Recession 2020: No War, No Peace

08 Oct 2019 by rate3

I want to step a bit outside of the high walls surrounding our beloved but still wild, unsafe and very small DLT island and cast a glance at a broader economic picture.

Do not take me wrong, I don't want to get into long arguing why and why not such factors as self-perpetuated trade wars, central banks reaching their limits to stimulate growth, continuing buildup of corporate debt or negative ISM index may or may not trigger a recession.

My goal is to present (with not proves, just as a theory) one of the recession scenarios, which might be tagged as "no war, no peace".

If we ask ourselves what will differentiate the next economic crises from all previous ones - one of the possible answers might be that it's the first recession of the "post-globalization" epoch.

For the sake of argument (and in order to keep this post short) let's assume that the main function of world's economies is to create credits and consume it by producing / purchasing assets (mostly "physical" not digital). Credits shrunk, markets / prices get down, assets are redistributed, efficiency rises, credits expand, cycle repeats. So, how are world's assets distributed now, at the start of XXI century?

It's not even an issue that "the bottom 95% of all world's population held 28.4% of world wealth". The issue is that world's major physical assets with long ammortization cycle (such f.e. as arable land, inhabitable coastal regions as well as big real estate properties, productive manufacturing facilities or oil fields) are gradually concentrating in the hands of fewer and fewer end purchasers (e.g. only during the past decade the portion of US territory owned by 100 largest landowners has grown 50%).

According to the extended version of Gresham's law the more valuable commodity will gradually disappear from circulation. Obviously, it means that whatever stage of the credit cycle, end purchasers have lesser and lesser incentives to sell as there are fewer and fewer valuable assets left.

At some stage it might reproduce on a macro level the situation which is familiar to us as the 'Japanese asset price bubble', which was stared in 1986 and, arguably, continues to our days with real-estate prices not really going down (15-20% slide in 1992 can't really be qualified as a crisis) preventing substantial wealth redistribution (hence, increased efficiency) in other sectors of Japanese economy and leading to 30-years stagnation.

This "no war, no peace" scenario can stuck all our economies into the uncharted territory, where the global business play will be stalled as all major assets markets are "cornered" by several "end-owners". Does it mean that "digital" assets will be one of the few remaining "growth" alternatives left? :)