A recent Bloomberg article by Allianz chief economic adviser Mohamed -Erian outlines recent global developments that have “exposed cracks in a seemingly happy” market environment, including: “Brexit, tariffs, currency meltdowns in Argentina and Turkey, a China growth scare, and a financial near-explosion in Italy,” to name a few.

Although El-Erian argues that the inclination may be to consider each event as unique to its country, this approach “risks overlooking that something deeper is going on here,” and could result in an ever- widening inequality “brought about by differing growth rates and policies in advanced economies as the U.S. increasingly outpaces other economies.”

Related: The Coming Collapse of the American Economic System

He outlines the following five factors to support his thesis that several elements of the U.S. economic surge are “strained, stretched, and vulnerable to sudden disruptions:”

  1. Despite improvements, writes El-Erian, there exists a “significant trust deficit” reflected in the “continued vibrancy of anti-establishment movements and causes” across the globe and the “related erosion in the standing of ‘expert opinion’.”
  2. A lack of policy action, he argues, “makes everything bumpier,” adding that the U.S. is the only economy to have undertaken multiple reforms to sustain higher growth rates.  “As a result,” he writes, “the synchronized global economic pickup is starting to sputter.”
  3. “The gradual withdrawal of the financial safety net creates risk,” says El-Erian, explaining that “systematically important central banks are not currently trying to suppress volatility (unlike during past periods of instability).
  4. Growth differentials should be tracked, as they could accentuate risks for emerging economies. “If local conditions are already vulnerable, as in Argentina and Turkey, a stronger dollar and higher U.S. interest rates increase the threat of a local currency slide that destabilizes other segments of financial markets, forces major increases in domestic rates, and dampens economic activity.”
  5. Policymakers, El-Erian asserts, have the know-how to counter these disruptive forces, but it takes political will. “Absent policies that unleash the considerable potential of the global economy, the surprises they’ve seen so far could risk being just the beginning of a truly global economic slowdown and more intense financial instability.”

For more trends in fixed income, visit the Fixed Income Channel.

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