Caught in a Debt Trap

By John Mauldin 

We're caught in a trap
I can't walk out
Because I love you too much baby

Elvis Presley’s rendition of Suspicious Minds topped the record charts in 1969. The lyrics portray a romance that couldn’t work, but was also impossible to escape. That’s also a good way to describe our relationship with government debt. We know it can’t last, but we can’t walk out. We love government spending and its benefits (like Medicare, Social Security, and unemployment insurance) too much.

In other words, we are in a debt trap. Our political process can’t reduce spending and/or raise taxes enough to balance the budget, so the debt grows and grows. As it does, paying the interest plus the accumulated debt load pulls more capital away from more productive uses. This depresses economic growth, thereby generating even more spending and debt.

This has to end, and I think it will do so in the event I’ve called The Great Reset. When I first started talking about The Great Reset, we weren’t in the debt trap. We were “merely” in a situation with only bad choices. I didn’t think we would make them. Thus the underlying presumption was that we would end up in a debt trap.

The Great Reset will be our escape from the debt trap. While there will be some winners and (probably more often) losers, it won’t be fun for anyone. And it all springs from the debt trap.

Today I’ll talk about how we got into this trap, why we can’t escape without completely resetting the taxation/spending structure, and what it is doing to the economy. Let me warn you: Some of this will get political—but not in the way you might expect.

Whatever your persuasion, you aren’t going to like this. Nor should you.

Diverted Capital

I have the great privilege of being able to talk to some of the finest economic minds in the country. Rarely a week goes by that I do not spend significant time on the phone with Dr. Lacy Hunt. 

He and Van Hoisington write in their most recent quarterly review, (a must-read) which I think is one of their most important about the economic environment we are in, including the debt trap. (Mauldin Economics VIP members and Over My Shoulder subscribers can read a highlighted version with key points summarized here.)

I’ll quote directly a few short points from the beginning of his letter and then we’ll do a deep dive into two of those points.

The conclusions of this analytical review are five-fold:

1) A very powerful secular downdraft has occurred in major measures of economic performance.

2) The US is caught in a debt trap, a term originated by the Bank for International Settlements: a condition where too much debt weakens growth, which elicits a policy response that creates more debt that results in even more disappointing business conditions.

3) The secular decline in economic conditions and the debt trap preclude the textbook conditions for powerful monetary policy measures to stimulate economic activity. Furthermore, debt-financed fiscal programs only boost the economy in the very short run, and ultimately reduce growth.

4) The secular deterioration in economic growth has created a condition of excess resources and disinflation.

5) The workings of the Fisher equation, which have brought Treasury bond yields lower, have been reinforced by a sharp decline in the marginal revenue product of debt.

They go on to amplify point 2:

The concept of the debt trap is consistent with scholarly research, from the 19th century to present, which indicates that high debt levels undermine economic growth. This causality is supported by the law of diminishing returns, derived from the universally applicable production function. Historical declines in economic growth rates have coincided with record levels of public and private debt. Total public and private debt jumped from 167.2% of GDP in 1980 to 364.0% in 2019, with an estimated record 405% at the end of this year. Gross government debt as a percent of GDP accelerated from 32.6% in 1980 to 106.9% in 2019 to an estimated 127% by the end of this calendar year.

As proof of this connection, each additional dollar of debt in 1980 generated a rise in GDP of 60 cents, up from 54 cents in 1940. The 1980s was the last decade for the productivity of debt to rise. Since then this ratio has dropped sharply, from 42 cents in 1989 to 27 cents in 2019.

[Sidebar: The with debt to GDP has 137.7%. I asked Lacy about this. Essentially, he uses the same convention Ken Rogoff uses, which doesn’t count some intergovernmental debt. He does this so that he can compare debt across nations without the distortion of different conventions of counting debt. Perfectly legitimate, as Lacy frequently compares international debt in his writing. By any measure, we are long past the point where debt negatively affects growth. We have entered the territory of Japan and Europe.]

Let’s unpack this. Debt, even government debt, isn’t necessarily bad. It can actually be positive depending on how it is used. Borrowing to build a productive asset can make sense, if its output is sufficient to repay the debt and then produce even more.

Like many other temptations, debt can be good in moderation but destructive if abused. Some infrastructure spending doesn’t have a direct payoff, but clearly helps the overall economy, like the US interstate highway system.

Let me offer a few illustrations. It seems that every congressional representative gives lip service to the concept of “infrastructure spending.” And they never really get around to doing it in any sufficient quantity. Airports are necessary infrastructure and are typically paid for by landing fees. That’s productive debt.

I have read that much of the US loses as much as 20% of the water our water systems produce due to leaky pipes. To rebuild the national water system would take hundreds of billions if not over $1 trillion. Congress can easily allow the formation of a public-private partnership and guarantee the bonds so the Federal Reserve could buy them. Cities could access those bonds and raise the cost of water by 1% or so to pay for the bonds. Consumer water bills should still drop since we would be saving 20% of the lost water.

Everyone knows this. Congress does nothing. The same could be done with electric power. A smart grid could pay for itself even with debt costs. And consumer power prices would likely go down. I could go on and on.

But the debt we are accumulating now is not productive in that way. We use it to finance current expenditures like Medicare and Social Security. Necessary? Absolutely. But not the economic definition of productive debt.

Problems arise when debt grows excessive, relative to the output it will produce. The costs of repaying it diverts capital from other uses, leaving less capital available for productive investment. You start needing more debt to generate the same amount of production. Or, said another way, each additional dollar of debt produces less GDP. Lacy calls this “debt productivity” and it dropped from 60 cents in 1980 to 27 cents in 2019.

Debt service comes from taxation and even more borrowing (which is the definition of a Ponzi scheme), which leaves businesses and families less money to spend on other things. This results in lower economic growth, inflation, and interest rates.

Why is it a trap? Here’s where I have to get political.

Fiscal Futility

To those on the conservative side, the problem is simple. We have excessively high taxes and debt because the government spends too much.

That’s easy to say but gets a lot more difficult when you talk specifics—particularly if you are a member of Congress who must answer to voters. Exactly which government spending would you like to cut? What programs, departments, and agencies would you eliminate? Every dollar the government spends has a constituency—people who benefit from it, and will fight to preserve it.

Large amounts of spending are essentially on autopilot: Social Security, Medicare, assorted social programs, interest on the debt. These “mandatory” expenditures happen automatically, no matter the amounts, without Congress acting at all. The simple fact is that this mandatory spending plus defense spending is now consuming all tax revenue before any other government services are paid for on the federal level.

The so-called “discretionary” budget that Congress votes on (defense and all the assorted departments and agencies) is relatively minor. You could cut it all in half and we would still have a serious problem.

When Trump entered office the US deficit as percentage of GDP was less than 5%. The deficit for fiscal 2020 will be about 16% of GDP, or $31 trillion. The CBO estimates $1.8 trillion for fiscal 2021 (plus the off-budget debt they never mention) but that doesn’t include a stimulus package of close to $2 trillion that will be passed at some point. That will raise the deficit to much more than 2020’s, no matter who wins the election in a few weeks.

Sad to say, government spending just keeps growing no matter which party is in power. We have crossed some form of a political Rubicon where past performance is not indicative of future results. The few serious fiscal conservatives are now gone after finding the Republican Party under Trump spends differently than Democrats would, but has no desire to spend less

In 2018, 39 Republican House members didn’t run for reelection. Another 22 literally “left the House” in 2020. I know a few of them personally. They were deficit hawks. They were also in the senior Republican leadership. They know the constituency for controlling government spending is simply not there.

And that’s the real problem: Voters like all this spending. They differ on priorities but no one really wants to balance the budget. There is no desire to make the sacrifices and endure the pain it would take to change the course we are on. So, it won’t change, and debt will keep piling up.

Raising taxes, as a Biden administration would probably seek, would in fact help the budget deficit if they didn’t also plan to add even more spending than the new taxes would collect. So that’s not a solution, either.

To be clear, sometimes debt makes sense. Congress should have passed another economic relief package months ago instead of playing the present pre-election games. We are in a dire national emergency. Adding debt to address it would be less problematic if we hadn’t piled up so much non-emergency debt.

Jaws of the Trap

Debt, as I have said many times, is future consumption pulled forward in time. It lets us consume more today by consuming less in the future. 

There is a school of thought which says this doesn’t matter because we can always just keep pushing the due date further out. I disagree, and Lacy Hunt’s research explains why.

While debt can be a problem, debt is also critical to economic growth. It finances innovation and adds to the economy’s productive capacity. 

Excessive debt diverts resources away from investment, without which growth slows to a crawl. Lacy proves this mathematically but really, all you have to do is look at GDP growth around the world since 2008. 

Europe, Japan, and the US have all struggled to maintain positive growth. It was only a matter of time until something pushed us all underwater. The pandemic did it.

This is why interest rates are so persistently low. Our aggregate debt burden reduces growth, which reduces demand for credit while also increasing the supply of credit. Lower demand + higher supply = lower prices. Interest rates are the price of money.

Lacy explained his fourth point in a short section you should read several times until it sinks in.

Falling real yields and inflationary expectations, via the Fisher equation, force government (risk-free) bond yields lower. But full application of the law of diminishing returns is also at work. Diminishing returns occur when a factor of production, such as debt capital, is overused. This observation is confirmed by the decline in the marginal revenue product of debt.

Economic theory demonstrates than when the MRP [Marginal Revenue Product] of a factor declines, the price received for that factor also declines. If, for example, labor is overused to the extent that its MRP declines, so do wages, the price of labor. Thus, the decrease in MRP of debt due to its overuse indicates that interest rates, the price of debt, should fall. This is exactly what is happening in all the major economies of the world that are suffering from a debt overhang.

[JM note: from conversation with Lacy. Wages can decline several ways. Either they can directly go down or businesses can hire fewer workers. The combined effect to the economy is the same.]

Thus, considering decreasing interest rates as an inducement for governments to spend more borrowed funds will add to the severity of the debt spiral. If policy makers are incentivized to borrow more because interest rates are low, then the MRP of debt will fall, leading to even weaker growth.

Moreover, interest rates are lowered indirectly by poorer growth and inflation, and by a further fall of the MRP of debt. Thus, the whole premise of Modern Monetary Theory is flawed at the core. The low interest rates are not a potential benefit for the economy, they are a result of the overuse of debt.

At some point, you would think interest rates will have to rise. And in a totally free market that would be the case. But you can bet (as the market does) that the Federal Reserve will step in and implement yield curve control, further distorting the market and hurting savers. This financial repression has severe negative consequences on retirees.

We are enduring this recession as well as we are because debt-financed spending programs sustained many (but not all) workers and businesses. That may not be an option next time.

All that being said, this can continue far longer than most people think. Japan is now at 260% of debt to GDP. Eurozone debt is about 86%, but that understates the true situation in most countries. Europe and Japan both have low or nonexistent GDP growth. The explosion of US debt means the US will soon join them. The answer from almost every economist of any stripe about how to fix the debt problem is to “grow our way out of it.” The problem is we have passed the point of no return.

We can’t stop growing debt. That would bring down the system in a true greater-than-the-Great Depression crash. What do you cut? Social Security? Medicare? Military pensions? Education? Interest payments on the debt? The State Department? The only way to maintain that spending is to keep adding debt, which sends us further into the debt trap.

At some point, this will simply stop working. That moment is when the world will face what I call The Great Reset. I am often asked exactly when it will happen. The simple fact is I don’t know. My best guess is toward the latter part of this decade. I simply believe/know we will reach a point where everything has to change, and so it will.

In the song I quoted above, Elvis sang,

We can't go on together
With suspicious minds
And we can't build our dreams
On suspicious minds

In a debt trap we’ve turned this around. We already built our dreams on excessive debt. Now we can’t go on together.

We’re caught in a trap. We can’t walk out.

Anomalies in Paradise

I never knew how much exercise I got simply traveling. Just walking around stretching my legs at conferences and airports, trying to get a little gym time, etc. Now that I sit reading and writing entirely too much, which ultimately makes me stiffer, I am having to spend more time in the gym and walking on the trails around here just to avoid becoming a chair potato.

But then, I do come across lots of good material and I get a lot of thinking time out on the trails. For instance, my friend Tony Sagami sent me this:


It makes sense when you think about it. A few tech stocks are basically driving a bull market even as we face the worst recession in 80 years.

I read a lot about how inflation is coming back. And my answer is, well, yes, but not the way you think. We’re going to get another stimulus package which, combined with supply chain destruction, will be inflationary. But when that wears off the general deflationary trend caused by massive debt will kick back in.

But in the meantime, we will get lots of hysteria about how 1970s-like inflation is returning. I suppose there is a nontrivial chance of that, but it’s not how I would bet. I think we will be stuck with deflation and low rates for a very long time. After the election, I intend to write on what tax-and-spend policy would actually help us out of the crisis we are approaching.

Spoiler alert: We will need to completely revamp our tax code, with a greater percentage of GDP going to taxes than any of us want. But we’ll have to collect it differently and not destroy incentives as Europe and Japan have done. Sadly, I don’t expect a willingness to do that, at least political willingness, until we are already in the middle of a deep crisis. The good news is we will get one, and maybe change some things.

And with that I will hit the send button, and schedule nine holes of golf with some good friends this afternoon just to get my body moving. You have a great week! 

And by the way, here are a few links if you’re interested in following up the whole debt trap concept.

Your trying to figure out why the weights in the gym are heavier than they used to be analyst,

John Mauldin
Co-Founder, Mauldin Economics

López Obrador becomes Latin America’s new strongman

The Mexican leader is revealing himself as an authoritarian populist

The editorial board 

The supreme court has become the latest institution in Mexico to bow to the will of populist president, Andrés Manuel López Obrador © Hector Vivas/Getty

When a president demands “blind loyalty” from officials, alarm bells should ring. 

When he calls for a people’s vote on prosecuting his predecessors, launches a broadside at the independent electoral body and publicly shames those who criticise him, there is good reason to feel fearful.

The supreme court has become the latest institution in Mexico to bow to the will of populist president Andrés Manuel López Obrador. 

It ruled last Thursday that his plan to call a referendum over putting five ex-presidents on trial was constitutional, ignoring the principle that such decisions should be made by prosecutors on the basis of evidence. 

Its only change was to reword the question on the ballot, making it vaguer and dropping the former leaders’ names.

Mr López Obrador was elected by a landslide in 2018 with a mandate to pursue a radical “transformation”. He promised to rid his country of corruption, reduce the high murder rate and replace technocratic, market-friendly policies with actions that put the “poor and forgotten” first. 

Such ideas had strong voter appeal: Mexican politics had been incorrigibly venal for decades and drug violence had scarred large areas. A narrow elite dominated the country, while the economic growth spurred by Nafta had benefited the north but left the south behind.

What Mr López Obrador did not win was a mandate to dismantle institutions. Mexico’s democracy was already fragile and its public bodies weak, the legacy of years of untrammelled presidential power and the predominance of a single political party. Genuine progressive reform would have granted greater autonomy to states and municipalities, reduced presidential power and reinforced the rule of law.

Instead, the self-styled leader of Mexico’s “fourth transformation” has concentrated even greater power in his own hands. Most big decisions are his alone. Institutions which refuse to bend to his will are targeted. 

The independent electoral authority has been attacked by the president for having “never guaranteed free elections”, even though it certified his landslide victory. 

Journalists who disparage the president can expect to be named, accused of being “at the service of the authoritarian and corrupt regimes” which preceded him, and asked to apologise. 

Environmentalists who criticise his pet infrastructure projects, including an expensive new railway line to be driven partly through virgin Mayan forest, are described as foreign lackeys for hire.

Why is Mr López Obrador so intolerant? 

After nearly two years in power, positive results are meagre, apart from a modest pension reform. 

Economic growth halted in his first year and Mexico’s recession this year is forecast to be the worst of any major Latin American country bar Argentina. 

Corruption and crime remain intolerably high and an erratic response to coronavirus has led to one of the world’s highest per capita death tolls. 

The president’s habit of withdrawing approval for major projects which had already been agreed has crippled business investment. His interventions in the energy industry have favoured fossil fuels over renewables and the ailing state oil giant Pemex over the private sector. 

The golden opportunity offered by the newly-agreed US-Mexico-Canada free trade agreement to lure American companies returning from China to Mexico is being squandered.

Mexico is indeed being transformed, but not in the way Mr López Obrador had promised. 

Unless the president changes course quickly, Latin America’s second-biggest economy risks sliding back into a poorer, darker and more repressive past, one inhabited by the authoritarian caudillos the region hoped it had left behind.

Virtual realities

Computer-generated realities are becoming ubiquitous

And no headset is required says Alok Jha

As other musicians were settling down on their sofas during lockdown, Travis Scott was seizing the virtual moment. On April 23rd the American hip-hop star staged a concert that was attended live online by more than 12m people within the three-dimensional world of “Fortnite”, a video game better known for its cartoonish violence. 

As the show began, the stage exploded and Mr Scott appeared as a giant, stomping across a surreal game landscape (pictured). He subsequently turned into a neon cyborg, and then a deep-sea diver, as the world filled with water and spectators swam around his giant figure. It was, in every sense, a truly immersive experience. Mr Scott’s performance took place in a world, of sorts—not merely on a screen.

Meanwhile, as other betrothed couples lamented the cancellation of their nuptials, Sharmin Asha and Nazmul Ahmed moved their wedding from a hip Brooklyn venue into the colourful world of “Animal Crossing: New Horizons”, a video game set on a tropical island in which people normally spend their time gardening or fishing. The couple, and a handful of friends, took part in a torchlit beachside ceremony. 

Mr Ahmed wore an in-game recreation of the suit he had bought for the wedding. Since then many other weddings, birthday parties and baby showers have been celebrated within the game.

Alternative venues for graduation ceremonies, many of which were cancelled this year amid the pandemic, have been the virtual worlds of “Roblox” and “Minecraft”, two popular games that are, in effect, digital construction sets. Students at the University of California, Berkeley, recreated their campus within the game to stage the event, which included speeches from the chancellor and vice-chancellor of the university, and ended with graduates tossing their virtual hats into the air.

People unversed in hip-hop or video games have been spending more time congregating in more minimal online environments, through endless work meetings on Zoom or family chats on FaceTime—ways of linking up people virtually that were unthinkable 25 years ago. 

These many not seem anything like virtual realities—but they are online spaces for interaction and the foundations around which more ambitious structures can be built. 

“Together” mode, an addition to Teams, Microsoft’s video-calling and collaboration system, displays all the participants in a call together in a virtual space, rather than the usual grid of boxes, changing the social dynamic by showing participants as members of a cohesive group. 

With virtual backgrounds, break-out rooms, collaboration tools and software that transforms how people look, video-calling platforms are becoming places to get things done.

Though all these technologies existed well before the pandemic, their widespread adoption has been “accelerated in a way that only a crisis could achieve,” says Matthew Ball, a Silicon Valley media analyst (and occasional contributor to The Economist). “You don’t go back from that.”

This is a remarkable shift. For decades, proponents of virtual reality (VR) have been experimenting with strange-looking, expensive headsets that fill the wearer’s field of view with computer-generated imagery. 

Access to virtual worlds via a headset has long been depicted in books, such as “Ready Player One” by Ernest Cline and “Snow Crash” by Neal Stephenson, as well as in films. 

Mark Zuckerberg, Facebook’s boss, who spent more than $2bn to acquire Oculus, a VR startup, in 2014, has said that, as the technology gets cheaper and more capable, this will be “the next platform” for computing after the smartphone.

But the headset turns out to be optional. 

Computer-generated realities are already everywhere, not just in obvious places like video games or property websites that offer virtual tours to prospective buyers. 

They appear behind the scenes in television and film production, simulating detailed worlds for business and training purposes, and teaching autonomous cars how to drive. 

In sport the line between real and virtual worlds is blurring as graphics are super-imposed on television coverage of sporting events on the one hand, and professional athletes and drivers compete in virtual contests on the other. 

Virtual worlds have become part of people’s lives, whether they realise it or not.

Enter the Metaverse

This is not to say that headsets do not help. Put on one of the best and the immersive experience is extraordinary. Top-of-the-range headsets completely replace the wearer’s field of vision with a computer-generated world, using tiny screens in front of each eye. 

Sensors in the goggles detect head movements, and the imagery is adjusted accordingly, providing the illusion of being immersed in another world. More advanced systems can monitor the position of the headset, not just its orientation, within a small area. Such “room-scale VR” maintains the illusion even as the wearer moves or crouches down.

Tech firms large and small have also been working on “augmented reality” (AR) headsets that superimpose computer-generated imagery onto the real world—a more difficult trick than fully immersive VR, because it requires fancy optics in the headset to mix the real and the virtual. 

AR systems must also take into account the positions and shapes of objects in the real world, so that the resulting combination is convincing, and virtual objects sitting on surfaces, or floating in the air, stay put and do not jump around as the wearer moves. 

When virtual objects are able to interact with real environments, the result is sometimes known as mixed reality (XR).

Despite several false dawns, there are now signs that, for some industries, these technologies could at last be reaching the right price and capability to be useful. 

A report in 2019 by PWC, a consultancy, predicts that VR and AR have the potential to add $1.5trn to the world economy by 2030, by spurring productivity gains in areas including health care, engineering, product development, logistics, retail and entertainment.

Because the display of information is no longer confined by the size of a physical screen on a desktop or a mobile device, but can fill the entire field of vision, the use of VR and AR “creates a new and even more intuitive way to interact with a computer,” notes Goldman Sachs, a bank, which expects the market for such technology to be worth $95bn by 2025. And these predictions were made before the pandemicinduced surge of interest in doing things in virtual environments.

Progress in developing virtual realities is being driven by hardware from the smartphone industry and software from the video-games industry. Modern smartphones, with their vivid colour screens and motion sensors, contain everything needed for VR: indeed, a phone slotted into a cardboard viewer with a couple of lenses can serve as a rudimentary VR headset.

Dedicated systems use more advanced motion sensors, but can otherwise use many of the same components. Smartphones can also deliver a hand-held form of AR, overlaying graphics and virtual items on images from the phone’s camera.

The most famous example of this is “Pokémon Go”, a game that involves catching virtual monsters hidden around the real world. Other smartphone AR apps can identify passing aircraft by attaching labels to them, or provide walking directions by superimposing floating arrows on a street view. 

And AR “filters” that change the way people look, from adding make-up to more radical transformations, are popular on social-media platforms such as Snapchat and Instagram.

On the software front, VR has benefited from a change in the way video games are built. Games no longer involve pixelated monsters moving on two-dimensional grids, but are sophisticated simulations of the real world, or at least some version of it. 

Millions of lines of code turn the player’s button-presses into cinematic imagery on screen. 

The software that does this—known as a “game engine”—manages the rules and logic of the virtual world. 

It keeps characters from walking through walls or falling through floors, makes water flow in a natural way and ensures that interactions between objects occur realistically and according to the laws of physics. 

The game engine also renders the graphics, taking into account lighting, shadows, and the textures and reflectivity of different objects in the scene. And for multiplayer games, it handles interactions with other players around the world.

In the early days of the video-games industry, programmers would generally create a new engine every time they built a new game. That link was decisively broken in 1996 when ID Software, based in Texas, released a first-person-shooter game called “Quake”. 

Set in a gothic, 3D world, it challenged players to navigate a maze-like environment while fighting monsters. Crucially, players could use the underlying Quake Engine to build new levels, weapons and challenges within the game to play with friends. The engine was also licensed to other developers, who used it to build entirely new games.

Using an existing game engine to handle the job of simulating a virtual world allowed game developers, large and small, to focus instead on the creative elements of game design, such as narrative, characters, assets and overall look. This is, of course, a familiar division of labour in other creative industries. 

Studios do not design their own cameras, lights or editing software when making their movies. They buy equipment and focus their energies instead on the creative side of their work: telling entertaining stories.

Once games and their engines had been separated, others beyond the gaming world realised that they, too, could use engines to build interactive 3D experiences. It was a perfect fit for those who wanted to build experiences in virtual or augmented reality. 

Game engines were “absolutely indispensable” to the growth of virtual worlds in other fields, says Bob Stone of the University of Birmingham in England. “The gaming community really changed the tide of fortune for the virtual-reality community.”

Two game engines in particular emerged as the dominant platforms: Unity, made by Unity Technologies, based in San Francisco, and Unreal Engine, made by Epic Games, based in Cary, North Carolina. 

Unity says its engine powers 60% of the world’s VR and AR experiences. 

Unreal Engine underpins games including “Gears of War”, “Mass Effect” and “BioShock”. Epic also uses it to make games of its own, most famously “Fortnite”, now one of the most popular and profitable games in the world, as well as the venue for elaborate online events like that staged in conjunction with Mr Scott.

Epic’s boss, Tim Sweeney, forecast in 2015 that there would be convergence between different creative fields as they all adopted similar tools. The ability to create photorealistic 3D objects in virtual worlds is not just attractive to game designers, but also to industrial designers, architects and film-makers, not to mention hip-hop stars. 

Game engines, Mr Sweeney predicted, would be the common language powering the graphics and simulations across all those previously separate professional and consumer worlds.

That is now happening, as the tools of virtual-world-building spread into many areas. 

This Technology Quarterly will explore where computer-generated realities are already starting to make an impact—work, entertainment and health are all seeing changes—and where the technology is heading.

Building a complex, immersive, virtual social space, like the “Metaverse” depicted in “Snow Crash” is the goal for many serious minds in technology today. Mr Sweeney sees the Metaverse, or something like it, as the next iteration of the web, where people can go to work, play games, shop or just pass the time.

Similarly, Mr Ball reckons game engines will become a base layer for digital 3D worlds, a standard upon which new industries will be built. Rather than predict specific future results of this standardisation, he cites the introduction of railways as a way to think about the many opportunities that lie ahead. 

“What happens when you layer the country with railroad infrastructure?” he asks. 

“What happens when you massively drop the friction to experimentation and creation?” 

When it comes to virtual worlds, that is now a very real question.

Mainstream Investors About To Pile Into Gold 


Money managers who don’t recommend gold to their clients are becoming the exception rather than the rule. This week saw a couple more big-name banks join the pro-gold parade:

UBS advises investors to put money in gold as hedge against economic uncertainty

(RT) – The recent weakness of gold represents a “great entry point for investors” ahead of risk events such as the US election, said UBS Global Wealth Management.

“We like gold, because we think that gold is likely to actually hit about $2,000 per ounce by the end of the year,” the firm’s regional chief investment officer Kelvin Tay told CNBC.

He explained that “in [the] event of uncertainty over the US election and the Covid-19 pandemic, gold is a very, very good hedge.”

According to Tay, the precious metal is also attractive due to the low interest rate environment. He pointed out that if interest rates stay low as the US Federal Reserve has indicated, the opportunity cost of holding gold (which is a non-yielding asset) will be “quite low.” That’s because investors are not forgoing interest that would be otherwise earned in yielding assets.

This is the time to buy gold, says Wells Fargo

(Kitco) – Gold prices saw a $200 tumble in September, which Wells Fargo is viewing as a great buying opportunity during a well-expected correction.

“We’re buyers of gold,” Wells Fargo head of real asset strategy John LaForge wrote on Monday. “After a great seven-month run, gold cooled off in August and September. Gold spot prices today sits about $200 lower than its all-time high of $2,075, per ounce set in August.”

Gold’s correction was bound to happen after the 2011-high was breached and prices rose above $2,070 an ounce in August.

However, Wells Fargo’s optimistic view on gold has not changed with the bank remaining bullish on the yellow metal.

“The fundamental backdrop looks good. Interest rates remain low, money supplies excessive (quantitative easing), and we are doubtful that the U.S. dollar’s September rally has long legs,” LaForge said. “We view gold at these prices as a good buying opportunity and, as evidenced by our 2021 year-end targets, expect higher gold prices.”

Back in July, Wells Fargo released its updated gold price forecasts, stating that gold could rise all the way up to $2,200 – $2,300 by the end of next year, which means there is still a lot of upside potential.

Right now gold accounts for less than 1% of global investible capital. But as the above sentiment spreads throughout the mainstream investing community, typical portfolios for both individuals and institutions will contain increasing amounts of precious metals. To understand what a move from below 1% of total investable funds to, say, 5% over the next few years would mean, it’s helpful to compare the amount of capital in the world compared to the amount of gold.

Estimates of how much gold exists above-ground are all over the place, but most cluster around an amount that yields a value of about $10 trillion at current prices.

That’s a big number. But not when compared to other asset classes. Equities, for instance, total about $100 trillion worldwide.

global equities market value pile into gold

Even bigger are:

Bonds and other debt instruments: $250 trillion.

Real estate: also $250 trillion.

There are other categories like cash and derivatives, but let’s ignore those and just add up the big three, for a total investable global capital figure of around $600 trillion.

Now assume that 4% of this flows into precious metals. You’ve got $24 trillion pouring into a $10 trillion sector, which doesn’t sound physically possible – unless the price of gold rises dramatically.

And that’s assuming that the end-point is gold accounting for 5% of the average portfolio. In a world where increasing political and financial instability makes traditional financial assets – including cash — seem unduly risky, and where gold is rising, both fear and greed might send considerably more than that into safe-haven assets.

The Republican Threat to the Republic

As US President Donald Trump and his fellow Republicans' behavior over the past four years has made abundantly clear, American democracy itself is on the line in this year's election. Without an overwhelming victory for Democrats at all levels, Republican minority rule will be locked in indefinitely.

Joseph E. Stiglitz

NEW YORK – Whereas Nero famously fiddled while Rome burned, US President Donald Trump has famously hit the links at his money-losing golf courses while California burns – and as more than 200,000 Americans have died of COVID-19 – for which he himself has now tested positive. Like Nero, Trump will undoubtedly be remembered as an exceptionally cruel, inhumane, and possibly mad political figure.

Until recently, most people around the world had been exposed to this American tragedy in small doses, through short clips of Trump spouting lies and nonsense on the evening news or social media. But in late September, tens of millions of people endured a 90-minute spectacle, billed as a presidential “debate,” in which Trump demonstrated unequivocally that he is not presidential – and why so many people question his mental health.

To be sure, over the past four years, the world has watched this pathological liar set new records – logging some 20,000 falsehoods or misleading statements as of mid-July, by the Washington Post’s count. What kind of debate can there be when one of the two candidates has no credibility, and is not even there to debate?

When asked about the recent New York Times exposé showing that he had paid just $750 in US federal income tax in 2016 and 2017 – and nothing for many years before that – Trump hesitated and then claimed without evidence that he had paid “millions.” He was clearly offering whatever answer he thought would move things along to a more comfortable topic, and there is no good reason why anyone should believe him.

Even more disturbing was his refusal to denounce white supremacists and violent extremist groups like the Proud Boys, whom he instructed to “stand back and stand by.” Combined with his refusal to commit to a peaceful transition of power and persistent efforts to delegitimize the voting process, Trump’s behavior in the run-up to the election has increasingly posed a direct threat to American democracy.

When I was a child growing up in Gary, Indiana, we learned about the virtues of the US Constitution – from the independent judiciary and the separation of powers to the importance of properly functioning checks and balances. Our forefathers appeared to have created a set of great institutions (though they were also guilty of hypocrisy in declaring that all people are created equal so long as they are not women or people of color). 

When I served as chief economist at the World Bank in the late 1990s, we would travel the world lecturing others about good governance and good institutions, and the United States was often held up as the exemplar of these concepts.

Not anymore. Trump and his fellow Republicans have cast a shadow on the American project, reminding us just how fragile – some might say flawed – our institutions and constitutional order are. We are a country of laws, but it is the political norms that make the system work. 

Norms are flexible, but they are also fragile. George Washington, America’s first president, decided that he would serve only two terms, and that created a norm that would not be broken until the presidency of Franklin D. Roosevelt. After that, a constitutional amendment codified the two-term limit.

Over the past four years, Trump and his fellow Republicans have taken norm-shattering to a new level, disgracing themselves and undermining the institutions they are supposed to defend. As a candidate in 2016, Trump refused to release his tax returns. 

And while in office, he has fired inspectors general for doing their jobs, repeatedly ignored conflicts of interest and profited from his office, undermined independent scientists and critical agencies, attempted outright voter suppression, and extorted foreign governments in an effort to defame his political opponents.

For good reason, we Americans are now wondering if our democracy can survive. One of the greatest worries of the founders, after all, was that a demagogue might emerge and destroy the system from within. That is partly why they settled on a structure of indirect representative democracy, with the Electoral College and a system of what were supposed to be robust checks and balances. 

But after 233 years, that institutional structure is no longer robust enough. The GOP, particularly its representatives in the Senate, has failed utterly in its responsibility to check a dangerous and erratic executive as he openly wages war on the US constitutional order and electoral process.

There is a daunting task ahead. In addition to addressing an out-of-control pandemic, rising inequality, and the climate crisis, there is also an urgent need to rescue American democracy. With Republicans having long since neglected their oaths of office, democratic norms will have to be replaced with laws. 

But this will not be easy. When they are observed, norms are often preferable to laws, because they can be more easily adapted to future circumstances. Especially in America’s litigious society, there will always be those willing to circumvent laws by honoring their letter while violating their spirit.

But when one side no longer plays by the rules, stronger guardrails must be introduced. The good news is that we already have a roadmap. The For the People Act of 2019, which was adopted by the US House of Representatives early last year, set out an agenda to expand voting rights, limit partisan gerrymandering, strengthen ethics rules, and limit the influence of private donor money in politics. 

The bad news is that Republicans know they are increasingly in the minority on most of the critical issues in today’s politics. Americans want stronger gun control, a higher minimum wage, sensible environmental and financial regulations, affordable health insurance, expanded funding for preschool education, improved access to college, and greater limitations on money in politics.

The clearly expressed will of the majority puts the GOP in an impossible position: The party cannot simultaneously pursue its unpopular agenda and also endorse honest, transparent, democratic governance. That is why it is now openly waging war on American democracy, doubling down on efforts to disenfranchise voters, politicize the judiciary and the federal bureaucracy, and lock in minority rule permanently through tactics like partisan gerrymandering.

Since the GOP has already made its deal with the devil, there is no reason to expect its members to support any effort to renew and protect American democracy. The only option left for Americans is to deliver an overwhelming victory for Democrats at all levels in next month’s election. America’s democracy hangs in the balance. If it falls, democracy’s enemies around the world will win. 1

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is Chief Economist at the Roosevelt Institute and a former senior vice president and chief economist of the World Bank. His most recent book is People, Power, and Profits: Progressive Capitalism for an Age of Discontent.