Aftermath

1. Central Bank Policies Since 2008 Created New, Bigger Bubbles.

If Greenspan’s three-year experiment with sub-2-percent rates gave rise to the global financial crisis, what was the world to make of the Bernanke-Yellen policy of 0 percent for seven years?

Unprecedented intervention. Following the 2008 financial crisis, the Federal Reserve and other central banks implemented extraordinary measures like Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE) to prevent collapse and stimulate growth. QE involved printing trillions of dollars to buy long-term securities, ballooning the Fed's balance sheet from $800 billion to over $4 trillion. The goal was to lower rates, boost asset prices, and encourage spending.

Failed objectives, new problems. Despite these efforts, trend growth never returned, and inflation remained stubbornly low, contrary to central bankers' expectations. Academic research struggled to find evidence that QE did significant good beyond the initial liquidity injection (QE1). However, the prolonged period of ultra-low rates and massive liquidity did have one clear effect: it inflated asset bubbles across stocks, bonds, real estate, and emerging markets, making the system more fragile than before the crisis.

Unprepared for the next downturn. By the late 2010s, central banks were desperate to "normalize" rates and balance sheets through Quantitative Tightening (QT), but faced a dilemma. Raising rates and shrinking the balance sheet risked triggering the very recession they were trying to prepare for. With rates starting near zero and the balance sheet still bloated, the Fed lacked the traditional tools (rate cuts) and capacity (QE4) to effectively combat a new economic contraction, leaving the system highly vulnerable.

2. Unsustainable US Debt Levels Threaten a Crisis of Confidence.

The United States is past the 90 percent death spiral trigger level and the situation grows worse by the year.

Debt explosion. After decades of managing debt primarily around wartime needs, the US national debt has exploded since the early 2000s, driven by war spending (Bush 43), social spending (Obama), and tax cuts (Trump). The debt-to-GDP ratio surged from 32.5% in 1981 to over 105% by 2017, a level historically associated with impaired growth and crisis risk.

The 90% threshold. Research by economists like Reinhart and Rogoff indicates that once government debt-to-GDP exceeds 90%, it becomes a significant drag on economic growth. This is because high debt leads to expectations of future tax increases or inflation, discouraging private investment and consumption. The US is now well past this critical point, facing a "debt death spiral" where debt hinders growth, making the debt burden even harder to manage.

Compounding fiscal pressures. Future deficits are projected to exceed $1 trillion annually due to factors like:

• The 2017 tax cuts
• Increased discretionary spending
• Rising entitlement costs (Social Security, Medicare)
• Student loan defaults
  These pressures, combined with the drag from existing debt, make it mathematically improbable for the US to grow its way out of the problem without resorting to inflation or facing a crisis of confidence among creditors.

3. Behavioral Science is Being Used to Manipulate, Not Just Nudge.

The person who creates that environment is, in our terminology, a choice architect.

Choice architecture. Behavioral economics reveals that human decisions are often irrational and influenced by cognitive biases (e.g., risk aversion, overconfidence, anchoring). "Choice architects" design environments and forms to subtly steer people towards certain outcomes, a practice dubbed "libertarian paternalism" by some, claiming it helps people make "better" choices without coercion.

Manipulation, not just guidance. While presented as benign "nudges" (like making 401k enrollment opt-out instead of opt-in), this practice is powerful and often serves the interests of the designer (corporations, government) rather than the individual. It preys on biases to achieve predictable aggregate results, effectively bypassing conscious decision-making and traditional learning from mistakes. Examples include:

• Designing forms to favor specific choices
• Using suggested donation amounts to increase giving
• Reminding entrepreneurs of failure rates

Ethical concerns and unintended consequences. The application of behavioral science raises serious ethical questions, particularly when used by governments (like China's social credit system) or political campaigns. It assumes the architects know what's "best" and ignores the value of individual autonomy and learning through experience. Furthermore, constant "nudging" can lead to desensitization (like ignoring car beeps) or even dangerous outcomes when critical warnings are ignored due to "alert fatigue."

4. The Rise of Passive Investing Creates Unprecedented Systemic Risk.

Passive investors contribute nothing to price discovery, yet reap rewards by going along for the ride.

Alpha vs. Beta. Traditional active investing seeks "alpha" (returns above a benchmark) through skill, research, or market timing. Passive investing, like index funds and ETFs, aims simply to match a benchmark's "beta" (market movement) with low fees, arguing active managers rarely outperform after costs. This argument, partly based on the flawed Efficient Market Hypothesis, has driven trillions into passive strategies.

Why active often fails. While beating the market is possible (often through legal "inside information" or skilled timing), most active managers underperform due to:

• Cognitive biases (e.g., anchoring to losing trades, chasing momentum)
• Market skew (a few winning stocks drive most index gains, which active managers often miss)
  Passive investing avoids these pitfalls by simply owning everything in the index.

The "no-bid" risk. The massive shift to passive investing creates a new systemic risk: hypersynchronicity. As more money tracks indices, fewer active investors are left to perform crucial price discovery and provide liquidity. In a downturn, if everyone tries to sell passive instruments simultaneously, the lack of active buyers could lead to a "no-bid" scenario where prices collapse violently with no buyers, potentially triggering a market crash far worse than those seen historically.

5. Modern Monetary Theory's "Free Money" Ignores the Danger of Lost Confidence.

The problem with chartalism and MMT is not that the theory is wrong as far as it goes; the problem is that it does not go far enough.

Money as a state construct. Modern Monetary Theory (MMT) argues that a sovereign government that issues its own currency (like the US) can print unlimited money to fund spending without worrying about deficits or debt. They claim money's value comes from the state requiring it for taxes, and that government spending itself creates money and private wealth. This view conflates the Treasury and the central bank into a single entity.

The allure of unlimited spending. MMT provides a theoretical basis for massive government programs like guaranteed jobs or universal basic income, arguing they can be funded simply by printing money. Advocates dismiss concerns about debt and solvency for currency issuers, claiming the only limit is inflation, which they believe can be controlled through taxation.

Ignoring confidence and velocity. The critical flaw in MMT is its neglect of confidence and money velocity. While the state can legally require its currency for taxes, its value ultimately rests on public confidence. If excessive printing erodes this confidence, people will spend money faster (increasing velocity) or seek alternatives (gold, barter), leading to inflation or hyperinflation, regardless of tax policy. This psychological phase transition can happen suddenly, overwhelming the state's power to control it and exposing the limits of "free money."

6. Trade Wars and Mercantilism Signal a Retreat from Globalization.

The cherished verities of liberal economics are mostly junk science; a thinly veiled stalking horse for the real goal of global governance and taxation in the name of globalization.

Return of protectionism. The era of seemingly unchallenged globalization and free trade is giving way to a new age of mercantilism, where nations prioritize trade surpluses and domestic production through tariffs, subsidies, and currency manipulation. This contrasts with the post-WWII consensus favoring open markets and comparative advantage.

Critique of free trade dogma. Rickards argues that the theoretical benefits of free trade (based on static comparative advantage) are often undermined in practice by:

• Mobile capital and technology shifting advantages
• Currency manipulation
• State subsidies and protectionism (e.g., China's rise)
  He views "free trade" as often serving the interests of global elites and rival nations at the expense of domestic jobs and industries.

The US-China conflict. The trade war initiated by the Trump administration, led by figures like Robert Lighthizer, represents a deliberate return to a more confrontational, mercantilist approach. The US is using tariffs, investment restrictions (CFIUS), and currency pressure to force concessions from China on issues like trade deficits and intellectual property theft. This conflict is expected to be prolonged and have significant market impacts, including downward pressure on the dollar.

7. The International Monetary System is Unstable and Due for a Reset.

The international monetary system today is a patchwork of floating exchange rates, hard pegs, dirty pegs, currency wars, open and closed capital accounts, with world money waiting in the wings. It is unanchored. It is incoherent.

Lack of an anchor. Unlike the pre-WWI gold standard or the post-WWII Bretton Woods system (pegged to gold via the dollar), the current international monetary system lacks a universally agreed-upon anchor or objective standard for valuing currencies. This "incoherence," acknowledged even by former monetary elites, contributes to instability, currency wars, and unpredictable capital flows.

History of resets. Major international monetary conferences (Genoa, Bretton Woods, Smithsonian, Plaza, Louvre) have historically occurred to address systemic instability, averaging about one every two decades. The last major one was over 30 years ago, suggesting the system is overdue for a fundamental change, or "reset." The question is whether this reset happens proactively through a conference (perhaps convened by a leader like Trump) or reactively during a crisis.

Alternative reset paths. Beyond a formal conference, potential paths for a new monetary order include:

• A digital gold standard (e.g., Russia/China pooling gold for a crypto-currency)
• An SDR (IMF's world money) pegged to gold
• National currencies unilaterally pegging to gold (the "Malaysia Plan")
  These alternatives aim to reintroduce stability and bypass the current dollar-centric system, potentially shifting global financial power.

8. Rising Income Inequality Threatens Social Cohesion and Stability.

The middle class is right to feel overtaxed relative to both the rich and the poor.

The struggling middle. While not disappearing, the US middle class faces increasing economic insecurity. Income and wealth have become increasingly concentrated among the wealthiest 1%, while the bottom 60%'s share of total income has significantly declined over decades. The middle class often feels unfairly burdened by taxes compared to both the rich (who benefit from loopholes, capital gains rates, and wealth preservation strategies) and the poor (who receive government assistance).

A rigged game. Rickards argues the system is perceived as rigged because the wealthy leverage their influence to maintain advantages in:

• Tax laws (lower effective rates, wealth transfer strategies)
• Social networks (access to elite schools, jobs, and investment opportunities)
• Student loan burdens (disproportionately affecting middle-class graduates)
  This perpetuates inequality across generations, undermining the traditional American Dream of upward mobility.

Leveling through catastrophe. Historically, significant reductions in income inequality ("leveling") have not occurred through policy reforms but through violent, large-scale events like mass mobilization warfare, extreme revolutions, pandemic plagues, or systemic collapses. While no one desires these outcomes, Rickards suggests that without such disruptive forces, the trend of increasing inequality is likely to continue, potentially leading to social disorder.

9. An Emerging Markets Debt Crisis Could Trigger the Next Global Panic.

A full-blown emerging-markets debt crisis is likely soon.

Predictable cycles. Emerging markets (EM) debt crises have occurred with regularity throughout history (e.g., 1980s Latin America, 1997-98 Asia/Russia). These crises often follow periods of easy money in developed economies, where hot money flows into EM seeking higher yields, leading to excessive borrowing and asset bubbles.

Current vulnerabilities. After avoiding the worst of the 2008 and 2010-15 crises, EM borrowing has surged again. Key metrics indicate high vulnerability:

• Low hard currency reserves relative to import needs (e.g., Turkey, Argentina, South Africa)
• High Gross External Financing Requirements (GXFR) relative to reserves (maturing debt + current account deficit vs. reserves)
  Nations like Turkey, Argentina, and Venezuela are already showing signs of distress (currency defense, IMF bailouts, defaults).

Contagion risk. The primary danger is not individual defaults but contagion. As one nation defaults, creditors lose confidence in others, triggering a widespread rush to exit EM investments. This can rapidly deplete reserves even in stronger EM economies, potentially leading to a global liquidity crisis worse than 2008, especially if developed nations are unprepared or unwilling to provide bailouts.

10. Prepare for Extreme Events: Civilization's Veneer is Thin.

Civilization is barely skin deep.

The Bernoulli process. While the probability of any single catastrophic event (like a "100-year flood," financial crash, or pandemic) in a short period might seem low, the probability of at least one such event occurring over a longer timeframe (e.g., 10-30 years) approaches 100%. History confirms this, with multiple major financial crises occurring within decades of each other.

Systemic linkages. Modern society is built on interconnected critical systems (finance, power grid, internet, supply chains). Failures in one system can trigger cascades in others (e.g., Fukushima: earthquake -> tsunami -> nuclear meltdown -> market crash). These linkages, sometimes amplified by design (e.g., cyberattacks during market stress), make the system vulnerable to widespread breakdown.

Beyond financial loss. A true worst-case scenario goes beyond market crashes and economic downturns. It involves the breakdown of critical infrastructure and social order. History shows that in extreme circumstances (like Hurricane Katrina), the veneer of civilization can wear thin in days, leading to violence and a breakdown of the rule of law. Survival and wealth preservation in such an "aftermath" may depend less on traditional financial assets (stocks, bonds, even cash) and more on tangible assets (gold, land, supplies) and, crucially, community and practical skills, as depicted in fictional accounts like "The Mandibles."

Last updated: July 10, 2025