I don’t believe that the corona pandemic will fundamentally change the course of geopolitics or the global economy. As I predicted on March 25, 2020:
All the doomers, America-haters, EU-haters, permabears, moralizing nutters, communists, and libertarians are crawling out of the woodwork due to the coronavirus. However, I expect they will be proven wrong again. #timestamp#prediction
- The coronavirus will not cause the collapse of society
- The coronavirus will not end the dollar hegemony
- The coronavirus will not be the end of the American empire
- The coronavirus will not cause the end of the euro
- The coronavirus will not cause the end of the EU
- The coronavirus will not start a 20+ year bear market
- The coronavirus will not reverse global supply chains
- The coronavirus will not stop the desire for money, travel or luxury
- The coronavirus will not stop climate change
- The coronavirus will not cause the end of capitalism
- The coronavirus will not lead to central planning
- The coronavirus will not stop the government from intervening in the economy
- The coronavirus will not stop central banks from “printing money”
The coronavirus has led to a lot of economic pessimism.
I’m more bullish than most commentators. Why?
- Stock prices have bounced back from their mid-March lows
- Shops, schools and factories can open again thanks to workarounds
- Government transfers have stabilized incomes
- The corona shock has sped up the digital transformation
- Masks and testing will bring the virus under control without lockdowns or a vaccine
The future looks bright!*
*Unless premature austerity kills the recovery.
But the reaction of policymakers might.
The direct impact of the coronavirus on the economy is limited. Unlike disasters such as hurricanes or earthquakes, there is no material damage. Few workers have been incapacitated by the virus.
Once the spread of the virus is under control, the economy can recover quickly.
The greatest risk is that politicians and central bankers will let financial uncertainty get out of hand. The stock market has taken a hit. Some companies will need to defer payments.
Continue reading “The coronavirus won’t cause a recession”
The ten year anniversary of Lehman Brothers’ bankruptcy is fast approaching. Some quick thoughts on what has changed and what we’ve learned over the past decade, with a focus on Europe.
- Banks are much safer now than they were in the summer of 2008.
- There’s a remarkable lack of entrepreneurship in banking. A few fintechs offer payment services, but payments are only a small part of banking. Where are the new banks?
- Related to point 2, and something I’ve changed my mind about over the years: bailing out the banks was the right thing to do. I highly doubt that we would have experienced much creative destruction by letting the financial system collapse. That being said, the way the bailouts were done was horrible.
- The way the European establishment handled the euro crisis was an abomination. Fiscal and monetary coordination across Europe would have resulted in lower unemployment, lower debt, lower taxes.
- Notwithstanding the importance of money in people’s daily lives, financial literacy is still limited.
The European Conservatives and Reformists (ECR) group in the European Parliament recently launched “Leer Geld”, an initiative led by MEP Sander Loones, to raise awareness about the effects of the monetary policy conducted by the European Central Bank (ECB).
The initiative is to be welcomed: monetary policy is too often overlooked by civil society, yet its impact on our lives has never been greater. Under its “quantitative easing” programme (QE), the ECB has been buying large quantities of government bonds since 2015. Surely injecting the equivalent of 20 percent of GDP into the eurozone finance sector cannot be without consequences. (continue)
You can read the full article written by me and Eric Lonergan at EUobserver.