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Historian Niall Ferguson has a warning for investors

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Historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the Seventies — only worse.

Talking to CNBC on the Ambrosetti Forum in Italy, Ferguson said the catalyst events had already occurred to spark a repeat of the 70s, a period characterised by financial shocks, political clashes and civil unrest. Yet this time, the severity of those shocks was more likely to be greater and more sustained.

“The ingredients of the Seventies are already in place,” Ferguson, Milbank Family Senior Fellow on the Hoover Institution, Stanford University, told CNBC’s Steve Sedgwick.

“The monetary and monetary policy mistakes of last yr, which set this inflation off, are very alike to the 60s,” he said, likening recent price hikes to the 1970’s doggedly high inflation.

“And, as in 1973, you get a war,” he continued, referring to the 1973 Arab-Israeli War — also generally known as the Yom Kippur War — between Israel and a coalition of Arab states led by Egypt and Syria.

As with Russia’s current war in Ukraine, the 1973 Arab-Israeli War led to international involvement from then-superpowers the Soviet Union and the U.S., sparking a wider energy crisis. Only that point, the conflict lasted just 20 days. Russia’s unprovoked invasion of Ukraine has now entered into its sixth month, suggesting that any repercussions for energy markets could possibly be far worse.

“This war is lasting for much longer than the 1973 war, so the energy shock it’s causing is definitely going to be more sustained,” said Ferguson.

2020s worse than the Seventies

Politicians and central bankers have been vying to mitigate the worst effects of the fallout, by raising rates of interest to combat inflation and reducing reliance on Russian energy imports.

But Ferguson, who has authored 16 books, including his most up-to-date “Doom: The Politics of Catastrophe,” said there was no evidence to suggest that current crises could possibly be avoided.

“Why shouldn’t or not it’s as bad because the Seventies?” he said. “I will exit on a limb: Let’s consider the likelihood that the 2020s could actually be worse than the Seventies.”

Top historian Niall Ferguson has said the world is on the cusp of a period of political and economic upheaval akin to the Seventies, only worse.

South China Morning Post | Getty Images

Amongst the explanations for that, he said, were currently lower productivity growth, higher debt levels and fewer favorable demographics now versus 50 years ago.

“Not less than within the Seventies you had detente between superpowers. I do not see much detente between Washington and Beijing straight away. The truth is, I see the alternative,” he said, referring to recent clashes over Taiwan.

The fallacy of world crises

Humans wish to consider that global shocks occur with some extent of order or predictability. But that, Ferguson said, is a fallacy.

The truth is, slightly than being evenly spread throughout history, like a bell curve, disasters are likely to occur non-linearly and abruptly, he said.

“The distributions in history really aren’t normal, particularly with regards to things like wars and financial crises or, for that matter, pandemics,” said Ferguson.

“You begin with a plague — or something we do not see fairly often, a very large global pandemic — which kills hundreds of thousands of individuals and disrupts the economy in every kind of how. You then hit it with a giant monetary and monetary policy shock. And then you definately add the geopolitical shock.”

That miscalculation leads humans to be overly optimistic and, ultimately, unprepared to handle major crises, he said.

“Of their heads, the world is form of a bunch of averages, and there aren’t more likely to be really bad outcomes. This leads people … to be somewhat overoptimistic,” he said.

For example, Ferguson said he surveyed attendees at Ambrosetti — a forum in Italy attended by political leaders and the business elite — and located low single-digit percentages expect to see a decline in investment in Italy over the approaching months.

“It is a country that is heading towards a recession,” he said.

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