Brexit vote shows politicians have shirked economic duties for too long _ business _ the guardian

While we watch the reactions to Brexit ripple their way through financial markets and speculate about the magnitude of the economic fallout, there’s only one certainty: central banks can’t do much to help and politicians are in the driving seat.

From Tokyo to London, central bankers have cut interest rates to record lows and employed quantitative easing programs, unconventional ways of flooding the markets with money by buying up government debt or other securities. Trade in definition At best, this costly and complex strategy has succeeded in getting growth back to at least anemic levels; at worst, hasn’t done much of anything. Retail trade area definition The European Central Bank had hoped to begin scaling back its nearly $2bn quantitative easing program; that no longer looks feasible.


“One of the reasons for the massive voter dissatisfaction is that after the financial crisis and the recession, central banks were left to fill the policy void as stalemates gripped Congress and Parliament,” says Jack Ablin, chief investment officer of BMO Wealth Management.

Those stalemates still exist, but monetary policymakers have simply run out of tools. Trade finance definition banking They can’t keep cutting interest rates; those are at zero or near zero. Intra industry trade definition In some markets, like Japan, savers are penalized by being charged for depositing money, while borrowers are rewarded by being paid: a topsy-turvy situation known as a negative interest rate scenario.

Meanwhile, quantitative easing hasn’t produced much in the way of economic growth; the US gross domestic product hasn’t grown at an annual rate of more than 2.5% since the recession.

In fact, Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, calculated that the world’s central banks have flooded markets with $12.3tn of new money, cut interest rates 654 times and ensured that there are $10tn worth of bonds worldwide that now trade with negative interest rates since the collapse of Lehman Brothers in September 2008. Trade weighted exchange rate definition The result? Astonishingly lackluster economic growth – and a blockbuster stock market.

That combination has been a toxic one, and it has fed the political discontent that produced the Brexit result and contributed to the protest candidacies of both Bernie Sanders (on the left) and Donald Trump (on the right). Local trade definition The two US presidential candidates shared one important appeal to voters: their argument that the current economic system is broken, and that it’s up to politicians to step in and fix it.

Trump, the presumptive Republican nominee, laid out his views explicitly in an economic policy speech on Tuesday, blaming globalization and free trade for many of the economic woes that American workers are experiencing. Trade union economics definition If elected, he says, he’d confine US trade deals to bilateral arrangements, scrapping multilateral arrangements like the proposed Trans-Pacific Partnership (TPP).

Whether Trump’s protectionist proposals are the correct ones to pursue is almost a secondary question at this point. Trade repository definition The first order of business is to get politicians to understand that they have abdicated their responsibility for economic policy for too long, and that the consequences have proved devastating.

Consider economic inequality, for instance. Definition of international trade in economics Allowing the central bankers to maintain the sole responsibility for providing a post-financial crisis “fix” created a boom in the financial markets. Fair trade definition deutsch The value of financial assets rose, thanks to rock-bottom interest rates and the Fed’s quantitative easing.

Ablin notes that those years just served as the last bit of icing on the cake. Definition of international trade theory Between 1979 and 2014, wages grew 230%, more or less keeping pace with inflation. Definition of trade payable (Incidentally, he points out, the price of a boat more or less grew by the same amount.) But the stock market return over the same period of time was a whopping 5,300%.

The result? Any of us who make our money in the shape of wages and salaries plodded along. Trade sample definition Those able to earn significantly more and who could invest, and/or who made money from investments, ended up on the other side of an ever wider, ever deeper wealth gap, one that monetary policymakers at central banks just made wider because their tools couldn’t address inequality. Trade in economics definition For that, politicians would have had to act. Definition of global trade And as anyone who has been watching Congress in the last few years knows all too well, that just hasn’t been happening.

What is needed now is for those politicians to look at the Brexit results, and shake in their shoes. Trade show definition Whether they fear the economic fallout, or the anger of voters, something should galvanize them to take action, and contemplate any one of a number of policies that could complement or even supplant central bank action.

Tax reform would be one place to start. Meaning of terms of trade Find a way to encourage corporations to invest in research and development, and to hire, rather than to simply boost dividends and share buybacks, putting still more money into the hands of already wealthy shareholders on the “wrong” side of the wealth gap.

Politicians will have to find ways to address the conundrum that while global trade does bring about growth, it hurts the people who used to make the products that are now being traded, like T-shirts and auto parts. What is the definition of trade off They can’t move to China to make products for Apple, or to Bangladesh to work in sweatshops there, nor can they compete on the basis of the wages paid to people in those countries. Trade industry definition And the jobs that are created instead of what once were professional, unionized, blue-collar manufacturing jobs are low-paying service positions: working in restaurants and retail outlets. Off trade on trade definition Sometimes workers earn only minimum wage and may not even land full-time hours. Trade repositories definition Simply banning global trade or trying to turn back the clock won’t fix this – how many consumers will buy a $40 T-shirt? – so it will be up to the now-despised political “elites” to find another solution. Tourist trade definition It’s a problem that’s well beyond the scope of central bankers, and if it’s not fixed, it just doesn’t matter how low interest rates fall.

“Should the elites choose to acknowledge issues like inequality, they could find ways to address them in ways that aren’t economically self-destructive,” argues Jeff Kleintop, chief global investment strategist at Charles Schwab.

That doesn’t mean that they won’t hurt Wall Street, of course. Definition of trade payables Ablin points out that the cost of any policies that raise incomes and reduce shareholder profits would leave investors dissatisfied, and could eat away at stock market returns, at least in the short term. Trade structure definition Top-line revenue growth could alter that down the road, of course. Merchandise trade definition Moreover, it’s not as if Wall Street is finding the status quo profitable or reassuring, so it may be a choice between the lesser of two evils.

“For years, fiscal policy gridlock was acceptable to Wall Street, because they could turn to monetary policy, which rewarded investors – but now that’s no longer an option. What is the definition of trade union The only alternative is some kind of growth policy from the politicians,” Ablin says.

If that’s true, we’d better hope that our current crop of elected politicians cease embracing Thoreau’s conviction that the government that governs best, governs least.

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