Illusion of American Economy during Global Epidemic

There are two types of economics: The first one is called the real economy, which is based on three main components of GDP, public investments, expenditure, public consumption, and foreign trade, throughout the outcome of exports and imports.

All of these components show the nature and the economical drive of the real economy either at economical surplus or deficits. The second one is the “Bubble Economy”: it is based on the financial market, and here we are talking about investment tools like bonds, equities and managing cash reserves and benefit rates of the monetary policy, etc...

All of these characterizes the “American economy” which have transformed from real economy to the bubble one, because of the increase in the factor costs which lead the investments to crowd out to countries like ‘China, Singapore and other countries of lower factor costs”.

Corona Virus is threatening the global economy with a financial infection, this economy which is already suffering from weaknesses that are different from the ones it had during the economic crises in 2008, where the world has become heavily indebted, much more than the time of crisis, according to Said Ruchir.

Sharma” an investor and a contributing writer, in a report published in “New York times”, topics concerning COVID-19 Current crisis.

“Ruchir” also added that the biggest and the most dangerous debts and its repercussions on the American families had also turned to reach companies all over the world.

Furthermore, he said that with the possibility of a sudden stop in their cash flow, a relatively new generation of companies that already struggle to pay their loans, will appear, just like “zombies”

These companies that earn too little even to pay interest payments on their debt, and survive only by getting new debt, not to mention the reality of deserted airports, empty trains and thinly occupied restaurants is already badly hurting economic activity.

Finally, the longer the pandemic lasts, the greater the risk that the sharp downturn morphs into a financial crisis, especially with zombie companies that cannot pay their debts, exactly as the 2008 mortgage crisis.

So, why all of that exaggeration of fear?

It’s simple, the monetary policy applied by the industrial governments, went away with the entanglement of the real and bulb economy, and its globalizing, based on free market and capitalism, which is an optional choice by the way and not obligatory as rumored.

But it's only optional for those who have great power and influence which most probably have a conflict of interest in power, economy and religion believes, all of the above lead to not only the outbreak of a crisis but also to the complexity of solutions.

In other words, the companies that are in danger of bankruptcy, banks and insurance companies put the governments to two options:

Either backing down from the legislation of managing the “Casinos” and gambling, which requires dismantling the neoliberalism regimes and legislations, and going back to impeding the freedom of capitalism for the interest of the real economy, private sector and the role of the state.

Or, for the governments to work on debt monetization for the broken companies, and saving what can be saved, to avoid the crisis from reaching the commercial banks, real economy and productive sectors.

In this regard, the companies in danger of bankruptcy exaggerated its fear for the real economy, more than fearing for itself, and its experts inflated the statistics and the consequences, knowing that this exaggeration will push the governments to save it by public pressure and public disturbance, like a house on fire and the only way to save it is by threating that the fire will extend more and more.

And just like that, the play of the virtual financial system which made the world economy like a “Casino”, to intrude on the economical productive system.

By  Dr. Azab Alaziz Alhashemi