It´s not the virus, stupid… it´s the economic depression that will kill you

By Andrea Bianconi on The Capital

Andrea Bianconi
The Dark Side
Published in
31 min readMar 30, 2020


The uncertainties surrounding the evolution of the Covid-19 pandemic and its impact on the global economy are gripping both the people and the markets with fear. A global recession is now the best case outcome also for JP Morgan while Goldman Sachs foresees the possibility of a second great depression. There are currently few data available. It´s too early to ascertain the damage inflicted to China´s economy, which is still struggling to restart after its economic engine province Hubei grinded to a halt after the city of Wuhan was first put into lockdown on the 23rd of January. The spreading of the virus seems now under control in China, but the economical damage still needs to be assessed.

Italy’s lock-down measures are estimated to have hit tourism and transport activity by 90%, retail by 50%, and factory output by 10% with an estimated impact of at least 10–15% of GDP and likely more.

Just a few days into the crisis the US travel industry is experiencing a 90% fall in comparison to the previous month. This seems to confirm the Italian data.

The EU´s expectation that the bloc’s GDP will shrink by around 1% this year seems by far too optimistic. Because the situation is extremely fluid and in progress in so many countries, such estimates cannot be seriously taken into account for a global forecast of the economic impact of this pandemic crisis. The lack of precedents does not help either. So I went looking for studies which took a global pandemic as a basis scenario to simulate both the economical and human lives cost of an event of such magnitude.

The World Bank pandemic simulation

There are a couple of interesting studies published by the World Bank in 2006 and 2011. Both take into account different scenarios. The first study models three scenarios: one mild based on the Hong Kong flu of 1968–9; one moderate based on the 1957 Asian flu; and a severe one benchmarked on the 1918–9 Spanish flu.

“Table 3 below shows an alternative modeling of a pandemic. It is based on a pandemic similar in terms of mortality to the Spanish flu epidemic of 1918/9. This scenario is presented with a view to better understanding the factors driving the aggregate numbers in such simulations. The first column shows the impact in terms of GDP lost in the first year of the pandemic purely from additional deaths (here roughly equal to McKibbin’s severe scenario). The second column builds in the impact on aggregate productivity resulting from the infection of some 35% of the population. Even though individuals are only temporarily unavailable from work, the impact on output here is more than twice as large as from the loss of life, because the affected population is so much larger. The third column shows the largest impact. Here individuals are assumed to change their behaviour in the face of the pandemic by (a) reducing air travel in order to avoid infection in the enclosed space of a plane, (b) avoiding travel to infected destinations, and © reducing consumption of services such as restaurant dining, tourism, mass transport, and nonessential retail shopping. The degree to which such reactions would occur is necessarily uncertain. In this scenario it was assumed that for the year as a whole air travel would decline by 20 percent and that tourism, restaurant meals, and consumption of mass transportation services would also decline by 20 percent”.

The second study analyses the global economic effects of two extremes of influenza pandemics: a high virulence-low infectiousness event and a low virulence-high infectiousness event. For the purpose of similarities with the current Covid-19 pandemic, we will look at the second event, with a high infectiousness rate and low mortality.

Source: The Global Economic Effects of Pandemic Influenza — George Verikios, Maura Sullivan, Pane Stojanovski, James Giesecke and Gordon Woo
Source: The Global Economic Effects of Pandemic Influenza — George Verikios, Maura Sullivan, Pane Stojanovski, James Giesecke and Gordon Woo

The findings indicate that global economic activity will be more strongly affected by event 2, i.e. a pandemic with high infection rates rather than high virulence rates, all else being equal. At the regional level, regions with a higher degree of economic integration with the world economy will be affected more strongly than less integrated regions. The EU would be, therefore, one of the most affected areas.

Comparing those two studies with the current Covid-19 pandemic

1 month into Covid-19 Italy´s HCS is already under stress

The above studies are based on assumptions and baselines which are similar but not equal to that of the Covid-19 pandemic. For instance, the first study is based on the assumption of 35% of the population being infected. Luckily, we are still far away from that scenario even if the infection rate potential for the Covid-19 can be up to 60–70% of the population. This is why early containment is vital to reduce the spreading. However, as indicated in the first study, such measures quickly hurt businesses and workers in affected areas. While the study assumes that the leisure and transportation industries would decline by an average 20% for the year, we know for sure — from the Chinese, Italian and US experiences so far — that this figure will be much higher than 20% and involves also the whole hospitality and retail sectors where turnovers fell up to 90% in the first month.

1918 Spanish Flu — 100 years before, same scenes as in Italy now

The second study analyses four sets of economical shocks: (i) a rise in demand for medical services; (ii) a decrease in hours worked per worker; (iii) deaths; and (iv) a decrease in international travel. However, it seems that it does not take into account the direct impact that the drastic containment measures — such as widespread lockdowns — will have on businesses (i.e turnover losses and bankruptcies).

Also, the pandemic scenario is that of an extremely transmissible influenza virus with global attack rates of approximately 40% (which could be potentially similar to that of Covid-19), despite the availability of an effective vaccine within months of the outbreak (which is an unknown in the current case). In that scenario, the case fatality rate is 0.5%, which is similar to the case fatality rate of the 1957 influenza pandemic. For Covid-19, unfortunately, the data available at the time of writing indicates a much higher fatality rate averaging 4,4%. In Italy, the mortality rate is much higher currently at 9,5%.

This is evidence of large discrepancies between countries in attributing the death of patients to the Covid-19 or to their pre-existing pathologies. An example is Germany — which stands out from the crowd´s average 4% mortality rate — and reports a case fatality rate of only 0,6% with well over 33.000 infected at the time of writing. The explanation can be that the most impacted age groups in Germany are far younger than in Italy. Mainly aged 20 to 50 with a much lower fatality rate than the age group 65+. At least this is the thesis in this article.

This study also assumes that the virus has an equal case fatality across ages consistent with the 2009 H1N1 pandemic, while the Covid-19 Italian data shows — like more typical seasonal influenza — that 96% of all fatalities are in the over 65 age group.

Covid-19 shows, however, a concerning high complication rate which — based on Italian data — requires the hospitalization of 40% of the infected and intensive care for 6,4% of the infected.

Variables such as the duration of the pandemic, the finding of a cure or vaccine, the duration of economic shutdowns and containment measures, and the speed of the economical recovery are impossible to forecast yet.

Human and Economic costs

Considering the differences between the baselines and assumptions of the above studies with that of the novel Covid-19 pandemic, the forecasted loss of 3% to 5% of the global GDP (i.e up to US$ 4,4 trillion) looks today like the best possible scenario.

With up to 6,5% of the global workforce losing their jobs.

The International Labour Organization in a recent report forecasts up to 24,7 million job losses and US$ 3,4 trillion of salary losses.

Just to compare, the 2008 financial crisis — which now starts to look small compared to what is day after day becoming the Covid-19 pandemic — has cost 22 million jobs. Therefore, already at this early stage, the ILO forecasts seem very conservative.

To make the point, Bank of America said that 3,5 million jobs will be lost and that´s only in the US and at a time when the virus is just starting to spread with 14.000 cases. UPDATE: Just a few days later (today 27.3.20) the US Department of Labour reports 3,3 million jobless claims while the number of infections exploded to 86.000. Shocking.

In the meantime, Goldman Sachs reports up to 95% declines in the revenues of the hardest hit US industries, thereby indirectly confirming the Italian figures.

All that without even taking into account the costs of financial disruptions in the credit and stock markets that we are currently seeing and which would require a massive monetary stimulus by central banks globally.

Just like the virus for humans, insolvencies in the real economy will soon start to spread contagion into the banking and financial sector with cascading effects which are difficult to forecast.

As far as the loss of human life is concerned, Table 2 of the first study above paints three different scenarios: a mild one with 1,4 million deaths, a moderate with up to 14 million casualties, and a severe one with up to 71 million deaths.

To put things in perspective, the 1957 Asia flu pandemic caused worldwide between 1 and 4 million casualties depending on the sources. The more infectious 1917 “Spanish” influenza pandemic caused the death of between 50 to 100 million people. Again the numbers vary wildly depending on the sources.

Therefore — considering the infectious rate of the novel Covid-19 and its complication rate which will overwhelm health care systems globally — the above estimates do not seem improbable.

Avoid a Depression at all costs

While a recession now looks increasingly like the best case scenario, a depression would be catastrophic and should be avoided all costs. Trump´s recent tweet, “the cure might become worse than the problem itself,” should be taken as a warning that the cost of a depression — not only economical but also in human losses due to poverty increase, unemployment, famine, drop in living standards and illnesses — will be superior to the deaths directly caused by the Covid-19. Even more so considering that the Covid-19 infectivity and mortality rates are disproportionately tilted towards the over 65 age group. This is not cynicism, but an objective evaluation that every government will have to do at war-like times in order to decide if the costs of saving lives now are exceeded by higher costs (both human and economical) at a later stage — see below the paragraphs “Introduce Triaging” and “Strategic Triaging with Geopolitical Implications”).

Let´s see then what a depression really means since there have not been depressions in more modern times. If we exclude the 2009 Greek depression, induced by the austerity measures imposed by the EU/Troika — which by the way 10 years later is still unresolved since Greece unemployment rate is still at 17% from a 27% peak in 2009 — the most recent depression was the 1930`s Great Depression which started with the 1929 Wall Street crash and raged globally for a decade before producing even more misery with WWII. Europe and the USA were the most affected regions.

According to Encyclopaedia BritannicaThe worldwide economic downturn known as the Great Depression began in 1929 and lasted until about 1939. It caused steep declines in output, severe unemployment, and acute deflation and led to extreme human suffering and profound changes in economic policy”.

Let´s see some of the dramatic consequences of the lost decade which morphed into WWII:

  • Up to 25% unemployment in most industrialized countries
  • For those who had a job the salaries declined by 30–40%
  • Precipitous decline in standards of living around the world
  • 50% of all US Banks failed
  • declines in industrial production of main countries from -16,2% (UK) to -46,8% (USA) with an average -33% for the 5 largest economies at the time.
Source Encyclopaedia Britannica

“For Americans, the 1930s will always summon up images of breadlines, apple sellers on street corners, shuttered factories, rural poverty, and so-called Hoovervilles (named for President Herbert Hoover), where homeless families sought refuge in shelters cobbled together from salvaged wood, cardboard, and tin.

Great Depression breadlines

It was a time when thousands of teens became drifters; many marriages were postponed and engagements were interminable; birth rates declined; and children grew up quickly, often taking on adult responsibilities if not the role of comforter to their despondent parents. The Great Depression, of course, had created the perfect environment — political instability and an economically devastated and vulnerable populace — for the Nazi seizure of power and fascist empire building. Consequently, it was the spread of totalitarianism and not economic hardship that occupied the minds of Europeans in the 1930s.

The human death toll caused — directly or indirectly — by the unemployment, poverty, famine and illnesses of the Great Depression of 1929 are unknown, but because the most affected economies never really recovered before the WWII, it is not wrong to assume that also WWII casualties have been an indirect dramatic consequence of the Great Depression.

Certainly at least for Europe, while the USA was substantially spared from the WWII and could easily grow into the post war empire that it is still today. Therefore the death of 3% of the 1940 global population can be indirectly attributed to the Great Depression and that is 70–85 million people. The biggest human tragedy so far.

All this to point out that soon will come a moment in which worldwide governments will have to take a though decision and restart the economies at the cost of lives now to save likely more lives from an otherwise certain new economic depression with unimaginable consequences.

Introduce triaging

The epidemiological data released daily by the Italian Health Ministry are very useful to paint a more detailed picture of the Covid-19 attack rates.

At the time of writing we have:

  • 6,4% of the total infected needs intensive care
  • 32% of the total infected needs to be hospitalized
  • 96% of all deaths are in the age group over 65
  • 57% of all infected are in the age group over 65

With an aggressive infectious rate which is estimated to infect 60–70% of the population it is clear how the Covid-19 is a huge threat to every country´s health care system. No country can sustain that without slowing down the spreading of the virus.

Let´s look at Italy for instance. The initial outbreak was the 20th February. There are 5.029 ICU (Intensive Care Units) beds in the whole country, the large majority in the North. There are currently already 3.204 patients in ICUs with over 70.000 infected and a 9,5% mortality rate. The North has already reached full capacity 1 month into the outbreak.

Germany is the best equipped country in the world as far ICU beds are concerned with over 28.000. Only Bayern, the wealthiest region, has over 5.000 ICU beds (like the whole of Italy) and it is pledging to double that in the following months. However those beds are already running at 70% occupancy. If we apply the Italian epidemiological progression (based on the most transparent and reliable data so far) it is clear that also Germany might run out ICU beds in a couple of months.

The saddest part, triaging.

“Triaging is the sorting of and allocation of treatment to patients and especially battle and disaster victims according to a system of priorities designed to maximize the number of survivors”. Triaging is a commonsense method used by field hospitals in times of war or disaster to allocate scarce medical resources to save the most victims possible. Doctors recognize that some patients will have higher chances of survival than others due to factors such as age, general health, previous pathologies, etc. Identifying these two groups and excluding those with lower survival chances from medical care allows doctors to help those with higher chances of recovery. Medical professionals apportion finite resources to save as many victims as they can.

The above mentioned epidemiological data from Italy, coupled with the impending collapse of overwhelmed hospitals and ICU units, is already forcing Italian and Spanish doctors into triaging. With a mortality rate of 96% in the over 65% age group the doctor´s choice is pretty much obliged.

How this pandemic can morph into “strategic” triaging with geopolitical implications

We have seen above that the economical cost of this pandemic — mainly the containment measures which are effectively shutting down the global economic machine — can be massive, very likely around 5% of global GDP (US$ 4,4 trillion) to which financial bailouts, business bankruptcies, unemployment costs, etc should be added. A bloodbath for the world economies which is generating a recession in the best case scenario. So the question the governments will start to ask is: what if the contagion is not contained and a vaccine is not found in a reasonable time, for how long can governments keep the world economy shut down before this brings on a full depression 1929 style?

This question is very important because — in addition to the pandemic costs — a full depression comparable to that of 1929 will add unbearable human and economic costs as we have seen above in paragraph “Avoid a depression at all costs”.

The Prussian military theorist Carl von Clausewitz argues that the conduct of national policies must be governed by the pursuit of rational objectives based on the value of each political objective and judged by the resources and sacrifices required to achieve it. “Once the expenditure of effort exceeds the value of the political object, the object must be renounced. In other words, the value of any political aim is measured by its relative costs — the rate at which a combatant expends lives, treasure, and military resources of all types — and the time required to achieve the objective. The cost of those aims may come to exceed the value of the political object, or the value assigned the political object may fall. In either case, the original goals no longer justify the expenditure of resources. Strategists should be prepared to determine whether the enterprise is still worth its price”. If not, Clausewitz warns them to shut down the endeavour — conserving what gains they can while cutting their losses.

We have heard politicians proclaim “we are at war”.

Like at war times, our governments will have to take decisions to balance the saving of as many lives as possible with the cost of it, until such cost is bearable. If the cost becomes unbearable, countries will fall into a depression and all other costs will raise including additional deaths induced by the increase in unemployment, poverty, famine and lower standards of living.

This decision might even be forced into governments by economical/financial issues, by geopolitical issues and by the strategic-competitive power struggle between countries worldwide. Let´s make some hypothesis:

(i) China was the first country affected and it is the first one which seems to have successfully contained the spreading and is now slowly restarting its economy. At the same time the virus spreading in Europe is already taking a toll higher than in China both in terms of human lives and economical losses. This means that the EU will certainly come out of that crisis much worse than China will. This gives China a clear head start against all the other economies. The US is not poised well to contain the crisis and it has surpassed Italy as the country with the highest number of infected. It is also battered by a stock market crash and a looming financial crisis of proportions far superior to any precedent financial crisis, including that of 2008. In the current economic-geopolitical power struggle this puts China at an advantage in respect to the US and the EU and this may force the hand of governments in the choice of saving their economies at the expenses of higher cost of human lives in the over 65 age group.

In addition, since the escalation of the crisis in the US — if not contained — will adversely impact the still dominant geopolitical position of the US vs its adversaries (China, Russia and EU), the US will be forced to take action to avoid that the world equilibriums will tilt in favour of its adversaries.

A falling empire is like a wounded predator, it becomes very dangerous and it will not give up its dominant position without a last fight. Therefore it is reasonable to expect that the US will resort to any means to avoid that and a military escalation cannot be excluded. Don´t forget that the way out of the Great Depression passed through WWII.

(ii) The 20 richest OECD countries have cumulatively over US$ 78 trillion pension liabilities. The USA has approx. US$ 18 trillion unfunded pension liabilities. This is 85% of its GDP. Germany´s pension liabilities are huge at 207% of GDP therefore approx. US$ 8 trillion. Italy´s are even larger at 257% of GDP therefore approx. US$ 5.1 trillion.

As cynic and dramatic as it is, governments will ponder that this disease — which attacks at 96% the over 65 age group — may just end up easing their huge US$ 78 trillion problem.

(iii) A hard recession will be painful but it is still manageable by governments which will resort to massive fiscal and monetary stimulus to restart the economies. This is the scenario where the financial elites will gain the highest benefits and will scoop up the best investment opportunities.

(iv) The usual suspects and the financial elites — which made a fortune in the last 10 years of monetary madness after the 2008 financial crisis and which cleverly manipulated the previous crisis to their own advantage — are already salivating at this new opportunity to deploy their accumulated wealth. Developing countries are particularly vulnerable. Indebted in foreign currencies they will have to fall into the deadly “embrace” of international lenders such as the IMF or the World Bank ending up with bail-ins, expropriations and privatizations of strategic assets in favour of international creditors.

Conspiracy theories

The web is full of conspiracy theories. Like blaming the Chinese for having let the virus escape from a high security biolab in Wuhan, or blame someone else to have attacked China in occasion of the Military Games in Wuhan this fall, or blame the 5G networks which contribute to propagate the spreading. Fact is that humans always like to play with fire and sometimes they get burned.

The experimenting with weaponized viruses is nothing new. The US are doing it, the Chinese also, the Israeli idem, the Russians as well and so on. But clearly nothing can be proved at this stage. If there is a plan, a cui prodest, it might become apparent at a much later stage.

More likely this is rather a black swan event.

However — as Machiavelli and Churchill pointed out — this does not mean that special interest groups will not manipulate this crisis to gain advantages. Either economic, political or geopolitical or a mix of all them.

Most importantly, we must all be vigilant to uncover incongruent behaviours and suspicious events.

We, the public — at least those with a higher degree of education and comprehension of the world´s affairs — must keep our eyes wide open.

We must question the economical interests behind a newly found cure or vaccine. We must question and expose delays in reacting to clear emergencies by politicians. We must expose the plans of the oligarchs — such as Italy´s Benetton and Agnelli dynasties — to buy up strategic privatized assets at sale price during such a crisis. We must expose and question the connections between EU politicians/bureaucrats and their finance cronies like George Soros or organizations such as the Gates foundation. If someone reaps undue profits at the expenses of the population this must be exposed, the responsible must be indicted and tried.

Comandante Alpha´s comments — the founder of the Carabinieri elite force GIS — made politicians shiver. Is it time to clean up the nation from traitors?

Maybe this will be the opportunity for countries like Italy to hold its corrupted politicians accountable and to clean the nation inside out from the EU co-opted swamp rats and traitors who infest it. Time will tell.

The inadequacy of the EU and the incompetence of politicians

Personally, I do not see one political leader worth this name in the whole EU, in Italy or in Germany for the sake of it. They have all been sleeping at the wheel when this crisis unfolded in China. How is it possible that they did not prepare an emergency plan when the crisis started to unfold in China early in January?

I started to record the progression of the Chinese infections on an excel spreadsheet on the 13th January. Wuhan was locked down the 23rd. Immediately, I bought disinfectant, face masks and stocked up on food for my family. Everyone laughed at me. At that time there were no shortages, no inflated prices. It should have been clear to anyone reading the news what was about to happen. That was mid January.

The Italian government approved an emergency decree at the end of January but did not take any action until one month later. In this shocking video dated 27th January, the journalist asks Conte if Italy is ready for the pandemic. The answer is “Yes we are 100%”. Truth was, Italy did not have enough beds, face-masks, respirators, not even enough doctors and nurses.

Germany did the same. The EU even worse, did nothing at all.

In this crisis the EU has clearly demonstrated of being not only inadequate to the tasks but also plain detrimental. As the editorial of the Strategic Culture Foundation puts it — “it is abundantly clear that the EU has become a financially-driven cartel, not a human-centered federation of nations. An organization that cannot adequately protect the health of its public is not an organization worth defending. The EU’s declarations of democracy and solidarity are being seen for the facade that they are. That facade was always shaky. A virus is enough to tear it down”.

Italy´s former Foreign Minister Frattini adds: “Brussels is not doing enough…Italy was practically left alone… Many said it was all because…Italians do not respect the rules. Suddenly, they realized all the other countries were equally affected”.

True. While nations targeted by years of senseless Western sanctions — such as Russia, Venezuela, Cuba — together with China showed their factual solidarity and support sending supplies and medical teams to risk their lives on the field, by the way mocked by the western mainstream media which continue to fantasize about “evil” Russian interference everywhere , the German “friends” confiscated a shipment of face masks directed to Italy via a German importer, the EU Commission´s Von der Leyen sent her pathetic video message “we are all Italians”, and finally French ECB´s Lagarde — nicknamed “LaGaffe” after that — kicked Italy down by sending the yield on Italian BTPs sky high thereby making “oops” an “unintended” gift to its shark lender cronies at the expense of Italian taxpayers.

From Russia with Love — We love you too! Not to be forgotten

Italy is also the EU´s most vulnerable country to this downturn.

The crisis of its health care system has been originated by the EU recessive budgetary policies and the imposed cuts to the health care system perpetrated by the EU co-opted puppet governments like Monti, Letta and Renzi.

40 years of cutting Hospital Beds

These were the very same policies that today Germany — in the moment of need — fervently asks to revoke to face the crisis. Now they say “No more schwarze-null”, because it suits them.

But for Italy and Greece it is too late now. The damages have been done and cannot be undone.

The fall of beds per type of health care service

Those countries were weakened by years of EU imposed social butchery, wage cuts, pension cuts and cuts to essential public services. Years of zero yield policies have impoverished its savers. Without a political leader worth that name — a true patriot — one who can act exclusively in the interest of its people, without a central bank to adopt an independent and expansionary monetary policy and without its own currency, Italy is a fat helpless prey for the international lending sharks lobbying the EU.

A Vassal paying tribute to his Master — A Traitor to his own people?

This crisis will be cleverly manipulated to induce the EU co-opted Conte government into digging even more into unpayable debt compounded by the ever increasing interest rate “spread” cleverly manipulated with the help of the ECB. The next step will be an extraordinary “wealth tax” to empty the coffers of the Italian banks holding over €ur 4 trillion of savings and a new round of privatizations of strategic assets.

Lobbies and special interest groups are so pervasive and entangled within the EU that it is impossible to distinguish the corruptors and the corrupted. The situation has reached such a scandalous level that a “reliable ally” of the Open Society Soros Foundation — Page 64 was placed in a key role in the Conte puppet government. Can you just pause for a moment please. Just ponder….

The current Italian Minister of Economics and Finance, Giampiero Gualtieri, who is supposed to negotiate in the best interest of the Italian people a way out of this crisis with the EU, the ECB and international investors is a “reliable ally” of the George Soros Foundation.

No wonder that the corruptors and the corrupted work hand in hand to foster the activation of the European Stability Mechanism to “save Italians”. To clarify, Italy has contributed to the ESM so far €uro 14 billion and it is obliged to contribute up to €uro 125 billion in case of need, therefore a balance of €uro 111 billion. Now the Italian government is literally begging the ESM to lend Italy €uro 25 billion for this crisis (of which 14 billion is Italy´s money anyway), at shark loan rates and under the conditionality clause, rather than asking the ECB to monetize more debt like the FED, the BoE and everyone else is doing. Italians do not need the ESM. As it has been cleverly conceived, the ESM is a rent extraction mechanism which benefit solely the financial elites which lobby Brussels and their cronies EU politicians/bureacrats.

Minister Gualtieri should be indicted and tried for Treason under art 246 of the Italian Criminal Code together with the representatives of the Soros Foundation and a number of other Italian puppets.

Italy´s EU puppet Government

The latest news is that the EU Commission is ready to suspend the stability pact and its inflexible budgetary rules to allow governments to increase their debt to respond to the crisis. The EU bureaucrats are facing the precipice, and this might be the end of it. And they back off from consolidated positions to give nations a bit of leeway hoping that the storm will quickly pass before going back to the same old tactics. But this time it will not pass. The redde rationem will only be delayed. The problem remains for all EU countries without a Central Bank — a lender of last resort — in time of major crisis such as this one. The suspension of the Stability Pact and Schengen is the implicit admission that such treaties do not work. If they do not work when you need it the most then they are worthless. If the €uro and the European Union fail the “stress test” at time of crisis then there is no need for them in normal times. The EU is a parasite that enriches the fattest bureaucratic elite in Brussels at the expenses of the European citizens. The late events do not only question the whole EU construction and the €uro in the first instance, but might well be the beginning of the unravelling of it.

The cure for the globally sick economy — A monetary tsunami

As far the sick global economy is concerned, there is only one possible cure to avoid a depression. The cure might work, but only if the largest economies are kept shutdown only partially and for a very limited time. Otherwise the recession might well turn into a deadly depression.

How long can the world economies resist in that semi-paralyzed state is anyone´s guess. One month, two months?

The cure is the only one that central banks and governments worldwide can administer to the terminally ill patient: a mix of massive fiscal and monetary stimulus. Basically, more credit creation, more fiat money debasement and monetary inflation, more QE and this time also “helicopter” money for the people is coming. The digital presses are already turning wildly at the tune of more than US$ 1 trillion — and this is just the beginning. The ECB promised a new QE package worth at least €ur 750 billion. Germany promised €ur 600 billion, Bayern alone over €ur 50 billion. At least Germany can draw from accumulated current account surpluses for the last 20 years.

The FED announced “unlimited QE” . Deutsche Banks´ Oliver Harvey points out that this is clearly a very different situation from 2008. The 2008 financial crisis was a shock on the demand side which could be countered by increasing the liquidity in the system. This time however we have a supply shock which is morphing into a demand shock. Businesses are closing down not because of lack of demand but because they are forced to. All the consequences of that forced shutdown, such as bankruptcies, unemployment, spending contraction, will clearly also affect the demand but at a later stage: “if the government tries to keep spending at levels before lockdowns began, while at the same time keeping lockdowns in place, there will be simply more money chasing after significantly fewer goods and services. The result of this will be inflation, and a lot of it.

Having acknowledged that and the fact that Deutsche Bank is net positive on gold as an inflation hedge, it is however too early to foresee (i) where this liquidity tsunami will flow and what the effects could be and (ii) whether this coming recession might mutate into a depression which might even trigger a “reset” of the current financial system. This is also something that one cannot rule out in such a fluid situation.

Indeed, the world sits on a huge pile of debt. There are no real assets anymore. Today´s financial assets are someone else´s debts and liabilities. You name it, government bonds, municipal bonds, corporate bonds, trillions of mortgages and derivatives of all kinds, the US dollar, the €uro and all fiat currencies are liabilities. What we call today money is just a liability and today´s global liabilities dwarf the world GDP by orders of magnitude.

The IMF might have to intervene and issue more SDRs to inject liquidity. Maybe a global crypto currency backed up by real assets such as gold or oil will be created? Who knows what might be the outcome if a new Bretton Woods conference is convened to save the world´s finances from the impending collapse.

However — with so many variables and uncertainties — one should focus on trying to keep things as simple as possible. Then, regardless of all the above, one can be reasonably confident of one thing. Namely that in all cases the coming monetary tsunami will trigger a huge wave of monetary inflation and fiat currency debasement.

In this scenario, in different ways, equities, gold and bitcoin will all play a key role in protecting your wealth.

How gold and bitcoin can perform in that scenario?

There was ground to be positive on gold all along, even before the beginning of the crisis. After that, even more so. When referring to gold one should only consider physical gold as an asset. All the rest is just paper gold. Futures, ETFs, unallocated accounts, etc are all liabilities, plus they have a counterparty risk. As I write, gold sits on the daily timeframe above the 200MA at US$ 1540. Better still in €ur at 1430 well above the 200MA, still painting a bullish picture despite the late drop which briefly violated the 200MA.

Gold has been also liquidated in the recent market crashes and not surprisingly. The reasons are well explained in this post by Keith Weiner of Monetary Metals and by Macrovoices in this podcast which I recommend you to listen to better understand how the complex interactions between the liquidity crisis in the eurodollar market and gold swaps/leases can affect the price of gold in the short term. More simply, in a liquidity crunch like the current one, who owns gold and has to meet margin calls on losing positions is forced to sell. Also if one does not own gold and faces liquidity problems, it can borrow the gold on the market and sell it without regard to the price in order to raise liquidity, with the advantage that the lower the price of gold goes after the sale, the cheaper will be to buy it back later to return it to the lender while pocketing any positive price difference. Those so called “gold-pukes” always happen at times where the market is the most illiquid and cause a cascading effect by triggering stop loss orders at key levels.

During the 2008 financial crisis — from the days of the Lehman collapse on September 2008 — gold dropped well over 20%. But when it became clear that the cure would be a monetary avalanche, QE “whatever it takes”, gold rallied for over 2 years appreciating from US$ 700 to the historical high of US$ 1.921 on Sept. 6, 2011.

Also this time, with the coming monetary tsunami, gold will do its dirty job well and might well set new historical highs. However lower prices — if the liquidations and the liquidity crunch persist — cannot be excluded and they will be excellent buying opportunities.

Now on to bitcoin.

Bitcoin is clearly a much more volatile and speculative asset than gold. It is therefore more correlated to risky assets. As I have expressed in various articles, it is in my opinion a great store of value but not for every occasion. It is an effective hedge against monetary debasement and offers unparalleled protection against confiscation and coercion, it is portable and it can be easily hidden.

As an example, starting on the 14th November 2018 until 14th December 2018, bitcoin crashed 50% together with equities, while gold was substantially unaffected. Before the drop, I have warned in this article of the possibility of a further drop in pricebecause many funds are deep in the red at this juncture, one can expect that they will be compelled to liquidate their assets by year end. This could possibly cause the crypto market to drop lower before it can start trading higher. Definitely something worth keeping in mind.”

The current drop from US$ 9.000 to 6.200 (-30%) was unexpected also for me, but it did not really surprise me since there are many analogies with the 2018 drop. Institutional investors — which are now much more invested in bitcoin than ever before — have been selling everything to go to cash before repositioning when it will become clearer what will happen with this crisis.

Now, day after day, it becomes apparent that the only possible response by the authorities — while all the other variables remain unknown — will be to throw enormous amount of digitally printed “money” to the markets. That´s a good enough reason for me to be very bullish also on bitcoin. It goes without saying that the above applies only if the crisis is rapidly resolved and the economic machine is restarted again and the recession is eased by monetary and fiscal measures. Rather, if we fall into a depression, you will likely need to barter what you have for food rather than relying on bitcoin or gold.

As an example, starting on the 14th November 2018 until 14th December 2018, bitcoin crashed 50% together with equities, while gold was substantially unaffected. Before the drop, I have warned in this article of the possibility of a further drop in pricebecause many funds are deep in the red at this juncture, one can expect that they will be compelled to liquidate their assets by year end. This could possibly cause the crypto market to drop lower before it can start trading higher. Definitely something worth keeping in mind.”

The current drop from US$ 9.000 to 6.200 (-30%) was unexpected also for me, but it did not really surprise me since there are many analogies with the 2018 drop. Institutional investors — which are now much more invested in bitcoin than ever before — have been selling everything to go to cash before repositioning when it will become clearer what will happen with this crisis.

Now, day after day, it becomes apparent that the only possible response by the authorities — while all the other variables remain unknown — will be to throw enormous amount of digitally printed “money” to the markets. That´s a good enough reason for me to be very bullish also on bitcoin. It goes without saying that the above applies only if the crisis is rapidly resolved and the economic machine is restarted again and the recession is eased by monetary and fiscal measures. Rather, if we fall into a depression, you will likely need to barter what you have for food rather than relying on bitcoin or gold.

If that scenario is clearly bullish for gold — despite the risks of confiscation — it is even more so for bitcoin which holds additional key features such as unlimited portability, resiliency to coercion and to confiscation and can be easily hidden. With border controls, travel bans and possibly capital controls coming, bitcoin still has unmatched advantages.


Governments will have to take soon very painful decisions. They will be forced into triaging and restarting the economies to avoid a depression with unforeseeable consequences which — as Trump put it — can be worse than the problem itself. The fact that a cure or vaccine is statistically likely to come within 6 to 12 months — thereby reducing the cost of human lives — will tilt the decision more towards restarting the economies sooner rather than later to avoid the certainty of the human, social and economical costs that a depression will bring upon humanity.

Like Boris Johnson said, we should be prepared to lose dear people in the meantime.

Our politicians are not used to taking such tough decisions that past leaders took in history at war times. But any such decision is fully justified by the fact that a nation has a primary duty to save the young generations from a certain disaster if such an event is likely to cost even more lives and misery. My father and grand father would have said so. And I say this being aware that anything else would be selfish. Since there is no historic memory of the Great Depression it is hard to imagine what this would mean for millions of people without savings nor assets, who work to pay back their mortgages, their overdrawn credit cards and leases. What happens when they will lose their jobs and incomes. What this will mean for a generation of overleveraged families in their 30s or 40s who can barely make ends meet. I truly believe this will bring far more misery. The age group 20 to 40 is only impacted by 10% of all cases. The next age group 40 to 50 by an additional 12,4% of all the infections. Both age groups together have a mortality rate of 1%. Therefore the economic machine can continue to run with limited risks, while all above 65 years of age must be quarantined for their safety and those in the middle — like myself — should take their chances. I believe this will be the most rational decision that governments will ultimately take if the containment measures fail to achieve what China has instead achieved. Be prepared for tough times ahead.

© — 2020


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© — 2020



Andrea Bianconi
The Dark Side

a lawyer , consultant , writer - Contact me at: