2020 The Year of Economic Upheaval

Another great year went by; then 2020 crept along. No one could have suspected the chaos that would ensue in the next coming months. The year of political, social, and economic turmoil both in the US and the world.

The Start of the Covid 19 and Social Upheaval

Unconfirmed reports of a pneumonia-causing disease began to surface in early January in addition to reports of news suppression in China. Many Chinese citizens began to use social media as a means of alerting the world of the onset of an epidemic. Only to be met with censorship confinement and arrest. At the same time, social upheaval began here in the US with “I can’t breathe.”

The killing of George Floyd lit the fuse, igniting a fire propelling the Black Lives Matter movement because of years of culminating injustice for urban minorities. You see it in the news, another one died unnecessarily through unjustified police brutality. Amidst this chaos, an unseen enemy creeps along, while peaceful protesters get caught between a few bad apples and the police.

All the while the US economy and the world economy took a tumble as a result of an emerging virus and political maneuvering by countries worldwide.

A police station and nearby businesses were set ablaze on Thursday, the third night of protests in Minneapolis.Credit…Kerem Yucel/Agence France-Presse — Getty Images

Oil War

Like control burns meant to curtail further growth of fires. 2020 was the year a fire broke loose everywhere. The months following a price war for oil began between Russia and Saudi Arabia, the leading member of OPEC, with the US becoming an unintentional target through its Shale Oil. OPEC+ took notice and began to control the oil markets an arrangement that would fall through in March of 2020 leading the Saudi’s to provide discounts on the 8th intended to put pressure on Russia. This had a cascading effect on oil producers everywhere including the US. The Saudis further bolstered their strategy by increasing their production by 25%, leading to a collapse in price causing a supply shock.

Covid-19 the new pandemic

At the same time, a new virus had begun its emergence. This time it wasn’t reports of a pneumonia-causing virus, but an endemic novel coronavirus also called Covid-19. Its origination being Wuhan province, where there are wet markets. This virus began to spread all over the world affecting the economy of the US and the world. The calm before the storm came and went and what was left is the chaos unleashed as economies began to tumble with lockdowns at the county level, job losses, and bankrupt businesses, in addition to the financial indices taking losses as low as 30% by the end of March.

Millions began to file for unemployment, to find that not everyone got their benefits. People stopped traveling because they feared contracting the virus. Oil and gas consumption dropped everywhere leading to a demand shock. For a while oil prices dipped into the negative and US shale producers had to cap production as credit downgrades rolled through the financial markets.

Everywhere oil-dependent countries began to struggle due to the price collapse including the US. The oil war with its unintended consequence was bolstered by an unseen force behind closed curtains. Where does that leave us; with a broken energy market a battered economy and with aching people.

There is no normal and we can never go back to the way things were. A new beginning will occur; companies will contract and restructure. Some stockholders will be left holding bags, retail investors have begun to emerge from their caves as a new force of nature, with the advent of robin hood traders and wall st bet bros coming out on top, ahead of the traditional Wall St investors and Hedge Fund managers.

This leaves us with the unseen force; Covid-19, the virus that ravaged economies. With lockdowns being initiated, in the hopes that infection rates would be curtailed. Although there is no real science proving that lockdown helped decrease infection rates, it did help in further taking down the economy. Countries worldwide began enacting legislation to bolster their economies.

Countries such as China, who have attempted to offload their US treasury holdings as a measure to fight back the trade dispute between the Trump administration; all the while devaluing its currency which is currently pegged to the US dollar to curb their gain indicating the currency will appreciate further down the road. In essence, these countries are trying to curtail inflation while improving their economic state.

From an oil war, a pandemic, bruised economies, and political turmoil; the US has become deeply polarized on how to handle national policy and international policy. Under the Trump administration, a trade dispute emerged hoping it would have benefited the US all the while this nation faces more political and social turmoil.

A New Administration

For now, the US is in dire need of unity to repair the economy. Here come’s a new administration. The flurry of the pen many executive orders was signed; policies that are going to be implemented will affect the economy and the everyday life of retail investors.

If there is one thing that is certain after examining the executive orders of which there were many, is that President Biden is intent on bringing back the Obama era with his policies; to include the use of previous Obama staffers under his current administration.

One key point to watch out for is that the United States, under the Biden administration, has rejoined the WHO. The very same organization had previously said there was no evidence of human to human transmission for Covid-19. The head of the WHO was ill-informed and had no factual information because there were no WHO or CDC officials to verify any information at the Wuhan region at the time. The WHO accepted what the Chinese have told them at face value, accepting false information. Thus an epidemic that was localized became a worldwide pandemic that affected the entire globe.

The Keystone Pipeline

Another key detail of the Biden administration is the canceling of the keystone XL pipeline. A pipeline that connects Canada and the US which will bring jobs for both countries has had its setbacks because of the environmental concerns it produces. This pipeline would have brought tar sand where it would have been refined into a fuel, further stabilizing the energy sector which was hit hard as a result of the price dispute between Russia and OPEC+, in addition to the cancellation of flights as a result of the pandemic. The pipeline, although would have had a negative environmental impact on the communities it would be built around, would have provided jobs; that our current economy desperately needs.

Will jobs make a comeback?

More to come as many jobs have been lost with many recent graduates who have taken student loans to pay for these degrees. These loans are all guaranteed by the US treasury department. What will happen if jobs cannot be restored in a post-pandemic world, assuming things resume in a normal-ish fashion, and I say normal-ish because there is no normal anymore. Things have changed and for better or worse we need to move on as a nation; we need to move forward. Students and postgraduates have deferred their payments, but with job losses, will these postgraduates be able to pay lenders. Another cascading effect as lenders will look to the treasury department and that will put an even greater burden on an ever-increasing budget deficit. The cost goes from the borrowers to the lender/lender services, to the treasury to the taxpayers.

With all that in mind let’s get back to the economy, with all the stimulus passed during the Trump administration and the new Biden administration the economy is kept afloat if just barely. No one seems to pay attention to the increasing deficit spending and the increasing debt. So far as a result of the chaos the deficit has increased by about 3 trillion with more coming. An additional 1.9 trillion was just added under the Biden administration. All in all, 5 trillion has been passed in deficit spending. With more surely to come in the next few years. None of this is spoken in the mainstream media, at least, not to a point where the layman can understand.

Increase in Deficit Spending, Increase in Debt

The amount of deficit spending is unheard of, normally this kind of spending takes years. It only took 2 years this time as a result of a pandemic and broken energy market. This bubble only seems to be getting bigger and the economy keeps flatlining; Job growth and job creation keep getting gutted. This is where President Biden’s ban on federal leases for drilling comes into play, pending review on climate impact. This ban although great for the climate is terrible for the economy as it would cost about 1 million jobs by 2022. The silver lining is that this ban only applies to new leases and not on current or previous leases. Fact-checking some of this information is difficult as the petroleum institute hasn’t released estimates on how many jobs will be impacted.

Back to the new economy, with slowing job growth, a flatlining economy, and a ravaging virus. There is nothing but fear being spread along with a combination of misinformation and disinformation. People are too afraid to go out buy their groceries and eat out. Areas of high interest such as movie theaters and clubs are shut down. Consumerism has been halted at its tracks which slowly kills the economy as a whole. It is said that the backbone of the US economy is small businesses, well the backbone was just broken and all it took was a small unseen virus.

A real David and Goliath story

This is the new economy, where everything is being forced into the digital age. Most spending is being done online, an increase in streaming services has exploded, and a new type of investor has emerged. Retail investors have increased and began shifting the tides of markets by picking fights with hedge fund managers that actively play the markets. All the while the Fed keeps in the money press rolling in hopes the bubble keeps floating.

But without much consumer spending, then there is no real growth and only nominal growth. The GDP to Debt ratio has shifted past acceptable levels. We need only look to other countries to see the example of what happened to their economies.

The velocity of money is tanking and that means that investors’ portfolios will begin shifting to hedge their bets in this post-pandemic economy. But all is not lost, we need only look to history to see how things can be turned around. Through alliances and entrepreneurship, a new spur of job growth can return and with many more becoming vaccinated, soft openings of businesses can begin in dense urban areas allowing the economy to recoup from the March lows.