¿Plomo o plata? Lead or silver? Your money or your life? That’s what the world is mulling these days. Do we preserve our health and trash the global economy? Or do we trash our collective health to preserve our finances? I know, I know. It’s a false narrative. The dead are a tiny sliver of a minuscule fraction of the population. They’re the old and frail with one foot on a banana peel anyway. It’s all a conspiracy to strip us of our liberties. It’s a cabal of evil-doers extracting wealth from the populace. Blah, blah, blah. Pick your favorite cartoon villain. You may be right. I don’t know. Boris Johnson didn’t much believe in Covid-19 until he found himself in intensive care with tubes up his nose. So here we are. What’s next?
These shops were already working on thin margins. Now who can pay their rent? How many will survive to reopen? The landlords aren’t collecting the income they need to service their mortgages. The banks aren’t drawing the revenue they need to remain solvent. Dominos. Ping pong balls and mouse traps. Daisy chains.
Employers have no choice but to let go of their workers. Workers have limited ability to pay their bills. Rent? Mortgage? Car payments? Insurance? Credit cards? Child support payments? As relatively unaffected companies look out at the economic landscape they’re doing the prudent thing and cutting back preemptively. There’s an ugly pile of wreckage beginning to swirl on the rim of a giant hole.
The business loans taken out to finance shops are not being repaid. One person’s debt is another person’s pension fund. Much of the notional wealth in the economy was virtual and a lot of it disappeared. As households realize their net worth just evaporated the belt tightening begins. Who will be free with their limited cash and patronize these establishments when they reopen? Round robin.
The city relies heavily on sales tax receipts to fund its operations and service its own debts – which are considerable. That money is no longer there. Poof. Gone. But the teachers and sanitation workers and municipal bonds remain to be paid. No one has an answer for how this ends. There’s no Plan B.
There’s talk of a jubilee. Debt forgiveness. Government loans that will be forgotten about. Restructuring. Stimulus. Money can be conjured out of the ether and distributed to make everyone whole again. The effortless deposit of funds into everyone’s accounts will be instantaneous. Trillions. It’s all fun and games until someone pokes out an eye.
Our present circumstances aren’t about a virus. We were vulnerable to a crash long before Corona appeared. We all made promises to ourselves and each other that we never meant to keep. We borrowed from the future with every intention of selling on to the Greater Fool. We wanted what we wanted. And we wanted it. So we leveraged up. And then we bundled that leverage and sold it off to people who knew better. They sliced and diced it and sold it on again. To us. And we bought it. Then we borrowed against it again. The hypothecation was re-re-re-hypothesized. It was all too good to be true. But who wants to admit any of that? It’s so easy to blame the folks we never really liked in the first place.
There are going to be winners and losers. I’m excited by all the great stuff that’s about to hit the market at a deep discount. What do you think the price of a restaurant grade stove and walk-in fridge will be in six months when the clearance auctions begin? In a couple of years when real estate finally starts to reprice itself there are going to be some serious bargains for those with cash on hand. The value of paper promises is going to implode. Meanwhile real productive goods will be recognized for their true worth. Will it keep you warm and dry? Will it fill your belly? Will it last?
I’m not convinced the dog grooming salons with the organic vegan treats will make it. Brazilian waxing may have to be curtailed. A lot of folks are going to rediscover what it’s like to share a bathroom down the hall. Shiver. Our expectations are going to compress. Gluten sensitivities may melt away along with shoes made from virgin hemp. The F350 dually may have to be jettisoned along with that trip to Vegas or Branson.
Brace yourself for stagflation. Asset values are going down to where they should have been all along. The cost of genuine necessities will be rising. You think employment was tenuous before? Just wait. Inflation will be rearing its ugly head. Nominal prices could actually go down yet still rise relative to wages which could fall even faster.
This isn’t the end of the world. But it’s the beginning of the end of a certain set of expectations and practices. We’ll get through this and enjoy better times ahead. But those future halcyon days are a long way off. First we have to unravel the Gordian knot of our present condition. That process isn’t going to be quick or pretty. The Queen’s speech was reassuring in a bygone manner only a 93 year old British lady could deliver. Will future generations look back on us with pride in how we handled ourselves as our systems ground to a funky finish? We’re going to find out the hard way.