As I scanned today’s news, first thing in the morning, or should I say at dawn, I noticed that there were more than the usual news items about the next global recession and why it is “inevitable”. While this has been the norm for the past few days, what piqued my curiosity and held my attention was that Russia is now closer to its’ first ever default on foreign debt since the Bolshevik Revolution of 1918. While nobody knows how a Russian default would play out, one can reasonably be sure that there would be endless litigation and efforts to “drag out” the aftermath of such an event. Of course, any sovereign default entails never ending “back and forth” between the creditors and the countries involved, my guess is that the “Russian in the street” and those Europeans whose “winter of discontent” due to rising energy prices are more than likely to face the brunt of such a historic default. What’s New?? We have seen this before in 2008 during the Great Recession, when the bankers went unpunished and the Middle Classes and the Poor bore the brunt of “reckless” and “irresponsible” financial and banking practices. So, Deja Vu!! Welcome to the Real World!!
I don’t intend to be more pessimistic than required!! However, there is another “saga” playing out in the global financial system for the last year or so and which again is being “dragged out” is the crisis in the Chinese Real Estate Sector. Starting with the “mother of all” property developers, Evergrande, and including a dozen or so mid sized and smaller firms, this “drama” of coming to the cliff and pulling back to fight another day has been going on for too long that one wonders whether the players, the spectators, and of course, the media do not ever “tire” of “waiting” for Evergrande to finally declare bankruptcy and move on. Indeed, I had covered it here when Evergrande first hit the headlines and many months down the line, we are again back to square one as it veers between being a Zombie and flush with energy, every now and then. Moreover, the Chinese ruling dispensation is no “hurry” to end the Evergrande show and for all practical purposes, the restructuring that it announced would further delay the day of reckoning, that is if it is allowed to happen.
Of course, this does not mean to say that the Economists are wrong or their dogs are getting bored of waiting for the “crash”!! Look at Sri Lanka and you get the feeling that once in a while. the “reality TV show” needs a really “reality check” and so, voila!! Sri Lanka defaulted and so did Lebanon!! If the experts are to be believed, there are more than 30 odd countries on the verge of such sovereign defaults due to the pandemic, rising oil and commodity prices due to the Russian misadventure, and hyper inflation due to decades of easy money thanks to ultra low interest rates. The key here, apart from the “unknowns” from the war is the era of cheap money is drawing to a close, and with most central banks tightening and tapering, it sure looks like all hell is about to break loose. Indeed, what started in the aftermath of the Great Recession and before that since the Tech Boom of 2000 is that there is plenty of money for the taking and especially for the rich who have become richer and on the other hand, the poor who enjoyed the benefits of some of that liquidity “trickling down”, just to find that now the taps are being turned off.
I would say that the global economy never really “recovered” from the Crash of 2008 and the artificially engineered monetary and fiscal policies have kept it afloat till now. So, when do the Powers That Be decide “enough is enough” and “pull the plug”?? My bet is not anytime soon, though the Fed has initiated rate hikes, that are now being followed by a few other central banks. Again, this is in response to inflation and a desire to “cool” the “heated global economy”. Inflation hurts the middle class and the poor more than the rich and when one adds, humongous job losses and depletion of savings and rising healthcare costs as well as low growth rates, one gets the feeling that we have seen all this before and at least, this time around, there should be more compassion and empathy towards those less fortunate. However, I have my doubts about whether this would transpire in reality as all signs indicate “business as usual” i.e for those well off and well, for those who didn’t make it, tough luck mate, and wish you well for the next episode.