Macquarie strategist warns policy incompetence threatens global economy

Macquarie strategist Viktor Shvets has warned that policy incompetence, driven by rising populism, poses a major threat to a global economy dependent on asset bubbles. Shvets argues that previous attempts to avert crises through capital injections have resulted in increased inequality and societal polarization, which populist leaders exploit to erode institutions.

Shvets identified three primary warning signs of potential economic ‘doom loops’. First, geopolitical tensions in regions involving Iran, Russia, and Ukraine increase the risk of inflationary supply shocks, specifically regarding crude oil and diesel reserves.

Second, efforts by US Treasury Secretary Scott Bessent to influence bond markets by buying back long-dated US bonds have faced criticism. Investor Stanley Druckenmiller cautioned that government attempts to defend prices against market fundamentals are typically unsuccessful.

Third, Federal Reserve Chairman Kevin Warsh faces challenges in transitioning central bank communication away from explicit forward guidance while attempting to maintain market confidence. BCA Research notes that the upcoming US midterm elections in November will be a critical period for assessing policy competence and potential fiscal shifts.