The new economic disorder

The post-Covid economic disorder has defied all fundamentals of economic theories and logic. In fact, economics without tears doesn’t make sense anymore.

Prices of goods and services are rising by the hour and days, demand is still high and no sight of a slowdown. Cost of building materials going up but more building development taking place. There are more job vacancies

Read full article.advertised, but high labour shortages in all sectors, and airports, and hotels cannot get staff to fill vacancies.

Despite the high cost of airlines/ferry tickets, coupled with the fact that operators are operating below pre-covid capacities, we have had the highest summer holiday travels since 2018.

A recent energy watch report indicated a sudden increase in the generation of renewable energies and an increase in the usage of electric vehicles globally. One would have expected that there would have been a consequential decrease in crude which would have led to the decrease in prices but rather crude prices are increasing.

Governments across the world have resulted to usual tools – using Central banks to hike their Interest rates. In July, US Federal Reserve raised the target range by 75bps to 2.25%-2.5%, hoping to dampen borrowing, but uptake of mortgages is still high, and property prices and rents also galloping.

With all extreme climate phenomena reported globally, farmers have been reporting bumper harvests and resulting in cheaper farm gate prices, but the cost of food in our towns and cities' markets is high. Why?

The currency market, apart from the Russian rubbles, all major currencies have depreciated to their historic low, since the beginning of the war in Ukraine, all major currencies have been dropping against the dollar, and the Ghanaian cedi has dropped by 50% against the US dollar, it is now considered the world’s second-worst performing currency after the Sri Lankan rupee. Yesterday 06/09/2022, the British pound recorded its biggest monthly fall against the dollar since 2016.

Inflation across the board is at a historic high in most countries, a recent BBC economic analysis report predicted that the rising energy prices could push UK inflation to as high as 18% next year. This will be the highest rate in nearly 50 years. Ghana's inflation rate in July 2022, was 31.7%, the highest reading since December 2003. The US is 8.7% in July of 2022 representing a 40-years high, expected to increase further.

It has become obvious that the theory of demand and supply, is no longer holding anymore, and the tools used by governments and economic experts to curb inflations are not working either. Just like the covid, we are in unknown territory.

Clearly, a new economic paradigm shift has become necessary, we need a new definition for Inflation – is it still more money chasing few goods?

The inconsistencies of the credit rating agencies are another disturbing factor, we need to start questioning the rationale behind these credit rating agencies' methodologies. Down-grading already struggling countries to make it more difficult to borrow.

Why should these developing economies especially African countries suffer from a pandemic for which they have no idea of its origin, while countries like China benefit from huge sales of PPP and other medical equipment?

Another disturbing trend is the sudden strangulation of countries with debt distress this year. Even countries, that were ranked to be with the fastest growth rate, good economic indicators, etc, have all fallen and running to the IMF for bailouts.

A recent IMF report indicates that over half of the world's countries are facing a certain level of debt distress and need a bailout from the IMF.

Historically, IMF, always comes with stringent austerity measures, and we know, this will not be an exception. They will definitely tighten them for already suffering masses.

We have a lot of questions to be answered

- How do we curb inflation, if employee salaries have to increase to match increases in prices?

- How will the government finance its infrastructure and services bill if it has to reduce taxes?

- How can the government cope or reduce its debts if they have to borrow at a higher cost?

- How do businesses invest in the future while high-interest rates are rising especially?

-How do we plan with so many global uncertainties and no end in sight for the Ukraine-Russia conflict?

- How does the individual plan for the future, if they have to use all their salaries to pay for basic existence?

- How do governments support their citizens without making inflation worse?

- Should the government tax companies who have profited heavily from the Covid pandemic? e.g. Amazon

- What do we do with countries and companies that are making exceptional high windfall profits

The challenges facing our government, politicians, central banks, business, and economists are enormous and perplexing and require very cool-headed leaders to help us sail through these terrible times.