2022: The Year We Lost Control

Caught in a wave.

We couldnt see.

Which way to go.

I sat quietly on a hard stone seat in the catacombs of St Pauls cathedral. All around me were the tombstones of great men and some women, going back centuries. The glass stain window above me now carried by entire attention, the words written in 1917 into the glass “The highest reward for our toil is not what we gain from it but what we become by it.”

As I sat there, I contemplated the sea of history of lives lived around me, by great scholars, nobles, scientists, and clergy. Each had come to some understanding about the nature of life, reality, and the events that they lived through, and that now were compressed into a few words now written into stone.

I believe the year 2022 is one of those years that is akin to a twist worthy of a Games of Thrones episode. Where the actors of our economy suddenly change costumes, change accents, and roles, and the sequence of events takes a sharp unexpected turn.

Before I launch in 2022, the context of the virus of 2020/21 is important. In economic terms, it concentrated power, money and decision making in the hands of centralised agents and a few key industries. Billions of people’s attentions around the world was daily taken up by their government’s actions, their central banks support, the progress toward vaccines and their distribution, and a few technology tools to promote remote working and entertainment. These were the heroes of once in a century dramatic event. If 2020/21 was the major earthquake (random) shock that saw us all clamber to safety, then surely 2022 was the uneasy after-effects of our own making.

A war broke out in 2022, and an invasion of a distant country by another caused unanticipated rippled around the world. The price of food and energy for millions of citizens shot up with the immediate and lightning efficiency of capital markets. The ripples generated through our digitally enabled commodities markets moved faster and were more lethal than any actual food shortage could have generated. The uncomfortable bi-products of globalisation, one of co-dependence took centre stage, exposing a fragile interlinked system that, rather than dampening contagion had instead carried geopolitical risk to every grocery store and to every dinner table on the planet.?

The long absent and unwanted twin of economic growth had arrived, and inflation began to push thousands and millions back under the poverty line, slowly and deliberately.?

The heroes of the Covid era, and the allies of economic stability turned against the very system they sought to support. Central banks began furiously to fight this new enemy, throwing away decades of economic growth driven policy. The fight against inflation took priority, and central banks began moving to slow global economic growth, and openly discuss creating recessions to achieve this. The objective was clear: push more people into consuming less, some through economic hardship in addition to that brought by inflation. It was a choice of two lesser evils: to cut out the ‘growth’ of inflation, some healthy tissue had to be sacrificed.?

The year 2022 saw unprecedented falls in all asset prices, and all simultaneously. Global technology titans lost 50-60% of their value, fired staff at unprecedented levels, and pensions globally, usually invested in diversified portfolios of equities, fixed income and property provided little diversification for pensioners. Inflation and interest rates brought real growth rates (those without inflation) to negative levels around the world, and the phrase ‘cost of living crisis’ was coined. Rates of poverty around the world took a leap forward, as energy and food inflation pushed families below the poverty line. And inflation works a slow poison, first getting inside expectations, then rises in salaries, transportation, and production costs push prices further, creating a vicious cycle. Labour walkouts driven by a desire for higher salaries began later in the year, in the UK for example, creating massive disruptions in the healthcare and public transport segments. Social unrest, political instability, crime rates and corruption, and a mistrust of central instituions are all hallmarks of emerging market economies with high and sustained core inflation.?

Risk-taking ground to a halt to this, and all the excess capital fueling innovation, technology start-ups dried up almost overnight. As the (short-lived) CEO of a Crypto investment firm, I saw the rapid evaporation of risk-taking first hand. Unlike many of the infamous examples around us, we ran a very conservative business, strong risk-controls, moderate spend plans, and had the unusual privledge of staffing our leadership with operational and risk executives. None of that mattered, and we soon soon that capital holders of all kinds canceled meetings, revoked interest, and generally took a ‘wait and see’ approach.?

For the community that believed and supported decentralised technologies and their outcomes, they held stead-fast to their beliefs that a world outside of banks and governments, but in support of people could exist. The reality is that without the cheap capital, and the promise of industry option (which of course was equally now in a ‘wait and see’ pattern) much of the wind left the sails of the blockchain industry. Though I think the time will come again for this sector, it will likely come in a very different guise, perhaps as operational improvements for the finance sector, or as government monitoring of digital currencies. None of these will really give citizens the freedom that was promised in the original incarnation, but at least it should provide a more secure and stable foundation.?

Enormous strides were made by scientific and technology firms this year, and perhaps they are too many to both monitor or mention. Civilization altering technology of net positive energy generation using fusion was achieved. This is akin to some of the research we saw in the 2015 around the first major accomplishments of language models in data science, which now have surfaced as much improved and industry-ready tools in the form of ChatGPT. Fusion, like quantum computers, took major steps forward this year. It is hard to forecast the future at the best of times, and perhaps even more so when step-changes like these technologies can emerge and rapidly shift economic planning. Drone technology was deployed in an active combat zone, and the first instance of recent advances in AI and sensory technology took their place in the landscape of modern warfare.?

While we have lost control, that control was a response to a central enemy of a faceless, inhuman virus. Even as healthcare labs raced around the clock to save lives, a sizable part of the populations disbelieved in the intent of institutions and governments were working against them, trying to lock them down, take their freedoms, and ultimately empovish them.?

In 2023 these institutions will appear to stand directly at odds with economic prosperity. In 2023, for inflation to be squeezed out of our economies, interest rates will need to remain higher, consumption lower, and more people will need to be out of work. Credit risk will need to rise from current levels, and money will be tight once again, with limited risk taking. Young companies, operating on models of quick capital injections will struggle or fail, large technology companies will need to refocus on their core operations, and cash-generation, dividends, and fundamentals will take more of a centre stage than they have over the past decade.?

The focus on profitability, costs and therefore the adoption of automation technologies like AI will take centre stage. The growth of nationalism, in the form of food and energy security will come to be ever more important, even as the war is likely to reduce in intensity.?

Finally, the trend of climate co-ordination incompetence (COP 27) will likely continue, though with a greater certainty of a higher climate temperate in the coming decades. China, the US and other major developed economies, struggling with growth, inflation and uncertainty, will choose to support their citizens and short-term goals above lofty long-term aspirations. ESG and investment will continue to pour into green infrastructure, and the powerful instruments of capitalism will continue to pour money into carbon reducing investments. I continue to watch this slowly unfolding trend, though I fear that given the current forecasts, we will see 2.5C world by the end of the century, and once this realisation is universal, we may see less co-operation and more protectionalism emerge as the prospect of food, energy , infrastructure and border security takes centre stage.?

Back in St Pauls cathedral, in the heart of London, and once great British empire, the silence of hundreds of great lives, that lived through so many periods of change and tribulation surrounded me like scattered pages of a book.

I thought about my life in the past year, and what I have learnt, and where I should focus my energy in the coming year. Change is opportunity. And this is a significant period in human history, where change seems abundant and all around. Dizzying, and distracting perhaps, but always present.

If you are wondering what this decade may hold for you, my only humble advice is to listen.

Listen carefully to what the world wants from you, and where you think the shifting tactonic plates may be moving. Dont be too early, too eager to embrace every change, but dont ignore them either.?

And always try to ask harder questions.?

Surely, that is a life well lived.?