‘Nothing’s changed. Don’t you see? If nothing changes then the same thing is going to happen all over again.’
A A Milne, in Goodbye Christopher Robin
Author A A Milne uttered these words in Goodbye Christopher Robin.
In the movie, he has just come back from fighting for Britain in World War I, and is suffering from extreme post-traumatic stress disorder (PTSD).
The war has weakened England.
Yet after fighting ‘the war to end all wars’ he sees nothing has changed. People don’t want to talk about the war. And, as he tells his friend, illustrator Ernest Shepard, he worries that history will repeat itself.
Milne’s PTSD gets so severe that he decides to move with the family to the countryside, where it’s quieter. He settles in East Sussex, South East England, where he plans to write a book opposing war.
Yet his life takes an unexpected turn.
It is in Ashdown Forest in South East England where Milne finds the inspiration to write up stories about a teddy bear named Winnie the Pooh. These children’s stories, based on his son Christopher Robin Milne and his stuffed toys, became popular all over the world.
His book against war, Peace and Honour, will have to wait until 1934 to see the light.
The thing is, Milne wasn’t wrong.
Just a couple of decades after the First World War, Europe would find itself immersed in a second world war. With World War I turning up to be one of the main causes for WWII.
You see, after WWI, Germany ended up signing the Treaty of Versailles.
In the treaty, Germany accepted the blame for starting the war, they had to pay for all the war’s damage and dismantle their army.
The harsh conditions imposed after the war, and the crisis that followed, would lead to the rise of Adolf Hitler.
As the Telegraph wrote in 2014, on the centenary of the war:
‘The carnage of the Great War the centenary of whose outbreak we will be commemorating in 2014, had far more effect on world history than any other four-year period in the history of mankind. In the realms of geopolitics, economics, class, culture, nationalism, imperialism, colonialism, sexual liberation, female emancipation and the structure of society, the world after 1914 was so different from before it as almost to inhabit separate planets altogether. Of no nation was that more true than Britain[…]
‘The enormity of the numbers – over three-quarters of a million killed from Britain and her empire – the loss of almost an entire generation who could have contributed so much to civilisation had they lived, the beginning of the end of Britain’s role as a leading Great Power, the question about whether the sacrifice was futile (as many of the war poets implied) or justified (as most strategists and historians maintain) will all lead to renewed national soul-searching. Frankly, the sheer number of dead deserve nothing less…
‘Of course the single most horrific consequence of the First World War was its equally catastrophic successor, the Second World War, since the rise of fascism in the Thirties would have been impossible without the Wall Street Crash of 1929 and the Great Depression, which came about at least in part as the result of the global economic dislocation of the Great War. Adolf Hitler’s rants of hatred and resentment would have fallen on deaf ears had it not been for Germany’s humiliating defeat in 1918.’
Why am I telling you all this?
Another GFC looming again?
Well, last month, on 15 September, signaled the 10-year anniversary of the Lehman Brother´s collapse.
The bank´s fall was the largest bankruptcy in the United States history and it marked the beginning of the 2008 financial crisis.
To stop the system from collapsing, governments and central banks around the world pumped a lot of money into the system. They issued deposit guarantees, tightened lending standards, cut interest rates to record lows and carried out asset purchases.
In the graph below you can see how much the three main central banks have increased their balance sheets since 2008.
Because of their intervention, we may have avoided a much deeper crisis…you could also say they have merely put it off.
Since 2008, government debt has soared, as you can see below.
Economic growth around the developed world has also stagnated, and salary growth has been low.
The main casualty in these last 10 years has been the middle class. In 2008, the middle class saw their wealth wiped out. After taking on too much debt to buy homes they suffered high unemployment and many lost their homes.
Housing and the employment market have somewhat recovered since. Long-term low interest rates have been pushing asset prices up. In fact, the big winners over the last 10 years have been those holding assets.
But the middle class is still struggling because of low salary growth.
As reported recently by The New York Times, the average middle-class net worth is today over US$40,000 below what it was in 2007. As they wrote, inequality has increased:
‘Data from the Federal Reserve show that over the last decade and a half, the proportion of family income from wages has dropped from nearly 70 percent to just under 61 percent. It’s an extraordinary shift, driven largely by the investment profits of the very wealthy. In short, the people who possess tradable assets, especially stocks, have enjoyed a recovery that Americans dependent on savings or income from their weekly paycheck have yet to see. Ten years after the financial crisis, getting ahead by going to work every day seems quaint, akin to using the phone book to find a number or renting a video at Blockbuster.
‘The financial crisis didn’t just kill the dream of getting rich from your day job. It also put an end to a fundamental belief of the middle class: that owning a home was always a good idea because prices moved in only one direction — up.’
Low salary growth has meant that people have had to take on more cheap debt to make ends meet or buy rising assets. Many households are over leveraged…and stagnating salaries can only stretch so far.
You see, nothing’s changed since 2008. In fact, things have gotten worse.
And, in Milne’s words, if nothing changes then the same thing is going to happen, all over again.
Editor, Markets & Money
PS: Financial expert Vern Gowdie explores why a credit collapse could occur in 2018, and how you can protect your assets. Click here for free action plan.