Michele Wucker spoke via live video feed at the Netease annual economists conference in Beijing on December 18, 2017.
Watch via THIS LINK
Her comments follow:
“When you look at a gray rhino from different angles, you get different pictures: tactical versus strategic questions, immediate versus big picture, short term versus long term. An economist sees a gray rhino very differently from a sociologist from a political scientist, even though they are all looking at the same creature.
Looking in up close, we see the financial imbalances and risks to which the economic community in China has been devoting a lot of energy: asset bubbles, unregulated new financial products and shadow banking, and in turn the risk for market shocks.
Those financial gray rhinos are not occurring in isolation, but against a global backdrop of the side effects of an unprecedented experiment –the extremely expansive monetary policy that has supported economies and employment while driving up financial asset prices, and which central bankers are now trying to reverse.
From a sociological and political point of view, there have been consequences. By one estimate, three quarters of quantitative easing in the United States has gone into the financial markets, not into the real economy. And while secondary markets indirectly support the real economy, they are not the best way.
When I created the gray rhino concept, I hoped that it would become a useful tool to help leaders to create a sense of urgency before it was too late. Leaders who identify and recognize the need to deal with gray rhinos have a huge advantage over those who do not. I am gratified at the way China has put the gray rhino’s energy to work helping to solve its economic challenges.
While it is too soon to see definitive results, markets and policy makers certainly have taken notice of China’s stated intentions and initial policies to de-risk the economy.
But past economic crises in China have not been China grown. And that is where I want to draw attention today, partly because I think China has done a good job of diagnosing its gray rhinos, but partly because the gray rhinos in my own country have been very much on my mind and I wanted to share those thoughts with you because I often get questions about the US economy when I am in China.
The Wall Street Journal and other American media have recognized China’s warning that the proposed US tax reform is a gray rhino that will affect China.
Indeed, US policy affects the whole world. And I am deeply concerned over the effects of the policy at home. A stimulus to the markets at a time when the Federal Reserve is concerned about accelerating growth is a dangerous pro-cyclical policy.
Many times in China and around the world, I have been asked: Is Donald Trump a gray rhino? When he was named the nominee of the Republican Party and conventional wisdom was that he could not win, I warned against being complacent, and wrote that poll numbers gave him a chance that could not be dismissed lightly.
But I also wrote that the bigger gray rhino behind him was the forces that created the populist rage that we have seen in the United States, and indeed in lesser form in Europe.
Unless that is addressed, the future does not look good.
And it seems to me that the US administration has not recognized that gray rhino. If you have any doubt look at the optics of a tax plan that gives generously and permanently to the wealthy, while throwing scraps to the middle and lower classes and creating a debt burden for future generations.
Instead of raising wages and creating more jobs, we will see more purchases of already high priced stocks as companies, already flush with cash, buy back shares and drive up prices and CEO bonuses.
And failing to address social issues will circle back and hurt financial returns. The sad thing is that if the stimulus did go to people who need the money, they would be more likely to buy things –and make companies richer any way.
Gray rhinos generally are not solitary creatures. They move in groups –or crashes, the zoologically correct word that in English, by extraordinary coincidence, is synonymous with a loud collision or drop in the market.
You cannot extricate the financial market from the social and environmental, and from leaders vision for the world where we live. If governments do not address the inequality issue, they will end up with even deeper political divisions than we have now. Everyone will have a smaller piece of the economic pie, because it will be much smaller, and burnt around the edges.
And, unfortunately, we cannot extricate the gray rhinos of the United States from the rest of the world.”
Michele Wucker
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