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The New Financial Geopolitics ─ Distributional Dilemmas: Inequality and Systemic Stability

The New Financial Geopolitics: How long can the US keep going as the Lender, Leader, and Reserve Asset of Last Resort?

Panel 4: Distributional Dilemmas: How do Global and National Patterns of Inequality Impact Systemic Stability?

Does the growth of US domestic finance, and the massive inequality skew that it generates, sustain or undermine the US financial order? Does ‘the rise of the rest’ at the same time as ‘the
stagnation of the developed middle’ have consequences for the global order? Are global governors, especially central bankers, up to the task of stabilizing the system?

Panelists: Branko Milanovic (CUNY), Sir Paul Tucker (Harvard, Kennedy School and Chair, Systemic Risk Council), Jacqueline Best (University of Ottawa), Sandy Hager (City University)

The current global financial order, which was placed into sharp focus by the swap lines initiated by the US Federal Reserve during the 2008 financial crisis, is an American order. Despite generating trillions of debt and demonstrating a truly dysfunctional politics, the US continues to be the leader, lender, and the preferred asset issuer of last resort for the global economy. But how long can this state of affairs continue?

One school of thought suggests that it can continue indefinitely, given the lack of alternative safe assets, the depth and liquidity of US markets, and the desire of foreign wealth holders to buy safety in the form of US assets. And yet things continue until they don’t. Due either to its own domestic dysfunctions, or to its international entanglements, the ‘barbelling’ of risk that US has been able to play, whereby US investments earn a higher risk premium abroad while foreign investors hold US assets as security for a lesser return may come to an abrupt end sooner than many commentators think. If the US suffers real capital losses on its assets abroad, if the global economy continues ‘long and low’ into negative territory, of if other major players grow tired of America’s dysfunctions, then the dollar order may become less attractive over time, prompting the rise of alternative assets and new institutional arrangements.

This conference seeks to address these topics by answering three questions. First, how stable, if not “anti-fragile’ to use Nassim Taleb’s term of art, is the US order? Second, will the ongoing political crisis and economic recession in the Eurozone, and geopolitical tensions in East Asia, prolong or threaten the US order? Third, is there a new geopolitics emerging underneath this financial system, and if so, what does it look like?


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