The Importance of Structural Give

On the election and monetary policy

In structural engineering, the term "give" refers to the ability of a material or structure to undergo deformation under load without failing. This can include bending, stretching, compressing, or otherwise changing shape in response to stress.

-ChatGPT

---

THIS IS NOT INVESTMENT ADVICE. INVESTING IS RISKY AND OFTEN PAINFUL. DO YOUR OWN RESEARCH.

---

To my US readers, Happy Fourth!

As of today, the US is 248 years old. For perspective, over the last 2000 years, the typical Chinese dynasty lasted about 250 years, which brings to mind the clever remark from Mao’s Foreign Minister Zhou Enlai who, when asked his thoughts on the French Revolution, said, “it’s too early to tell.” The US experiment continues.

The US has survived due to its flexibility, its structural give. The big tests have been the Civil War, Great Depression, Vietnam War/Civil Rights era, and the 2008 Credit Crunch. Two of these events involve violent conflict, two are financial, though one could argue the Civil War and Civil Rights were also financial, meaning the crises are fundamentally about how money circulates.

The US is able to survive and prosper because, while the system is corrupt, bureaucratic, divided, and sometimes ungovernable, and while the system executes grave errors (slavery, invading the wrong country, dysfunctional health care), there is just enough give in it to adjust from such self-destructive policy choices. But only once the US reaches the brink.

In 1865, the constitution was amended to forbid slavery, in 1933, the US abandoned the gold standard, ending the Depression, in 1965, Congress passed the Voting Rights Act, in 1975, the US pulled out of Vietnam, and after the 2008 financial crisis, the Fed printed as much money as was needed to short-circuit the ensuing credit crunch. At the time, these policies seemed extraordinary, unorthodox, outside the bounds of the possible, until circumstance forced a change.

This Presidential contest is another test. Let’s see if the US maintains a degree of flexibility and swaps in a new democratic candidate such that there are not two people who many Americans are uncomfortable with leading the country. The poll below is from April and is likely more extreme now.

While the Presidential debate was painful to watch, I take solace in the fact that it occurred at all. Neither Putin nor Xi would ever submit themselves to such scrutiny, rivals are murdered or locked up. I’ll take messy, uncertain, and open to choreographed, planned, and closed.  

Investment Outlook

The same give is important in financial policy-making. Zooming in to today, it is clear rate cuts are coming, even as expectations of these cuts have significantly diminished.