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Professor Malinen: The Euro Won’t Survive This Crisis
by Jan Nieuwenhuijs, Voima Gold:
To better understand the economic consequences of the Corona pandemic, I wanted to interview an expert on economic crises. Namely, Tuomas Malinen.
Malinen is the CEO and Chief Economist of GnS Economics, a macroeconomic consultancy. He’s also an Adjunct Professor of Economics at the University of Helsinki. He has studied economics at the University of Helsinki and New York University. His focus is on economic growth, economic crises, central banks, and the business cycle.
“gold may become the only safe haven this time around”
Jan Nieuwenhuijs (JN): I have read your blogposts and quarterly reports for some years, and all this time, you have been very bearish on the economy. Could you please elaborate on how you got so bearish?
Tuomas Malinen (TM): I remember me and my ex-wife were in Lapland, which is in the Northern part of Finland, on New Year’s Eve of 2016, and I said to her, “you know, there is something wrong with the world economy, but I just can’t put my finger on it.” She’s a neuro-psychologist, and she was reading Thinking Fast, Thinking Slow by Daniel Kahneman, an excellent book, which is about biases in decision making but also in forecasting. She asked me, “how certain are you that your forecasting models and views are correct?” When we got back, I basically threw all the data we had at GnS Economics in the gutter and started to collect a whole new data set on financial markets and the global economy. After about a month, I had quite a consistent picture of the global banking sector and financial markets, and it looked horrible. I couldn’t see any actual recovery after the crisis of 2008 in the global banking sector.
The massive influence of central banks on financial markets looked really bad as well. Everything was in a bubble. And then we kept digging. By June 2017, we figured out that China was running the world economy almost entirely with massive and unsustainable debt stimulus.
We got really bearish about how things could go forward. We had a long discussion within our small forecasting team, of only three persons back then, about what would happen. I thought that central banks would never bail-out the asset markets, while my colleagues said that they would do just that. Well, they were right, and this was also reflected in our forecasts. We always asserted in our reports that such policies were possible.
Since then, I’ve made covering these developments my main job and we have six partners now at GnS.
JN: How did the spread of the Coronavirus change your forecasts?
TM: It radically altered them. We were actually one of the first in the world to warn about the grave implications of the virus on the economy in late January, but the gravity of the situation even surprised us. We didn’t fully understand that it would be so heavy all over. In China, we could see a complete lockdown in only one region, namely Hubei. But now the epicenter is in Italy. That caught us by surprise.
We’re in the process of updating our growth forecasts. Early March, we published a report called “The Black Swan” in which we provided three scenarios for the global economy, but they are all pretty much outdated as the virus spreads so fast.
JN: You are saying the epicenter is now in Italy, but from the statistics I see I think it’s possible the United States, the Netherlands, France, the UK, Spain, India, can all turn into Italy, or not?
TM: Yes. That’s the scary part. This will bring our economies to their knees. We first considered it to be a trigger, but now it has become a driving force for the near complete collapse we’re seeing.
JN: How will it influence monetary policy and politics?
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