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article imageOp-Ed: Money and pandemic — The vultures are circling

By Paul Wallis     Mar 29, 2020 in World
New York City - In one of the greatest ironies in history, capitalism has been faced with itself. Decades of gouging and disasters have left people broke. That lack of money is now making the pandemic much worse. The vultures are gathering.
The financial hardships being experienced by so many people are the direct result of constantly dragging money out of the economy. With ridiculous prices for practically everything, and serious health issues bankrupting so many people (average of 600,000 per year in the United States) this pandemic is going to drive people to the wall.
Younger generations will get hit hardest. With totally unaffordable futures and total irresponsibility in youth policies, the emerging camel’s back has arthritis, as well as breaking on a routine basis. Measures to address these issues need to be systemic, but at the risk of making the very rich a little less richer on an hourly basis. Could take years for the sages to figure it out, too.
Vultures - The bottom line is way too close for everyone
The bottom line is well-named. It’s the line where you land on your butt. For Americans, it’s about $400 in unexpected expenses according to at least one study. Six months or a year with no money can only be disastrous. It’s not just incomes, though. It’s the added costs to everything.
Basic economics 101:
• Disposable income is a measure of prosperity. That’s the income available after costs. There is usually very little, and the GFC in 2008 wiped out a lot of assets. Main Street doesn’t have anything like the disposable income it had, and that’s where the fan will get hit hard.
• Capital assets are very vulnerable. If money isn’t available, the only way the value of those assets can go is down. If they go down far enough, they’ll be massive liabilities.
• Debt is far more dangerous in hard times. Obvious? Apparently not, at least you’d think not. Reigning in debt seems to be incomprehensible to policymakers. According to one estimate, about 16% of listed American companies are “zombies”, living on debt. If that debt goes bad, it’s a grim picture for their creditors, who also provide credit to the public. Private debt is arguably a lot worse..
• Obsolete economic mechanisms can’t do much. Lowering interest rates has had minimal effect. Allowing a moratorium on business debt does help, but even so, it’s postponing some big numbers.
• Food is at possible risk. The gouging can only go so far before it’s unaffordable.
• Services are at risk. No money = No services, right? if that applies to water, power and other systems, it’s bye-bye civilization.
• Banks are at risk – In a high cost market, risk is amplified. The bank property and debt portfolios could be massive hits to banks.
A very different future
If all that sounds like the system is basically falling to bits, it already was. The pandemic has simply pushed it off the cliff. Old-style businesses are likely to find that out the hard way. The pandemic will bring big changes. The cheaper work-at-home approach should show up on the books of businesses around the world.
Health administration will now have to be taken seriously. This pandemic is a single incident. There will be more, sooner or later. A neurotic, money-grubbing health system can’t work, and it doesn’t. Health systems will have to upgrade, drastically, and costs will have to come down to accessible levels. That’s one obnoxious racket that simply can’t survive.
Deregulation has failed, miserably, countless times, but now it’s failing basic needs as well. The UK’s bizarre “no testing” is a case in point. In countries where regulation is in place, it’s not a problem, just a matter of getting testing gear.
Not to be totally negative - Upsides, there may be, but after the pandemic. Let’s not count on them, though, in a huge global economy which will have endless tangential ramifications around the world. The need is to see where this goes, and adjust/evolve.
A lousy scenario
Consider this outcome:
• Massive defaults on payments will cripple businesses around the world.
• No money for credit, except at high rates, and with security which can evaporate in a falling capital assets market.
• Desperate people will do anything, and that may include extortion prices through black markets, reducing available money and goods even more.
• Bank portfolios will be shattered if capital assets collapse. This could make the Great Depression look like a luxury time.
• Hyperinflation can make money literally worthless. It’s happened before. In Germany in the 1920s, a suitcase full of cash could barely buy potatoes.
• Simple maintenance for systems may be unaffordable if this mess continues. That means a massive infrastructure crash, in theory, although “essential services” laws may be enacted.
• Insurance payouts could become ridiculously inadequate, making losses much worse, in a hyperinflationary environment.
Wanna dodge a few bullets? Don’t let that scenario happen. People need money. The economy needs money. Don’t get cheap now.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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