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Excerpt 2016 letter

Thoughts on the Macroeconomic Environment

According to an eye-opening article in The Atlantic, 50% of Americans would not be able to pay an unexpected $400 bill, as they have no spare cash and are maxed out on their credit cards. To a large extent, this poverty and resulting frustration, anger and apathy explain the victory of Donald Trump in the U.S. elections.

The situation in Europe is not very different. We have already gone through the first stages (“Brexit”) of what is a greater shift in the political and economic landscape, headed in an uncertain direction.

I strongly believe “The West” needs new visions and stronger leadership to fight the loss of momentum, provide purpose, unite varied views, tap economic potential, and set the right foundation for future generations to come. Projects that unite a nation, both literally and figuratively, are effective: take, for example, Eisenhower’s Interstate Highway System in America or India’s railroad network, built by the British. In the early 1960s, Kennedy’s answer to the “Sputnik Shock” was the Apollo missions. I firmly believe “The West” needs something comparable.

Visionary large-scale infrastructure investments or exploration projects could be anything from the establishment of large-scale solar-powered road networks, high-speed road and train links from Europe to China and India, a global network of carbon capture plants to unwind climate change, the instalment of solar-powered desalination plants along the Pacific Coast to fight the (man-made) drought of the American West, or perhaps a manned flight to Mars. Such concerted efforts would employ thousands (if not millions) of skilled and unskilled people, lead to great scientific breakthroughs, and provide sustainable, real economic and environmental benefits as well.

“Can’t afford,” you say? Think again! In most developed economies, monetary policies have been extremely inflationary. In Switzerland, the Swiss National Bank has been expanding its balance sheet at the rate of about $10,000 per capita per annum without causing a weakening of the exchange rate.

As should be common knowledge: inflationary monetary policies don’t create wealth, they are a tool to re-allocate wealth/ownership interests. Inflation is a tax and – as with any tax – the key question is: where are its proceeds going?

I strongly believe that the current policies of zero percent interest rates and ongoing bailouts are setting terrible incentives, and that the un-channeled flow of more debt into society leads to further misallocations and wastes real economic potential.

For a long time, I have been criticizing the erosion of fiscal discipline and ongoing bailouts of countries such as Greece or banks such as Monte dei Paschi di Siena. I was promulgating fiscal and monetary restraint. However, I have come to the conclusion that in terms of fiscal, monetary and political discipline, the inflationary momentum has grown too strong to fight.

While politicians might not be able or willing to prevent a worrying loss of discipline and prudence, they should still provide direction. In times of uncertainty and decline, it’s human nature to ask for leadership. If the current regime (including politicians, the media, academia and elites) fails to acknowledge the obvious shortcomings of the status quo, the dangers of administrative passivity and of “kicking the can down the road”, the further erosion of its power is unavoidable and new forces will arise.

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