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“Fragmentation”, that’s the new word we keep hearing more and more. From the IMF which is warning us about the fragmentation of the financial markets, of the global trading systems, of the supply chains.

We heard it again this week from the European Central Bank which is now concerned about the fragmentation of the government bond market within the Eurozone.

We hear it increasingly from commentators and analysts who want to express their worries about a world that is coming apart at an increasing speed.

Fragmentation is indeed the opposite of integration. And for sure, since COVID, value chains, supply chains and political coordinations are falling apart. The war in Ukraine is only pushing it to a new plateau of chaotic dislocation.

And that new plateau appears to have been reached when the IMF warned, on May 23, 2022 at Davos, that the world economy is going to hit the biggest financial headwinds since world war II.

So when I heard that, and when I saw that the ECB convened an emergency gathering of its governing body this week, it just felt like a perfect storm was just about to hit the world.

For sure, we already knew that the FED was getting ready to hike rates by a large magnitude – it had told us already and it ended up pushing key rates by 75 bp, the largest since 1994.

So all of a sudden, all this ruffle and shuffle on financial markets pushed me back into the past. I started seeing all these crises that I have witnessed in my life back into my mind. It always helps to remember those moments. Reading about them in books and technical notes does not provide any additional flavor and learning. The reminiscence of such events, the very process of getting yourself back to those moments is where the learning happens.

And for those of you who are too young to remember, I highly recommend you to read about these moments by feeling how it would have been for you in person.

You see, there is always that sense that we already know what happened from the history books, that it is old stuff and that it’s just a waste of time. But I beg to disagree and here is why.

The crises I have been privileged to witness personally, either as a market participant, or on the sideline are the following:

August 12, 1982 Mexico – I was just a student in business school

August 17, 1998 Russia – I was a market analyst on Wall Street

September 15, 2008 Lehman Bros – I was working on a corporate social responsibility project

October 20, 2009 Greece – I was working on a corporate social responsibility project

And now 2022

Behind every single climax, there was a silent web of interconnected waves bubbling silently under the surface.

Indeed, the Mexican Crisis of 1982 was a distant aftershock of President Nixon’s decision to suspend the US$ convertibility into gold and the demonetization of gold that followed at the Jamaica conference of 1976. Indeed, once all currencies became floating against each other, without any safety net, then anything that happened with the dominant reserve currency, i.e the US$, would send tremors of instability to the rest of the world. Mexico, one of the US closest economic partners, felt the heat immediately, as soon as the Federal Reserve hiked rates without any restraint at the beginning of the 80’s.

I will go back to each one of these climaxes by telling you more about the feelings and experiential conditions that prevailed for me personally.

Everytime I do that exercise, it connects me closer to an economic theory that a prominent economist provided at the beginning of the 60’s. Every time I examine those successive crises, they become even more clearer thanks to that theory. I am talking about the famous Triffin dilemma. It becomes even more real the more I feel these crises through real and experiential circumstances. I highly advise you to do that for yourself.

Yet, notice also how these climaxes seem to favor August, September and October. Just a notice…Nothing more.

And then, whatever came after that were aftershocks, after effects of a larger dilemma. The dilemma of reserve currencies.

That’s what I wanted to share with you for the time being,

Let me know if you have questions and I look forward to hearing your thoughts. Feel free to comment.

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