Cuba’s car mechanics are legendary.
Starved of spare parts and decent manuals by years of sanctions and poverty, they have developed an unparalleled reputation for resourcefulness.
Maria Pérez writing for the Naples Daily News tells the story of Oscar Rodríguez:
Rodríguez proudly shows off the new steering mechanism for a 1947 Nash he pieced together with metal, and Toyota and Mitsubishi parts. A 1956 Ford Fairlane gets a new Toyota engine. Rodríguez cut a 1954 Jeep in half, extended it nearly 18 inches, added Soviet-era Volga steering, and plans to get it running with a used 1994 Jetta engine — an engine already attached to a Hyundai transmission.
Cars from the forties and fifties – some in pristine condition, others barely held together by inappropriate parts – are a not uncommon sight on the streets of Havana.
The Coronavirus Pandemic has seen global supply inventories and supply chains dry up, with few industrial or manufacturing sectors left unaffected.
Lockdowns, border closures, quarantines: none of these are conducive to finely honed production and logistics.
Central banks are still trying to tune the violin, not realising that the ‘Covid’ has just slammed it through with a sledgehammer.
The baseline assumption that the analysts at Moody’s are working under is a normalisation of economic activity in the second half of the year. That’s a fair baseline, and not completely far-fetched, but it surely relies on a sharp reversal in the number of new cases and an abrupt cessation of the second order effects that the pandemic is already causing.
As Michael Snyder covered earlier today, this is not your ordinary market correction. Don’t be in any doubt: the market is absolutely freaked out. The Dow went into a bear market at twice the speed of the previous fastest correction, namely just before the Great Depression. Brent crude has dropped from a 52-week high of just over $75 to below $30. Meanwhile, the SOFR has dropped from 1.6% to 0.26% a month ago, while the US municipal bond market is the middle of blowing up.
In light of absolute carnage in the global economy, we should be getting ready now for a panoply of second-order effects:
- Corporate debt defaults
- Business bankruptcies en masse
- Mass layoffs
- Skyrocketing unemployment
- Bank and financial institution failures
- Sovereign debt defaults
- Absolute paralysis in international trade
- Massive rise in protectionism and onshoring of production
- Civil unrest and revolutions, terror regimes, mass repressions
- Terrorist organisations and organised crime filling in the gaps
- Major interstate or civil wars
- Secondary pandemics, worsening of sanitary conditions and increase in associated disease
It is not difficult to imagine the causal chains between the pandemic and any or all of these second-order effects. None of these are conducive in the short-to-medium-term to a resurgence of globalisation a la 2019.
If so, regardless of whether you are in light manufacturing, servicing, repairs or the trades, massively disrupted supply chains are going to stretch your resourcefulness to the limit. Stocking up at your local trade stockist, electrical parts supplier or hardware store might not be quite as straightforward as before.
The days of just throwing stuff out are also, I suspect, about to draw quickly to a close, as you learn the benefits of having actual inventory or an elderly aunt with a basement full of stuff.
Nations and local communities may well have to make better use of their own resources as the seemless supply of goods from overseas suddenly gets fragmented, choppy and broken. Recycling may well be motivated less by concern for the planet than by sheer necessity.
While the return of production to Europe and the United States under ordinary circumstances would be something greatly to be welcomed, these are not ordinary circumstances. Western governments have been preparing for peace in times of peace. At the worst possible moment, Western Europe was long financialisation, short gold, long globalisation, short national production, long social liberalism, short rigor in education, long paternalism and short patriotism. The cognoscenti reorientated their states to the knowledge economy, open borders, third sectors, public services and money-printing, happy for future generations to foot the bill for their vapidity, shallowness and profligacy. They tweeted hypocritically about toxic waste on smartphones produced nicely out-of-sight in Inner Mongolia and dumped forgotten in Nigeria. If ever there was a people unprepared for the harsh and brutal facts of life, it is Western Europeans circa 2020.
But strife is a great teacher. Under some scenarios, there could be tremendous opportunities for those who can make stuff. If governments reorientate towards tariffs and national production, without going full Havana, we could witness a tremendous boom in economic localism, while retaining some of the benefits globalisation.
But there are other ominous scenarios that our analyst friends should be considering fast, more existential ones that would render debates about the ideal structure of the global economy moot.
And the probabilities of some of these occurring are beginning to look a little less than low.