Talking to leaders these days in any walk of life, I have a sense that people are frozen. They see that inflation is back in a serious way for the first time in decades, forcing central banks to raise interest rates at the fastest pace since the early 1980s. They understand that this sudden change in the price of money — the most important driver of economic and financial behaviour — marks a fundamental break with the past. But they are not acting. After living with easy money for so long, they find it difficult even to contemplate a different world. There is a term for this state of mind: zeteophobia, or paralysis in the face of life-altering choices.
So many people keep doing what they were doing, hoping that somehow they won’t have to deal with change. On the assumption that central banks will once again come to the rescue, investors are still pouring money into ideas that worked in the past decade — tech funds, private equity and venture capital. Governments are still borrowing to spend and homeowners are refusing to sell as if easy money was bound to return soon.
But tight money is not a temporary shock. The new standard for inflation is closer to 4 per cent than 2 per cent, so interest rates won’t be falling back to zero. As this phase wears on, tycoons, companies, currencies and countries that thrived on easy money will stumble, making way for new winners. Some things will improve. The time of lavishly ridiculous digital coins and TV shows will pass. An age of more discriminating judgment will shape the trends of 2023.