THINGS'LL BE DIFFERENT THIS TIME ... REALLY

28 November 2022

https://fortune.com/2022/11/23/how-bad-economy-recession-top-economist-mohamed-el-erian-federal-reserve/

RESUMÉ

The world isn't just teetering on the brink of another recession. Economic theory says that a recession occurs when a business cycle reaches its natural endpoint and then after the next cycle starts. But this time won't be just one more turn of the economic wheel because major changes will outlast this current business cycle.

SUPPLY DEMAND IMBALANCE

The first transformational trend is the shift from insufficient demand to insufficient supply, on account of supply chain difficulties and near-shoring, caused by covid and enormous covid govt handouts....

THE WAR

....el Erian doesn't talk about the war, sanctions and an emerging bi-polar world with two reserve currencies.

INTEREST RATES AND QT

The second transformational change is the end of boundless liquidity from central banks with substantial rises in interest rates, quantitative tightening and maybe inflation will be stabilised, but will remain at a higher level.

FINANCIAL MARKETS

And the third step-change is the growing fragility of financial markets, as capital goes off looking for new homes.

If you raise interest rates, you can also have a crash of equity markets, bond markets, credit markets, and asset prices in general that causes further financial and economic damage.

UNCERTAINTY

So these changes in the building blocks of the world economy - supply chains, monetary conditions, capital markets - help us understand the unusual economic developments of the last few years (that we've become accustomed to), but also indicate more uncertainty to come as economic outcomes become harder to predict.