The Boundaries Dividing Political, Monetary, Fiscal, Trade And Other Policies Are Gone

By Michael Every of Rabobank

The Polycene and the Monocene

For over a decade our global strategy has warned the ‘liberal world order’ would collapse. Now, the New York Times’ Tom Friedman, in ‘Welcome to Our New Era. What Do We Call It?’, shares that “For the past few years, I have had to ask myself a question I never asked before in my life: What should we call the era we’re living in today?” He’s running with ‘The Polycene’, which in Greek means “There’s so much going on that a ‘Monocene’ focus on data won’t help.”

In markets stocks, tech, crypto, and even gold are down. Japanese 20-year JGB yields just hit the highest since 1999, prompting a meeting at 15:30 Japan time today between PM Takaichi and BOJ Governor Ueda – but what can be done endogenously that doesn’t smash either the JGB market or JPY? There are also warnings over private credit – yet we also continue to see circular-investing / vendor-financing mega deals in the AI space.

In geopolitics, the USS Ford has arrived in the Caribbean: what does that mean for Venezuela, as Chile is expected to see a US-friendly shift in its presidential election? In Asia, the US pulled a missile system from Japan as the Beijing–Tokyo row over Taiwan deepens despite the latter’s attempts to deescalate. In Europe, Berlin and Paris may scrap a planned joint fighter as France plans to supply Ukraine with 100 Rafales, upping the ante with Russia; Brussels warns the EU’s proposed €140bn Ukraine loan could have a “knock-on” impact on financial markets; Poland says a rail explosion there was an “unprecedented act of sabotage”; and the FT warns ‘The scramble for Europe is just beginning’, where “as the EU struggles to defend its interests, outside powers play divide and rule,” putting a new spin on ‘DM = EM’. In the Mid-East, the UN Security Council backed Trump’s plan for postwar Gaza, as the US intends to sell F-35 fighter jets to Saudi Arabia, whose more cash-strapped MBS will visit the White House today for arm twisting on expanding the Abraham Accords.

As military spending surges, the fiscal picture is worrying. Russia is raising VAT by 2 percentage points. The US is talking $2,000 cheques for working families paid for by tariffs. France still hasn’t agreed a budget. Germany is about to splurge on arms. Canada is borrowing far more, but not for that. The UK just saw market volatility over suggestions taxes wouldn’t be raised when the market had previously disliked the idea that they would. China is rolling out stimulus. Japan’s PM also wants fiscal stimulus… to lower inflation.

Supply chains are geopolitically squeezed. Both GM and Tesla say they won’t use Chinese parts in the US. German is freezing out Huawei and will bring in new tech controls aimed at China. The Dutch-Chinese Nexperia row rumbles on, and a new row has started. The US still hasn’t formally secured the China rare earths deal it wants. Positively, India says a US trade deal is closer after agreeing to take much more US LNG. Negatively, the US just warned Europe over trade foot-dragging, and the Chair of UBS has talked to Scott Bessent about moving the bank to the States.

Affordability remains a key issue in the West: there’s a Trump summit on it today. The situation is similar in other DM – and worse in EM. House prices are sky high: the average age of a US home buyer has risen to 59(!) A top Aussie banker says housing heat is raising concerns and calls to ‘Put the brakes on’ follow a record A$40bn investor blitz into property as everyone –but the central bank– predicted would follow RBA rate cuts. Moreover, the AFR warns ‘China’s debt shock is coming. Our high house prices won’t protect us’, and “Australia’s economy isn’t ready.”

The threat of AI job losses is soaring. That’s as MAGA politicians are demanding transparency on AI job losses, where “Protecting US workers collides with need to outpace China”, and ‘Notices of Impending Layoffs by US Companies Surged in October’ (Bloomberg). Yet Elon Musk states his robots could end poverty and provide universal high incomes. So, what’s next: mass unemployment or ‘abundance’ or both? Which central bank has either in their models?

Political populism keeps rising. Mamdani won in New York. Trump has been forced to agree to release the Epstein files, as a far-right (and libertarian) ‘America First’ faction challenges MAGA. In Australia, the Nats/Libs Coalition is down sharply in the polls after it dropped a commitment to net zero and says it wants much lower immigration, as populist One Nation surges. In the UK, the Reform party says it would cut off benefits for EU citizens and slash overseas aid to save £25bn: the UK press says the police are preparing for civil war. On Friday, PM Takaichi announced she may change the corporate code to force Japanese firms to invest more or pay higher wages rather than return profits to shareholders. In Nepal, Indonesia, and Mexico Gen-Z protests just tried to bring down their governments. Again, central banks can’t capture this – but may be captured.

Indeed, D.L. Jacobs argues the Fed’s Miran aims to challenge the foundations of US monetary policy “because the world [Fed] forecasts are trying to measure no longer exists.” Keynesianism emerged in the Great Depression of the 1930s; monetarism with the Great Stagflation of the 1970s; hyper-neoliberalism in the post-Cold War 1990s; central bank QE in the post-GFC 2000s; and Miran argues the Treasury and Fed de facto merged in the 2020s so “The pretence of central bank independence has collapsed. Monetary policy is now politics conducted by other means.” And the US faces a panoply of (geo)political challenges.

“For Miran, the answer is not to restore a lost neutrality. It is to make that power accountable… the goal of central bank independence can be achieved only by new means.” We are seeing similar rhetoric from Reform in the UK and the RN in France. (As former Fed Governor Kugler is accused of violating trading ethics, current Governor Cook is in court to fight charges of mortgage fraud, ex-governor Clarida was forced to step down in 2022 over stock trading, and for-now current Governor Bostic was warned over the same.)   

New means means new thinking – and for Miran that’s part of the Mar-a-Lago Accords that also involves trade, the US dollar, and US Treasuries. The current account deficits required to give the world demanded Eurodollars mean US financialisation, polarisation, deindustrialisation, and de-hegemonisation – which the US now intends to resist, not accept.

As such, the boundaries dividing political, monetary, fiscal, trade and other policies are gone (as we had flagged) and, as Jacobs puts it, “Miran argues that coordination should be made deliberate and accountable. He’s on a mission to modernize US-led capitalism, turning ad-hoc crisis management into a coherent framework for political economy.”

But is there one and will it work? We think yes, and it remains to be seen. But that needs to be the market debate, not what payrolls, PMIs, or CPI will be. However, it’s also true that the worse those data are, the greater the pressure for revolutionary policy changes ahead of the key US mid-term elections.

For now avoiding all these debates, the RBA minutes of its November policy rate meeting showed one member pushing back on the idea that its unemployment and inflation goals bear equal weight –so which matters most?– and the overall message was that the Reserve Bank will only consider cutting rates again if the labor market shows a serious deterioration. That’s the kind of deep Monocene thinking for which one is, or at least was, paid the big bucks. But in the world that exists today, is it possible that such an outcome could also correlate with a further surge in house prices anyway? And if so, then what?

That question doesn’t get asked anywhere near enough in anywhere near enough contexts.