Financial crisis after Coronavirus
The pandemic has not introduced and will not introduce any change in our society or in the global economy, ready to face a new financial crisis after Coronavirus.
Rather it will accentuate trends already in place leading to dualisms that history has already known. The first dualism will be caused by the huge gap which is consolidating between the rich and the poor. Nowadays, the epidemic has led to a contraction in consumption and investment. The consequence? Those who ran craft or commercial businesses without large margins, and lived just above the level of subsistence, have slipped under it and cannot hope for their children a standard of living equal to what it has enjoyed.
It is therefore useless to ask the reason of this demographic collapse. Millions of people in the lower part of society risk unemployment, due to the progress of automation, the internet, etc., and relocations to China, India and other very poor countries.
Looking up the social pyramid, however, the big finance, which has been strengthening over the last 40 years thanks to the reduction in production costs, will be able to afford a low-cost and obedient workforce at home.
Turbulence in high finance?
The sector of financial assets is the one that will earn the most. Those who work by borrowing and «re-borrowing» money will benefit from the generous support of central banks, which are
paying out trillions of dollars and euros at zero-rate to banks in order to avoid social revolts. Banks will ‘lend’ them to investors, but not at zero rate, cashing in interests without any risk. Alternatively, they will buy treasury bills that are going to inflate public debts even more.
Needless to say, the pandemic has been a real blessing for the financial markets and in the world’s most important stock markets a high tide of money is expected. But how is it possible that the values of stocks on the stock markets rise while the gains of companies that should be behind the shares are dropping?
The answer – evasive – is that markets are looking to the future, better to 2021, when the stock market will benefit from the so-called ‘bounce’. That is like saying you buy by paying a lot, even when what you buy has no value, and you wait until it acquires value. But that’s not always the case.
«Equity bubbles», on the other hand, have often led to dramatic crises in the real economy, that might be shortly hit by a financial crisis after Coronavirus.
