Felix comments on El-Erian’s summary of the PIMCO global economic outlook.
Whenever I feel overwhelmed by the big picture, I retreat to my analytical roots in the insurance world.
Inflation can be dealt with fairly easily because prudent insurers will have sufficiently implemented ALM and so maturities should match payouts and so inflation will only hurt on the liability side of very long (insurance) tail lines of business. No systemic threat there.
Sovereign defaults will be tricky for insurers in those countries likely to default, but those insurers don’t matter because those economies don’t matter in a global sense.
I’d be surprised if knock-on effects of bank insolvencies for those heavily exposed to defaulting countries moved anyone’s needle.
Stagnant growth? Meh. It matters for this thing called “economic growth” but that’s mostly about opportunity cost. If my living standard doesn’t keep skyrocketing (in the historical sense), I will hardly notice. Real growth in the stock of insurable assets will slow, but insurers make their money from their leveraged bond portfolios, anyway.
Rise of the BRICs? Meh. My view is that those countries aren’t stable enough legally and don’t yet have a big and valuable enough stock of assets to protect to support globally important insurance industries.
State capitalism and bailouts? Now we’re getting somewhere. My view is that Uncle Sam prevented/delayed an insurance calamity over the last couple years. Bailouts kept the skeletons in the closet, which people would undoubtedly have wanted to claim for (thinking mostly professional liability here). A more severe recession would have triggered a load more property “oops” claims than we saw, though we did see an uptick.
More bailouts could prolong the soft market.
Not Unreasonable 