The Great Reset: Leaning Into 2021 Money Storm

January 2, 2021

The big talk among economists and central banksters and some politicians in 2020 has shifted toward how the Coronacrisis will (or “must”) result in a global financial/social reset. I’ve said for years we can anticipate central bank digital currencies (even before that term existed) to happen in conjunction with a global financial reset. Now we are in that era, and I’ve been writing about it this year in my Patron Posts.

In short, I framed that argument as, “The world is set universally on a course of creating an everything bubble. When that explodes or implodes, it will be a global problem worse than the Great Recession, which will beg for a global answer.” With the global pandemic expanding some bubbles (like stocks) and, oddly, housing, and imploding other parts of the economy that were not bubbles (Main Street, such as restaurants, already endangered malls, etc.), one cannot help but think that time is here.

So, it’s not hard to understand why economists, politicians and bankers are all talking about a global reset now.

Talk of the town

Here are some quotes from the economists and other business leaders:

Mike Corbat: Chief executive officer of Citigroup Inc.

From putting letters of credit on blockchains, digitally onboarding clients, and conducting virtual roadshows for IPOs, bankers are ripping up some of the last paper trails we have left. Consumers who might have not done a lot digitally until now are engaging remotely. Many of those core activities will never go analog again. All that puts even more responsibility on financial institutions to help close the digital divide.

Zero Hedge

That cuts straight to the chase on the issues talked in my Patron Posts earlier today and throughout the year. There you have the CEO of a major bank that ordinary people work with on a day-to-day basis, saying banking will never be the same again. All banking will go more digital quickly just as people’s work spaces are going virtual.

[Money managers] should also stop hoping for a V-shaped recovery, argues real estate billionaire Sam Zell. Banking titans James Gorman and Mike Corbat see more and more of the financial industry going digital. One upshot: Firms like Morgan Stanley and Citigroup may not need all that office space.

I think that is a given. Wall Street is one of the easiest arenas to shift toward virtual offices since almost everything they do in their offices is digital anyway. This will expedite NYC’s uptown collapse. NYC is in for a world of continuing hurt as the collapse of commercial real-estate hits hardest in Manhattan, the loss of uptown workers results in closure of Manhattan stores, the rise in violence already seen by Antifa and BLM protests that went wild makes the area less desirable for people to live in, and being the hotspot of repeated COVID breakouts drives people away in fear.

The changes in the workplace are also going to have a longterm impact against the travel industry.

Susan Lyne: Managing partner at BBG Ventures

I can’t imagine companies are going to go back to spending as much on business travel. Everyone has been forced to figure out how to do business across country using Zoom or whatever video products.

Expect other changes in travel that may become permanent:

Glenn Fogel: President and CEO of Booking Holdings Inc. and Coronavirus survivor

You’re going to see fever checks in all airports. They’re going to try to catch anyone who’s coming through who may be infected. Certain jurisdictions are going to ask you to download an app to track where you are.

Proof that you don’t have COVID via a COVID test is already required on some airlines. Due to the latest upsurge in COVID, expect to see proof of vaccination in the coming year as a condition for flying on some airlines. Air Canada has already announced such plans. Some work places may start to require such proof by the end of 2021, depending on how far the vaccine roll-out has gotten. In the immediate future, however, such measures would shut out to many workers or too many travelers to be feasible.

James Gorman: CEO of Morgan Stanley

Clearly we’ve figured out how to operate with much less real estate. Do I think everyone is going to be working from home? No. The mentoring, the connection, the team bonding, the brainstorming, the creativity that comes from being in groups of individuals, like-minded and not like-minded, that’s how great organizations thrive. But can I see a future where part of every week, certainly part of every month, a lot of our employees will be at home? Absolutely. People have been functioning extremely well. We will have less footprint.

That takes us back to the global impact on US jobs that Trump sought to overcome with his revised trade policies, but this transformation will strengthen the move of higher-end jobs to places like China and India:

Joe Lonsdale: Partner at 8VC and co-founder of Palantir

Does this change how we hire around the world? Unfortunately it probably pushes outsourcing a lot more for certain types of jobs in the U.S., because you can hire someone just as well who doesn’t have to necessarily live in your town…. It could be another pressure on the middle class….

I think Biden will capitalize on the trade war Trump began but also seek to bring it to a close. (He has ties with China, remember?)

Chen Zhiwu: Director of the Asia Global Institute, economics professor at the University of Hong Kong, and a former adviser to China’s cabinet.

After the pandemic stabilizes, the New Cold War will be more visible between China and the U.S.-led West. The blame game has already started. But it will get worse once the economic hardship from the pandemic materializes in the coming months or years, to decouple China further from the developed West. As a result of the crisis, China will shift further back to its Communist roots and the Maoist era in terms of worldview and policy mindset.

I’m not completely convinced of that one. I think the world is starting to coalesce against Chinese expansion, which is something Trump should have done from the start in his trade war, drawing Europe into the fight on our side, instead of launching a warn in all theaters at once.

Biden has much better relationships with Europe, and will seek to unify the US and Europe in pressuring China. I’m not so sure China will respond by moving away from the West and going full-on military as it knows it thrives by trade with the rest of world. Only time will tell if Dr. Zhiwu will do better in his prediction about China than I. He certainly has the better credentials, so I won’t stake anything on my prediction.

James Galbraith: Professor of government at the University of Texas

There will be a vast tangle of unpaid debts that cannot be cleared, and—what is different from 2008 and 2009—the model of foreclosures, evictions, and repossessions to deal with them is going to be absolutely unacceptable. People sheltering at home without income are in no way responsible for their circumstances and will refuse to accept the terms of those contracts. So the contracts will have to be suspended, and the debts cleared away, or there will be a confrontation on a vast scale….

The right model is that of the treatment of inter-allied war debts after World War II: They were canceled, because dealing with the common enemy was a common effort. So the whole financial system will have to be reset. This is not an ideological point but a practical necessity for reestablishing a functioning economic system.

I think some form of a partial debt jubilee on mortgages could happen later in 2021. The pandemic was not the quick three-month thing the government was hoping for when it set up forbearance. There was no V-shaped recovery, except in stocks. It is becoming impossible for landlords to ever recover in making up mortgage payment that were inevitably stopped by rent forbearance.

Other homeowners are facing a mountain of deferred payments they will find hard to manage because the forbearance thing could easily go on another six months before it starts to break all apart everywhere. Maybe banks will be able to roll those up into refinanced loans.

If not, that will force some kind of debt reset, especially in rental houses, because renters are never going to come current with landlords. They didn’t create the problem, so as Galbraith says, they will demand government support for a situation the government (state directly and federal by guidance/policy) forced upon them.

It’s POSSIBLE, you could come out better being underwater on your mortgage than if you chose to slog your way through and maintain payments. Possible. Depends on how the government responds to the crisis it helped create.

Ray Dalio: Founder and co-chief investment officer of Bridgewater Associates

The second-order consequences of the coronavirus will be big. The large monetizations of debt and the pushing of bond yields to around 0% (while necessary) will reduce the appeal of holding dollar- and other reserve-currency-denominated debt. The wealth and political gaps and the conflicts from them will influence the distribution of wealth and power.

Dalio has been way off in many of his predictions, but I think that one is almost a no-brainer. The wealth gap, already terrible from decades of expansion, spread exponentially under Trump. So, we are getting to a breaking point where one cause of violence is that people feel the injustice of disparity as they see banksters have, again, grown much richer under the existing government’s bailout programs.

Without a doubt, we’ll see increasing cracks in society and a strengthening of efforts to claw back money from the wealthy, which to a large extent is deserved because much of the disparity was created by tax structures that resulted frequently in the wealthy paying a much smaller percentage of their total income in taxes (especially for Social Security and Medicare) than the middle class.

The forms that takes, however, may be economically bad ideas. Removing the cap on taxable Social Security income would only affect wealthier individuals who have had a free benefit there for decades because most people pay those taxes on 100% of their income. Placing that same tax on capital gains could be justified as easily as placing it on wages.

Social Security’s problems would be ended even without taxing capital gains just by removing the income cap; so, the latter may not be necessary. Republicans, however, are constantly pushing for the interests of big money and trying to demand SS be saved on the backs of recipients by making them feel guilty for feeling “entitled.” As I’ve said many times, of course they are entitled. It was their money in the first place, held in trust. You’re always entitled to your own money if it is held in trust.

Other responses could have all kinds of damaging consequences, such as a move to Universal Basic Income now that we have helicopter money already falling out of the sky. To a lesser degree, a direct wealth tax. These are two ideas that will gain currency under Biden, whether he embraces them or not, especially if Dem’s gain control of the senate.

One way or the other, the new reset will include clawbacks from the wealthy, or it will end in torches and pitchforks. Under a Biden administration and with a strong mandate from the Democratic part of the public, the following path is likely to gain traction, whether one likes bigger government or not:

Robert Reich: Secretary of labor for President Bill Clinton and now studies public policy at the University of California at Berkeley

I hope I’m not looking at it through rose-colored glasses, but it’s possible we may understand that at least with regard to minimum safety nets, and minimum health care, we need to do much more for our country and each other than we are doing now. We can’t ever afford to find ourselves so unprepared and lacking in the basics. The richest country in the world can’t even make sure all its people are safe. That makes no sense. Americans as a whole are gaining a deeper appreciation of how important government is…. Americans emerging from this may say to themselves: We really do have to have a government that works well. And we’ve got to have a public-health system that is the best in the world. Why not?

I’m not saying things should go that way, but I think they will, especially if Dem’s seize the senate. There will, of course, be a lot of push back from the new “not my president” crowd that is replacing the Democrats on that particular watch — a movement that has suddenly been fully embraced by Republicans against Biden.

With the Democrats in the ascendancy, you can be sure of more of the following:

Former Secretary of State John Kerry attended a panel discussion at the World Economic Forum during which he asserted that a great reset was urgently needed to stop the rise of populism. Kerry vowed that under a Biden administration, America would rejoin the job-killing Paris Climate Agreement but that this was “not enough….”

Speaking about how Trump increased his vote in 2020, Kerry noted, “What astounds me is that as many people still voted for the level of chaos and breach of law and order and breaking the standards and … I think that, the underlying reason for that is something that everybody has to examine.”

European Commission President Ursula von der Leyen … said the two entities [the EU and the US] would work on “a new rulebook for the digital economy and the digital society…. I see this as an unprecedented opportunity.”

Summit News

The globalists are back in charge.

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David Haggith started writing about the economy after he predicted The Great Recession half a year before it hit and was puzzled as to why no economists or stocks analysts saw it coming. In the months after the crisis broke out, he started to write humorous editorials in a series titled “Downtime,“ which chided the U.S. government and bankers who should have seen the economic collapse coming but whose cronyism, greed and ineptitude caused them to run the world into a ditch. Those articles were published in The Hudson Valley Business JournalThe Valley City Times-Record (North Dakota), and The Daily Herald in Tennessee. Haggith is dedicated to regularly criticizing the daily news — not just the content but the uncritical, unthinking nature of almost all of the reporting. He now writes his own blog, The Great Recession Blog, to break down the news as an equal-opportunity critic toward both Republicans and Democrats / Conservatives and Liberals … since neither kind of politician has done anything worthwhile to plot a better economic course. His articles are regularly carried by several economic websites.

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