The old models are not working. What will the new model look like?

The capitalist model is not working, says Anklesaria Aiyar, but the Beijing consensus is not working either. The Federal Reserve is going to meet next week but whatever it does will be wrong, says Narayana Kocherlakota. After the crash of 2008, economic recovery began in mid 2009 but the Fed has been unable to stimulate retail inflation to 2%. It is still at 0.8%. The bond market is discounting a rise in interest rate, with yields on 10 year bonds at 1.69%. The Fed will probably leave interest rate at the same level. Just a short while back everyone thought that China was going to overtake the US to become the richest nation on earth, but that looks increasingly unlikely to happen. GDP growth rate is down to 6.7%, but economists, such as Ruchir Sharma, believe that it is actually below 5%. China's debt to GDP ratio has risen from 150 to 250% and capital to output ratio has doubled to 6, which means that it needs double the amount of investment to produce the same amount as before. Investors, like George Soros, are worried about the level of Chinese debt, which has reached over $26.6 trillion, although most of it is local currency. China needs $4 of new investment to generate $1 of GDP. If Donald Trump wins the presidential election in November he has promised to impose a 45% tariff on Chinese goods which will result in a decline of $420 billion in Chinese exports to the US and a fall of about $426 billion in foreign direct investments into China. So, what is to be done? Central banks have been trying hard. They reduced interest rates, to near zero in some cases, resorted to buying government bonds, to inject vast quantities of money into banks to force them to lend, reduced interest rates to negative, to force people to spend, and have now resorted to buying corporate bonds, to support the stock market. The Swiss National Bank owns $1.5 billion worth of Apple shares and $1 billion worth of Microsoft shares. With so much money floating around why is inflation still suppressed in western countries and Japan? Because banks are using the money to balance their balance sheets, which are full of bad loans, and individuals, who are employed, are paying off their own loans, in what is called deleveraging. Low interest rates have resulted in increasing inequality so that people in US cities have seen an increase in income while those in rural areas have seen loss of jobs, and increase in drug addiction and suicide rates. The elite see Donald Trump as a threat to their privileged lifestyles, which is why the attacks on Trump have been ferocious and unrelenting. Governments are increasing barriers to free trade and the WTO is looking increasingly useless. We cannot see the future but if no one has any idea what to do then it cannot be good. Perhaps a genius will come along.