – the drive to source parts and manufactured goods from friendly countries – will replace offshoring. Sullivan’s 5,000-word speech devoted just three sentences to the World Trade Organization.

What does this all mean for investors?

I address that question in my column here.

Column  |  AI boom could expose investors’ natural stupidity

Reuters Breakingviews |  19 May 2023

“My colleagues, they study artificial intelligence,” the Israeli psychologist Amos Tversky once quipped. “Me, I study natural stupidity.” The co-founder of behavioural economics, who died in 1996, did not live to see 2023, when more of his academic colleagues jumped on the AI bandwagon along with venture capitalists, corporate leaders, and stock jocks. But investors should pay closer attention to Tversky’s specialisation. Behavioural economics, which studies how psychological, emotional, and social factors affect human decision-making, has some important pointers for those hoping to cash in on AI.

The first lesson is the most obvious: beware of bubbles. Since OpenAI released its ChatGPT chatbot last November, the steady flow of capital into all things AI-related has turned into a torrent. Shares in Nvidia, the world’s leading maker of chips used in creating AI, have surged more than 100% over the last six months. Software giant Microsoft has gained almost $500 billion in market value since announcing in February that it was incorporating AI into its Bing search engine. Investors in Alphabet added a cool $60 billion to the Google owner’s worth in a single day last week after CEO Sundar Pichai unveiled its new AI offering at the company’s annual I/O conference.

Indeed, enthusiasm about AI has become the one ray of light piercing the stock market gloom created by the record-breaking rise in U.S. interest rates. SocGen analyst Manish Kabra calculated last week that, excluding AI-related gains, the S&P 500 Index would be down 2% year-to-date. Instead, it was up 8%. The boom even has macroeconomic consequences. Irish Finance Minister Michael McGrath last week unveiled plans for a new 90-billion-euro sovereign wealth fund, largely funded by a corporate tax windfall from tech giants such as Apple and Microsoft which are domiciled in the country.

For other companies, perceived vulnerabilities to AI can spell doom. Shares in Chegg cratered earlier this month when the maker of study materials admitted that so-called large language models such as ChatGPT were eating into its market.

Orthodox asset pricing models suggest these wild gyrations reflect changing but rational assessments of future profitability. But behavioural economics has long furnished an alternative explanation by enumerating a rogues’ gallery of systematic flaws in human decision-making. These range from herding and overconfidence to confirmation bias and the fear of missing out. It’s a good moment for investors to be especially alert to the tendency of natural stupidity to drive stock market valuations to unrealistic – and therefore ultimately unprofitable – extremes.

However, the most important lessons of behavioural economics relate to a more fundamental question: Will the new generation of AI do what it promises?

I address that question in my column here.

Column  |  Inflation’s real benefits beat its theoretical costs

Reuters Breakingviews |  5 May 2023

The Bank of England’s chief economist caught some serious flak last week for saying something self-evidently true, not just for the United Kingdom but for most of the developed world. Huw Pill declared on a podcast that some companies and workers needed to accept they were worse off. He is right. The economy has become poorer, in real terms, due to a barrage of real shocks over the past three years: the Covid-19 pandemic, the Ukraine war, and most recently a significant food price shock.

The dilemma facing central banks – and therefore investors – is how to respond. Should monetary authorities act fast to stamp out the resulting inflation, or should they err on the dovish side and tolerate the current upward shift in the price level?

In the era of inflation-targeting central banks, the answer may seem obvious. Inflation is always and everywhere a bad thing. Yet economic theory has a remarkably hard time identifying the social costs imposed by a rising price level.

Economics textbooks used to state that one significant deadweight loss from inflation was “menu costs”: the waste of resources when companies have to regularly change their price levels. That always seemed minimal and must be almost irrelevant in the digital age. Another supposed drawback of rising prices was “shoe leather costs” – shorthand for the inconvenience of having to move money between deposit and savings accounts to preserve cash holdings. Now that smartphone users can switch banks with the swipe of a thumb, that idea sounds positively quaint.

A more serious charge is the uncertainty that rising prices introduce into financial planning. But this is driven more by the volatility of inflation than its level, and is therefore a reason to avoid erratic or incompetent policymaking, rather than keeping inflation below a particular rate.

Finally, there is the moralist’s argument that any reduction in the real value of the national monetary unit is essentially equivalent to theft. That ancient indictment basically dodges the question. There are winners and losers, and positive and negative economic effects, from devaluing the currency. The point of economic theory is to enable policymakers to analyse the tradeoffs.

If the theoretical costs of inflation are elusive, the potential advantages it has to offer are more concrete. They also happen to relate directly to the two most important economic challenges facing advanced economies today.

I explain what they are in my column here.

Column  |  The Marrakech Express

Reuters Breakingviews |  21 April 2023

Early April in Washington, DC is famous for two time-honoured rituals. Down at the Tidal Basin there is the National Cherry Blossom Festival. A few blocks further north you can hear the International Monetary Fund tell visiting finance ministers, central bankers and financiers about the dire economic outlook for emerging markets.

This year, the cherry blossom was spectacular. The IMF didn’t disappoint either. Its flagship Global Financial Stability Report noted that twelve emerging-market governments are already in financial trouble, and the foreign currency bonds of twenty more are trading at levels which have historically endangered countries’ ability to borrow. IMF Managing Director Kristalina Georgieva went further, warning that no fewer than sixty countries are at risk of debt distress.

The reason for the seasonal gloom is that the IMF and World Bank regularly raise capital from their shareholders to fund concessional lending. This year, the IMF is asking donors to stump up more than $6 billion of additional contributions before the multilateral lenders' annual meeting in October. IMF bosses also remember the wilderness years of the early 2000s, when business dwindled to such an extent that the fund had to cut 15% of its staff and was nicknamed the TMF, or Turkish Monetary Fund, after its only sizeable remaining client. All in all, it never pays to paint too rosy a picture of emerging-market prospects.

Yet investors should beware of paying too much attention to the dismal mood music. The reality is that after many years of lacklustre returns, emerging-market sovereign debt has proved one of the best-performing asset classes over the past year. There are good reasons to think there is more to come.

I explain why in my column here.

Article  |  2019: Doomsday or Domesday?

New Statesman |  2 January 2019

In October, 2019, Mario Draghi is due to come to the end of his eight-year term as President of the European Central Bank.  He is in a race against time to avoid an unusual accolade for a central banker: never once to have raised interest rates during his tenure.

In decades gone by, central bankers expected to earn their spurs by their expert navigation of the ebb and flow of the business cycle, skilfully steering the economy between the Scylla of recession and the Charybdis of inflation with the finely-tuned tiller of interest rate policy.

For Mr Draghi, however, no such dexterity has been required.  All he has done is cut rates – eight times, from 1.5% to zero.  The reversal has never materialised.

He is far from alone.  The Bank of England’s Mark Carney has been even less busy.  In the sixty-six months Carney has been in post as Governor, the tiresome chore of adjusting interest rates has troubled him for only three of them – and the policy rate remains a mere quarter of a percent above its lowest level in three hundred years.

Yet the subdued activity levels at the ECB and the BOE are as nothing compared to the splendid lassitude of the Bank of Japan.  Not only has its current governor Haruhiko Kuroda (in office since 2013) never raised rates; his immediate predecessor Masaaki Shirawaka, whose term began in 2008, didn’t either.

This brief survey of three of the world’s premier central banks illustrates a striking fact about the current global economic conjuncture.

GDP growth, inflation, and unemployment in the world’s most advanced economies have long since recovered to historically normal levels following the crisis of 2008.  Yet their financial systems remain mired in a gigantic and unprecedented experiment – one which has resulted in a decade of monetary policy paralysis.

Recent turbulence on the world’s stock markets suggests that many investors are nervous at the prospect of the central bankers’ bringing this Great Monetary Experiment to a close.  Less fretted over – but no less problematic – are the consequences of allowing it to continue.

You can read what I think they are in my latest article in the New Statesman.

Column  |   The Global Economy: Status Anxiety

New Statesman |  27 April 2018

Last weekend saw 2018’s first big conclave of the global economic policy-making elite at the Spring meeting of the International Monetary Fund’s governing board in Washington, DC.  The world’s central bankers, finance ministers, and investors gathered to hear the global financial watchdog’s latest update on the state of the world economy.

The news was positive. World GDP growth is forecast to be just under 4 percent both this year and next – stretching the global expansion into its eleventh year.  China and India, the great juggernauts of the emerging world, should grow at around 6.5 and 7.5 percent respectively.  The US – the largest economy in the world – will start to benefit from President Trump’s opening of the fiscal floodgates, and as a result, seems set to break the 1991-2001 record for its longest postwar expansion.  Even in Brexit-beleaguered Britain, the unemployment rate has just hit its lowest level since 1975.

Yet rather than reveling in this bonfire of the economic record books, expert opinion in the US capital – like the public mood across many much of the West – was strangely full of foreboding.  Amongst the general public, statistics such as those just quoted seem curiously at odds with the lived experience of a joyless recovery hallmarked by austerity and uncertainty.  The experts themselves have more faith that the numbers reflect reality.  But amongst the professional forecasters too there is a nagging sense that the good times cannot last – that there is another downturn just around the corner, and that the longer we go without a recession, the more likely it is that there will be one next year.

Are these fears of false progress and impending doom misplaced, or are we indeed living in a fool’s paradise?  Where does this mismatch between perception and reality come from?  The answer is to be found, I think, in two critical features of the global recovery since 2008.

I explain what they are in my latest article in the New Statesman, available here.

Article  |   Bitcoin should serve as a wake-up call to our flawed financial systems

Daily Telegraph |  4 December 2017

The great American financial historian Charles Kindleberger used to say that after six decades of meticulous research into the origins of speculative bubbles, he had concluded that there was but a single constant: “There is nothing so disturbing to one’s well-being and judgement as to see a friend get rich.”

Well: if any of you have friends who got in early on Bitcoin – the price of which has quadrupled in the last six months – you must be suffering from a severe loss of mental equilibrium.

Yet it is worth looking past Bitcoin as the latest get-rich-quick scheme, and focusing instead on the deeper drivers of the global fascination with the crypto-currency phenomenon.  For if he were still alive, I am sure that Professor Kindleberger would judge Bitcoin to represent the ground zero at which three of the most important historical forces at work in the world today converge.

I explain what they are, and why Bitcoin might save – rather than displace – the traditional financial system, in an article in The Daily Telegraph published on December 5, 2017.

Op-Ed  |   Back to the Future on Inflation

Financial Times |  28 July 2017

Another month, another impressively low unemployment number, but another flaccid inflation print.  No wonder the US Federal Reserve is baffled.

Modern macroeconomic theory depends upon the famous Phillips curve, and its pressure cooker model of the inflationary process. Let the economy run too hot, and inflation is sure to follow. Let the pressure drop too low, and wage and price growth will ease.

Yet in the US, unemployment is at multi-year lows but inflation is nowhere in sight. In the UK it is hardly better. In Japan it is even worse.

Across the developed economies, the Phillips curve has gone ignominiously flat. The world’s leading central bankers are scratching their heads.

I explained why older and less fashionable theories of inflation may be a more useful guide to the future in today’s circumstances in an op-ed in the Financial Times.

Column  |   It’s the Young Wot Won It!

New Statesman |  4 July 2017

It’s the young wot won it!

All right, I know – Labour didn’t actually win the election. Nevertheless, it certainly felt like a loss for the Tories; and it’s equally certain that young people turned out in large numbers, and that age was one of the only characteristics reliably associated with the way people voted.

What is it that the young want from their representatives – and are the policies on offer from either main party likely to provide it?

I ask these questions in my latest article in the New Statesman.  It is available here.

Column  |   Brexit and the City

New Statesman |  12 February 2017

The City of London has always (and not accidentally) baffled outsiders.  But Brexit has draped a new question over its age-old mystique: is London’s financial sector the UK’s trump card, or its Achilles’s heel, in the negotiations over leaving the EU?

I explore this question in my latest column in the New Statesman.  It is available here.

Column  |   Basta!

New Statesman |  12 December 2016

What a difference four hours makes.

At six in the evening last Sunday, the champagne corks were popping in Brussels.  Norbert Hofer, the candidate of the far-Right Freedom Party, had just conceded defeat in the Austrian presidential election.

By ten o’clock, however, the bubbles were going flat.  The exit polls showed that in Italy, Prime Minister Matteo Renzi was going down to a heavy defeat in the referendum he had called and championed on constitutional change.

Together, these two results revealed a critically important truth about the rise of populism in Europe and its relationship to its troubled economic model.

I explain what it is in my latest column in the New Statesman.  It is available here.

Column  |   Mr Trump Goes to Washington

New Statesman |  19 November 2016

Donald Trump has won the US presidency with a campaign that broke all the rules. Is the stage therefore set for America’s economic policy to take off in an equally unprecedented direction – and should the rest of us be fearful or elated?

These questions cannot yet be answered with any certainty: so far, not much is known about who will take the most important economic posts in the new administration, nor what detailed policies they and the president-elect advocate. But we know enough from Trump’s campaign pledges and the Republican Party’s better-known conventional platform to make some educated guesses.

I make mine in my latest article in the New Statesman.  It is available here.

Column  |   Brexit: Less About the BOE, More About the EBI

New Statesman |  11 August 2016

As far as the economic consequences of the Brexit vote are concerned, the Bank of England has seen enough. Having held fire at its meeting in July in the immediate aftermath of the EU referendum, the Bank’s Monetary Policy Committee voted unanimously on 3 August to fire a three-barrelled stimulus bazooka.

I was not in the City that day but in the Lakes, holidaying with a brilliant scientist friend who is a director of the European Bioinformatics Institute (EBI) in Cambridge­shire – one of the world’s leading centres for genomics research. I came away convinced that the true economic impact of Brexit has less to do with the short-term gyrations of interest rates and the financial markets and more to do with our long-term ability to maintain our position at the technological frontier. When it comes to Brexit, we should be worrying less about institutions such as the Bank and more about institutions such as the EBI.

In my latest Real Money column for the New Statesman, I discuss why the UK’s long term economic future depends not on the monetary tonics of the BOE but on maintaining our justified reputation as a tolerant society that is open to foreign trade, foreign capital, foreign ideas and the foreign people who come up with them.  You can read it here.

Column  |   No Economy is an Island

New Statesman |  22 July 2016

If you believe Mark Rutte, the prime minister of the Netherlands, the Brexit vote has plunged Britain into chaos. The UK, he concluded a few days after the referendum, “has collapsed politically, ­monetarily, constitutionally and economically”.

I can’t speak to politics or the constitution; but monetarily and economically, this view is wrong (or at least incomplete) in one crucial respect. It fails to see that no country’s economic fate is determined unilaterally. What happens next elsewhere – and in the eurozone especially – will be just as important as what happens in the UK.

In my latest Real Money column for the New Statesman, I discuss why.  You can read it here.

Op-Ed  |   There is life in sovereign bonds if you know where to look

Financial Times |  12 July 2016

Next year will see the 850th anniversary of one of the most important financial innovations ever conceived: the invention of the government bond.

It was in 1167 that the Republic of Venice became the first modern state to borrow from its citizens in a formal manner, taking a loan from ninety of its leading families.  Within a few years, the terms of such loans had begun to be standardised; and within a century, a lively trade in discrete tranches of the consolidated national debt was being carried on at the foot of the Rialto bridge.  The global government bond markets had been born.

Over time, such sovereign borrowing became a hallmark of the most economically advanced nations, and the most important means of affording individual citizens a share in their general prosperity.  By the end of the twentieth century, a vast financial infrastructure had been constructed furnishing pensions to the deserving retired, insurance to the daring entrepreneur, and income to the thrifty saver and the idle rentier.  It was all built on the foundations of government bonds: the risk-free asset, whose returns rely not on the shifting fortunes of any individual company, but on the health of the economy as a whole and the quality of the sovereign’s policies.

Since 2008, however, the feet of this mighty Colossus have turned to clay.  In the G10, the average yield on the benchmark 10-year bond has shrivelled from 4.3% in mid-2007 to 0.5% today.  Developed economy government bond markets are in a coma: nearly $12 trillion-worth of government bonds now trade at a negative yield.

Yet all is not lost for sovereign bonds.  Quite the opposite, in fact.

I explain how and why government bonds should remain central to the plans of income-oriented investors in an op-ed in The Financial Times published on July 12, 2016.

Column  |   Brexit: What Next?

New Statesman |  4 July 2016

England has just been ejected from Euro 2016 by Iceland.

Is this an early example of the hapless future that lies ahead for Britain now that we have opted for self-imposed exile from the richest economic zone on earth?  Or is it a demonstration of the mighty feats that even the tiniest of nations can achieve once freed from the EU yoke?

The debate on the economic implications of Brexit prior to last week’s vote was fuelled by fantastic claims of epochal economic disaster and transformative economic opportunity made by both sides.  What does a more sober assessment of our prospects look like on the morning after?

In my latest Real Money column for the New Statesman, I discuss the economic and political consequences of the UK’s vote to leave the EU.  You can read it here.

Column  |   Revolution at the IMF?

New Statesman |  5 June 2016

What has come over the International Monetary Fund?

Not content with playing the good cop to Europe’s bad in the ongoing Greek crisis – in which it has been arguing for more debt relief and less austerity – the Fund has just published an article in its in-house magazine by three of its leading researchers entitled “Neoliberalism: Oversold?”.

Their answer is “Yes”.

In my latest article in the New Statesman, I explore why – and whether the IMF’s mea culpa will finally win over its critics in the emerging markets or not.

Column  |   The Coming Storm

New Statesman |  21 February 2016

When does a stock-market slide become a crash? And when does a financial crash spark an economic crisis? At the end of last year, few investors were giving much thought to such nice distinctions. Less than two months into 2016, with the leading global equity indices having dropped between 10 and 25 per cent at their worst, these questions are on everyone’s lips.

In my latest article in the New Statesman, I discuss why I think we are entering a precarious period for both markets and monetary policy.

Column  |   The Market’s New Year Blues

New Statesman |  13 January 2016

This year’s January sales seem to have extended to the world’s stock markets. A week in to 2016, you could buy the FTSE for 6 per cent less than on New Year’s Eve. It is the worst start to the year in at least two decades.

What is behind these New Year blues?  My latest Real Money column in the New Statesman discusses the answers given by Martin Taylor, one of the most successful investors of the past two decades, as he decided to close his Nevsky Fund this month.

Op-Ed  |   Do not discount a run on sterling

Financial Times |  28 October 2015

Is sterling riding for a fall?  The UK’s current account deficit is certainly worryingly large.

But the real reason for sterling’s vulnerability lies not in the current account deficit itself but in its cause.  Exploring what that is leads to a less conventional perspective on currency valuation, but one that is vitally important in today’s financially globalised world.

You can read more in the Markets Insight column I published in the Financial Times on October 28, 2015.

Column  |   Stumbling Stock Markets: The Toils of Perversity

New Statesman |  26 August 2015

The steep and synchronised falls in the world’s main stock markets on Monday, August 24, 2015 caught investors by surprise.  Yet in light of the disappointing economic fundamentals of the past few years, the real question is perhaps not why markets stumbled but why asset prices were so high in the first place.

The answer to that question is simple – but ultimately paradoxical.  You can read what it is in my latest Real Money column in the New Statesman.

Column  |   Greece and the Future of the International Economic Order

New Statesman |  9 July 2015

What is really at issue in the Greek crisis, and what do the latest developments mean for Greece, Europe, and the rest of the world?

I offer some answers to these questions in the July 9, 2015 issue of the New Statesman.

You can read the article here.

Op-Ed  |   Watch out for whales

Financial Times |  16 February 2015

The US — finally — is back. Strong growth, falling unemployment, rising confidence and a buoyant stock market all say so. The rest of the world, meanwhile, seems stuck in the doldrums. Should this divergent dynamic concern investors?

I think it should.  You can find out why in the Markets Insight column I published in the Financial Times February 16, 2015.

Column  |   The Oil Price Collapse

New Statesman |  29 January 2015

The past few months have brought a spree of frightening developments in the global economy. There’s been the slow crash of the Chinese property market, the eurozone’s slide into deflation and the relentless strengthening of the US dollar, to begin with.

But there is no doubt what the biggest and most baffling development of all has been: the collapse in the price of oil, from more than $100 per barrel as recently as last September to less than $50 per barrel today.

Why has it happened – and what does it mean?  You can read my best guesses in an Observations piece I just published in the New Statesman here.

Column  |   Secular Stagnation: What is it?

New Statesman |  23 October 2014

What is behind the prolonged economic slump in the Eurozone?  Economists tell us it’s because of something called “secular stagnation”.  But as I explain in my latest Real Money column in the New Statesman, that’s just another way of saying we don’t know the answer…

Column  |   Flash Boys and the Law of Unintended Consequences

New Statesman |  24 April 2014

Michael Lewis’s new book Flash Boys is quite rightly generating a lot of attention because it argues that High Frequency Trading is a scam.

I think that Lewis’s story holds an even more important lesson, however, concerning one of the seminal problems of our age: the unintended consequences of technological innovation.

You can read why in my latest Real Money column in the New Statesman.

Column  |   Bitcoin is Pointless as a Currency, but it Could Change the World Anyway

Wired |  31 March 2014

Sovereign governments everywhere are petrified. An ingenious new invention that allows people to make payments across borders without leaving a trace in the official monetary system is spreading like wildfire. Its workings are so clever that few understand them. It’s backed by some of the leading entrepreneurs of the day. The embattled establishment is warning that the state’s right to regulate finance is being undermined.

Bitcoin, 2014?

Indeed.  But as it happens, this was also precisely the playbook for the birth of modern banking in sixteenth century Europe.

You can read here what I think this Old World precedent has to teach us about the prospects for bitcoin in an opinion piece I published in Wired on March 31, 2014.

Column  |   A Forgotten Scotsman’s 300-Year-Old Solution to Alex Salmond’s Money Problems

New Statesman |  12 December 2013

What have a forgotten Scots genius and the partisans of Bitcoin got to teach Alex Salmond?

Find out in my Real Money column in the New Statesman.

Column  |   Is Britain Really Booming?

New Statesman | 30 January 2014

Sort of.  But the economy is still smaller than it was six years ago.

In my latest column for the New Statesman I explain that recent economic data have indeed been looking up – but that the bigger picture is much less encouraging.

Article  |  Time for the Direct Approach (with Robert Skidelsky)

New Statesman |  1 March 2012

On March 1, 2012, Robert Skidelsky and I published an article in the New Statesman arguing that printing money and cutting taxes – examples of the indirect approach to promoting growth currently favoured by the government – are not enough.  The Chancellor should use his 2012 budget to try an alternative: upgrading the Green Investment Bank to a full-scale British Investment Bank that can provide a direct stimulus to the recovery and rebalancing of the UK economy.

The article was No.1 on PoliticsHome‘s Top Ten Political Must-Reads on March 1, 2012.

You can read it here.

Op-Ed  |  Urgently needed: a Plan C to save Britain’s economy (with Robert Skidelsky)

Financial Times |  24 November 2011

On Thursday, November 24, 2011, Robert Skidelsky and I published an op-ed in the Financial Times, arguing that QE has not done much to help the UK economy, and looking forward to the Chancellor’s Autumn budget statement next Thursday.

You can read it here.

What could a Plan C look like?  One idea that we believe could both boost demand and assist the long term rebalancing of the UK economy – all without damaging the government’s credibility on fiscal matters – is the establishment of a new British Investment Bank.

The Centre for Global Studies recently published practical proposals for what such a bank would look like and do.  You can read them here.

Article  |  Cold turkey is the only option for the developed world

Investment Week |  25 August 2011

On August 10, 2011, Mervyn King delivered an eloquent diagnosis of recent global economic developments at the press conference for the Bank of England’s August Inflation Report.

On August 25, 2011, I published a column in Investment Week discussing Dr. King’s analysis, and asking what policies are required for things to turn out better.

You can read the article here.

Op-Ed  |  Osborne’s austerity gamble is fast being found out (with Robert Skidelsky)

Financial Times |  2 August 2011

On Monday, August 2, 2011, Robert Skidelsky and I published an article in the Financial Times questioning whether the financial markets are changing their tune on austerity, and what this means for the UK – the pioneer of austerity as the mainstay of ecomic strategy in the post-crisis era.

You can read it here.

Article  |  For a National Investment Bank (with Robert Skidelsky)

New York Review of Books |  28 April 2011

Robert Skidelsky and I have an article in the April 28 2011 issue of the New York Review of Books proposing that President Obama should establish a National Investment Bank in order both to promote the long term development and rebalancing of the US economy, and to help offset the effects of coming fiscal retrenchment.

You can read it here.

Op-Ed  |  A way out of Britain’s growth dilemma (with Robert Skidelsky)

Financial Times |  21 March 2011

On Monday, on March 21, 2011, Robert Skidelsky and I published an op-ed in the Financial Times, arguing that the UK government should establish a National Investment Bank in order to promote the growth and rebalancing of the UK economy and to help stabilise confidence and demand.