Leading economist and investor believes world leaders, and global capitalism, have reached fork in road between equality and chaos
The bad news is that another economic crisis could strike within two years. The good or better news is that such a shock is not nailed on. Its a 50% chance. But the developed world is approaching a T-junction. One road leads to higher growth and a more inclusive form of capitalism while the other turns towards recession, instability and turmoil.
The speaker is Mohamed El-Erian, one of the biggest names in financial markets, who advised President Obama. Born in New York to Egyptian parents, he spent 14 years at Pimco, the worlds biggest bond fund manager. Six of those years were as chief executive before he quit, citing the need to have a different perspective on life and spend more time with his family. His daughter, when she was 13, handed him a 22-item list of key moments in her life he had missed.
He was educated in the UK, at Cambridge and Oxford universities, and began his career at the International Monetary Fund. These days he is chief economic adviser to Allianz, the German financial powerhouse that owns Pimco and where the former UK prime minister Gordon Brown is another adviser.
One of El-Erians signals of trouble in the system is Brexit. Others include the fact that 30% of the worlds government debt traded with negative yields at one point last year meaning investors were paying to own an asset from which they could only lose money. Then there was the election of President Trump, plus a French election in which both establishment parties were blown away in the first round. No one would have predicted all those events 18 months ago.
Why arent the financial markets in uproar at the loss of so many supposed certainties? On Brexit, El-Erian says politicians were smart to slow down the process, extend the timetable and avoid being forced into decisions by markets. It allowed investors to stop obsessing over hard and soft forms of exit and think in terms of slow Brexit.
We are still now in the pause phase, including up to and after your general election. Thereafter markets will slowly, and I stress slowly, start to get impatient and start to pay more attention than they have before now to negotiating stances on both sides.
Similarly with Trump: the protectionist part of his campaign, which was meant to be scary for markets, looks less frightening today. In fact, says El-Erian, protectionism was never a day one problem: He inherited a spaghetti bowl of trade agreements. At the end of the day, El-Erian expects concessions that allow the president to say trade is still free but fairer.