It has been my view for years it is the economy that will initiate the collapse process acceleration. We have been in a broad-based decline now for years. This is both human and planetary. These have been long term slow processes of increasing abandonment, dysfunction, and irrational on the human side. On the planetary side it has been increasing system destabilization, ecosystem decline, and localized ecosystem failure.
The global economy has been remarkably resilient up until now. This has not changed the dynamics of decline it has just meant this decline process was in effect an undulating plateau because of global value chain strength and tech advances. There have been real advances in abilities in the last 20 years. Yet, there has also been the inertia of diminishing returns of malinvestment and Ponzi economics. The malinvestment is the parasitic effects of improper applications of value chain capital in investments that do not bring the returned advertised. This leads to efforts to conceal these poor investments in economic policy of rate repression and artificial liquidity of easing. This is made worse because in this process is the corruption of standards, practices and values in other words moral hazards. Value pricing is distorted with the contamination distorted returns. True value is papered over by investments in short term yield seeking instead of longer-term productivity. This also involves lack of cleansing which in economics is the acceptance of the consequences of failure which recessions are meant to facilitate. A party must pay for consequences of poor actions at some point. Dispersing these moral hazard costs into the system just spreads risk of worse.
This decay can go on for years more as the last 12 years can attest to. The great financial crisis was just absorbed into a new process of accelerated decline from distortions and malinvestment. The world is now to a point where a black swan shock has occurred during a period of economic tension at a peaking of debt, unfunded liabilities, and civil discord. These are the kind of ingredients for a bifurcation. Thresholds are pushed, break, and settle at new stable levels. The problem now is a break (recession and or depression) will be very severe because of interconnectedness of value chains and capital globally. Include distrust and national intrigue and the potential results are truly dangerous. This then becomes a gaming process at the highest levels within a zero-sum gain where all parties suffer decline. This is calculated like in war where battles are fought with the understanding of losses but where attrition becomes the main tool. Everyone loses but some gain relatively in decline. The problem with this battle is the terrain is a complex self-organizing world with complicated interconnectedness. The results of this conflict then are unpredictable because they involve the physics of turbulence with confusion, strong sudden movements, and phase change.
We now are in a potential global pandemic which will surely disrupt and hammer global value chains, global travel, and global financial markets. Financial markets are elevated and frothy with unrealistic value related to financial repression and easing. They do not represent true value. Real value is a fraction of stated value. Value chains that contribute so much production are splintering. How much reboots is debatable? Surely some will disappear meaning lower economic activity. Global travel is vital for tourism but also value chains. Airlines, hoteling, and leisure are major markets employing millions. This then all leads to bankruptcies, unemployment and pressure on safety nets. There is no way to predict how this plays out except poorly. It will likely remain a process with non linear reactions within the overall gradient of decline. The gradient will steepen making the disruptive eddies within the decline process worse.
The real danger of the current possible pandemic is not the death rate. Global population growth will absorb this with no problem. The real problem is the economic dislocations. This could be the real villain that eventually increases the death rate from food and shelter issues. When vital hubs of networks are damaged then the real decline proceeds. There is a percentage of valuable human skill sets that are required to keep systems going. Once these systems are disrupted then they fail and they fail spectacularly. The grid then becomes destabilized. The global system is not there yet but we are in the vicinity of cascading decline.
‘You Are Here’ – The Stages Of Collapse Exposed”
“Could the coronavirus act as a catalyst for a new global economic crisis? It certainly has that potential – but how would the crisis proceed?… In the December 2018 issue of our Q-Review, we laid out the likely scenarios of an approaching global economic collapse. But, like most things in life, such a dramatic event is unlikely to proceed in a linear fashion. There will be different stages within it. In December 2019 we outlined these stages, which are likely five: the onset, counter-attack, flood, calamity and recovery. Here, we briefly define the characteristics of each. The onset Currently, there seems to be two possible ignition points for the collapse: the credit market and the European banking sector…Cascading banking troubles in Europe will have the same destabilizing effects on the global stock and bond markets. The counterattack The second phase of the collapse will be the desperate efforts of authorities to stop the crisis by a counterattack. These are likely to include the restarting and acceleration of QE-programs and other market support programs, gigantic fiscal stimulus, increasing trade protectionism and possibly even calls for direct debt monetization…Most of the governments of the Eurozone are too indebted to engage in any meaningful stimulus, especially when confronted with cascading bank problems and eventual failures. China will desperately try to enact even more fiscal stimulus, but due to the collapse of global economic demand and the probable implosion of the housing and financial system bubbles in China, such attempts will be wholly inadequate. The Chinese economy will slam to earth in a hard landing. The flood The crack-up in the credit and stock markets will be followed by a flood of corporate bankruptcies. So-called “zombie” corporations, faced with collapsing economic demand and exploding interest rates—due to the banking crisis and crashing credit markets—will fail on a scale unseen in decades. The value of the holdings of pension funds, charitable endowments, trust funds, insurance company variable accounts, and stock and bond mutual funds will crash in short order. Even lowly money-market funds may be at risk, just as they were in the Financial Crisis…The calamity Due to both crashing capital markets and banking sector bankruptcies, joblessness and poverty are likely to explode. Simultaneously, government tax revenues will collapse as incomes retreat and capital gains evaporate. As governments spending skyrockets in an orgy of Keynesian counter-cyclicality, national deficits will hit all-time highs on both an absolute and relative basis. Governments will try to save critically-important banks, which will require large-scale funding many countries—such as those in the Eurozone—cannot afford and will not be able to finance in paralyzed capital markets. This economic reality makes depositor bail-ins the only, if politically-unpalatable option…The recovery We expect the global depression to last 4-5 years. The initial collapse is likely to be over within three years. The path to recovery will depend crucially on how far the ‘cleansing’ of the economy, markets and financial sector is allowed to go. If the banking sector implodes completely, the economic deficit will naturally be made much deeper leading to a systemic crisis…The virus is so hazardous for the Chinese economy, because the virus itself and the draconian measures adopted to contain it disrupt production and the incomes of millions of highly-indebted firms and households. The longer that this broad economic stress continues, the higher the likelihood of corporate defaults and bankruptcies. China’s banking system is extremely levered (see Figure 2). As we explained in Q-Review 4/2019, China’s banking system will be unable to cope with any longer slowing down of growth, not to speak of a recession. Large-scale defaults and bankruptcies caused by the reasons just discussed would hit the Chinese banking sector especially hard. The virus can in this way easily act as a catalyst for a deep and severe banking crisis in China. It would guarantee a global recession.”