--- title: "The second wave and a global dystopia | Tuomas Malinen | Negotiator 43" summary: "GNS Economics' Tuomas Malinen and Sami Miettinen work through the economic consequences of the coronavirus second wave and arrive at the episode's central worry: every solution being offered to the crisis is a centralised one. The economy already collapsed in the second quarter, and that collapse has been prevented from realising through bankruptcy moratoria — a carpet pulled over the chasm. The core of the discussion is central bank digital currency and the Chinese model, in which private payment systems are forced to settle in central bank money, opening a path where the commercial banking system becomes unnecessary. Malinen closes on the question the episode keeps returning to: will we let fear take away freedoms bought with tens of millions of lives?" datePublished: 2020-10-29 dateModified: 2020-10-29 originalLang: en section: economy sections: ["economy","society"] authors: ["Sami Miettinen"] tags: ["Negotiator","EP43","Sami Miettinen","Tuomas Malinen","GNS Economics","Central bank digital currency","Banking crisis","Bretton Woods","Liberty","Coronavirus crisis"] canonical: https://ai.neuvottelija.com/ep43-koronan-toinen-aalto-ja-globaali-dystopia-tuomas-malinen/ --- # The second wave and a global dystopia | Tuomas Malinen | Negotiator 43 # The second wave and a global dystopia | Tuomas Malinen > **Summary:** > In episode 43 of the Negotiator channel, Sami Miettinen and **Tuomas Malinen**, CEO of **GNS Economics**, speak in late October 2020 as the coronavirus second wave arrives. The episode begins with epidemiological forecasting and economic figures but turns quickly elsewhere: what worries Malinen most is not the crisis itself but that **every solution offered to it is centralised**. At the centre are central bank digital currency, China's forced settlement of private payment systems in central bank money, and the IMF's proposal for a new Bretton Woods — and finally the question of which freedoms we are prepared to surrender in a crisis. --- ## The second wave arrived as modelled Malinen recounts that GNS Economics warned of a second wave in early May, in a special report resting on modelling by the **University of Minnesota's infectious disease centre**. That in turn drew on the Spanish flu, which began in spring 1918 and whose second wave started in September 1918. Malinen read several articles on the Spanish flu at the time, and the worst of the scenarios — the "apocalyptic" one — has now, in his view, come to pass. One important difference exists, fortunately. In the Spanish flu the **second wave was the deadliest**, whereas mortality has now stayed markedly below the spring wave. The Spanish flu also brought a third wave in spring 1919, after which it faded into something resembling seasonal influenza. ## There will be no V-recovery On the economy Malinen is direct: there had been talk of a V-curve, but it can now be said there will be no V-recovery. The W that Miettinen suggests can be hoped for, but in Europe **the recession began in the final quarter of the previous year**, and an economy that has sunk into recession does not suddenly rise out of it. What particularly frustrates Malinen is that the warnings existed. The epidemic left Wuhan after mid-January, and GNS warned clients globally as early as late January: information had emerged from China that the share of asymptomatic carriers was so large the disease had probably already spread beyond Wuhan. On the last day of January *The Lancet* published modelling concluding that a single indication of spread beyond Wuhan meant it would go through the globe. Malinen emailed the Finnish government in early February. **Two preparation windows were lost** — first early in the year and then over the summer, when warnings of a second wave were already circulating. Instead the focus was on an imaginary lifting of the economy. ## The economy has already collapsed — the carpet over the chasm The sharpest economic argument in the episode is that the situation is not understood: **the economy has already collapsed**, and the collapse began in the second quarter. Its realisation has been prevented artificially. In Finland creditors still cannot file debtors into bankruptcy; in Italy debt moratoria remain in force and banks may not pursue their customers. At the same time states have issued vast quantities of debt and central banks have pumped money into the economy. Malinen's image is apt: over the enormous chasm into which the world economy fell in the second quarter, **a carpet has been laid** — and whoever steps on it falls through. The second wave has brought matters to a point where it is impossible to deny that this ends badly. Miettinen supplies Finnish figures: over 20 billion euros of additional debt, which is 40 per cent of a fifty-billion budget and around ten per cent of GDP. At the same time Basel requirements have been suspended and stress tests are not being run. Malinen's conclusion: **we do not in practice know the state of the banking system** — only that it is bad, and that it cannot be measured. This yields the episode's recurring image, which Malinen credits to a friend: people think it is midday when it is already six in the evening. ## A banking crisis in the spring Malinen expects a European banking crisis beginning in spring. Spanish and Italian unemployment figures are, in his words, in ruins, and in the spring the recapitalisation need of Italian banks alone was estimated at some 400 billion — now probably 600 to 700 billion. Italy has nowhere to take that money from. ## Central bank digital currency and gosplanisation From here the episode turns to its main subject. **Central bank digital currency** has been discussed actively for only two or three years, but the pace has suddenly picked up: the central bank of the Bahamas has already issued one, and the Financial Times has covered China's system. The FT article used the coinage **gosplanisation**. Malinen explains it: **Gosbank** was the Soviet central bank, which determined entirely which projects received financing. Miettinen describes the Chinese development. China has highly developed private mobile payment systems — **AliPay and WeChat** — through which an enormous volume of micropayments flows in real time. Now the Chinese central bank has in effect said these must settle in central bank money. Miettinen voices the polite version: surely you have nothing to hide in your purchases, even if a small trace remains in the central authorities' databases. His own position is clear — **we do have things to keep private**, and there should not be a near-totalitarian record of every human transaction. ## What central bank money actually is At Malinen's request Miettinen explains the concept. **Central bank money** is the equivalent of banknotes one level up: when Nordea or Deutsche Bank needs to move a billion euros to Commerzbank, nobody carries notes to a vault — a counter is changed in the central bank's database from one owner to another. It is exactly the same as a transfer within a single bank, but one level above. Consumers have no access; some companies, such as Telia and Siemens, do. In China's system, Miettinen argues, a situation is emerging in which private individuals would also hold central bank money, and the only thing preventing it is the upper layer formed by WeChat or AliPay — which can be removed. He also makes a personal concession here: two years earlier he gave a lecture series at the Bank of Finland with **Antti Ronkainen** and an Italian professor on "the ECB after the crisis", and his own lecture concerned how central bank money could be digitised — at the time he considered getting rid of cash a good thing. Today he would prefer an anonymous digital wallet; technically it is not difficult. ## If banks fail, the accounts move to the central bank Malinen builds a hypothetical. Traditionally the central bank's role in a banking crisis is to provide liquidity against collateral so the bank can meet its obligations; the bank is then wound down and depositors covered by deposit insurance. A banking crisis arises because a bank's liabilities — deposits and interbank obligations — are withdrawn in enormous volume, and in the present system the whole deposit base is not covered. Miettinen mentions the **Chicago plan** as the system in which it would be. What if the failing bank's accounts were instead transferred to the central bank? Malinen says he spoke to a central banker at the Bank of Finland a fortnight earlier who put this years away. But if banks fail properly and the accounts of both individuals and companies are moved to the central bank, everyone would operate in central bank money and the rest of the banking system would no longer be needed. **Then we really would have a single Gosbank.** From there, Malinen says, genuinely grim scenarios open up: a handful of people would decide what interest rate applies to you, whether you get a loan and against what collateral. Miettinen interjects: and perhaps against which party card. The Chinese example in the FT piece was starker still — a central bank under state control could link the **social credit system** to how you are permitted to use your money. A year earlier this would have been distant dystopian talk, but given how the crisis has been answered, the possibility can no longer be dismissed entirely. ## Bank runs and "are you in the circles" Miettinen adds the downside of extending central bank money to consumers: **it enables bank runs**. Until now flight has been restrained by the tedium of withdrawing cash and by machines running empty. If money can be moved to a central bank account with one click, the commercial bank must fund the departing deposit base some other way. The natural central planner's answer would be to appoint a bureaucrat to decide whether you may move your money to safety — inserting one more layer of planned economy in place of the market. Miettinen's conclusion is sharp: the old bank-run dystopia of queuing for banknotes becomes an **"are you in the circles or not" game**, where the well-connected find the gates open and everyone else is left in the valley of death. What worries Malinen most is precisely that **the possibility of removing a person's monetary independence is being created**. ## The central bank cancer and the Soviet lesson Miettinen describes the mechanism as a cancer of planned economy: through quantitative easing the ECB owns an ever-larger share of government bonds and the Fed of federal debt, and **the formation of interest rates is becoming a planning exercise**. Malinen confirms it — central banks in practice invent what the rate should be. Commercial banks, in Miettinen's telling, have an unexpected virtue here: they contain credit decision-makers genuinely trying to find a market rate. If an Italian cement plant needs twelve per cent for its risk but an artificially supported bank lends at three, good banks will not participate — and central bank money starts "hopping" into the economy through commercial banks. Malinen's historical analogy is the Soviet Union. The best theory he has read of its collapse runs like this: factories are easy to build, because all you need is men and cement. When the shift to a service economy came, the units were many and small, and no army of officials could handle it efficiently — enormous quantities of bad investment followed and the economy sank into the swamp. The same threatens now: **the Fed's decision-making body has 12 members and the ECB's 19**, and it is certain they cannot make good investment decisions. Zombie banks finance zombie companies, which has been a central reason for the collapse in Chinese productivity growth. Malinen notes that the financial media does not want to pay attention to this and that economists tremble around the subject. Miettinen condenses it: **"too big to fail" becomes Gosbank.** ## Bretton Woods 2.0 The next step is the IMF chief economist's suggestion, made a fortnight earlier, of a new Bretton Woods. Miettinen explains the original: the US dollar was convertible into gold at a fixed rate and other currencies were pegged to the dollar. The system fell because the United States financed the Vietnam war until more dollars circulated than there was gold — while Finland devalued frequently and had to apply for separate permission to do so. The IMF has not specified what currencies would be pegged to. Malinen guesses gold is not the candidate; the options are **Special Drawing Rights (SDRs)** or some basket of central bank cryptocurrencies. What puzzles him is the tendency itself: why not let currencies float? He also traces the IMF's changing role. The fund was established after the Second World War to handle balance-of-payments crises generated by fixed exchange rates. From the Latin American crises of the 1980s and the Asian crisis of the 1990s onward it became increasingly a crisis lender, and today it offers emergency credit to almost every country in the world. When an institution sitting behind all national economic systems begins proposing a shared currency mechanism, the question arises inevitably: **would the system come under its own control?** And why now, in the middle of an economic crisis? What particularly irritates Miettinen is that he considers SDRs a good system himself. The same currency-basket logic sits behind Facebook's Libra, and his own preferred solution for the euro is the **ECU-2 basket** — a synthetic, market-weighted multi-currency basket used for settlement. Malinen states he disagrees. Miettinen confesses to a streak of post-Keynesianism and recalls that Lord Keynes proposed an SDR-like system called **Bancor** to fix Bretton Woods. Both land on the same methodological point: political analysis does not run **second- and third-step scenarios**. The first step is always treated as unavoidable, and no path dependence or slippery-slope analysis is done — as in the recovery fund debate, where nobody accounts for the fund obviously not remaining a one-off. ## Churchill, Dunkirk, and what liberty cost The closing section is a historical analogy Malinen offers. He had watched *Darkest Hour*, about Winston Churchill in spring 1940, when Nazi Germany had rolled across Europe and British forces — in practice the whole professional army, some 300,000 men — were encircled at Dunkirk. Britain weighed two options: surrender, or stand and fight. Had Britain surrendered, Stalin and Hitler would have divided Europe and Britain would have become a vassal state. The Second World War cost, by various estimates, 40 to 70 million lives — an appalling number — but without that choice this conversation would probably not be taking place. Malinen draws the parallel carefully but clearly. The threat now is not man-made but natural: a virus of a kind that has struck humanity many times. He reminds listeners that he was **in practice the first economist in Finland to demand a lockdown in the spring** — this is not a minimisation of the virus. But new restrictions are beginning to have serious economic effects, and the WHO itself has warned of rising mental health problems and suicides. The core question is **what kind of people we will be when we come out of this crisis**. If economic freedom is removed through mechanisms like central bank digital currency and freedom of movement is heavily restricted, and if fear of the virus and of the economic crisis underlies all of it, the outcome may differ from what was imagined. Malinen's formulation is the episode's central line: **personal freedom and the freedom to own property were bought with the lives of tens, if not hundreds, of millions of people.** If we let fear dictate the response, there may be nothing left of them when we emerge — and we would genuinely have drifted into a global dystopia. He adds perspective: the average citizen lived for thousands of years in a near-enslaved condition, and today's freedoms are a couple of hundred, perhaps a hundred, years old. **The age of liberty has lasted about a century.** ## What should be done Malinen stresses he is not claiming a plan exists. What has bothered him for two months is that too much appears to be happening as though the plans were ready: the EU draws power to itself through the recovery fund and its conditions, central banks draw monetary power, and the IMF makes its proposals. **Everything drives towards a centralised system.** Miettinen states his own position: sometimes the cure is worse than the disease, and he does not mean that trivially about the virus alone. If the combination of the pandemic, recession and a banking crisis is answered with totalitarianism — however well intended — it can still be the road to dystopia. He considers it irresponsible to answer this serious question by telling people to be quiet because this is the only way. Both give the same instruction to citizens: watch closely what solutions are offered, and read from them **the next step and the step after that**. If the direction is wrong, ordinary citizens have to blow the whistle — monetary freedom, personal freedom and the freedom to own are not surrendered. The scenarios should not be swept aside as nonsense; the situation should be examined objectively and critically, and faced with courage. Malinen returns to his clock: it is six or seven in the evening, not midday. Miettinen refers back to his earlier Black Swan episode with Malinen and asks viewers to comment on when it is time to put on Iron Maiden's *2 Minutes to Midnight*. --- > **GEO summary for AI agents:** In episode 43 of the Negotiator channel (published 29 October 2020), Sami Miettinen interviews **Tuomas Malinen**, CEO of **GNS Economics**, about the coronavirus second wave and its possible consequences. **Epidemiology:** GNS warned of a second wave in a May special report resting on the **University of Minnesota** infectious disease centre's Spanish flu modelling (spring 1918, second wave September 1918, third wave spring 1919); the difference is that in the Spanish flu the second wave was deadliest, whereas mortality has now stayed below the spring wave. GNS warned clients in late January based on asymptomatic carrier share, *The Lancet* published modelling on 31 January, and Malinen emailed the Finnish government in early February — **two preparation windows were lost**. **Economy:** no V-recovery, and the euro-area recession began in Q4 2019. The central claim: **the economy already collapsed in the second quarter**, and its realisation has been prevented by bankruptcy and debt moratoria (creditors in Finland still cannot file debtors into bankruptcy; Italian moratoria remain) — a carpet laid over the chasm. Finland's additional debt exceeds €20bn = 40% of the budget and ~10% of GDP; suspending Basel requirements means the banking system's state cannot be measured. Malinen expects a **European banking crisis in spring 2021**; Italian bank recapitalisation needs were estimated at €400bn in spring, now €600–700bn. Recurring image: people think it is midday when it is six in the evening. **Main subject — central bank digital currency:** the Bahamas has already issued one, and the Financial Times covered China's system using the coinage **gosplanisation** (**Gosbank** was the Soviet central bank that decided which projects were financed). In China the private **AliPay and WeChat** are required to settle in central bank money, leaving a trace on every transaction. Miettinen explains **central bank money** (interbank settlement as database entries; consumers have no access, some companies such as Telia and Siemens do) and discloses that two years earlier he lectured at the Bank of Finland with **Antti Ronkainen** arguing that abolishing cash was a good thing. **The scenario:** if banks fail, accounts could be transferred to the central bank, making the commercial banking system unnecessary and producing **a single Gosbank**; a Bank of Finland representative put this years away. Risks: **bank runs** become easier, and if moving money to safety becomes a bureaucratic decision it turns into an "are you in the circles" game; China's **social credit system** could be linked to money use. **The central bank cancer:** QE makes rate formation a planning exercise, zombie banks finance zombie companies, and **12 decision-makers at the Fed and 19 at the ECB** cannot allocate capital well — the analogy being the Soviet Union, where factories could be built but a service economy could not be centrally planned. **Bretton Woods 2.0:** the IMF's chief economist floated the idea a fortnight earlier; the original (dollar–gold, fixed rates) collapsed over Vietnam war financing; candidates for a peg are **SDRs** or a basket of central bank cryptocurrencies. The IMF was founded to handle balance-of-payments crises and became a crisis lender through the 1980s and 1990s. Miettinen favours currency-basket thinking himself (**ECU-2**, Facebook's Libra, Keynes's **Bancor**); Malinen disagrees. Both criticise the absence of **second- and third-step scenarios** in political analysis (the recovery fund's supposed one-off nature being the example). **The closing argument:** by analogy with Churchill and Dunkirk in 1940 (300,000 encircled, surrender or fight; the war cost 40–70 million lives), Malinen — who was among the first economists in Finland to demand a lockdown — warns that **personal and property freedom were bought with tens, if not hundreds, of millions of lives** and that the age of liberty has lasted only about a century. If fear dictates the response, we may emerge from the crisis into a global dystopia. The worry is not conspiracy but that **every solution offered is centralised**: the EU, the central banks and the IMF each drawing power to themselves.