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Global Collapse? How likely?

Summary:
There is currently some talk of global economic collapse being imminent. (See for instance Complex Systems Collide, Markets Crash).   The basic thesis is that interactions between the world and the economy can cause the economy to switch into a different mode of operating.Things are looking bad at the moment. The stock markets are replaying 1929 with eerie precision:Zero Hedge But how bad is it? There are several weak points: most large corporations are up to their ears in debt, eurodollars are getting ever harder to obtain, eurodollars are lacking collateral, over trillion of corporate bonds mature annually, the oil price is below the break even level for Russia and Saudi Arabia.There is an interesting title to the graph below:  Global debt has grown from trillion in 2007 to

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There is currently some talk of global economic collapse being imminent. (See for instance Complex Systems Collide, Markets Crash).   The basic thesis is that interactions between the world and the economy can cause the economy to switch into a different mode of operating.

Things are looking bad at the moment. The stock markets are replaying 1929 with eerie precision:

Global Collapse?  How likely?
Zero Hedge
But how bad is it? There are several weak points: most large corporations are up to their ears in debt, eurodollars are getting ever harder to obtain, eurodollars are lacking collateral, over $2 trillion of corporate bonds mature annually, the oil price is below the break even level for Russia and Saudi Arabia.

There is an interesting title to the graph below:

Global Collapse?  How likely?

 Global debt has grown from $97 trillion in 2007 to $169 trillion in 2017, a 60% rise. but apparently this is OK because global GDP has grown.  Global GDP did not rise by 60% from 2007 to 2017 but by about 30% from $58 to $80 trn.  We would have nothing to fear if major, unforseen events, Black Swans did not exist. 

Bank balance sheets are once again in trouble as shares fall and oil prices tumble.   Banks are selling their treasury bonds to pay corporate clients and free up cash for loans to businesses hit by coronavirus.  The shortage of eurodollars dating from the financial crisis means that bank liquidity is drying up (eurodollars are dollars held outside the USA that are used for interbank loans).  The efforts by the Fed, ECB, Bank of England etc. to inject liquidity by lowering interest rates are a drop in the ocean compared with the eurodollar shortage. 

The other problem is that traditional car companies are in trouble.

Global Collapse?  How likely?
Coronavirus has merely cemented the trend due to astonishing lack of preparedness for phasing out hydrocarbon fuels. It reminds me of IBM in the 1980s saying that personal computers were just a passing fashion.

Many of these factors predate coronavirus.  Coronavirus is a Black Swan that is precipitating trouble that was already in the pipeline. But will the global economy crash?

A major global crash would require the simultaneous failure of bank liquidity coupled with the failure of several major Multinational Corporations.  Governments tend to back their big banks and prestige corporations so it is doubtful they will fall.  However, the price of supporting our profligate banks and dozy corporations is high for each of us. As in the 2008 recession it will be our wages that take a hit. 

The UK is lucky because BA, Virgin, Tesco, HSBC are strong brands and so may return the cost of their support.  The EU is less fortunate because they will be propping up heavy industrials such as BMW that may lose value permanently.  The EU is also threatened by the weak fringe from Ireland southwards through the Mediterranean.  Whether the ECB can raise the cash to support half the EU is a moot point, especially given the poor state of the German economy.  As Eurozone members these fringe countries cannot take effective independent action and must be supported.

Global Collapse?  How likely?
Germany GDP Growth
So, there are interesting times ahead...

15/3/2020

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