Looking out the window of my sixth-floor Makati office, I saw the 1990 Baguio earthquake before I felt it. A construction crane at the distance started swaying a split-second before the tremor swayed my own chair.
After about an hour, you could tell that this time it was different. There was not any wind. The rain was coming straight down in sheets of huge drops. By noon the water was already above the curb and even when the rain subsided, the water was not going down.
The official number of fatalities from Ondoy—Typhoon Ketsana—is 710 with property and agricultural damage cost estimated at about P25 billion. Some 2,400 people died from the Baguio earthquake with about P20 billion in damage.
Those statistical numbers are individually meaningless. But given a choice, which would you prefer? The 2008 Global Financial Crisis is most comparable to the Baguio earthquake. It hits and then the cleanup and recovery. We are currently facing a prolonged Ondoy storm. When is it going to end and what will be the eventual damage?
A little history. The Global Financial Crisis was caused by too much bad consumer housing debt causing major failures of global financial institutions. The result was a freeze in liquidity—the ability to convert cash to assets and back again—and “frozen liquidity” freezes economies.
In order to “unfreeze,” central banks created what in effect was “free money” with interest rates even going negative, meaning that you had to pay for the privilege of loaning money to a government. Imagine going to the supermarket and the food is free. Human nature being what it is, we would take fancy chocolates and not green salads.
Commercial banks borrowed from one government to lend to another government that was actually paying interest on its loans, consumers be damned; can’t trust them anyway. Corporations borrowed to inflate stock prices, not for productive purposes. Investors rode the stock prices. Governments borrowed from their central banks to fund “public welfare” which doubled.
The US “Total Public Debt as Percent of Gross Domestic Product” went from 64 percent in 2008 to 107 percent in 2019. The actual debt amount more than doubled. But “Total Global GDP Growth” never reached pre-2008 levels.
I am old enough to remember this headline. CNN/January 29, 2020: “Bats, the source of so many viruses, could be the origin of Wuhan coronavirus, say experts.” By design or opportunity, the pandemic gave a pause to everything economic while the “experts” tried to figure out what to do with the massive global debt.
The response to the virus—mass lockdowns—did not just slow things down. It killed the global economy. Governments borrowed even more to keep the peasants from revolting. By the end of 2021, global debt was 256 percent of GDP at $226 trillion and is now at 340 percent and $305 trillion, respectively.
Add to the disaster, global inflation was 8.3 percent end-2022 after 2.9 percent in 2009 and 1.4 percent in 2015. Last year was the time to raise interest rates to stop inflation. Federal Funds Rate Average Yield in 2020 was 0.36 percent. It is now 5.25 percent.
The current global economic disaster is not the “Baguio earthquake.” It is “Tropical Storm Ondoy.” We are facing a situation as bad as creeping Alzheimer’s. As bad as an inoperable brain tumor. As bad as being in an abusive relationship.
Recent headlines. “US Leading Economic Indicators Tumble For 13th Straight Month,” the sharpest downside reversal excluding the 1973 oil crisis and in 2007. “US Now Spends More Servicing Its Debt Than on National Defense.” “China is of particular concern, as its debt makes up a third of global corporate debt.” Meanwhile, “Indebted Chinese provinces are asking Middle Eastern sovereign wealth funds for help.”
As global interest rates increase, “Emerging Market” debt service becomes more impossible. “An Associated Press analysis of a dozen countries most indebted to China— including Pakistan, Kenya, Zambia, Laos and Mongolia—found most were devoting more than a third of government revenue to paying off foreign debt.”
There is not a single ray of sunshine coming through the global financial storm. Actually, that is not entirely true. Two words contradict that statement: Southeast Asia.