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COVID-19 and the Political and Financial Elites: Blowing Life into an Already Rotting Corpse

The current threat to sovereign state stability is not the financial crash. Nor is it the coronavirus or the oil price war. The medium to long term threat is the politicians and financial “elites” who are incapable of understanding systemic change has occurred.
By attempting to resurrect the world of three months ago, the future is being crippled. Medically speaking, they are attempting to blow life into an already rotting corpse.

For example, the American government has expended two trillion (with a T) dollars into stimulus and bailout measures on top of earlier interest rate cuts and Quantitative Easing (money printing). The European Union announced a 750 billion Euro package. Other countries have put forth similar responses. In each case, the “stimulus” package had a market effect measured in hours or days.

The feeling of panic and fear among the political and financial “elites” is palpable. Most of them are barely two to three months into a crisis scenario. Yet they have already expended massive amounts of ammunition on a problem they cannot understand or admit.

Crisis? Which Crisis?

The current situation is a perfect storm. The economy was moving towards a global recession at the end of 2019. The recession by itself would have been serious, given the past 10 years of long-term low interest rates, high levels of debt, stock buybacks and extended periods of quantitative easing (money printing). Additionally, the oil price war, instigated by Saudi Arabia and Russia, would have had a major economic impact in the American shale oil production sector.

The coronavirus pandemic should be seen as the trigger for the current situation, not the cause. Needless to say, if the pandemic continues at a global level, it will have a multiplier effect on the already significant damage.

Supporting the Past

The global economy, but particularly the West, has willfully restructured large parts of its financial infrastructure in an attempt to keep economic statistics inflated. This, despite a series of gross mistakes which led to the last two financial crises of 1999 and 2008. These policies led to a 2019 economy which was bubble-like in every manner. This included stocks, real estate, debt, auto sales, financialization and synthetic derivatives. Deutsche Bank alone may have a derivative exposure in the range of €43.5 trillion.

The Immediate Future

The current economic damage is minor compared to the future. Credit markets are drying up, revolving credit lines are being drawn down, millions of workers have been laid off, commercial real estate is imploding and residential real estate will suffer. Commercial bonds are being downgraded with billions of dollars of paper headed for junk status. Corporations holding junk bond status will pay higher interest rates to borrow the money they need in a tougher world. The greatest problem may be zombie corporations. These are corporations which have not profited for years and have no path to profitability. They survive based on low interest loan rates. This enables them to take on more debt, sufficient only to pay the interest on their previous debt. If these corporations were living entities, they would have died years ago. They appear alive, but they are – zombies. They will need to be bailed out again as they were in 2008 recession. Banks and major concerns such as Ford and General Motors must either prove viable cease to exist.

The nature of capitalism is that the viable aspects of a society should grow. Those that are parasitic should be removed. Zombies have become a parasite as other viable enterprises are forced to support them. In short, the Zombies believe in capitalism on the way up, but socialism on the way down. The idea that everything can be fixed with bailouts is a fantasy put forth by Marxists and progressives.

The Reckoning

Any Ponzi scheme, such as the above, will last far longer than it should. But when such schemes fail, they collapse rapidly. An entire series of “extend and pretend” measures have broken the economy beyond repair trying to save them and insufficient capital exists to “bail out everything.”

The Future

Those who realize that the old order is gone, and a new world is coming, will survive. Many will prosper. Those who hold try to hold the old ways by spending trillions will waste scare resources. This will be true for individuals, corporations, non-sovereign governments, sovereign governments and supra-national organizations.

Photo Credit : Getty Images


Twitter: @ankitndt

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