The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse
Mohamed A. El-Erian
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NEW YORK TIMES BESTSELLER • Dr. Mohamed A. El-Erian, one of the world’s most influential economic thinkers and the author of When Markets Collide, has written a roadmap to what lies ahead and the decisions we must make now to stave off the next global economic and financial crisis.
Our current economic path is coming to an end. The signposts are all around us: sluggish growth, rising inequality, stubbornly high pockets of unemployment, and jittery financial markets, to name a few. Soon we will reach a fork in the road: One path leads to renewed growth, prosperity, and financial stability, the other to recession and market disorder.
In The Only Game in Town, El-Erian casts his gaze toward the future of the global economy and markets, outlining the choices we face both individually and collectively in an era of economic uncertainty and financial insecurity. Beginning with their response to the 2008 global crisis, El-Erian explains how and why our central banks became the critical policy actors—and, most important, why they cannot continue is this role alone. They saved the financial system from collapse in 2008 and a multiyear economic depression, but lack the tools to enable a return to high inclusive growth and durable financial stability. The time has come for a policy handoff, from a prolonged period of monetary policy experimentation to a strategy that better targets what ails economies and distorts the financial sector—before we stumble into another crisis.
The future, critically, is not predestined. It is up to us to decide where we will go from here as households, investors, companies, and governments. Using a mix of insights from economics, finance, and behavioral science, this book gives us the tools we need to properly understand this turning point, prepare for it, and come out of it stronger. A comprehensive, controversial look at the realities of our global economy and markets, The Only Game in Town is required reading for investors, policymakers, and anyone interested in the future.
Praise for The Only Game in Town
“The one economic book you must read now . . . If you want to understand this bifurcated world and where it’s headed, there is no better interpreter than Mohamed El-Erian. . . . An excellent primer [and] a guide on what to expect as the world struggles to cope with slower, less equal growth.”—Time
“How come the global economy is now run largely by unelected central banks? In this highly intelligent analysis, the author, a respected investor and CEO, explains how elected governments are failing in their basic job to take care of the economy and why this might lead to a massive unmanageable crisis.”—Fareed Zakaria, CNN (book of the week)
“El-Erian expertly offers a balanced view, commending the central banks for their necessarily aggressive policy views while noting, for example, the failure of the Fed to recognize the pre-crisis housing bubble. . . . A grand tour of the challenges we face, along with ideal solutions and more likely outcomes.”—Steven Rattner, The New York Times Book Review
“What better moment could there be for a book subtitled ‘Central Banks, Instability, and Avoiding the Next Collapse’? And who better to write it than Mohamed El-Erian . . . ?”—Financial Times
“A warning on the Federal Reserve’s limits . . . For those who consider Washington politicians incapable of acting effectively, [El-Erian’s] diagnosis is chilling.”—The New York Times
today’s macroeconomic environment to the hard choices about taxes and public works that our politicians face to the economics underlying the still relevant ‘new normal’ (which he coined). El-Erian has an incredibly rich worldview, far greater than the sum of his impressive diverse experience, and seeing today’s world economy through his eyes offers a real education.” —Dr. Adam S. Posen, president of the Peterson Institute for International Economics “This book is a must-read for anyone
eliminated or overwhelmingly reduced. After all, the risks are morphing as they migrate out of banks and to other sectors of the financial system. Institutional vacuums that are perceived to be profitable tend to be filled quickly in financial markets. As such, both existing and new nonbank institutions are looking to exploit the business gaps left behind by retreating banks. Thus the institutional evolution of some hedge funds and private equity firms, as well as specialized, large asset
But few will make that adjustment, including politicians, who may well become even more interested in how these powerful institutions carry out their daily functions. CHAPTER 18 IT IS HARD TO BE A GOOD HOUSE IN A CHALLENGED NEIGHBORHOOD “What is needed is intelligent accommodation.” —MARTIN WOLF1 “When the blind lead the blind, there’s little confidence in the direction of travel.” —SWAHA PATTANAIK Issue 10: All of this adds up to considerable headwinds for the better-managed part of
solution involves rejecting financial engineering as a growth strategy and instead returning to the basic building blocks of economic prosperity. It entails a decisive exit from a global monetary configuration, public and private, that has depended for more than a decade now on injection after injection of artificial liquidity to mask the real, structural impediments to growth. And this must succeed in an overall context that has gotten more complicated due to the unusual worsening in income
of commodities, consuming quite a high amount per unit of realized GDP. This high commodity intensity of growth is great for oil, copper, and other commodity producers when China is doing well. It becomes a real problem when China is slowing. The second additional factor has to do with the response of the Organization of the Petroleum Exporting Countries (OPEC), a group that includes many, though not all, of the large oil producers and accounts for a sizable portion of proven oil reserves around