Serious Coming Economic Depression

[Pinkieslut]

Unemployment in US and UK 'may be worse than in Great Depression' | Economics | The Guardian

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Economics

Unemployment in US and UK ‘may be worse than in Great Depression’

Richard Partington Economics correspondent

Unemployment in Britain and the US could surpass the levels reached during the 1930s Great Depression within months as the coronavirus crisis crushes the global economy, a former Bank of England official has warned.
In a stark forecast as job losses mount around the world, David Blanchflower, professor of economics at Dartmouth College in the US and a member of the Bank’s interest rate-setting monetary policy committee during the 2008 financial crisis, said unemployment was rising at the fastest rate in living memory.
Writing in the Guardian, the economist said UK unemployment could rapidly rise to more than 6 million people, around 21% of the entire workforce, based on analysis of US job market figures that suggest unemployment across the Atlantic could reach 52.8 million, around 32% of the workforce.
“There has never been such a concentrated business collapse. The government has tried to respond but it has no idea of the scale of the problem it is going to have to deal with. We make some back-of-the-envelope calculations and they are scary,” he said.
Making the assessment alongside David Bell, an economist at the University of Stirling, the former Threadneedle Street policymaker said the collapse in activity amid Covid-19 and the accompanying rise in unemployment looked to be at least 10 times faster than in the recession triggered by the 2008 financial crisis.
The economists said that while government support in Britain for companies to furlough workers could help to cushion the blow, unemployment would still soar. While joblessness would rapidly rise, they cautioned it was uncertain how long the impact would last and how quickly unemployment would come down. During the Great Depression, records show unemployment hit 24.9% in the US and 15.4% in the UK over several years.
The warning shot for the two economies comes as business activity in Britain and the eurozone plunges to the lowest levels since the start of closely watched surveys more than two decades ago and as unemployment in the US begins to rise.
According to the latest snapshots from the purchasing managers indices (PMI), which are based on surveys of business activity, the private sector economy in the UK and the eurozone collapsed in March at the fastest pace since records began in the late 1990s.
The US economy also shed 701,000 jobs, according to March data, far more than the 100,000 fall expected on average by economists. The unemployment rate rose to 4.4%, up from 3.5% in February. Initial unemployment insurance figures, which come in advance of official figures, have suggested joblessness is already on track to reach more than 10 million.
Stock markets sold off on Friday as the prospect of lasting economic damage becomes increasingly clear. The FTSE 100 closed down more than 1% at 5,415, as share prices tumbled across Europe and the US.
The latest health check in Britain from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) showed the onset of job losses last month as the government in effect shut down large swathes of the economy.
The PMI reading for manufacturing and service sector output, making up the vast majority of UK growth, crashed to 36.0 in March on a scale where anything above 50.0 separates growth from contraction. Down sharply from 53.0 in February, the reading was the worst since records began in 1996.
Duncan Brock, group director at Cips, said: “It’s increasingly difficult to find the words to describe the devastation as every region in the world fights to save human life as the first priority. The likelihood of a global recession is now a given, though its duration and severity has yet to reveal itself.”
Surveys of factory output and service sector activity in the eurozone also showed the biggest ever single monthly fall in March, setting the currency bloc on course for a deep recession.
The IHS Markit eurozone composite PMI plunged to 29.7 from 51.6 in February, the lowest since the survey began in 1998.
“In one line: horrid, hideous, harrowing … you get the picture,” said Claus Vistesen, chief eurozone economist at the consultancy Pantheon Macroeconomics. “We are struggling to come up with words to describe these numbers, which are now so far out of any reasonable range that they are difficult to interpret.”

 

[Pinkieslut]

The looming collapse of the Eurozone

The Eurozone is teetering in the edge of a collapse. The massive economic costs caused by the coronavirus outbreak and the draconian measures needed to contain it are pillaging the world economy. However, they will deliver their worst hit on the Eurozone.
This is for the simple reason that the Eurozone has become extremely fragile. The monetary union and banking sector have been mishandled for years. This, not the Covid-19 outbreak, is the true reason, why we are on the edge of a collapse.
But, how did we get here?
The failed clean-up
During the Great Financial Crisis (GFC), only a few European banks were allowed to fail, which were mostly concentrated to one country: Iceland. In total, 114 European banks received government support during the crisis.
The banks were also allowed to carry non-performing loans and assets on their balance sheet. This meant that:
1) Banks held defaulted loans on their balance sheets, instead of writing them off and recapitalising.
2) Assets (like mortgage-backed CDOs) that had lost most or all of their value could be held on the balance sheet based on their “nominal value”, that is, their purchase price.
In practice, the balance sheet of the European banking sector was divided into three layers. The first included the good assets, held “mark-to-market”, meaning that their value was based on actual daily market quotes. The second layer included assets that had lost value, but which the banks could pretend had not. The third layer, “the dark pit”, included assets that were nearly or totally worthless, but are nonetheless held on bank books as if they still had some value.
Using traditional accounting, a large part of the European banking sector has probably been insolvent for the past 10 years.
Bailing out the banks, through Greece
The fate of the Eurozone was most-likely sealed in the summer of 2011, when the second Greek rescue package was accepted by European leaders. The first package, issued in 2010, had been used, in essence, to recapitalise German and France banks through “loans” to Greece. Banks had lent heavily to Greece and its looming default threatened to topple some of them.
Threatened by this unpleasant scenario, and a possible partial collapse of the Eurozone, European leaders superseded Article 125 of the Treaty of the Functioning of the European Union (TFEU) forbidding mutual fiscal responsibility. They issued bilateral loans and established the European Stability Facility, which later turned into the European Stability Mechanism (ESM). Eurozone governments guaranteed the bonds these facilities issued, which were used to finance the ailing governments of the Eurozone.
In the summer of 2011, Greece was again on the edge of a collapse. The majority of banks had reduced or eliminated their exposure to Greek debt, however. A possible Greek default now only threatened the stability of the euro, which would have, in turn, likely precipitated a banking crisis. Yet, this would have fixed most of the problems of the Eurozone.
In 2011, the balance sheet of the ECB was nearly empty, political cohesion supporting the euro was strong, and the world economy was growing relatively fast. The ECB could have used programmes such as the Outright Monetary Transactions (OMT) programme to stop the spread of the panic to sovereign bond markets of other weak member countries.
If European leaders had let Greece fail and the banking crisis had run its course in 2011/2012, weak banks would have been wound down or recapitalised. We would have had a crisis and recession, but the Eurozone would have emerged stronger. The no-bailout rule would have been enforced and our banking sector would have been cleaned up.
None of this happened, and then things got really bad.
The ECB policy of “zombification” and banking sector decimation
When the ECB launched its OMT programme, two things happened. While the OMT programme helped banks by increasing the market values of Eurozone government bonds they were holding, it helped to sustain ailing banks.
Weak banks, in an effort to guard against further losses, engaged in lending to weak or even insolvent, or “zombie” corporations. Moreover, corporations that received these loans did not use them to invest or to employ, but to build cash reserves.
This meant that, while banks were cutting back on lending, the share of lending to zombie corporations increased. Creditworthy firms suffered greatly from this misallocation of credit further hurting the Eurozone economy.
Banks make the majority of their profits from the interest rate differential between lending and borrowing (deposit taking). However, when a central bank drops rates to negative, which occurred in the Eurozone in June 2014, banks need to pay interest on their central bank reserves. But, they are usually not relieved of the obligation to pay interest on customer deposits, who tend to be reluctant to pay interest on money they place at a bank.
This seriously hurts their profit margins, and when the profit margins of banks are squeezed, they start to cut back on lending, which further damages the profitability of banks. Moreover, because low and negative interest rate policies hurt the profitability of banks, they tend to target non-profitable firms, or “zombies”, in their lending practices to avert any further losses.
The European banking sector = monetary union is done
The fact is that the European banking sector is ready to “catch fire”, at any time. There’s just no way that our weak banking sector can handle the massive losses that the coronavirus will inflict to our “zombified” corporate sector.
This naturally should concern the whole world, as Europe holds the largest concentration of global systemically important banks. The exit and default of Italy would be very likely to set in motion a process leading to both collapse of the European currency bloc and the global banking sector.
We are playing with fire.
Tuomas Malinen is Chief Economist of GnS Economics.

 

[syed putra]

So we can get cheap European holidays?cheap wine? Cheese?

 

[nayr69sg]

So we can get cheap European holidays?cheap wine? Cheese?

Likely global economy will change. See whether the Europeans still ban building and development in name of climate change lor.

 

[tanwahtiu]

Havard Uni shd be shut down. They produced criminal bankers massaging banks and loan.

What is the unsecured loan 4 year MTN...

Blamed the baby boomers worry of retirement no money from gahment to support 1 billion of them..

So banks come up with Havard uni graduates unsecure loans back in 2008 for building residential properties for baby boomers to use their homes for secuity LVR to buy a new investment properties for passive income retirement..

This bs has to end and chapkaokee is used now to burst this bubble...

 

[knowwhatyouwantinlife]

If people staying at home and living a wholesome lifestyle with lots of sex, porn and home cooked food can lead to a recession and depression, wouldn't u think economist bankers and politicians are way overpaid and should disappear from the surface of this earth?

 

[sweetiepie]

KNN major economic depression can make companies realise most of the white collared workforce they hire are redundant KNN

 

[Asterix]

 

[Leongsam]

The coronavirus did not cause this economic catastrophe. My in depth analysis of the numbers shows that the mortality rate is 0.1% or less which it makes it no worse than a bad flu year.

It is the overwhelmingly disproportionate responses by governments that has caused the mess we are now in.

 

[tanwahtiu]

In this super IT world, not back in those days IT dotcom crash 2001, people work at home means are still getting paid an produce same output.

Back in years ago already talk about work at home but does not take off, IT technology not ready yet... still hv more IT gig to do...

1. Unitl Amazon solved the problem invented scalable servers ebd of PC crash when more users use the site...

2. Current new tech use SD and not hard drive, and now RAM is min 8G and now 16G and 32G RAM available.

I upgraded my PC to latest parts with 32 RAM in it. 500G SD... 4G graphic and much more... ready to pump full tanks into porn biz... graphic card can load screen up to 4 monitors..

4. Bluetooth V5.0 now hv a transceiver distance up 70m.... or 100m...

So now is the best time to try work at home. After this crisis u can fuck off go to office or city to work.... stay home or resign u shitty white collar workers 没用人...

With stay home work reduced need to jam trains system, get new car take Uber now and food delivey and online buying...

NWO coming to shit you dickheads...

 

[Pinkieslut]

those who survive Black Death got their salaries increased, and with less peasants, Europeans no choice has to colonies rest of the world for new slaves.

 

[SBFNews]

KNN major economic depression can make companies realise most of the white collared workforce they hire are redundant KNN

That's true. Especially those in HR department. The most useless people in any organisation.

 

[tanwahtiu]

Ah neh go home...

That's true. Especially those in HR department. The most useless people in any organisation.

 

[syed putra]

The coronavirus did not cause this economic catastrophe. My in depth analysis of the numbers shows that the mortality rate is 0.1% or less which it makes it no worse than a bad flu year.

It is the overwhelmingly disproportionate responses by governments that has caused the mess we are now in.

It was china that started the panic. They should have shut the doctor up sooner.

 

[laksaboy]

Coming? It's already here.

 

[Pinkieslut]