Economics

Paradoxes of today’s economy

[1] The globalisation paradox (the Rodrik trilemma, named after the economist Daniel Rodrik)

It is impossible to maintain hyper-globalisation, democratic politics and national sovereignty at the same time, because:

[a] if we integrate fully into the global market, we must abandon national regulations;

[b] if we wish to retain our national laws, this slows down the global economy, on which our national economy also depends;

[c] the paradox: states are desperately trying to achieve all three objectives at the same time, which leads to political tensions.

[2] The productivity paradox (Solow paradox, named after Robert Solow)

We are experiencing the greatest technological revolution in history (artificial intelligence, automation, digitalisation), yet the statistics show no significant rise in global productivity. Although technology is speeding everything up, per capita economic growth in many industrialised countries is slower than it was during the pre-digital decades of the 20th century.

The latest invention, AI, is not creating jobs in its own sector. Since the launch of ChatGPT, employment in the technology sector has not been rising but falling. The graph below shows two lines since ChatGPT was released.

The white line represents employment in the education and healthcare sectors. The blue line represents employment in the information and technology sectors. Since November 2022, employment in the US IT sector has fallen by 11 per cent: the sector has lost 332,000 jobs and shrunk to 2.78 million employees. At the same time, the education and healthcare sector grew by 13 per cent, adding 3.16 million jobs. Employment in the technology sector is now below pre-pandemic levels. The sector that develops tools for work automation is itself losing jobs at the fastest rate. This decline is, in part, due to simple cost optimisation. Technology companies began cutting jobs following the pandemic-driven boom. However, the scale and duration of this trend suggest that AI is indeed replacing staff in those areas where the technology is being implemented most rapidly. For the rest of the economy and those who have been made redundant, this is a warning sign of what might happen in the future.

[3] The Green Paradox (described by the German economist Hans Werner)

To combat climate change, governments around the world are announcing stricter environmental regulations for the future. The paradox is that these announcements often have the opposite effect:

[a] Owners of fossil fuels (oil, coal) fear that their resources will soon be worthless.

[b] They increase production in the short term in order to sell off their stocks quickly, which causes CO₂ emissions to rise temporarily.

This paradox is best illustrated by the United Arab Emirates’ recent withdrawal from OPEC. The UAE has sufficient capacity to produce more oil and wants to offload it as quickly as possible, without being constrained by OPEC limits, in order to facilitate its transition to a service and tourism-based economy.

[4] We in the West are supposedly living in the best of times in history, but… where is all the money?

This chart shows Bloomberg data comparing the share of corporate profits in the US economy (left) with the share of wages in the US economy.  This is one of those charts that tells us more about the economy than most macroeconomic reports and analyses.

The line on the left reaches a level in the first quarter of 2026 that is unprecedented since 1950. On the right, the share of wages in national income falls to its lowest level in history.

For most of the US’s post-war history, both figures moved in opposite directions, albeit within certain limits. What happens in 2026 is that both sides simultaneously reach extremes. Companies have never had such a large slice of the pie. Employees have never had so little – at least not since these statistics began.

There are several mechanisms behind this. Firstly, automation reduces labour costs. Secondly, market concentration in many sectors enables companies to maintain high margins, and the AI boom generates the greatest profits for companies that employ relatively few people in relation to their valuation.

This is not merely a question of social justice. A consumption-driven economy faces a problem whereby consumers or workers are left with ever-decreasing incomes to spend. 

About South Africa, but not about long-haul travel

This is what life is like in what is supposedly Africa’s richest country. The figures speak for themselves:

  • The economy in perpetual stagnation. According to the OECD, GDP growth has averaged just 0.7 per cent over the last ten years.
  • Official unemployment stands at 4%!!! This is particularly true for young people (aged 15–34), 58% of whom are affected. They remain outside the labour market. This high unemployment rate contributes to crime. STATS SA reports that 64 murders per day were committed in the first quarter of 2025.
  • A large proportion of 10-year-olds cannot read with understanding; the same applies to more than 4 million adults. Although three-quarters of the population have access to the internet, most are unable to use it for more complex tasks.
  • Public debt is not only a financial challenge but also a social one, and is set to exceed 78 per cent of GDP by the end of 2025. The high cost of servicing this debt is limiting the government’s ability to fund social spending and public investment.
  • The energy shortage is another problem that is hampering economic activity and undermining the quality of life in the country. According to the OECD, power cuts reduced economic growth by 1.5% in 2023, when 289 days of outages were reported, compared with ‘only’ 69 days in 2024. The energy crisis is closely linked to the inefficiency of distribution management by the operator Eskom, which is effectively a monopoly in the field of energy supply in South Africa, where coal still accounts for almost 80 per cent of the mix. Eskom is constantly having to contend with criminals who vandalise distribution stations and steal transformers

Visit Kruger National Park, see Cape Town and Table Mountain, and be back in Europe in no time! 

Spirit is running low

 The fuel shortage is becoming increasingly serious. Lufthansa has already cancelled 20,000 flights. Air France has increased prices for economy class tickets by 50 euros per return journey, and the Dutch airline KLM has suspended more than 160 flights. At the same time, the International Energy Agency has announced that Europe will only have enough aircraft fuel reserves to last six weeks. However, the problem is already affecting industries across the globe. All major airlines are currently making massive cuts, particularly Turkish Airlines, which has cancelled nearly 20 routes. There are already companies that simply haven’t been able to cope with the situation. One such company is the US carrier Spirit Airlines, which filed for bankruptcy a few days ago. Although the name of this carrier may mean little to many readers, it is worth looking at the figures. Last year, the company operated more than 300,000 flights, carried 30 million passengers and held a 3.5% market share among US airlines. It is therefore not a small airline, but a national giant with more than 17,000 employees.

If we break down the cost of a typical passenger flight into its main categories, we can see that airlines are heavily dependent on the price of aviation fuel. On average, this accounts for 30% of the total cost.

And that is why Europe finds itself in a particularly difficult situation. This is because up to 70% of the crude oil that is subsequently processed into Jet A-1 aviation fuel comes from the Gulf region. This primarily includes Kuwait and Saudi Arabia, as well as the United Arab Emirates and Qatar. This makes the situation very dangerous, as any further blockade of the Strait of Hormuz will exacerbate these problems on a daily basis. Furthermore, it should be remembered that the availability of aviation fuel affects not only passenger traffic but also freight transport, which in practice is the first to feel the impact of disruptions. This is because, unlike passenger transport, where part of the costs can be passed on to customers gradually, any change in fuel prices for cargo is almost immediately reflected in the freight rates for every kilogram of cargo.

So here’s a handy tip: if you’re planning to fly on holiday, book a package with a price guarantee, as travel agencies such as TUI or DERTOUR are entitled to charge us a so-called fuel surcharge. These are additional costs, in accordance with the rules, which they can impose on the customer 20 days before departure if travel costs rise significantly.

The paradoxes of green energy

Energy is a commodity traded on the markets. This happens every day, at every moment. If the price of electricity falls, the electricity producer stops feeding his electricity into the grid. However, producers usually have no choice, as wind turbines keep turning and solar panels operate automatically. Energy storage systems are expensive and currently have barely enough capacity to store surplus electricity for hours or days when demand is high.

The more photovoltaic cells feed into the grid, the more frequently this problem arises: too much energy is generated precisely when everyone is producing the most. On sunny days, particularly at midday, there is more electricity than the system can consume. The more the sun shines, the more electricity flows into the grid at the same time – and the more frequently the price drops to zero or below. In extreme cases, the energy producer has to pay extra just to get someone to take the electricity off their hands. The following chart shows how the percentage of hours with negative electricity prices is rising in Europe and individual regions – and in which countries the biggest increases were recorded in 2025.

A negative electricity price is not a gift to the recipient. It is a signal that the system has been ‘overwhelmed’ by the surplus. Photovoltaic operators therefore sell electricity at a lower price relative to the average market value, which is not reflected in the final price paid by the end consumer. Why? Because there are too few energy storage operators willing to buy the electricity for free or at a premium and sell it at peak prices in the evening. Whilst the number of electricity storage facilities is rising steadily, the electricity grid is not being expanded to keep pace with the rapid growth of solar, wind and storage. As a result, on sunny days, photovoltaic plants and wind farms are being shut down more frequently because it is not possible to absorb the electricity. According to reports, 8.5% of onshore wind production was curtailed in the United Kingdom in 2024. In Germany, wind curtailment (onshore and offshore) has been above 5% since 2022, and solar curtailment rose to 2% in 2024. In China, this rose to 4.1% for wind and 3.2% for solar energy in 2024; preliminary figures for 2025 suggest over 5% for both, according to the IEA.

A modern 100-megawatt storage facility requires around 0.5 to 1 hectare of land. How much farmland would be needed for the massive offshore projects involving terawatt-scale wind farms currently being built in the Baltic Sea (for example, in Poland)? How much lithium and other metals – mined in the developing world in ways that are far from environmentally friendly – are required for these large battery energy storage systems (BESS)? Is that sustainable? Really?

I don’t think so. But it is politically correct, because it creates the illusion that we are becoming less dependent on fossil (read: Russian, Putin-controlled) raw materials.

 

 

 

Why must raw materials become more expensive?

Gold

For a gold mine to be profitable, the deposit must contain at least 2 million ounces of the precious metal, as this is the only way to ensure production for many years to come. In previous years/decades, new deposits were discovered and supply was guaranteed. However, in the last two years of the gold rush, when gold was being sought everywhere, no major deposits were discovered anywhere in the world! This is the first time in history and, of course, an argument for a further rise in price.

Petroleum

Shale oil is running out in the United States. According to the latest data from the Energy Information Administration (EIA), shale oil production will gradually decline, mainly due to the depletion of deposits. The Permian Basin, one of the largest and most important shale basins in the world, is expected to produce less and less shale oil in the coming years. The impending supply deficit and the ever-increasing demand for this raw material are prompting leading oil producers to seek alternative sources for extracting black gold, especially in offshore deposits. Perhaps this is also the reason for the possible war against Iran, in order to secure reserves there, as in Venezuela.

Metals and rare earths

When it comes to both, the West is completely dependent on China and Africa. The following graph shows how heavily the US depends on other countries when it comes to minerals:

Source: Elements

Particular attention should be paid to rare earths, a group of 17 nearly indistinguishable heavy metals with similar properties that are indispensable in a wide variety of technologies, high-performance magnets, electronics and industry as a whole, as well as natural graphite, which is found in lithium-ion batteries. When Trump imposed tariffs on China, Beijing responded with restrictions on rare earth exports, which only exacerbated the geopolitical situation surrounding these materials.

The data shows that Africa’s share of resources and production of important raw materials is as follows:

  • Platinum: 90% of global resources (mainly South Africa and Zimbabwe). Platinum is needed in catalytic converters and hydrogen technologies.
  • Cobalt: 70-75% of global production comes from the Democratic Republic of Congo. It is one of the key components of lithium-ion batteries.
  • Chromium: 85% of global reserves are of high quality. Required for the production of stainless steel.
  • Manganese: 80% of global resources (mainly South Africa). Key to the production of steel and batteries.
  • Tantalum: 60-70% of global resources (DRC, Rwanda). Indispensable in every smartphone and laptop (capacitors).
  • Gold: approx. 40% of global resources.

At the same time, Africa remains the least geologically explored continent on Earth. Canada spends more than US$2 billion annually on field exploration, while all African countries combined spend just over US$1 billion. This shows that if the African continent were not so politically unstable, many more deposits would likely be discovered there. In addition, more and more mines are being controlled by the Chinese (e.g. the cobalt mines in Congo), which poses a real threat to the West. 

Market situation at the end of January 2026

I. The Magnificent Seven lose their cohesion

Analysts are beginning to divide the Magnificent 7 into smaller subgroups. They talk about the “Fab 4” or “Mag5” – that is, the 4 or 5 companies from the group that continue to drive the market upwards, while the rest have become a burden. Only Alphabet and Nvidia outperformed the S&P 500 in 2025. The gap between Mag7 share prices in the second half of 2025 was enormous. 

Competition in the field of AI has become a wedge that divides the group. Amazon, Alphabet, Microsoft and Meta are spending hundreds of billions on AI infrastructure and data centres. Nvidia dominates the market for the chips needed to power these models. Apple and Tesla are lagging behind. Apple has been criticised for lower costs and slower AI development, while Tesla has suffered from slowing electric car sales. Nevertheless, the “magnificent seven” still have a huge impact on the market, accounting for about 36% of the S&P 500’s capitalisation.

Source: MSN

II. Withdrawal from defensive sectors

The defensive sectors of the US economy are currently the most undervalued relative to high-tech companies in history. Defensive sectors include companies whose services are in demand regardless of the state of the economy or consumer sentiment: healthcare, consumer staples, utilities, including electricity, water and gas companies, and the telecommunications industry. We observed similarly low valuations for defensive companies before the dot-com bubble burst in 2000. Investors were so obsessed with the internet craze that they forgot about the major sectors. The same is true today, with the difference that the above-mentioned glorious companies are benefiting from it.

III. Can precious metals continue to shine?

In 2025, the price of gold rose by 64% in dollar terms. Over the past 5 years, this growth has been 152%, and the price of gold is currently at its ATH (all-time high). Does gold have a chance for further growth? Let’s take the ratio of US stocks to gold. Every time gold reached its 1929 peak of 1.54 gold, it provided a solid foundation for growth in the gold market. 

Factors that point to a further rise in GOLD prices include geopolitical tensions, interest rate cuts by central banks, mistrust of the bond market and the weakness of the US dollar. Another such factor is high demand from central banks. In 2025, after a hiatus of almost 30 years, central banks hold more gold than US bonds. However, we must remember the dangers. These include a possible recovery of the dollar, the return of investors (at least temporarily) to the bond market, and young investors choosing Bitcoin over gold. It should also be noted that gold has grown by an average of 11% per year since 2000.

2025 was also a phenomenal year for silver. The metal rose 146% in dollar terms. This growth had a solid foundation, as it was driven by demand for silver in the economy and the limited availability of the metal. Another important factor was that the US classified the metal as strategic and China (the world leader in silver processing) restricted its exports. Is silver expensive now? At over $90 per ounce, silver is at an all-time high. However, compared to M2 (a measure of money in circulation that takes into account funds in current and savings accounts), this value is well below its historical peak. If the price of silver had reached a level similar to that of 2011, given the growth in M2, the price would be $97. But if it were the same as in the 1980s, an ounce of silver would cost approximately $531!

Silver therefore has potential for further growth. This may be driven by increased demand from industry, the aforementioned export controls from China, or the fact that the silver market is relatively small and demand for silver is high. Since 2000, silver has grown by an average of 10.4%. The 146% growth projected for 2025 is a significant deviation from the norm. It is also worth noting that the gold-silver ratio, i.e. the ratio of how many ounces of silver we can buy for one ounce of gold, is currently at a low level of 50. This indicates that silver has become significantly more expensive compared to gold over the last 30 years. Speculators, industrial lobbies and politicians, who would benefit from a fall in the price of silver, could have a negative impact on the price of the metal.

IV. Refinanzierung von US-Schulden

The high price of precious metals is mainly due to capital migration from bonds. The US debt will have to be repaid in 2026. This problem will be solved through refinancing, i.e. issuing new bonds (taking on new debt) to repay bonds that are approaching maturity. The last two times we saw a similar situation – during the GFC, the global financial crisis, and the “Covid recession” – interest rates were at 0%. Currently, interest rates are at 3.75%. The higher the interest rates, the higher the borrowing costs and the burden on the government, which is already enormous. In the current fiscal year 2026 (since October 2025), the government spent $179 billion in just two months to service its debt. This is the second largest expenditure after social spending.

 

V. Die Globalisierung des Renminbis

The dollar’s share of global reserves (black line) is falling in favour of gold. The decline in confidence in the US financial system will not go unnoticed by its biggest competitor, China. Beijing is expanding its financial payments network and developing an alternative to the US-led Swift system. The Middle Kingdom is lending more and more money to developing countries and encouraging international companies to issue bonds denominated in Chinese currency. About half of cross-border transactions in China are currently denominated in its own currency, compared with almost zero yuan share in such transactions 15 years ago. As a former member of the Chinese central bank said, the government wants the yuan “to be seen as a strong currency that is used more globally”. The yuan currently accounts for 8.5% of global foreign exchange transactions. That is a small amount compared to the dollar, which accounts for 89% of this category. However, the message is clear: China will fight to strengthen the role of its currency in international trade. This is another area in which Beijing is challenging the United States.

 

Silver flying high 

The price of silver has performed very well since the beginning of the year, due to both investment and industrial demand (mainly due to the production of solar panels by China), but it was only recently that information emerged about a real decline in supply in this market. As a result, the silver price hit new all-time records.  

The supply crisis was to begin with India and the Diwali festival there. At this time, Indians bought millions of rupees worth of jewelry to worship their goddess of wealth, Lakshmi. In previous years, this demand was for gold and the supply came from Asian refineries. This year, however, was different. For months, there has been speculation on social media in India that after such a big rally in gold, it is now time for silver. The breakthrough was to be the statement by banker and investor Sartak Ahuja, who in one of the videos targeting his 3 million follower community, stated that the silver to gold price ratio, currently 100:1 makes silver the obvious choice this year. After the video with the statements was released, Indians started buying silver massively, leading to the first silver shortage at the largest precious metals refinery in India. As per various Indian sources, the demand for silver was huge, never seen before, leading to a situation where Indians had to pay 8 dollars more for an ounce of silver than in the world markets. 

Due to the fact that the Chinese refineries were not working at the time because of a week’s break (public holidays), demand from Indian refineries shifted to the West and in particular to the LBMA (Bullion Stock Exchange in London) in London. There it quickly became apparent that 83% of the accumulated silver in LBMA warehouses is in the hands of ETFs and cannot be lent out (the refinery borrows the silver, processes it and sells it, earns a margin on it and then buys it back and returns it to their lender). Considering that there are 790 million ounces of silver in the LBMA, only 150 million ounces can be made available to refineries and other institutions. Thus, the low availability of metal led to an increase in silver rental costs to 39% per year if the rental period of the metal is 1 month.

As Metal Focus reports, the cost of borrowing silver for one day (overnight) rose to 200%, and the difference between the buy and sell price (spread) rose so high that trading became impossible. Although there are currently already forecasts for higher silver prices in 2026 (Bank of America is betting on $65 per ounce in 2026, which seems very likely), the current crisis is expected to subside within a few days when the LBMA finally delivers silver from New York and China.