Mega-threats, poly-crises, and the "confluence of calamities"

 

Call it what you may, mega-threats, poly-crises, or a "confluence of calamities", it is all the same. We are facing interconnected risk events that may lead to greater potential market downturns. These are the new risk buzzwords, but all macro risks have usually been a combination of events that create global shocks and not just one-off events. For example,

• The GFC was a global problem because of the global savings glut that moved too much capital into the US housing market.
• Oil shocks are closely tied to geopolitical crises and wars and not an inability to find oil.
• Pandemics are worldwide problems given globalization and travel. Solving a pandemic has economic consequences.
• The growth in China is exacerbated given political ambitions which limit policy coordination.

What makes the current environment different is debt and inflation. Inflation constrains policy choices. Debt constrains policy choices. In a constrained world, a simple crisis may not be solved with creating another crisis. Risks increase because response choices decrease.