Vital questions

Two questions that Nouriel Roubini poses for financial markets in his latest Op.-Ed. in ‘Project Syndicate’:

The real economy in most advanced and emerging economies is seriously ill, and yet, until recently, financial markets soared to greater highs, supported by central banks’ additional easing. The question is how long Wall Street and Main Street can diverge.

The other is that financial markets haven’t reacted very much, at least so far, to growing geopolitical risks either, including those stemming from the Middle East, Europe’s identity crisis, rising tensions in Asia, and the lingering risks of a more aggressive Russia. Again, how long can this state of affairs – in which markets not only ignore the real economy, but also discount political risk – be sustained? [Link]

All the commentators who have opined that financial markets are over-reacting would do well to ponder over the two questions above.

In contrast, Mohamed El-Erian’s piece is more a waffle than a cogent critique of the policy response of the last few years and his supposed policy alternatives are a list of platitudes.

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