The pandemic has impacted everyone’s lives. But it isn’t something we will just suddenly get over. The impact of COVID and related measures, from lockdowns to masks, is going to continue shaping our futures for years to come.
Perhaps nowhere is this clearer than in the economy. COVID has brought up many questions for the future of the world economy. In today’s issue of The Daily Reckoning Australia, Jim Rickards tries to answer some of the most important ones.
Below, you’ll find some of the most vital dots to connect for the future of the economy and your finances.
Read on below to find out more.
One other thing before I sign off. Yesterday, I recorded a podcast with noted US tech investor Matt McCall. We discussed why he sees the ‘Roaring 2020s’ coming, thoughts on the metaverse, and how to play the recent big drop in Nasdaq stocks. It’s all free for you. Check it out here.
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.
Pandemic-Related Questions for the Future of the World Economy
Strategist, The Daily Reckoning Australia
Lockdowns clearly damaged the economy. Most lost sales were permanent losses, not temporary losses. There is no pent-up demand, just weak, new demand. Lockdowns don’t always work to stop the spread of the virus because they keep people indoors where the virus can spread more easily. Outdoor activity is essential for fresh air, mental and physical health, and exercise.
People will find a way to gather and interact even with lockdown rules. As I see it, this means that lockdowns impose all of the economic costs with few of the supposed public health benefits. This was recognised in a paper in 2006 by DA Henderson, the greatest virologist and epidemiologist of the 20th century who led the successful effort to eradicate smallpox and won the US Presidential Medal of Freedom. He said lockdowns don’t work and provided detailed reasons why. Unfortunately, his award-winning work was ignored by politicians eager to appear to be doing something.
New variants of the virus are emerging and more will come. That’s how viruses work. We should learn to live with the mutations and treat COVID as a relatively low-risk endemic disease. Efforts to impose extreme lockdowns at every sight of a new outbreak will continue to stymie global economic growth.
How will different parts of the world be affected by the pandemic-related new great depression? How will the developed and developing countries fare on a relative basis?
The global economy is highly interdependent, so all economies will be affected adversely. Yet, some will be more affected than others. Consumption is slowing in developed economies, which means reduced demand for exports from developing economies. All countries are adversely affected by the declines in tourism, travel, resorts, cruise ships, casinos, restaurants, salons, and other public spaces.
The pandemic has been a headwind for growth, but it would be a mistake to blame weak growth solely on the virus. The global liquidity shortage that is now emerging is a much more powerful drag on growth than the pandemic.
There was a hope for a V-shaped recovery beginning from the second half of the 2020. How far are we in that process?
There was no V-shaped recovery, and one should not be expected. There was a severe contraction in March–April 2020 followed by a recovery in July–September 2020. However, the recovery only made up part of the lost ground, not all of it.
We had a partial V or a truncated V. The economy recovered somewhat, but growth is not back to the prior trend, bearing in mind that the prior trend (from 2009–19) was itself below the long-term trend. Now we are experiencing slowing growth and metrics in employment and wages that are moving sideways or down without having recovered previous highs. This is characteristic of a new great depression.
How to Survive Australia’s Biggest Recession in 90 Years. Download your free report and learn more.
Which industries will this new depression affect most? Which industries will most benefit?
The worst-hit industries are travel, bars, restaurants, hotels, resorts, salons, boutique shopping, and other personal service industries. The industries that benefitted the most are in technology or e-commerce such as Amazon, Apple, Facebook, Google, Netflix, and Microsoft. This much is clear from market behaviour and company data over the past 18 months.
Going forward, there will be some surprise winners. Energy companies will outperform. Despite the extensive climate alarmism, it’s simply the case that world energy demand will outpace energy supply even when wind turbines and solar panels are considered.
Hydroelectric and nuclear energy will expand also, but those projects can take years or decades to bring online. The gap will be filled with oil and natural gas, which are plentiful and relatively inexpensive compared to alternatives. When this sector is beaten down by the Green New Deal crowd and climate hysteria, it’s an excellent buying opportunity.
What can we expect from the Biden administration in terms of the US economy and its recovery? How will the Biden presidency affect the global economic landscape?
The Biden administration will slow US and global growth with a combination of higher taxes, more regulation, and wasteful spending on programs such as the Green New Deal.
Biden administration deficit spending, which will approach US$6 trillion of new authorisations in fiscal 2021, are continually claimed as stimulus. In fact, there is no stimulus from such spending because the US debt-to-GDP ratio is now approaching 130%. There is good evidence that debt-to-GDP ratios in excess of 90% produce less growth than the amount of new debt itself. In other words, there is no stimulus and only an increasing debt-to-GDP ratio that makes the situation worse.
Biden is also compromised by the Chinese because of his family’s criminal sales of favours and access in exchange for money and investment partnerships with Chinese communists. Biden is also suffering from serious cognitive impairment, which limits his ability to understand issues and make sound policy decisions.
The US was facing slower growth in the years ahead with or without the Biden administration’s policies because of high debt and a central bank that doesn’t understand monetary economics. Now that Biden’s polices are fully revealed and becoming law, it is clear that growth will be even worse than would otherwise be expected.
While the pandemic has had a lasting impact on the world economy, other factors still influence things. In my next issue of The Daily Reckoning Australia, I let you in on a problem that might be even worse than the pandemic…
Strategist, The Daily Reckoning Australia
PS: This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.