The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse

With "The Only Game in Town", Mohamed El-Erian has delivered another "must read" volume for those seeking to understand the current dominant role of central banks around the world in the workings of the global economic system and what this might mean for the future. As with most El-Erian books, the writing is clear, but does require some thinking, and many readers will be frustrated to find that the author does not supply any simple, clear forecast for the future state of the global economy or global financial markets. What he does do, though, is provide you a master work on the current involvement of central banks in the U.S., Europe, Japan and Asia in the economy and a very interesting and compelling framework on HOW TO THINK about what might happen next. I found his analysis of the present global financial malaise and "new normal" becoming "new stagnation" to be cogent, informed and it helps explain some of the current economic events and trends that one can find very confusing and distressing, including negative interest rates in Japan and Europe, Swiitzerland, etc. He explains in very stark terms why this level of full engagement by the central banks in quantitative easing around the world might lead to an imbalance that will lead to the infamous "T junction" where financial markets could inflate multiple asset and equity bubbles or where we might see a serious flight to liquidity in discrete markets that could stress the entire global financial system. His comments on the role of liquidity in markets ("taken for granted, there until you really need it.", with his informed views on liquidity squeezes from his years running the IMF and PIMCO, are extremely useful and insightful and his suggestion that the next set of challenges or crises for the global economy may defy the usual "bell curve" distribution, displaying instead a "biomodal curve" characteristic is controversial, but probably correct based on his analysis of the many factors aggravated by the excessive intervention of central banks in the economies around the world. So, if you are willing to spend some time with this book, you will be rewarded with a set of new ideas and a clear framework for how to understand what might happen next, from the role of governments in taking responsibility for building needed infrastructure to stimulate growth, improving educational and social outcomes for their citizens and providing more opportunity to correct extreme economic inequality that leads to slow growth through less consumer spending and social unrest. This is not a political treatise, but a clear-eyed analysis of what happens when central banks step in and stay involved too long while governments (like the U.S. and the E.U.) lack the resolve and political will to deal with the most intractable, serious problems faced by developed and developing economies. You SHOULD be unhappy with the state of things in the financial markets and global economy, but you should find this book helpful in understanding the many factors at work and the highly unusual and dangerous role that the central banks have now been forced into to playing around the world. While some may also find the chapter on behavioral economics and economic behavior to be too focused on psychology and not enough on the workings of the "pure" free market, if you are open-minded, you might actually follow the maxim: "First seek to understand, then seek to be understood" to be useful in benefiting from reading this excellent book. You might also be interested in reading the many interviews being conducted with El-Erian in the WSJ and other key media outlets to provide additional color and perspective on these complex issues and the increasingly challenging and difficult decisions to be made by governments, investors and private citizens in the years ahead. None of the choices are easy or particularly good right now--that's why this book does such a great service to get everyone to think more deeply about not only how we got here, but where we might go next. There are no simple solutions, but without understanding and challenging our deeply held (mostly wrong) views on how markets should function, little progress can be made in solving some of these key challenges and providing new economic opportunities for all.

Mohamed El-Erian’s new book, The Only Game in Town, analyzes the post-Great Recession financial world where the institutional response is dominated by central bank monetary policy actions. He does a good job presenting the proximate causes of the financial crisis and praises the coordinated reaction of central banks around the world. He further describes how central banks (with a special emphasis on the Federal Reserve Bank) have led the economic policy response to the financial crisis. They have been “the only game in town”. But central banks did not strive to become the dominant player in financial markets. They were forced to fill the void created by the lack of policy decision making from other government and international institutions. Mr. El-Erian showed why the Fed had no other choice. Mr. El-Erian proposes that the “new normal” of low economic growth, low inflation and low interest rates (as described by former Treasury Secretary Larry Summers) can continue for an extended period but is ultimately unsustainable. He asserts that we are coming to an inflection point, or T-junction as he calls it, where the global economy will take on a new course, whether by design or circumstances. I agree that we are approaching an inflection point but the T-junction Mr. El-Erian describes is narrowly focused on financial markets whereas I believe the inflection point will be much broader and encompass major changes in society. Mr. El-Erian cites ten big challenges before narrowing the proposed policy foci down to four. But Mr. El-Erian makes no specific policy proposals except for some organizational changes to the structure of the IMF (where he once worked). For someone with Mr. El-Erian’s presence on the financial world stage, I was hoping for something more tangible. Instead he seems to digress into recommendations on decision-making techniques that sounded like they were coming from a McKinsey consultant (I kept waiting for the PowerPoint presentation). The decision-making techniques are all good suggestions on how to reach a decision but I was hoping that Mr. El-Erian could throw out some proposals to be considered. Don’t get me wrong. This is a very good book by one of the top insiders to global financial circles. It has great analyses of the situation in financial markets and has some great insights. I was just hoping for a bit more.

For the first time i enjoyed reading the role played by central banks in addressing economic problems directly when the govt. agencies were fumbling clueless. This is an excellant book for those loving economic development in diffecrent countries of the world and the unexpected role being played by central banks with untested tools , rather successfully. This clumsy organisation has become an important institution in drawing up economic solutions rather than managing stability of currency and inflation within the country. I would recommed this for all those connected with finances whether bankers, non bankers or even students of economics.

Great book

Es un gran libro de uno de los mejores analistas de mercado hoy en día. Yo me dedico al mercado y es un libro obligado para entender el comportamiento de los mercados en este entorno. Súper recomendado!

Leitura obrigatória

Another guy with intellect but no wisdom.