Navigating an Autumn of Worries

By Andrew SHENG

Traveling through to Washington D.C. last week to attend a conference on the future of emerging markets, I was cut off from the rest of the world when my Mac hard drive crashed. Luckily my Mexican host was a young computer genius who fixed it by changing the drive to a new flash memory card and lo and behold, my computer is faster and slightly lighter, but I lost all my past files.

This incident reminded me why the generations think very differently �X the old are burdened with legacy memories, good and bad, and cannot change that easily. The young have ideals, no fear or respect for the past, and to their elders, they are reckless about their future but they are both inheriting and changing the world.

With headlines of Ebola spreading, ISIL taking over more territory, Ukraine tensions, Hong Kong protests and then the Ottawa shootings, something profound is obviously happening, but no one is exactly sure what it is and what is the outcome.

These breaking news stories were negative enough when the central bankers and ministers of finance met in Washington for the World Bank/IMF Annual Meetings for the financial markets to have a mini-setback. The IMF predicted slower growth for all, and as European sovereign debt spreads began to widen again, both bond and equity markets took a hit.

There was an unspoken agreement that the world is entering into a period of long recession because almost no growth drivers are in sight.

I had the privilege of listening to FT columnist Martin Wolf give his explanation of what is happening and also to read his new book, ��The Shifts and the Shocks�� about what we have learned and have still to learn from the financial crisis. This was a tour de force, one of the few analyses that went beyond economics into a global framework for the analysis of the ongoing crisis. He argued that the fundamental drivers of instability are excessive debt creation, global imbalances and inequality. These challenged the orthodox view that life always reverts back to equilibrium, finance (like freedom) is limitless and inequality is not only an inevitability but an inconvenience.

Martin compared the eurozone crisis and the world economy to a bad marriage with the choice of a destructive divorce, continuation of a bad marriage or creation of a good marriage. The young think that they can throw a tantrum and everything will be in their favor. The old think that throwing them a few crumbs will let life go on like before. The Chinese call this an Autumn of Worries, because the word ��worry�� is the character Autumn weighing heavily on the character for heart. To quote Shakespeare, before we enter the winter of our discontent, we had our glorious summer (or honeymoon) but we need to go through a trial of many fires.

Wolf argues that the Western elite failed in three areas. The first is that they misunderstood the consequences of headlong financial deregulation, because they thought finance was self-stabilizing. The second is that the globalized economic and financial elite that benefited from liberalization became detached from the countries that produced them. Such inequality weakened ��the glue that binds democracy.�� Third, the Europeans took European integration too far, creating a divorce between accountability of the winners (Germany and the Eurocrats) for the losers in the rest of Europe.

Taking the long flight back across the Pacific, I reflected on Wolf’s thesis, since many of the rich and powerful Asian elite are also part of that emerging global 1 percent that is increasingly alienated from the other 99 percent. The recent Asia-Pacific Wealth report suggested that Japanese high net worth individuals increased their wealth 24 percent after Abenomics boosted stock market prices, at a time when many ordinary Japanese faced an uncertain future with an aging population and stagnant growth.