Does Anyone Feel Like It Is 1991 Again?? Some Amateur Crystal Ball Predictions On The Months Ahead!!

Indian Economy
Photo by Sohel Patel from Pexels

Is it just me, or, is anyone else feeling that it is 1991 again. Right from a “highly probable” Russian Default, reminiscent of the collapse of the erstwhile Soviet Union in December 1991, to the “worst ever” economic crisis in Srilanka, and the Big One of all, the “slow-motion” crisis in China, there is any number of reasons for us to believe that we are reliving the 1990s. Indeed, by all indications, the coming months would likely be more volatile and unpredictable, just like the 1990s, when the “decade from hell” made everyone’s life miserable.

Already, there are enough signs that the Global Economy is flying into Turbulence, with the contraction of GDP (Gross Domestic Product) in the first quarter of this year in the United States, along with the “pointless” Ukranian war jacking up the prices of everything from Oil to Food and contributing to inflation, at a time when economic growth is stagnating, which is a potent recipe for social unrest, as high unemployment, higher inflation, and stagnating growth is the worst nightmare of stagflation, that economists dread more than anything else. Indeed, the 2020s already seem like a “decade of nightmares”

Talking about economists, a consensus is building among the more famous of them that a Global Recession is “inevitable”. While every economist and their dog are forecasting a slump, it remains to be seen as to who wins and who loses from the coming downturn. My guess is that like the Great Recession of 2008, ultimately the poor would be left holding the can, a view shared by the former RBI (Reserve Bank of India) Governor, Raghuram Rajan, who was one of the first to spot this recession back in February, when he warned of a K Shaped Recovery where the “bright spots” are those that the well off are enjoying, and the “dark stains” are what the poor have to contend with.

Of course, the bright spots such as the astonishing rise of the Unicorns and the rally in Big Tech now seem threatened, as the Unicron bubble looks like bursting, much like the Dotcom mania that resulted in a tech crash at the beginning of the 2000s. I base this hunch of mine on the Fed hiking the rates by almost a full 100bps (basis points) or 1% in plain speak, wherein the last time it raised rates this much was way back in 2000 when the Internet boom was on and which ultimately, crashed. So, what this says is that given the volatility of the situation, anyone and everyone can be wrong or right, though “real-time” changes add to the confusion.

Indeed, the Rupee fell to its lowest level of nearly 78 to the Dollar yesterday, and it sure looks like it is going to depreciate even more when the markets open today. This is wholly unexpected as India is “sitting on” a humungous pile of Dollars, nearly 600 Billion and what more, exports are booming, making the crash of the Rupee, a Black Swan Event (high impact, low probability). While brighter minds than mine can better explain this “anomaly”, I had posted earlier about the many puzzles and the paradoxes that the Indian Economy has and which definitely need more analysis as the contradictions can easily lead to a more serious outcome.

It looks like 1991 and the decade that ensued is being repeated, as Russia faces a “historic” default on its Dollar-denominated debt, the first since the Bolshevik Revolution of 1918. While adjustments and last-minute accommodations have been made for the last month or so, the last week of this month, is key to whether the US and its European allies, would cease the “exemptions” that Russia has been allowed so far and which have delayed the default. If Russia defaults, the coming months would look a lot more like the 1990s as it would be locked out of the global economy, with even its steadfast partners so far, China and India, having to reevaluate their positions.

Talking about China, this is the Big One of all, another Black Swan that can “sink” the global economy. With the Evergrande Crisis yet to be resolved, the wholesale lockdowns in pursuit of Xi Jinping’s Zero Covid strategy, throttling supply chains, and leading to a domestic slowdown, and most importantly, the dissent bubbling beneath the surface as Xi seeks an unprecedented Third Term in power, making him one of China’s fabled and mythological “immortals”. So, dear reader, China is the one to watch over the next month or so.

Of course, amongst all this economic chaos, India is sitting tight, and while its fundamentals look fairly stable, as I mentioned earlier, there are many “riddles” that can lead to an unravelling. Right from the “disputed” death toll from Covid, to the ballooning debts of the states, and the yet to take off recovery, along with high inflation pinching the common person, there is any number of “X factors” threatening a market crash and worse, large scale disruptions. Already the simmering religious, social, and regional tensions have heightened worries of a potential hit to the economy, and as I posted earlier, the 1990s were not that kind to India.

Another reason why I feel a sense of Deja Vu!! is the prospect of wholesale “collapse” of countries wherein Srilanka was the first domino, and Lebanon, Turkey, Russia, and Pakistan seem to be next, with the IMF (International Monetary Fund) “circling the wagons” in anticipation of requests for “bailouts”. The Greeks would tell you about how “painful” such “assistance” are from the IMF and other multilateral institutions and even India had to deal with this in 1991 when it had to pledge its gold as a means of staving off default. However, this time around, it is its neighbours who are in trouble, rather than Indians and so, I guess the “shoe is on the other foot” and we can be smug for the moment.

Here we are, at the cusp of a future that is so unpredictable and uncertain that one wonders every night, If Tomorrow Comes, and where corporates find it hard to plan for even a few quarters ahead, leave alone a year in advance. The pandemic has revealed its Ugly side as it has brought large-scale disruptions, not to leave out the tragic loss of lives, and the severe loss of livelihoods, that are biting everyone and anyone. What these trends reveal is that anarchy is just Four Meals Away, like MI5, the British Intelligence Agency, warned some time ago, and so, stay safe, wherever you are and be as hyperlocal as possible, since the priority must be on a Glocal approach wherein Global Thinking and Local Action should be the mantra guiding all of us.