Rabobank: 2021 Spookily Corresponds Exactly To….1937

By Michael Every of Rabobank

Failure Upwards

So, first day back to work in 2021. First things first: how can one summarize 2020? The first instinct is perhaps the special swearing symbols used in the Asterix comics. After careful consideration, however, the best article I have found to explain what happened last year was this, from Unherd Magazine: 2020: the year the elites failed upwards. A few choice highlights include:

Elite institutional authority is everywhere collapsing in a bonfire of self-immolation even as elite institutions become ever more powerful….The iron law of the American elite is that as long as everyone fails together, everyone fails upwards. Regime loyalty is the herd immunity of the ruling class, a protection against the consequences of their own failures. This is why the loss in authority that manifests in the “crisis of experts”, while real, doesn’t diminish their power. But it’s also why the regime has to become more ideological and nakedly coercive — for a kingdom of experts without reliable expertise falls back on propaganda and state power.

There are so many examples of this to draw from that one does not know where to begin. Yet how could we not look at markets too? How *they* continue to fail upwards! Risk could not be much more on, and the USD remains as unloved to start 2021 as it was to end 2020.

Of course, everything else is still just failing. The new UK variant of the virus is spreading at an exponential rate to the extent that lockdowns are likely to be necessary until Easter. There is even a warning that the South African variant may be immune to the vaccine. Certainly, a slow vaccine roll-out underlines the risks that nature will stay one step ahead, and consequently the global economy several steps behind.  On which, it’s curious to see how national approaches to vaccination vary.

In the UK, a 21-item list of certification, including human resource rather than medial expertise, is required before a retired medical professional can volunteer; in the US, Forbes reports over half of sampled healthcare workers are refusing the vaccine, and the New York distribution is deeply politicized; and in France a panel of 35 citizens will be chosen at random today to make up a “citizen collective” responsible for vaccine strategy(!) In short, none of these countries seem likely to be vaccinated to the required level for many months and the mutation clock is all the time ticking away. By contrast, Israel has already vaccinated 10% of its population, to the extent that it is now running out of vaccine: one anecdote is of a nurse with a spare dose left at the end of the day seeing a pizza-delivery guy walking past and giving him the shot rather than wasting it.  

Meanwhile, China is seeing more pockets of Covid outbreaks again, as is South Korea and Thailand. Regardless, markets continue to fail upwards as exponentially as the virus cases. Please don’t focus on a likely Thai lockdown; or The Australian newspaper explosively repeating a US accusation about Covid’s suspected origins; or that the hoopla around the Ant Financial IPO has gone from ‘it’s coming!’ to ‘it’s on hold’ to ‘it’s cancelled’ to ‘it’s being broken up’ to ‘Jack Ma is missing’. Just keep taking that risk!

Which is of course what the EU did at the end of 2020 when it (or rather Angela Merkel) decided to show “strategic autonomy” means snubbing the incoming Biden administration that provides its defence to agree a huge bilateral investment deal with China (the CAI). The criticism of this economic, financial, political, geostrategic, and even moral logic has been withering: as one expert bewailed to me, “We failed to prevent German big business co-opting German foreign policy, and German foreign policy co-opting EU foreign policy.” Indeed, unless the European Parliament pushes back, EU Merkelcantilism it is, and all the more so now the fly-in-the-ointment UK has finally left. At least that backs a stronger EUR short term –as in Japan, which is not a compliment– but critics suggest a far weaker EUR –and EU– are both likely over the longer term:

International trade and investment — for all the conceits that many economists and lawyers seem to have about these issues — are inherently political. And they have become even more political in the context of China’s rise: Not only because of the use and abuse of multilateral rules by non-market economies (which is what defenders of CAI tend to focus on), but also because of the fundamental difference in values that should define the goals of multilateral cooperation. Contra the inclination of technocrats to reduce values to labour and environmental standards, values include first-order principles of democracy, liberalism, pluralism, and more. And international trade and investment, especially in a world where interdependence can be weaponised, have become just too important to be left in disciplinary silos or technocratic bubbles. CAI is not “just” a matter of investment, or even standards; it is a matter that has potentially serious security implications. It begins to dramatically alter who we are as a society, community and people. China has, perhaps, more than ever in 2020, given Europe ample evidence of these differences.

Anyway, that was 2020, the year of upwards failure: what does this year hold? 2021 starts with the same fears about military action vs. Iran as 2020 did – which will likely be ignored as they were a year ago unless Iran does something very dangerous. This week will then see quite the US political show with huge consequences for 2021 and 2022. Tomorrow has Georgia’s two run-off senatorial elections that will determine who controls the senate: and then Wednesday has what is likely to be a circus in D.C., which deserves more than the space left here to cover, ahead of the end of US President Trump’s term in office on 20 January..

The future is then unwritten. However, calendar 2021 spookily corresponds exactly to….1937. A year where in the US, The Memorial Day Massacre saw ten union demonstrators shot by the police, and where President FDR tried (and failed) to pack the Supreme Court to get New Deal legislation through Congress; where in the USSR, Stalin carried out his Great Terror, which killed over a million loyal Soviet citizens; where in Germany, Hitler started to talk about building “lebensraum”, not just the new roads VW was formed to build a “people’s car” to drive on; where Japan invaded China to no major Western resistance and carried out the Massacre of Nanking; and where in the UK Neville Chamberlain became Prime Minister – the guy who a year later promised “peace in our time”. Oh, and where the Fed raised rates, wrongly, pushing the US economy back into recession again, and dragging the S&P down around 40%.

Luckily, the latter two are risks we don’t face in 2021 given our dedicated policy of elite failure upwards – so why worry about anything else, eh? Happy New Year!