Political chaos turns to economic chaos

Almost two years ago in October 2015, the political and economic cycles changed. Prior to that, I wrote that what we would see and experience was a transition phase that would first lead to “political chaos” followed in two years by “economic chaos”.

When we think of chaos, we tend to get a picture of wild and unpredictable behavior like a mob rioting and looting in the streets or the turbulent howling winds of a typhoon. However, chaos can also mean a situation where there is a definite break from the status quo and things change. Think of a company that moves its core business in a different direction. San Miguel Corp. is no longer just the beer brewer that characterized its business for 100 years.

On the global political scene, chaos has come just that way. The current presidents of both the Philippines and the United States took their offices in unconventional ways, breaking the long-standing status quo of rising through the ranks of the national government.

In Japan Prime Minister Shinzō Abe may fit the definition of a “traditional politician”. But his deep association to the group Nippon Kaigi is a strong move from the previous political climate. Nippon Kaigi is a strongly nationalistic organization that considers Japan a victim of World War II. The overwhelming majority of Abe’s Cabinet are also Nippon Kaigi loyalists.

Chaos can also mean a situation where there is not a strong focus, sort of like when you have a hundred things on your to-do list and cannot seem to prioritize them. It is this last type of chaos on the political front that will then lead to the economic crisis waiting down the road.

The vote in the United Kingdom to leave the European Union (Brexit) in June 2016 resulted in a majority of the voters in agreement. The UK has officially informed the EU and started the breakaway process. While there is still a great divide in both the public and with the politicians as to the wisdom of this decision, at this point, it is final. Yet, as recently as last week, the fight in parliament is not over. The gridlock of the critical decisions that need to be made in the next two years is still firmly in place.

The US is facing the urgent need to make vital decisions on immigration reform, health-care reform and tax reform. Yet, the US Congress just took a prolonged summer recess despite having accomplished almost nothing in the previous six months on those issues. Everyone knows the “status quo” is not working, but the legislature is not willing to move to solutions.

In the Philippines the situation is almost the same. The 17th Congress has passed four major laws. These are the 2017 General Appropriations Act, or the national budget, the postponement of the barangay and Sangguniang Kabataan elections and the extension of the franchises of Smart Communications and GMA Network. Tax reform is still waiting.

While time has been consumed by hearings and investigations of other important issues, the core work has not been done. Without going into a dozen other examples, the fact is that national governments all over the world are in political chaos.

The political chaos we are seeing has always led to the next step—economic chaos. By the end of 2018, if not sooner, the cycles will have progressed to that point. Governments and their political leaders will be wishing that they had spent more time this year working
toward a better economic future.


E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.



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