The Second Dark Age

Rudi Bogni

The Second Dark Age It is traditional in the summer issue of some publications to include some light fiction for the beach. In this tradition we offer the following …

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he second Dark Age started on 4 August 2008. It was a sunny, hot and very humid day in Washington, D.C. where George Bush, in the final months of his Presidency, had returned from his holidays to welcome the new President of the European Union, his old friend Tony Blair. Bush was woken up early to receive a longawaited, but not necessarily welcome, intelligence report: that evening in Pyongyang, Kim Jong-il had been shot by a deranged bodyguard and a junta had immediately taken over the three key offices of Chairman of the National Defense Commission, Supreme Commander of the Armed Forces and Chairman of the Workers’ Party. After 36 hours rumors started to emerge of disturbances in the North Korean capital. In the surrounding uncertainty the dollar shot up and new short-term carry trades were piled up quickly. After 48 hours and the first news of shooting among different units of the northern armed forces, the first refugees moved across the Chinese border. The trickle soon became a flood. After a week of unsuccessful containment both the Chinese and the Americans asked the Seoul government to intervene militarily. The Chinese

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however set as a condition that the American troops should remain confined to their barracks in the South. In a month it was all over. The Japanese, who had waited on the sidelines, now woke up and asked the South Koreans to abandon the nuclear weapons capability inherited from the North. This Seoul refused to do on grounds of world instability created by the fall of the North. While these quadrilateral negotiations were ongoing, taking advantage of the fact that the

world attention was focused elsewhere, the Taiwanese Parliament unilaterally declared independence. The Chinese leadership, despite carefully laid out plans, panicked and, in order to prevent American intervention, shot down several US satellites, crippling communications, air traffic worldwide as well as the international payment system. Both powers were on the brink of nuclear Armageddon, but held back from it. The military situation froze, while shuttle

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diplomacy took place at the snail-pace allowed by impaired flight possibilities, but the dollar collapsed. The Fed tried and pumped liquidity into the system to avoid panic, but the liquidity moved around the system in strange ways. Spreads behaved in a bizarre, unexpected pattern, depending on which markets were operationally viable and which were not. Those hedge funds that could technically do so reversed their carry trades, those who could not were frozen into insolvent inactivity. The Swiss franc surged. Operators who could move funds bought anything which had the marks of sustainable liquidity and a settlement system which still worked. They borrowed the liquidity that the Fed had pumped into US banks, but could not have access to many of their own assets. Chief credit officers tried to devise a new paradigm to assess situations where entire classes of assets were no longer fungible and margin calls made no sense. China, Korea, Taiwan and Japan outbid each other to procure oil for stockpiling, but had to go in roundabout ways to pay in the face of a crippled international payment system. The USA froze all Chinese, as well as Korean and Taiwanese assets. US dollar clearing of reserves was no longer an option. Shady intermediaries came out of the woods and made a fortune laundering money through the legal maze. Emigrants’ remittances from Europe to Eastern Europe and Africa, from the Gulf to Asia, from the USA to Mexico and Central Americas were stopped to allow for manual processing of large remittances. Disturbances started in Romania, Ukraine, Pakistan, Indonesia and several Indian states. Local riots took place among immigrant workers from the Philippines in Hong Kong and Pakistanis in Dubai, brutally repressed by the police. Salary payments could not be carried out in several European regions. Striking personnel sabotaged an electricity distribution centre in Italy. Although it was by now the first week of October a heat wave was on and the unusually high seasonal demand coupled with the sabotage triggered a Europe-wide blackout. The situation

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recovered, but not before several deaths in hospital intensive-care units. Two days later a new blackout of uncertain origin followed and the unstable provision of electricity continued. Cash availability was running out across the world. Organized crime, used to a cash economy, was able to buy up assets at knocked-down prices. In the USA, President Bush called for emergency powers and decreed that elections could not take place due to the state of global emergency and would be postponed sine die. China was not in a position to worry about its client states in Africa. Zimbabwe literally ran out of cash and oil and a Volkerwanderung took place across the South African border. Johannesburg was surrounded by refugee camps. Only the assistance from the Australian Wheat Board prevented mass starvation. European far-right politicians seized the

longer more liquid than unlisted. Moreover the ability to transact outside compromised markets had a new and stronger attraction. In the winter, for security reasons, the USA drastically restricted travel into the country. Furthermore, to add to the unrest among immigrants unable to send money home to their starving families, many of them were deported from the Gulf back to South-East Asia. In this period Europe suffered more than most. The large numbers of people previously protected by the social “net” were simply unable to fend for themselves. But then the first few cases of a new virus, unconnected to avian flu, started to appear in Hong Kong. The city and its territory were promptly cordoned off with disastrous implications for its financial system, but the spread of the highly transferable virus could not be con-

Chief credit officers tried to devise a new paradigm to assess situations where entire classes of assets were no longer fungible and margin calls made no sense moment to organize bands of impoverished locals and immigrants alike to launch violent attacks on Chinatowns in every European city. Social infrastructure broke down, and so did law and order. The euro crashed further than the dollar. Only in Japan, Switzerland, Canada, Australia and, singularly, in Turkey, did relative calm prevail. Surprisingly no military/political adventure was attempted by Russia or by Israel or its neighbors. After a first crash, stock exchanges showed increased volatility due to the inability to hedge through the derivatives markets, but there was a lack of sellers, given the paralysis of fund and pension fund managers and therefore the floor was never hit. Private equity counter intuitively flourished: in a world of declining financial transparency and increased illiquidity, listed equities were no

tained. Between 2009 and 2010 120 million people died of the disease and 50 million more of the famine which it brought along. Proportionally it was much less than the impact of the Black Death in the past and it was largely confined to the poor of Asia and some parts of Africa. It did not trigger any major land redistribution or change in the terms of trade between labor and capital, as the Black Death had done in Europe. In this year 2020 in which I write, most European states are nominally in the hands of fascist governments, de facto they are controlled by organized crime. The financial, banking and insurance systems, which had collapsed, are now a shadow of their former structure. Impermeable borders have not been re-established and import barriers have not been brought back, not because of any liberal inclination, but simply because

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RUDI BOGNI

He used to be a convertible bond trader turned hedge fund manager, who had ample time to develop his philosophy of life, when his fund went bust in late 2008

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organized crime helps itself to whatever the economy produces and it no longer needs the state to facilitate low-earning activities such as contraband or slave-trade by artificial barriers and/or protectionism. Most African states, except for an incredibly resilient South Africa, and several Asian and Latin American states are now failed states with no social infrastructure to speak of. The United States was the fastest in recovering its financial, industrial and agricultural infrastructure, albeit at lower levels than in 2007, but at a price. A new faith-based sect, previously unheard up to 2010 has evangelized the country and re-built it as a green cyber-democracy. The term cyber is probably an exaggeration, because the communication infrastructure has deteriorated dramatically since 2007 due to lack of investment and to ideological constraints. Transportation is entirely based on bio-fuels, which has aggravated worldwide famine and caused temporary food shortages even in America itself. Gun ownership has finally been banned in a political trade-off which has seen abortion made illegal. Crime however has not abated. The new weapon of choice is a contaminated syringe. Smoking has been totally banned. Alcohol consumption is tolerated, but only domestically. Drug consumption is part of the ritual of the new cult leader, whose house in the newly rebuilt New Orleans is the new grand temple. He used to be a convertible bond trader turned hedge fund manager, who had ample time to develop his philosophy of life, when his fund went bust in late 2008. Voting rights start at age 11 and expire at age 35. Euthanasia and steam-cell research are still not allowed, but access to medical care is terminated at the end of reproductive life for female citizens and at age 45 for men. Huxley is compulsory reading for all practicing members of the sect. The new constitution and Al Gore’s video are the main learning subjects in schools together with a revised version of creationist theory. The lack of Chinese imported goods created a major penury in the early part of the decade, but

this was overcome by Mexican production, aided by the mass immigration of Indian and Chinese engineers into that country. China could have recovered faster thanks to the conversion from exports to internal consumption and the development of a more efficient, truly capitalistic financial system. Unfortunately unfavorable demographics and the need to invest massively in military defense have curbed its growth. A new cold war has frozen Asia into two camps, Korea and some of the lesser developed Asian states on one side, China with Japan and Vietnam on the other. The Gulf oil countries sustain themselves economically and politically thanks to the rivalry between the two Asian groups. Oil remains the most important energy provider for Asia, despite decreased demand from Europe, where GDP has plummeted, and from the USA. Missionaries from the new US cult have, however, started infiltrating Asia. Monasteries have been built, funded by drug monies. Youngsters disillusioned by the materialist mores of China and India and those upset with the moral implosion of Europe are easy to proselytize. The raging debate in the countries under the spell of the new cult is how to fund a crusade to redeem the poppy fields of Afghanistan, which in recent years had been totally converted to ethanol production, and who should lead it. I am now 73 years old, as I write. When trouble started in 2007 I was 60 and under the illusion that it would all be confined to Asia. I felt then profoundly European, with no reason to move. After that, it was too late. More than the fear of being blown up by a terrorist, my main worries were then the illiberal tendencies in society and the prevarication of confessional faiths at the expense of my rightful inheritance from the European enlightenment. How little did I know of the future! Luckily when it all started to go wrong, my savings were largely in cash. So I have not gone begging for food and I can pay for the couple of young thugs who look after my physical protection. Medical care is something else. When I shall get seriously ill, it will be curtains. But then, having known the most vibrant period in human history, who cares to live through a second dark age? Wilmott magazine