The Rise of Carry - The Dangerous Consequences of Volatility Suppression and The New Financial Order of Decaying Growth and Recurring Crisis

Welcome to an exploration of the complex world of modern finance with "The Rise of Carry: The Dangerous Consequences of Volatility Suppression and The New Financial Order of Decaying Growth and Recurring Crisis". Authored by Tim Lee, Jamie Lee, and Kevin Coldiron, this book delves into the intricate dynamics of financial markets, focusing on the pervasive influence of 'carry' trades and their profound global impact.

Detailed Summary of the Book

At the heart of the book is the concept of 'carry' — a financial strategy where investors or institutions earn income from holding assets or maintaining certain financial positions. While the 'carry' trade can be profitable, the authors argue it has contributed to the suppression of volatility in financial markets, fostering an environment of apparent stability masking deeper vulnerabilities. The book meticulously outlines how these strategies, once the domain of specialist investors, have permeated global markets and been adopted across various asset classes.

The narrative weaves through a historical analysis of financial market behaviors, highlighting how central banks' interventions, particularly since the financial crisis of 2008, have perpetuated this strategy. Central banks, by cutting interest rates and buying assets, have inadvertently encouraged the growth of these 'carry' trades, leading to an artificial suppression of risk and volatility.

The authors break down complex financial concepts with clarity, illustrating how suppressed volatility can lead to a decaying growth pattern and increase the frequency of financial crises. This backdrop sets the stage for a thoughtful critique of modern economic strategies and the long-term sustainability of current financial market dynamics.

Key Takeaways

• The inherent risks of 'carry' trades, despite their short-term profitability, pose significant long-term threats to financial stability.
• The strategy contributes to an environment where financial markets appear stable while accumulating hidden risks.
• Central bank policies post-2008 have unwittingly facilitated the rise of carry trades, impacting global economic growth patterns.
• Understanding the interplay between volatility suppression and financial instability is crucial for policymakers and investors.

Famous Quotes from the Book

The book is peppered with thought-provoking insights and observations. Here are a few notable quotes:

"In the world of carry, volatility suppression is both the cause and the effect, creating an illusion of stability that harbors latent risks."

"The trade-off for decaying growth is a recurrent pattern of crises, hidden beneath the calm surface of suppressed volatility."

Why This Book Matters

"The Rise of Carry" is an essential read for anyone seeking to understand the underlying dynamics of modern financial systems. As markets become increasingly interconnected, the implications of the carry trade strategy need to be understood in the context of broader economic policies and market strategies.

The authors bring to light how key decisions made by financial institutions and central banks affect global financial stability. As financial markets continue to evolve, recognizing the consequences of these strategies is critical for regulators, investors, and economists aiming to forecast and mitigate potential economic disruptions.

In a world where financial crises are becoming more frequent, this book offers a compelling examination of what lies beneath the apparent tranquility of suppressed volatility, urging readers to consider the significance of these developments in shaping the future financial order.