The world is on the precipice: economic, political, social factors

We are living in a difficult and very worrying historical moment. Political, economic and social factors are intertwined to create a very dangerous scenario of instability. From the North to the South of the world, there is no region that is not going through difficulties linked to inflation, the unavailability of raw materials, increasingly expensive energy, endemic poverty and growing sovereign debts.

A global recession now seems inevitable and central bank action is proving delayed or ineffective. The post-Cold War balance is now upset and we are now living on the edge of the precipice. And not only because after decades, we find ourselves daily confronted with the threats of a possible nuclear conflict. But because global conjunctures are leading us to a fairly critical point in history.

Guerra Image by Pixabay

The world increasingly divided on the West and East axis

The outbreak of war in Ukraine marks a break: we are witnessing a progressive geopolitical readjustment and realignment. The superpowers have been fighting their way into America’s global hegemony for thirty years. China has stopped buying US debt and Russia is moving away from Western markets. Thus encouraging and accelerating a dichotomy in the world between West and East that had not been seen since the start of the Cold War. And this paves the way for new strategic opportunities for middle powers. The prosperous alliances with Washington seem to be faltering, like that with India, which adopts an ambivalent position: it buys Russian oil at a discount; does not condemn the Kremlin at the UN.

Berlin Wall-Image from Pixabay

With the subsequent isolation of Russia, the Middle East has become, in the short term, the needle of balance in the energy supply of Western economies. A highly unstable area full of internal wars, which can only make the foundations of the EU’s economic apparatus more and more crystalline. OPEC countries have no intention of losing profits and lowering prices. And in fact in view of a recession at the gates, which naturally tends to lower the price of crude oil. OPEC is phasing out crude oil production to keep prices high for as long as possible.

The slowdown in the global economy: sovereign debt, inflation, interest rates

But today, it is not only crude oil, but also the cost of other raw materials such as wheat, fertilizers, all over the world, due to the conflict, which causes a supply shock. world. And central banks around the world are lining up on massive interest rate interventions in hopes of curbing inflation to hedge. It is estimated that in 2022, the top 23 global institutions have increased the cost of funding more than 90 times. This means that taking out a mortgage is becoming more and more expensive and lending money in the financial market will probably be more and more expensive. These include the Fed, the ECB, the Central Bank of Norway, the Bank of England, but also Indonesia, Taiwan, the Philippines and South Africa. The rate hikes, so massive and in such a climate of uncertainty, have only accentuated the negative forecasts for the economy.

Economic crisis_ Photo by Pixabay

Indeed, there is a risk of weakening global trade even before inflation is affected. A weakening and an economic slowdown that has already partly taken hold. And that in fact the world is already violently exposing not only developing countries to a cascade of sovereign debt, health and climate crises. Europe, at the epicenter of the cyclone, which has to deal with the rise in the price of gas and crude oil, is in debt. When the costs and effects of the pandemic are still there, governments will need to step in to help keep families and businesses from succumbing to unsustainable bills. And common European support solutions are slow to arrive this time.

Global instability: the gain of the few over the skin of the many

The overall picture looks worrying and full of unknowns. And global instability means that financial markets are now governed by uncertainty, the disease par excellence of the financial system. Who thanks to speculation, in a crisis situation is able to generate exorbitant sources of income for bettors. Just to give a parameter: world GDP in 2020 was estimated at around 85 trillion dollars. While the value of commodities, assets and financial securities that are the underlying underlying of derivative financial transactions today exceeds one trillion. Create a difference between the real and financial economy by about 1 to 12. The financial economy enriches the pockets of the few more and more, while the real economy is less and less able to guarantee dignity everyone’s economy. And when the social divide in the world, both within States and between nations, widens, the economy slows down, sovereign debts increase and all global political stability is threatened. Unfortunately, the risks of armed conflict are becoming more real. So let’s all walk dangerously “on the razor’s edge”.