What’s the bigger story right now? A Chinese Virus with a deceptively low mortality rate masking its hospitalization rate or rather, the economic crash seemingly placed upon us like a perfect storm? A lot of people are blaming the virus on the continuing economic carnage and they’re not wrong, but the issue is far deeper than that. Ray Charles and Ronnie MIlsap could both see it. The bubble didn’t pop in 2008, it just got bigger. Coming in via Bloomberg, author and economist Satyajit Das very succinctly points out the aspects of the bubble.
Government banks and central banks steadily eroded their war chests and weapons, leaving them with limited ability to deal with a major dislocation.
Even the spread of Covid-19 reflects a lack of preparedness. Given the lengthy history of virulent pathogens, from SARS to Ebola, countries should have expected some sort of global pandemic to hit sooner or later. Their struggles to cope now reflect the lack of a cogent health policy, as well as diminished spending on health, due variously to austerity policies and privatization.
Should have, but didn’t.
Instead of taking those lessons of economic survivability we literally went the entire opposite direction, with eight years of exponential growth in the unfunded liabilities debt that can never be repaid. And what is the Federal Reserve’s answer?
Print more money. But what will happen when the world dumps the Dollar as the world reserve currency?
I’ll remind you that the moves of Russia against Saudi Arabia was not by accident. The timing coincided with the onset of the Chinese Virus and led to a near-perfect crash of our economy leading many investors to panic due to the expected numbers of infected, leaving the ongoing economic conflict largely unnoticed in American media. Our economy is dependent on the flow of oil from those ARAMCO pump jacks.
Further, BRICS remains a thing, with its stated goal to displace the petro dollar and with it, will negate any ability for the US to continue its fiscal insolvency. It wouldn’t simply be the Wiemar Republic, it would be the Fall of Rome.
The long-term damage will be great. Hysteresis refers to effects that persist after the initial causes are removed. The current crisis will compound persistent financial and economic weakness; structural damage to industry, employment and public finances; and savings and consumption behaviors which are difficult to foresee. While the Covid-19 crisis will probably pass, our fragile economic and financial system will take longer to recover.
I say that’s an optimistic statement. There’s more at work to all of this than simply a virus. And although its bad, its a smoke screen and catalyst for worse things to come.