What Will 2023 Bring?

By Shlomo Maital   

(The Daily Courier)

   So, what will 2023 bring?

   This is based on listening to Ken Rogoff, Harvard professor of economics and former chief economist of the IMF.  Also based on what the current  IMF managing director Kristalina Georgieva just predicted. 

    As I often counsel in this blog – set aside some money.  Spend a bit less. You may need it. 

     Why?   Let’s think of two scenarios.

    One:  The US Federal Reserve recognizes its responsibilities to the world, rejects Trumpian MAGA only-America insanity, and stops hiking interest rates.  Maybe, a bit more inflation for the US. A lot less pain for the rest of the world, forced to hike rates steeply as well.  The US resumes its old role of global locomotive, buying things from other countries and stimulating demand.

      The world economy slows down in 2023, but not that badly.  How likely is this?  The US Fed still seems intent on covering its behind, after pooh-poohing inflation and hiking rates belatedly.  Fed Chair Powell is a Trump appointee. 

     Scenario Two.  US Fed keeps on bashing interest rates higher.  Other countries follow.  And, as wise Rogoff points out, we start to see all the debt dirt swept under the rug, during years and years of near-zero interest rates.  We start to see companies and whole countries struggle to pay back debt.  Like Italy.  We see bad debts emerge from under the rug in places we never knew about or realized.  We see borrowing done at zero interest rates, that made no sense, suddenly become catastrophic at 8 % interest rates.

    Will the EU bail out Italy again? Or will it do an every-country-for-itself saga,  MEUGA, Make EU Great Again, after a cold energy-scarce winter, where Hungary cut private deals with Russia? 

    So, Rogoff counsels, keep your eye on Japan and Italy.    As rates rise, try to limit debt.  Get on top of your credit card debt.  It is rising alarmingly.  Think hard about what to do if the US and world recessions are a) mild, b) moderate and c) severe.  All three are possible.  

     We are in a cycle where companies and countries stop paying back what they owe, because they no longer can.  But at the same time, we are seeing inflation erode the real economic value of debt and moderate its pain.  For governments, especially. 

      2023 will be painful and chaotic.  The recession will be moderated, by people eager to spend money and travel after two or three years of pandemic lockdown.  But it could be made worse if they do this by borrowing instead of spending savings. 

      Two words will dominate.  Resilience.  Ability to bounce back from unexpected hits.  Partly, by preparing for it in advance. And Agility.  Ability to respond fast, to unexpected events. 

       That’s my crystal ball.  Not very helpful.  And very very foggy.