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Are we stumbling into a crisis of historic proportions by Christmas?? As Putin threatens Europe with a “winter from hell” by using oil and gas as weapons and the United States, wracked by internal divisions, looks poised for a “fractious” Midterm elections in November, and worse, with China amid a “slow motion” implosion, it certainly looks like the world is headed into unchartered territory and can herald a crisis by Christmas. Of course, these predictions have been made since the Great Recession of 2008. So, I offer the caveat that any prognostications invariably carry the risk of predicting a future where the “unknowns” are more than the knowns.
However, I also feel that this time, it is different, as the events mentioned above can trigger a self-sustaining “doom loop” that can bring down the global economy. Moreover, with accelerating technology increasing the “speed of transmission” of both good and bad news, it is almost certain that even a tiny Black Swan (low probability, yet, high impact) event can lead to a systemic crisis, much like the bankruptcy of Lehmann Brothers nearly collapsed the Global Financial System in winter 2008. So, here we are again, a decade and a half later, faced with the same set of uncertainties and risks fraught with implications for all of us. Hopefully, we would prove to be as “resilient” as we were back then.
Having said that, it is also the case that the pandemic has “sapped” our energies and weakened our “will to fight”, and this is where the biggest danger lies, as any crisis can simply lead to a wholesale meltdown, with little notice. In other words, while our “systems” were resilient in 2008, I cannot say the same for the situation now, with lawlessness and anarchy prevailing worldwide. Moreover, we are not out of the woods yet, as far as the various mutations of the Coronavirus are concerned, and with dire warnings about the “worst variant” ever being circulated over the last week or so, I am afraid that we are about to hit what I call the “peak crisis”. Indeed, we have reached so many peaks that I am not sure we have the capacity or the stamina to scale them, and this is perhaps the biggest risk of all.
On the other hand, there are some “green shoots” as well, as can be seen from the recovery that India and other countries have made from the worst of the times. However, even this does not offer much hope as the “cascade of defaults” in the Emerging Markets should make us in India circumspect and not let our guards down. Moreover, nearly half of India’s external debt is maturing in the next nine months or so, which can “eat up” most of our Forex pile and coupled with the falling Rupee, this is a surefire recipe for disaster. In addition, India is in the midst of a “social crisis”, much like in the 1990s, when sectarian, religious, and caste divisions played out violently, and so there is every chance that we might lapse into a “functioning anarchy”.
The biggest geopolitical risk right now is the Russian threat to “cut off” gas to Europe, which is the “winter from hell” that Putin has up his sleeve. More so, when the Ukraine war is reaching a “stalemate”, and so, he needs something to “keep the pot boiling”. The latest news from China is not reassuring as its “overheated” property sector is imploding, thereby accentuating the risk of taking down the Chinese economy. Moreover, China’s Zero Covid Lockdowns are adding to the stress, exacerbated by its ruling elites’ “obsession” with the Chinese Century looming ahead. The US, too, is caught in a crisis of its own making, what with the “culture wars” and political polarization adding to the extreme dysfunction in the legislatures.
So, there we are, and as Srilanka showed, there is often a “very thin line” to cross before anarchy prevails, and as I discussed earlier, a weary and wary world does not need much to crack up. While I do hope that we weather the “perfect storm” of the gathering dark clouds on the horizon, I am also sceptical that the elites on whom we have reposed so much faith can do much this time. Deja Vu! As another “Lehmann Shock” looms ahead, and for those who remember, the Great Recession of 2008 was the harbinger of a decade of crises that seem to be culminating and gathering force in the next few months. As the “unexpected” cold July should warn us, a Winter of Discontent lies ahead for all of us, so it is better to soak in the Sun before it gets tough.
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