Must-Read: Willem Buiter: Citi: Increasing chance that winter is indeed coming: “The growing threat to the global outlook rests on poor fundamentals…

…which include the pre-existing fragilities related to the structural and cyclical slowdowns in China and its unsustainable currency regime, broken EM growth models, excessive leverage across many countries and sectors, and rising regional risks (Brexit) and geopolitical risks (including in Russia, Turkey and Syria, the South China Sea, and North Korea). These fundamental concerns are aggravated by a crisis of confidence that is in part fuelled by a growing worry that, should conditions deteriorate, they may not elicit an effective policy response. The main ‘game changers’ in our view are the emerging belief that even the US economy is no longer bullet-proof and that policymakers (in the US and elsewhere) may not be there to come to the rescue of their own economies, let alone the world economy, by propping up asset prices and aggregate demand…

David Keohane comments:

Obviously this is heavily caveated by Citi — and they lay out a US bull case — but the gist is that their forecast for ‘US growth in 2016 has meanwhile gone from 3.0% in January 2015 to 2.0% most recently’…. They emphasis that any material slowdown in the US economy would make it tough going for the rest of the world, and think that the barriers to Yellen in easing are higher than occasionally appreciated:

in part because it has just raised its policy rate for the first time since 2006 and in part because all of its easing options are perceived to be of limited effectiveness in boosting real economic activity or are associated with non-negligible costs (including political costs)….

Finally, they say, unshockingly, that the chances of a major fiscal stimulus are… not good…