The world is in an economic crisis due to a virus – and, more likely, because half the world was locked down for between three weeks and more than two months.
Our politicians loved their new role. They came out in front of the cameras and paraded their science. In general, they were all over the place and, having lockdown-related businesses, they thought they would save them by spending our grandchildren’s future.
The rich world issued $17 trillion in debt in a matter of months. This on a total GDP of $63 trillion for these countries. The developing world has no total figures, but estimates are that the debt will explode by at least $3 trillion this year on a GDP (in nominal dollar terms at current exchange rates) of about $26 trillion.
So the rich are adding 27% to the debt-to-GDP ratio within two quarters, and the developing countries around 12%. This is debt issued in under one year in most cases.
Governments in many cases will not be able to stop. The politicians have been able to raid the future.
The world is basically adding $2 400 debt to every man, woman and child when the actual average GDP per capita is about $11 400 per person. This, with $8 000 in government debt to pay off already.
Moreover, the income this year is likely to decline to around $11 000 as world GDP will decline.
This is not consumer credit or business debt but government debt alone!
Add all the debt together and we owe about three times the value of world GDP per capita!
Relief, for whom?
Now, I believe that in times of crisis government needs to get money to business and people – but again, most money is going from central banks to government to the market for speculation.
Markets now act as if the world has recovered or is going to recover very quickly, but the debt burden is just too large.
And the fear social media and governments themselves have created around a million deaths is absurd.
Yes it is, since we have now learned that we will not lose that many fewer lives due to these interventions. We will only flatten the curve, which means the deaths will happen but over months rather than weeks.
One or two million may sound like a lot, but the Spanish flu a hundred years ago killed 3% of the world population. That is 235 million people today. So world deaths are going to be less than 1% of that.
Moreover, the likes of the Spanish Flu and the Hong Kong pandemic killed both young and old.
Covid-19 is mean, but it has not killed many young people and not too many working-age people.
The typical person who has died as a result of this coronavirus was over 80 in Europe and about 20 years younger in the developing world.
It has killed fewer working age folk than the normal flu. Yes, it has a lower mortality rate than the typical flu. Even in South Africa the flu kills about 20 000 people every year, mostly older – but more evenly spread among age groups than Covid-19.
The typical age at death in South Africa according to Statistics SA’s survey of causes of death is 57 years. The typical Covid-19 death is at age 62. The typical age of a flu death in 2015 was about eight years younger. So the working age population is generally not bearing the brunt of this disease.
Yet it is this working age group that is going to see more than 200 million people become unemployed in the world.
South Africa has already seen more than three million unemployment claims as a result of Covid-19-related job losses. The Unemployment Insurance Fund (UIF) is making some data available on this, and that is great.
Many jobs will come back, but the best-case scenario for SA is that unemployment will rise by at least a million people by the fourth quarter of 2020. Worst case could be as high as seven million more unemployed.
Even at one million more people unemployed, feeding a household of 3.5 people means that 3.5 million people, at the very least, will suffer.
Some estimates put Covid-19 deaths in SA at 10 000. The World Health Organisation (WHO) now estimates 23 000. Government thinks 45 000.
As more than half of these people are over 60 they may not have dependants in the true sense; however, they may be taking care of their grandkids.
But I digress. The fact is that many times more people will suffer unemployment rather than death as a result of Covid-19.
On current forecasts from both sides, anywhere between 25 and 700 times more people will suffer unemployment for at least a year.
Add the previously unemployed (remember them?) – over 10.4 million people who are now even less likely to get a job – and the case for the lockdown seems like madness.
Real leaders may have started a lockdown, but would have concentrated on getting the health system ready and gathered facts. In fact, they would have listened to the scientists and noted that they said months ago the need for the lockdown is over.
But politicians have overplayed their hand.Not just in SA, but all over the world.
They did not want to listen, or felt trapped and that they had to keep up the act and pretence of ‘knowing’.
They showed their egomaniacal side and destroyed much of the world economy instead of focusing on the need to get economies going and children back to school while protecting the old.
They did not listen to other scientific voices or economists or doctors or business, just one type of model from one viewpoint.
One view, and governments looked to it
Much can be traced back to one model from the UK’s Imperial College.
The WHO acted like it knew what to do after slipping up a few times at first.
The problem in combining instant knowledge with very big ‘helping’ decisions is that it makes for gigantic mistakes. The world economy will decline by 6% before this impact is over. Most of the decline, from a forecast of 3.2%growth, is due to the lockdowns.
The few economies that will still grow
Look at South Korea, Taiwan and Japan, and how their GDP growth is changing from trend. Yes, it is worse than before, but they will still eke out positive growth despite the rest of the world going into collapse.
They will not see the unemployment rates of the lockdown countries, or even big increases in unemployment. They will not make quite the same amount of debt (although Japan is creating a lot of it).
Once again, a generation will learn that printed money does not create lasting growth. It just pushed the problem out a little.
The coronavirus crisis is about to give way to the biggest debt crisis and unemployment crisis ever. Bigger than the 1920 Spanish flu and bigger than the global financial crisis of 2008.
We have let our children and grandchildren down.
Sorry, young adults – we let you down.