Another economic crash is coming. I’m worried it’ll happen within a few years. Hell, I’m worried that it’ll happen tomorrow during lunch break. No matter when it occurs, it’ll be terrible, unlike any suicide we’ve experienced before. Have no doubt that it’ll be our fault. A lesson not learned is pain we owe ourselves.
GLOBAL FINANCIAL CRISIS (GFC)
In 2007/2008, I couldn’t persuade my father to alter his retirement funds, or get a friend to trade several mortgages for owning one property outright. I get it. Why believe me? I’m not an economist, don’t own property and don’t have a pension. But I’m an inquisitive reader who found many warnings on the internet by people cleverer than me. Add some common sense and it was obvious trouble was brewing.
Worldwide, dominoes fell after Lehman Brothers imploded in September 2008. The vicious game of evil billionaires was afoot… and played in South Africa about a year later.
As a country, we did better than most but little places within got hit hard. Knysna, where I lived at the time, was a tourist and holiday home economy. The Middle Class slid. Small businesses vanished. Young adults fled quicker than before. Knysna has never recovered. The only things that visibly grew were the size of the shopping mall and local government salaries.
It was to be expected that governments would play Jesus in creating new money from the wine of our sorrows. It was expected that many of the robbers wouldn’t go to jail. But our massive apathy encouraged massive greed so that ALL the criminals most responsible remained free, their theft rewarded with more money stolen from us.
THE NEXT CRASH
Not even the most demented conspiracy theorist could’ve predicted the USA remaining the richest country whilst being $22-trillion debt. Our lives are as perverse, being valued according to debits and credits.
A decade of my conversations with friends became useless. No one I knew cared when I said that the response to the 2008 crash was only a band-aid, and that worse was to come. It could be that my opinion and empathy were made invisible by me having the least to lose. But I think that it’s more than that.
Most people live in the short-term only. They’re quick to forget pain and more likely to live in the escapism moment which happens before a future they don’t want to know. They’re more interested in who won the rugby than their own health. The size of Kim Kardashian’s arse has become more important than holding government accountable.
Did you see what just happened? Instead of a corruption image of Eskom, Bosasa or the Public Investment Corporation popping into your head, you saw Kim’s arse.
In the age of social media attention spans, wilful ignorance has multiplied. It’s so pervasive it’s become culture. And culture isn’t something that complainers such as me can easily escape. But I can continue to speak uselessly, on my blog instead of in an overpriced coffee shop.
UNCOMFORTABLE FINANCIAL FACTS
Nothing affects us more than what’s happening with the world’s largest economies. Nevertheless, I add South African notes in the hope it helps my fellow citizens better relate.
- The cause of the Global Financial Crisis in 2008 (GFC2008) wasn’t addressed. Instead of reform, the banks were propped up, a massive band-aid over a wound bleeding the future away. The criminals went on to make record profits. If positions were reversed, I doubt that the South African Government (SAG) would’ve acted differently to the US Federal Reserve. It’s bankers and politicians first, the Public last e.g. Saambou, Africa Bank, VBS Mutual Bank. The powerful love banks more than the Public.
- Consumer debt is that owed by individuals (credit cards etc.). USA consumer debt is at a record high, more than it was before GFC2008. South Africans owe R1.7-trillion.
- Household debt is everything owed by those living together (consumer debt, mortgage etc.). US “household debt, driven by a $9.1 trillion in mortgages, is now $837 billion higher than its previous peak in 2008″. South Africans have thankfully reduced their household debt by roughly 14% since the crash but that isn’t the whole picture. Sharp fuel increases and the raising of VAT to 15% in 2018 have resulted in an increase in first time defaulters. The middle class may be doing ok but the poor have got poorer.
- The USA’s $22-trillion debt shouts for itself. South Africa’s R2.8-trillion debt may seem inconsequential in comparison but not in local context. R160-billion in interest charges isn’t to be scoffed at. A country is supposed to run on the tax it collects. Because of widespread theft by SAG, tax hasn’t been enough. Consequently more loans are taken which means more interest the Public must pay. Unless borrowing stimulates a growth rate higher than the payments, it creates a debt spiral. South Africa’s growth rate is so slow that the descriptor is a misnomer. The situation is aggravated when government officials and employees receiving increases higher than inflation.
- Governments rarely tell their citizens the truth so it’s important to note the purchase of minerals, particularly gold, by reserve banks. Most money is imaginary and thus overvalued. Consequently, it will always devalue. And since stock markets are more about emotion than substance, panic acts as a powerful downscaler. Gold, however, will always have value and thus acts as an asset and buffer. It’s notable that Russia, China, India, Hungary and many others increased their stock during 2018. South Africa doesn’t have a buffer to withstand the next GFC. Despite over a century of gold mining, and Johannesburg’s nickname being Egoli, South Africa only possesses 125.30 tonnes in gold reserves, a figure made worse by it being less than the average since the turn of the millennium. South Africa is the 7th largest producer yet doesn’t make the top 20 holders. Even Italy has 10 times more. Russia bought more than South Africa possesses in 2018 alone. Without gold, financial stability is unlikely. Instability creates a situation where independence is lost to foreign powers, whether it be other countries, banks or the IMF.
- Recently, the market has proven shaky, making American bigwigs scared. Nomi Prins, who predicted the 2008 crash, recently (and alarmingly) reported that USA “companies are holding $9.1 trillion of debt now in contrast to the $4.9 trillion in 2007, before the last financial crisis. The financial system, and those who take money from banks, are more highly levered than they were prior to the last financial crisis.” That situation could be worse. The US Federal Reserve doesn’t fully understand the positions of the major companies, doesn’t know how well or badly leveraged they are. With globalisation, unregulated “shadow banking” is the extra concern. Investors, beyond the control of governments, can influence whole countries.
- As banks failed to regulate themselves after GFC2008, so governments worldwide failed to practice austerity. Instead, their debt has almost doubled. Ann Pettifor, who also predicted the last crash, stated that global debt had risen from $142-trillion in 2007 to $247-trillion early 2018.
- I repeat that the stock market relies on investors’ confident. That’s currently being tested by China’s slowdown, the US/China trade battle, the threat to Venezuela’s sovereignty (and its associated instability), Brexit, Italy’s wobble, Greece’s continuous paddling to stay afloat, the rise of extremism and more traditional protest in Western Europe, the unpredictable Trump presidency, Russiaphobia and Russia blaming, the invalid threat to Iran and, more importantly, the intention of Europe to devise a way to trade with Iran without using normal financial pathways.
- Iran is further notable in that its selling its oil in euros. The main reason why the USA has managed to not fall apart is because of the petrodollar i.e. most oil is traded in ‘American’. When Iraq and Libya tried that, they got invaded. Europe realises that destabilising Iran would cause it more problems than defying the USA. It would be a Syria multiplied. Europe is choosing to rout the USA.
We’re living in interesting and scary times. It’s likely that when the next economic crash threatens, the US Federal Reserve will digitally magic new money quicker than last time. It may buy time. It may not.