URSABLOG: Where Will All That Money End Up?
One of the striking things about the pandemic is the huge amounts of money spent to keep things normal. Whether this is the central banks ensuring liquidity remains in place, mostly by pumping the system full of cash, or governments bailing out companies and individuals affected by the restrictions, or making sure industry and projects keep making and building stuff, money has appeared from more or less thin air to keep the world turning. The world has indeed kept turning: trade patterns have been altered in some cases, but supply chains have not been disrupted to any significant effect and in fact container shipping, the bellwether of the international consumer economy is probably going to have a better year than last year, which is staggering considering the predictions made by many analysts earlier in the year.
Consider the simple webcam: back in March you would need deep pockets and a disregard for quality to get hold of one. Now, the choice, and price, is wide enough to cover everyone’s taste. There have been no shortages of food, or energy, or any of the things that mobs with weapons demand in films about world catastrophes caused by viruses, at least in those films that were made before the ugly head of the coronavirus popped up in Wuhan.
Politics, and by that I mean the way that humans organise themselves and interact with each other, drives most things, and whether in a democratic or autocratic state, the quest for power and influence remains, for whatever motive, and it is these things that drive our response to crises, not necessarily the crises themselves. The money goes to the places where power can be retained, not to where it is needed to help people.
Consider the issue of crew changes. This is the number one issue affecting ship management today, but because the crew cannot organise themselves to be represented by one coherent body, because their votes or remittances don’t count enough to people either in power, or who want power, and because shipowners and managers are adept at finding solutions, and crew are used to prolonged hardship, and everyone concerned is more or less sensible, then it is of no surprise that nothing disastrous has happened that would grab the headlines, and cause the people in power to wake up and do something. To paraphrase Stalin (or was it Lenin?), an armed security guard holding up two ships because he didn’t get his bonus is newsworthy, but 250,000 crew stranded on ships waiting to get on land (let alone home) is a statistic. It is always someone else’s fault, and therefore up to someone else to find a solution, when something is not right. “Something must be done!”, and yet once the statement of outrage has been made online or elsewhere, the actual practical matter of getting things sorted out is left to individuals or companies.
The pumping, or the spending, of money to prevent the worst of pandemic translating into other problems is unprecedented but the central banks and governments are using very big and unwieldly tools to fix what are increasingly complex problems, a bit like using a sledgehammer to fix an iPhone. Where is the money going?
Leaving aside the huge profits made by those who are involved in the movement of this money around the world, i.e. the banks, and those who can use the highly liquid conditions to make more money from the money they have and that which they can borrow at historically low rates, there is other money, let’s call it the fiscal side of things, which is hard to predict where it will end up.
A simple thought experiment illustrates this very well. Choose in your mind ten people of your acquaintance, as random as possible, of any age and background. Imagine what each of them would do if you gave them a thousand euros. Once you have done that, think about how many of them would surprise you and not use the money as expected, honestly. Then extend that, and think who would benefit: the banks (if they saved it), companies (if they bought shares), shops (if they spent it), or bars, or tavernas, or indeed people they thought deserved it more than they did. Think also of the recipients of presents, gifts, or assistance that this unexpected windfall may have generated.
If I did this with each of you, I could build a database, but it would only be based on your judgement, or imagination. If I could then follow up with the actual imaginary recipients, and then could measure how what you thought correlated with what you would do. But this would largely be irrelevant as the intention could turn out to be totally different from the reality: hard cash focuses, and changes the mind surprisingly. Many left-leaning friends of mine told me in the past how of course they would pay their taxes. These same friends now have come up with many moral (and perhaps immoral) suggestions and excuses why they are not as scrupulous as paying all they should now they have money (or as they would say, experience).
Imagine then how the money being paid to individuals and companies at the moment. Many will have an inclination to save. Many will of course use it just to keep their heads above water. Others will spend it, sensibly or otherwise. How it is spent, or otherwise, affects us all, indirectly, but significantly.
I am not alone, I think, with being sick and tired of this coronavirus. I thought it would all be over by now, or latest by Christmas. I don’t mind a few months being messed around, but now we have to think about the longer-term future, and whether what we took for granted once upon a time will still be there when it’s all over. I dearly want to get on a plane and see my clients, and broker friends, and other contacts in the industry. I dearly want to get on a plane and visit my family, especially the newest member, a nephew, born last week. But the obstacles to do that - physical and mental, emotional and medical – are higher, and as time goes on, my behavioural and thought patterns change. This is the same for all of us I suspect, and translates into how we spend our money, and what we spend it on. This affects shipping, which exists only to satisfy the demands of trade.
I came back from a short holiday this week thinking that the world hadn’t changed that much at all. The freight market had fallen a bit, values had risen a bit (in dry at least), container owners were cashing in on liner route disruption, tankers were once again wondering what the hell was going on. But something has changed, and I feel it. Like me, many people were looking forward to what they can do in the months leading to the end of the year. The uncertainty of the end-game of the coronavirus hovers like a dark uncertain cloud over all of us.
My point about the money, however, is that it as long as it gives the us the illusion of living in a world that hasn’t really changed, we will be lulled into a false sense of security even when we know full well that this is not normal. Once it is all over, new challenges – hopefully nice ones – will arise, and despite evidence to the contrary, so far at least, hyper-inflation and/or bubbles of consumer spending, assets and so on, could easily happen, and will need a lot more action to control than simply turning the money pipe off. The solution? Invest in steel, particularly the stuff that floats: it is inflation proof, it will benefit from a boom, and the fundamentals are good. But I would say that, wouldn’t I? I’m a ship sale and purchase broker. And if someone gave me enough money so I could put my money where my mouth is? Well, that’s an interesting thought experiment too.
Simon Ward
www.ursablog.com