The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse PDF
Preview The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse
“The Only Game in Town explains how central banks have found themselves driving T #1 NEW YORK TIMES and #1 WALL STREET JOURNAL MOHAMED A. EL-ERIAN an untested car down an unmarked road in uncharted territory. It also provides a possible roadmap back home. For students and watchers of central banking – as well H BESTSELLING AUTHOR of WHEN MARKETS COLLIDE THE as for central bankers themselves – it is as close to essential reading as you are E ONLY GAME likely to find.” M O H A M E D A —Andrew G. Haldane is the chief economist at the Bank of England and executive . director, Monetary Analysis and Statistics O IN TOWN “In this characteristically insightful book, Mohamed El-Erian explains how central N banks have saved the world economy from financial and economic disaster. But Surrounded by sluggish growth, high rates of L the capabilities of these institutions are inherently limited. They cannot restore E L-E R I A N unemployment, rising inequality and increased rapid, inclusive and reasonably stable economic growth. If the world is to enjoy this Y social tensions, pessimism about our future combination, he argues, other state and non-state actors have to play a bigger, more abounds. pro-active and more imaginative role.” G —Martin Wolf, Financial Times Dr. Mohamed A. El-Erian, one of the world’s Mohamed A. El-Erian is chief economic advisor A most influential economic thinkers, explains at Allianz and chair of President Obama’s “This book is a must-read for anyone interested in the global economy. A masterful lucidly the realities of the economic choices Global Development Council. His last book, account of how central banks became the only game in town after the global financial M that we will soon face. The path that the global When Markets Collide, won the Financial Times/ crisis but also how other structural and fiscal policies are necessary to resolve key economy and markets are on is ending. But Goldman Sachs Award for the best business global economic issues. El-Erian is the best thinker on the key global issues of our times.” E —Nouriel Roubini, chairman, Roubini Global Economics and professor of economics, what comes thereafter is far from predestined. book of the year, was highlighted as a best Stern School of Business, NYU It critically depends on choices that we make as book of the year by The Economist, and was I households and companies, and decisions that called the best business book of all time by The N “If you are only going to read one book which explains how we got to where we have our political representatives take. Independent. El-Erian is a contributing editor and what needs to be done, I recommend The Only Game in Town. Mohamed El-Erian at the Financial Times, a Bloomberg columnist lifts the veil which shrouds the secretive central banks, and lays bare the deep T The Only Game in Town details how the world and his writings have appeared in The Guardian, weaknesses which continue to bedevil the global economy.” is increasingly being shaken, both from above Project Syndicate, The Telegraph, the Huffington —Ian Goldin, director of the Oxford Martin School and professor of globalization and O T H E and from below. It illuminates the growing Post and Reuters. development at the University of Oxford W internal contradictions, the constraints that are undermining growth and prosperity, and the Widely regarded as one of the most astute observers of global economic trends, O N LY G A M E radical overhaul in thinking that is required. Mohamed El-Erian is famous for having coined the now-ubiquitous phrase ‘the new N normal.’ Five years ago, he was worried that the global economy might take years to In the aftermath of the financial crisis, central regain its footing. Now El-Erian worries it could fall off a cliff. The good news from this banks were handed responsibility for the fate book is that if policymakers get their act together, things could be a lot better. The bad of the global economy. Lifting the veil on the news is that this seasoned and influential veteran isn’t at all sure this will happen. inner workings of these powerful and innovative M The Only Game in Town is simply a must-read for anyone trying to understand how the I N T O W N institutions, El-Erian explains why they cannot global economy might unfold in the next five years.” E O save us this time around. —Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy at Harvard University, L H - and former chief economist and director of research at the International Monetary Fund E A Laying out a road map for growth, The Only Game in Town shows how and why collaboration R M “An indispensable guide to understanding the rapid expansion and current role of between central bankers, policymakers and central banks in the global economy, as well as the challenges and opportunities that I E A business leaders is essential. Drawing on they will confront in responding to future economic shocks.” D C E N T R A L B A N K S , N insights from behavioral science, economics —James Poterba, professor of economics, MIT, and president and CEO, National A and finance, this book provides the tools needed Bureau of Economic Research . I N S TA B I L I T Y, AND AV O I D I N G to understand the uncertainties that lie ahead and return us to a path of prosperity. Thought ISBN 978-0-300-22253-1 provoking and insightful, this book is required Jacket design by Pete Garceau YALE UNIVERSITY PRESS T H E N E X T C O L L A P S E reading for investors, policymakers, and anyone NEW HAVEN AND LONDON Printed in Great Britain yalebooks.com www.yalebooks.co.uk 9 780300 222531 interested in the future. Praise for THE ONLY GAME IN TOWN “The Only Game in Town achieves the nearly impossible: It takes complex financial issues and events and makes them both enlight- ening and entertaining. It’s a must-r ead for anyone who cares about the global economy and its future, raising critical questions, explor- ing all the relevant topics, and offering sound policy recommenda- tions. It’s a terrific book.” — Jack Welch “Mohamed El- Erian understands markets and economics, and he clearly and coolly articulates the forces that created the current global slowdown and the dangerous fork in the road that the world economy is approaching. The road ahead could lead to a perilous U- turn or more durable, inclusive growth. The good news, as El- Erian convincingly argues, is that policymakers, businesses, and the rest of us still have our collective hands firmly on the wheel and can steer the economy in a better direction.” — Alan Krueger, Bendheim Professor of Economics and Public Affairs at Princeton University “An indispensable guide to understanding the rapid expansion and current role of central banks in the global economy, as well as the challenges and opportunities that they will confront in responding to future economic shocks.” — James Poterba, professor of economics, MIT, and president and CEO, National Bureau of Economic Research Eler_9780812997620_3p_all_r3.j.indd 1 12/9/15 3:26 PM “The Only Game in Town says it is about central banks, but it really is about so much more: everything from the investment strategy needed in today’s macroeconomic environment to the hard choices about taxes and public works that our politicians face to the eco- nomics 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 econ- omy 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 interested in the global econ- omy. A masterful account of how central banks became the only game in town after the global financial crisis but also how other structural and fiscal policies are necessary to resolve key global eco- nomic issues. El-Erian is the best thinker on the key global issues of our times.” —Nouriel Roubini, chairman, Roubini Global Economics and professor of economics, Stern School of Business, NYU “Mohamed El- Erian knows the global economy as an investor, a public servant, and an analyst with a rare ability to grasp its essentials. He has an urgent message to convey here: Central banks cannot [continue to] carry the global economy on their backs for much longer without a high risk of a very bad global outcome. If he’s right— as he has often been before— all of us, governments, business, finance, and individu- als, need to understand why and how to take evasive action.” — Jessica Mathews, former president of the Carnegie Endowment for International Peace Eler_9780812997620_3p_all_r3.j.indd 2 12/9/15 3:26 PM “Widely regarded as one of the most astute observers of global eco- nomic trends, Mohamed El-E rian is famous for having coined the now- ubiquitous phrase ‘the new normal.’ Five years ago, he was worried that the global economy might take years to regain its foot- ing. Now El- Erian worries it could fall off a cliff. The good news from this book is that if policymakers get their act together, things could be a lot better. The bad news is that this seasoned and influen- tial veteran isn’t at all sure this will happen. The Only Game in Town is simply a must-read for anyone trying to understand how the global economy might unfold in the next five years.” — Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy at Harvard University, and former chief economist and director of research at the International Monetary Fund “In his next book, The Only Game in Town, Mohamed El-Erian has done several important things superbly. First, he has presented the first really comprehensive assessment of the multiple challenges to sustainable and inclusive growth facing a wide range of countries and the global economy. Second, he does it through the illuminating lens of central banks and monetary policy—with few exceptions, the only game in town. Third, he then deftly and insightfully dis- sects the limits and risks of this almost ubiquitous one-handed pol- icy response. And fourth, he argues persuasively that this is a journey we cannot continue; that we will break either right to a much supe- rior level and quality of growth, or left to declining performance and rising instability. He then suggests mind-sets that will help everyone—policymakers, and the rest of us—navigate this complex and uncharted territory. It is a tour de force.” —Michael Spence, Nobel Laureate and professor of economics, Stern School of Business, NYU Eler_9780812997620_3p_all_r3.j.indd 3 12/9/15 3:26 PM “ From setting interest rates to avoiding financial crises, if you want to understand the expanding - and sometimes mysterious - role of central banks then look no further than this book. Expertly written, it cuts through the jargon to explain how they will be instrumental in getting the economy back on track to deliver growth in an era when the risk of debt crises makes stagnation a serious threat.” —George Buckley, chief UK economist at Deutsche Bank “ There are few economists with the breadth of experience of Mohamed El-Erian. His insights have been well-honed in the pri- vate sector and policy sphere, which shine through in this must- read book. It covers not only where we have been, but also where the global economy is headed, and why economies need a better strat- egy for growth which is a key question for our time.” —Dr. Linda Yueh is fellow in economics at St Edmund Hall, Oxford University, adjunct professor of economics at London Business School, and visiting professor of economics at Peking University. THE ONLY GAME IN TOWN Eler_9780812997620_3p_all_r3.j.indd 5 12/9/15 3:26 PM BY MOHAMED A. EL- ERIAN The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse When Markets Collide: Investment Strategies for the Age of Global Economic Change Eler_9780812997620_3p_all_r3.j.indd 6 12/9/15 3:26 PM THE ONLY GAME IN TOWN CENTRAL BANKS, INSTABILITY, AND AVOIDING THE NEXT COLLAPSE Mohamed A. El- Erian YALE URNaInVdEoRmS IHToYu sPeRESS NEW HAVEN AND LONDON New York Eler_9780812997620_3p_all_r3.j.indd 7 12/9/15 3:26 PM Copyright © 2016 by Mohamed A. El-Erian All rights reserved. This book may not be reproduced in whole or in part, in any form (beyond that copying permitted by Sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press) without written permission from the publishers. For information about this and other Yale University Press publications, please contact: U.S. office: [email protected] www.yalebooks.com Europe Office: [email protected] www.yalebooks.co.uk Book design by Christopher M. Zucker Printed in Great Britain by TJ International Ltd, Padstow, Cornwall Library of Congress Control Number: 2016930471 ISBN 978-0-300-22253-1 A catalogue record for this book is available from the British Library. 10 9 8 7 6 5 4 3 2 1 Dedicated to my daughter, my mother, and my sister In memory of my late father Thank you for your amazing love, your terrific companionship, your enduring support, and your awesome inspiration Eler_9780812997620_3p_all_r3.j.indd 9 12/9/15 3:26 PM
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