One problem – Two Solutions…and two Verrry Different Outcomes.

My son’s 15. 

Son: Dad can you help me?
Me: Sure what?
Son: my bike’s got a puncture
Me: So fix it
Son: Can you help me?
Me: I can, but I won’t.
Son: Urghhh (rolling eyes)

He knows…trust me he knows. This is not the first time

A few minutes later

Son: Mom
Mom: Yes
Son: Can you help me fix my puncture?
Mom: Ok honey.
Me: Nooo!
Fight discussion ensues. I win….this time. Whew.

20 minutes later. Punctures fixed. Who fixed it? 

Well it wasn’t me – and it wasn’t my wife. Imagine that. 

Men….do that. They want their kids to be resilient and strong. So do women but women are wired differently. They nurture and protect in a different way. One is not better than the other. BOTH are required, in balance. 

And it is balance that is way outta kilter on a global level.

Ever since World War II the western democratic world has expanded their social programs. There was a time when education, healthcare, savings for retirement, and a host of other responsibilities were the responsibility of the individual. That’s now a distant memory. And none of this has mattered for a long time, but you know what’s the most dangerous thing we humans do? We extrapolate the recent past into the future..and so the cries for help don’t come with any understanding of how that “help” will be paid for, and even less of an understanding of the ultimate price they’ll pay. If I kept fixing my 15 year old son’s bloody puncture, or a host of other things that he absolutely can and should learn to deal with himself, I’ll end up with a grown man that’s actually not an adult. And there will come a time, when I’m old and doddery and can no longer help him. What’s more he’ll have had an entire lifetime of NOT learning self sufficiency. He will be – in a word – screwed. That is where the western world is today.

When, a few months hence millions of folks in the western world finally emerge from behind their stacks of stockpiled toilet paper, weighing a few stone more having gorged themselves on potato crisps and netflix they’re going to be – in a word – broke. The average American can’t manage an emergency $400 bill so pray tell how they’re going to manage getting through the next month or two only to walk into the bright sunshine and a world where, in many instances their job no longer exists?

And this brings me squarely to how the west deals with crises. Right now folks all over the world have a puncture. The global economy is taking a beating and the cries for help are coming thick and fast. In essence it’s “Mummy please help me fix my puncture”.

Here’s something to look at while you ponder how “Mummy” is going to fix this problem.

Increased debt isn’t much of a problem provided both your assets are increasing along with your cash flows. Cash flows for the government are directly tied to GDP. You know what GDP’s doing right now while the worlds gone on an extended holiday?

And deficit spending is about to get a shot of viagra that’d kill a horse.

Now let me ask you how the East deals with a crisis. Every country is different, however there is a common theme. Social spending aka welfare is typically either non-existent or a fraction of GDP. When things get tough the family unit provides the social safety net. This means that the governments are not expected to act as “mummy” and so they typically don’t.

For the time being nobody is going to care about any of this. We’re still in the liquidity stage. But when we exit this chaotic “fog of war” markets will begin to look around, survey the carnage and that’s when balance sheets will begin to matter, and when they do, one region of the world will look healthier than another.

-Chris

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