“If you only look down at your compass, you will walk into a tree”
Gilian Tett fired up the conference in her keynote speech by presenting – as is her style – a unique perspective informed by her knowledge as a trained anthropologist. She likened conferences to tribal rituals where people gather to connect over the obvious things that unite them. But what anthropologists do – and treasurers should as well – is not just look at the noise that emerges from tribal gatherings (and conferences), but also social silence. In other words, the difficult things nobody wants to talk about.
Among many hot-button topics, Gillian Tett, Chair of the Editorial Board and Editor-at-Large, US, Financial Times, touched on debt issues – how policy makers (including the ones from the International Monetary Fund (IMF) she had a meeting with just last week) all agree the debt burden needs to come down, but nobody has talked about how it can be reduced.
Her take? Policy makers are likely to go down a familiar route in tackling the debt issue: financial repression. Don’t ask them though, because they will never admit it. “The beauty of financial repression is that nobody understands it. It’s so subtle, so widely spread that most people don’t even notice it. Or if they do, they are not in a position to start complaining,” she says.
“Financial repression only works in today’s world because most Western economies have fairly controlled financial systems. Capital controls and interest rate controls mean that most investors cannot just flee.” Policy makers, she points out, are banking on the fact that corporate treasuries that hold a lot of government bonds will probably keep holding on to them for some time rather than letting go of them en-masse.
But it may not work this time
What can flip the effectiveness of this age-old financial strategy on its head is digitisation–something economists have consistently failed to take into account. “We don’t really know what happens in a world where the context of digitisation can potentially change finance,” Gillian Tett says.
She used the dramatic events surrounding the Silicon Valley Bank collapse as an example: “Because of 24/7 banking, a quarter of the bank’s deposits – 42 billion dollars, left in about three hours. In 24 hours, the bank had lost 85 per cent of its deposits.” Digital herd behaviour – the 21st-century equivalent of the tribal herd mentality had reared its ugly head, and the regulators were woefully unprepared for it.
The lesson, Gillian Tett says, is that we have to look beyond the balance sheet and the economic model. “All the stuff that have been viewed as footnotes, such as the environment, geopolitical issues, and technology, matter heavily now.”
“If you are trying to navigate the world today just by looking at the economic model, you are like somebody trying to walk in the woods at night using just a compass. The compass is good – you don’t want to throw it away – but if you only look down at your compass all the time, you are going to walk into a tree.”
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