Is The Economy on the Brink of Collapse? – Trustnodes

Is The Economy on the Brink of Collapse?


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Markets are a bit jittery as investors try to figure out the outlook for the economy amidst a standoff of sorts between politicians and the public as a now old movie is at risk of being played again.

Ireland is the latest to impose new restrictions, although not lockdowns. This is a country with 90% vaccinated. That raises a very difficult question for investors: are we in a doom economy?

A doom economy may be precisely what Germany plans, although not intentionally presumably. That’s because in March 2020, we were all in it together. The initial shock of a lockdown was contained and even erased as it was all effectively cancelled economically with stimy checks and mass printing.

This year we saw what you’d expect. A big boom due to pent up demand and everything opening up. Some inflation, but when you grow 20% in one quarter, obviously you’re gone get some inflation. Growth would return to normal, so inflation will presumably too. Maybe we can experiment by running a deficit in the hope growth outpaces it, instead of hiking taxes and so on. There’s a route to come out stronger, at least potentially.

Now however a lot of that has to be re-adjusted, at least for some countries as in most countries, many are already cancelling their Christmas plans, not because of the new flu, but they’re pricing-in so to speak the government ordering them to.

This Black Friday was the worst since data began. It happened to coincide with news of the Nu flu, so it’s not the economy, it’s policy and that’s just one indication of the risk in the current atmosphere as a small miscalculation can turn into a big avalanche.

Gov Out of Ammo?

Arguably we could afford 2020, but with inflation now rising, 2020 level printing is very much a gamble. So there probably won’t be full on lockdowns because we can’t afford them, unless obviously there’s a matter so serious that there isn’t quite a reasonable choice, which the Nu variant isn’t as Sweden shows and Florida and many other places.

What we may get however is worse, both close downs and no assistance, a doom economy. That’s because if you’re cancelling things 2020 style, there may be a monetary problem in due course but not now. If you’re restricting, then there’s a problem both now and in due course.

Ireland is closing nightclubs. Meh, right. It’s a ‘luxury’ to find a potential mate and form a family. In Germany about 30% of the population can’t go to pubs, restaurants, galleries, or operas. No Burger King or Safeway sandwich.

Luxuries, but people make a living out of them. If those workers can’t afford the rent, then the landlord might not be able to pay the mortgage. House prices fall, now everyone is poorer. Less collateral, less can be borrowed, now money is being burned. Others have less to spend, and you get a nice spiral.

Dow Jones is down 4% in the past month after a brief respite of 6% in October. It fell 4% in September, as well as October last year, with February 2020 giving it minus 10%, while March was red by 14%.

Some might speculate about a new March, but in some ways that would be a relief because it would have to be cancelled economically, though there would be worries about inflation getting out of hand which itself might lead to it.

A lot more worrying however is not a lockdown, but a restricted economy because in that situations economic actors would be compelled to take a hit, while not being assisted in any meaningful way as how do you measure whether someone would have been fired if the non-vaxed could drink a beer, or that an events agency wouldn’t have closed shop if 10,000 could attend instead of 5,000.

Even in a full lockdown, you can’t really cancel everything, maybe 70% and with stimy checks, maybe 80%. In a restricted economy, you’d at best probably cancel 10% or 20%.

With lockdowns, however, you know they’ll end. But with restrictions, and that includes things like vaxx ID cards which dampens outdoor activity, it’s not as certain as lockdowns that they will end in a short order.

You’d be looking thus at a structural change in the economy, and for Europe that’s in a stagnating economy or for countries like Italy, in contracting economies.

At the higher end, the GDP might take a hit of 5%. That’s Great Recession levels. It may be more 2% to 3%, which in a stagnating economy might translate to a new normal of contraction.

Some industries will benefit, like tech, but there’s so much room for miscalculation here as these measures are so intrusive. It is difficult to estimate the effects of a manufacturing worker, for example, not being able to go back to work because he doesn’t want the vax as he or she is maybe young and would rather have natural immunity. It’s difficult to measure how much that sort of thing would lower productivity.

Which is what makes the current period a bit jittery for markets as it gives room for speculation and unchecked, that can lead to herd mentality taking an uncontrollable life of its own.

Politicians, especially Joe Biden and Boris Johnson, need thus to re-assure the markets before Monday opening. They said they need more data, but these are political decisions, judgment calls, and difficult tradeoffs that they’re elected to make.

We all roughly know what’s going on. What we don’t know is what they really plan to do about it. And we don’t know that ‘really’ part because of the just the tip strategy. Why they asking for masks when people are vaccinated? Is that the first step towards more and more nazi? Why they closing borders when the thing is already in? Why is Germany and especially Ireland nazifying when people are vaxed and this thing is mild? Is this now some sort of habit to put the economy in danger just to be seen to be doing something?

Regardless of the chosen policies, which will be subject to much debate, they have to clarify primarily how they will economically cancel any restrictions they have already imposed and might impose in the future.

Because if they don’t, then speculation will have to clarify it and that might not be a very nice position for a leader, especially for Johnson who resided over UK’s biggest economic contraction for centuries.

As such, it’s time they get a grip now two years on because it isn’t clear the economy can handle much of this any longer.

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