By Lawrence G. McDonald, James Patrick Robinson
Navigating the new inflationary paradigm
Subject
Themes
The collapse of the Soviet Union on Christmas Day 1991 ushered in a unipolar world order that produced the most powerful disinflationary force in modern economic history. With America as the sole superpower, global trade surged from $5 trillion to $28 trillion, inflation fell from 7 percent in the 1970s to 1.7 percent in the 2010s, and the S&P 500 rose 1,300 percent. The petrodollar agreement with Saudi Arabia kept energy prices low, and China's entry into the World Trade Organization in 2001 flooded Western markets with cheap manufactured goods, suppressing prices further while hollowing out American manufacturing.
The collapse of the Soviet Union on Christmas Day 1991 ushered in a unipolar world order that produced the most powerful disinflationary force in modern economic history. With America as the sole superpower, global trade surged from $5 trillion to $28 trillion, inflation fell from 7 percent in the…
Published in 2024 by Currency, an imprint of Random House, this work arrives at a moment of acute uncertainty in global financial markets. Written by Lawrence G. McDonald, a former Lehman Brothers vice president and founder of The Bear Traps Report, with co-author James Patrick Robinson, it belongs…
The Federal Reserve's repeated bailouts of financial markets have created a self-reinforcing cycle of moral hazard that fundamentally distorts the allocation of capital across the American economy. Each intervention, from the rescue of Long-Term Capital Management in 1998 to the $5.7 trillion…
The transition from a unipolar to a multipolar world order represents the most consequential geopolitical shift since the end of the Cold War, and its implications for financial markets are profound. For thirty years, American dominance guaranteed the security of global trading routes, suppressed…
A chasm is opening between global energy demand and available supply, driven by chronic underinvestment in fossil fuels, the mathematical impossibility of an immediate green transition, and the surging energy needs of the developing world. This gap will define the inflationary landscape for the next…
Passive investing has evolved from a revolutionary democratisation of finance into a systemic risk that could trigger the next great market crash. What began with Jack Bogle's visionary creation of the first index fund at Vanguard in 1976 has metastasised into a $25 trillion behemoth that…
The greatest reallocation of capital in a generation is underway, shifting trillions of dollars from financial assets (growth stocks and bonds) into hard assets (commodities, energy, metals, and mining). This migration is driven by the structural return of inflation, chronic underinvestment in…
On March 8, 1983, Ronald Reagan stood before a crowd in Orlando and branded the Soviet Union an "evil empire." The Cold War had started in 1947, and by 1985 the Soviets had amassed 39,000 nuclear missiles while America stockpiled over 21,000 warheads. But the Soviet economy was crumbling under…
Japan's economic miracle of the 1980s flooded the world with superior manufactured goods from Toyota, Sony, and Nintendo. American firms like General Motors and Caterpillar lobbied Congress for protection, and in September 1985 five finance ministers signed the Plaza Accord at a New York hotel. The…
The Cape Cod shark crisis offers a parable for government intervention gone wrong. In 1972, Congress passed the Marine Mammal Protection Act, banning the hunting of grey seals. The seal population exploded, and great white sharks followed the food supply to shore. Detected sharks jumped from 11 in…
A winter drive through New Jersey's affluent suburbs leads to Appaloosa Management, where David Tepper runs one of the most successful hedge funds in history. A Pittsburgh native with a photographic memory, Tepper was the only trader at Goldman Sachs who did not lose money during the 1987 crash; he…
A frantic taxi ride through Manhattan in February 2022 leads to the twenty-fourth-floor offices of Greenlight Capital, where David Einhorn has run one of America's most successful hedge funds since 1996. A Cornell graduate who once ranked eighteenth in the world at no-limit hold 'em poker, Einhorn…
The U.S. dollar's status as the world's reserve currency faces an existential threat. National debt has surged past $33 trillion, with more than $200 trillion in unfunded liabilities. Interest payments have grown from $580 billion in 2021 to over $1 trillion, exceeding what the government spends on…
By Lawrence G. McDonald, James Patrick Robinson
Subject
Themes
The collapse of the Soviet Union on Christmas Day 1991 ushered in a unipolar world order that produced the most powerful disinflationary force in modern economic history. With America as the sole superpower, global trade surged from $5 trillion to $28 trillion, inflation fell from 7 percent in the 1970s to 1.7 percent in the 2010s, and the S&P 500 rose 1,300 percent. The petrodollar agreement with Saudi Arabia kept energy prices low, and China's entry into the World Trade Organization in 2001 flooded Western markets with cheap manufactured goods, suppressing prices further while hollowing out American manufacturing.