Will it happen? Can it happen? And how it could happen? Let’s look at the fundamentals driving the reset narrative.
Debt is the chief reason why the talk of the reset exists. S&P Global recently reported that by the end of 2020 the global debt to GDP was a whopping 267%. These figures have been muted as conservative by some who believe the problem is far bigger. The US in the year 2000 had a debt to GDP at 58.64%, and today it is 129.88%. The US adds $1m every 23 seconds to it total debt. However even this pales in significance when we look at Japan, who’s debt to GDP sits at 234%. These levels are totally unsustainable.
Fiat became common place from 1971 following the failure of the Bretton Woods programme. Over time all fiat currency loses its purchasing power as one dollar buys you less now, than it did ten years ago. Fiat currencies in general fail though and this is mainly due to questionable economic policy. The world reserve currency of the dollar has been around now for many years, yet it has plummeted in real terms, and could be heading for further depreciation, which leads us on to the next headline.
Today, central banks across the world are creating an environment where printing money is the norm and the upshot of this is currency debasement. Whilst there are two sided views to what the Fed (as an easy example to use) is doing with its monumental creation of paper money and how the potential for inflation is enormous once the velocity of this money starts to circulate, we are in the year 2021 and doing nothing and not supporting the residents of a country for an economy the size of the US wouldn’t bear thinking about. How they have gone about doing it on the other hand is for another discussion. So putting this all to one side, the US has printed in the region of $7 Trillion in the past 12 months. That is 1/5th of all US dollars in existence today.
Low interest rates are common place across the world with most western economies now adopting negative rates which is also creating an environment where fiat becomes worth less and less. Raising of interest rates is unlikely in the short term and any increase in the next few years is likely to be marginal as quite simply, the world can ill afford large increments, with many zombie companies across the world dancing on the trapdoor of insolvency.
Prince Charles famously said at the World Economic Forum in June 2020 that the pandemic is the chance to reset the global economy. Joe Biden is using the phrase “Build back better” which is widely used by the World Economic Forum. Kristalina Georgieva, IMF Managing Director of Washington, DC called for a new Bretton Woods moment. There are many more examples.
It is impossible to mention a reset without looking at some of the background activity of the last few years, how the new banking rules being imposed for Basel iii could affect the world’s banking system, and imbedded in this is how Gold could be used to offset huge swathes of debt. Central banks have been stockpiling Gold now since Basel iii was announced, so it certainly can’t be discounted as somehow being featured. Some have touted its use to back a digital currency. This could mean every single movement and transaction we make is more traceable than it is now. Whether the reset is behind a digital currency or not, it looks like China has led the way already, and it would appear we are heading in this direction at some point in the near future.
So is the mass spending of money we do not have across the world prima facie evidence of this with the great reset around the corner? Clearly this isn’t something that could happen overnight, therefore the details must have been worked around for years.
There are certain green issues that surround this as well. The reduction in the use of fossil fuels for one. Changes to taxation, equality, sustainability and making the world more balanced appear to be the goals for the outcome. Notwithstanding this, one would find it difficult to fathom a bigger reason for a reset than the global debt issue.
So will a global reset happen. I think so, however we can’t know for sure in what form it will take and how it will affect the every man in the street. The biggest question mark surrounding this is what will happen to the debt. We know one thing is for sure, the world leaders now have the ability to use Covid as the reason without pointing the finger at anyone. The timing has been purely happenstance of course.