By Jim Grant contributing to The Financial Times
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he modern financial animal is wont to assume that he or she lives in an age of science. Just peruse the economic research that the great central banks produce. Even the titles of the papers are incomprehensible. Surely, the wit of man and woman has conquered the mysteries of money.
So much for appearances. The truth is we live in an age of pseudoscience. The central banks’ forecasting models have failed to predict the future. Quantitative easing and zero per cent interest rates — policy centrepieces of the post-2008 era — have failed to restore what we used to call prosperity.
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Far from dealing in science, central bankers, and, to a degree, investment bankers and security analysts, employ magical thinking. What they have conquered is scepticism.
The tip-off of impending trouble in the Chinese stock market came on June 15, according to Ruchir Sharma, Morgan Stanley’s head of emerging markets, when Shanghai prices registered a 2 per cent loss. It was President Xi Jinping’s birthday, and so widely expected that the market would rally. China’s leaders had sponsored the past year’s share-price levitation; did they not therefore control it?
Half a world away, a different set of authorities has sponsored flyaway markets in property, stocks