Month: May 2025

Recent shifts in debt yields have surprised many market participants, prompting questions not only about tariffs but also the broader health of the global economy. While supply chain commentary will be covered in the upcoming SKILLSOOP Monthly Report (June edition), this update will focus on the deeper systemic issue at hand—one that tariffs merely distract from: the escalating risks in the global debt and banking systems.

The long end of the yield curve is under significant pressure. In the United States, the 30-year Treasury yield is nearing 5%, while the 10-year is approaching 4.5%. Across the Atlantic, the UK 10-year yield sits close to 4.7%, with the 30-year touching 5.42%. These elevated levels are not isolated phenomena—they reflect widespread stress in sovereign debt markets.

One of the most alarming signals comes from Japan. With a staggering debt-to-GDP ratio of 260%, a shrinking population, and ongoing currency challenges, Japan’s 10-year yield has crept up to nearly 1.5%, with the 30-year nearing 3%. This is particularly significant given Japan’s pivotal role in global finance through the yen carry trade. The Bank of Japan (BOJ) is now caught in an impossible position: defend the economy or defend the currency—each choice comes with deep global repercussions.

In the U.S., former President Trump has pushed aggressively for lower rates, clashing with Fed Chair Jerome Powell, who has resisted calls to cut. Cutting rates would imply an increase in bond prices—something the current market dynamics don’t support. The Fed has quietly re-entered the bond market through quantitative easing (QE), trying to suppress yields, but the effort appears increasingly ineffective.

Japan, for its part, has publicly acknowledged that its debt situation may now be worse than the crisis that engulfed Greece a decade ago. With such levels of fiscal vulnerability, any shift in bond market confidence could trigger cascading effects throughout the global financial system.

Much of the media attention has focused on tariffs, but they are only one piece of a larger inflation management puzzle. Energy prices—central to all inflation metrics—have become a focal point of U.S. foreign policy. Trump’s visit to the Middle East is as much about securing energy flows as it is about diplomatic negotiations.

Meanwhile, Saudi Arabia is increasing oil supply while tariffs restrict supply chains, dampening demand. The aim is to lower the Consumer Price Index (CPI) and justify interest rate cuts. However, these interventions are not succeeding in capping long-term yields, as SKILLSOOP has long forecasted.

Rising long-term yields spell trouble for consumers and asset markets. Leverage becomes more expensive, impacting sectors like housing and auto loans. More critically, equities markets—which rely heavily on low borrowing costs—face devaluation risks.

In a low-interest-rate environment, companies have used cheap debt to finance dividends, share buybacks, and expansion. But as borrowing costs rise and central banks lose control of long-end yields, equities will lose their appeal. This directly erodes consumer wealth and disposable income.

In Australia, the government’s move to tax unrealised capital gains on superannuation funds exceeding $3 million could have significant knock-on effects. While aimed at increasing revenue, this policy risks backfiring:

• Investors may shift funds from equities into property or offshore vehicles, draining capital from domestic businesses.
• Higher property investment could inflate housing prices further, worsening affordability.
• Lower private sector investment will likely impact employment and tax revenues, compounding the budgetary shortfall.

This highlights a classic case of excess burden—where the cost of taxation outweighs the revenue it generates due to changes in economic behaviour. Efficient taxation relies on targeting less elastic sources of revenue—those that don’t prompt significant behavioural shifts. The current approach risks triggering the opposite effect.

While tariffs and CPI figures dominate the headlines, the real structural risk lies in the global debt markets and central banks’ waning control over long-term yields. Investors, policymakers, and consumers should prepare for a prolonged period of volatility. The yield curve is not just reacting to inflation—it’s flashing warning signs about the very foundation of the global financial system.

So How Do Banks Really Work?

The mainstream understanding of how banks operate is deeply flawed—and according to economist Richard Werner, it’s not by accident. As the author of Princes of the Yen and the originator of quantitative easing (QE), Werner has extensively challenged conventional economic thinking, and the dominant role central banks play in shaping monetary policy. His work offers a critical perspective on the inner workings of the global banking system and its influence on economic outcomes.

The Great Misunderstanding: What Most People Get Wrong

Surveys and research indicate that around 85% of people do not understand how banks actually work. The common belief is that banks function by taking in customer deposits, keeping them safe, and lending them out at a profit. This model suggests a simple intermediation function between savers and borrowers.

But Werner’s research reveals something entirely different.

Retail banks don’t lend out deposits—they create money by issuing credit.

According to English law, a deposit at a bank is not held in custody but rather becomes a liability on the bank’s balance sheet—a record of what the bank owes you. When banks issue loans, they simultaneously create deposits, effectively generating money “out of thin air.” In Werner’s view, credit creation is the single most powerful force in the economy, yet it’s often overlooked in macroeconomic models.

Who Actually Creates Money?

• Central banks account for only about 5% of the total money supply.
• Retail banks create the remaining 95% through the process of credit creation.
• Governments, contrary to popular belief, create virtually zero money directly.

This means that when politicians talk about new spending or investment programs, they are relying on either debt or taxation, not newly created money. These decisions can have profound implications for economic behaviour and capital allocation.

Why Credit Allocation Matters

Werner argues that how and where banks allocate credit is more important than headline monetary or fiscal policy. For example:

• When banks direct credit towards productive investment (e.g., small businesses, infrastructure, innovation), economies experience real growth.
• When banks channel credit into financial assets (e.g., property, stocks, hedge funds), it fuels asset bubbles and ultimately leads to economic busts.

In the UK, five large banks dominate about 80% of all deposits. Their lending tends to favour institutions and asset speculation, not small businesses. Werner promotes the decentralisation of banking, arguing that small, community-based banks are far more effective at funding real economic activity.

Decentralised credit creation = sustainable, inclusive growth.

The Truth About QE and Inflation

Werner also explains why quantitative easing (QE) often has unpredictable effects on inflation and growth. His distinction between two types of QE is crucial:

• QE1: Central banks purchase non-performing assets from banks to clean up their balance sheets. This is largely non-inflationary as it is an interbank transaction and does not inject money into the real economy.
• QE2: Central banks purchase assets from non-banks (open market operations), which does create credit in the real economy and can be inflationary.

In 2008, QE1 helped stabilise U.S. banks after the financial crisis. However, in 2020, the Federal Reserve moved directly to QE2—buying assets via BlackRock from non-banks at a time when demand was already high and supply chains were broken. This approach, Werner argues, artificially fuelled inflation during a time of global fragility.

Rethinking Interest Rates and Growth

Mainstream economics teaches that lower interest rates stimulate growth, and higher rates dampen it. Werner contests this idea:

• He claims no empirical studies support the inverse relationship between interest rates and GDP growth.
• Instead, he asserts that interest rates follow growth—not the other way around.
• In periods of high growth, interest rates rise as a response.
• In periods of low growth, rates fall—but they do not cause the recovery.

Thus, interest rates are lagging indicators, not effective tools for managing real-time economic dynamics.

The Problem with GDP and Centralised Power

Werner also challenges the usefulness of GDP as an economic measure, calling it “economic waffle”—a concept created to justify interest rate mechanisms. He views it as disconnected from real economic activity and overly influenced by banking interests.

Moreover, central banks and large financial institutions have, in Werner’s view, orchestrated a long-term strategy to consolidate power, crush small banks, and centralise money creation. This is seen in the economic contraction of countries like Germany, now in its third consecutive year of decline, and the financial devastation experienced by Greece, Spain, and Portugal after policy missteps from 2004 to 2009 under ECB influence.

Why This Matters for Today’s Economy

Understanding the real mechanics of banking matters because credit creation—and who controls it—shapes every facet of economic life: investment, employment, housing, inflation, and even political stability.

Werner warns that without a paradigm shift in economic thinking—one that puts banking at the centre of macroeconomic models—governments and central banks will continue to misdiagnose crises, apply ineffective solutions, and fuel a cycle of bubbles, busts, and inequality.

Key Takeaways

• Retail banks create most of the money supply through credit.
• Deposits are liabilities, not funds waiting to be lent.
• Productive credit allocation supports sustainable growth; speculative lending inflates bubbles.
• QE has two forms, only one of which impacts inflation directly.
• Interest rates are lagging, not leading, indicators of growth.
• A return to decentralised banking—thousands of small local banks—can drive equitable economic expansion.
• The current system increasingly centralises power, risks systemic collapse, and stifles long-term growth.

This understanding redefines the way we should view banks—not as neutral intermediaries, but as powerful engines of monetary creation whose decisions shape the very fabric of modern economies.

As more candidates begin to actively explore new opportunities, we thought it timely to share some resume guidance that may support your preparation. The intention here is not only to help you craft a document that effectively integrates your skills and experience, but also to guide you through a reflective process that will enhance your interview readiness.

For many of you whom Richard has met with over the past 12 months, the points outlined below will likely sound familiar—we’ve covered similar ground in our conversations. However, it’s always helpful to revisit these fundamentals with a fresh perspective.

Understanding the Purpose of Your Resume

At its core, your resume is a sales brochure—designed to present you as an asset to potential employers. One common misstep is trying to document your entire career from start to finish. Your resume should be selective, structured, and purposeful. Its key objectives are to:

• Showcase your ability to present information clearly – this includes grammar, spelling, and efficient communication.
• Enable comparison – recruiters often scan multiple resumes, and yours needs to stand out in structure and content.
• Support a risk assessment – employers are assessing whether your background aligns with their risk appetite.
• Demonstrate alignment – it should be clear how your skills and experience match the role on offer.
• Act as interview rehearsal – this is often overlooked. Your resume should serve as a foundation for articulating your experience under interview conditions.

While points 1–4 is generally understood, point 5 is critical. It’s not just about what you’ve done—it’s about how well you communicate it. The best candidate is not always the one with the deepest experience, but often the one who can clearly articulate their skills, decisions, and achievements in a compelling way.

How to Think About Resume Writing

When preparing your resume, imagine you are writing a presentation for an audience. It needs:

• A logical flow of information
• Clear, relevant highlights
• Engaging content that holds attention

Success comes when your resume and interview tell the same story—when the written document aligns with how you verbally present your experience.

Resume Pitfalls: Buzzwords vs. Substance

We’re seeing a trend, possibly influenced by AI tools, of resumes overloaded with keywords like “sourcing,” “contract management,” or “cost reduction.” While this might help pass an initial keyword screen, it often lacks depth and context. The word “Sourcing,” for example, could mean vastly different things across 50 resumes.

What separates a strong resume from the rest is the detail behind the labels. For example:

• Why was sourcing required—was it to resolve an issue or seize an opportunity?
• What was the business context or strategy?
• What products or services were involved?
• Was it a domestic, regional, or global effort?
• What was the spend involved?
• What were the subcategories or key risks considered?

A useful structure to follow is Problem/Opportunity → Actions Taken → Results Achieved

This narrative not only strengthens the resume but also primes you to speak confidently during interviews.

Professional Summary As a dedicated Category Manager with a robust background in procurement, David brings over 10 years of professional experience. With a foundation in chemical engineering and hands-on experience across diverse portfolios, David offers strategic insight and proven results—even without formal tertiary qualifications.

He is actively seeking new opportunities that leverage his expertise in sourcing, stakeholder engagement, and category management, with a preference for collaborative environments.

David has managed portfolios ranging from $50M–$100M across Marketing, Recruitment & Labour Services, Travel, Utilities & Energy. His experience spans Pharmaceuticals and Banking & Finance—industries where he’s driven measurable outcomes under pressure.

David is both an enabler and a driver of continuous improvement, with team leadership experience, advanced Excel skills, and proficiency in JD Edwards, Oracle, and SAP ARIBA. His ability to foster strong stakeholder and supplier relationships is a standout.

Key Achievements

• Pharmaceuticals – Category Management In 2021, managed an $80M marketing spend (covering media, print, advertising, and events,) addressing vendor reliability risks and cost creep. David developed a 36-month category plan yielding 6% cost savings per annum, and shared outcome equity via long-term agreements, while improve ROI by 3%.
• Pharmaceuticals – Stakeholder Management In 2020, David addressed stakeholder misalignment across a $30M labour spend. Business was decentralised (3 P&Ls). David initiated targeted workshops for a period of 1 month while improving data promotion highlighting benefits of synergy. David improved P&L collaboration across the labour utilisation, which optimised project delivery outcomes by 17%.

Each of these examples follows a clear structure and provides meaningful detail that elevates the resume beyond generic descriptors.

In a recent economic commentary, market analyst Francis Hunt forecasts a bearish outlook for equities, emphasizing the absence of sufficient market liquidity to support a “melt-up” scenario. Hunt argues that in the event of a market downturn, a rapid recovery is unlikely. The decline in revenues among the “Big Seven” tech and large-cap firms will not be offset by gains in lower market capitalization equities. Given the disproportionate weighting of these companies within indices such as the S&P 500, replacement gains would require nearly double the percentage increase to compensate for equivalent losses, which is deemed unsustainable in the current climate.

Quantitative Easing (QE), historically a key driver of equity growth since 2009, is no longer providing the same tailwinds. Prior to 2008, interest rate cuts played a central role in market surges. However, with the current policy environment less conducive to such interventions, the support mechanisms for equities have significantly weakened.

Despite a recent increase in the U.S. M2 money supply—reaching levels previously seen during the COVID-19 stimulus phase—the associated velocity of money has declined. This suggests that while monetary expansion is occurring, it is not translating into increased consumption, as evidenced by stagnating GDP figures. The dynamic points to structural economic fragility, rather than a liquidity-driven recovery.

Gold vs. Bonds: Recession Indicators and Safe-Haven Flows

The U.S. economy appears to be entering a recessionary phase, with the federal funds rate currently at 4.2%. Geopolitical pressures further compound the risk. Both China and Japan—major holders of U.S. debt—possess the capacity to influence Treasury yields significantly. A large-scale selloff of U.S. bonds by either country could precipitate a surge in interest rates, independent of Federal Reserve policy.

The bond market is displaying a classic “head and shoulders” pattern, typically indicative of forthcoming interest rate increases. With bonds no longer classified as Tier 1 capital assets and the traditional 60/40 investment model increasingly ineffective, investors are reevaluating their portfolios.

Gold has emerged as a preferred risk-off asset, drawing unprecedented demand from hedge funds, central banks, and high-net-worth individuals. It has decoupled from its historical correlations with real interest rates, the U.S. dollar, and oil prices. After a temporary pullback to $3,200 USD, gold remains a core safe haven. Concurrently, oil prices have declined to $61.70 USD, down significantly from $82 USD at the end of 2024, reinforcing the narrative of weakening global demand.

Cryptocurrencies may also offer alternative store-of-value potential, although their resilience remains untested in recessionary environments.

Business and Supply Chain Dynamics

Global supply chains are under renewed pressure. Container ships are currently being held in China, raising concerns over a potential supply crisis within 40 days, particularly for critical packaging materials in the U.S. Domestic inventories are being driven down, while 42% of U.S. banks are declining mortgage rollovers and 66% of auto loans are being rejected—indicating a credit contraction and consumer pullback.

Apple Inc., as a notable example, is shifting production of iPhones to India, leveraging its strong balance sheet to mitigate geopolitical and cost-related risks. COVID-19 highlighted the vulnerability of global Just-In-Time (JIT) supply models and the need for resilient planning. While some companies have adjusted their supply chain strategies to account for risk, many remain reactive rather than proactively structured for long-term shifts.

The imposition of tariffs has compounded these stresses, creating bottlenecks and the risk of trade shocks, especially in the event of retaliatory actions or bans against U.S. goods.

April saw a sharp drop in container volumes entering the U.S., although activity is beginning to recover. However, shipping routes have been disrupted, with vessels detouring around Africa, extending delivery times. The U.S. undertook front-loading of imports to offset anticipated tariff impacts, leading to overstocked warehouses and strained working capital—especially damaging for cash flow and inventory efficiency for the rest of the year.

Production costs are rising due to fragmented assembly and rising input costs. The strategic pivot from Chinese manufacturing to other emerging markets is underway but the benefits are not immediate. SMEs that weathered the COVID crisis now face new headwinds that could prove fatal. Shipping rates have declined in response to dampened demand and trade restrictions. However, this trend is fragile and could reverse quickly, particularly in the context of escalating conflicts in the Middle East.

Procurement Implications and Strategic Considerations

Tariffs are poised to create significant cost pressures across procurement operations. This period represents a crucial opportunity for businesses to re-evaluate supplier portfolios and better align procurement strategies with both internal operational needs and evolving customer demands. Close collaboration between procurement, production, and supply chain planning (including logistics and warehousing) is imperative. Strong communication and integrated data systems will be essential for optimizing efficiency and mitigating cost escalations. Key indirect spend categories—such as Maintenance, Repair, and Operations (MRO) and freight—must be strategically managed in conjunction with Cost of Goods Sold (COGS). Harmonizing procurement and supply chain operations will be vital in managing risk while navigating a contracting economic environment.

Conclusion

The global economy is entering a complex period of contraction, marked by declining consumption, geopolitical risk, and fractured supply chains. While liquidity is rising nominally, structural issues—such as declining money velocity and constrained credit access—suggest deeper problems. Gold has solidified its role as a reliable safe haven, and the bond market’s volatility poses long-term challenges for traditional portfolio management. Businesses, particularly those with international supply chains, must act decisively to reassess sourcing strategies, manage operational risks, and conserve capital. The coming months will demand agility, foresight, and strategic coordination across all tiers of enterprise operations.