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Global financial system implosion begins

ska invita said:
What I don't understand is what point you are making.
My point is an economic one: whatever the costs of propping up the system now and into summer the cost will be even bigger and have a bigger impact come winter in the northern hemisphere<which is where the worlds biggest economies are.
Southern hemisphere will also go through a years worth of this, but the impact to the global economy will peak by our winter.
What is your point?
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My point is an epidemiological one, that what comes out of the south's winter has a very direct effect on the north. This follows on from gosub's seasonal point
 
Big yank banks now talking up the opportunity to fill your boots with stocks as its a once in a lifetime etc etc. I think they may have a motive for talking up the business.
 
Fed balance sheet tops $5 trillion for first time as it enters coronavirus war mode
March 27, 2020
(Reuters) - The U.S. Federal Reserve’s balance sheet soared past $5 trillion in assets for the first time this week as it scooped up bonds and extended loans to banks, mutual funds and other central banks in its unprecedented effort to backstop the economy in the face of the global coronavirus pandemic.

The Fed’s total balance sheet size exploded by more than half a trillion dollars in a single week, roughly twice the pace of the next-largest weekly expansion in the financial crisis in October 2008. As of Wednesday, the Fed’s stash of assets totaled $5.3 trillion, according to data released on Thursday.
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The Fed bought $355 billion of Treasuries and mortgage-backed bonds in the last week in what is now an open-ended commitment to stabilize financial markets rocked by the outbreak and the halt in economic activity that has come in its wake.

It also offered more than $200 billion in credit through so-called foreign currency swap lines to other central banks to allow them to pump much-needed greenbacks into their jurisdictions to help foreign borrowers stay current with their dollar-denominated liabilities.
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The weekly snapshot of the Fed’s balance sheet, released each Thursday, also showed sizable demand for a pair of brand new liquidity facilities aimed at stabilizing money markets and supporting primary dealers, the banks that transact directly with the central bank.

The new Primary Dealer Credit Facility had been tapped for $27.7 billion in loans as of Wednesday, while the Money Market Mutual Fund Liquidity Facility had borrowings of $30.6 billion.
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Banks continued to line up for loans directly from the Fed at its so-called Discount Window, long stigmatized as the source of last resort for weak banks to get cash. The Fed is trying to ease that stigma and has encouraged banks to use the facility more liberally.

As of Wednesday, those borrowings were up to $50.8 billion from $28.2 billion the previous week.
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On Thursday, Fed Chair Jerome Powell pledged the Fed would lend “aggressively” to thwart the outbreak’s damage to the economy.

The number of Americans seeking unemployment benefits for the first time shot to a record 3.3 million last week. Tens of millions of Americans are in some form of isolation and thousands of businesses across the country have closed temporarily to contain the virus’ spread.
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The FT says its time for the Bank of England to start direct funding of the government: modern monetary theory has won the day
Posted on April 7 2020
The FT is continuing to face reality as it considers what to do in the face of the coronavirus crisis. It has an editorial today that concludes:
The scale of today’s downturn means even the most direct monetary financing, such as “helicopter money”, or handing cash to the public, should remain an option.
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That’s pretty radical, and I rather strongly suspect suggests that this editorial reflects the views of Martin Wolf, who has always had sympathy with helicopter money, when I have had my doubts, believing it for government to manage our social safety net.

Rather more importantly, they go out of their way to make clear that they support direct monetary funding (DMF) of the government by its central bank. As they say:
There is no clear distinction between quantitative easing and monetary financing.
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Explainer: What the Federal Reserve has done in the coronavirus crisis
April 9, 2020
(Reuters) - The Federal Reserve has moved into overdrive to try to keep the U.S. economy from suffering lasting damage from the coronavirus pandemic, announcing an emergency interest rate cut on March 3 and rolling out new efforts almost weekly since, including slashing rates to zero and relaunching large-scale asset purchases.

The U.S. central bank, arguably the most powerful financial institution on Earth, has more than $5.9 trillion of assets on its books - the equivalent of more than a quarter of annual U.S. economic output before the crisis. Its stockpile of assets will grow much larger under the litany of programs it has launched, although some will be held in what are known as special-purpose vehicles, or SPVs, rather than directly by the central bank.
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Long list. The Fed has underwritten Wall Street.
 
WeWork’s future is bleak
April 2, 2020
SoftBank Group has officially pulled out of its deal to buy $3 billion worth of shares in WeWork from stockholders. The Japanese conglomerate said it had “no choice” but to scrap the agreement because the co-working giant had failed to meet several conditions by April 1, including not getting antitrust approvals or closing joint ventures in Asia. Multiple, new, and significant pending criminal and civil investigations were also major factors. This development won’t affect the $5 billion lifeline SoftBank agreed to give WeWork directly.
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Adam Neumann got what he deserved: The deal would have mostly benefited Neumann, who was lined up to sell $970 million worth of shares.
[*]On the business side: WeWork’s new Chief Executive Officer Sandeep Mathrani has been contacting its largest landlords and asking to help it cut its rent bill by up to 30%, Bloomberg reported. Mathrani is seeking to achieve this by offering solutions including revenue-sharing agreements.
[*]Where this is headed: The majority of WeWork’s leases are held by special purpose vehicles that would enable the company to renege on paying rents at individual locations without risk to the parent company. If the co-working giant chooses this course, it will obviously hinder WeWork’s ability to lease new space in the future.
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Staggering lease liabilities: As of June 30, WeWork was on the hook for at least $47 billion in lease liabilities accrued during its years of venture-backed breakneck expansion. Now, it faces a potential cash crunch as the outbreak of Covid-19 puts pressure on the company to close some locations. WeWork had provided landlords with credit support in respect of leases in the form of corporate guarantees of $4.5 billion… The company had $4.4 billion in cash as of Dec. 31.
[*]WeWork’s tenants are getting out: The company is on average locked in to 15 year leases, while its tenants have the option to sign on for monthly commitments (28% choose such an arrangement). The rest of the leases are one-year deals. WeWork is unsuccessfully offering tenants discounts to minimize cancellations.
[*]Credit the foresight: Eric Rosengren, the president of the Boston Federal Reserve bank, warned in September that the business model of co-working companies could make the next recession worse by sparking a run on commercial property, the Guardian noted.
[*]Truth is that SoftBank should bail completely: With WeWork bonds trading at around 36 cents on the dollar and the global economy in upheaval over the coronavirus pandemic, there’s no price in the world that could have made SoftBank’s double-down on the shares look smart. Pouring $5 billion into WeWork debt would be a poor use of its funds.
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"at least $47 billion in lease liabilities"
 
Bizarre company, more like a cult. Read this last year:

www.vanityfair.com

“You Don’t Bring Bad News to the Cult Leader”: Inside the Fall of WeWork

Adam Neumann reimagined the millennial workplace as a capitalist kibbutz, and so dazzled Wall Street that his company was valued at $47 billion. He spent lavishly, and pressed forward even as “the narrative of the unicorn was ending,” says an executive. Now, after the collapse, he’s said to talk...
www.vanityfair.com www.vanityfair.com
 
Yeah, very cult like, but it also felt like they were taking the piss, and seeing how far they could push it, after an hour long session enforcing the point that they were no longer individuals but now part of a group they got everyone chanting 'We over Me' which they all did very earnestly while all the production crew struggled to remain vaguely professional.
 
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Flavour said:
Good summary of recent developments by Adam tooze

www.theguardian.com

How coronavirus almost brought down the global financial system

The long read: The crisis has brought the economy to a near halt, and left millions of people out of work. But thanks to intervention on an unprecedented scale, a full-scale meltdown has been averted – for now
www.theguardian.com www.theguardian.com
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yield linked to his piece in the LRB on this thread. TBH I think the same criticisms I made of his LRB piece apply to the Guardian one.
 
Commentary: The world economy is now collapsing
15 Apr 2020
The coronavirus microbe has overthrown our arrogance and sent global output into a tailspin, says the Financial Times' Martin Wolf.
LONDON: In its latest World Economic Outlook, the IMF calls what is now happening, the “Great Lockdown”. I prefer the “Great Shutdown”.

This phrase captures the reality that the global economy would be collapsing even if policymakers were not imposing lockdowns and might stay in collapse after lockdowns end.
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Yet, whatever we call it, this is clear: It is much the biggest crisis the world has confronted since World War II and the biggest economic disaster since the Depression of the 1930s.

The world has come into this moment with divisions among its great powers and incompetence at the highest levels of government of terrifying proportions. We will pass through this, but into what?
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Even what GDP means or reflects is a nonsense.

Accounting for drugs and prostitution to help push UK economy up by £65bn
Tue 10 Jun 2014
Britain's economy could be as much as £65bn bigger – almost 5% – when new GDP figures are published in September incorporating items such as prostitution and drug dealing under new statistical rules.

The Office for National Statistics said its latest estimate was that GDP in 2009 was 4.6% higher than previously stated on the back of the planned improvements in measuring the size of the economy.

The update will be part of a more inclusive approach to GDP that comes into force in September to comply with EU statistical rules and to "provide the best possible framework for analysing the UK economy and comparing it with those of other countries".
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But economists said the change in the size of GDP in official figures, which is unlikely to change the pace of growth in the economy, meant little in reality.

"On paper the economy is £65bn bigger – which is massive. But it is purely an accounting treatment. These activities have always been there – particularly research and development activities – they just weren't necessarily taken into account in GDP previously," said Alan Clarke, an economist at Scotiabank.
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Is it time to end our fixation with GDP and growth?
Mon 17 Jun 2019
How do you measure it?
In order to measure GDP, statisticians use three approaches: measuring the total value of goods and services produced; the total amount spent in the economy, and the total amount of income from profits and wages. All three methods should, in theory, give the same number.

If GDP has increased over a period of time, the economy is growing. If it contracts for two consecutive quarters, the economy is in recession.
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Despite the apparently scientific approach, the calculation of GDP relies on several assumptions and misses out huge swathes of the economy and wider society that cannot be quantified in monetary terms. Bobby Kennedy once famously said in a speech of GDP: “It measures everything in short, except that which makes life worthwhile.”

GDP includes rough estimates for the value of drugs and prostitution, yet fails to take account of unpaid work in the home. In a sign of the scale of what is missing, in 2016, the value of the UK’s unpaid household service work was estimated at £1.24tn, more than the entire non-financial sector.

On paper, charities account for only £27bn of the British economy, but Andy Haldane, the chief economist at the Bank of England, reckons this figure could be increased to £234bn a year if the value of volunteering and the benefits it brings were adequately accounted for.
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Environmental degradation is not included in GDP. After the Exxon Valdez disaster in 1989, the oil spill showed up as a net economic gain because the money spent on the clean-up effort boosted US GDP – despite the damage to Alaska’s waters.

The measure takes no account of leisure time, meaning that two countries might have equal GDP but one has workers toiling for 12 hour days and the other only eight. Large amounts of output captured by GDP are also wasteful, such as the hundreds of thousands of tonnes of food wasted in Britain each year, or the Christmas jumpers bought for one night, only to degrade in landfill for centuries.
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What about unpaid work, and all of the externalities?

Bobby Kennedy once famously said in a speech of GDP: “It measures everything in short, except that which makes life worthwhile.”
 
Delusional: Investors are underestimating the economic shock the world is facing
April 16, 2020. Ambrose Evans-Pritchard. Sydney Morning Herald
Investors are repeating the mistake they made all through February and early March. They are again underestimating the immense economic shock of COVID-19.

Can there be any parallel in market history to the surreal clash of narratives we saw this week? Global bourses soared even as the International Monetary Fund painted a series of scenarios ranging from dire - the most violent slump since the Great Depression - to catastrophic, with all the potential chain-reactions spelt out in its Global Financial Stability Report.
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(I probably ought to reread Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay)
 
Guardians of Global Economy Come Up Short in Virus Battle
Bloomberg. 18 April 2020
Facing what the International Monetary Fund says is a crisis like no other, policy makers from leading economies agreed this past week on a set of initiatives to help emerging markets and poor nations weather the coronavirus shock, including a path-breaking halt on debt payments.

But critics faulted the Group of 20 for failing to adopt for the rest of the world the all-out approach they’ve embraced to help their own countries.

“I had modest expectations, which they significantly disappointed,” former U.S. Treasury Secretary Lawrence Summers said. “It’s whatever it takes for us and crumbs off the table for the world.”
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yield said:
The FT says its time for the Bank of England to start direct funding of the government: modern monetary theory has won the day
Posted on April 7 2020
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Canada is going for this one - $2k Canadian dollars a month for 4 months for any Canadian who asks for it and wasn't already signing on when the crisis hit. I suspect the UK economy would fare rather better through the crisis if they did this as well.

Not a chance in hell of it ever happening of course. When the government was making it's main announcement about the paltry plans to support self-employed, they said "we aren't paying you to sit around doing nothing". Except, of course, that's exactly what they are doing and should be doing for clear scientific reasons. Unfortuantely they seem unable to overcome their own embedded rhetoric even when nescessary.
 
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