(Kitco News) - MThe world is about to become more uncertain and policymakers are ill-equipped to manage it, according to Stephen Poloz, who led the Bank of Canada from 2013 to 2020.
Poloz explained that there are five risk factors impacting the globe's future: aging population, technological progress, growing inequality, rising debt, and climate change. These factors acting at once create an even riskier environment. The economic models that policymakers typically use will not be effective in dealing with this. Hence Poloz said that individuals and companies will need to deal with the uncertainty themselves. Poloz, who is currently Special Advisor to Osler, Hoskin & Harcourt LLP, spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News.
"Central banks will have almost no room to maneuver in a low interest rate environment, once we get past this current episode of inflation," said Poloz. "Governments are heavily indebted and the fiscal drag coming from an aging population will make that even worse going forward."
Uncertainty and Investing
In his book, The Next Age of Uncertainty: How the World Can Adapt to a Riskier Future, Poloz claims that given growing uncertainty, people must use individual risk management instead of relying on governments. "People are going to try to de-risk their own setting," he said. "… They're going to carry more savings, they're going to be prepared to lose their job more often… So this is a whole different evolution in a riskier environment."
With a new age of uncertainty upon us, Poloz did not express optimism about index funds. "Index investing has probably run its course," he said. "I think it will be a stock picker's kind of environment, one in which you'll have to know… more about how [the company manages] risk, how resilient are they."
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Green Energy and Fossil Fuels
Poloz remarked that the world should be careful in how it transitions to greener energies. "There are still 3 billion people that burn little bits of wood or animal dung to cook their dinner… It's pretty arrogant of many of us to say, well, we're just going to start switching to electricity somehow and I don't know what's going to happen to those folks," he explained. "… And so the only way to get to 2050 in the way that we hope is to combine that with aggressive carbon capture and storage solutions."
Carbon credit markets are expected to play a role in the green energy transition. These markets involve permits that let owners emit a certain level of CO2. Poloz commented on these markets, "I do think in terms of its pervasiveness and its legitimacy, yes, [carbon credit markets] will explode and we'll need the collaboration of our accounting firms."
To find out Poloz's thoughts on how Bitcoin and central bank digital currencies (CBDCs) fit into this uncertain future, watch the above video.
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