Wrack To The Future?

23 Mar 2020 by rate3

When there's such an unparalleled conversion of multiple negative economic and political tendencies it creates not only huge social commotions but also an unprecedented data corruption. Consequently, it's a bit too earlier to plunge ourselves into a fundamental analysis not to mention to draw any projections vectors. However, no one prevents us from trying :)

Let's keep it short and sweet. There are, naturally, three basic long-term recovery curves we all are familiar with on practice or from books: "V" - shape, "W" - shape and "L" - shape.

In our present situation those are as following:

"V": authoritarian world-wide quarantining and money helicoptering will work its magic and NASDAQ / BTC will be well over 9 thousand in 3-6 months.

"W": situation will get worse before it gets better: we will for sure stumble a couple of times on our way to the full recovery but the light a the end of the tunnel will be visible by the start / middle of 2021.

"L": we will plunge ourself into the abyss from which there's no fast way up. Sure, with that we are unlikely to go apocalyptic, but we will get ourselves a prolonged (>5 years) depression, which will require from us to fundamentally revamp all of our political and economic systems to get out of this mess.

Mass-medias had always loved to scare public by "L" to attract more eyeballs, specially after massive economic earthquakes, for example in 2008 and in 1998 as well as after 2000 Internet bubble crash and 2001-911 fallout, but all those times it turned to be either "V" or "W". Today they do the same but will it help us to avoid "L" again?

Hope so, but it looks like this time the whole desk is stacked heavily against us.

The main difference of 2020 from 2008, 2001, 2000 and 1998 is that the later four were local events leading to temporary disruption of our global financial texture. It didn't really affect our world's economic system and fundamental production / consumption capabilities.

Most consequentially two of those crisis were caused either by a massive speculatory bubbles on the developing currencies markets (1998) or by global derivative mortgages over-leveraging (2008). However, both those times the way out was obvious for governments - massive bail-outs, money printing and Chinese growing appetite for all types of resources (material and intellectual) sustaining their miraculous 7-8% GDP growth for decades.

2020 is obviously different. With it can we call the start of the Second World-Wide Depression. Let's see.

1) The historic corporate exodus from the developed countries into the 3-d world is over. It ends both the epoch of rise in productivity caused by lower wages combined with IT revolution and the era of political openness and "cooperation";

2) World's economy traditional drivers including BRIC, Western Africa and Australia-Oceania have already joined the ranks of "almost 1-st world countries", which leaves no room for further significant growth under the old paradigme of "assets values" indefinite increase;

3) World's most appreciated equities (like land and estates property) are now over-concentrated in the hands of several thousands corporate entities and individuals. In some other parts of the worlds they are rivaled by rising military / special services managerial class, which continue to obtain more and more political power as well as to gradually get national governments' resources under their direct control;

4) This process is naturally complemented by the growing competition between all those clans (corporate, military and political) for prevalence on the world stage and the consequential control over the rest of "undistributed" resources;

5) All of that seeds growing social unrests in the most populated regions of the world causing massive migrations and rise of popularity of extremist ideologies among subordinated and grotesquely politically and economically ostracized parts of the Glob's population. That in its turn increases the demand for an authoritarian ruling model even in traditionally democratic countries and leads to further isolation and protectionist, nationalistic type of economic politics;

6) The basis to all current political systems were laid in XVII - XIX centuries, which make them obsolete in the epoch of instant communication, AI, IoT and consumer cryptography. At the same time political power in G20 (as well as all over the rest of World) is disproportionately concentrated in the hands of older, less tech-savvy generation, which is very aggressively and violently defend its sacred "droit du seigneur" from any modernization attempts;

7) Most recently it has been aligned with an historically unprecedented period of prolonged world-wide inflationary growth, which were actively pedalling by central banks' "permanent easing" policies. Moreover, at the start of 2020 the shaky world economic system received a knockdown blow from the promptly and globally self-imposed "quarantine", following the fast spread of a new and previously unaccounted noncellular entity. Expectedly, it will lead to further long-term alienation of Earth regions.

Under the described initial conditions it's very difficult to consider an optimistic scenario under which even the most complex set of drastic measures are proposed and promptly implemented, which will lead to Gordian Knot type of world salvation.

Additionally, there's no doubts that, considering present geo-political situation, decisions makers in the most of G20 countries will be very reluctant to rock the boat and risk their material and social statuses to save all of us.

Well, that's all macro but what does it really mean for all of us lurking closer the bottom of the power pyramid?

It's not difficult to foresee that even if the current critical situation will be resolved sooner than we expect, that will lead to further accentuation of the surveillances and controls imposed by governments on our individual freedoms.

The list might include:

- restricting international travel;

- implementing more rigorous medical controls on borders for wider variety of goods and services;

- imposing new costly requirements and limitations on small and medium businesses;

- introducing a whole new class of licensing procedures for businesses;

- creating new bureaucratic agencies on federal and local levels;

- proposing new legislation packages aimed at drastically increasing budget expenditure on purchasing new class of expensive medical products and services from big corporations;

- allowing for police applying indiscriminate retention and forced medical testing of individuals;

- introducing currencies control to prevent migration of capital (including additional limitations on digital currencies);

- drastically increasing financial penalties for misdemeanors threatening "public health";

- stimulating a wider use of self-reporting electronic devices;

- paying higher ransom for reporting others.

and I have only mentioned what is glooming on us with regards of our "non-material" rights and only concerning that medical issue.

If we dig deeper into the wider economic consequences we can also forecast:

- job losses and bankruptcies of hundreds of thousands or even millions of SME leading to increased social disturbances in the most instable parts of the world;

- 5-10% reduction of global GDP only in 2020 leading to national currencies devaluation resulting in gigantic federal budget cuts in the most of world's countries, which will hit hard the most impoverished groups of population;

- renewed tariffs wars reflected in the isolationist type of economies adapted by the majority of G20 countries;

- reinvigorated nationalistic tendencies in politics, resulting in growing number of military conflicts (specially in Middle East and North Africa);

- accelerating the process of corporations replacing humans with AI, specially in the transportation and mass consumers orientated industries, sparkling the new wave of lay-offs (notably among elder groups of population);

- all of that will increase even more the existing wealth gap between top 5% and the rest of the world population, laying ground for future major social disruptions.

List goes on.

It's actually very difficult to find a "silver lining" in that. In fact those types of international calamities always create an unprecedented opportunity for all types of central governments across the world to strengthen their affluence in different sectors of society as well as in many industries of businesses. This chance simply can't be missed by most qualified bureaucrat. Therefore, we can expect that many of our liberties will be diminished one way or another in the medium to long-term future.

Still, we'll do our best to sugarcoat this hip of litter:

1) Federal governments in EU and USA suddenly calling off basic individual freedoms, including, the right to work and education, the right to public assembly, the right to travel, and even the right to personal interactions might lead to increased frustration with the current, inefficient governance systems (not only, as it's usually the case, with the familiar set of TV personalities) among larger categories of voters (specially among younger population), which might lead to some structural reforms in the distant future;

2) Because the recent medical crisis has coincided with the looming threat of the great depression this situation is very unusual and difficult for bureaucrats to tackle. It increases governmental inertia, which, hopefully, will give us an additional time to react. Additionally, it widely opens a door for "financial stimulus and tax relief packages";

3) Self-imposed imprisonment of the hundred of million of consumers in their own homes potentially leads to increased traffic to web-based companies. However, positivity of this effect for SME will be greatly diminished by the MAGA's factual oligopoly on all types of on-line businesses;

4) Exchanges prices for almost all category of traded equities have dropped dramatically and are now widely expected to go lower event further in the future. That, of course, creates a luxurious buying opportunity to those few people who got enough free cash on their hands. However, this drop is unlikely to have a substantial effect on the consumer prices, which for all extend and purposes will only rise further, thanks to increased inflationary pressure and the disruption of the international labor market as well as the world's major supply lines.

5) Also I have probably to mention some collateral "positivities" like cleaner air in major cities, an increased attendance of national parks and more time with families and uninfected friends.

Overall, it's very tempting for me to call the "L"-shaped recovery, which will be uniquely combined with an unprecedented assault on basic individual freedoms all over the world and even in the most democratic of countries.

Still, as I've mentioned, it's a bit too early now for making a good prognosis. Let's call it "a hypothesis", instead.