August 2017

• Multiple engines of growth continue to propel the global economy in a synchronized fashion: all 45 countries tracked by the OECD are currently growing, with 33 accelerating from last year. However, anxiety is palpable. In contrast to just a few months ago, global policy-makers no longer talk about accelerating economic growth, but focus instead on preventing any deterioration of the current tepid recovery. Two things highlight this change of sentiment. (1) In Jackson Hole, central bankers confessed that monetary policy can only go so far and admitted their inability to address structural issues such as low productivity or wage polarisation. (2) Wall Street insiders are now selling their own banking shares, outnumbering purchases by about 14 to 1. This is the clearest signal so far that optimism about Trump is going into reverse.

• A future scenario of sustained political violence in the US is no longer the preserve of political fiction. There are respected American scholars who put the probability of civil war within 10-15 years as high as 30- 50%. Not only is polarization increasing; but the dismal performance on a multitude of living standards and wellbeing indicators (real wage growth, labour force participation, life expectancy at birth, overall mortality rate, healthcare coverage – among others) suggest that the US is becoming the “sick man” of the rich world and that President Trump is not an accident, but the symptom of a profound societal crisis.

• Against this backdrop, it is not surprising that, since January, the USD lost 11% against the EUR and about 8% against a basket of major currencies, wrong-footing many analysts who were structurally bullish about the greenback. Its fate is now subject to the vagaries of the US presidential administration that has given the markets a strong taste for the unexpected (on the downside) and raised questions about whether the USD can sustain its safe haven status. If the US is more at risk than the markets formerly thought, the value of the USD might erode still further, with major global implications. . .

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