"TAP não sobrevive se se mantiver pública", garante Pinto Luz

[Ertai]

Ainda é muito cedo para dizer seja o que for.

Voltar aos comportamento que os mercados tiveram nos anos 70 ?

E incrível como alguém tira essa conclusão após dois meses de trading ranges...

[valves]

Excelente artigo este que já li há um bom bocado e que me fez pensar muito mesmo muito aliás.

Um Abraço
Vasco

[Vítor]

Olhem como ele apareceu na altura

[Vítor]

Joachim Fels (MS)

I’m a strong believer in long cycles. And I worry that we are in a transition phase from a virtuous cycle that lasted for two decades to a less benign or even vicious cycle. The past 20 years were characterized by globalization, deregulation, disinflation and fiscal consolidation. I see a rising risk that the coming years will be characterized by rising protectionism, re-regulation, inflation and fiscal profligacy. In short, the world economy may see a replay of the 1970s and early 80s, which was period of high macroeconomic instability and non-cooperative domestic and international economic policies. The standard response that I get whenever voice my concerns is that today’s world is truly different: globalization and productivity gains are here to stay, inflation is dead and buried and governments, left or right, won’t dare to interfere with markets. History simply does not repeat itself, I’m told. Well, maybe, but it often rhymes. Here’s what I worry about.

The boom preceding the bust

As I see it, the macro-economic instability of the 1970s was a response to, and a payback for, the long economic boom of the 1950s and 1960s. And in many ways, that boom resembles the one we have lived through during the late 1980s and 1990s. In the 1950s and 60s, economic growth, especially in Europe, was initially propelled by a rebuilding of the capital stock and the infrastructure after a devastating war, but also by scientific and technological innovations made during the war that were then put to civilian uses. Similarly, much of the technological revolution of the 1990s resulted from innovations during the cold war race for military supremacy, which culminated in President Reagan’s Star Wars program of the 1980s. Moreover, as some economic historians have pointed out, the productivity gains of the 1990s associated with the decline in communication costs due to the spread of the Internet were comparable to those derived from the decline in transportation costs resulting from the building of the interstate highway system in the US in the late 1950s and early 1960s. And just as in the 1990s, strong economic growth in the 1960s went along with low and stable inflation and sound public finances. Trade polices were benign, with several multilateral rounds of tariff reductions allowing the world to reap the gains of a growing international division of labour.

China’s currency peg: we’ve seen it before

There is another parallel between the recent past and the 1950s and 60s that I find intriguing. In a way, the exchange rate policies pursued by China and several other Asian economies today closely resemble Europe’s exchange rate policies during those decades. Back then, the European countries pegged their currencies to the US dollar at a competitive exchange rate, which allowed them to pursue an export-led growth and development strategy. Capital flows were highly restricted so that Europe’s trade surpluses found their reflection in an accumulation of US dollar denominated assets, almost exclusively Treasury bonds, in the portfolios of the Bundesbank and other European central banks. Thus, there is really nothing new in the “I buy your bonds if you by my goods” strategy that China and other Asian countries have been pursuing for some time now. China is doing today what Europe did (successfully) for more than two decades until the early 70s. Against this backdrop, it strikes me as ironic that many European policy makers are criticizing the Chinese development strategy based on fixed exchange rates.

Make peace, not war

In the late 1960s, however, more and more strains became apparent in this cozy global macro environment. In the US, the Vietnam War fundamentally changed both the political and social fabric as well as the fiscal and monetary policy backdrop. Budget surpluses turned into deficits and the Fed started to pursue an expansionary policy to keep the economy going. In Europe as in the US, students took to the streets to protest against the war and, at the same time, workers took to the streets demanding stronger wage increases as chronic post-war unemployment had long since turned into over-employment. With the political pendulum swinging to the left, governments embarked on expanding the welfare state. Also, an almost naive belief in the ability of fiscal and monetary policies to fine-tune economic growth prevailed — a belief that has made a comeback in recent years following the apparent successes of Alan Greenspan and US fiscal policy in containing the economic fallout of the bursting equity bubble.

The bust of 1974

As a result of the inflationary policies in the US, the “dollar shortage” of the 1950s and early 60s turned into a dollar glut during the late 1960s and early 70s. This culminated, first, in the decision by President Nixon to close the gold window in 1971 (effectively ending the by then largely symbolic link of the dollar to gold) and, two years later, in the breakdown of the Bretton Woods system of fixed exchange rates in 1973, giving way to large exchange rate swings. Roughly at the same time, the first oil shock hit, when the producers of oil massively restricted supply while an overheated macro climate pushed up demand for the black gold. The following recession of 1974 effectively marked the end two golden decades. With hindsight, 1973-74 was the beginning of the great productivity slowdown, and it was the beginning of a previously unknown period of stagflation — slow growth coupled with high inflation, which prevailed for much of the 70s and well into the 1980s.

It feels like the early seventies

It is easy to spot the similarities between the late 60s/early 70s and today. First, like the Vietnam War, the war against terrorism is weighing on the public coffers and has led to a serious political discord both within Europe and across the Atlantic. Second, the dollar shortage of the 1990s, which propelled the greenback from high to high has turned into a dollar glut, with many central banks accumulating US Treasuries in order to prevent a fall in the dollar. Third, rising prices for oil and other commodities are taking their toll on consumers and industrial users (although, admittedly, the 1970s situation was much more severe as there was a physical shortage of oil). Fourth, just as Japan and Korea emerged as new competitors for the established industrialized countries in the 1970s, China and India are increasingly seen as a competitive threat and the calls for protectionism are becoming louder. And fifth, monetary policy around the globe is highly expansionary and a naive belief in the ability of policy makers (especially the Fed) to achieve whatever result they want (be it stimulating the real economy or containing inflationary risks) is widespread.

But it’s not

However, there are also some important differences between then and now. First, productivity growth in the US is now much stronger than it was in the early 1970s, reflecting the confluence of new technologies and large-scale outsourcing. Second, and this is partly related to the first point, wage inflation and consumer price inflation are much lower now than in the early 1970s. Back then, workers tried and managed to push through large wage increases to compensate them for higher oil prices, which set a wage-price spiral in motion that lasted well into the early eighties, when central banks finally started to crack down on inflation. Third, by the sheer size of their populations, China and India should have a much bigger impact on the world economy than the advent of Japan and Korea had in the 1970s.

No reason for complacency, though

Despite these important differences, the macro outcome of the next several years will not necessarily be a happier one than that of the 1970s. Regarding productivity growth, the easy gains have probably been made. Once companies have fully reaped the benefits from implementing new technologies and outsourcing, productivity growth looks set to slow again. Regarding inflation, what is lacking so far to get the inflationary outcome of the 1970s is a worker backlash leading to sharply higher wage inflation. I doubt that will see this anytime soon, given the relatively weak labour market performance both in the US and in Europe. Instead, I think the excess liquidity created by central banks around the globe will fuel asset price inflation and financial instability which will feed back in economic instability via (positive and negative) wealth effects and investment booms and busts. And regarding China and India, whose integration into the international division of labour is a hugely positive event for the world economy longer term (as they provide cheaper services and manufactured goods and will turn into big consumers over time), my fear is that both the US and Europe will turn more protectionist.

Permanently higher uncertainty and volatility

Taken together, the economic and political environment over the next several years looks likely to be much more unfriendly for financial markets than the one we got used to over the past two decades. Asset price booms and busts, exchange rate gyrations, oil and commodity price volatility and central bank’s reactions to all these events could leave the world economy meandering between booms and recessions, deflation and inflation. Politics could turn less market-friendly, with trade wars, redistributive struggles and re-regulation making a comeback. Higher uncertainty and volatility is likely to the hallmark of this decade. That’s what I mean when I say I foresee a return of the seventies. Again, history doesn’t repeat itself, but it often rhymes.