We recommend you start reading our blog here. It sets out how we see the world. We will continuously update this document, adding sections that appear on the blog, and explaining how those sections fit into our world view. We hope you find it useful for your practice and your learning journey.
The world we live in is complex, and so any effort to grapple with it needs to be multi-faceted. For example, how do you consider asset prices, without interest rates and therefore inflation; and inflation without central bank policy, production and demand of goods; and the production and demand of goods, without global trade and economics; and so you build a vast web of interconnected dependencies, some circular (so asset prices also impact global trade), some not, but few are truly independent of each other.
This complexity is quite literally mind boggling. Historians have attempted to untangle these connections when studying societies of the past.
In a notable holistic take on society, in his comprehensive study of ‘The Collapse of Complex Societies’, Joseph A. Tainter, suggests that one factor in such a deterioration is that ‘productive’ activities become burdened by and outweighed by ‘non-productive’ activities.
The definition of those two types of activities, and what falls within them is challenging, but equally we can see how the more complex the world, the more difficult it is to make decisions, as individuals, businesses, nation states, and eventually as a species.
This essay should be thought of as an index. We have created a catalogue of what we see as the major issues in politics, economics and finance. Our concern, as always on these pages is about financial risk, and in particular, potential losses (that in turn usually lead to litigation).
However, to properly and comprehensively set out the risks, one ends up exploring a great many inter-mingled topics. Untangling those, and setting them out clearly assists our audience of litigators, but is also beneficial for other readers. This is of course not financial advice, but a line of thought on the risks and challenges that lie ahead.
As thought leadership is a core asset of consulting, we have to keep some of our most valuable ideas behind a private wall (a forum called Litigation Hotspots). Clients who have access to the Litigation Hotspots forum can find the current password there.
However, we also have a large number of articles that are complimentary and meant to benefit all, and so we hope that everyone finds those useful in their respective unique journeys.
Finally, whilst the issues are inter-connected, we will do what we can to keep each article as self contained as possible. However, the ideas involved are complex, and so we hope this will serve as a reference tools: a place you can hop in and out off, when you wish to know more about how we see the world.
Geopolitics and rivalry
Unipolar and multipolar worlds
The primary issue that will drive economics over the next decade and perhaps for much longer, is how the current inflexion in geopolitics turns out. Since World War II, there was a period of rivalry between the NATO and the countries of the Warsaw Pact, followed by what is described as Pax Americana (a period of US hegemony, with a US centric globalist frame-work). This framework is built on policy institutions that coordinate global policy, such as the IMF, the World Bank, various arms of the UN, other Non-Governmental Organisations (Human Rights Watch and Amnesty International, and others), the BIS, and many more. Reviewing policy documents from these organisations often provides insights about policy trends, and that is a part of what we do in these pages.
That globalist position is now under challenge from within and without. The underlying counter idea has been the construction of a multipolar world, and exactly if and what that looks like will be determined in the years to come. At one end are countries like India, Brazil and Nigeria, pushing for greater geopolitical supremacy in their neighbourhood, right up to seats in at the UN Security Council. At the other end is a China centric counter pole to the US, with infrastructure based upon the Belt and Road Initiative, and a raft of other new China centric institutions. The Ukraine conflict will likely be seen in hindsight as the conflagration that sparked this combustible rivalry into a more open engagement.
Domestic policy: Globalism or nationalism
Domestic politics has also been volatile. Traditionally moderate and dull nations have flirted with leaders from both ends of the spectrum. Three EU states have far-right governments, the vociferous debate on Brexit is unsettled and a former President of the United States is facing criminal charges.
Emerging markets states with vast populations have also voted in strong men, often pandering to unsavoury ideas like, Modi in India, Bolsonaro (now Lula on the left) in Brazil and Duterte in the Philippines.
Our thesis is that these political trends are tied to underlying economic currents and that it is no coincidence that they occurred shortly after the Great Financial Crisis of 2008 (likely with hindsight to be seen as the high point of Pax Americana from an economic perspective).
How these political tussles are settled will likely be the dominant factor in all other considerations: particularly those related to global conflict and even another world war. Obviously the internal wrangling of major powers will matter more than smaller states. The emergence of the ‘wolf warrior’ sub group of the Chinese Communist Party and the rise of hawkish elements of the US administration are all patterns that will matter.
Globalisation and policy
We sit at a moment when a mini-rebellion against Globalism has just failed. President Trump had to be almost unceremoniously evicted from office, whilst Liz Truss interlude as Prime Minister signalled the death throes of the libertarian wing of the Tory Brexit government. Australia too voted in a progressive, socialist government, another sign of the change of mood in the anglo-sphere.
The US in particular is important, as it is the architect of the modern globalist world. Many of the main institutions of most WWII neo-liberalism sit in Washington and New York. In these pages we keep an eye on the speeches of the BIS (the central bank policy makers), the IMF (the US centric global development fund), the WEF (for though it has no formal standing, many of the debates on climate and sustainability are formulated and debated there), and of course the various arms of the UN. There are a number of other smaller think tanks and institutions with varying degrees of influence and inter-dependence, that we will also highlight from time to time.
Labour, Technology and Natural Resources
Further, it is essential to keep an eye on the core components of commerce. The number of people available to be productive, the tools they use that determine the degree of productivity and their access to natural resources, to produce that which they set out to complete.
This trio is perhaps the most dynamic and interesting. For conflict is eternal in the history of our species, but never has technological change been so fast.
Post Covid, we are seeing the changes in how we use land, with occupancy rates of commercial real estate in many major cities over 30% below their pre-Covid levels. This has significant implications, given it can be up to 20% of a developed country's real estate assets. Those assets in turn secure loans at banks, and those loans are also used to create money (as we will learn later, most money in a modern economy are private money, that we know as bank deposits).
In that one exemplar, the capacity to work from home (driven by technological change) has had a material impact on the value of a core resource: land. The connections between these factors are immeasurable, but they exist, and are material, and so trying to understand the big changes should matter.
The World of Money
Finally, we will keep a close eye in these pages on money, and most importantly it's changing nature. One of the notable features of geopolitical inflexion points is that the benefits of success and the travails of losses often show up in national currencies and other stores of value (like land, gold, art, and yes perhaps even crypto).
Money is merely a type of energy, or an attempt to store it. It is the excess labour, transmitted into some form that could be stored, to be reused in the future. Ideally a nation's currency would be one such store of value, but as geopolitical power shifts, so the does the value of currencies. Perhaps one example of a peaceful transfer of value was from the British Pound to the US Dollar over the past 100 years. The pound in the aftermath of WWI would buy you four dollars. That was when Britain still had an empire, but whose grip on global supremacy was dented by the conflict with Germany. Fast forward a century, and after pivotal moments like the Suez Crisis, and in Britain's latest showdown with the global orthodoxy, at the depth of the Liz Truss Premiership, the British Pound was close to parity (it would buy just over one dollar).
Doubtless, the unfolding geopolitical rivalries will herald a new era of currency uncertainty as the rival blocs first engage in more intense economic rivalry. This year central banks have for the first time in decades added material amounts of gold to their vaults. These trends suggest that the issue of paper currency, age hold stores of wealth and even digital currencies are front of minds for policy makers, and so perhaps should be for the rest of us as well.
Why does this matter to litigators?
We think this stuff matters to all of us. Specific views may be prove right or not, but having a framework allows us to order the apparent chaos around us, and so try to make decisions. It so happens that in these dramatic times there is also the potential for financial loss.
As we always say litigation is a function of losses and opacity (of contract), and so in these times of change there will be volatility both in the wider environment and more narrowly in the value of financial assets. That volatility will result in greater litigation.
For non-litigators, we also aim to educate in these pages. Many of the pieces on the fundamentals of a given issue will be freely accessible, and so we hope you find this a useful resource in your learning journey.
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