Zoltan Pozsar: "Bretton Woods III is destined to happen. It’s already happening"

Aug, 2022.

[EDIT- Given Gold's behavior of late, this seemed appropriate- VBL]

Comment on Zoltan’s Role Now

GoldFix ZH Edit wth PDF
It seems that Zoltan Pozsar is tasked with explaining the Fed’s comprehensive message out to the investing public if they will listen. Then the Fed implements small pieces of it. To the extent this approach is successful, structural volatility is kept to a minimum. To the extent that it is not.. then QE infinity will necessarily follow.

[EDIT: So far so good, except now he charges $30,000pa for the privilege.- VBL]

The economic and industrial work which Zoltan speaks so extensively on that must be done is a marathon, not a sprint. Sadly, elected officials don’t care about marathons when they are sprinting to the next election poll. Some Central bankers have also sprinted to their next jobs already. We're skeptically optimistic one can tell the country to take its medicine when it is those same doctors that have made them sick; and then expect the country to swallow it. Maybe that is why they have Zoltan doing this and not the current leadership. Who would believe them?

[ EDIT: Here is that PDF attached as his prior work is now public- VBL]

Background:

This is merely a first read through (10,000 foot view) of Zoltan Pozsar’s missive. We will get to a more detailed version soon. But wanted to get you some background first. We are looking forward to Zerohedge's more comprehensive take on this new "missive".

We noted in our last post the following:

Zoltan’s post is also likely a warmup to a series of future posts about how monetary policy must be tighter to offset the coming fiscal easing/investment domestically. That means inflation without free money.

His latest post goes through several concepts all related to understanding and coping with the newly split world we live in. Again, this is as general as general gets as an analysis. But we think it hits the main points.

War and Industry:

Zoltan Pozsar’s latest 4000 plus word newsletter opens with this:

War means industry. Wars cannot be fought with supply chains that crisscross a globalized world, where production happens on faraway, little islands in the South China Sea, from where chips can be transported only if airspaces and straits remain open… Global supply chains work only in peacetime, but not when the world is at war, be it a hot war or an economic war. The low inflation world had three pillars: cheap immigrant labor keeping nominal wage growth “stagnant” in the U.S., cheap Chinese goods raising real wages amid stagnant nominal wages, and cheap Russian natural gas fueling German industry and Europe more broadly. Implicit in this “trinity” were two giant geo-strategic and geo-economic blocks: Niall Ferguson called the first one “Chimerica”.

I will call the other one “Eurussia”. Both unions were a “heavenly match”: the EU paid euros for cheap Russian gas, the U.S. paid U.S. dollars for cheap Chinese imports, and Russia and China dutifully recycled their earnings into G7 claims. All sides were entangled commercially as well as financially, and as the old wisdom goes, if we trade, everyone benefits and so we won’t fight. But like in any marriage, that’s true only if there is harmony. Harmony is built on trust, and occasional disagreements can only be resolved peacefully provided there is trust. But when trust is gone, everything is gone…

He then goes on to mix history, economics, pop culture references, and much more in what can be described as a chapter in his mission to educate readers on the tough love that is coming.

Monetary Bottom Line:

Cutting to the monetary policy chase: That means monetary policy is done being accommodative as well.

Last month we asserted this policy was coming: Inflation will be generated on the fiscal side, both by continuing external forces and pumped by US fiscal spending on our own supply infrastructure. Fed monetary policy will be to mitigate that inflation from now on.

He says at one key moment in the post:

Insensitivity to interest rates means that the to -do -list will have to be executed regardless of whether the Fed hikes rates to 3.5% or 7%

It may appear there as if he is saying we must invest in rebuilding regardless of the cost. He is. He is also saying (again), that interest rates will be much higher for much longer. Get used to it.

Time to Rebuild:

From supply chains, to monetary policy, to industry. From Goldilocks economies to deflationary tailwinds to technological advancements making stuff cheaper… All of it is done; he is telling us once again. In its place is a much stranger, much older mercantilist leaning world. But a world in which we must adapt as a society if we are to continue excelling. ib this environment here aerr some things he recommends to investors.

And hopefully it will be like that… …and if so, any investor will have to be mindful that the above to -do -list is: ( 1) commodity intensive ( 2) capital intensive ( 3) interest rate insensitive (4) uninvestable for the East

He Closes With:

…which is why Bretton Woods III is destined to happen. It’s already happening, and we will explore the Bretton Woods III topic in detail in our upcoming dispatch:

Yes we know Zoltan, we know... But when will Gold go up if this is all true?

[EDIT- Yes it will- VBL]

Related:

• Zoltan Pozsar: "Given [the Fed's] updated mandate, recession isn’t an option."
• Gold: "A crisis is unfolding. A crisis of commodities"
• Unlocked: Structural Stagflation
• War And Interest Rates

More here