Globally Synchronized What? : ALHAMBRA INVESTMENTS


In one of those rare turns, the term “globally synchronized growth” actually means what the words do. It is economic growth that for the first time in ten years has all the major economies of the world participating in it. It’s the kind of big idea that seems like a big thing we all should pay attention to.
In The New York Times this weekend, we learn:

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A decade after the world descended into a devastating economic crisis, a key marker of revival has finally been achieved. Every major economy on earth is expanding at once, a synchronous wave of growth that is creating jobs, lifting fortunes and tempering fears of popular discontent.

It’s that last one where the narrative takes on its current tinge of desperation. After the “unexpected” downturn in 2015-16 that sparked widespread global “discontent” at the ballot box, many in the so-called establishment wish for it to have been illegitimate; nothing more than the world’s xenophobic racists allowing their xenophobia and racism to undermine tighter and beneficial globalizations.

That’s ultimately the problem, though. There wasn’t supposed to have been any downturn at all; in 2015-16, or any other period. In fact, what really sparked populism is that to this day there isn’t any official acknowledgement that anything was wrong at the time, a microcosm of whole last decade. Even this “globally synchronized growth” is an attempt at a whitewash; the populists were wrong, it is now claimed, when they tried to turn “transitory” negative factors into something more than they were.

But it’s always the optimistic side that does that, the very thing many people at the electoral margins are simply fed up with. In fact, we’ve been here before. Just three years ago in late 2014 and early 2015 the explicit idea of “global growth” was just as ubiquitous. We are supposed to notice the difference, this later addition of synchronized economies as if that was the temporarily missing piece.

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The problem with that view is the same one as we’ve witnessed all along. Does it matter whether eight of the ten largest economies are growing at a slow, painful rate, while two are contracting, or instead where all ten are now growing at the same slow, painful rate? The occasional minus sign is what many believe is key, but that’s the wrong focus. There is a meaningful difference between positive numbers and growth. There is no difference between lackluster, low-level plus signs and lackluster, low-level minuses.

Swinging back and forth between them over the period of several years would drive any population to seek alternatives. Doing so especially where the upturns are every single time characterized as the big one simply demonstrates nobody has any real answers. It’s the same fingers crossed strategy that has been implicit from the day Ben Bernanke told Congress subprime was contained. Almost eleven years later, it still isn’t.

There are several ways to check these assumptions. Given what is supposed to be behind any of them, monetary policy, inflation is one important weak spot.

No tidy, all-encompassing narrative explains how the world has finally escaped the global downturn. The United States has been propelled by government spending unleashed during the previous administration, plus a recent $1.5 trillion shot of tax cuts. Europe has finally felt the effects of cheap money pumped out by its central bank.

As noted on numerous occasions before, Europe’s inflation rate is far too closely correlated with the American (or Chinese). Thus, if Europe’s “cheap money” is working, then it’s spillover should be apparent there and here. It isn’t.


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The BEA reported last week that the US PCE Deflator slowed slightly in December 2017 despite another healthy (seeming) contribution from energy. At just 1.70% year-over-year (compared to 1.77% in November), that’s the 66th time out of the last 68 months the PCE Deflator has failed to register 2%. Given the Fed’s actual mandate, sustained 2% inflation, they are coming up on 6 full years of continuous failure. That’s some really cheap cheap money.


More important than past failure is that there really isn’t any indication this is about to change. The addition of the term “synchronized” is intentional on that count. Core inflation rates like the PCE Deflator exclusive of food and energy, or the Dallas Fed’s trimmed mean measure, clearly lack for price momentum no matter all that.

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