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Henry Kissinger Writes in Wall Street Journal Piece That Coronavirus Pandemic Could Bring Global Economic Doom For Generations

April 5th, 2020 Comments off

In an opinion piece for the Wall Street Journal, the 96-year old former Secretary of State, Henry Kissing, issued a dire warning on the long-term ruinous impact of the global economic crisis unleashed by the covid-19 pandemic. There was an urgency in Kissinger’s message , in which he stressed the need for a rapid development of a vaccine for coronavirus, and that the monumental effort needed cannot be done by the United Sates alone; international cooperation will be essential.

The global economic crisis created by the pandemic must be dealt with or, in the words of Kissinger, “Failure could set the world on fire, ” condemning generations to economic doom. In addition, shortcomings revealed in governmental responses to the coronavirus pandemic have undermined public confidence in public institutions, and this must be urgently addressed to protect the liberal world order.

The tone of Kissinger’s piece in the Wall Street Journal was dire, being an urgent for far-reaching action to avoid a much greater human calamity.

6.6.Million Americans Workers File Unemployment Claims As U.S. Faces Economic Collapse Due To Covid-19 Pandemic

April 2nd, 2020 Comments off

The U.S. Labor Department released this morning its weekly report on jobless claims. The data shows last week’s record-setting 3.3 million claims has doubled this week to more than 6.6. million. This number exceeds not only the global financial crisis of 2007-09, but even the Great Depression of the 1930s, in the rapidity of job destruction.

The coronavirus pandemic has now unleashed a severe global economic crisis of catastrophic proportions. Unfortunately, this is only the beginning. With a vaccine at least a year, and more likely 18 months , away from development and production, the entire planet is the grips of not only a massive health crisis, but a virtual meltdown of economic activity.

As the pace of jobs destruction accelerates, demand is also being annihilated, compounding the depth and pace of economic contraction. Undoubtedly, this will also generate a severe financial shock globally, as equities collapse, bond spreads widen and sovereign and corporate debt insolvency rampages with destructive ferocity.

 

Global Economic Crisis Worsens As Covid-19 Pandemic Unleashes Massive Debt Crisis – U.S. Budget Deficit Will Likely Exceed 20 Percent of GDP

April 2nd, 2020 Comments off

As the coronavirus ravages our planet, decimating economies large and small in its wake, it distinguishes itself from the 2007-09 global financial crisis in this way: it is an economic disaster brought on by a health crisis, as opposed to the GFC, where economies were harmed by a major financial crisis. However, this distinction will soon vanish, for the following reasons.

The enforced shutdown of the global economy created by the health response to the Covid-19 panic has led to massive spikes in unemployment, at a faster pace than even during the Great Depression of the 1930s, while businesses large and small are shuttered, severely constricting activity, while households are on the verge of insolvency. To prevent complete economic and societal collapse, sovereigns have launched emergency stimulus measures, at unprecedented levels of deficit spending, typically in the range of 10 to 15 % of GDP, as in the United States with Congress recently passing a 2 trillion dollar stimulus bill (representing ten percent of pre-crisis GDP).

However, with millions of workers now jobless and corporate activity at a near standstill, tax revenue from personal and corporate income, as well as capital gains, will shrink precipitously.

Before the onset of the coronavirus crisis, the U.S. economy, supposedly operating at its best level of performance, and with unemployment at a record low, was still requiring an annual budget deficit of one trillion dollars to fund federal government operating costs. Factoring everything we now know, the actual U.S. government deficit for the current fiscal year will be substantially higher than 20 %.

Should large developed economies such as the United States run annual deficits in the range of 20 percent of a shrinking GDP, notwithstanding debt monetization by the Federal Reserve and other central banks, a sovereign debt crisis of unparalleled dimensions will complement the Covid-19 pandemic in its negative impact on the global economy, and endure long after a vaccine is developed for coronavirus.

The increasingly likely sovereign debt crisis makes it more certain that the global economic crisis will not only be long-lasting, but will manifest the characteristics of an economic depression as opposed to a less virulent recession. Furthermore, long-term monetary measures a sovereign debt crisis will compel policymakers to implement will heighten the risk of severe global inflation, leading to a period of prolonged stagflation.

 

Global Economic Crisis Unleashed by Coronavirus Covid-19 Pandemic Sends Oil Prices Into Free Fall Collapse

March 28th, 2020 Comments off

The quarantines and shutdown of economic life precipitated by the Covid-19 pandemic has devastated the global oil industry. This is due to demand destruction occurring in the wake of panic responses to the coronavirus outbreak. Since the beginning of the year, oil prices have plunged from one half to around two thirds from their peak. On March 27, West Texas intermediate fell nearly 5 % from the previous day, to $21.51 per barrel, while Brent Crude was priced at $27.95. Lower grades of crude have plummeted to below $20.00 per barrel.

The collapse in oil prices has accelerated a price war between Saudi Arabia and Russia for market share amid declining demand, further exacerbating downward price pressures.

A global economic crisis that seems increasingly likely to become another great depression spells doom for the oil industry. However, there is one wild card; a war breaking out between Iran and the United States, which economist Nouriel Roubini sees as a high-probability event. This would create a supply shock to complement the demand shock to the global economy that has already occurred, reversing the decline in oil prices and sending them to record highs, at least temporarily before plummeting again. This would unleash a wave of inflation, leading to stagflation: negative growth combined with high inflation. That in turn would further depress economic activity, and impede a recovery in the global economy even after an effective Covid-19 vaccine has become widely available.

U.S. Job Market Implodes As More Than Three Million File For Unemployment, Pointing To A 21st Century Great Depression

March 26th, 2020 Comments off

The U.S. Labor Department released its worst weekly jobs report, demonstrating that the Covid-19 pandemic has unleashed a full-fledged global economic crisis more severe than the financial crisis of 2007-09, and increasingly likely to exceed the Great Depression of the 1930s in its impact.

Since the Labor Department began issuing its weekly jobless claims report in 1967, the previous record for unemployment filings was 695,000 in 1982. The expectation was that the report released today would be very bad, most estimates being in the range of one million. The actual number: 3.3 million. This is worse than devastating; it is a clear sign that we are beyond a severe global recession, and are almost certainly heading into a global economic depression.

As this is only the initial phase of the impact of the coronavirus induced unemployment, the figures just released by the Labor Department suggests the unemployment rate will likely exceed 20 %, possibly even 30 percent. It is not just the U.S. shedding jobs at an unprecedented rate; the entire global economy is being struck by a tsunami of jobs destruction. This economic catastrophe will inevitably lead to a level of severe social and political strife not experienced globally since the 1930s.

 

Global Economy On The Abyss of a Greater Depression Says Leading Economist Nouriel Roubini

March 25th, 2020 Comments off

In a chilling yet cogently delivered live Twitter lecture on likely economic trends stemming from the Covid-19 pandemic, NYU professor and economist Nouriel Roubini gave a harsh yet realistic overview on the unfolding crisis. Professor Roubini was one of the few economists to predict the global financial crisis that occurred more than a decade ago.

The views Roubini relayed in his Twitter presentation can be summed up as follows:

  1. The health policy response will determine whether or not the world faces a severe recession or a greater depression. A global recession worse than the 2007-09 global financial crisis is already baked into the cake. However, perusing a mitigation strategy to contain the coronavirus pandemic will ensure the global economy heads into a severe depression. Only a suppression strategy as implemented by China initially and now Italy can prevent the worst economic damage. Though a suppression strategy that shuts down the economy for 2 or 3 months is very painful, a mitigation strategy will ensure that Covid-19 spreads like wildfire, leading to a temporary reopening of the economy followed by further and deeper shutdowns. Roubini urges policymakers to adapt draconian suppression measures as the only alternative to far more calamitous economic collapse.
  2. The right policy responses will be crucial to preventing a greater depression. The current wave of unprecedented monetary and fiscal measures, adapted in a very short timeframe, are correct. In particular , very large fiscal deficits equivalent to ten percent of GDP, which in turn are fully monetized by the central banks, are necessary in the short-term. However, such extraordinary measures are unsustainable in the long-term, and will lead to stagflation.
  3. The health emergency crippling the global economy is not the only shock confronting it. Roubini identified a geopolitical depression exacerbated by revisionist powers (China, Russia, Iran and North Korea) seeking to further destabilize the United States through cyber warfare. In particular, the emerging cold war between China and the U.S. is leading to decoupling of supply chains and de-globalization, which will increase costs of production and hence inflation.
  4. Professor Roubini sees a great risk that Iran’s regime will initiate a full-scale war with the United States as the only means of preserving itself from being overthrown, if Trump is reelected and the economic sanctions lead to its collapse. Such conflict will close the straits of Hormuz, leading to a massive spike in oil prices.

In summary, a sobering and harshly realistic analysis of the global economic crisis now underway.

Economist Nouriel Roubini Warns Emerging Global Economic Crisis Will Be Possibly Worse Than Great Depression

March 24th, 2020 Comments off

Perhaps the most insightful economist to watch as the Global Economic Crisis unleashed by the Covid-19 pandemic rages is Nouriel Roubini, economics professor at New York University. In the months leading up to the 2008 global financial crisis , his predictions were eerily accurate. Now he has published an essay on what is unfolding regarding the Coronavirus pandemic induced economic disaster on the Project Syndicate website, entitled ominously “A Greater Depression?”

I urge ever sensible person to read it; the link is: https://www.project-syndicate.org/commentary/coronavirus-greater-great-depression-by-nouriel-roubini-2020-03?

 

Among the points Professor Roubini makes is that the collapse in stock markets has greatly exceed in velocity not only what occurred during the global financial crisis of 2008, but also during the Great Depression during the 1930s. While other prognosticators are predicting a U or L or worst case V trajectory and recovery, Roubini views such happy talk as delusional. He sees every indicator as pointing to a global economy in unrestrained free fall. The hope for an eventual recovery lies in a host of unconventional monetary and fiscal measures. However, as he observes, there are a host of probable white swan events and negative political realities that will likely obstruct the unprecedented policymaking the now full-fledged Global Economic Crisis requires.

 

It Will Take Years To Recover From Global Recession Caused By Coronavirus Covid-19 Pandemic According To OECD

March 23rd, 2020 Comments off

The secretary general of the Organization for Economic Cooperation and Development (OECD), Angel Gurria, has warned that the global recession unleashed by the coronavirus pandemic will take years to recover from. He stated that the shock to the global economy created by the Covid-19 outbreak had already exceeded the damage created by the 2008 global financial crisis.

The head of the OECD told the BBC that claims by some political leaders that the world will quickly bounce back from the Global Economic Crisis now underway was “wishful thinking.”

There is growing consensus that the world is heading into a full-blown economic depression.

Global Unemployment Rate Skyrocketing Due To Covid-19 Coronavirus Pandemic

March 22nd, 2020 Comments off

The coronavirus pandemic is not only a public health emergency of massive proportions; the response by governments worldwide has created staggering economic contraction, leading to unprecedented growth in unemployment. Initial data indicates that countries that previously had low single digit unemployment rates are now, within a period of a few weeks, seeing double-digit unemployment statistics, with no end in sight to further hemorrhaging of jobs.

Policymakers have concluded that sever measures are necessary to contain the coronavirus pandemic; shutting down all but the most essential industries , stay-at-home directives and social distancing. This has all led to unprecedented demand destruction, resulting in massive growth in the ranks of the jobless.

The world is increasingly stuck between a rock and hard place. The Covid-19 outbreak is proving so virulent, the absence of desperate measures enacted by policymakers will result in overwhelming and collapsing the public health system, resulting in massive death. What is occurring in Italy reflects this.

On the other hand, demand destruction on the scale we are witnessing will exacerbate the Global Economic Crisis now unfolding, rivaling the Great Depression in its intensity. This will implode tax revenues, ironically also leading to underfunding and ultimately collapsing public health institutions. The short-term fiscal response by governments will undoubtedly bring on the largest public debt crisis in economic history. In other words, the sovereign cannot indefinitely write checks to the hordes of unemployed , whose number will grow along with the victims of the pandemic.

There is a real possibility of mass death due to the impact of covid-19. It also must be recognized that long-term double-digit unemployment risks undermining social and political order, also leading to mass death through social disorder and massive violence by an increasingly desperate population.

Global Economy In Free Fall At Worse Rate Than Beginning of Global Financial Crisis and Great Depression

March 20th, 2020 Comments off

The imposed shutdown of much of the world’s economy, all being done in a frantic effort to contain the rapidly spreading coronavirus, has set the stage for possibly the worst contraction in economic history. JP Morgan has now issued its first projection on the impact of Covid-19 on economic growth. They forecast in Q1 and Q2 of this year combined contraction of negative 14 percent in the United States, and negative 22 % in the Eurozone. This rate of decline exceeds the initial period of the 2008 Global Financial Crisis and 1929 stock market crash that unleashed the Great Depression.

What is unique about the 2020 Global Economic Crisis is that is being initiated by self-imposed demand destruction predicated on a public health emergency. We are entering uncharted territory.