If you read between the lines of today’s speech from Christine Lagarde, IMF head, you can get both a good sense of the size of challenge we face but also a sneak peak into the panic perhaps hiding in between her words. The problems our global economy faces are global – complex – and never before assembled. No one country has the answers and no one country with its attendant policy changes can solve the global economic challenges we face.
The speech is excellent as it touches on and highlights all the major challenges we face. This includes the Chinese economic slow down, slow growth in US and Europe, debt, productivity, bubbles, inflation (or lack thereof) and commodity prices, and more. This is a great snap-shot of the problems we face. Where her advice falls down is in the action department. She talks a good talk about policy changes to increase demand, and of course supply side policies to free up the labor market. There is even a call to develop and align fiscal policy globally. This is a new thread but one that has little chance of being progressed – central banks have no control over fiscal policy and politicians will not give this up any time soon. It’s a pipe dream even though it’s a great idea and one that needs serious consideration.
But there is no actual demand from Ms Lagarde for global monetary policy collaboration. This is the line that Ms Lagarde is not able, or willing, to cross. Why? Does she not perceive the need? Does she think that the Fed, operating at its own rate, will magically align with the Chinese PBOC? And what about Japan, ECB and the U.K.? I feel bad since my suggestion for a Bretton Woods 2.0 seems so obvious yet I hear virtually nothing about it in the press or from the lips of the IMF. I even thought to write to Christine Lagarde with this open letter. I will try to get Ms Lagarde attention. Without global policy coordination there is little chance we can solve our global problems.