If you step back and look at long-term cycles we see that internationally, the world today is much like the 1930s. And the emerging patterns are playing out in much the same way, especially in geopolitics, finance and social welfare systems. When you compare this reality with the fear of the US and China falling into economic recession, the budget stress in Sweden, Italy and France who has recently been hit by a wave of protests, these stresses have whether in truth or in perception by natives, exacerbated by wave after wave after wave of unproductive migrants, there is a possibility that some countries will not be able to meet the needs of the indigent.
Only twice in the past 100 years has the world experienced debt crisis in which a period of zero interest rates emerged, triggering shocking socioeconomic changes around the world. In both cases, central banks had to print money and carry out a form of monetary policy that is euphemistically called quantitative easing – excessive printing of money and buying of financial assets. Of course these two periods were the Great Depression of the 1930s and the more recent Great Recession starting in 2008, both resulted in wealth gaps and the negative socio-economic baggage that comes with a growing group of disenchanted citizens who feel threatened by growing inequality.
The Similarities are Striking !
In both cases the purchase of financial assets drove up the value of most liquid securities to much higher levels, and produced the desired effect of an economic recovery with interest rates at zero or near zero around the planet. The similarities of the current world are shockingly mirror-like when compared to the 1930s and in so many obvious ways – especially in the massive increase in wealth for those who started businesses, own stocks or even crypto since 2008. Home owners and business owners feel safe, retail clerks, bus drivers the young saddled with student debt feel threatened in the US, France, Germany and the UK. Or simply across the Western world.
The recent Great Recession of 2008 resulted in central banks purchasing $15 trillion dollars of financial assets, driving up prices of said assets and creating trillions of dollars of wealth that concentrates in the top 40 percent of the populations of every country. And in the US, 1 percent of the population own the same amount of assets as the next 70 percent of the country.
This wealth gap looks very much like the 1930s, again after a period of zero interest rates that put simply rained money on the rich.
Now consider this! What happens if there is a recession ?
Currently we are now in the latter part of the economic cycle in which quantitative easing has used most of its energy, asset prices are higher, interest rates are low and we are now seeing the beginning of the tightening cycle that will shock major economies in Europe North American and especially emerging economies like Turkey, Brazil and Iran. We saw a start of rate hikes by central banks in 2015 after the crisis, just like we saw in 1937.
The patterns of disruption of economies and in merchandise trade are shockingly similar. Think of trade in the 1930s and trade now between Germany and the US? What about China and the US currently?
The cause – effect relationships are analogous. The wealth gap from the 1930s produced strong-man leaders and at the same time they were seeing powers rise and fall. In the 1930s, the France and the United Kingdom were established world powers for at least a century if not more, while Germany, the US and Japan were rising challengers.
Now, we are beginning to see the wealth gap trigger populism and nationalism in many countries with strong-man leaders in Brazil, Hungry, the US, and keep in mind that Putin is President-for-Life and now President Xi in China named himself, you guessed it, President-for-Life. The US and Japan are the established powers this time while China has arrived to challenge them – a mirror-like image of the 1930s.
France, Germany and Sweden – can they afford these waves of migrants?
There is a growing consistency of reactions to waves of migrants to Europe that are met with a predictable response from the general population who pay taxes and feel they are getting nothing in return. Again, the recent crippling riots across France are just the beginning. The European Union will struggle with budget plans that do not have sufficient funds to meet the obligations of an aging population and at the same time provide funds for an imported population dependent upon the welfare state.
In 2016-2017 Germany alone spent over 40 billion Euros on migrants.
And here is the crux of our presentation. What happens if a global recession triggers severe economic weakness in the US, Europe and Asia? Are we now looking at the 1930s all over again? At Classiarius we feel there could be rioting in the streets, across the Western world like we are seeing in Paris now, but likely much worse in 2020s as governments finally admit that the Ponzai scheme of open borders and a generous welfare state can no longer coexist and there is not enough money to meet obligations and promises made.
The political environment is most likely set to heat up as we enter the 2020s.