Raoul Pal’s Macro Framework Deep

Dive

A Conversation Between Raoul Pal and Robert Breedlove

Slides by Luke Eisenhardt

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 The • Britain Starts a Series of Wars With the New Rising Power
(The Germans) Culminating With World War I
Peak/Decline • Leads to collapse of Ottoman Empire
• A Power Vacuum Forms Which is filled by Germany
of The British • Treaty of Versailles is Signed
Empire • War Reparations Must be Paid By Germany
• Reparations Denominated in Gold Marks
• A Gold Mark Was Worth a Certain Amount of
Gold (You Cannot Print Gold Marks)
• $269 Billion in Today’s Dollars

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 • War Reparations Are too Much to Pay Back
• Germany Begins to Print Marks (Paper Marks) to Pay
Reparations Back (Debasing the Currency)
Germany’s • Debasement ≠ Inflation
Fall Into • Debasement is the increase of the money supply, while
inflation is a rise in prices, debasement may lead to
Fascism increases in prices, but it does not have to. Many
believe today that the debasement of the dollar has
led to increases in asset prices rather than prices for
goods
• The German Hyperinflation Sets the Stage for Hitler to Rise
to Power Later in the 1920s/1930s

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World War II • Britain’s Decline Leads to a Vacuum of Power in Which the
and the Post United States and Germany Fight it Out (United States Win)

War Baby • Post War Baby Boom Begins and World Celebrates
• United States Incurs Large Amounts of Debt During War
Boom • Fiscal Programs Devised During Great Depression Stimulate
the Economy

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• Population Growth Accelerates After WWII
• Government Debt to GDP is at All Time Highs
• Federal Spending Explodes During War and Stays
Above Pre-War Levels After the War
• United States is Able to Grow its Way Out of
Massive Debt Burden (The Golden Age/Pax
Americana)
 • Bretton Woods (July 1,1944)
• Dollar is Pegged to Gold and All Other Currencies are
The Rules Pegged to the Dollar
• United Nations (October 24, 1945)
Based Global • General Agreement on Tariffs and Trade (October 30, 1947)
Order • GATT and United Nations Help Pave the Way to
Globalization
• European Union (March 25, 1957)
• The United States Sits A Top Rules Based Global Order
(Control the Rules)

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Baby Boomers Hit the Work
Force and Begin to Spend
• United States is Forced in 1971 to Give Up on
the Peg to Gold and the Dollar Becomes a
Pure Fiat Currency

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 CAGR = 0.49%

Baby Boom Leads to

Competition for Jobs and
Real Wages Stagnate (For
Most People)

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 • Thatcher Makes it A Priority to Make Citizens Owners of

Politics Their Homes

• Sells Public Owned Homes to Citizens for Cheap Prices
Creates • These Citizens Now All Have Mortgages (Debt) They
Must Pay
Unintended • Reagan Implements Similar Policies
• Thatcher Breaks the Unions Which Puts Downward
Consequences Pressure on Wages
• Pensions are Substituted for 401ks Which Creates a
Constant Bid For Equities and They Start to Rise At a
Faster Pace
• People Borrow to Buy Assets in the Hope They Rise
Faster than Debt Payments

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It Starts Taking
A Larger Portion
of Someone’s
Salary to
Purchase the
S&P 500

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People Begin
to Pile On
Debt to Make
Up for Lack of
Real Wage
Growth

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Technology and Globalization
Accelerate Deflationary
Forces and Offshore Jobs
• GATT is Upgrade to the World Trade Organization (WTO)
• Opens the World Up to More international Trade
• Access to Cheap Labor
• Computers Begin to Attain Mainstream Adoption
• The Beginning of Jobs being Automated Away

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 The World Reserve Currency Will Be In
High Demand (Increasing its Price)

Triffin’s A Higher Currency Price Reduces

Attractiveness of Domestic Exports,
Dilemma But Makes Imports Cheaper

Leads to More Purchases From

Overseas and Less Jobs in the Home
Country

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Demographics
Lead Inflation

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 1990 Recession

Dot Com Bust

Interest Rates
Asia/LTCM Great Recession

Become
Powell Pivot

Primary Tool
to Fight
Recessions and
Market Events

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Labor Force Participation Rate Peaks With the
Boomers as Well as Velocity of Money

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The Great
Recession
• Households Extremely Over
levered
• Interest Rates Hit Zero
• Quantitative Easing Begins
• Keeps Collateral (Various
Bonds) From Going to Zero

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Post GFC: Mirage in Asset Prices

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Post GFC: Mirage in Asset Prices (Part 2)

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Post GFC: Two Assets Have Been Able to
Keep Up

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COVID
Sends Fed
Balance
Sheet to the
Moon

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