Twilight – continued

The article by Christopher Caldwell (see my earlier post, ‘Twilight’) had set me thinking. I sent the following email to my friend Niranjan who had forwarded the article to me:

Made for a thoroughly scary, disturbing and engrossing reading!

I am really surprised that the world has not imploded. That is the good news. The bad news is that it is still to be played out. It is coming.

I really doubt if any of us have answers to stop the Doomsday Clock from moving towards midnight. The clock will strike 12. IT is a matter of time.

Another friend who read the piece concurred on my assessment of the article and engaged in an email discussion on some of the issues such as hostility to outsiders (identity as the market, as he put it) as a consequence of economic hardship faced by the locals.

This was my response to him:

Identity is part of the mix, no doubt. But, it is part of the capital over labour imbalance that started with the collapse of the Bretton Woods in 1973. Monetary ‘rules of the game’ were abandoned. ‘Growth at all costs’ became the policy goal. Central banks’ discretionary money and the liberal use of debt contributed to economic growth, relentless rise in asset prices. Those who have assets benefited. Those who did not, simply became more indebted. Then, this ‘growth at all costs’ meant globalisation.

That was the second leg – or the second pillar of ‘growth at all costs’ – of the 1970s regime change in both purpose and paths. Globalisation meant offshoring and outsourcing plus immigration. It helped countries like India and, in a far bigger way, China. Both are mostly the stories of the new millennium: Y2K and China’s WTO entry were signature launchpad of the western malaise.

The third leg is the Western hubris induced political regime change in the Middle East that has brought waves of immigration – especially that of Muslims. The fourth leg of this is Islam itself with its ‘they are with me or they are against me’ binary attitude towards the rest of the world and the various acts of terrorism committed by terrorists.

The fourth leg has been greatly amplified by the wave of political correctness that is sweeping through Western societies – I wonder if I can trace the genesis and the driving spirit of it – is it guilt or is it fear or both or is there something else?

My logic above takes me in the direction of fixing the ‘root cause’ – going back to the old monetary rules of the game that would, in turn, reverse the other legs – particularly economic inequality.  Company leaders and, more generally, businesses would go back to doing genuine product and process innovations rather than gaming stock prices and their compensation through labour retrenchment and squeezing out labour compensation. If they do, loyalty and motivation might return boosting productivity and employment. A virtuous circle could set in and, who knows, it could starve terrorist organisations of recruits. May be, I am being too optimistic.

There was one crucial difference about the post-World War II period that lasted up to the early Seventies. Economic growth was easier to come by, because it was catch-up growth, reconstruction and rebuilding and all of that. Demographics were favourable in the West. Climate change was not a factor that militated against the burning of coal and other hydrocarbons, etc.

So, will merely restoring the ‘monetary rules of the game’ help? Well, perhaps not. But, we can only change things that we can influence and change. What else can we do? That might work. After all, the law of unintended consequences can work in a virtuous way too.

The troika on trade

Apparently, the IMF, World Bank and the WTO have issued a joint report/statement on the importance of open trading regimes. At the same time, they have called for labour compensation policies. Dani Rodrik calls it too late. He says that the rules of globalisation have to be changed completely. He offers a thumbnail sketch of the changes he wants to see, in this NYT piece published in September 2016. They are still somewhat general and vague for my taste but some specifics can be teased and tortured out of them.

I had not seen the WTO-World Bank-IMF report but saw a FT story on it. I left the following comment on the article:

It might be worthwhile for the Heads of IMF, World Bank and WTO to read Professor Robert Allen’s ‘Global Economic History: a very short introduction’. Countries liberalised internal trade and raised walls against external competition when they were trying to grow. We have no idea of what works.

If the Chiefs of multilateral institutions want to help developing countries access markets in the developed world, they must address two things: (a) They must make China fairer in trade. (b) They must make sure that unskilled and low-skilled workers in developed countries, their families and their communities are not affected by trade. If they are, they must be made whole. That means more than financial compensation or relocation, etc.

The key to sustaining global free trade is not to attack America or its President but to fix China’s trade practices.

Christopher Balding has tweeted as follows:

“You know what the probability of a foreign company getting approval to buy a $50b Chinese company? Hint: 0<p<0.00000000000000000000000000001” [Link].

Yes, I am aware that this is about investment and not about trade. But, find one respectable and objective economist or journalist who is willing to go on record that China is an open market for trade. Then, I would retract that this is not symptomatic of China’s overall openness or the lack, thereof.

Fix China trade and investment regimes and then issue statements on a open global trading regime.

Fake news or demented poetry

About five days ago, Chris Balding tweeted this:

I am going to pound this into the ground because its true: China promoting free trade is fake news

Perhaps, Martin Wolf should have had a word with him before he wrote his piece on Xi Jinping offering lessons to President Trump on the merits of liberal global trade.

To believe that China takes ‘ liberal global trade’ seriously is either seriously ignorant or a serious miscalculation, perhaps, arising out of Mr. Wolf’s recent visit to the China Development Forum.

Commenting on the remarks of Larry Summers that “Trump’s ‘alternative facts’ were costing America the coin of the realm”, Chris Balding wondered how much these people were paid to come and attend such forums in China.

Just to get a sense of the Chinese understanding of the ‘merits of liberal global trade’, Mr. Wolf would do well to read these stories:

(i) China’s trading partners alarmed by food import controls

(ii) Call to tackle China’s soaring aluminium output (“Despite a tentative recovery in prices following a five-year slump, experts warn that China’s pledge has not yet reduced net capacity”)

(iii) China’s Taxes on Imported Cars Feed Trade Tensions With U.S.

(iv) Head of China’s industry ministry says country right to limit market access:

More than 80 percent of members of a U.S. business lobby in China say foreign companies are less welcome than in the past, a survey released in January showed, with most saying they have little confidence in China’s vows to open its markets.

What we see in Mr. Wolf’s article is a problem that is all too familiar. Journalists play plaintiff, judge, jury and executioner when it comes to their pet hates and, in the process, fail the most important hallmark of intellectual credibility and integrity and that is, intellectual consistency and uniform application of yardsticks. They failed to do that when globalisation was at its peak. Now that its adverse consequences are coming home to roost, they are very eloquently warning us of the dangers of reversing globalisation.

Ordinary folks wonder what is so complicated and difficult about rolling back something that did not deliver anything of value to them but only destroyed their economic well-being and their communities. Chinese imports and outsourcing/offshoring of production were visible signs of that globalisation. To be taken seriously is to analyse rigorously and objectively.

It is far too easy to say President Trump has low or no credibility but what about an inward gaze?

Again, let us turn to Chris Balding’s brilliant tweet:

The astounding hypocrisy between those screeching about Trump while apologizing for Beijing is nothing less than demented poetry [Link]

What prompted this tweet?

Reuters calling China’s punitive measures against South Korea for the deployment of THAAD missiles just a ‘chill’:

The mainland chill on popular Korean entertainment in China is driving fans underground for their “K-culture” fix [Link]  – via this tweet.

Answers to questions on my stance on President Trump

A reader had posted the following comment on my  blog few days ago:

I am an avid reader of your blog. I am a faculty in a US engineering school (working in the area of econometrics) and follow economic news with interest. That is how I found your blog and have been reading it for the last few years. In general, I am quite impressed with your articles and am keen to follow your thoughts – for example, I was curious about how you rated the budget. But over the last 6 months your articles on the US election and Trump in general are quite disturbing to me. I have been wanting to respond to your support to Trump.

To clarify, I am right of center in economic policy and quote liberal in religious matters. In India, I support the BJP govt. at center. So, I am not a pseudo-secular guy taking issue here. As a morally upstanding person, how can you support Trump? Forget his economic policy, I have seen all his 15+ debates and never does he come across as a sensible person. I mean he is openly fascist, misogynistic and thin skinned. His statements on John McCain among other things clearly show what kind of a person he is. Given this background, how can you support him? What standards are you setting for leadership if Trump is a good leader? To be sure, I am not blind to the fallacies of NYT and American press and Hilary Clinton. But Trump’s ignorance of facts and his lies should make you question his motives. But I see you support him with little reservation. His cabinet is full of billionaires with no scruples who made money in the financial sector (a group of people you criticize) – so how do you justify your support?

I thank him for engaging rather than giving up on reading the blog in protest. I am not sure that I will be able to answer him convincingly – i.e., persuade him successfully. But, it gives me an opportunity to engage and to sharpen my own understanding of the phenomenon of Trump.

I had written two op.-ed.s in MINT on Trump, the candidate. You can see them here and here. To a large extent, the two columns spell out my reasons and also my reservations. It is not as though the case for Trump, in terms of his personality, was clear-cut. But, that is also his strength.

One of the things I had mentioned in my second column – published on Nov. 8 morning in India – was that with Mr. Trump in office, democratic accountability would be safe, for his every move of hands and lips would be scrutinised microscopically. That is being proven correct, to the point of inciting instability and a breakdown of civil order. In fact, their goal is either an impeachment or worse. The so-called Liberals (illiberals, in reality) might get what they want and I hope they live to regret it deeply.

Whereas with Hillary Clinton, there would not be much scrutiny at all. That was based on the accountability (or, the lack thereof) enforced on President Obama. One only had to read Jeffrey Sachs’ conversation with ‘Project Syndicate’ to understand that. One of the principal reasons – if not the principal reason – for the global refugee crisis has been his botched handling of Libya and Syria. Ms. Clinton was party to at least one of the decisions, if not both.

On Russia, United States has gone back on the promise of NATO non-expansion in Russian sphere of influence. What the United States did in Ukraine was thoroughly objectionable as was the regime change pursued in Syria. President Trump was perfectly correct in posing a question in the O’ Reilly interview if the United States was innocent. Read what Senator Chuck Grassley said about the United States’ interference in elections overseas.

It is not just Jeff Sachs but also Prof. Steve Cohen who has been writing about it and talking about it for quite some time.

How much did the intelligentsia and the media hold Obama accountable when he was in Office and now? Zilch. Nada. Nothing.

On the so-called Russian interference, I think commentators have to decide which way they want to go: Do they want to consider their victory in the popular vote (contributed to by about three counties in California) as legitimate or do they want to say that Russia interfered with and succeeded in changing the final verdict? They cannot have both. The 7-minute interview of former Democratic Congressman (Ohio) Dennis Kucinich for Fox Business News in the ‘Morning with Maria’ programme is worth watching.

On China and as to why the relationship needs a reset, one has to read a lot more to understand the agenda of the new American government. It is not a knee-jerk or impulsive decision. We may not like it and we may think it is unjustified – I, for one, do not – but that is the reality. American relationships with nations are reset at different intervals, depending on their national interest and geo-strategic calculations.

One has to read David Shambaugh’ ‘China’s future’. Robert Luttwak’s book on China (The rise of China vs. the logic of strategy), Richard McGregor’s ‘The Party’, James Kynge’ ‘China shakes the world’, columns by Jamil Anderlini in FT and the regular briefings coming out of the Mercator Institute of China Studies. Or, from the economics angle, read the papers of Peter Schott and Justin R. Pierce. I had blogged on them.

George Yeo, the former Foreign Minister of Singapore spoke to the Harvard Business Association in Hong Kong. While he clearly felt that a conflict between the U.S. and China would not be in the best interests of the rest of the world, he did say the following with respect to China:

China is not like that. This is a civilisation which has deep instincts of its own past and of its own nature. And because of that, China will never harmonise with the rest of the world. Whether we’re talking about cyber space, cultural policy or capital markets, China will never harmonise with the rest of the world. [Link]

Such is their blind hatred for and prejudice against Donald Trump that they could ignore the lessons of history and even contemporary reality and look up to China to uphold liberal order!

It was left to James Kynge to expose their stupidity of hailing Xi Jinping as the champion of the liberal world economic and political order:

Yongjin Zhang, professor of international politics at the University of Bristol, sees a chasm between the way China defines globalisation and the way the wishful high priesthood of global capitalism at Davos wanted to understand it. ..

… But China’s investments and diplomatic alliances are overwhelmingly in the developing world. In this sense, its vision is not global but sub­global; it is aiming to influence those countries where it can make a difference, reap the rewards and remain insulated from western demands to liberalise its political system and inculcate democratic values. [Link]

Of course, China exposed the hollowness of the anti-Trump and pro-China brigade – both moral and intellectual – with its abduction of a businessman from Hong Kong and now, the British and American Universities are getting a taste of their own medicine of intolerance and illiberalism in the name of political correctness and diversity. See here and here. Also, please remember to read Prof. Mark Lilla’s conversation with the Chronicle of Higher Education in January  titled, ‘Campus Identity Politics Is Dooming Liberal Causes. (It could be behind a paywall, though).

Trade Protectionism

On protectionism, it is blithely asserted that technology and not trade that is the problem. That is incorrect. Often repeated, many hope – and they have probably succeeded – that lies would stick. Readers should check out the research of Peter Schott (of Yale University) and Justin R. Pierce of the Federal Reserve on the ‘role’ of China in the crisis of jobs in U.S. manufacturing and in the destruction of communities within the United States.

Many commentators try to appear very erudite by haughtily proclaiming that it was not trade but technology that had led to the employment and other social impacts in U.S. communities. By sheer dint of repetition but not rigour, they seek to establish this as a fact. It is almost impossible to disentangle the effect of trade from technology on U.S. manufacturing employment. Both worked in tandem. It is also difficult to say if technological developments boosted international trade or the other way around. I am sure that there is a bit of both going on. But, trade had an important role to play in the angst that prevails in the United States. That is what the sustained contribution of Schott and Pierce seeks to establish.

Yes, on balance, India and China benefitted considerably (the latter more so) from globalisation but many Americans did not. The American capitalists who profited did not find any reason to nor did the politicians compel them to share their extraordinary prosperity with low-wage workers and others. The result is a clamour for jobs protection. Some of us will be losers but that is inevitable. These things – trade and immigration policies – come and go in cycles. The people to be blamed are not the current President and his administration but the ones who were in office before that and did not do much about the uneven distribution of the benefits of globalisation.

Some – with a bit of conscience – would concede the problem but would assert that Trump’s solutions (to walk back on TPP, for example) would not work and that the situation would be made worse. May be or again, may not. Who knows? Professor Ha-Joon Chang at Cambridge might have different views on it. After all, didn’t these economists predict an economic and financial market meltdown after Brexit but had utterly failed to foresee the real meltdown of 2008?

On immigration

As for immigration, again, many countries have quietly tightened their immigration rules in the last several years, in response to slowing economic growth and vanishing. They may not have spelt out racial or religious criteria but income criteria and they end up affecting a particular country or set of countries or religion.

Similarly, President Trump’s order did not target a particular religion but only citizens of particular countries and that too for a temporary period until some reviews are done. Let us not forget that citizens of many EU states and a considerable chunk of the American population have supported the decision. In fact, only 20% disagreed with the motion that banning would be bad. Quite a large proportion chose to remain silent as some Americans did during the election campaign period.

Of course, it is possible to argue that leaders should not pander to the population’s baser instincts. But, it is even better to ask the question as to why things came to this pass. That responsibility lies with the elites, the previous administration, governments in Europe and with the Muslim community itself. It is wrong to question the manifestation while ignoring the underlying causes. Well, not a surprise because that is what American policy elites have done over the years. Ask the Federal Reserve. They are the experts in that.

On the financial sector

As for the financial sector, yes, I had already done one blog post on President Trump’s appointments and the policy agenda (allegedly) driven by Gary Cohn (ex-Goldman Sachs). I had mentioned this in my column for MINT on November 8 too. This is an area of concern. But, three caveats. One has to wait and see the specific policy decisions taken. Two, one has to make sure that one does not rely on mainstream media to know about them. Three, some of the worst financial sector capture happened in the era of Bill Clinton and Obama and, of course, George W. Bush, Jr. Just sample this story on Mary Jo White, the SEC chair, in the Obama Administration.

Of course, there is a limit to how far one could throw the charge back at the previous government. Trump has been elected to drain the swamp and not clog the drains further with swamp of his own, esp. in the Finance Sector. This one needs watching, for sure.

On Trump’s billionaire cabinet and conflicts of interest

The media is watching like a hawk on the so-called conflicts of interest of his Cabinet with respect to China and other aspects of his policy. So, I will hear plenty of it and that, in itself would be an effective check and balance on them. That said, I would be very careful in basing my conclusions in these polarising matters from the reporting in the mainstream media. His Cabinet members are billionaires and, therefore, they are unlikely to be stupid or self-destructive.

President Trump’s tweets on Nordstrom negotiations or cancellation of its contract with his daughter were unacceptable and, more importantly, stupid. There was no upside to his tweeting on them. Again, perhaps, he is not so stupid as the intellectuals were when they looked up to the Chinese leader to stand up for globalisation and liberal principles. I will come to that in a moment.

As for President Trump’s chaotic first four weeks, read what John Mauldin has to say:

The media will be writing about how Trump can’t keep people and about all the chaos in the White House and other parts of government. But from Trump’s perspective, and given his management style, that’s not necessarily bad in terms of his longer-term goal of changing things.

We have not had a president with this type of management style in my lifetime. Since it’s not something that any of us are going to be familiar with, it is going to make some of us uncomfortable until we get used to it (and some people never will).

If you listen to the media you might have the impression that the Trump transition team is in complete disarray. Talking with leaders of the transition team certainly didn’t leave me with that impression. They have broken the transition process down into over 30 departments and have created a “landing document” for each department. The analogy they are using is that this process is like planning an invasion, and they are going to hand the landing document off to the “beachhead teams” who will then execute the plans.

I was briefly allowed to look at (without actually being able to read) the plan for one cabinet-level department. It appeared to be about 100 pages plus of serious detail as to exactly what executive orders would need to be removed and added, what personnel would have to be replaced (both appointees and regular staff), what policies would need to be changed, and so forth.

I was told that this level of planning was being done for every department. My impression is that there are a lot of people from various think tanks and others with experience in the presidential transition process who are involved in directing the plan for each department. That level of detailed planning doesn’t happen in less than two months. My guess is that some of that thinking has been going on for years, and now it can be implemented.

Steve Moore passed on a story to me. He and my friend Larry Kudlow were meeting with Trump, and Trump asked them if they would like to be part of his economic advisory team during the campaign. They looked at each other and back at Mr. Trump and said something to the effect of, “You can’t use us. We believe in free trade.” And Trump then said, “But we agree on nearly everything else. Let’s agree to disagree on trade and figure out where we can work together.”

Not many presidents are willing to have that level of disagreement from the outset. That is somewhat comforting to me. [Link]

In the same speech, referred to earlier, George Yeo, like John Mauldin and Dr. S. Jaishankar, India’s foreign secretary, had some sensible advice to offer on how to understand President Trump:

We do know that Mr Trump has certain deep instincts. He sees a lot of problems in American society. He wants to reinvigorate it. So trade has to be fair, in his mind. I’m not sure it’s going to help just by arm twisting automobile companies to manufacture in the US, because the global economy is much more complicated than that.

But it does win him applause from the gallery, and some things we must expect him to do for political reasons. As he himself has said, he’s from Wharton, so he can’t be stupid. And he’s not. To think that he is would be a serious miscalculation.

He says, ‘Look, we got to deregulate’. He wants to simplify the tax code and reduce the general level of taxation. He wants to revamp infrastructure in America, much of which has gone to disrepair. And that’s the right direction to go. He wants to control the borders better. Again, he may have made outrageous remarks, but the deep intention is, ‘We’ve got to have a handle on illegal immigration, and also to control conduits which may bring in radicals and terrorists’.

But there are two things which are troubling. One, it is easy to spend, it’s easy to reduce taxes, people would cheer you. But how do you cover the deficit? The other area which is a bit troubling is what appears to be a very deep conflict between Mr Trump and the intelligence agencies. He has become very distrustful of them.

And he takes a practical approach towards international security. Must we interfere in Syria? Was it right – Iraq, Libya, and the cornering of Russia? Maybe this is driving them into the arms of China. Does it make sense?

There are many people whose entire careers are formed on certain perspective and he’s challenging them. It’s important to get past the common criticisms against Mr Trump, quoting him against him, laughing at some of his inanities, and ignoring his deep purposes. I think it’s much more important to look at his deep purposes because he’s not a man to be disregarded. [Link]

Penultimate point

I am not seeking a spiritual guru to demand an upright moral code. I am being realistic. Not too many contemporary politicians would pass the test. There is very little to choose between them. Lying is a policy and political instrument. Further, I have no idea as to who is lying – either the President or those who call him a liar. The mainstream American media and the world over carry a far less trust quotient than the current American President.

Final point

Just consider this: four more years of the failed policies of the last three and half decades would have made the world more dangerous, more unstable and more fertile for a real demagogue and a fascist.

The biggest charge (a criminal one at that) against many of those who rail against Trump is that they did not call out the egregious excesses and wrong things that were going on in the world in the name of globalisation and liberal world order. Even now, there is no admission of guilt, let alone contrition. Instead, they are gunning for President Trump, who is the consequence of all that went wrong.

The world is where it is today – feeling unsafe, unsure and uncertain – not because of him because he has been in office for less than thirty days but because of what has been going on for the last thirty years.

As they seek to destroy President Trump and his agenda, they are seeking to destroy their own creation. But, if they succeed in doing so, they will only be removing the manifestation or the symbol of their acts and crimes of omission and commission.  They will feel vindicated. They will go back to their old ways. Nothing in their behaviour before and after the election in America, before and after the Brexit referendum suggest that they have learnt the lessons, least of all, the lesson of humility. That is the biggest danger to the rest of the world. Not President Trump or his policies.

Dutch cows and capitalism

I read this news nearly a week ago. Nearly 500,000 Dutch cows are in danger of being killed because they generate too much manure and it is an environmental concern in that country!

It might appear as though environmental concerns are good ones to have. But, the problem has arisen because the feed for the cows contain chemicals (phosphate) added to make the cows more fertile, have better bones (and may be, ensure better yield of milk or
beef?)

Related and unrelated: I listened to the interview of Sir James Goldsmith by Charlie Rose in 1994 when GATT (Uruguay round) was being hotly debated.

His simple message was that the economic doctrine of worshipping an economic index risked destroying western societies. He said then that, under the new rules of the game on globalisation, the poor in rich societies would be subsidising the rich in poor societies.

Some of us will have a mixed reaction to his message but his warning for the Western societies had turned out prophetic because profits of corporations took precedence over labour share of value added.

Global labour force, according to him, would break the compact between capital and labour in the Western world to the detriment of their societies.

Laura D’Andrea Tyson was another participant for some time.

Non-existent pillar

This morning, Business Standard newspaper in India has an edit on China being the pillar of global integration. The edit is baffling, to say the least.

From Indonesia all the way up to Japan, South Korea and Taiwan, China has political disputes. No need to mention their disputes with India. Raja Mohan has questioned India’s unrequited ‘nice guy’ and constructive attitude towards China.

China has just been denied a ‘market economy’ status by both the United States and the European Union. If China has truly integrated with the global economy, it would not have been denied that status. After all, without the enthusiasm of the United States and the EU, China would not have become a member of the WTO. Just check out China’s zooming export growth after that. China has been a global integration and globalisation free-rider.

It has imposed severe restrictions on outflows of yuan. Personally, I have no problems with the last one. Sovereigns have to resort to it from time to time. But, conceptually, that is not integration. That is fragmentation.

If the West retreats from global integration, there will be a vacuum but no other pillar is ready to be erected. Hence, to call China a pillar of global integration is inconsistent with facts and hence, illogical.

India can still benefit from external trade but for that, it has to address its productivity blues and internal fragmentation of its production structure.

(This is the second time that I could not post my comments on their site. Strange or not? I am a premium subscriber to ‘Business Standard’)

Financial globalisation – just about right now

It is the fourth—bank lending—that has collapsed. In 2015, net cross-border lending was actually negative, as banks called in more international loans than they extended. Taking these figures together, McKinsey calculates that the evaporation of cross-border bank lending explains three-quarters of the overall fall in cross-border finance since 2007. To some extent—indeed, probably to quite a large extent—the retreat from cross-border lending represents a healthy correction.

Cross-border capital flows peaking at 21 percent of global output reflected a toxic mix of ambition and credulity, notably among European banks. But if 2005–07 was an aberration, what is the appropriate benchmark for global integration?

One way to answer this question is to consider the period from 2002 to 2004, a relatively calm interlude between the early 2000s crash of internet-based companies (the so-called dot-com collapse) and the U.S. subprime borrowing and euro area bank lending mania later in the decade. In those three years, cross-border capital flows averaged 9.9 percent of global GDP.

Although there is no denying that finance is less international than it used to be, it is debatable whether this retrenchment is best described as “deglobalization,” with its connotations of retreat, or as something more positive—“sounder global management.” After all, the new regulatory restrictions are at least partly a response to the risks of cross-border financing, which suggests a desirable level of flows considerably lower than the 9.9 percent of global output during 2002–04. If the optimal ratio were, say, around 5 percent, today’s degree of financial globalization might be just about right.

These are select extracts from the article by Sebastian Mallaby in FINANCE & DEVELOPMENT, December 2016, Vol. 53, No. 4 [Link – ht: Gulzar Natarajan]

If cross-border bank lending were down and if, post-2008, global leverage has increased rather than reduced, it follows that bulk of the lending is domestic or through capital market borrowings. I think it is more the former because cross-border bond flows have only slightly decreased, according to Mallaby, in the same article:

Two types of flows—bond purchases and foreign direct investment—have fallen, but not dramatically.

The risks have shifted from the banking sector. Arguably, that is a good thing.

Next, in that article, he deals with international trade flows. He makes distinction between trade flows in volume and trade flows measured in US dollars. Then, he points to the US dollar strength of recent years as another reason why measured US dollar trade flows might overstate the decline in global trade. Fair points, all.

Article well worth a read. Good to have hypotheses on economic and financial trends but better to cross-check with data. Sebastian Mallaby’s work is a necessary corrective on the collective breast-beating on de-globalisation.