“Our World Is Forever Changed”: Bretton Woods Is Now On A Ventilator

Thursday, April 9, 2020
By Paul Martin

by Guy Haselmann, founder of FETIgroup.com
Thu, 04/09/2020


As the pandemic dissipates, businesses open and individuals come out of hibernation, our world will be forever changed. Time at home has allowed for self-reflection. New behaviors will be adopted by individuals and businesses alike. Relationships between neighbors, employees and employers, and citizens and their governments will be transformed. Some bonds will be made stronger, but in other cases, particularly where frailties of system or leadership ineptitudes have been exposed, anger and resentment will reign.

Some shifts in relationships and personal behavior will be immediately noticeable, while others will evolve more slowly over time. High indebtedness and unfavorable demographics will be drags on economic activity and markets for decades to come, while also influencing politics and global security. A movement toward de-globalization will cultivate a lowering of international trade with destabilizing geopolitical results. At the highest level, material shifts to geopolitical considerations and away from Ricardian ones will change world order and the course of history. These will impact every person and institution on the planet.

2020 vs. 2008

In a nutshell, 2008 was a fixable financial crisis brought on by too much debt. The 2020 crisis is a health crisis riddled with unquantifiable uncertainties that has spilled over into human psychology, politics, global economies and markets.

Comparing these crises has major flaws. In 2008, markets stopped functioning properly when interbank lending froze due to securities (e.g., CDOs) held in hidden off-balance sheet Special Purpose Vehicles (SPVs). A trillion dollars of collective SIVs made banks question the credit quality and magnitude of loses, hence the balance sheets, of counter-party banks. As bank lending seized, other markets were impacted in a classic market contagion scenario. TARP money and numerous market liquidity facilities set up by the Fed were funneled to financial markets to unclog the markets clogged plumbing.

The responses to 2020’s health crisis are wider and consist of global draconian measures (e.g., “stay at home” orders) that are directly impacting every economy, business and person on the planet. The virus and responses to it have happened with unprecedented speed and scope. Dusting off the 2008 alphabet soup of liquidity facilities has and will certainly help markets function better in the short term, but unlike in 2008, they do not solve today’s health crisis or broader underlying economic problems. They do little to replace lost income, fix balance sheets, prevent insolvencies, rebuild trust, or restore supply chains.

Rightly, today’s stimulus money is mostly trying to flow more toward main street than financial markets. This is critically important and will help quell social unrest. However, when the government controls the means of income distribution, degrees of freedom for individuals and businesses will plummet. Underlying tensions will simmer and perpetually rise like the heat in a pressure cooker.

Getting money to individuals and SME’s — to where it is needed the most — is an enormous undertaking by itself and will take time. Money is desperately needed, but, unfortunately, a good deal of the fiscal stimulus is in the form of low-cost loans. Does a world already saturated in debt need new loans?

The complexities of the government going directly to Main Street means tens of millions of loans or touch points which in turn means more room for fraud, trickery and skullduggery. A “V-shaped recovery” and “business as usual” will simply not occur when the economy opens back up.


Baby boomers are defined as those born from 1946-1964 (middle year of 1955). Looking at the average age of baby boomers during the last three major stock market declines (2001, 2008, 2020) result in dramatically different ages which should mean different reactions – all else being equal. The average age was 46, 53, and 65 respectively. A 65-year old investor invests differently than a 46 year investor, especially when confronted with a huge wake-up call.

The developed world is aging rapidly. Age plays a part in how a person participates in society, how they vote and invest, and whether they are a net contribution or draw on the economy. The ratio of working age people relative to number of retirees matters. This is particularly true in the U.S. with an enormous amount of unfunded liabilities; $140 Trillion+ in pensions, social security and Medicaid alone. Most of the large developed world has poor demographics.

Wars, particularly the two world wars, played a significant role in the demographic make-up of many countries. It skewed generational populations. Japan now has one of the oldest societies in the world and it also has a rapidly falling population. While the country has full-employment as a result, it has had low and limited GDP growth and zero inflation for almost 30 years. The global impact Japan is still playing out.

Germany is in equally bad shape. Germany’s boomers did not have many children and they lost 8 million men fighting the two world wars. A shortage of working age men negatively impacts a country’s means of production and level of consumption. This materially impacts Germany further due to its huge dependency on exports. A world that is de-globalizing magnifies the damage to Germany’s outlook. When demographics shift toward an extreme an entire country is destabilized.

The pandemic could not come at a worse time for the European (Dis)Union due to Germany’s financial role in keeping it together. Will Germany backstop Italian debt or that of other countries most impacted by the coronavirus and global recession? Will Germany’s own troubles lead to a two-tier EU and Euro: A North vs. South? Will the refugee problem cause Europe to close its borders, one to the other? Will that be the vanguard of a dismantling of the EU and the Eurozone?

China’s demographics are also problematic. Since 2000, China’s GDP has expanded 4X, but over the same period its debt has expanded 24X. Spending $6 of debt to achieve $1 of GDP growth is unsustainable. To keep the peace, particularly amongst many diverse cultures, Beijing leaders must continually improve the lives of its people. China has insufficient natural resources to be self-sufficient and lacks enough domestic demand to power its economy. A deglobalizing world has huge ramifications for China. (Japan, Germany and China are only a few examples)

Individual Behavior

The extraordinary and sudden shutting of economies and business doors have led to a plummeting of revenue and income, and skyrocketing of unemployment. These will forever change behavior and psychology. When crises occur, typically the exit is through a different door than the entrance.

Too much complacency had settled in for investors and in people’s daily life. Too many people and businesses either recklessly forgot, didn’t have the means, or choose not to “save for a rainy day”. As a case in point, two weeks after “stay at home” orders were imposed there have been news reports of a 4-mile long car line at a food bank in Pittsburgh.

In the future, individual savings will be higher and consumption will be lower. Due to regulatory reasons and reputational perceptions, businesses will think twice about issuing debt or using free cash flow, in order to buyback shares.

As the economy opens again for business, will people travel as much by air, or vacation on cruise ships? Will people work from home more often? Will they frequent restaurants as often? Will they go to theaters as frequently or watch streamed entertainment at home instead? Are people more likely to cook at home or cook pre-assembled delivered meals ? The list of questions here are endless and important. The answers will frame the future.

The Rest…HERE

One Response to ““Our World Is Forever Changed”: Bretton Woods Is Now On A Ventilator”

  1. Jade Helm

    Corona Zombies

    This is so bad, it’s good,



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