Unsustainable Trajectory

Could changes be in the wind, as we are on an unsustainable trajectory?

 “An uncertain future and the sustainability of public debt world,” by the World Economic Forum (WEF) in 2019 brought to light this unsustainable trajectory

“Public debts are high and rising. And the world worries. Academic economists worry that the long-term trend in debt accumulation seems inconsistent with [these] theories of optimal government debt policies,” wrote the WEF.

The unsustainable trajectory of public debt means less safe-haven assets and more risk-taking leading to systemic risks.

“The dirt beneath our feet is getting poorer, and on many farms worldwide, there is less and less of it.”

Precious water falling from the sky is turning into acid rain. Climate change is making water stress worldwide.

“If World War III broke out today, we think it would be over water. Not only do many scientists and hydrologists agree, they think such a conflict could break out as soon as 2025. … The signs of such a conflict already exist.”

Mass transport, which entails burning fossil fuels, is also on an unsustainable trajectory

Combustion vehicles emit deadly fumes. The carbon monoxide of just one combustion engine running in a closed gauge kills in minutes. So, what do 1.4 billion cars on World roads pumping out fumes do? More than 10 million people die each year from air pollution.

The offshore Islands of garbage plastic choking sea life is no fiction.

The fourth revolution, automation, robots, and AI have created an unsustainable trajectory and an uncertain future for the human workforce

Humans need not apply for work in an economy that is increasingly digitalized and automated. The profit incentive will accelerate fourth revolution technologies. Why employ a human when a smart bot can do the job? Moreover, Bots don’t need a pension, healthcare, they don’t take toilet breaks, need rest, or demand pay rises and holiday pay. So, businesses and industry will accelerate the adoption of fourth revolution technologies, and those that don’t will be driven out of business by rivals that can provide more for less.

But let’s take this full circle, on why we believe that we are on an unsustainable trajectory regarding fiscal and monetary policy.

The ballooning government debt, which then gets monetized into treasuries and bought by central banks is also growing exponentially, and it too is following an unsustainable trajectory.

In an article entitled,“QE infinity” dated April 2019,

“Quantitative easing (QE) infinity could now be a reality,” wrote Darren Winters.

QE entails a large scale of financial asset purchase such as bonds and, in some cases, even stocks by the central bank to inject liquidity into the economy.

But why do we think QE infinity is still a reality today, even though endless central bank money creation, also known as emergency monetary policy, is on an unsustainable trajectory?

Because the dynamics of falling worker participation rates are accelerating with automation and AI.

Furthermore, politics will drive more public spending in the form of Universal Basic Income (UBI).

For example, UK Labour Party lawmaker Angela Rayner called members of the government a “bunch of scum.”

“Anyone who leaves children hungry during a pandemic and can give billions of pounds to their mates on WhatsApp, I think that was pretty scummy,” said Rayner.

So, an English rose, speaking the people’s English and getting on stage crying feed the hungry children, will no doubt be a big vote puller. But I don’t smell the sweet scent of roses but rather the nationalization of UK utilities, the middle finger to shareholders. What is happening in the UK is also occurring in other developed economies. The US wants to suspend the debt ceiling. 

Voters are demanding governments do more

In short, the pivot to left-leaning governments promising social nets will result in QE to infinity, and we believe that is putting monetary policy on an unsustainable trajectory.

Think about it. Why would an investor buy government debt, which is part-funding UBI, so that the country can keep supporting an unproductive population? QE infinity would eventually debase the currency to junk with hyperinflation banging at the door. What is the point of owning government bonds, when on maturity the currency is so debased that an investor ends up out of pocket?

So central banks are forced to keep buying the government debt in a backdrop of declining worker participation rates and rising left leaning governments demanding social nets.

The crux of this piece is that tapering is a pipe dream

Particularly when populations increasingly need government handouts for essentials. Central Banks’ money supply and population growth are linked. If the central banks attempted to normalize monetary policy, we believe asset prices would collapse, and a Great Depression would follow. Social unrest with a demagogue rising to power would come next. History would repeat itself with public anger exteriorized into a war. But in a world of nukes, the war would be too dangerous.

Albert Einstein — ‘I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.’

But we are on an unsustainable trajectory so have the elites, who feast at the same global table and, who fear their people, opted for Utopia (2020)?