Showing posts with label Economic. Show all posts
Showing posts with label Economic. Show all posts

30 March 2020

What It Will Take to Save Economies From the Coronavirus Pandemic

Daniel McDowell 

Editor’s Note: WPR has made this article, as well as a selection of others from our COVID-19 coverage that we consider to be in the public interest, freely available. You can find all of our coverage of the coronavirus pandemic here. If you would like to help support our work, please consider taking advantage of our subscription offer here.

In 1873, Walter Bagehot, a prominent businessman in British high society and a journalist who served for 16 years as editor-in-chief of The Economist, wrote a treatise on banking and finance in which he left his most enduring mark on the world. In “Lombard Street: A Description of the Money Market,” he laid out a playbook for policymakers facing an unfolding economic and financial crisis. When up against such a challenge, Bagehot asserted, leaders must enact a policy response that is both swift and large. “By that policy,” he argued, “they allay the panic; by every other policy they intensify it.”

Economic policymakers around the world today find themselves facing an incredible challenge. As the novel coronavirus spreads, governments are swiftly implementing drastic measures to limit the scope of the pandemic, including banning public gatherings, closing national borders and shuttering all non-essential businesses.

$10 a Barrel Oil Is Possible: Can American Energy Independence Survive the 2020 Oil War?

by Anthony Fensom
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President Trump has suggested America still has “a lot of power over the situation” and could yet find a middle ground. The U.S. leader will need all his famed dealmaking ability and more though to pull off what could be a deal of the century with Saudi Arabia, to keep U.S. energy independence and the shale industry alive.

“Trust me, this will be a regrettable day.”

The declaration by the Saudi energy minister, Prince Abbdelaziz Bin Salman, at the March 6 “Black Friday” OPEC plus meeting has proven accurate as the world’s energy giants engage in a war over the black gold, causing prices to crash and sparking bankruptcy fears for the entire U.S. shale industry.

With America’s energy independence under threat, can the nation’s oil and gas industry survive the fallout?

‘No Plan B’

After restraining supply since 2017 to support prices, the fateful meeting in Vienna had seen the OPEC oil cartel seek additional production cuts of 1.5 million barrels per day (bpd) from April.

28 March 2020

A Greater Depression?

NOURIEL ROUBINI

NEW YORK – The shock to the global economy from COVID-19 has been both faster and more severe than the 2008 global financial crisis (GFC) and even the Great Depression. In those two previous episodes, stock markets collapsed by 50% or more, credit markets froze up, massive bankruptcies followed, unemployment rates soared above 10%, and GDP contracted at an annualized rate of 10% or more. But all of this took around three years to play out. In the current crisis, similarly dire macroeconomic and financial outcomes have materialized in three weeks.

The substantial increase in the scale and scope of government action needed to tackle the COVID-19 pandemic should be viewed as an unprecedented form of short-term systemic insurance. This approach requires not only vast government spending but also a temporary state-led reorganization of the entire economy.1Add to Bookmarks
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Earlier this month, it took just 15 days for the US stock market to plummet into bear territory (a 20% decline from its peak) – the fastest such decline ever. Now, markets are down 35%, credit markets have seized up, and credit spreads (like those for junk bonds) have spiked to 2008 levels. Even mainstream financial firms such as Goldman Sachs, JP Morgan and Morgan Stanley expect US GDP to fall by an annualized rate of 6% in the first quarter, and by 24% to 30% in the second. US Treasury Secretary Steve Mnuchin has warned that the unemployment rate could skyrocket to above 20% (twice the peak level during the GFC).

In other words, every component of aggregate demand – consumption, capital spending, exports – is in unprecedented free fall. While most self-serving commentatorshave been anticipating a V-shaped downturn – with output falling sharply for one quarter and then rapidly recovering the next – it should now be clear that the COVID-19 crisis is something else entirely. The contraction that is now underway looks to be neither V- nor U- nor L-shaped (a sharp downturn followed by stagnation). Rather, it looks like an I: a vertical line representing financial markets and the real economy plummeting.

27 March 2020

Insuring the Survival of Post-Pandemic Economies

ROMAN FRYDMAN , EDMUND S. PHELPS

NEW YORK – Lockdowns of entire cities. Panic in financial markets. Bare store shelves. Shortages of hospital beds. The world has entered a reality unknown outside wartime.

The substantial increase in the scale and scope of government action needed to tackle the COVID-19 pandemic should be viewed as an unprecedented form of short-term systemic insurance. This approach requires not only vast government spending but also a temporary state-led reorganization of the entire economy.

By mandating that people isolate themselves at home, policymakers hope to slow, and then reverse, the rate at which COVID-19 is spreading. But a lockdown alone, or a burst of money creation, will not stop the pandemic or save our economies. We need government intervention, but many current proposals appear misguided, some woefully so. Others move in the right direction but are too piecemeal.

The very possibility of millions dying as the economy is crippled justifies substantially scaling up the extent and scope of government action. This action should be viewed as an unprecedented form of short-term systemic insurance for our lives and livelihoods. Given the absolute value we place on both, citizens and governments should be prepared to pay what might appear an extravagantly high premium for such insurance.

Getting Older but Not Poorer

David Amaglobeli, Era Dabla-Norris, and Vitor Gaspar
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Unless you live in France, you might not think recent mass strikes over the proposed pension reforms in that country have anything to do with you. But given how fast demographics are changing around the world, that would be a mistake. If you live in Europe and your parents are getting ready to retire at the age of 65 (the statutory retirement age in many countries), you should know that today there are, on average, 3.4 working-age people to support the retirement of every person 65 and older. By 2050, the year when you might be expecting to retire, that number is projected to dwindle to just 2.

Japan is already nearly at that point. By 2050, more than 35 other countries (about 7 percent of the world population) will join Japan. This implies a significantly higher burden on workers to support retirees. This dramatic change will have important economic and social implications that cannot be ignored either by governments or by individuals.

This phenomenon is not confined to Europe or advanced economies more generally. Aging is affecting all parts of the world, but to varying degrees. Two main factors are contributing to this shift in the age composition of the population: people are living longer and having fewer children. Many countries in the Northern Hemisphere, particularly Japan, find themselves in a more advanced stage of this demographic transition. Others, mostly in Africa, are in the early stage.

24 March 2020

India’s Banks Are Imploding – As Is Its Fintech Bubble

By Sarika Kumar

Hardly an opportunity goes by when India doesn’t refer to itself as the next economic superpower — and, while at it, hold up its crowd of payment apps as proof of a bustling and innovative fintech ecosystem.

While one can’t take away from its story of post-liberalization growth, any critical view has steadfastly been bludgeoned to silence by quoting GDP and a market size, powered by the country’s mammoth population.

But as of this March, India’s gloating is getting harder by the day.

COVID-19 is knocking on India’s doors, and a raging Hindu-Muslim riot left capital New Delhi paralyzed and local merchant economies gutted. Then came the slump in global oil prices and, on March 9, 2020, India’s stock markets took the sharpest nosedive in modern times.

Yet possibly nothing throws the rot in the Indian economy in clearer perspective than the serial implosion of its banks under the weight of loan fraud. And nothing makes the “superpower” bombast fall apart like the government and the central bank’s inability and unwillingness to stem this rot.

23 March 2020

Financialization: Why The Financial Sector Now Rules The Global Economy – OpEd

By Ryan McMaken*

To read or watch the news in today’s world is to be confronted with a wide array of stories about financial organization and financial institutions. News about central banks, interest rates, and debt appear to be everywhere.

But it was not always the case that the financial sector and financial institutions were considered so important. Public policy in general was not always designed with a focus toward propping up banks, keeping interest rates low, and ensuring an ever greater flow of cheap and easy loans. Reporting on the minutiae of central banks—with the assumption that these changes directly impact nearly every facet of our lives—wasn’t always the norm.

But that is where we are now.

The change is real and it’s a thing called “financialization.” It has arisen from of an economy that is increasingly focused on the financial sector at the expense of other areas of the economy. And it’s relatively new. Scholars have suggested many causes for financialization, but they often end up just blaming markets. In fact, the true cause is decades of government and central bank policy devoted to inflating asset prices in financial markets and bailing out the financial sector again and again.

What Is Financialization?

22 March 2020

The Economic-Political Struggle behind the Energy Market Crash

Daniel Rakov, Yoel Guzansky, Tomer Fadlon

Russia’s decision to break its alliance with OPEC was motivated by the desire to change the dynamics of the energy market – in which the cartel provided a “safety net” for American production while Russian corporations were a target of sanctions from Washington – and to demonstrate its ability to influence the global and the Middle East economy. Yet notwithstanding the heated rhetoric and price competition, it appears that both Russia and Saudi Arabia have an interest in resuming cooperation in the framework of an “updated cartel” within the next few weeks or months. Relevant factors are uncertainties due to the coronavirus crisis, fundamental problems in the economies of both countries, and internal political sensitivity in both countries. At the same time, the loss of trust between the two capitals, the tactics of other key actors, and the volatility in the markets are liable to lead to low energy prices in the long term, which will contribute to a recession in the global economy and in many Middle East countries. A crisis in the energy market will have a dual impact on Israel: reduced energy costs to industry and to consumers; and potential changes in the regional balance of power, which will constrain Israel’s political and military room to maneuver.

The price of a barrel of Brent crude oil plummeted on March 9, 2020 by more than 26 percent, which brought the price drop to a total of 50 percent since the beginning of the year. This nosedive, the sharpest since 1991, coupled with the impact of the spread of the coronavirus, caused the steepest plunges in stock markets worldwide since the global economic crisis in 2008. It prompted a downturn in the share prices of the giant energy companies by dozens of percentage points, and brought high volatility in the markets since then.

Donald Trump Must Go Big To Save the U.S. Economy from a Disaster

by Desmond Lachman
In October 2008, it took a real meltdown in the U.S. equity market to forge a bipartisan consensus to get the Troubled Relief Asset Program (TARP) approved. Hopefully, this time around, politicians will put politics aside and swiftly approve a well-targeted fiscal support package of a sufficient size that might spare the country of a rerun of the 2008-2009 Great Economic Recession.

At a time of a global economic and financial market crisis, engaging in wishful thinking and partisan politics is hardly a prudent economic strategy. Yet that is what the Trump Administration seems to be doing by only grudgingly recognizing that the U.S. economy is now heading for a recession and by insisting on a my way or the highway approach to supporting the economy. 

Failure to recognize the severity of the country’s economic challenges and failure to build bipartisan support for swift and bold fiscal policy action heightens the likelihood that we could get a repeat of the 2008-2009 Great Economic Recession.

21 March 2020

Looming Recession Sparks New Oil Sell Off

By Irina Slav
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Travel bans, border closures, and recommendations for self-isolation amid the coronavirus pandemic have aggravated fears of a global recession and pushed money managers to intensify the sell off of crude oil and fuels contracts, data reported by Reuters’ John Kemp shows. While just two weeks ago things were beginning to look up for oil after the first sell-off wave, now the future looks bleak.

Money managers sold some 180 million barrels of oil and fuel contracts since February 18, Kemp reported, which doesn’t bode well for this particular commodity market as prices have been falling in this period and it hasn’t deterred funds from selling.

Just how much things could change over two weeks becomes apparent when one compares the mood in the oil market in early March to what we are witnessing now. In early March, days before the OPEC+ meeting, most expected an agreement on deeper production cuts that would mitigate the devastating effect Covid-19 was already having on the global economy. And then Russia refused to play ball and said it was going back to normal production rates.

Why Oil Could Fall To $20; And Why Saudi Arabia Will Emerge On Top


Avi Salzman posted a March 17, 2020 article to the financial news website, Barron’s, with the title above. Brent crude, as I write this note is trading below $30, at $29.14. And, with neither Saudi Arabia nor Russia likely to blink anytime soon, oilt is likely to fall even further. “There has apparantly been no progress in attempts to mediate between Saudi Arabia and Russia, with sources saying an OPEC+ meeting schedule for Wednesday of this week being called off, said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe. “Neither side appears ready to blink in the short-term, with Saudi Aramco stating at an earnings call that it was likely to sustain higher output through May, and was ‘very comfortable’ with $30 oil.”

“That dynamic is likely to push the price of Brent crude down to $20 in the second quarter/2020,” according to Jeffrie Currie, the head of Commodities Research at Goldman Sachs. “He had previously had a $30 price target,” Mr. Salzman wrote. “Oil use is already down 8 million barrels per day, and supply is likely to increase by 3 million barrels per day at its peak Currie estimates,” Mr. Salzman added.

“Some analysts have predicted Saudi Arabia will eventually have to let oil prices rise, because the country’s budget is funded largely from oil proceeds and cannot be balanced until oil at least doubles.” Mr. Salzman wrote. “But, Currie expects Saudi Arabia to wait this out; and, actually emerge in a much stronger position a year from now.”

20 March 2020

Another Big Market Collapse Heightens Fears of Global Recession

BY KEITH JOHNSON
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Global markets collapsed again on Monday, dismissive of the U.S. Federal Reserve’s dramatic weekend rate cut and huge new round of quantitative easing, as the near-term economic carnage from the new coronavirus outbreak is coming into sharp relief.

For the third time in less than a week, trading on the New York Stock Exchange was briefly suspended after the market plunged almost 12 percent upon opening, and it closed even lower, down almost 13 percent in one of its worst days ever, while stock markets across Europe and Asia posted sharp declines and crude oil cratered. Even though U.S. President Donald Trump finally has interest rates close to zero, the move to loosen monetary policy has done little to assuage nervous investors.

“It’s started to dawn on people—we’ve seen the demonstration of the president’s understanding of the problem, which was worrisome—that there is nothing between us and the worst-case scenario,” said Austan Goolsbee, a professor of economics at the University of Chicago’s Booth School of Business.

Ways government, industry can overcome a perpetual challenge

Andrew Eversden
A congressional report recommended that the federal government takes several measures to improve its intelligence sharing relationship with industry through policy reviews and joint collaboration platforms.

The report, created by the Cyberspace Solarium Commission (made up of government and nongovernment cyber experts), presented 75 cyber policy recommendations, including the recognition that information sharing is a perpetual challenge both between feds and private industry and agencies within the federal government.

The report suggests that Congress direct the executive branch to undergo a six-month review of intelligence policies, procedures and resources to identify pieces that inhibit the intelligence community to effectively share information.

“It needs to be done better in terms of higher level of collaboration [at] more senior levels between and among the government and private sector,” said Tom Gann, chief public policy officer at McAfee.

The Economic Costs of Containing the Coronavirus Pandemic

Kimberly Ann Elliott 

The coronavirus pandemic is, first and foremost, a global health emergency. But it is also having major economic effects—sinking stock markets and threatening to send the global economy into recession.

The economic shocks outside China, where the outbreak originated, were relatively modest at first, as the authorities there—after initially trying to suppress any news of an epidemic—finally imposed strict containment measures that shut down major parts of the economy and disrupted supply chains globally. But those shocks grew rapidly as the virus spread around the world and countries took drastic steps to try and contain it. In the midst of this crisis, international trade in goods and services has been both a vector for spreading COVID-19—cruises and other international travel in particular—and a casualty of that spread. The severe measures being taken now to shut schools and other gathering places will hopefully slow the rate of infection, but the economic cost is going to be high. .

19 March 2020

The Gulf's True Weakness Is Its Water-Supply Resources

by Geoffrey Kemp Lydia Grossman

Water is a vital strategic resource in the Middle East. Assuring its security requires the same vigilance that has been applied to protect oil. The growing populations of the region and the parallel increase in economic activity has dramatically increased the demand for fresh water. But access to fresh water is increasingly costly, especially for those countries that have few natural water sources, including underground aquifers, rivers, and lakes. There are no permanent lakes or rivers in Saudi Arabia, Bahrain, Kuwait, the UAE, Oman, Yemen, and Qatar. Consequently, Gulf states are almost totally dependent on desalination plants to produce fresh water.

In September 2019, crippling attacks on Saudi Arabia’s oil facilities hammered home the region’s exposure to potential strikes on essential infrastructure, including desalination plants and storage facilities, which are susceptible to a number of threats. These include oil spillage and pollution, terrorist attacks, missile, air and cyber-attacks, and sabotage of power stations that are essential to the operation of desalination plants. To appreciate the vulnerability of fresh water supplies for the security of key U.S. allies in the Gulf and large numbers of U.S. forces based in the region, it is useful to review the current capacities of Gulf countries to produce and store fresh water.

Asia’s economic transformation: Lessons for Africa

Arkebe Oqubay

African policymakers and scholars try to learn from Asia—from both its successes and failures. However, the challenge often is finding lessons that match their starting positions as “late” latecomers to industrialization. Thankfully, recent research—in particular, the new book “Resurgent Asia: Diversity in Development” by Deepak Nayyar—has identified lessons that have direct relevance for African countries and their current development trajectory.

DIVERSITY IN DEVELOPMENT AND GROWTH TRAJECTORY

The Asian experience shows that diversity in development paths is the rule rather than the exception. While there are some discernible patterns, generally, Asia’s transformation illustrates the diverse paths that countries have taken in their development. In this way, the lessons for African countries are threefold: First, there is no prescribed path or magic wand that can be leveled as the “Asian model” and applied elsewhere; second, even late latecomers traveling along their own paths have the opportunity to catch up; and, finally, instead of searching for a “one-size-fits-all” model, African countries should discover and pursue their own economic development paths based on their own specific conditions and contexts. In fact, Africa’s recent experience confirms these lessons. For instance, Ethiopia, Kenya, and Ghana are examples of success stories over the last two decades. Notably, they each have taken different paths: Ethiopia’s growth was achieved by pursuing an “unorthodox” economic development model and the principles of “policy independence,” while Ghana and Kenya followed what may be broadly regarded as mainstream orthodoxy and the economic liberalization prescriptions of the Washington Consensus, where the role of the state and active industrial policy is less significant.

THE LESSON FOR AFRICAN COUNTRIES IS CLEAR

18 March 2020

The Oil Shock Of 2020 Appears To Be Here And The Pain Could Be Wide And Deep

by Scott L. Montgomery
The world is again undergoing an oil shock.

Prices, already on a downward trend, have collapsed 30% in less than a week, bringing the total fall to nearly 50% since highs in early January. Consumers, of course, can expect gasoline prices to go down, but the story is far more complicated than that.

Having researched energy for decades, I see this as a big deal, not only for the global economy, but for geopolitics, the future of transport and efforts to mitigate climate change, particularly if the world enters into a sustained period of cheap oil.

How Far Reaching Will the 'Oil Crisis' of 2020 Be?

by Scott L. Montgomery

Prices, already on a downward trend, have collapsed 30% in less than a week, bringing the total fall to nearly 50% since highs in early January. Consumers, of course, can expect gasoline prices to go down, but the story is far more complicated than that.

Having researched energy for decades, I see this as a big deal, not only for the global economy, but for geopolitics, the future of transport and efforts to mitigate climate change, particularly if the world enters into a sustained period of cheap oil.

Oil prices have been forced downward due to major influences from both the demand and supply sides.

Demand for crude oil and petroleum fuels has fallen worldwide because of the coronavirus pandemic, nowhere more so than in China. Locking down millions of people closed factories, cut supply chains and reduced transport at home and abroad via trade. This is key, because China is the globe’s largest oil importer and a major driver of global demand. A global downturn in demand from transportation, not least in air travel, has eroded demand further.

The Real Oil Demand Shock Is Yet To Come

By Julianne Geiger 

Oil demand has been revised downward several times since the start of the year by nearly every analyst or banking institution thanks to the devastating impact of the coronavirus. With the number of coronavirus cases in China--the world’s largest oil importer--seemingly leveling off in recent days, some may be taking the view that the worst of the oil demand shocks is now behind us.

But more shocks are on the horizon as the world’s number one crude oil consumer--the United States--begins its own war on the deadly virus.

When China first issued travel bans in its areas hardest hit by the coronavirus, or COVID-19, oil demand took a beating, and analysts tried to work out just how much oil demand would be lost. As it became clear that China didn’t have the situation contained, other countries closed their borders and halted or tapered air travel, worsening the demand outlook. 

17 March 2020

What are the possible economic effects of COVID-19 on the world economy? Warwick McKibbin’s scenarios

Warwick J. McKibbin

Warwick McKibbin, non-resident senior fellow at the Brookings Institution, director of the Centre for Applied Macroeconomic Analysis in the ANU Crawford School of Public Policy, and director of policy engagement in the ARC Centre of Excellence in Population Aging Research (CEPAR), maintains a large economic model of the world economy, known as G-Cubed, that he is using to estimate the economic effects of the COVID-19 virus under seven scenarios. His analysis, “Global Macroeconomic Implications of COVID-19: Seven Scenarios,” is posted HERE. Here is a Q&A with him about his research.

Q: How does COVID-19 differ from past episodes, such as SARS in 2003 and the Avian flu in 1997? How do the economic risks differ?

SARS was also a coronavirus but had a much higher case mortality rate (10%) compared with COVID-19 (between 2%-4%) and a much lower-case mortality rate than the Avian flu (60%); on the other hand, COVID-19 may be more contagious than SARS and more similar in contagion to Avian flu. There is still a great deal of uncertainty about COVID-19 which is what makes it very concerning.

There is still a great deal of uncertainty about COVID-19 which is what makes it very concerning.