system failure will give rise to new economy|
Covid-19 driven collapse of global supply chains, demand
and mobility will painfully spawn next great tech-led
By Pepe Escobar
April 12, 2020
- Nobody, anywhere, could have predicted what we are now
witnessing: in a matter of only a few weeks the
accumulated collapse of global supply chains, aggregate
demand, consumption, investment, exports, mobility.
betting on an L-shaped recovery anymore – not to mention
a V-shaped one. Any projection of global gross domestic
product (GDP) in 2020 gets into falling-off-a-cliff
industrialized economies, where roughly 70% of the
workforce is in services, countless businesses in myriad
industries will fail in a rolling financial collapse
that will eclipse the Great Depression.
That spans the
whole spectrum of possibly 47 million US workers soon to
be laid off – with the unemployment rate skyrocketing to
32% – all the way to Oxfam’s warning that by the time
the pandemic is over half of the world’s population of
7.8 billion people could be living in poverty.
to the World Trade Organization’s (WTO) most optimistic
2020 scenario – certainly to become outdated before the
end of Spring – global trade would shrink by 13%.
A more realistic and gloomier WTO scenario
sees global trade plunging by 32%.
What we are
witnessing is not only a massive globalization short
circuit: it’s a cerebral shock extended to three billion
hyperconnected, simultaneously confined people. Their
bodies may be blocked, but they are electromagnetic
beings and their brains keep working – with possible,
unforeseen political and other consequences.
Soon we will be
facing three major, interlocking debates: the management
(in many cases appalling) of the crisis; the search for
future models; and the reconfiguration of the
This is just a
first approach in what should be seen as a
do-or-die cognitive competition.
analyses of what could be the next
economic model are
already popping up. As background, a really serious
debunking of all (dying) neoliberalism development myths
can be seen here.
Yes, a new
economic model should be revolving around these axes: AI
computing; automated manufacturing; solar and wind
energy; high-speed 5G-driven data transfer; and
South Korea and Taiwan are very well positioned for
what’s ahead, as well as selected European latitudes.
Tonchev, head of the Asia unit at the Institute of
International Economic Relations in Athens, Greece,
points to the possible reorganization – short term – of Belt
and Road Initiative projects,
privileging investment in energy, export of solar
panels, 5G networks and the Health
like a particle accelerator, consolidating tendencies
that were already developing. China had already
demonstrated for the whole planet to see that economic
development under a control system has nothing to do
with Western liberal democracy.
pandemic, China demonstrated – also for the whole planet
to see – that containment of Covid-19 can be
accomplished by imposing controls the West derided as
“draconian” and “authoritarian,” coupled with a
strategic scientific approach characerized by a
profusion of test kits, protection equipment,
ventilators and experimental treatments.
This is already
translating into incalculable soft power which will be
exercised along the Health Silk Road. Trends seem to
point to China as strategically reinforced all along the
spectrum, especially in the Global South. China is
playing go, weiqi. Stones will be taken from
the geopolitical board.
System failure welcomed?
contrast, Western banking and finance scenarios could
not be gloomier. As a Britain-centric analysis
argues, “It is not just Europe. Banks may not be strong
enough to fulfill their new role as saviors in any part
of the world, including the US, China and Japan. None of
the major lending systems were ever stress-tested for an
economic deep freeze lasting months.”
So “the global
financial system will crack under the strain,” with a by
now quite possible “pandemic shutdown lasting more than
three months” capable of causing “economic and
financial ‘system failure.’”
failures go, nothing remotely approaches the possibility
of a quadrillion dollar derivative implosion, a real
One is number 11 on the list of the largest banks in the
US by assets. They are already
in deep trouble on their derivative exposures. New
York sources say Capital One made a terrible trade,
betting via derivatives that oil would not plunge to
where it is now at 17-year lows.
Mega-pressure is on all those Wall Street outfits that
gave oil companies the equivalent of
puts on all their oil
production at prices above $50 a barrel. These puts have
now come due – and the strain on the Wall Street houses
and US banks will become unbearable.
Friday oil deal won’t alter anything: oil will stay
around $20 per barrel, $25 max.
This is just
the beginning and is bound to get much worse. Imagine
most of US industry being shut down. Corporations – like
Boeing, for instance – are going to go bankrupt. Bank
loans to those corporations will be wiped out. As those
loans are wiped out, the banks are going to get into
Derivative to the max
totally linked to the derivative markets, will feel the
pressure of the collapsing American economy. The Fed
bailout of Wall Street will start coming apart. Talk
about a nuclear chain reaction.
In a nutshell:
The Fed has lost control of the money supply in the US.
Banks can now create unlimited credit from their base
and that sets up the US for potential hyperinflation if
the money supply grows non-stop and production
collapses, as it is collapsing right now because the
economy is in shutdown mode.
start to implode, the only solution for all major banks
in the world will be immediate nationalization, much to
the ire of the Goddess of the Market. Deutsche Bank,
also in major trouble, has a 7 trillion euro derivatives
exposure, twice the annual GDP of Germany.
No wonder New
York business circles are absolutely terrified. They
insist that if the US does not immediately go back to
work, and if these possibly quadrillions of dollars of
derivatives start to rapidly implode, the economic
crises that will unfold will create a collapse of the
magnitude of which has not been witnessed in history,
with incalculable consequences.
Or perhaps this
will be just the larger-than-life spark to start a new
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