THE NEW NORMAL

 

The New Normal:

1) Stubborn Inflation.  The deglobalized supply chains will take many years to reroute.  The split between Russia/China India  and Belt Road Iniative (including Turkey, the Stans, and much of Africa and South America and Saudi Arabia): which are actively dedollarizing will put massive inflationary pressure on the dollar.  Sure, a good recession will bring down some prices on the demand side.  But the supply side is something we can not affect except through dimplomacy, which is clearly a lost art to our highly beligerant political class.

2) Higher Interest Rates. We can not return to ZIRP without sending ourselves into hyperinflation.  Higher Interest Rates - to the extant that we can tolerate them are here to stay.

3) Accelerating Debt.  The debt in our system is so massive that only way we can service it is to create more debt.  This is not only true for our government but much of our corporate financing is based on debt that is perpetually rolled over and never paid down.  Private Equity is an entire industry based on this principle.

4) Slowing Economic Growth.  As debt service becomes an ever larger slice of the economic pie, economic growth necessarily slows.  Trend growth for the USA is currently just over 1 percent.  The last time we got it up to near 3 percent for 2 quarters back in 2019 was by blowing an additional 3 trillion dollar hole in the deficit.  Every time we try to increase deficit spending, future growth commensurately declines,  

5) Exacerbating Geopolitical Stress.  Whether it is fights with real enemies like Russia, Enemies of choice like China, or even picking fights with our allies like France and Germany, or ex-protectorates like Saudi Arabia, we are in an era of increasing Stress in the West.  Even as our competitors in the East seem to be able to cooperate with each other at least in the trading of commodities.  The US is commodity rich.  But without global cooperation we can not drill enough, farm enough, mine enough to take care of our own needs.  It's just an economic fact the we can't seem to get out heads around.

6) Exacerbating National Stress.  This is highly inflationary, because it necessarily leads to malinvestment.  We end up competing with ourselves to place resources where they are least needed and tend to do the most harm, fighting fantom wars against fantom greivances instead of fighting common enemies.  This national sickness is getting worse by the second.

At some point as a nation we will come to our senses.  But it doesn't seem like this will happen before things get bad enough that, as Churchill once observed, we begin to do the right things -  after exhausting all other options.

Meanwile, if you want to survive this period you might start to get into assets that have no counterparty risk.  That is to say: Hard Assets.