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Toward the tail end of his book on central banks, 'The Only Game in Town,' Mohamed A. El-Erian, a Financial Times contributing editor and chairman of President Obama's Global Development Council, draws a clever analogy between the task faced by those financial institutions and, of all people, Muhammad Ali.
He recalls how in 1974 Ali's trainers knew, in preparation for what was known as the Rumble in Jungle, that his opponent, undefeated world champion George Foreman, was a.) more powerful, b. seven years younger and c.) come hell or high water likely would win. By a lot.
They faced, El-Erian writes, a 'bimodal distribution' — that is, either their guy would suffer major battering or a miracle would happen. They figured the former was the more likely outcome.
So they adapted, and completely changed Ali's training regime. They made him get used to getting hit. A lot. He got used to absorbing punishment.
And when the fight came, Ali did go to the center of the ring to duke it out, but stayed back by the ropes. Foreman obliged, and began pounding the challenger.
But here's the other clever thing the trainers had calculated: The ropes helped dissipate the force of Foreman's blows. Foreman, by round eight tired from channeling all his efforts for a knockout punch, was tired.
Ali, famed for his nimbleness, picked his spot and kayoed the champ.
El-Erian's contends this anecdote 'highlights the close interconnections of optionality, resilience and agility.' All of which, he says, governments are going to have to consider because central banks no longer can continue to 'do the heavy policy lifting.'
'The Only Game in Town' argues central banks may have run out of string, too. Like Ali, the banks have had to learn new tricks and employed 'massive policy interventions.'
'… Central banks have been working overtime since the global financial crisis to buy us time. They have engaged in a series of unprecedented policy initiations using experimental measures — and taking enormous risks,' El-Erian writes.
His book details, with accompanying charts, what banks did during and since the financial chaos — his word — of 2007-08. All that work kept the globe spinning, but he also admits to a new normal 'of low growth, rising inequality, political dysfunction and, in some cases, social tensions.'
Now we're approaching a T-junction, he says, a pivotal moment for the global economy.
He's not overstating his case: The central banks of Denmark, Japan, Sweden Switzerland and the eurozone have tried out the bizarre rabbit hole of negative interest rates (which, yes, mean pretty much what you think they mean). Still, major currencies continue to wriggle, like a hapless worm on a hook, against the (relatively) stronger U.S. dollar — which in turn makes it tougher for U.S. businesses that want to sell their goods and services in those countries.
At home, our markets lunge up, then down and down again, leaving investors feeling as if they've taken one ride too many on Splash Mountain. Our own Fed hints it might raise rates a tiny bit … oh, wait, hold on a moment, was that a whiff of uncertainty? (El-Erain quotes Chairwoman Janet Yellen as saying, 'I would hardly endorse the term goosing the stock market.')
El-Erain's answer for the road ahead is for governments and our inordinately angry and tunnel-visioned politicians — don't get me started — to stop blaming the central banks for the problems, and work with them to form responsible policy.
Sure maybe things would be worse had the banks not employed all these drastic maneuvers. But the world economy as a whole hardly could be deemed at the peak of health right now.
So maybe he's on to something in that the central banks shouldn't have to the only ones trying to fix things. Many hands, after all, make the lights work.
Michael Chevy Castranova is enterprise and Sunday business editor of The Gazette. (319) 398-5873; firstname.lastname@example.org