The Omicron variant of COVID19 is the latest opportunity for states to argue for restrictions on economic and social activity. It is likely, however to be the last.
According to reports from across the globe, wherever Omicron has been detected, it is seen to be more virulent, but also less deadly than previous variants. That is quite normal. Pathogens that are more deadly are usually less virulent, and vice versa. That is explained by evolutionary biology, in the theory of natural selection. In order to survive and prosper, any pathogen relies upon hosts to infect, and inside which it is able to multiply, and then spread to other hosts. Any pathogen that makes its hosts so ill that they are unable to circulate widely, limits its ability to spread; any pathogen that kills its hosts, at the same time both kills its ability to multiply within the body of the host, and to spread. Its normal, therefore, for pathogens that start off very deadly to mutate in the direction of being less deadly, but more easily spread.
In the case of COVID, it did not even start out as deadly, other than to a specific section of the population that is susceptible due to having compromised immune systems, i.e. the 20% of the population aged over 60, or with some underlying medical condition. Even amongst this 20%, COVID was not particularly deadly, with a mortality rate of around 1%. Amongst the general population its mortality rate is much lower than that, especially now that vaccines are available. The Omicron variant, therefore, is showing the normal progression towards being less deadly, and with a greater capacity for infection. None of the people diagnosed with the Omicron variant in the UK have required hospital treatment, or suffered serious illness from it. Reports from South Africa where it has been most prevalent indicate a similar thing, but a higher level of illness amongst the very young, who were unaffected by previous variants. That makes it more like the other strains of coronavirus responsible for the common cold.
The consequence of that is quite clear. A variant that causes less serious illness, but which spreads more easily is going to speed up the process of development of herd immunity amongst populations, aiding the development of herd immunity already being achieved via vaccination. If large numbers of those who refuse to get vaccinated, now become infected with the Omicron variant, which, because it spreads more easily will quickly become the dominant strain, on the one hand, they are even less likely to become ill, or die, than they already are, but will, in the process, develop natural immunity, as their body produces antibodies, and other immune responses to the virus. In essence, Omicron spells the death knell for the COVID pandemic.
Over the last two years, COVID has proved useful to states that were facing the inevitability of a renewed global financial crash, as increasing economic activity was causing interest rates to rise, putting pressure on astronomically inflated asset prices, as well as from rising wages, as employment levels increased, which both feeds into a rising demand for wage goods, and aggregate demand and starts to squeeze profits, as both absolute and relative surplus value is constrained. After 2010, they had used austerity to constrain economic growth, combined with QE to divert money and money-capital into financial and property speculation, so as to reflate the asset prices that crashed in 2008. They achieved that, and more, with those asset prices having risen to multiple levels of where they were even before the 2008 crash.
On any number of metrics, asset prices are massively inflated, and due to crash by an amount even greater than in 2008. As I have described before, crypto currencies like Bitcoin have no value at all, and yet they have soared to astronomical prices, much of it fuelled by the involvement of new young retail speculators, using commission free trading apps on their smart phones. Some years ago, when Bitcoin was at $20,000, I predicted it would fall to zero, and that year it dropped to $5,000. It has no more value today, and yet its price has risen to over $60,000, meaning that, when it collapses towards zero again, those that have bought into that particular Ponzi Scheme will be even more burned, and given that many have borrowed to speculate, it will spread far beyond their own ranks to affect the financial system. Margin debt, in the US, that is borrowing to gamble on markets, increased by 71% in 2020. It has risen from $479 billion to $935 billion this year. That is the same rate of increase that was seen before the 2000 Tech Wreck and the 2008 Global Financial Crash.
In Britain, the long-term average ratio between average income and house prices is around 3. Today, in many places it is around 12! But, worse than that. The long-term average is based upon households that traditionally comprised two adults, both contributing income, but now, a large proportion of households are single person households, worse, many are one parent households, so that the ability to finance the cost of shelter is a fraction of what it was in earlier decades. Adjusting for that change in household composition means that, today, house prices are about 5 times their long-term average in relation to average income. A reversion to the mean would require prices to collapse by around 80% from current levels, but a reversion to the mean never results in prices falling just to that level. The more they have been above the mean, and the longer they have been above it, the more and longer they have to fall below it, to restore the long-term average. Wherever economies have seen a similar astronomical and speculative increase in property prices, they are going to see a similar crash in those prices.
Stock markets have also soared to new astronomical levels. In 2008, the Dow Jones reached 14,000 before the crash that sent it down to around 7,000. Today, it stands at over 34,000! Again, as central banks have used QE to encourage such speculation, particularly in the last couple of years, we have seen new young, inexperienced retail speculators jump into meme stocks, in the same way they have gambled on worthless cryptocurrencies. In January 2021, 6 million US citizens installed a trading app on their mobile phones. These are all typical signs of a speculative frenzy in its later stages, prior to the bubbles bursting. Unlike previous bubbles, the present ones have been inflated and reflated repeatedly and deliberately by central banks, and by governments, desperate to protect the paper wealth of the top 0.01% that now owns all its wealth in this form of fictitious capital.
The other indicators on bubbles I have previously cited are also showing the extent to which markets are in the kind of territory seen just before a crash. The Schiller CAPE index, for example is at 40, a level that is higher than in 1929 (30), 2008 (28), and only previously surpassed in 2000 ahead of the tech Wreck, when the NASDAQ fell by 75%. (See: https://www.multpl.com/shiller-pe). Another indicator I have previously cited is that used by Warren Buffet that compares the value of stocks against GDP. It is at an all-time high of 200% (See:https://www.longtermtrends.net/market-cap-to-gdp-the-buffett-indicator/).
As I have set out in previous posts, central banks have attempted to keep these asset prices inflated via QE, because this fictitious capital is the form in which the dominant section of the ruling class owns its wealth, and also because central banks act as the organising centre for the commercial banks and financial markets. All of that casino is founded upon the fiction represented by these grossly inflated asset prices, and the debt that is its other side. As 2008 demonstrated, when those asset prices begin to crash, its not just a tiny minority of super rich gamblers who lose their shirts – though others who had kept their powder dry waiting for the crash, so as to pick up assets at dirt cheap prices, make vast sums – but large numbers of banks and financial institutions drawn into the maelstrom, who go bust, and so disrupt the functioning of the real economy.
Previously, they used austerity as a means of limiting the growth of economic activity, alongside QE, but that had run its course. Lockdowns and lockouts under the pretext of COVID came as a godsend to them, as a proxy for such austerity measures, and, in the case of Britain, it proved equally useful to a government whose Brexit policy was already causing economic catastrophe, shortages, and rising prices. But, as I have previously set out, it was a double edged sword. Governments seen to be deliberately closing down businesses via lockouts and lockdowns were led to have to provide financial compensation to them and their workers via furlough and other income replacement schemes. That meant vast amounts of government borrowing to pay for it, which means the demand for money-capital rises, causing interest rates to rise, which is what they were trying to avoid, as it means an inevitable crash in asset prices.
In the short-term, the opposite happened, because central banks printed more money tokens to cover the increased borrowing. But, now, that increased liquidity, instead of going all into financial speculation, became a wall of money waiting to go into consumption, as soon as restrictions were lifted. Sure enough, every time restrictions have been lifted, that wall of money sloshed out into consumption. On its own this excess liquidity would mean rising levels of inflation, but the other side of the lockdowns was that supply of commodities was restricted, so that increased monetary demand met an inability for supply to rise fast enough to meet it, meaning that prices rose even faster, which has already manifest itself in the US and UK inflation rates rising to the highest levels in 30 years. Now, even the Chairman of the US Federal Reserve, and the Deputy Governor of the Bank of England, are having to admit that the inflation they claimed was only transitory is now going to be much higher, and for much longer than they said.
The immediate effect of rising inflation is that anyone who needs to borrow to buy for either personal or productive consumption needs to borrow even more, because the prices of what they seek to buy have risen. That applies to the government which sees the prices of all the things it needs to buy rise sharply, including the price of wages. It also faces higher costs for all of the transfer payments it has to make such as for pensions and social security benefits, which are loosely linked to inflation. So, the start of the increase in government borrowing has only just started, and when it begins to see important industries failing, it is going to find itself having to bail them out, by one means or another, which means borrowing will soar to even greater heights. The same applies to business. To increase production on any scale, and to counter rising wage costs, business needs to invest in additional fixed capital, and to do so it has to borrow, and this additional borrowing, at a time when government borrowing is soaring, again means higher interest rates. As a proportion of its rapidly growing profits, these higher borrowing costs will be no deterrent, and it will do so as each business seeks to ensure it grabs its share of a rapidly growing market, but the consequence is that interest rates rise rapidly, and that is the catalyst for a crash in asset prices.
On each occasion, states have used a new variant of COVID as an excuse for renewed restrictions to slow economic growth. It has reached a ridiculous level even before OMICRON that, seeing massively reduced levels of serious illness, hospitalisation and death, as a combination of herd immunity from vaccination and natural infection protected a growing proportion of the population, whilst many of the elderly and sick, infected with the virus, had either already died or else recovered, the media justified continued restrictions by talking even more just about the level of infections, as though this had any relevance. OMICRON, by being both more infectious and less deadly, brings that towards a close, for the reasons set out at the beginning. In doing so it also brings the inevitability of rising economic activity, rising interest rates, and a crash in asset prices on a much greater scale than was seen in 2008.
No comments:
Post a Comment