Geopolitical Update : US passes $2 Trillion Marshall Plan; Is it enough?
By Christian Takushi, Independent Macro Economist & Geopolitical Strategist. 28 Mar 2020 (public release delayed by 1 day & shortened)
The United States has passed a massive USD 2 Trillion economic package to support the US economy. In many ways this is a Marshall Plan II. Yes, USD 2’000 billion – even some economists struggle to grasp the magnitude of these numbers. In economic-geopolitical terms the gravest hour for mankind since WW2 or at least since the Cuban Missile Crisis of 1962.
If markets and other stakeholders can look the other way (being all of them in the same boat, they may) and digest the flood of new debt, this package should suffice. Provided of course spending flexibility is applied as the crisis dynamics change. While Developing Economies have to strengthen their health care systems, Advanced Economies have a bigger problem though, they are entering this crisis with a huge debt problem and their hands tied. Many Advanced Economies are already in technical bankruptcy. They keep living beyond their means thanks to the collective Money Illusion policy makers are feeding.
So, economically this package could suffice, provided citizens don’t sabotage the measures, forcing authorities to prolong the restrictions and augmenting the economic damage.
Will this be enough? is the wrong question
The question should be, can the USA afford it and markets digest it? Knowing the EU is next? The problem is not the size of the package, but the fact that Advanced Nations are already terribly over-indebted and their central banks failed over the past ten years to normalise interest rates. Worse even, they have bought up already gigantic amounts of their own government debt to bring interests to near zero. Rather than strengthening the real economy, they boosted speculation. As we have been warning since 2010, the G7 economies are about to enter a period of multiple global disruptions with little maneuvering space.
The Corona Crisis could usher the Rise of fiscally sound economies
Actually, young and dynamic nations in South East Asia and Latin America are better prepared to face this crisis – and the coming crises in this decade -, and if they play their cards well .. they should come out stronger as a result. Why? If you have the fiscal resources, you can invest in better hospitals and strategic healthcare reserves. The G7 – with the exception of Germany – is running out of money, honest money I should say. Unless they “cheat”, and print yet more paper money “out of thin air” to buy up their own new bonds. All the while forcing their pensions, insurances and banks to buy up the rest. Which is what they intend to do with the help of financial media and academia. But such a house of cards will implode at one point.
G7 governments are the biggest issuer of debt and the biggest buyer of the same. Socialisation has begun among the large Advanced Economies. To experience Free Markets one has to go to smaller Advanced Economies and mid-sized Emerging Markets. Pension funds in emerging nations (from Colombia to the Philippines) will be well advised to reduce their holdings in bonds issued by European and North American governments and their quasi-sovereign institutions. They will be advised to diversify away from G7 currencies. The US Dollar can still play a role since the US Armed Forces are the world’s military super power. No security, no business. The Swiss Franc may for some time also offer a safe haven, but longer term the Alpine nation is being absorbed into the EU. That process is already advanced.
Dynamic emerging economies have been managing their economies and fiscal finances much more responsibly than the G7. In this and the coming crises, they are likely to increasingly outshine the G7.
The long haul – Adaptability to changing dynamics
Yesterday I addressed “The Speed & the Degree of Cohesiveness of the Response” and I spoke about how certain nations in Asia and Latin America have done so far much better than North America and Europe. But today I want to put that in perspective by addressing the long haul.
The conclusion is that while Singapore, South Korea, China and Peru may have reacted very fast, this is not enough. Allow me to put it in these words: Nations are at war against a vulnerable but smart biochemical enemy. To succeed, every single nation has to stay flexible and reassess the battle against the coronavirus every day anew. Just as generals do in a war theatre. The ability to adapt and change course will prove vital.
You may have handled the first wave well, but the second wave may need a different response. You may enforce quarantines the first time, but you may want to aim for natural and aided immunisation afterwards. To afford for the latter, some nations will have to invest in strategic emergency healthcare capabilities (nations in Latin America and Africa need to act) and in a broader healthcare coverage (i.e. the United States).
Few world leaders have understood the importance of an adaptable response better than German Chancellor Angela Merkel. She may have been slow in shutting down air travel & social exposure, but she wants to reassess the situation daily and is open to adjust the strategy should the data & analysis suggest so. Hers is the right state of mind:
“dies ist eine dynamische Situation. Wir werden lernfähig bleiben, u.a. umdenken und neue Instrumente anwenden”.
Translated: This is a dynamic situation. We need to stay humble to learn, change our mind and apply new tools.
Some nations that responded early, may in the long run be “overtaken” by nations that responded slowly, but were agile changing strategy at the right time.
What I want to say is this: neither Japan nor Singapore .. and for that matter not even China or South Korea can pat themselves on the shoulder and keep repeating what they have been doing, just because their measures have worked so far.
The dynamics and risks can change. In that sense I am slightly concerned for the most successful nation in containing the coronavirus so far: Japan. So far so good for the first three months, but having done so little Tokyo may get complacent.
Nations have to focus on the data, extensive analysis and the changing dynamics – They have to avoid being swayed by lobby groups and other emotional tendencies. Interesting that to secure success in this crisis, two groups of professionals – economists and public health officials – will need to work together. This teamwork is crucial, because this global crisis is in essence an health & economic crisis. The good news is they can understand each other well. For instance Epidemiologists and macro economists see the world through data, stochastic probabilities, rigorous hypothesis testing and scenario analysis. Some of their shortcomings are also similar.
Those nations that get the best health and economic experts working together are likely to get their economies recovering better than others out of this crisis. One of the officials that understands this very well is Dr. Deborah Birx, the physician in charge of coordinating the White House Coronavirus Task Force. The large “Marshall Plan” that the USA was able to pass this week in such a record time, was the result of economic and public health experts working together and going through data together. This granular analysis of vast amounts of data with the economic team led by Secretary Steve Mnuchin is something that proved vital over the past two weeks.
Overcoming the real enemy – Fear
Yes, this foe is alive and smart, but he also has a huge weakness. It depends on us to spread. Thus, it is worthwhile to empower citizens to seize on that weakness. Probably no head of state has put this more succinctly in powerful words than South America’s rising star, the soft spoken & diligent President of Peru, Mr. Martin Vizcarra. In one of his daily addresses to the nation, he said
“este virus no va a ningún sitio, al menos que Ud vaya a algún sitio” (slightly paraphrased).
Translated: “This virus is going nowhere, unless you go somewhere”. Truly empowering, but also remarkable: his nation had only a few cases of the virus. He unleashed what is probably the fastest “comprehensive response” to the coronavirus threat, but will he also adapt his strategy when the time is due?
Empowering one’s citizens is not a minor issue. Sadly, many national leaders have mobilised their citizens exclusively with fear. A costly strategy, because fear is a suboptimal motivator and mass media is magnifying the enemy. It is a spiral of frightening facts, death and near powerlessness. Mass media needs to take to heart that an avalanche of facts is no exchange for the big picture, common sense and the truth.
Just a little well-intentioned spin and a large amount of facts produces a biased picture of reality. We have seen terrible excesses of this over the past five years in the political discourse of Britain, Israel, United States and Europe.
I saw a heartening tweet showing how Italian health personnel celebrated a patient that had overcome the coronavirus infection. They were celebrating life and victory.
Having sounded the alarm in January and been called an alarmist for demanding the immediate shutdown of Air Travel, I urge now people to raise their hopes – reminding them that, “that which we focus on, we magnify”.
This is an enemy that has come to kill and destroy. Neither denial nor fear are going to help us defeat it.
No one has died in vain ..
The experiences in China and Italy have been painful, yet the lessons learnt there can help save many lives in other countries. As in many wars there are many heroes – And one day we may want to erect a memorial for the Unknown Nurse and Physician in our cities.
A blessing in disguise?
While I am praying to God to help the sick and to protect those at the forefront of this war, I am excited about the many flaws of our society and economy it is exposing and the many opportunities that this crisis is creating. Not only in the area of remote working, online services and a more sustainable economy with less travel and pollution. There are “deeper” opportunities closer to our heart. The virus has brought the world to a stop. For the first time in years some people are resting – realising they are human beings, valuable even if they don’t work. They can now reflect upon their lives and their reason to exist. This smart virus has played on our biggest weaknesses: our restlessness and excessive travelling. Many of our vacations became as restless as our business lives.
Knowing that without mass air travel Covid19 could not have taken the world by storm, we will all enjoy our next flight with a grateful heart. We shall enjoy every bit of it.
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By Christian Takushi MA UZH, Independent Macro Economist & Geopolitical Strategist. 28 Mar 2020 (public released was delayed and shortened)
Disclaimer: None of our comments should be interpreted or construed as an investment recommendation
A distinct broad approach to geopolitical research
(a) All nations & groups advance their geostrategic interests with all the means at their disposal
(b) A balance between Western linear-logical and Oriental circular-historical-religious thinking is crucial given the rise of Oriental powers
(c) As a geopolitical analyst with an economic mindset Takushi does research with little regard for political ideology and conspiracy theories
(d) Independent time series data aggregation & propriety risk models
(e) He only writes when his analysis deviates from Consensus