Generational Dynamics World View

[John J. Xenakis]

*** 19-Apr-20 World View -- How three major 20th century crises are merging into a single mega-crisis today

This morning's key headlines from GenerationalDynamics.com

• Three crises merge: pandemic, stock market bubble, war
  
• Returning to work -- the timeline
  
• Potential stock market crisis
  
• Potential war crisis
  
• The source and course of the pandemic in China
  
• The economists and analysts
  
• The Modern Monetary Theory (MMT) hoax
  
• The three cataclysmic crises
  

****
**** Three crises merge: pandemic, stock market bubble, war
****


Morgan Stanley Research: Project timeline and milestones for a return to work in the US (ZeroHedge)

In the past week, president Donald Trump has announced on Thursday a
plan for "opening up" the American economy on a rolling basis,
starting in May and continuing until a vaccine is found.

In the past week, several pharmaceutical companies have announced
development of Covid-19 vaccines and treatments, raising hopes that
the virus will be defeated by the fall, even though every medical
expert I've heard says that 12-18 months will be required to perform
all the testing phases before a new vaccine can be deployed.

In the past week, the stock market has swung upward, giving investors
the hope that "the bottom has been reached," after a period where
investors have been whiplashed by wild swings.

In the past week, several ongoing conflicts in the Mideast, Africa and
Asia have become frozen because of fear of a "coronavirus tsunami,"
leading some people to hope that the Covid-19 crisis will end wars for
a while. However, China and other countries have taken advantage of
international pandemic distraction to launch military actions.

Each of these changes gives hope that the end of the Covid-19 crisis
is sight, at least in the distance.

However, if you want to understand what's going on today, you have to
understand that we don't have three or four different sets of problems
(virus, stock market, real economy, global tensions) that can be
solved independently.

The situation is almost infinitely more complex than that, but what
we're seeing is the three major Western crises of the 20th century all
merging into a single interlocking crisis today.

The three major cataclysmic Western crises of the 20th century are as
follows:

• 1914-1919: Spanish Flu pandemic, following World War I
  
• 1929-33: Stock market bubble bursts, causing panic and crash
  
• 1940-45: World War II

In the 20th century, these crises occurred ten years apart, giving the
world a chance to recover from one before having to deal with another.

But today, all three of these cataclysmic crises are occurring
simultaneously. In addition, the WW I and WW II fault lines and
timelines have been combined. Whether one of the currently "frozen"
conflicts will eventually spiral into WW III is a matter of
speculation.

The world is a complex system, where everything interlocks with
everything else. So if two or more crises occur simultaneously, they
interact with one another. When government officials try to deal with
one crisis, they're hindered by problems with the other crises. So
today's economic crisis will be much worse than the Great Depression,
and World War III will be much worse than WW I and WW II combined.

****
**** Returning to work -- the timeline
****

On Thursday, president Trump announced a framework for opening up the
US economy and returning to work. The framework is "data driven," and
since the data can differ from state to state or region to region, the
timeline will differ from region to region.

The chart at the beginning of this article was created by Morgan
Stanley several days ago, so it doesn't precisely align with Trump's
Thursday announcement. But it's close enough to serve as a reference
model for discussion.

One issue highlighted by this chart is the date when a vaccine is
broadly available. The chart assumes March 2021, which is a bit on
the optimistic side, in view of what I've heard from experts.

Another issue highlighted by this chart is the "Potential Second Wave
of Infections," starting in the fall, though it's not reflected "Daily
New Cases" dark blue line. Scientists have already identified several
minor mutations, with America's west coast dealing with the "Chinese
virus," while the east coast dealing with the "European mutation."

The chart ignores the consequences of a significant mutation. In the
1918 Spanish Flu pandemic, the flu virus mutated over the summer into
something much more virulent, resulting in far more deaths in the
fall.

So the chart, like Trump's announced plan, might be called the "base
scenario." It assumes that a lot of things will go right, but it's
fragile, in that if one the assumptions is even partially wrong, then
it could result in major changes to the plan.

So this chart, and Trump's plan, assume that a vaccine will be
available in a year or a little later, which corresponds to the
statements by experts. They also assume that any "second wave" can be
controlled quickly, as Dr. Anthony Fauci on Trump's coronavirus team
has promised, using experience gathered from the the first wave.

However, the biggest omissions in this chart, and in Trump's announced
plan, is that there is no recognition of the other major crises that
I've listed above -- a stock market crisis and a war crisis.

****
**** Potential stock market crisis
****

As regular Generational Dynamics readers are well aware, the stock
market is in a huge bubble, with stocks far overpriced. By contrast,
stocks were far underpriced in 1918 at the time of the Spanish Flu
pandemic.

The S&P 500 price earnings ratio can tell us whether stocks are
overpriced or underpriced. The historic average of the P/E ratio is
14. Here are the three values relevant to the current discussion:

• March 1918 - 7.4 -- Spanish Flu pandemic
  
• September 1929 - 20.2 -- Just before stock market crash
  
• March 2020 - 23.9 -- recent P/E ratio

This is an illustration of what I mean by simultaneous crises today.

There was no stock market bubble in 1918, the time of the Spanish Flu,
and it was literally almost impossible to have a stock market panic at
that time. The bubble grew during the 1920s, and burst ten years
later, in the 1929 stock market crash. So the Spanish Flu crisis and
the stock market crisis were ten years apart.

But today, the Covid-19 pandemic crisis is occurring SIMULTANEOUSLY
with a huge stock market bubble. With the market far overpriced in a
bubble, a panic could occur at any time.

This doesn't mean that a stock market panic must necessarily occur,
but it means that the probability is high that it will occur. This is
in contrast to 1918, when a stock market panic was almost impossible.

The timelines in the Morgan Stanley chart above, as in Trump's
announced plan, assume that there will be no stock market panic. This
means that the plans assume that funds will be available to pay for
all the testing and bailouts and loans and unemployment benefits. Any
sane person reading news must be as shocked as I am these days to see
the government distribute trillions of dollars in newly "printed"
money, as if they were distributing marbles. This is tied into the
current economic fad, "Modern Monetary Theory (MMT)" that I'll
describe below.

****
**** Potential war crisis
****

As regular Generational Dynamics readers are well aware, most of the
world is in a generational Crisis era, with high levels of xenophobia
and nationalism in almost every nation. This means that most
countries, including China, Japan, Turkey, Russia, the EU, the United
States, and many others have no fear of war, have no hesitation to set
"red lines" or to cross other countries' "red lines," without
understanding that such actions can quickly spiral into major wars.

This was not the case for Western nations in 1918, since World War I
was just finishing up, and everyone was war-weary. This is an
enormous difference between 1918 and today.

As regular readers know, Generational Dynamics predicts that there is
an approaching Clash of Civilizations world war, pitting the "axis" of
China, Pakistan and the Sunni Muslim countries against the "allies,"
the US, India, Russia and Iran. Part of it will be a major new war
between Jews and Arabs, re-fighting the bloody the war of 1948-49 that
followed the partitioning of Palestine and the creation of the state
of Israel. The war between Jews and Arabs will be part of a major
regional war, pitting Sunnis versus Shias, Jews versus Arabs, and
various ethnic groups against each other.

Furthermore, as I've written in the past, China does not want a war
with the US. However, China is planning a war of extermination
against Japan, in revenge for Japan's atrocities in World War II, and
also a war of annexation against Taiwan. China is developing a huge
arsenal of missiles and ships to attack the United States because the
Chinese know that the US will defend Japan and Taiwan when they're
attacked by China.

Those interested in understanding the dynamics of China's plans should
read my book, "World View: War Between China and Japan: Why America
Must Be Prepared" (Generational Theory Book Series, Book 2), June 2019
Paperback: 331 pages, over 200 source references, $13.99 https://www.amazon.com/World-View-Betwee...732738637/

So we have war tensions growing in many places in the world, during
the generational Crisis era. It's impossible to predict how the
Covid-19 pandemic is affecting whatever war plans might be in progress
in any of these countries. In the Mideast, we're seeing some ongoing
conflicts in Syria and Yemen frozen in place because of the Covid-19
pandemic threat. On the other hand, there are reports that China is
taking belligerent actions in the South China Sea and East China Sea
in order to take advantage of how the Covid-19 pandemic has distracted
the United States.

A decision to go to war during a generational Crisis era is a "chaotic
event" (in the sense of Chaos Theory), which means something trivial
(like a butterfly flapping its wings) could affect the nature or the
time of the decision to go to war. The Covid-19 pandemic is not a
trivial event, of course, but the same principle can apply. So if we
apply that reasoning to China, then the pandemic may cause the CCP
thugs to say, "We'd better wait a while longer to make sure the army
is OK," or it may cause the CCP thugs to say, "Since Japan is flat on
its back from the pandemic, now is the time to strike." It could go
either way.

****
**** The source and course of the pandemic in China
****

This is a brief summary of the accusations being directed against
China as the source of the pandemic. These are important because they
may play a role in the anger and xenophobia directed against China,
and in the defensiveness and xenophobia directed by China against
other countries.

It's now widely accepted that China could have used standard
containment measures (contact tracing and isolation) to stamp out
Covid-19 fairly quickly in December. Instead, the CCP censored all
news and social media reports of the growing danger, and forced the
doctor, Dr. Li Wenlian, who had identified and reported about the
virus, to sign a phony confession. Dr. Li died of the disease
himself, and other doctors were "disappeared."

China repeatedly censored any reports of the virus, and denied that
there was any human-to-human transmission for weeks. China's claims
would not have been believed, since China lies about everything, but
Tedros Adhanom Ghebreyesus, director of the World Health Organization
(WHO), vouched for China's lies.

These lies lulled many countries, in Europe, Asia and the United
States, into a sense of complacency. If it hadn't been for those
lies, the pandemic would have been far less severe, because the US and
other countries would have started reacting much sooner.

There are some additional issues:

• There are accusations that Covid-19 was developed at the Wuhan
  Institute Of Virology as a bio-weapon. However, that accusation is
  rejected by almost all responsible experts.
  
  
• There are accusations that the virus occurred naturally, and was
  being studied at the Wuhan Institute Of Virology, but escaped.
  According to one story, a girl working at the Institute became
  infected, and gave it to her fiancé, who works at the "wet market"
  where the virus spread. This accusation is considered possible.
  
  
• There are accusations that China purposely lied about the virus,
  and coerced the WHO to vouch for those lies, in order to guarantee
  that the pandemic spread to the rest of the world. The motive would
  have been to avoid the embarrasing and intolerable situation where the
  virus spreads across China, but other countries are not infected. The
  US administration is investigating this accusation.
  
  
• These accusations are supported by the fact that China blocked all
  airplane flights from Wuhan into other parts of China, but permitted
  flights from Wuhan to any other country. This suggests consciousness
  of guilt.

As things stand, many nations are facing the pandemic because China
censored the facts and lied about them. If it turns out that China
did so on purpose, in order to infect other nations, then some of
those nations might consider it an act of war.

All the actual facts will be coming out over the next few weeks.

****
**** The economists and analysts
****

I listen all the time to economists and financial analysts on CNBC,
Bloomberg TV, Wall St Journal and elsewhere, often described as
"reknowned" or "legendary." These people are idiots. They have no
particular skills at explaining or forecasting the economy than an
random seven-year-old child. Their only skill is to dress up their
own political biases or their firm's sales pitches into words that
will get them on TV.

There are so many examples. One was the housing bubble in the
mid-2000s decade. That there was a housing bubble was obvious, to me
and to others, as early as 2004, when Alan Greenspan said there was a
housing bubble. But for years the "experts" on CNBC and in the Wall
Street Journal kept saying that "Housing prices can't go down --
people have to live somewhere," and "Banks won't foreclose -- it's not
in their interest to do so" and "These housing construction firms know
what they're doing, and they wouldn't be building houses if it were
just a bubble."

It wasn't until 2009 that I heard a tv analyst talk about a housing
bubble -- they said that it had occurred several years earlier. These
"reknowned" or "legendary" experts only recognized the housing bubble
long after it had burst. That's why I call them idiots -- they can't
even see the most obvious things.

Economists are no different from politicians, and I see this all the
time. SAT scores have been plummeting since the Boomers were in
school. Since then, it became fashionable to major in idiotic
subjects like sociology or women's studies, and then call yourself an
"expert." You can see this in politicans, in computer programmers,
and in economists.

Another example, which I've written about many times, is that
economists are unable to explain the tech bubble that occurred in the
late 1990s -- why it occurred at all and why it didn't occur ten years
earlier or later. The economist idiots just say, "Oh, it's because of
the internet," which is no explanation at all, especially it doesn't
explain why it didn't happen in the 1980s, when millions of
programmers were developing PC software in the basements.

As Generational Dynamics readers are well aware, the 1990s tech bubble
occurred at exactly the time the survivors of the 1929 stock market
crash and Great Depression all disappeared (retired or died). As long
as they were in charge, as they were in the 1980s, PC software
investments were made with care. But when their children were in
charge, starting in the 1990s, internet software investments were made
with reckless abandon.

Those concepts are beyond the grasp of economists and analysts,
because understanding it requires more knowledge than you get in
fourth grade. So they're simply incapable of understanding this.

****
**** The Modern Monetary Theory (MMT) hoax
****

Economists and analysts may not have any knowledge beyond the fourth
grade, but that doesn't stop them from becoming drug addicts. And for
today's economists, the cocaine-like addiction drug is known as "The
Modern Monetary Theory" (MMT).

In centuries past, when Kings wanted to "print money," they actually
had to run some sort of printing press. But not today. Today, anyone
can "print money" simply by creating and issuing bonds. The US
government "prints money" by selling Treasury bonds.

When Barack Obama took office, the national debt was $10.6 trillion.
When Donald Trump took office, the national debt was $19.9 trillion.
But this year, the government is going on a massive spending spree.
There was a $2.1 trillion bailout bill, and there are more bailouts
and infrastructure programs planned. The total national debt will go
to around $27 trillion.

So doesn't that debt have to be repaid? The magic of MMT says that it
doesn't.

Here are the elements of MMT:

• A country like the United States, which controls and prints
  its own "fiat" currency, can "print" as much as it wants without
  having to repay it.
  
  
• The only problem is that it might cause hyperinflation, as in the
  case of Germany's Weimar Republic or Zimbabwe.
  
  
• If that happens, then just raise taxes, and the hyperinflation
  will disappear.

You read this, and you might think it's something out of a comic book,
but it's considered serious economic theory today (though
controversial).

The first fallacy is that the government would raise taxes to control
the hyperinflation. That's ridiculous. Neither Democrats nor
Republicans would ever agree to such a tax increase, and decades of
history prove that's true.

The biggest fallacy of all in MMT is that it causes inflation or
hyperinflation. That's not what happens in a generational Crisis era,
like today, when almost everyone is in debt. Today the country and
the world are in a classic deflationary spiral, and anyone counting on
inflation is going to be badly hurt.

MMT is the ultimate form of drug addiction.

It's like a drug addict who has already lost his home, his family and
his job, and who needs to take more and more drugs to feel ok. Taking
more and more drugs only postpones and worsens the problems he has to
face, but it may be the best choice for the time being because it
postpones the problems he has to face. In the meantime, he keeps hope
alive. Maybe he'll win a $10 million lottery, so he'll be able to use
the money to get off drugs, and get his home and family back. Keep
taking drugs, and keep hope alive as long as possible. If something
can't go on forever, then it won't.

So that's why so many economists and politicians hope for and predict
inflation. Just as a drug addict might hope for winning the lottery,
economists and politicians hope hyperinflation, which is their version
of winning the lottery, since hyperinflation wipes out debt. It's a
dream fantasy.

When people have tons of money, then they buy lots of things, creating
inflation.

But people have NO money today. They have the opposite. Instead of
tons of money, they have tons of debt, which is the opposite. They
have tons of interlocking debt.

They do not have the money to spend or the desire to spend, so there
won't be hyperinflation. You have a clue what's going on when the
federal government is tying its bailouts to requirements to spend. If
the government has to force people to spend there won't be inflation.
If people won't spend, then there'll be deflation, the opposite of
inflation.

The way the economy will fail is when somebody's margin call or
somebody's bankruptcy triggers a chain reaction of debt payment
failure. That's what a deflationary spiral is, as one bankruptcy
triggers another one. This is what I used to refer to as the
Principle of Maximum Ruin: The maximum number of people are ruined to
the maximum extent possible. Inflation is a fantasy.

From the point of view of Generational Dynamics theory, hyperinflation
can only occur in generational Awakening and Unraveling eras, as in
the case of Germany's Weimar Republic or Zimbabwe. In a generational
Crisis era, when all the bills come due, it's not inflation but it's a
massive deflationary spiral that occurs. If I have enough time left,
then at a future date I'll write about the theory of how all this
works. I can't get into it now, because this article is long enough
as it is.

****
**** The three cataclysmic crises
****

At the beginning of this article, I referenced Donald Trump's plan for
"opening up" the economy, and I referenced the Morgan Stanley plan, as
illustrated by the diagram at the beginning of the article.

Those two plans differ in details, but from a high level, they're
pretty much the same plan. They portray the most optimistic scenario
for ending the Covid-19 pandemic crisis in America. However, these
plans overlook the consequences of several real possibilities.

At the beginning of this article, I listed three major 20th century
crises:

• 1914-1919: Spanish Flu pandemic, following World War I
  
• 1929-33: Stock market bubble bursts, causing panic and crash
  
• 1940-45: World War II

In the 20th century, these crises occurred ten years apart. But from
the point of view of Generational Dynamics, they are likely to merge
in the 21st century.

• The MMT engorgement is creating tens of trillions of dollars
  of interlocking debt throughout the world. In the case of a major
  sovereign bankruptcy, central banks around the world would be rushing
  to fill the gap by issuing more debt, but in the case of a large
  bankruptcy, they would be unable to do so, and the bankruptcy would
  propagate throughout the world economy in a chain reaction.
  
  
• The economic lockdowns, social distancing and self-isolation have
  had disastrous effects on productivity in all countries that have
  implemented it, including China and the United States. Even when the
  lockdowns end, it will take years to restore productivity to its
  former levels. This is not speculation. Last week, the International
  Monetary Fund (IMF) forecast the worst global recession since the
  1930s Great Depression. This means that the money require to make
  debt repayments will not be available in many cases, resulting in the
  chain of bankruptcies described above.
  
  
• Covid-18 has frozen some military plans. But in Rakhine State and
  Hong Kong, Burma (Myanmar) and China, respectively, are taking
  advantage of the West's pandemic distraction to launch belligerent
  attacks. In the spirit of "Never let a crisis go to waste," it's
  possible that there are many previously unplanned military actions are
  being planned. In a generational Crisis era, these military actions
  are much more likely to spiral into larger than they would have been,
  say, in the 1990s Unraveling era.
  
  
• China is overdue for a mass anti-government rebellion, such as the
  ones the country has had at regular intervals throughout its millennia
  of history. The last two of these massive rebellions were the the
  Taiping Rebellion (1850-64) and Mao's Communist Revolution (1934-49)
  -- and both of these rebellions began in Guangdong province, adjacent
  to Hong Kong, and spread north. China is overdue for a new massive
  civil war, and China is currently experiencing a major economic
  setback. This could trigger a new rebellion.
  
  
• As I wrote in my book, "War between China and Japan," China is
  planning a war of extermination against Japan, to get revenge for
  Japan's atrocities during WW II, and is planning a war of annexation
  with Taiwan. China may decide to take advantage of the pandemic
  crisis to launch these wars.
  
  
• The "return to work" plans described above apply to the US,
  Europe, and other developed nations. But these don't apply at all to
  underdeveloped nations in Africa, the Mideast, Asia, and South and
  Central America, with a poor or non-existent health services
  infrastructure, and where poverty and crowding make social distancing
  and isolation impossible. Covid-19 is going to "burn though" these
  nations, triggering ethnic, religious and tribal wars, resulting in
  enormous poverty and death, and this is going to spill over into the
  developed nations.

Generational Dynamics predicts that all of the items in this list of
events will occur, though not necessarily in the two year time frame
contemplated by the "opening up" scenarios. However, bear in mind
that the IMF has predicted the worst global recession since the 1930s
Great Depression. So with debt around the world increasing almost
exponentially, and with ethnic and racial tensions growing around the
world because of Covid-18, the probability that they'll occur in the
next year is substantially higher than at any time since the end of
World War II.

John Xenakis is author of: "World View: War Between China and Japan:
Why America Must Be Prepared" (Generational Theory Book Series, Book
2), June 2019, Paperback: 331 pages, with over 200 source references,
$13.99 https://www.amazon.com/World-View-Betwee...732738637/

John Xenakis is author of: "World View: Iran's Struggle for Supremacy
-- Tehran's Obsession to Redraw the Map of the Middle East"
(Generational Theory Book Series, Book 1), September 2018, Paperback:
153 pages, over 100 source references, $7.00, https://www.amazon.com/World-View-Suprem...732738610/

John Xenakis is author of: "Generational Dynamics Anniversary Edition
- Forecasting America's Destiny", (Generational Theory Book Series,
Book 3), January 2020, Paperback: 359 pages, $14.99, https://www.amazon.com/Generational-Dyna...732738629/

Sources:

• Modern Monetary Theory (MMT) (Investopedia, 24-Sep-2019)
  
• IMF Sees Great Lockdown Recession as Worst Since Depression (Bloomberg, 14-Apr-2020)
  
• IMF says the world will 'very likely' experience worst recession since the 1930s (CNBC, 14-Apr-2020)
  
• The Great Lockdown: Worst Economic Downturn Since the Great Depression (International Monetary Fund (IMF), 14-Apr-2020)
  
• 1918 Flu Pandemic That Killed 50 Million Originated in China, Historians Say (National Geographic, 24-Jan-2014)
  
• Rick Gladstone / previous pandemics / Coronavirus Outbreak Risks Reviving Stigma for China (NY Times, 10-Feb-2020)
  
• Starving rats are resorting to war and cannibalism to survive coronavirus lockdown (NY Post, 13-Apr-2020)
  
• Rabobank: If We Don't Get The Reopening Just Right We Can Start The Clock To The Second Infection Wave (Zero Hedge, 16-Apr-2020)
  
• Scarce resources in Syria's rebel-held areas amid COVID-19 fears (Al-Jazeera, 14-Apr-2020)
  
• China / Covid-19 / Did Xi Jinping Deliberately Sicken the World? (Diplomat, 15-Apr-2020)
  
• China / Police in Hong Kong arrest 15 activists amid autonomy warnings (Guardian, London, 18-Apr-2020)
  
• Myanmar military steps up attacks as coronavirus spreads (Al-Jazeera, 16-Apr-2020)
  
• Remarks by President Trump, Vice President Pence, and Members of the Coronavirus Task Force in Press Briefing | April 17, 2020 (White House, 17-Apr-2020)
  
• What's A 'Reagent' And Why Is It Delaying Expanded Coronavirus Testing? (RFERL, 18-Apr-2020)
  
• 'A house divided against itself cannot stand': NY Gov. Cuomo takes a swipe at Trump by channeling Abraham Lincoln and says there's 'no time for politics' as he announces state's daily death rate has dropped to the lowest since April 1 (Dail yMail, London, 18-Apr-2020)

Related Articles:

• Today's Wuhan Coronavirus (Covid-19) pandemic vs 1918 Spanish Flu (22-Mar-2020)
  
  
• Iran's army to monitor entire population for Wuhan Coronavirus (14-Mar-2020)
  
  
• Coronavirus updates -- infections spread across the world (02-Mar-2020)
  
  
• China's coronavirus threatens Xi Jinping's Mandate from Heaven (25-Jan-2020)
  
  
• Genocide of Rohingyas in Burma (Myanmar) appears to be almost complete (27-Aug-2018)
  
  
• Coronavirus pandemic threatens 3.5 million people in Syria's Idlib (27-Mar-2020)
  
  
• Hong Kong holds massive peaceful pro-democracy demonstration (09-Dec-2019)
  
  
• Explanation of Price/Earnings ratio and Stock Valuations (28-Aug-2015)
  
  
• Alan Greenspan vs Ben S. Bernanke: The man without agony (29-Oct-2005)

KEYS: Generational Dynamics, Wuhan Coronavirus, Covid-19, China,
Spanish flu, Morgan Stanley,
Wuhan Institute Of Virology, Modern Monetary Theory, MMT,
Myanmar, Burma, Hong Kong, Taiping Rebellion, Mao Zedong

Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal

John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe