There’s a longstanding superstition that bad events come in threes. Looking at the world around me, I’d have a hard time arguing against that. In 2024, we face at least four major trifectas of risk:
The Banking Crisis Risk Trifecta:
a) US banks are carrying 517 billion dollars of unrealized losses on long-term US Government Bonds that fell in value as interest rates rose. Even non-US banks are in trouble - Japanese banking giant Norichukin just announced plans to sell 63 billion dollars in US treasuries and European bonds to cover 10 billion dollars in losses.
b) The work-from-home revolution has trashed the value of US commercial real estate. Properties that were bought for 200 million dollars ten years ago are sometimes selling for as little as a few million dollars. There’s trillions of dollars of loans to US banks owing on now nearly worthless commercial properties. (There’s also a sizeable amount of collateral damage - restaurants, malls, and gyms next to these deserted office towers are also starting to default on any debts they owe the banks.)
c) US banks are carrying trillions of dollars of 3% home mortgages in their loan portfolios, and will be carrying those low-rate mortgages for a very long time. Banks’ depositors can earn four or five percent interest if they take their deposits out of the bank and put them in money-market funds. Human inertia is the only thing keeping hundreds of US banks from going under if their depositors flee - either for higher interest returns - or in bank runs.
Each of the above crises represents a large systemic risk for the US banking sector. Taken together they represent a perfect storm of mega-losses.
The US Bonds Sell-off Risk Trifecta:
a) Having the world’s reserve currency has been an “exorbitant privilege” for the United States. Any other country with such massive debts, deficits, and trade imbalances would have seen its currency trashed years ago. The G7 countries have just announced their decision to steal Russia’s foreign reserve holdings. We can expect China to continue to dump their US bond holdings, joined by every other country in the world that fears they could offend the US Government at some time in the future. The US Government has just done more to undermine the long-term value of the US dollar than anything Russia, China, Iran or North Korea could ever have hoped to accomplish.
b) De-dollarization is accelerating. Something like 59 countries have expressed an interest in joining BRICS - most recently Turkey, Thailand and Malaysia. Together with the existing 10 BRICS nations, this massive new bloc will represent the majority of the world’s population, and the majority of the world’s GDP. All of these countries are starting to trade in their own currencies, bypassing the US dollar. Many will use the new mBridge untraceable blockchain non-dollar settlement mechanism to avoid US sanctions. The new BRICS Development Bank - unlike the IMF - is now loaning in local currencies. The more global trade de-dollarizes, the less any of these 69 countries will need to hold US Bonds as foreign reserves.
c) The United States Government continues to borrow money hand over fist. The US trade deficit widened to almost 75 billion dollars in April - money the United States essentially borrows from the rest of the world. The US budget deficit this year could easily exceed two trillion dollars if the US economy continues to slow down. Several trillions of dollars of maturing US bonds must be rolled over this year at higher interest rates - which will boost the interest charges the US must pay on its national debt to well over a trillion dollars this year.
Once again, the interactions between these three problems could make the overall effect even worse. The US Government will need to sell an immense amount of new bonds at a time when much of the rest of the world is trying to dump their US bond holdings. How high an interest rate will those new US bonds need to pay to attract enough buyers? In the short term, higher interest rates in the US might well drive up the value of the US dollar. Longer term, as the US dollar gradually ceases to be the world’s reserve currency, the US dollar could fall precipitously.
The European Political Chaos Risk Trifecta:
a) England faces national elections on July 4th. The ruling Conservative Party faces a historic defeat; a massive Labour majority in the new Parliament seems almost certain. Unfortunately, with the Conservatives running a blatant scare campaign that Labour will raise taxes and spend like drunken sailors, there’s a very real chance that international investors will crash the value of both the UK Pound and British bonds.
b) France also faces snap elections at just about the same time. If the Marie Le Pen’s National Rally Party wins handily - which seems very likely at this point - then the strident scare campaign run against her Party by Macron could prove self-fulfilling. French bonds have already fallen sharply in value. If they fall even further after the election, the rout may become unstoppable.
c. Germany’s governing coalition is on the verge of banning Germany’s second-biggest political party, the AfD. If they succeed - and the courts don’t block the move - all hell will break loose. The social chaos and disorder such a move could unleash would be massive - perhaps even bordering on civil war.
Again, separately these crises pose a major risk to England, France and Germany. Collectively, they threaten the stability of the Euro, and the European Union itself.
The World War 3 Risk Trifecta:
a) Russia is clearly winning the war in Ukraine, which has the sociopaths in Washington and Brussels frantic with desperation. Their latest crazy idea is that American F-16s armed with American missiles, almost certainly flown by American pilots, will take off from Poland, touch down briefly at an airport in Ukraine, take off and fire their missiles at targets deep inside Russia before flying back to Poland. They are gambling that Russia will not consider this to be a direct NATO attack on Russia. They are gambling with your life and mine over a war that’s already lost.
b) Israel has now drawn up and approved plans for an invasion of Lebanon. Israel did badly in its last two encounters with Hezbollah. This time the IDF are running short of weapons after seven months of fighting in Gaza. The IDF has also lost something like 70,000 soldiers to injury and disability in Gaza. (Lots of PTSD!) Both of which may deter the IDF from invading Lebanon. If Israel does go ahead, the risks the war will spread to the wider Middle East are very high. If Iran becomes involved, its not clear to me that Russia and China will remain on the sidelines.
c) The US military is already running short of armaments due to the ongoing wars in Ukraine and Gaza - yet the US continues to goad China towards war. Such insanity! The latest is that the Pentagon conducted a covert social media dis-information campaign to bad-mouth Chinese vaccines being used in the Philippines. This on top of continuing US arms sales/donations to Taiwan. If there’s any hope here, it’s that Chinese President Xi is fully aware that the US is trying to trick China into invading Taiwan. I find it somewhat ironic that America’s best hope to avoid getting their ass whupped in World War Three is the President … of China.
These three risks are arguably less synergistic in their effects. But you only have to draw one winning ticket on the World War Three lottery to make an ashtray of the planet.
There you have it - a Dirty Dozen of the most pressing economic and geopolitical crises facing the world midway through 2024. My suspicion is that all four of the above trifectas will combine to make some sort of global financial system meltdown impossible to avoid later this year. They will also put further downward pressure on a global economy already in a marked slowdown.
PS: I find it easy to fall into a kind of mental State of Emergency thinking about the various risks the world currently faces. Yet, when I stop to consider how the above four crises will affect me personally, the truth is they are all likely to have minimal impact, assuming the world somehow manages to avoid a nuclear endpoint. Reminding myself of that repeatedly helps me to absorb important information about the state of the world without becoming unhinged by it.
I suspect the same is true for many of the people reading this. Breathe.
Writing from USA I have to say there is a shortage of breaths at my house. There's more gulping and gasping for air which may (or may not) go away after our free and fair elections in November and January 7, 2025.
If Turkey joins BRICS, will it then leave NATO? If it does, how big a blow to NATO will it be, losing it's 2nd largest military ?
As for your advice, "BREATHE", I need reminding of that myself. As you said, all or some of this may come,. but it doesn't have much effect locally.