The Only Game in Town: Central Banks, Instability, and Recovering from Another 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 playingaround 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.

El Erian is a member of the estabishment. He attempts to explain what went wrong, and is going wrong, without stepping on any toes. It is worth reading, but he is not burning any bridges.What causes the crises in central banking? Naivety on the part of central bankers. Their oversight was lax. They should have been less credulous of the banks' ability to police themselves. They should have assessed the explosive potential of the exploding derivatives market to, well, explode.He does not even address other possibilities. Biggest among them is conflict of interest. "The Creature from Jekyll Island" charges that the Federal Reserve was set up by and for the benefit of the big city banks. The charge is that its primary intent is to protect the interests of those institutions. El Erian remarks that the whole world became "financialized," with bankers allowing institutions, governments and individuals to take on far more risk than they should have. He does not mention the perverse incentives that led them to irresponsibily shove money out the door.He says that the politicians do not understand banking and finance. The central banks wanted to insulate themselves from political pressure to deliver short-term results. This is true. One can recall Volker resisting presidential pressure to easy up on interest rates. El Erian uses the word "regulatory capture" without going into depth about the extent to which the regulators are compromised.The Federal Reserve bailed out feckless politicians who steadfastly refused to balance the budget – to bring expenses in line with income. The do so by facilitating the growth of federal debt, both that shown in the growing official account and the off-balance-sheet obligations such as guarantees of student loans and unfunded liabilities for Social Security, Medicare and the rest. If the Fed was truly a public servant, it would attempt to impose some discipline on the politicians. However, as noted in the many books critical of the Fed, banks depend on debt. They have grown fat on the politicians' lack of discipline. And the Federal Reserve is constituted as a private corporation owned by those banks.El Erian repeatedly asserts that the United States is in better relative shape than Europe or Japan. He asserts it has been growing, albeit slowly. Other commentators attribute this mostly to smoke and mirrors. The government has repeatedly revised its formulas for computing unemployment, inflation and other essential measures, a process well documented by John Williams' Shadow Government statistics. He notes that central banks have been actively involved in asset markets. They have been buying stocks to hold up exchanges. He does not mention,, but it is widely known that they are at the same time actively depressing the cost of alternatives to money such as precious metals and, so it appears, even Bitcoin.I include El Erian's ten issues that confront central banking, the meat of the central ten chapters of this book, below as a comment. These are issues beyond the scope of central banks, and even government and all of society. Neither government nor the banks have any power to reverse the fact that technology is changing the workplace, providing fewer and fewer employment opportunities for the less intelligent. It cannot change the fact that the more intelligent are having fewer children. Demographics alone dictate that politicians will be unable to balance their budgets. The central banks, as the "only game in town," will be forced to continue to paper over the gaps, until the whole system runs to failure, collapses of its own weight.El Erian writes of an upcoming T junction, one road leading to peace and prosperity, the other to collapse. He does not make a very convincing argument that the first is anything more than a mirage. There are many good insights in this book, but they should be balanced with a reading of more skeptical books by Pippi Malmgren, James Rickert and others.

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!

Another guy with intellect but no wisdom.

The book gives an overview of the complex path that Central banks and governments decided to take to face last great crisis of 2008. Despite of identifying that we are in great trouble to get out of this mess, the author does not point out ways to common investors go through all this turbulence without getting financially wounded.But for those that want to deeper comprehend the complexity of the problem, it is an interesting reading.

This book is a must-read for those concerned with public policy. El-Arian demonstrates how central banks, led by the Federal Reserve,have been misguided in pursuing very low interest rate policies. They have flooded the global economy with liquidity, subsidizing borrowers and starving savings. The result is a serious tilt away from capital investment in their attempt to prop up failed fiscal policies. Rising interest rates wouldhave a positive effect in changing attitudes to future growth.

Writing this book at the end of 2015, banker and economist Mohammed El-Erian successfully foresaw financial turbulence in 2016. Read as soon as possible to understand why the global economy has got into troubles again, and why policy actions are needed to prevent a new recession.