The Private Equity for Families Blog

World 2.0

As a society we have been moving at 80mph most of my adult life. There is endless stimulation from people, meetings, media, business, religion, socialization, travel, sports, entertainment, literature, the stock and bond markets, internet and iPhones.

Sometimes we are moving so fast we never have time to process what is happening. The only silver lining of Covid-19 is we now have nothing but time at home to process. One of my business partners sent me a really stimulating article from “The Marginal Revolution” by Tyler Cowen called “World 2.0.” The caption knocked me out:

“THERE ARE DECADES WHERE NOTHING HAPPENS, AND WEEKS WHERE DECADES HAPPEN”

The Author’s List of Then and Now

This is from a very able and perceptive correspondent:

World 1.0World 2.0
110 successive months of job growth 10 million jobless claims in 2 weeks
10 year bull market across sectors Winners and losers with extreme outcome inequality
Full employment 30% unemployment
Base rate thinking First principles thinking
Physical Digital
Office by default Remote by default
Office for work Office for connection, community, ecosystem, makerspaces
Suit, tie, wristwatch, business card Good lighting, microphone, webcam, home office background
Commute + traffic jams Home + family
Last mile Only mile
Restaurants Groceries + delivery
$4 toast Sourdough starter
Walkscore Speedtest
Cities Internet
$100k for college Not paying $100k for a webinar
City Countryside
YIMBY NIMBY
Internal issues Exogenous shock
Lots of little problems One big problem
Stupid bullshit Actual issues
Too much technology Too little technology
Complacency Action
Years Days
Policy Capacity
Ideology Competence
Assume some government competence Assume zero government competence
Institutions Ghost ships
WHO Who?
Trusted institutions Trusted people
Globalization Decoupling
Just-in-time Stockpile
Tail risk is kooky Tail risk is mainstream
NATO Asia
Boomers most powerful Boomers most vulnerable
Productivity growth collapse Economic collapse
Social services Democrat UBI Communist
Propaganda Propaganda
Deficit hawks MMT
Corporate debt Government debt
Techlash Tech a pillar of civilization and lifeline to billions
Break up Amazon Don’t break up Amazon!!!
Avoiding social issues Avoiding layoffs
Sports Esports
Phone is a cigarette Phone is oxygen
Resource depletion $20 oil, $0.75 watt solar, <$100/kwh batteries
Stasis Change
Low volatility High volatility
Design Logistics
Extrovert Introvert
Open Closed
20th century 21st century

Coronavirus has also created several “forever” changes, foremost of which are changes we see right now to business interactions, education and our homes and family.

Modern Monetary Theory

The one change, however, that will alter our world more than the entire list taken together is the shift from fiscal responsibility to Modern Monetary Theory. Only recently did I get exposed to “MMT” for the first time in a series of articles about Ray Dalio and The End of the Debt Super-Cycle.

MMT’s main concept is governments can print money with impunity because they can never default in their own currency. The printing of money may lead to inflation, but MMT presupposes the ruling class will have restraint when inflationary risks are too high. Proponents are Bernie Sanders and Alexandria Ocasio-Cortez. Counting on restraint from them is like Trump using two syllable words or Biden completing a sentence.

The accounting is simple; the government’s deficit (debt creation) creates a private sector surplus thus unlocking the productive energy of the nation. Central banks have been doing this since 2008, but they have pretended it is short lived, and more importantly, reversible.

I have never believed in the printing press or helicopter money as a solution to an over levered economy. At best, these moves forestall panic selling and kick the can down the road. This is how Reuters summarized our predicament on April 6, 2020 in a post on Yahoo Finance.

“The ECB, Fed and Bank of Japan have a combined $14 trillion worth of assets on their balance sheet, largely bought since the financial crisis of 2008 to complement interest rates already stuck at zero or lower, Datastream data shows.

But so far, they had maintained that this so called “quantitative easing” (QE) was temporary and policy would one day go back to normal, with positive interest rates and lean balance sheets.

Not any more. All major central banks are now more or less openly talking about permanent QE, which would mean governments and companies, whose bonds have been bought by the central bank, could roll over that debt indefinitely.

The BOJ, for one, already owns 43% of Japan’s government debt, and the ECB did away with a cap on owning more than a third of any one euro zone country’s bonds.

Some economists are calling for even more extreme measures, such as cash handouts to all households, known in economic parlance as helicopter money, or debt cancellations, which were urged by former ECB President Mario Draghi.

Some forms of debt forbearance… may be needed—for instance by extinguishing private sector loans vacuumed by the central banks,” said Gilles Moec, chief economist at French insurer Axa.”

The Debt Jubilee is Coming

MMT is for sure the next big thing and its political ascendance is unstoppable. Whether it is the New Green Deal proposed by AOC, or forgiveness of student loans proposed by Bernie Sanders, Modern Monetary Theory will be cited as the “high-brow” rationale for allowing politicians to write unpayable checks against the world’s wealth.

There is another domino that has to fall, however and I think it is coming soon. I will write in my next blog about the debt jubilee and what it means for our monetary system.

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Rob McCreary

Rob McCreary has more than 40 years of transactional experience as an attorney, investment banker and private equity fund manager, and has spent his career in building entrepreneurial organizations with successful track records Founder and chairman of CapitalWorks, he is responsible for developing and maintaining senior relationships with investors and portfolio governance.

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