The Great Unravelling: a system in meltdown, Part 1

Part 1: economic ramifications, food security and pandemic bonds

Many of the points highlighted in this article are summarised below. It is published in full here.

Alan Simpson opened: “The delusions of neoliberalism stand at the edge of an implosion just waiting to happen. But, as with the emperor’s new clothes, global leaders are too fearful to say that their economic model has been stripped naked”.

The last week has seen that – following the wild weather – coronavirus and tumbling stock markets are ganging up to form an economic “perfect storm.” It will only get worse.

Initially, the industrial world had only a passing interest in the coronavirus outbreak in China: stupid Chinese, eating the wrong stuff it thought — good job that an authoritarian state could turn a city of millions into a quarantine zone.

Then markets began to panic and central banks are having to intervene

But now Italy has followed suit. In a dramatic, middle of the night statement, the Prime Minister announced the quarantining of a whole region of northern Italy, affecting 16 million people around Milan and Venice. Even this may be too late. The ramifications are massive. Start with China.

  • Its output accounts for around a quarter of global manufacturing,
  • huge quantities of which are currently stored up in containers that cannot get out of Chinese ports.
  • accounts for one quarter of global automotive production
  • provides 8% of global exports of automotive components for other manufacturers, many of whom rely on just-in-time assembly processes.
  • The same applies to steel and plastics, chemicals and high-tech telecoms.
  • Tankers arriving now set off before China went into lockdown. The real shortages will start to kick in this month.

The ripple effect of these logjams is running through the entire industrial economy, including a shortage of available containers themselves.

And when goods don’t flow, nor do payments associated with them. First-world firms struggle to work out how to pay bills (and workers) in the same way that China is having to pay workers to stay at home in quarantined areas.

Food security

The UK Treasury official who has just advised that agriculture is unimportant to the UK economy could barely have been more mistaken. Real alarm bells should be ringing all around Parliament about the amount of crops that will rot in the ground of waterlogged fields around the land. How are we to feed the public throughout the coronavirus crisis?

Weather related problems, including flood, drought and fire will throw food production systems crisis, with no globalised supply lines to step in as the safety net. But food security is an issue Parliament has barely touched on.

Why are political leaders reluctant to call what we are facing “a pandemic”?

(WHO) definition of a pandemic is relatively clear. It is “an epidemic or actively spreading disease that affects two or more regions worldwide.” This clearly describes today’s geographical spread of the highly contagious novel coronavirus and its significant clusters of cases far from China; principally in Italy and Iran. Countries closer to China, like South Korea, have also experienced an explosion in novel coronavirus infections. And Europe and the US are rapidly catching up.

The World Bank has launched a $12bn fund to help developing nations deal with “the epidemic.” But this is where the politics turns ugly. Behind the scenes, casino spivs stand to lose lots of money if we call this a “pandemic” not an “epidemic.” It all goes back to

“Pandemic Bonds”

In June 2017, the World Bank announced the creation of “specialised bonds” that would fund the previously created Pandemic Emergency Financing Facility (PEFF) in the event of an officially recognised (ie WHO-recognised) pandemic. The high-yield bonds were sold under the premise that those who invested would lose their money if any of six deadly pandemics (including coronavirus) occurred. If a pandemic did not occur before the bonds mature on July 15, 2020, investors would receive what they had originally paid for the bonds along with generous interest and premium payments.

This is why Trump has gone out of his way to pooh-pooh use of the word “pandemic.” If we don’t call it out until after July 15 speculators get paid and it’s the public who then pick up the bills.

The first “pandemic bond” raised $225 million, at an interest rate of around 7%. Payouts are suspended if there is an outbreak of new influenza viruses or coronaviridae (SARS, MERS). The second, riskier bond raised $95 million at an interest rate of more than 11%. This bond keeps investors’ money if there is an outbreak of filovirus, coronavirus, lassa fever, rift valley fever, and/or Crimean Congo haemorrhagic fever. The World Bank also issued $105 million in swap derivatives that work in a similar way.

In 2017, $425 million of these “pandemic bonds” were issued, with sales reportedly 200% oversubscribed. For many, they looked more like “a structured derivative time bomb” — one that could upend financial markets if a pandemic was declared by the WHO.

He adds, “And that’s where we are now. Call it a crisis. Call it an emergency. But whatever you do, don’t use the word “pandemic” because it might kill the market”. Concluding that there is no way to magic this crisis away, he says we must manage our way through it as best we can, adding, “But calling a pandemic a pandemic would at least treat countries and communities as human entities, not just chips in casino capitalism”.

 

Alan Simpson

8 March 2020

 

 

 

 

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Posted on March 18, 2020, in Agriculture, Banking and finance, Business, Capitalism, Climate change, Conflict of interest, Corporate political nexus, Economy, Environment, Finance, Government 2020, Health, Vested interests and tagged , , , , , . Bookmark the permalink. 2 Comments.

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