The one blessing before was that the timeline of impending doom was down the road by 10 to 20 years. Looking at these dynamics today with an additional $5.4 trillion of stimulus already committed (spent) while infrastructure plans with a likely $1 trillion to $3 trillion price tag are on the horizon expedites the day of reckoning. U.S. debt could reach $30 trillion by the end of this decade, with deficits climbing as underfunded Medicare and Social Security programs run out of money. Debt-financing is tricky, with Treasury auctions becoming more and more problematic to fill. In the last 20 years, we have gone from financing $6 trillion to $21 trillion. Over the next decade, this will grow to more than $30 trillion. What are the implications of the crowding out of private capital formation which fuels growth? What are the consequences for U.S. GDP as government deficit spending becomes an increasingly large share of the pie? And when will markets react by not meeting our funding needs, leading to a failed Treasury auction with profound repercussions? The Federal Reserve Bank balance sheet is now over $8 trillion. Can it grow to $20 trillion? Maybe, but out past that is anyone’s guess... The difference between developed- and emerging-market central banks is confidence. But until 1971, that confidence in the U.S. came via gold and, subsequently, by growing GDP and sustainable debt levels. INSIGHT FROM OUR CHIEF RISK OFFICER
France in the late 1700s, Germany in the 1920s, Argentina and Brazil in the 1980s. The difference between those periods in history and today is that those economic disasters were largely self-contained. Today, the entire global economy is dependent on the U.S. economy and dollar, and disruption there will have broad material shockwaves. The post-COVID reality is that we will likely face this economic reckoning inside of a decade. We Live and Die by Tech Societal challenges have been increasing for much of the past 20 years. Technology and digitization put increased pressure on developed-country job markets, particularly those in the modest wage category. Globalization looked better on paper (or screens) than the reality for economies with robust middle classes, as they were now competing with populations battling starvation. Divisiveness around societal equity continues to grow as politicians seek to fix centuries of inequity (racial, economic, ethnic, gender, LGBT, and otherwise) in the next political term, placing incredible pressure on existing societal structures. Our political discourse, already on the edge pre-pandemic, is increasingly strident, with probabilities for unsustainable and divisive outcomes growing by the week. Technology was changing the path forward for society at an as-yet-unseen pace, but the pandemic has sent this pace to warp-speed. Digital work environments and interactions have permanently changed societal structures,
When that asset-backed confidence disappears, it’s historically ugly...
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July 2021
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