“In 2008 central banks slashed interest rates and pumped massive amounts of liquidity into the world’s financial system to prevent a financial crisis from developing into an economic crisis. Could their intervention contain the economic damage of the coronavirus?
“In 2008 they were partly successful. The world did suffer a recession and remains in low-growth mode more than a decade later but the central bankers and their governments staved off the depression that might have ensued had they not responded so aggressively.
“With the fallout from the coronavirus, COVID-19, continuing to spread, there is a question mark over whether monetary policies can have anything like the same impact or, indeed, any meaningful impact at all…
“Around the world central bank policy rates are already at either ultra-low levels or in negative territory. With rates already so low, even lower rates or unconventional policies like purchases of bonds and other fixed interest securities will have less impact than they did in 2008.
“Also, injections of liquidity into financial systems might avert a liquidity crisis but are likely to have only a minimal impact as a response to supply and demand shocks within the real economy.
“Confronted with a shock to both supply and demand that has spilled over into financial markets – creating some elements of a financial crisis as bond markets seize up and equity values tumble – central banks and their governments have only limited capacity to respond.
“The central banks can make credit cheaper and more available, but it is already cheap and readily available.”
“Cratering markets are pushing global central banks to the point they all warned against and worried about, of an evolving global economic shock hitting at a time when their capacity to respond in force is in doubt even as investors hound them for action…
“Monetary policy is most potent in bolstering demand by lowering the cost of borrowing – it cannot restore global supply chains that have ground to a halt or convince people it is safe to go on a trip or for businesses to hold a sales convention.”
“Moody’s Analytics Mark Zandi warns Wall Street is underestimating the damage from a coronavirus pandemic — both on the economy and President Donald Trump’s re-election campaign…
“Not only is the response to the medical emergency key, an economic downturn sparked by the coronavirus would be political kryptonite.”
The central banks *can* bid up the price of stocks to a certain extent. Can they do it even as panic sets in? I don’t know. We shall see.
“Asian stocks stemmed their losses overnight as shares rose in response to the Bank of Japan’s move to inject stimulus to save its economy from the worst impact of the coronavirus outbreak.”
https://www.cityam.com/coronavirus-asian-stocks-turn-green-on-bank-of-japan-stimulus-pledge/
“As stocks around the world tumble on worries about a fast-spreading virus, investors have been clamoring for the superheroes of the financial world to ride to the rescue once again.
“Yet this time, there are doubts: Can central banks really fix this crisis as they have so many others?“
https://abcnews.go.com/Business/wireStory/markets-fed-save-tools-work-69321044
“China’s factories are reeling from the novel coronavirus outbreak… the Chinese government reported that its official manufacturing PMI plunged in February to an all-time low of 35.7, down from January’s reading of 50.
“The official non-manufacturing PMI survey, which measures the services sector, skidded to 29.6 in February from 54.1 in January. Caixin’s services survey will release later this week.”
[sub 50 denotes contraction].
https://edition.cnn.com/2020/03/01/economy/china-pmi-economy-coronavirus/index.html
“Flights canceled in Europe, schools closed in Japan, towns quarantined in Italy and panic in California. The coronavirus crisis has gone global, and with it, its impact on energy demand…
““I see no growth in demand this year now the Coronavirus is everywhere,” said Doug King, a hedge fund investor who co-founded the Merchant Commodity Fund.”
https://finance.yahoo.com/news/oil-looks-abyss-coronavirus-threatens-200136635.html
“The coronavirus outbreak has sparked one of the largest retreats in commodity prices in years, forcing investors to brace for even steeper declines and sending a warning signal about the world economy’s prospects in 2020.
“Raw materials sensitive to shifts in global growth have been among the hardest hit investments since the coronavirus began spreading around the globe…”
“The reason to panic about deflation, has been, is today, and likely always will be the ability to service debt. China, where the virus started, is one of the most highly levered large economies ever.”
“China’s economy is experiencing a severe economic recession which, in a best case scenario, will last at least two quarters. A global recession is certain to be sparked by China’s deep recession and it will last at least two quarters in a best case scenario.
“The rapid and widespread international contagion of COVID-19 will deepen the global recession further, to an extent that is highly uncertain, making the timing of recovery highly difficult to forecast.
“While the global economy is literally in the midst of a severe free fall, virtually all Wall Street economists and strategists are still insisting that the impact of the global COVID-19 crisis will be minor for full-year 2020 and are merely tinkering with their global growth forecasts for full-year 2020 – typically reducing them by only 10 or 20 basis points.
“Given all of the facts and elementary inferences referenced above, Wall Street economists and strategists are collectively displaying breathtaking incompetence…
“If a head global economist and/or strategist is not able to forecast a major economic crisis when this eventuality has already become as obvious as it is now, then it is pretty clear that they are professionally incompetent.”
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