We, at Enfilade Capital, believe that the current financial system has passed the Rubicon and now it is only a question of time when it will collapse. While governments and central banks try to keep the dragon in the cave, it is amazing how little the topic is being covered by the major media, even though the importance of the issue is as tremendous as devastating in its potential. This is not something that will be happening in 5 to 10 years. It has already started and it will have dramatic implications for our daily lives, our families, the way we do business and our whole societies. 

 

It has been 10 years since the Great Financial Crisis came upon us. But since then things got only worse – we literally have pushed the world towards the next – the mother of all financial crises. The major world’s economies are suffering from the weight of massive amounts of debt and highly leveraged paper assets. A culture of entitlement has made these debt mountains ever higher. Artificially low interest rates give rise to malinvestments – and it's global and systemic– it’s in housing and commercial real estate, corporate and sovereign markets, it's in equity markets. EVERYWHERE!!

 

Over the last decade, central banks went on an unprecedented money-printing spree of roughly $10 trillion. Bank of Japan is a top shareholder in 90% of the Nikkei’s largest 225 companies and owns an astonishing 74% of Japanese ETFs. It now owns over 40% of its country's entire bond market. The Swiss National Bank is actually traded as a stock. The ECB now holds €341 billion of Italian bonds, buying all the debt issuance since 2012. And there are about 10 trillion dollars in sovereign bonds with negative yields. 

 

Stock markets go wild – the most interesting part of it, is that similarly to the dot-com bubble in the 90ies, “tech stocks” are leading the way again. Reckless money printing resulted in the creation of zombies like Tesla and Netflix, which will fall victims of their leveraged corporate structures. And almost 15% of the 1,100 companies in the S&P 1,500 fall into Ponzi category - their interest expense is greater than their 3-year average EBIT (earnings before interest and taxes). How can this be sustainable?

 

Our society and economic model is based on perpetual and exponential economic growth, financed by ever-increasing leverage. The very concept of growth is destroying ecosystems and it has been depleting both the renewable and non-renewable resources at a staggering rate. We strive for more consumption at times when we should consume less. And we need to change the way we do business.

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No one knows what comes next. But how is in the most vulnerable position? It’s the young people – Gen Y, Gen Z and it’s the generations to come. We betrayed them and literally have stolen their future. The money printing experiment has resulted in ever increasing wealth inequality (money going to top 1%) and left the mountains of unfunded public obligations such as social security, pensions and others. And it’s the young generations that are expected to pay off these debts and finance our social systems even as the population in the western world is aging at an astonishing pace. The young people have all the right to rebel and they will.

 

 

The logic behind the initiative

 

 

Even though, the failure of the current financial system is inevitable the actual outcome of the next burst in the markets is almost impossible to forecast as it is subject to discretionary actions taken by different stakeholders i.e. governments, central banks, financial institutions and large corporations. As these actors do have different goals and agendas, especially on national levels, such interest and information asymmetry will eventually lead to suboptimal decisions on the macro level, resulting in disastrous economic consequences. At least such outcome is not unlikely given the complex and highly interconnected nature of our economic world. 

 

During the 2007/2008 Great Financial Crisis, the markets saw a number of initiatives placed by national governments to support the financial institutions, the labor markets (e.g. in Germany partial unemployment benefits or reduced working hour compensation) as well as consumer sentiment (e.g. in Germany car environmental benefit). Such measures will be implemented again to prop the markets, but in our view will be insufficient and even further speed up the disintegration of the financial system. Whereas the 2008 crisis was primarily driven by the financial sector, the “clean-up” (in reality nothing was really cleaned-up) resulted in leverage being passed to the next level i.e. central banks and governments. So who is going to back up these institutions when the things get tight this time? 

 

Going through the transition phase will be difficult - as many companies will face liquidity and solvency issues, face disruptions in their supply chains and heavy break-down of the top line development assumptions, these developments will increase unemployment and will affect incomes of millions of people and stress our societal structures to the limits – Gilets Jaunes is only the beginning.

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As mentioned before, there is no way to foresee these upcoming dramatic developments in the future, but it will definitely be highly devastating both for the economy and society. But as with every crisis throughout the history of mankind, the “reset” will provide tremendous opportunities to redistribute the wealth and power. As we have already entered the era of technological revolution with AI, biosciences and automation developing at stunning speed, we can say for sure say that the technology will not disappear. 

 

With the help of technology, we can facilitate change in the very same narrative that destroys our world – constant growth. We need to create and facilitate new values apart from profit and more consumption. We need to work with young generations to clean up the mess mankind has created since the end of the WW II. We need to find new ways to define success in our society. We, at Enfilade, believe that we need to completely change our financial system and make it the old boring facilitating business as it should be instead of money-printing and rent-seeking monster it has become. This is exactly why the “Reset Germany” Initiative has been called to live. Because if we don’t start changing things today – the young people will break it. And they have all the right to do so.

 

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The aim of the initiative

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“Reset Germany” Initiative is about solving the problems the future generations will face as a result of our actions in the last 50 years. RG is a private initiative dedicated to creating sustainable societal structures and providing guidance in the post-crisis transition period for businesses and citizens. We truly believe we need to: 

 

transform and size-down the financial system 

walk away from profit- and growth-based thinking

find a solution to cancel out our worldwide debt problem

create a fair wealth redistribution model

 

 

“Reset Germany” Initiative is about facilitating discussion between different stakeholders, such as governments, corporates, entrepreneurs and political movements. We need to accept the fact that our economic model is over, everything we are used to and see as our undisputed entitlements (pensions, free schooling, social security) needs to be questioned. We cannot finance it under current system and the young generations at some point will simply refuse. It’s only question of time and time is running out. So the earlier we start dealing with the new reality, the better chances we face for a “smooth” transition. 

 

Going through the transition phase will be difficult as many companies will face liquidity and solvency issues, face disruptions in their supply chains and heavy break-down of the top line development assumptions. It is necessary to create sustainable structures that would support companies with cutting-edge technologies to survive the crisis and help us lead the transformation of our society. We need to create a framework to support start-up and technology ecosystems, which are much more fragile and are prone to exogenic shocks, but are the most important drivers of the change and transformation. 

 

 

We see the initiative at the intersection of three fields:

 

Government: young people need to have a stronger voice in our daily political life – Greta Thumberg is a great example, that the younger generations are waking up. We need to create legal frameworks and scenarios for a “hard-landing” scenario, where change will not be controlled. We need to work on solutions i.e. creating prototypes for new financial, pension and social systems, that will support smooth transition in the post crisis era, as we will all need to sacrifice certain privileges. Government also has to set-up a solution securing access to liquidity for the most promising tech companies to preserve the technological base of the country in times of stress.

 

Corporates: Privately-held enterprises can lead the change by shifting the focus from growth and profit to becoming a social and community serving businesses. We need to create new metrics for evaluation of performance of large listed enterprises and financial institutions. We need to change our employment practices to create a fair wealth distribution mechanism. 

 

Technology: Entrepreneurs are the driving force behind the formation of new narratives and are key to solving many of the current social, environmental and manufacturing problems. With the help of technology, we can create ecological, sustainable, locally-driven and community-serving services and business models for the sake of high living standard of the future generations. It is our obligation to provide such entrepreneur with enough financial and regulatory back-up.

 

 

 

 

 

 

 

 

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Our goals can be summarized as follows:

 

 

• The financial system is dead. We need to break it up and create a completely new system. Financialisaton of our world has reached its limits – it’s a mirage and it needs to disappear. We need to move the financial industry away from rent-seeking and speculative actor it has become back to the very basic purpose – facilitating capital flows in the economy. 

 

• We want to facilitate the discussion about growth and profit based narrative currently dominating our society. The constant exponential growth on a planet with limited resources is simply impossible. This narrative destroys the future of our children. 

 

• The very same narrative has resulted in mountains of debt that will never be repaid – a solution needs to be found how to dissolve these debts and it’s a worldwide phenomenon. With wealth inequality reaching alarming levels, social outbreaks and radical political development have now become mainstream. We need to find a solution how to cancel these debts while creating and driving a smooth wealth redistribution mechanism in the background.

 

• We need to take more care about our technological base, securing the already existing local ecosystems and creating a legal framework allowing ground-breaking technologies to thrive. We need to create frameworks to provide support and liquidity to the most promising technologies through the upcoming stormy times. The approaching market disruption will free up highly skilled labour and it is in our interest to provide the most efficient labour allocation to the most promising projects. 

 

 

 

It’s a long way to go and it’s easier to walk it with a strong partner on your side. If you are interested in participating in our Reset Germany Initiative, please leave us a note and we will get back to you in due course. 

 

 

Enfilade Capital Team