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Former Fed chairs Yellen and Bernanke give Congress views on Covid 19 in response to the economic crisis

  
  Analysis
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Former Fed chair’s testify on Covid 19 in response economic crisis

Former Fed chair’s Janet Yellen and Ben Bernanke are testifying to Covid 19 and response to economic crisis. There comments are appearing on the Brookings institute blog
  • in many respects this recession is unique
  • forecasting recovery is difficult
  • controlling the spread of the virus must be 1st priority for restoring more normal levels of economic activity
  • members of Congress, local leaders and other policymakers need to do all they can to support testing and contact tracing, medical research and sufficient hospital capacity.
  • They must work to ensure that businesses, schools and public transportation have what they need to operate safely
  • pace of recovery could be slow, uneven
  • the longer the recession last the greater the damage will reflect on household and business balance sheets
  • the depth of the recession may leave scars
  • depending on the course of the virus, some restructuring of the economy may be needed
  • Fed likely to give a for guidance on the lift off
  • the yield curve control possible, not certain
  • the financial system is in much better shape today than it was during the financial crisis
  • new same as measured by Congress are necessary including a comprehensive plan to support medical research, testing, contact tracing and hospital capacity, enhanced unemployment insurance should be extended, and Congress should provide substantial support to state and local governments
The full report can be found HERE

Bank of England looking more urgently at negative rates

  
  Analysis
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The Bank of England is looking more urgently at options such as negative interest rates and buying riskier assets to prop up the country’s economy as it slides into a deep coronavirus slump, the BoE’s chief economist was quoted as saying.

The Telegraph newspaper said the economist, Andy Haldane, refused to rule out the possibility of taking interest rates below zero and buying lower-quality financial assets under the central bank’s bond-buying programme.

“The economy is weaker than a year ago and we are now at the effective lower bound, so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy,” he said in an interview. “How could we not be?”

Top BoE officials have previously expressed objections to taking rates below zero – as the central banks of the euro zone and Japan have done – because it might hinder the ability of banks in Britain to lend and hurt rather than help the economy.

But with the BoE’s benchmark at an all-time low of 0.1% and Britain facing potentially its sharpest economic downturn in 300 years, talk of cutting rates to below zero has resurfaced.

Governor Andrew Bailey said on Thursday the BoE was not contemplating negative rates, but he declined to rule it out altogether.

Fitch says : Deep Global Recession in 2020 as Coronavirus Crisis Escalates -Full Text

  
Analysis, Economy
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Fitch Ratings-London-02 April 2020: A deep global recession in 2020 is now Fitch Ratings’ baseline forecast according to its latest update of its Global Economic Outlook (GEO) forecasts.

The speed with which the coronavirus pandemic is evolving has necessitated another round of huge cuts to our GDP forecasts. We now expect world economic activity to decline by 1.9% in 2020 with US, eurozone and UK GDP down by 3.3%, 4.2% and 3.9%, respectively. China’s recovery from the disruption in 1Q20 will be sharply curtailed by the global recession and its annual growth will be below 2%.

“The forecast fall in global GDP for the year as a whole is on a par with the global financial crisis but the immediate hit to activity and jobs in the first half of this year will be worse”, said Brian Coulton, Fitch’s chief economist.

The spread of the pandemic and the actions necessary to control it mean that we now have to incorporate full-scale lockdowns across Europe and the US (and many other countries) in our baseline forecasts. This was not the assumption used in our March 2020 GEO forecast. There are many moving parts, but we now judge that lockdowns could reduce GDP across the EU and US by 7% to 8%, or 28% to 30% annualised, in 2Q20. This is an unprecedented peacetime one-quarter fall in GDP and is similar to what we now estimate occurred in China in 1Q20.

On the assumption that the health crisis is broadly contained by the second half of the year there should be a decent sequential recovery in activity as lockdowns are removed, some spending is re-profiled from 1H20, inventories are rebuilt and policy stimulus takes effect. But this has to be set against the many factors amplifying the depth of the dislocation, including job losses, capex cuts, commodity price shocks and the rout in financial markets.

“Our baseline forecast does not see GDP reverting to its pre-virus levels until late 2021 in the US and Europe,” said Coulton.

 

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Fed’s Bullard: Zero rates, forward guidance, QE still in the play book for “ordinary recession”

  
  Analysis
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Bullard Q&A session after his earlier speech

Suddenly, he’s back to a bit of a more dovish stance following his earlier comments about possible rate hikes if the economy improves again. That said, he’s hardly pushing the issue for a 25 bps rate cut this month and I think that’s the key takeaway in all of this.

Surging household debt clouds Asia’s growth outlook

  
Analysis, Economy
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The rapid expansion of household debt in emerging Asian countries, particularly China, has become a risk to the global economy.

In Thailand and Malaysia, debt has ballooned due to booms in the auto and housing markets, and the growing repayment burden has dampened consumer sentiment. In China, household debt as a percentage of nominal GDP is now over 50%. Countries such as Thailand have begun curbing their consumption in response to rising debt levels.

The U.S. Federal Reserve is expected to cut interest rates at the end of this month. Emerging economies also have room for interest rate cuts, which would boost growth in the short run but could deepen the scars from indebtedness over the long term.

Somprawin Manprasert, chief economist at Bank of Ayudhya, pointed out that household debts have ballooned as a result of incentives for the purchase of cars and other items introduced by the Thai government in 2011. This is a structural factor that will weigh on future consumption, Somprawin said.

Thailand’s household debt ratio is close to 70%. That is higher than in Japan and other advanced economies, which have ratios of about 58%, and well above that of the eurozone. The main reason is auto loans. To support the car industry, the Thai government introduced tax incentives to encourage purchases, which took off in 2012. As a result of the higher debt load, personal consumption has been sluggish and inflation has been weak.

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Prayer for the Day

  
Analysis, Education
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Prayer for the day –

Our Ben,
Who art in heaven,
Hallowed Be-nanke,
Thy auctions come,
Thy Bill’s be done,
In Twos as they are in Sevens,
Give us this day our daily Fed,
And forgive us our Treasuries,
As we forgive those that default against us,
And lead us not into recession,
And deliver us from deflation,
For thine is the borrowing, the easing, and the printing,
For ever and ever.
Amen.

German economic optimism on the rise in August

  
Analysis, Education
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BNEWSGermans are feeling much better than expected about their economy, with the just-released ZEW sentiment index giving a reading of 42, up from 36.3 in July.

The Zew Institute’s Current Conditions Index rose even more – to 18.3 from 10.6 in July.

Analysts expected readings of 40 and 12 respectively for the two indices and sentiment is at its highest since March.

The institute comments that the “first signs of an end to the recession in important Eurozone countries may have contributed to the indicator’s rise…. furthermore, the economic optimism is supported by the robust domestic demand in Germany”.

There has also been a strong increase in economic expectations for the Eurozone, the index climbing 11.2 points to 44.

Eurozone industrial production numbers for June are also out. They show an increase of 0.7 per cent, compared to economist expectations of 0.8 per cent and a decline of 0.3 per cent in May.

The Stimulus Packages Will Soon Lose Its Influence

  
Analysis, Education
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“I am not sure yet that the recession is already over because the numbers of unemployed persons in the United States is still increasing and there are several indicators that barely suggest a rebound on the economy , I think that also this year it will not get better because the stimulus packages will already lose its influence So I could imagine that we would not have a basic rebound and that the markets will rather correct.”

translated from a german TV video interview, April 2010

European markets mostly edge lower

  
  Education
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It’s been another mixed day – albeit a fairly uneventful one – for European shares. The UK market moved higher despite poor UK manufacturing figures and renewed talk of triple dip recession, but most other exchanges recorded minor losses.
• The FTSE 100 finished at 6510.62, up 6.99 points or 0.11%
• France’s CAC climbed 0.1%
• Germany’s Dax was down 0.23%
• Italy’s FTSE MIB closed down 0.42%
• Spain’s Ibex was 0.26% lower
• The Athens market added 1.23%

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