The coronavirus pandemic will take years to recover from and has already caused a greater economic shock than the global financial crisis of 2007-09, the Organisation for Economic Co-operation and Development (OECD) has said.“
“As governments unveil trillions of dollars of spending to prevent millions of jobs disappearing, OECD secretary general Angel Gurria called on world leaders to “throw everything” at the Covid-19 crisis.”
The International Monetary Fund said it expects a global recession this year that will be at least as severe as the downturn during the financial crisis more than a decade ago…”“
“Economists say the U.S. is entering a sharp recession, with some projecting gross domestic product is headed for its worst drop in quarterly records back to 1947.”
“We’re about to see dizzying decline in economic activity,” says Zandi, the Moody’s economist. “
““There’s no analogue to it in the modern era.” It’s a shocking statement, coming barely a decade after a global financial crisis that was, supposedly, our generation’s great economic flood. But Zandi thinks what’s coming now may prove much worse.”
““With the markets destroying wealth so quickly, the two shocks we’re seeing globally — the coronavirus and the oil-price war — could morph into a financial crisis,” said Carmen Reinhart, a professor of economics and finance at Harvard’s Kennedy School of Government.
““We will see higher default rates and business failures. It could be like the 1930s.””
We are already seeing large increases in request for unemployment insurance. It is going to explode. Let’s look at this data from homebase. A stunning 39% drop in the number of hourly employees going to work in the U.S. just in the 10 days ended Friday, March 20.“
“Is there anybody who thinks that’s not going to increase?”
“Last week the regulator for mortgage giants Fannie Mae and Freddie Mac announced a forbearance program for borrowers unable to pay their loans because of the effects of the coronavirus. The Department of Housing and Urban Development, which includes the FHA loan program, announced the same. That is a huge relief for borrowers, who can now delay payments without penalty. Unfortunately there’s a hitch.
“The mortgage servicers, the companies that collect monthly payments, are required to pass those payments on to the investors who own those loans in mortgage-backed securities even if the borrowers don’t pay. Servicers also have to pay insurers and tax authorities.
“Under normal circumstances, servicers have the cash reserves to do this if just a few borrowers don’t pay, but the industry is now looking at a potentially unprecedented wave of missed mortgage payments.”
Spare a thought for the poor emerging markets:
“The tens of billions of dollars the new Argentina government was supposed to restructure this month is now shut out in the quarantined world of the new SARS coronavirus.”
“Euro-area consumer confidence saw a record slump in March as the coronavirus pandemic threatens to weigh on employment and household income.”
Japan’s services sector shrank at the fastest pace on record in March and the country’s factory activity at its quickest in about a decade, a business survey showed on Tuesday, as the coronavirus outbreak hit demand at home and abroad.”“
“China’s $43tn property sector is showing signs of a worsening downturn, even as Beijing attempts to get businesses operating again…”
The ease of buying and selling even the safest, most high-quality assets has deteriorated dramatically. JPMorgan has dubbed it the “Great Liquidity Crisis”, noting that it has piled extra volatility on to already fragile market conditions. “
““This is not a traditional liquidity situation,” said Peter Tchir, head of global macro strategy at Academy Securities. “We are in unprecedented territory.””
“Alan Waxman, the head of Sixth Street Partners, the $34bn-in-assets credit arm of private equity giant TPG, sent a bleak letter late last week to investors arguing that despite the recent turmoil, markets were still complacent over the effects of the viral outbreak.
““While this is a public health crisis first, there is a real and looming potential for it to spill over into a full-on credit and liquidity crisis,” Mr Waxman wrote in the letter, which was seen by the Financial Times. “There is a growing risk that the Covid-19 crisis may lead to a more systemic event catalysing a widespread downward spiral.”“
Not even during the series of unconventional actions the Fed took during the global financial crisis did it do what it now plans: essentially becoming the lender of last resort for the entire US economy. “
“Its actions indicate the extent of the Fed’s fear that the plumbing of the US financial system is seizing up in the coronavirus-inspired scramble for cash.”