The Forces Upending the Global Economy Cannot be Reversed

So sorry, but the lifestyle of low-cost credit and all the goodies it could buy is permanently out of stock.

In focusing on geopolitics, we lose sight of the dependence of every economy on a functioning global economy of low-cost goods, services, materials, shipping, transport, capital, labor and financial instruments, all flowing freely across borders and around the world.

Russia, China, the U.S., and indeed every economy are equally dependent on access to a functioning global economy to obtain essential goods, services and capital and sell surplus production.

The irony here is the “poor” subsistence villagers with very limited access to global markets will manage the breakdown of the global economy far better than the “wealthy” urban dwellers who are totally dependent on free-flowing global trade. (The villagers will be frustrated by spotty cell service; the urban dwellers will be hard-pressed to obtain enough food and fuel to survive.)

What few seem to realize (or acknowledge) is the forces already in motion will upend the global economy, and there is no reverse gear. These forces are:

1. De-globalization

2. De-financialization

3. Real-world scarcities that cannot be overcome with financial trickery.

4. Diminishing returns on what worked in the past: financial stimulus and other trickery.

5. Asymmetries that can no longer be papered over.

Each of these forces is multi-faceted and complex. Each has the unstoppable momentum of cause and effect. The financial trickery of the past 30 years has created a delusional faith that there are no real-world scarcities or difficulties that can’t be resolved with some new financial stimulus or gimmick. This is a compelling delusion, for we all want magic that makes the real world do what suits us.

The central delusion is that “money” (credit/currency) from somewhere can magically extract as many materials and goodies as we want from somewhere else. This is hyper-globalization and hyper-financialization in a nutshell: hyper-financialization is the global commoditization of credit, leverage and trickery, enabling the vast expansion of credit, leverage and trickery which has fueled the astounding expansion of speculative frenzy which is now the engine of the global economy.

Hyper-globalization is the fulfillment of the neoliberal fantasy that commoditizing self-regulating (ha-ha, you mean cartels and monopolies, correct?) markets would permanently lower costs and expand credit, consumption and prosperity. In this hyper-version of global trade (which has existed for thousands of years), the mass commoditization of credit and capital flowing freely around the world, plucking (and exploiting) the most profitable opportunities wherever they might be (luxury resort in Timbukthree, count us in, at least until we can find a sucker to buy our commoditized debt instruments) will all by itself lower costs and boost production and consumption forever.

Nice, but financial trickery eventually runs into real-world constraints and asymmetries it cannot resolve. Once the cheap-to-get resources have been depleted, it costs more to extract, process and transport them, even with technological advances.

Other constraints are economic, political and social in nature. Local populaces eventually realize their resources are being plundered by corporations from afar who arbitrage vast asymmetries in the cost of capital, labor costs, environmental standards and currency valuations (to name a few) to stripmine locals and leave them the “dividends” of hyper-globalization and hyper-financialization such as polluted wastelands and unpayable debts.

Nations eventually awaken to the risks of becoming dependent on others for essentials, and so onshoring, friend-shoring and reshoring all become national-defense policies, never mind the corrupting neoliberal fantasies of everyone singing Kumbaya around the hyper-globalization and hyper-financialization campfire.

Creating a billion units of currency doesn’t automatically conjure up a billion units of fresh water, wheat or oil. When there were unexploited reserves of these essentials, then massive infusions of capital from somewhere else could fund their extraction, but when the easy-to-get reserves have been depleted, then cheap capital doesn’t translate into cheap goodies.

The reversal of these forces has a funny consequence which we call inflation. Let’s start by setting aside economic fantasies such as “inflation is always a monetary phenomenon.” If a primary source of oil happens to be blown to bits and oil jumps $50 a barrel overnight, costs will rise in a manner that has nothing to do with the expansion or contraction of the money supply. “Inflation” is simply this: a unit of labor / currency buys fewer goods and services, or buys goods and services of lower quality.

However you wish to put it, labor and money lose purchasing power: each unit of labor/currency buys less than it did in the past.

Inflation has many sources, but let’s focus on the reversal of hyper-globalization and hyper-financialization. The reversal of financialization increases the cost of capital (interest rates, cost of mitigating rising risk) and the reversal of globalization increases the costs of goods and services.

The global realities of depletion and scarcity also push costs higher.

Simply put, each of these forces is highly inflationary as a matter of cause and effect. There is no way to conjure a hat-trick of financial gimmicks to reverse these forces of higher costs, i.e. inflation: every unit of labor and currency buys less than it did in the past.

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By Published On: March 2, 2023Categories: UncategorizedComments Off on The Forces Upending the Global Economy Cannot be Reversed

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About the Author: Patriotman

Patriotman currently ekes out a survivalist lifestyle in a suburban northeastern state as best as he can. He has varied experience in political science, public policy, biological sciences, and higher education. Proudly Catholic and an Eagle Scout, he has no military experience and thus offers a relatable perspective for the average suburban prepper who is preparing for troubled times on the horizon with less than ideal teams and in less than ideal locations. Brushbeater Store Page: http://bit.ly/BrushbeaterStore

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