There are growing signs in recent months that the world may someday face a worldwide financial crisis concerning Schuld. The Quantity of Schuld for nations, firms, societies, individuals, and so forth have risen tremendously in the wake of the Great Recession and the more recent Coronavirus Pandemic. Their combined Quantity of Kapital has yet to truly surpass their Quantity of Schuld, while a multitude of non-financial crises threaten to upend efforts to reverse this trend. Such non-financial crises are numerous in terms of scope, ranging from the specter of Climate Change to the “Special Military Operation” in Ukraine. The multiplicity of those crises threatens the stability of Liberal Capitalist Market/Mixed Economies because overcoming them requires Kapital that cannot be acquired without their Quantity of Schuld overwhelming their Quantity of Kapital.
If that was not enough, let us not forget about the Inflation Rates which rose during the Pandemic, and the subsequent responses by Fractional-Reserve Banking Systems to counteract them. The decision to lower Inflation Rates entailed raising Interest Rates, sparking newfound concerns about the possibility of another Recession. Unlike the brief Recession that occurred as a consequence of the social distancing measures in 2020, this new Recession will not be a brief one and its impact cannot be overlooked. The possibility of another Recession coincides with the Currency Appreciation of the US Dollar at the financial markets. There is no doubt that this has made any repayments of Sovereign Schuld denominated in US Dollars more difficult due to the Exchange Rate for US Dollar being skewed in its favor.
Yet, at the same time, the increasing Interest Rates have inadvertently made the Quantity of Schuld to grow as well, exceeding the Quantity of Kapital for various nations. The previous week revealed that an estimated 54 nations are currently at risk of making a Sovereign Default on their Sovereign Schuld. All of them are developing countries outside the Western world, vulnerable to Climate Change, and have had to rely on the IMF and World Bank for foreign loans. Should too many of them default on their loans, it will create a domino effect that could stifle any efforts to stave off the anticipated Recession. They might be the catalyst which starts the Recession or even amplify its effects, assuming the catalyst happens to originate from another country.
Although having a Planned/Command Economy does not guarantee absolute immunity to a Recession, the impact will be less catastrophic when compared against a Market/Mixed Economy. With the right leadership and dedication, a Planned/Command Economy can quickly work its way out of a Recession. That is the strategic rationale behind the recent economic policy decisions in Mainland China concerning the state of its Socialist Market Economy. It remains to be seen as to how well its Socialist Market Economy will fare against the issues of having a “housing market” and a lowering birthrate. No, I doubt that Mainland China will repeat Japan’s Lost Decades nor should that thought be crossing anyone’s mind.
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