Global Economic Crisis

A global economy already  in fragile condition  due to  the contraction in  GDP and exploding sovereign debt levels due to the Covid-19 pandemic, is now in  danger of being further weakened by political strife in the United States. With about six-weeks to go before the 2020 presidential election, there are already numerous indicators of looming political and social chaos looming in the USA.

Even before the death of Supreme Court justice Ruth Bader Ginsburg, there were already claims by both the Democratic and Republican parties that their opponent was out to undermine presidential voting. The incumbent, President Donald Trump and his supporters allege that mail-in ballots, favored by Democratic-run states, will unleash massive voter fraud. Trump’s challenger, former vice-president Joe Biden, and his Democratic supporters, have allegations of their own; Russia is supposedly working in tandem with Trump to undermine the true results of the pending election. Either way, both sides have set up voting day, November 3, as not decision-day, but rather the beginning of a bitter fight by armies of lawyers for who will be the legitimate winner of the upcoming presidential election.

Added to the above, there is a ferocious fight looming over the prerogative of the current president to select a replacement for the now-vacant seat on the U.S. Supreme Court. The fact that Trump has the constitutional legality to do this is irrelevant; this all about massively polarizing fault lines within the American body politic, adding to severe social tension and propensity for violence linked to the upcoming election.

All the above factors, occurring in what is still the world’s largest economy (though China is on the verge of overtaking that position) are destabilizing; not only politically but perhaps even more in terms of the global economy. In the post-coronavirus world we all now inhabit, the political storm brewing in the U.S. may be the final element that brings about a total economic depression, thus ensuring that the Global Economic Crisis is deeper and of longer duration than the pundits and analysts are currently predicting.

Government leaders and financial pundits  continue to trumpet the myth of the V-shaped economic recovery, a leading factor in the ability of Wall Street and other exchanges to recoup virtually all their catastrophic losses inflicted in the early stages of theCovid-19 pandemic. Yet, despite the happy talk, the anemic recovery occurring in many economies during Q3  is already in danger of being premature. Growing headwinds  lie ahead  for the global economy.

The temporary alleviation of the worst affects of the economic lockdowns that occurred throughout the second quarter of the year were purchased with a  staggering and unprecedented level of sovereign debt. To give only one example, Canada is projecting a government deficit for 2020 of $343 billion (Canadian), in USD equaling to about $260 billion USD. In the United Sates, the 2020 fiscal deficit incurred by the federal government t (excluding state, county and local government expenditures) is projected currently at  3.3 trillion dollars; more than 15% of America’s GDP.

Never before in human history have sovereigns incurred such massive debt levels within a very short time interval. This rampant borrowing has not been unleashed to fund major infrastructure projects and other activity aimed at stimulating economic growth. In fact, this massive borrowing binge has been utilized by policymakers  for two purposes: providing a financial lifeline to the vast numbers of newly unemployed, and pump up the equity markets that were on the verge of implosion.

For the short-term, stock prices may have recovered and large numbers of unemployed workers have been rescued from instant insolvency. However, with new pockets of Covid-19 emerging and leading to renewed economic lockdowns, and the threat of a second-wave of the coronavirus looming, economic disaster stands right before us. The possibility of an effective vaccine is the remaining hope  for much of the world to escape a Great Depression of the 21st century. How realistic such a therapeutic creation is for the salvation of the global economy remains to be seen.