This is how I suspect things will play out:
“I do believe we will start seeing problems emerging among some of the fiscally weaker countries around the world and a crisis could spread up the pecking order...
“As weaker entities will start defaulting, either officially or through currency devaluation the pressure of the markets will most likely shift towards the stronger sovereign debt issuers. The trend will be driven by growing default risk perceptions as more and more countries will renege on their debt obligations. The market will start asking that very dangerous question, namely; “Who will be next”?
“Several countries are seeing a very similar trend to what Turkey is experiencing in terms of their borrowing costs. Major sovereign debt issuers like Brazil, South Africa, Mexico, Egypt have all seen a spike in bond yields in the past few months. Such spikes can be just an early glimpse into things to come this year and there is no telling how far up the chain it could go…
“The [government stimulus] money is going into the real economy, meaning that people, enterprises and local governments will be spending money they did not earn. At the same time, the value of goods and services being produced will be greatly reduced…
“…the economic consequences will require further fiscal and monetary measures to avoid social breakdown. This in turn will lead to a massive imbalance in terms of goods and services produced on one hand and money available for spending in the real economy on the other. It is the classic hyperinflation scenario where more and more money will be chasing dwindling goods and services.
“The risk of this fiscal and monetary experiment blowing up and ushering in a massive crisis is now much higher than it was just a few months ago and probably much higher than it was in the 2008 crisis and we should not dismiss it, just because we also thought back in 2008 that a catastrophe was imminent and yet we managed to get through it.
“Many factors make this crisis very different. This is unprecedented in modern economic history…”
““In many respects this is worse than the global financial crisis for the emerging markets,” Nariman Behravesh, chief economist at IHS Markit, told DW.
“”The collapse in commodity prices is bigger, the recession in the developed world is worse and the debt levels in the emerging world have risen largely since the financial crisis because interest rates have been so low.””
https://www.dw.com/en/developing-countries-brace-for-bigger-blow-than-2008-crisis/a-52988709
“In a matter of days, a slew of trades unraveled to expose various forms of soured levered bets at their heart.
“Michael Hintze’s flagship hedge fund scrambled to contain losses on a structured credit trade gone awry. Banks including Citigroup Inc. tried to sell $1.3 billion of risky loans to unwind clients’ leveraged wagers. Funds that borrow to load up on mortgage bonds fed a flood of liquidations. A similar situation played out at municipal-bond funds…
““Everyone knows you are playing with fire with leverage,” said Michael Terwilliger, a portfolio manager at Resource Credit Income Fund. “Response to the last panic has built the new panic.””
“The worst is likely yet to come for high-yield bonds as more defaults loom, according to Goldman Sachs Group Inc…
“Credit has been at the center of the financial market turmoil sparked by the worsening pandemic, as unprecedented lockdowns and travel bans leave scores of businesses grappling to build out cash buffers. That’s sent the cost of money surging. Average spreads on high-grade dollar bonds jumped 179 basis points in the first quarter, the most ever in a Bloomberg Barclays index going back to 1989.”
“As many people have fallen out of work in the initial weeks of the coronavirus crisis as in the entire global financial crisis, according to initial indications from the US and European labour markets…
““Unemployment is rising 20 times faster than in the financial crisis,” Danny Blanchflower, professor at Dartmouth College told the Financial Times. “We have never seen anything like the speed of this and it suggests [governments] should throw caution to the wind in finding a response.””
https://www.ft.com/content/6eab2018-ac41-4849-84e3-7109d968eef8
“Factories fell quiet across most of Europe and Asia in March as the coronavirus pandemic paralyzed economic activity, with evidence mounting that the world is sliding into deep recession.
“Manufacturing activity tumbled, purchasing managers’ index (PMI) surveys showed on Wednesday…”
“Small business owners say the [UK] Government’s emergency coroanavirus loan scheme is failing them
“…as banks including HSBC, NatWest, Barclays and Lloyds ‘take advantage’ of them at their most vulnerable.”
“U.S. shale producer Whiting Petroleum Corporation, once one of the top producers in the Bakken, said on Wednesday that it had filed for bankruptcy protection, becoming the first major victim of the oil price war and the coronavirus pandemic that sent oil prices to $20.”
“The world’s biggest oil and gas companies are cutting spending this year following a collapse in oil prices driven by a slump in demand because of the coronavirus crisis and a price war between top exporters Saudi Arabia and Russia.”
“The world is almost certainly ensnared in a devastating recession delivered by the coronavirus pandemic. Now, fears are growing that the downturn could be far more punishing and long lasting than initially feared…
““I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist… “This is already shaping up as the deepest dive on record for the global economy for over 100 years,” he said. “Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.””
https://www.nytimes.com/2020/04/01/business/economy/coronavirus-recession.html
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