The vortex of economic and possible financial instability is based upon the following facts:
-Rising interest rates have crushed not only stock and bond markets but have also created conditions for international financial turmoil.
-Risk appetite is drying up.
-Inflation is stubborn and any belief that it will be dropping to the 2-3% level is an illusion.
-The energy crisis may be worsening.
-The war in Ukraine and the possibility of escalation could bring additional misery worldwide.
-Government missteps in developed countries like the U.K. are indicative of the fact that quality leadership and thoughtfulness is in short supply.
-Market entropy is rising as fragile markets are losing any hypothetical anchors they thought they were holding.
-It seems that we are trusting those who misdiagnosed the problems – and who were in a position to foresee and prevent them with the necessary surgery that is required in a system where debt has been rising with questionable collateral as its basis.
-The financial markets are facing lubrication issues, as government bond markets are confronting liquidity problems.
-Spreads are widening, junk bonds’ yields are approaching 9%, leveraged deals are going sour, risky investments are slumping in value, while gains made in a number of years are disappearing in a number of months.
-The rising rates are weakening economic prospects, while particular markets, countries, and currencies need to start thinking how to roll out alternative plans (if those exist).
-As business and consumer confidence are trending down, hiring freezes will convert to pink slips and higher unemployment.
-The implicit government guarantees around the world are reflective of irresponsible fiscal policies, especially in countries where those guarantees approach five and six times the respective GDP.
-The system is suffering from an acute cancer as Nomi Prins points out in her latest book, Permanent Distortion. When financial interests are separated from industrial interests and the real economy, devolution follows that undermines stability.When non-publicly traded assets record their losses, a wave of sales could take place, especially if that coincides with margin calls.
-The total amount of corporate debt exceeds $20 trillion in both the US and the EU as well as in several other developed countries, where it ranges between 85-105% of GDP. With all due respect to financiers, this is not responsible.
-The picture gets worse when we count for an equal amount of non-listed debt. Where were the central bankers who allowed this madness to be procured and perpetuated?
-While on the surface someone may claim that those debts are sustainable due to low rates (when financed) or due to maturities, or due to the fact that the earnings suffice to cover the interest on the debts, we could point out that about $5 trillion is rated BBB i.e., belongs to semi-zombies who are just a notch away from being declared junk at a time of turmoil and rising rates.
Gulliver’s travels start in the empire of Lilliput. Gulliver is a giant in a land of tiny human beings. Gulliver is tied down by hundreds of little ropes and it reminds us of a big power rendered helpless. The funny thing is that the insecure leader in his arbitrary whims has imperial ambitions! Swift depicts the Lilliputians supporting the imperial ambitions of their ruler as petty, cruel, and reflective of diminutive beings.
Gulliver’s second voyage to the land of Brobdingnag is reflective of a place where giants dwarf Gulliver and where political and social superiority prevails due to liberty and a system organized by the Aristotelian principles where monarchy, aristocracy, and democracy coexist and produce stability and prosperity. Brobdingnag is ruled by a philosopher-king and the system is not prone to manipulation by the powerful as it is diffused with a moral code where the philosopher-king also learns and adjusts (the One, the Few, and the Many, see also here). Gulliver comprehends during that voyage the superiority of the great works of the past especially when considered against his “modern” ways.
Gulliver’s third voyage is in a utopian land. Laputa is the epitome of modernity, where science and reason prevail. However, the citizens are not happy as they are lost in abstract concepts of complexity. Eventually, Laputa will end up being a police-state where the human soul is repressed by oppressive rationality, while its metaversic tyranny oppresses the paragon of virtue (that is Lord Minodi and his Lagado land).
Gulliver’s final voyage in Swift’s story brings him to the land of Houyhnhnms. Gulliver’s mind is captivated as he immerses into its reflection which is nothing else but the most famous land of all: Plato’s Republic. He is now in the commonwealth of justice where mankind confronts a new political community. The land of the Houyhnhnms is dominated by horses which govern themselves by clear and incontrovertible principles of justice. Unfortunately, in that land we also find the Yahoos who are human, disgusting creatures. Gulliver discovers in this land that the excessive rationality of the Laputans which brought them a police-state, is transcended by an exquisite and beautifully structured virtuous reason. Gulliver’s willingness to adopt that structure and be adapted by it reflects our own misreading of Plato’s Republic. We think of it in literal terms rather than in figurative and ironic terms as it was intended to be interpreted. The ideal state is not supposed to provide all the answers if the human soul is to survive and thrive in liberty and justice
This commentary is nothing but a humble attempt to take Gulliver to a fifth voyage where the vortex of instability (due to rotten ways and means) teaches him again the old lesson that the human history is not the great translatio imperii that fanatical incompetent idiotic characters – who somehow take leadership positions – proclaim it to be. |
The Fifth Voyage of Gulliver: The Vortex of Instability
Author : John E. Charalambakis
Date : November 1, 2022
John E. Charalambakis
The historical trajectory is altered when economic fundamentals, the geopolitical balance of power, and internal political forces conspire to a mixture of chaotic outcomes. Could we be approaching such a point? The internal, tyrannical political changes within China as well as within the US (where a small minority promotes and votes for extreme primary candidates who, in turn, during the elections advance positions that threaten stability) point out to an incoming form of instability. Putin’s madness at a time of instability threatens the global balance of power.
At the same time, and as we elaborate in this commentary, central banks’ lack of foresight and judgment threatens to derail economic growth and financial stability. Therefore, we are facing a vortex of instability as can be seen in the following schematic.
The vortex of economic and possible financial instability is based upon the following facts:
-Rising interest rates have crushed not only stock and bond markets but have also created conditions for international financial turmoil.
-Risk appetite is drying up.
-Inflation is stubborn and any belief that it will be dropping to the 2-3% level is an illusion.
-The energy crisis may be worsening.
-The war in Ukraine and the possibility of escalation could bring additional misery worldwide.
-Government missteps in developed countries like the U.K. are indicative of the fact that quality leadership and thoughtfulness is in short supply.
-Market entropy is rising as fragile markets are losing any hypothetical anchors they thought they were holding.
-It seems that we are trusting those who misdiagnosed the problems – and who were in a position to foresee and prevent them with the necessary surgery that is required in a system where debt has been rising with questionable collateral as its basis.
-The financial markets are facing lubrication issues, as government bond markets are confronting liquidity problems.
-Spreads are widening, junk bonds’ yields are approaching 9%, leveraged deals are going sour, risky investments are slumping in value, while gains made in a number of years are disappearing in a number of months.
-The rising rates are weakening economic prospects, while particular markets, countries, and currencies need to start thinking how to roll out alternative plans (if those exist).
-As business and consumer confidence are trending down, hiring freezes will convert to pink slips and higher unemployment.
-The implicit government guarantees around the world are reflective of irresponsible fiscal policies, especially in countries where those guarantees approach five and six times the respective GDP.
-The system is suffering from an acute cancer as Nomi Prins points out in her latest book, Permanent Distortion. When financial interests are separated from industrial interests and the real economy, devolution follows that undermines stability.When non-publicly traded assets record their losses, a wave of sales could take place, especially if that coincides with margin calls.
-The total amount of corporate debt exceeds $20 trillion in both the US and the EU as well as in several other developed countries, where it ranges between 85-105% of GDP. With all due respect to financiers, this is not responsible.
-The picture gets worse when we count for an equal amount of non-listed debt. Where were the central bankers who allowed this madness to be procured and perpetuated?
-While on the surface someone may claim that those debts are sustainable due to low rates (when financed) or due to maturities, or due to the fact that the earnings suffice to cover the interest on the debts, we could point out that about $5 trillion is rated BBB i.e., belongs to semi-zombies who are just a notch away from being declared junk at a time of turmoil and rising rates.
Gulliver’s travels start in the empire of Lilliput. Gulliver is a giant in a land of tiny human beings. Gulliver is tied down by hundreds of little ropes and it reminds us of a big power rendered helpless. The funny thing is that the insecure leader in his arbitrary whims has imperial ambitions! Swift depicts the Lilliputians supporting the imperial ambitions of their ruler as petty, cruel, and reflective of diminutive beings.
Gulliver’s second voyage to the land of Brobdingnag is reflective of a place where giants dwarf Gulliver and where political and social superiority prevails due to liberty and a system organized by the Aristotelian principles where monarchy, aristocracy, and democracy coexist and produce stability and prosperity. Brobdingnag is ruled by a philosopher-king and the system is not prone to manipulation by the powerful as it is diffused with a moral code where the philosopher-king also learns and adjusts (the One, the Few, and the Many, see also here). Gulliver comprehends during that voyage the superiority of the great works of the past especially when considered against his “modern” ways.
Gulliver’s third voyage is in a utopian land. Laputa is the epitome of modernity, where science and reason prevail. However, the citizens are not happy as they are lost in abstract concepts of complexity. Eventually, Laputa will end up being a police-state where the human soul is repressed by oppressive rationality, while its metaversic tyranny oppresses the paragon of virtue (that is Lord Minodi and his Lagado land).
Gulliver’s final voyage in Swift’s story brings him to the land of Houyhnhnms. Gulliver’s mind is captivated as he immerses into its reflection which is nothing else but the most famous land of all: Plato’s Republic. He is now in the commonwealth of justice where mankind confronts a new political community. The land of the Houyhnhnms is dominated by horses which govern themselves by clear and incontrovertible principles of justice. Unfortunately, in that land we also find the Yahoos who are human, disgusting creatures. Gulliver discovers in this land that the excessive rationality of the Laputans which brought them a police-state, is transcended by an exquisite and beautifully structured virtuous reason. Gulliver’s willingness to adopt that structure and be adapted by it reflects our own misreading of Plato’s Republic. We think of it in literal terms rather than in figurative and ironic terms as it was intended to be interpreted. The ideal state is not supposed to provide all the answers if the human soul is to survive and thrive in liberty and justice
This commentary is nothing but a humble attempt to take Gulliver to a fifth voyage where the vortex of instability (due to rotten ways and means) teaches him again the old lesson that the human history is not the great translatio imperii that fanatical incompetent idiotic characters – who somehow take leadership positions – proclaim it to be.