A FINANCIAL CRISIS PRIMER
Amongst the worldâs decision-makers, French president Emmanuel Macron has come closer than anyone to spelling out the reality of the current economic situation, saying that âwe are in the process of living through a tipping point or great upheavalâ, and referencing âthe end of abundanceâ (my emphasis).
If his words are taken seriously â as they should be â a major crisis looms. The global financial system is entirely predicated on perpetual economic growth.
As important as what Mr Macron has said is what he didnât say. He didnât say that abundance is over âfor a year or twoâ, or that weâll have to live through this âuntil better times returnâ. He didnât make fatuous promises of âsunlit uplandsâ or âa new golden ageâ.
Some of us have long known that an age of abundance made possible by low-cost energy was coming to an end. Until now, though, decision-makers have fought shy of this conclusion, taking refuge in the tarradiddle of âinfinite growth on a finite planetâ proffered by a deeply flawed economic orthodoxy.
What should concern us now isnât when, or whether, other leaders will arrive at this same conclusion. The trend of events is going to impose that emerging reality upon them.
Rather, we need to be prepared for what happens when market participants arrive at the same conclusion as Mr. Macron.
The nature of the crisis
Preparedness requires clarity, and we need to be in no doubt that what weâre witnessing now is an unfolding affordability crisis. This means two things â and both of them point towards a major financial slump.
First, the ability of consumers to make discretionary (non-essential) purchases is in structural decline. This spells relentless contraction, not just in obvious discretionary sectors like leisure, travel and entertainment, but in âtechâ and consumer durables as well.
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