The global economy is in an unprecedentedly dangerous situation, and a new banking crisis is likely. A lecturer in economics and economist Tuomas Malinen from GnS Economics warns seriously about the deteriorating economic outlook and recommends households prepare by acquiring physical gold or silver. It would also be wise to set aside cash in case of a bank run.
GnS Economics recently published its latest report on the state of the global economy. The report included three very serious economic scenarios, none of which offer much in the way of hope: 1) a “good” scenario that is not good, 2) a bad scenario that is still better than good, and 3) an apocalyptic scenario that is grim. The report is essential reading for anyone interested in the economy. We recommend checking out this report as well as previous ones here and the blog article on the latest report here.
Dangerous crisis of the world economy
The coronavirus pandemic has shaped media discussions for almost half a year now. While coronavirus reporting has overshadowed many important themes, it has exceptionally brought the economic situation into sharp focus. The pandemic has rapidly accelerated concerning trends in the economy that have previously been worrying, such as the over-indebtedness of states, companies, and individuals, as well as central banks' intervention in the market economy by increasing the money supply (quantitative easing, QE).
GnS Economics presents three economic scenarios in its report, the best of which, and the one most preferred by economists themselves, is the "bad" scenario, which is historically bleak. According to Tuomas Malinen, the economy shut down by the pandemic is rapidly collapsing both employment and consumer demand. He estimates that the effects will spread through the economy with a delay of a few months and will manifest as mass unemployment, component shortages, disruptions in supply chains, and likely also as a food crisis. Therefore, food supply and supporting the basic functions of the welfare state should be the primary focus instead of scattering business subsidies. The blow to the economy, and especially to the solvency of businesses, will cause massive credit losses for banks, and Malinen estimates this will lead to a widespread wave of bank bankruptcies starting in Europe. He states that the banking system was not repaired during the 2008 financial crisis and that the system has become even more fragile. He also criticizes the ECB's unhealthy program of purchasing junk bonds in severe terms.
The euro is turbulent for the Finnish economy
The economic crisis accelerated by the pandemic is also driving the Finnish economy onto the rocks. According to Malinen, Finland's export-driven open economy has already suffered a severe blow with the collapse of the technology industry's order book. He recommends getting rid of the euro as soon as possible – this, in his view, is a decision entirely dependent on the citizens: as long as voters support staying in the euro, politicians will act accordingly. Staying in the euro significantly slows down and complicates recovery from the economic crisis, according to Malinen. In an interview with YLE a couple of years ago, in the Brussels Machine program, Malinen predicts the disintegration of the euro. The discussion is turning into reality, and he now harshly criticizes politicians for the euro's dangerous artificial respiration:
“Are politicians really so crazy that they want to save the euro at the expense of everything else?”
Now would be a particularly important moment to consider what kind of economic policy receives support from citizens and where it should be withdrawn. Saving the euro and the ECB would lead to the burden of the jointly guaranteed loans acquired by the ECB also falling on the Finnish people, Malinen reminds. Another and significantly better option would be to let the economic crisis do its necessary job and cleanse the unhealthy structures and power relations of the economy, he says. This would be a completely new beginning for rapid economic growth from healthy foundations, even though it would also have a more quickly realizable human cost. He emphasizes that a serious short-term sting is significantly better than prolonging suffering into the future through unsustainable means. The latter would be the “good” economic scenario mentioned in the report: a socialized economy arising from unhealthy stimulus, where zombie companies would indeed be saved, but productivity growth could be definitively abandoned.
Private economy and investors can still prepare for an economic crisis
How can the private sector or small investors prepare for such bleak economic outlooks? What should be done, and is there still time to do something?
Malinen has a clear answer to this: the artificial economic growth created by central banks has caused a bubble in the stock market, and the economic crisis is shaking all areas of the economy, including the prices of real estate and housing. Therefore, the clearest safe haven is in physical gold and silver. The price of gold typically increases 2.5 times during economic crises, and according to Malinen, the price of the yellow metal is not particularly high at the moment. He recommends that households keep enough cash available in case of a potential bank run and the outbreak of a banking crisis. He also believes it is important to maintain healthy domestic demand, which the Finnish economy relies on after the collapse of foreign trade. Selling one's own home at a reasonable price may still be possible, but the situation is deteriorating quickly.
Mental preparation for a difficult economic situation and potential unemployment, as well as planning one's finances, is highly recommended by Malinen. He also encourages developing one's own knowledge by familiarizing oneself with information related to the recession of the 1990s and also the preparedness reports from GnS Economics. preparedness reports..
Image: Pixabay
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