The damage from the political response against COVID is one for the books.
Because of the global economic shutdown, which erodes capital, savings, and incomes, there won’t be any V-shape recovery.
Furthermore, the political response to provide relief (actually indemnity insurance) translates to RECORD fiscal deficits worldwide. This milestone extends to the Philippines, which should compound the process of the corrosion of capital and savings, as well as, exacerbating the misallocation of resources.
Moreover, central bank easing, which intends to keep rates low and avoid defaults will boomerang. This will not only put pressure on the banking industry’s equity and liquidity, but it will amplify the risks of credit impairments that lead to defaults (here and around the world).
With smaller access to savings, fiscal rescues will become dependent on money printing that will magnify risks of inflation, and currency collapses as banks confront the likelihood of defaults.
More than 100 countries have now approached the IMF for rescues!
The epicenter of the Great Financial Crisis in 2007-2008 was in the US, which spread worldwide.
This time, there are multiple epicenters occurring simultaneously.
This crisis, which actually started subtly last year, and reinforced by the COVID-19, will have a devastating impact on the world that could last for several years.
(sent via Viber on April 23, redacted for spelling and grammar)
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