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Interview with Theodore Deden

There might be a lot of conflicting opinions and disagreement these days about the right way to get out of this current crisis and to rebuild our economy and our society. One the very few things we can all agree on, however, is that the challenges and the disruptions we’re faced with today are simply unprecedented. There is no blueprint, no known formula for this kind of scenario. 

And yet, while the triggers of this crisis might be very different from the ones we’ve seen before, the effects of it and the precise pressures that it exerts on the economy are not. And while the state and its central bankers might not have the rights tools, or more likely, the will to use them, it doesn’t mean that we, as savers, as investors and as citizens, can do nothing to protect both our wealth and our individual freedoms. 

The first step is to clearly understand the nature and magnitude of the risks that lie ahead, in their proper historical context. To this end, I turned to Theodore Deden, whose experience and particular insights offer a very interesting perspective not just on the specific economic and financial challenges of this crisis, but also on the current state of the world, our strange “new normal” and this next chapter in monetary history.

Theodore Deden has worked in and around the financial industry since 2004, most recently as an industry consultant focusing on change management projects, both regulatory-driven and strategic in nature. His background includes degrees in electrical engineering and business administration; credentials in financial analysis (CFA charter), investment performance measurement, risk management, project management, software test management, the Scrum agile framework, and requirements engineering; and a mix of formal and informal studies in Austrian Economics and Theological and Biblical Studies.  He is the author of The Paradox of Capitalism (2011) and is currently writing a book on using Python in project environments. Deden lives in Zurich with his wife, two sons, and a golden retriever.


Claudio Grass (CG): The global scale of the economic damage of the lockdown and shutdown measures in response to the pandemic is unprecedented. How do you evaluate the response compared to the threat itself? Do you believe it was justified?

Theodore Deden (TD): I don’t agree that the economic damage was primarily caused by COVID lockdown measures. The economic damage was done by decades of central banks’ trying to play god and suspend the laws of nature. This resulted in the build-up of massive imbalances in both commerce and finance that brought the world economy to the edge of stability. The response to Corona simply pushed us over that edge and began the rebalancing process. I for one am happy for it, as I expect to have many opportunities during the rebuilding phase to come – I just hope that the rebalancing is not arrested too soon, as we need a full reset in order to bring the economy back to any semblance of health. Like going to rehab, it will likely be slow and painful, but we will be much better off in the long run. 

As for whether the lockdown measures were justified, there have been wide variations in how countries and states have dealt with the situation, and I think ultimately that question demands more local answers.

Having said that, as a rule I think that quite a bit of precaution is appropriate when faced with such an unknown and potentially volatile entity. Let’s remember that when the measures were initially rolled out, our knowledge about this novel Coronavirus was next to non-existent. Now we aren’t much better off frankly – most of the information we have is anecdotal and much of it is conflicting. Don’t believe the people who claim to know everything – they are fooling themselves. I don’t even trust my own understanding, because I don’t want to fall in the trap of thinking I know more than I really do. And if some of people’s worst fears turn out to be correct, the long-term effects on survivors may be severe, even if their initial infection was relatively mild. There is therefore a risk associated with complacency – the magnitude of its impact, should it come to pass, is potentially quite large. Should we not, both as individuals and as society, take some reasonable measures to mitigate that risk?

Some argue that any coercive government action to protect against a pandemic is inappropriate, but this reasoning is inconsistent with our established legal system, as we routinely take action to enforce social mores, both for health and propriety.  We put speed limits on roads to mitigate the risk of traffic accidents and associated injuries. We enact laws specifying acceptable operating hours and working conditions for businesses. We establish zoning which restricts what kind of activities may be done in specific parts of town. We have laws banning nudity in public places. Why should we not also accept a few masks and temporary business restrictions in light of the potentially large and still-quite-uncertain threat?

CG: In Switzerland, the COVID measures were much lighter and less strictly enforced in comparison to what we’ve seen in many EU member states. What do you make of the Swiss response and do you think it might provide a head start to the recovery? 

TD: The Swiss response on the whole has been measured and proportionate to the threat, as well as I can tell. I am generally happy to live here but especially happy to be here during all this Corona craziness.  

As for a recovery, if you mean a bounce back to 2019 economic conditions, there is no way this will happen.  As I mentioned before, I am expecting a reset followed by a rebuild – in previous writings, I referred to this as an economic impasse event.  Even if I’m wrong in my expectation of the severity of this event, some economic restructuring is inevitable, both in Switzerland and in the world as a whole, as was the case already before Corona.

In the world, I expect the United States to continue to decline in influence and power, which will have significant effects on value chains and investment flows over time.  Europe likewise will continue to be tested, and Switzerland will have to find its place in the new political and economic structure that arises. Meanwhile, Switzerland is going to have to continue to deal with its internal challenges, for example overcapacity in the banking industry and severe inefficiencies in the health care sector defended by entrenched interests. And let’s remember that Switzerland is absolutely dependent on imports and exports to maintain its economic structure, so it will be critical that the nation maintain good relations with its trading partners. 

There is a lot that threatens life as we know it here, and while I do assess the Swiss response to COVID positively, it is only a small element in a big sea of uncertainty.

CG: As we’re getting deeper into what appears to be a severe global recession, we’re seeing a completely paradoxical rally in the markets, especially in US equities. This divide between the real economy and financial markets has been with us for some time, even before the COVID crisis, but now it’s looking increasingly absurd. How do you explain it and for how long do you expect it to persist?

TD: Bubbles in financial markets are hardly new – for all I know, this one could be caused by the same irrational exuberance or general stupidity and greed that drives any other asset bubble. We know of course that these things tend to happen with greater regularity and severity when central banks ease monetary policy, as they have done over the past few decades, so this shouldn’t be a big surprise. Having said that, this time there is a palpable thickness to the air – it just feels as though a storm is coming even though it never seems to materialize. You have short term drops that all seem to bounce right back up again without materializing into a healthy and expected bear market decline. There is even a trading strategy for this, known affectionately as BTFD – buy the dip! What is that about? That can’t be normal, can it?

The short answer is that I simply don’t know. Maybe it is just how things are this time around, though you don’t have to be a conspiracy theorist to think that there could be some manipulation going on: it is now common knowledge that manipulation has taken place in the past, for example in precious metals markets, or in LIBOR. And what is the so-called Plunge Protection Team but a mechanism to manipulate markets? Central banks increasingly go to public equities exchanges to diversify their holdings – so much that the Swiss National Bank could accurately be renamed the Swiss National Hedge Fund. What if those purchases were strategically timed to coincide with market drops? What if they, too, are BTFD?

On the other hand, one could also point to the entry of a new pool of dumb money via Robinhood in the U.S.: a whole generation of naive new players have come to the equities casino for a chance to spin the wheel.

I hope it is just the usual exuberance and greed, but I don’t know. I don’t have any crystal ball, any litmus test to see if it is legitimate vanity and greed or illegitimate manipulation. Either way, as to timing it’s a fair guess that the upcoming U.S. election may usher in the next phase, whatever that may entail, even if the ultimate catharsis may still be years away.

CG: The monetary and fiscal inventions that we’ve witnessed so far are unlike anything we’ve ever seen before. Do you think they’ll be enough to keep the economy afloat though, or is the shutdown damage past mending at this point?

TD: The shutdown has merely exposed the existing damage under the surface which was ultimately caused by manipulative monetary policy over long periods of time. The long-term solution must come in the form of economic restructuring. You cannot print your way to prosperity. You cannot consume your way to prosperity.  You can only pretend for a while – live off the credit card until the bill comes due and you realize that you must produce something.

It is deeply ironic that the central banks are using the same method that got us into this mess to try to get us out of it. As my father once advised me, “If you should ever find yourself in a hole, the first thing to do is stop digging.” This is why I really hope that the current measures fail at “keeping the economy afloat.” It seems to me that we must hit the wall. Stop doing what we have been doing. Change.  

Shifting to real production and starting to pay down the debt is exactly the kind of restructuring that will eventually lead to prosperity.  


In the upcoming second part, we shift our attention to the effects of the COVID crisis on operational risk, while we also take a closer look at other important factors that are often overlooked, such as the tectonic geopolitical shift that is underway and the role of technology and innovation going forward.

Claudio Grass, Hünenberg See, Switzerland

This article has been published in the Newsroom of pro aurum, the leading precious metals company in Europe with an independent subsidiary in Switzerland. 

This work is licensed under a Creative Commons Attribution 4.0 International License.

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