A Gold Standard "Comes After War, Not Before" Macquarie Warns "The Private Sector Will Never Recover"

Tyler Durden's picture

Submitted by Valentin Schmid via The Epoch Times,

Do you feel something is wrong with the United States and the global economy? Despite a respectable recovery and low unemployment, many people aren’t happy with their current economic situation or their outlook for the future. From rising prices for basic necessities or schooling, to harsh competition and low pay for lower income jobs to negative interest rates—the poor and the middle class all have their problems to deal with.

Experts in the government or central banks are trying to manage a suboptimal situation but cannot isolate the problem, let alone offer solutions. Or maybe they know what’s wrong but don’t want to talk about it because the truth is too shocking.

Enter Viktor Shvets, the global strategist of the investment bank Macquarie Group. He not only dares to think outside the box but also isn’t afraid to openly voice his opinions, which are fascinating and shocking at the same time.

“The private sector will never recover, it will never multiply money again,” he told Epoch Times in an interview. His main theme is the “declining return on humans,” which means that in today’s digital world, normal humans don’t grow productivity fast enough to justify more jobs and higher wages as the machines are taking over.

“There is no productivity on a global basis. Secular stagnation, technological shifts, monetary policy, all are suppressing productivity growth rates,” he says. But what about technology making humans more productive? Shvets says this was true in the first and second industrial revolution where displaced jobs such as horse-cart drivers eventually morphed into higher tech and higher productivity ones like the taxi driver.

However, in this, the third industrial revolution, machines are not augmenting humans, they are replacing them. The self-driving car will completely eliminate the driver. And even in the previous more mechanical industrial revolutions, it often took decades for productivity growth to recover and for jobs to come back, only after higher productivity sectors dominated the majority of the economy.

“We are now on the sharp end of the technology S curve. It started in the late 1970s, it’s picked up in the last 5-10 years, productivity growth rates go down not up. It takes time to line up machines, and this time we are replacing humans altogether,” he said.

And not only lower skilled jobs like taxi drivers are concerned. Just look at the floor of the New York Stock Exchange, where you can barely see a human “specialist” trader anymore. The machines in New Jersey have taken over the trading. 

(Macquarie Group)
(Macquarie Group)

Of course, there are companies and sectors where machines augment people’s productivity, but they are in the minority and also always tether on the edge of machines replacing humans completely. One example is Amazon, where one employee generated $1 million in sales in the second quarter of 2016.

“Parts of the economy become extremely competitive, the rest becomes far less competitive. Walmart’s two million employees are less productive than the few hundred thousand people working for Amazon,” said Shvets. Walmart’s revenue per employee was $220,000 at the end of the second quarter of 2016.

As a result, total productivity growth has been negative in the United States for at least a decade and according to the Federal Reserve Board of San Francisco. The so-called Total Factor Productivity fell almost 2 percent annualized in the second quarter of 2016.

(Total Factor Productivity, source: Macquarie Group)
(Total Factor Productivity, source: Macquarie Group)


In order to counter falling productivity, households, companies, as well as the government have taken on unsustainable amounts of debt to keep consumption going.

“When the economists say we can continue to leverage, as we have done in the last three decades, it lacks understanding of the balance sheet. Even at zero interest rates, at a certain level of debt, you go bankrupt because the private sector loses confidence in the system,” said Shvets.

This is the phenomenon of a balance sheet recession, where you have to shrink the whole balance sheet of the economy in order to restore confidence in the system and return to private sector business cycles. Japan is the most famous case; its balance sheet recession is now 25 years old. But also the United States and Europe essentially have the same problem.

Since the beginning of 1980, total debt in the United States increased by a factor of 14 to $63.5 trillion, while GDP only increased by a factor of 6.2.

Shvets says the world should have actually delevered or paid down the debt to return initiative to the private sector, but thinks people could not accept the levels of pain associated with it.

“You could eliminate the impact of the overcapacity through deflation. Nobody is prepared to accept that we might have to wipe out decades of growth just to eliminate leverage. Banks go, there are defaults, bankruptcies, layoffs,” he said.

(Source: St. Louis Fed.)
(Source: St. Louis Fed.)

He thinks the Biblical debt jubilee, where slaves would be freed and debt would be forgiven every 50 years is a nice idea that would also work today if it weren’t for entrenched special interests.

“The debt is not spread evenly, we still live in a tribal world, and it’s easier to start a war than to forgive debt,” Shvets said.

Global central banks with their easy money policies of negative interest rates and quantitative easing are working against a debt deflation scenario, with limited success, according to Shvets.

“That was the entire idea of aggressive monetary policies: Stimulate investment and consumption. None of that works, there is no evidence. It can impact asset prices, but they don’t flow into the real economy,” he said. “Remember, the people at the Fed and the Bank of England are not supermen, they are people with an above average IQ trying to do a very difficult job in a highly complex environment.”

Both overleveraging, easy money policies, and technological shifts are responsible for increasing levels of income inequality across the globe, another hallmark of the previous two industrial revolutions. Fewer people control more of the wealth. According to the World Bank, the U.S. GINI coefficient, which measures inequality, rose from 37.7 in 1986 to 41.1 in 2013. In China, it rose from 27.7 in 1984 to 42.1 in 2010. The higher the coefficient, the higher the concentration of income among a group of people.

(Macquarie Group)
(Macquarie Group)

The Rise of the State

So if the private sector won’t recover until most of the debt gets written off, which won’t happen because neither the people nor the élite want it to happen, who is left to pick up the slack?

“Nobody has visibility; private sector signals have died. The private sector has no idea what to do. The more aggressive the public sector becomes, the less visibility the private sector has. They don’t spend and invest the way they should,” said Shvets. According to him, the state will just take over, it’s only a question of how.

“You are essentially in the world where public sector signals dominate,” he said, like the global central banks who are moving markets more than earnings or trade data. “If the private sector refuses to multiply the money, then the state will do that.”

This move toward the state has its own issues, however.

“The public sector doesn’t have cycles like the private sector. Investment theory evolved around cycles. If you are dominated by the public sector, then investment in the traditional sense is no longer possible.”

Business cycle theory centers around the expansion and contraction of money and credit as well as business activity, earnings, and stock valuations. If money and credit are abundant, businesses invest and expand, hire people, and consumption picks up so company profits improve. Stocks tend to rise in tandem with an expansionary cycle.

Viktor Shvets, global strategist of Macquarie Group being interviewed by Bloomberg in an undated screenshot. (Bloomberg)
Viktor Shvets, global strategist of Macquarie Group being interviewed by Bloomberg in an undated screenshot. (Bloomberg)

This is not true for the state, where public investment in infrastructure and central banks printing money create a super cycle with a huge bust at the end. The S&P 500 is trading at an all-time high despite the second most expensive valuations since the 1999 stock market bubble. And despite the fact total S&P 500 earnings fell during every reporting period since the third quarter of 2015. The market is banking on the Fed to turn on the money spigot again at any time. 

“The public cycle is aligned with politics. People always avoid radical solutions, so they are doing a little bit here a little bit there to keep the Humpty Dumpty on the wall,” said Shvets.

Eventually, if the private sector doesn’t recover and the state assumes more power, Shvets thinks countries will move toward fascism and communism again, just like in the 1920s and 1930s whose economic framework is comparable to today’s.

“Younger people like communism because it is inclusive, paints a bright picture of the future, nobody believes it, but it looks good and young people don’t have anything to lose. Older people tend to be more racist, less inclusive, protectionist, anti-immigration, rather than believing the bright future of everyone holding hands together in a sunny place,” says Shvets.

Either way, the outcome could be similar to the 1930s in Europe and the United States. Less globalization and more power to the state.

“The pendulum is definitely swinging towards the state and the state will decide where capital goes,” said Shvets. One way or another it will have to take on most of the private sector debt, maybe through the nationalization of banking and insurance industries. “It’s impossible to see how you can unwind the economy’s debt load any other way.”

Curiously, Shvets thinks that China represents the best example of state-capitalism. “China is a shiny city on a hill. The very close link between monetary policy, the state, fiscal policy, the state and investment. The rest of us will look much more like China, and we will follow the same path as China. They are trying to get away from that. They know the consequences, the rest of us don’t.”

Nevertheless, there are some government programs that Shvets thinks could enhance human productivity and benefit the private sector, like government research and development (think of NASA in the 1960s) as well as re-skilling and retraining programs that would enable workers to compete with machines.

In the long-term, Shvets thinks that biotechnology could play a role in that process, but we are a long way off.   

How to Invest?

Despite all these challenges, Shvets still recommends his clients to invest in certain types of stocks. “The outcomes of the next 10-15 years could be quite dramatic. How do you invest in that climate? There are only two ways of investing. The first is: Assume non-mean reversion. The private sector will never recover. The only thing left would be the public sector cycle.”

This means we can conveniently forget about corporate profits, or valuations like the price-earnings ratio of the S&P 500, as many investors already have done. The only thing that matters is public sector activity in the form of central bank intervention or government stimulus programs.

An extreme example of this cycle is perhaps Venezuela. While the country is going up in flames, people don’t have enough food, and the currency is dissolving itself in a vicious hyperinflation, the stock market actually went up 10 times since the beginning of 2012. Only recently has reality caught up with stocks and the market gave up 15 percent of its gains since the beginning of the year.

‘Buy quality sustainable growth, high returns on equity. Companies capable to generate a high return on equity through margins and without leverage. Don’t worry about the price to earnings ratio, there is no mean reversion,” says Shvets. And don’t own any financials. Good advice. te stock price of the likes of Deutsche Bank and Credit Suisse have been decimated this year.

The share prices of Deutsche Bank AG (DBK) and Credit Suisse AG (CSGN) have both lost almost 50 percent of their value this year (Source: Google Finance)
The share prices of Deutsche Bank AG (DBK) and Credit Suisse AG (CSGN) have both lost almost 50 percent of their value this year (Source: Google Finance)

The other option is to invest along some pretty grim themes which benefit from the new trends identified by Shvets. “People are still going back to 20th-century thematics, it’s so old-fashioned.”

None of the new trends can be described as inspirational or uplifting, but the Macquarie portfolio reflecting the themes has bested the MSCI World Index by almost 30 percent since the beginning of 2015.

“The biggest theme is declining return on humans, the replacement of humans, biotech, augmentation of humans, opium for the people, like computer games and gambling,” Shvets said.

Performance of the Macquarie Group Thematics portfolio (Macquarie Group)
Performance of the Macquarie Group Thematics portfolio (Macquarie Group)

Then there are themes catering to geopolitical risk and potential regional war or civil uprisings, like detention and prison centers, weapons, and drones. Another theme supports the aging demography in the West, so companies holding hospitals, funeral operators, and psychiatric institutions should do well.

On the positives, Shvets notes technological disruptors like Amazon and Google. All those companies should be independent of the government and long-term structural shifts. “They go on no matter what.”

If readers shy away from profiting from these themes, there is always gold.

“If you think of gold, the only way gold loses is if normal business and private sector cycles come back. If that is the case, gold goes back $100 per ounce. The other outcomes: deflation, stagflation, hyperinflation are all good for gold.


As for a return to a gold standard, Shvets has more bad news: “Gold standards come back after the war, not before the war.”

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ACES FULL's picture

Well,looks like someone took a dose of truth serum.

Mark of Zerro's picture

Yes...BUT...anytime someones says: "Never" you have to begin discounting their premise.

Too many "never evers" have had their predictions stuffed down their throats.



OpTwoMistic's picture

This guy must be on happy pills. I see he is on bloomturd.

China is working right now on a gold backed yaun. No war,  just the end of the dollar. Also the end of US terrorism against its own people and the world.  I worry about the troops getting back home from whatever shit hole they are in.  The US will not be able to finance war againt Rhode Is.

Look out around 10/2 a Sunday.  Get some PMs while dollars are accepted.

RaceToTheBottom's picture

"China is working right now on a gold backed yaun. "

China has more debt than the US.  It has effectively printed more paper money than the US.

It has gone hogwild full retard into the Keynesian Fiat money model of the world.


There is absolutely no data that indicates China will back their currency with gold.  

  • Fiscally, they don't have the discipline.
  • Internationally, they require a decreasing currency in order to sell their manufactured goods; just like every other FIAT currency.  Backing their currency with gold would cause their currency to rise...
  • They, like Russia have bought gold for their central bank to be a weighted part of the SDR, should that happen, but not to fight the US, just to not be left out.
OpTwoMistic's picture

China has no external debt period and more than enough gold to back a gold backed currency. You will walk one morning and gold will be 5k an ounce and the dollar is gone. Russia is working on the same and Mexico is considering a silver backed peso. You do not back a currency with bullshit.

Just keep getting up every morning.

LasVegasDave's picture





Nuff said

illuminatus's picture

(Shvets)   he said. “Remember, the people at the Fed and the Bank of England are not supermen, they are people with an above average IQ trying to do a very difficult job in a highly complex environment.”

It may be a highly complex environment, and the people at the Fed and the BOE may have an above average IQ, but in the only sense their job is difficult is in the sense that they have to come up with new ways to fuck over we the sheeple.

GRDguy's picture

Yep, lyin' stealin' and killin' profitably and not going to jail is a "very difficult job in a highly complex environment."

PhoQ's picture

See? Another human job that probably can't be done by robots.

SgtShaftoe's picture

Gold did a fine job all itself.  There's no moving parts, palatial buildings to house hundreds of people or any centralization.  Gold is mined into existence through a transaction of arbritrage. 

kliguy38's picture

Watta douche bag blaming "productivity loss" on the machine curve.....How bout looking at what's right in front of your eyes......CORRUPTION of a debt ridden system that is robbing the rotting corpse of a public from its last morsels of flesh.......BWAAAAAAAAAAAAAAAAA

JRobby's picture

Corruption destroys productivity and it seems everyone wants to grow up to be corrupt these days. It is glamorized.

The "bankster mentality". Movies and "TV Series" that make the bad guys the hero. When was the last time you saw a movie where the bad guy is torn apart by an angry mob? This idiotic "law and order, we are too civilized for deadly retribution" bullshit is what allows bad people to ruin the lives of millions and the state to execute people who in some cases did not even commit a crime.

It is ALL CONTROL MECHANISMS. Justice is metered out by a corrupt process. Everything is metered out by a corrupt process.

RaceToTheBottom's picture

Finally a good article to read today on ZH.

Was getting tired of reading articles by central bankster apologists...


Troy Ounce's picture



On the other hand. Why would Shvet care?

The mob will kill him first. They will demand to return their money, deposit and pensions.

He obviously is unaware.

reader2010's picture

Pure bullshit. Useless humans? Machines are better? Tell that to those who own defense contractor companies whose business has never been this better.  When you detect BS,  say something.

kliguy38's picture

yup.....pure scholarly research that is intended to deflect the blame from the central planners from hell

reader2010's picture

No its pure brainwashing and it ain't academic research. at all. It's propaganda for Moar Neoliberalism. The message for the unwashed masses is the following : be fearful,  not to complain,  be happy with your shitty pay and lousy work conditions,. They used to scare you that commies were coming to take your houses and wives. Now they scare you with their robot automation shit. Why don't they just use their highly sophisticated machines to replace those cocksuckers who churn out these useless shit?  That makes you wonder.

wet_nurse's picture

Didn't this guy ever hear about John Henry?

centerline's picture

China is screwed. So are we. Smoldering pits to be.

Mean-reversion?  The author isn't moving far enough back in history with his definition of the "mean."

CHX's picture

Reversions are quite often mean...

robertocarlos's picture

Well then, I don't need gold because I won't be here after the war. Guess I'll spend the fiat on hookers and blow.

Due North's picture

Which is why "they" left the memo pertaining to a 500 million cap in Elberton.

ACES FULL's picture

Might be a good idea to live near there. Surely they don't wanna blowup their Guidepost.

Due North's picture

More likely in New Zealand. That's where I understand most of their ilk are domiciling these days.

JRobby's picture

Assume much of the southern hemisphere will fare better. Northern? Not so much.

I see I have A fan

Due North's picture

It's spooky because I don't think I made the cut!

Son of Captain Nemo's picture

Then Viktor what you are suggesting is we're all dead and all that Au and Ag will need a geiger counter with every purchase to let the remaining dwellers know if it is safe or not to "hold"?!!!

Son of Captain Nemo's picture


Unfortunately Viktor got it all right!!!

Oldwood's picture

Fuck investing.

Humans are being replaced by machines BECAUSE of debt. If humans had suffered the direct effects of lower domestic production due to foreign trade, we would have been in the streets decades ago protesting the loss of our jobs. INSTEAD, we have been given better "terms" lower rates and longer payments. Meanwhile, because WE DO continue to spend (money we really don't have), we are funding business to invest even more in technology to replace us, and while we realize to some degree what is happening to us, rather than tighten our belts, take lower paying jobs and GOD FORBID, buy American, we instead demand MOAR debt spending by government to subsidize us.

We do not want our taxes raised to a level that actually represented our true spending. As with our personal consumption, we want it all free, or at least as cheaply as we can get it. No thought of value or consequence down the road.

ALL of this debt is being used to by equipment to replace us.

SgtShaftoe's picture

It's all a mirage based on fake, debt based money.  Without that, mega corporations wouldn't exist.  The equipment will need to be fixed.  There is always room for human innovation, but currently that is not incentivised.  We are living through a period now similar to pre-colonial Japan where labor was so cheap they actually used people to power machines rather than use livestockto turn the wheel.

This is an anomaly. 

tuttisaluti's picture

after a nuclear war, gold will be worthless. 

JonNadler's picture

after a nuclear war, humans will be worthless. 

JRobby's picture

Gold will be around but radioactive

Humans will be dead

The ultimate "take my ball and go home" gesture seems to be setting up. Europe crapping it's pants.

USGrant's picture

The premise to "Goldfinger" was wrong. Gold does not have long-lived radioactive isotopes.

Bill of Rights's picture

This shit is getting good...

centerline's picture

Overall a good article. Agree more than disagree - splitting hairs really considering time frames.

At least going into the next decade, the public sector is going to simply crush the private sector. The writing has been on the wall for a long time.

Guess the next place for wild innovation is going to be government boondoggles.

SgtShaftoe's picture

I don't believe so.  The next stage in my opinion is decentralization.  That's going to be the only way to get anything to work.  The government has reached it's terminal entropy phase, meaning the government cannot do anything correctly.  Schivetz (sp) is very wrong on that point.  At this stage in the cycle governments can't even put their pants on correctly.  Everything they try to do fails. 

The future:

Local farms, Locally focused communities, Large local hardware stores (with every type and grade of bolt you'd imagine), Local part manufacturers - to repair "obsolete" equipment.  (My farm tractor is a 1964 JD 4020 and my neigbor has equipment from earlier than that which he uses regularly). 



JonNadler's picture

100 an ounce, WOW, not even a supertroll like me, Jon Nadler would have the audacity for such a statement

JRobby's picture

I guess when enough people are of the mind that being a supertroll is useful function, anihilation to ashes can't be far off.

Not sure if we are there yet?

CHX's picture

With the new/future dollar, who knows, maybe it's 100 (and a 1000 current dollars make up a new dollar) LOL

Lmo Mutton's picture

Just another nephilum bankster hating on humans. Better check the WX forecast demon. There's a whirlwind coming. Sniff, sniff, is that a bbq I smell? Or is that the wicked nephilum getting burned?

Kefeer's picture

We have at least another 1007 years before we can sing "That Smell". 

VWAndy's picture

  Bartering is the only way to get to a true value MOE. War will bring another fiat because it must. The debt levels are impossible without the fiat magic. The whole point of war is to issue the debt.That and looting and killing.

 So if they said it was to be a gold standard it would be paper and not gold coins. Its just another way to not have a true value MOE.

 Think in terms of true values. This fiat logic is holding all of mankind back.

Montana Cowboy's picture

"The debt levels are impossible without the fiat magic."

This is a myth. When the US was on a gold standard and gold coins were everyday money, the banks loaned out far more money than they had on deposit. Banks noticed that when they made a loan and funded gold coins, that gold came back into the banking system as a deposit where it could be loaned out again. Now the bank found themselves holding both the note (account receivable asset) and the gold they previously loaned out. So they loan it out again and it comes back again. The stack of notes from loans continues to grow and the number of depositors which the bank owes gold likewise grows. The real problem is fractional reserve lending and Gold does nothing to stop that practice. Its already been tested. Gold money won't fix the problem. Bankers know very well how to operate the same scam again should gold become money again.