Index > Briefing
Tuesday, April 28, 2020
Revisiting the Crisis Triangle Model
Chan Kung

The Crisis Triangle Model reveals a very simple but very complex circular relationship. Here, “simple” means very simple in form; “complex” means extreme complexity in content. The Crisis Triangle Model is a model proposed by ANBOUND’s chief researcher Chan Kung in his book Crisis Triangle. The Chinese edition of the book was first published in 2016, and it is said that even the pirated versions of the book can fetch a high price now. Now, because of the depression caused by the Covid-19 pandemic, the world's economic situation is in a challenging situation, and some describe this as an economic shock. The United States has more than 20 million people lost their jobs. Political chaos continues, with the federal and state governments blaming each other. In Europe, people are beginning to lament that the post–World War II Atlanticism is collapsing and that America is losing its position as the world leader.

Such severe crisis and depression remind us again of the Crisis Triangle Model.

What exactly is the Crisis Triangle? It refers to a process in which urbanization leads to excess capital, economic crisis, and then another cycle of urbanization. Chan believes that the development process of human society is always in the process of continuous reciprocation, and unable to break free of it. In terms of human history and evolution, from the beginning of humankind’s quest for security, they began to build cities and realize the population growth. Later, the huge population led to the social division of labor, the emergence of the need for social organization, followed by the appearance of imperial power, the city gradually grew. In addition to the production, the method of expanding cities in history mainly depended on war. War could destroy cities, but it could also lead to more people regrouping in cities in search for security and a place to stay. War could also generate great wealth, which drove the city to a level of magnificence, of which ancient Rome was the most typical, as was in China.

In the process of urban expansion, prices are rising, which is the same in any era. The emergence of the glorious city is the triumph of the winners, and will eventually bring the rise of prices. As now, while the city is expanding, the competition for land resources leads to the phenomenon of soaring real estate prices today, as well as the increase of asset prices. The competitive expansion drives the consumption desire, which inevitably brings up, even artificially inflate the price.

The nightmare that appears after such ecstacy is the crisis. Rising prices and increased competitiveness never encourage rationality and equilibrium. Inflated price is not merely about price, but also a temptation to lure the imagination-based production, and the excessive production of madness and excessive supply. Finally, problems are caused by both the supply and demand sides, and the easiest way to iron out all these problems is a major crisis. Default, a breach of compliance standards, and large amounts of debt and inventory will then appear as the options for letting deficit figures disappear. After the crisis is over, some will then seek for the expansion of the city and its infrastructures, which they believe will be able to prevent the ciris.

So, the cycle continues.

In the United States, the crisis is still deepening. More than 20 million people have lost their jobs, and the unemployment rate is still rising. President Donald Trump's solution is to inject money into the market; in the words of the Federal Reserve, it is an unlimited amount of cash handout "to support liquidity" as stated in its announcement. At a news briefing, President Trump stressed that he wanted to include in his fourth round of economic stimulus a "very big and bold" infrastructure plan that would total USD 2 trillion and focus on jobs and rebuilding America's infrastructure. No one doubts that the U.S. now needs a staggering amount of infrastructure, as it did in 1933, where the debate is over where and what to build.

The basic principles of the Crisis Triangle Model tell us in a concise form that after a great crisis, there is a wave of construction on a much larger scale, large enough to cover the initial losses, but also to satisfy and realize the more glorious "dream". This means that the crisis brings not only destruction, but also greater possibility, and the difference in reality is simply that some countries can embrace this possibility, while others simply can't and never have the chance to take off again. The difference depends on the ingenuity of policy. America's geo-capitalism has decided that it must be in a position to do all this, but not necessarily in other countries. Disputes and conflicts, as well as the misalignment of the construction window, may cause some countries to miss out on a new round of opportunities.

Therefore, modern capitalism, and the market economy, have determined that after a great crisis, the concern of the wise is not so much what will happen to further massive investment, but who will survive the crisis and let others die first. Does it sound cruel? Indeed, but there is no alternative, unless the world can be rational and reach an almost impossible consensus as stated in Chan’s book.

Such is the reality, just like the slogan of many protestors in the U.S. lockdown, "if the virus doesn't kill me, hunger will!" Such irrationality is in fact, the most rational action of striving to survive after others are perished. Space and market left behind are waiting for the wise to occupy, the deficit figures on the ledgers will change accordingly, everything will appear encouraging again.

At least there is a chance to move on.

Final analysis conclusion:

The Crisis Triangle reveals the cyclical process of "urbanization - capital surplus - economic crisis - re-urbanization", which is not only the summary of historical development, but also the direction of world competition and development in the post-crisis era. Unfortunately, not every country can seize the window of opportunity.