Safe in the Empire: Gregor Weekly Macro Note

• Gregor Macdonald
• February 6th, 2010

All the current thinking is that the old thinking will enjoy one final day in the sun before the new thinking arrives, and replaces the current thinking. In other words, another bout of deflation before the inflation finally arrives. Or perhaps one last round of dollar strength, before gold heads above 2000 an ounce. Treasury yields lower again, before going higher. And so on. You get the idea. And this week in the world of sovereign debt the current thinking was that default (or perhaps just price crashes) in government debt would follow an orderly pattern. Small, peripheral countries would fall first. Then larger countries closer to the core would fall next. And finally, last to fall would be the debt of the United States. In other words, until the new thinking arrived, perhaps some years from now, you’d be safe in the debt of the Empire.

The idea that large systems contract, starting first with the outer reaches, is an understandable assumption and at first glance is as good a map as any for the future. This is especially true for those who need to hold a map, regardless of whether the map one is holding even covers your target region. (H/T Taleb). And yet, I think it behooves to consider other possibilities.

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Photo: Andy Warhol’s Empire, 1964. via MOMA.

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