The Corona virus has shut down factories and air travel globally. It’s shown us how brittle the world’s supply chains really are. But is it also being used to camouflage a decade of central bankers monetary policy mistakes?
Renegade Inc. host, Ross Ashcroft, met up with entrepreneur and CEO of State of Flux Alan Day and hedge fund manager and investor Mitch Fierstein to discuss how the Corona virus will affect the world’s supply chains.
Vulnerable to disruption
Alan Day emphasizes the extent to which organisations are likely to be impacted by a Corona virus pandemic within the context of an interconnected supply chain and how unprepared they are for it. The entrepreneur claims that the pandemic is currently only being dealt with through an internal lens. “On top of that”, says Day, “95 percent of the Fortune 1000 use a supplier either in Tier 1, so directly, or Tier 2 from China. So there’s gonna be a major effect rippling through the supply chain.”
The potentially catastrophic impact on the food and medical supply chains resulting from the pandemic is awakening people to the fact of just how vulnerable the system is to these kinds of major disruptions. Mitch Fierstein argues that the current crisis represents a trigger moment symptomatic of a four decades-long misinformation campaign indicative of the media’s increasing consolidation over that period of time. The investor claims that the onset of the virus has provided central bankers, politicians, economists and policymakers with a convenient scapegoat for their own irresponsible actions.
A key factor undermining confidence relates not only to the potential for holes in the system wrought by the consequences of a global pandemic on markets, but also with regards to corporate complacency with respect to supply chains – a fault-line that Day claims already exists:
“Most organizations don’t focus on their supply chain but on delighting their customers. I think the ones that are on top of it get it, but that’s minuscule. Pretty consistently it’s been about nine to 10 percent of companies would be in what we call the leaders in that area.”
However, most investors aren’t prepared for the fact that 90 per cent of companies are remiss in this regard. Not only are the elite banking class in perpetual denial that another financial crisis is on the horizon, but their predictions have consistently proven to be wrong. Yet, as Mitch Fierstein says:
“People go to them for the solutions when they’re really part of the problem. We’re replicating the same mistakes that Japan made and they had three plus lost decades. It’s insanity what they’re doing, and it won’t work.”
Fierstein puts the chances of there being a global recession/depression resulting from the pandemic at 85 plus per cent and claims that the lack of requisite diagnostic tools capable to test people is likely to exacerbate the crisis further leading, as Day asserts, to knock on effects in terms of liquidity problems. “Eighty percent of small businesses can’t cope with a delay in payment of more than three months”, claims the entrepreneur.
“I’ve got a good friend owning a business that isn’t getting paid from China because the Chinese banks can’t get any workers in them. So all of a sudden, if that happens to the majority of your small businesses, the big businesses won’t survive either. My concern is most people are not prepared for pandemics. Most companies haven’t built that into their risk scenario, especially for the suppliers in their supply chains which are now so interlinked.”
That such a key policy blind spot will put further pressure on a deficit-based system that’s already spiraling out of control, is perpetuated in part by the elites commitment to a zero interest rate environment. As Fierstein acknowledges, the solution to pumped up deficits – “unless you want to end up like the Weimer Republic or Zimbabwe” – is not the modern monetary theory strategy of the kind subscribed by the Paul Krugman school.
“The unintended consequences that you’re seeing from 13, 14 years of money printing”, says Fierstein, “are manifesting themselves in grotesque asset bubbles.” According to the investor, the only way out of the morass, is the bankruptcy route, the curtailment of government bailouts and the jailing of bankers.
One of the terrible legacies of the 2008 crisis has been the ability of corporations to take on huge amounts of debt as well as making the debt facility available to their suppliers. As Day puts it: “Corporations are able to access supply chain finance. So if you lose that, you get a knock on effect of losing all the small businesses. Not to mention the fact that they lose a big customer.”
Unintended consequences inevitably follow from the endless pumping of liquidity into the system. A failure in the supply chain will result in adverse knock-on affects in terms of access to vaccines, medicines and potentially food. Day is nevertheless keen to stress that there is a silver lining to this doomsday scenario in the sense that it will help focus minds to shift from global to local suppliers.
The bigger problem around issues related to health, energy, food and water security seems to stem from the unwillingness of some politicians to ignore experts. They thus become complacent – an attitude that feeds through to a helpless public who are easily distracted by TV entertainments and sports.
The consequences for the economy resulting from the changing dynamics described is likely to be one of shrinkage, because as Day says, “we’re either not able to spend or we’re not going to get the goods and services that we were getting previously”. This will then have a knock-on effect to those less developed countries that rely on that spend.
Fierstein takes this one step further arguing that the Corona virus pandemic is illustrative of the onset of the destruction of the current ‘Planet Ponzi’ system:
“I think that this is the first domino to fall. I think it’s actually the spark in the tinderbox created by the central banks. And we need to say we can’t look for the guys who caused the problem to come up with a solution, because as Albert Einstein said, the definition of insanity is doing the same thing over and over and expecting to achieve a different result.”