Global Economic Crisis

Pundits are already praising President Biden’s debt-fed economic boom through vast levels of public indebtedness, which add a few temporary percentage points to the U.S. GDP, while the Eurozone has slipped back into recession. Far more telling  are three interconnected economic trends, recognized by economists and sophisticated entrepreneurs, but largely ignored in the popular media. These trends are:

1. Global microchip shortage. The Covid pandemic both increased the demand for high technology cyberspace platforms , while disrupting supply chains on which the worldwide fabrication of computer chips depends. And not only cyber platforms; many manufacturing  processes and end-products, such as the automotive industry, depend on microchips. In the wake of the chip drought, factories across the globe have been forced to close down, adding to the unemployment rolls.

2.Explosive speculation in Bitcoin. Economic history knows many cases of speculative bubbles, such as the tulip bulb craze that occurred several hundred years ago. More recently, financially engineered sub-prime mortgage investment packages brought about the Global Financial Crisis of 2007-09. That most recent episode, however, pales in the speculative hysteria that has been a characteristic of cyber currency  in general, and in particular Bitcoin. The explosive  growth of this cyber “currency,” created out of thin air by an anonymous individual known only by a pseudonym, with archaic blockchain technology and cyber “mining” expending vast amounts of carbon-derived energy for an opaque, semi-mystical process,  confounds all reason. Trillions of dollars appear to be pouring into this speculative investments like sharks drawn by blood to a feeding frenzy.  Unless the global economy has been transformed into a metaphysical realm, this cannot end well. When the bubble pops, the collateral damage to the world’s economy and financial system will be beyond catastrophic.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 3, Increasing tensions both between countries, and within nation-states. This phenomenon afflicts most countries,  large and small, but particularly the U.S. and Russia. In the case of Putin’s Russia, Moscow’s relations with her  neighbors and the United States  are at their worst since the peak of the Cold War, while internally the regime’s suppression of dissent has only further distanced a growing proportion of the citizenry from the government. In particular, anecdotal evidence points to a major proportion of Russia’s youth, especially university students , having lost trust in the government and preferring to emigrate. These trends, however, are not unique to Russia.  What this portends to is the likelihood that countries will actually seek external conflict as a means to facilitate national unity domestically.

The above three trends all point to elevated risks of stagflation; high inflation and recessionary economics.  These in turn are likely to further exacerbate internal and external conflicts across the globe.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

An unprecedented wave of policy measures has enabled distortions that  are wreaking havoc in the global economy, creating accelerating dangers of a cataclysmic event. This can be in the form of a market crash, contagion from imploding asset bubbles or rise in fears of inflation leading to irrational money flows. A combination of all these forces in synchronicity can be the single event leading to a global depression.

The major factor in the global economy at present is the unprecedented wave of liquidity being unleashed by policy makers. That fact alone is what has driven the sharp rise in equity prices since the initial collapse in the wake of Covid-induced economic shutdowns. There is no other explanation for the massive rise in equity prices, even while the real economy is stagnant after a sharp decline  in the wake of the coronavirus pandemic. The divide between Main Street and Wall Street alongside the sharp rise in equities has never been wider. It is only due to the money printing of central banks and record levels of public debt caused by the fiscal policies of sovereigns that has brought about this phenomenon.

Alongside the sharp rise in equity prices has been the explosive price rise in Bitcoin. The emergence of crypto or digital currencies in general, and Bitcoin in particular, has brought about the most expansive speculative bubble in the modern financial era. Bitcoin is completely opaque; nobody even knows the true identity of the person who created this cyber currency. Yet, even Tesla among other companies has begun to invest substantially in this digital currency as a means of mitigating risk factors.

Meanwhile, bond yields have begun to rise, an indication of growing fears of inflation. That, and the continuing deluge of liquidity from the policymakers, has created perhaps the most distorted and unstable financial environments since the  period that preceded the Great Depression of the 1930s.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

When Covid-19 first impacted major economies last Spring, stock markets throughout the world plunged  by double-digits in a period of only 3-weeks. Yet, not only have these losses all been recouped; less than a year later equities have reached record levels, led by the Dow Jones index. In addition, other speculative investments such as the cyber currency Bitcoin have soared to dizzying highs. Yet, amid this financial exuberance veteran investors are displaying growing concern for the future. The  Financial Times has characterized their concern as seeing  “a bubble to rival anything  seen in the past century.”

Simply put , there is a disconnect between the equity markets and  the real economy, which is in dire straits in virtually every country. The sole reason for the escalation in equity prices is the unprecedented money printing by central banks, combined with equally unparalleled deficit spending by sovereigns. It is only this monetary and financial sugar high which is driving soaring equity prices.

When the first hint occurs that the pump-priming may be receding, however, the investors will run for the exists. What is likely to occur is a global stock market crash of calamitous proportions which, like the 1929   crash on Wall Street, will usher in a period of deep economic depression.