1. The Times has an assessment of the possible responses to coronavirus, which it describes as a rare combination of both supply and demand-side shocks.
As the report writes, the substantive value of a monetary policy cut now is questionable, beyond being a measure to reassure the financial markets. Experts favour fiscal policy response,
Governments have tools that could limit the costs, but have been reluctant to use them, economists said. They could give cash to employees whose workplaces are shut, provide credit to small businesses and offer rescue packages to industries most affected, like airlines and other tourism-related concerns.
See also Larry Summers here - central banks to keep credit taps flowing, fiscal expansion etc.
One observation that I have heard is that the medical costs of the epidemic may be lower than the economic costs that will be inflicted due to an over-reaction. Only time will tell.
One observation that I have heard is that the medical costs of the epidemic may be lower than the economic costs that will be inflicted due to an over-reaction. Only time will tell.
2. Good example of urban regeneration in the 30-block Hudson Square area of New York city sparked off by the decision by Disney to relocate its headquarters by building an SOM designed 19-story, 1.2 million square foot office and studio complex. The area, once a hub for printing-press businesses has struggled to reinvent itself since the 1990s.
Needless to say, this time too has come with its gentrification costs.
3. After the initial mishandling, the Chinese response to the coronavirus appears to have been very impressive. Mobilising resources in a big way and acting swiftly and decisively.
4. Tristan Harris, a former employee at Google, calls for EU to take the lead and regulate Facebook and Google as "attention extraction utilities".
First, the EU should create a new corporate classification for large, dominant social platform businesses that have created vital public digital infrastructure. These “attention utilities” should be required to operate in the public interest, according to rules and licences that guide their business models. Traditional companies have been subject to licensing for many years. Attention utilities should be required to obey limits on data extraction and message amplification practices that drive polarisation, and should be required to protect children. We should ban or limit microtargeting of advertising, recommendations and other behavioural nudges. Second, instead of relying on revenue based on advertising, attention utilities should be required to convert to a monthly licence fee model a bit like the BBC or a subscription like Netflix. They must adhere to the terms of an operating licence framed by a duty of care. EU antitrust commissioner Margrethe Vestager has suggested Facebook should use a subscription model. Third, attention utilities should be subject to a “social impact assessment”, in which their new products are evaluated for their potential impact on mental health, social isolation, fake news, polarisation and democracy. This pre-clearance would be akin to an environmental impact assessment or safety protocols used for medical devices.
5. Nice article about living in central London.
Central London had 5m residents before the second world war. That had halved by the 1980s and is now creeping up again above 3m, as city-centre living becomes cool again.
6. Morgan Hausel points to three more inevitabilities of life other than death and taxes (HT: Ananth).
1. Talent will cluster around tiny groups of people because people like associating with winners, so success snowballs.
2. The boom-bust cycle will never go away, because most people capable of driving growth don’t have the kind of personality that can quit while they’re ahead.
3. There are social problems that will never be solved, because they evolve and adapt to solutions.
This a very good article.
7. As the Covid 19 outbreak continues to spread, the biggest concern is about its likely impact on the economy. One of the strongest candidates for a channel of transmission is the debt markets. Consider this,
According to the Institute of International Finance, a trade group, the ratio of global debt to gross domestic product hit an all-time high of over 322 per cent in the third quarter of 2019, with total debt reaching close to $253tn... This is particularly important because much of the debt build-up since the global financial crisis of 2007-08 has been in the non-bank corporate sector where the current disruption to supply chains and reduced global growth imply lower earnings and greater difficulty in servicing debt. In effect, the coronavirus raises the extraordinary prospect of a credit crunch in a world of ultra-low and negative interest rates....
A recent OECD report says that at the end of December 2019 the global outstanding stock of non-financial corporate bonds reached an all-time high of $13.5tn, double the level in real terms against December 2008. The rise is most striking in the US, where the Fed estimates that corporate debt has risen from $3.3tn before the financial crisis to $6.5tn last year... The IMF’s latest global financial stability report amplifies this point with a simulation showing that a recession half as severe as 2009 would result in companies with $19tn of outstanding debt having insufficient profits to service that debt.
Consequently, as John Plender writes, the risks are also much higher now,
... banks... are not as heavily exposed to corporate debt as investors, such as insurance companies, pension funds, mutual funds and exchange traded funds. That said, banks cannot escape the consequences of a wider collapse in markets in the event of a continued loss of investor confidence and or a rise in interest rates from today’s extraordinary low levels. Such an outcome would lead to increased defaults on banks’ loans together with shrinkage in the value of collateral in the banking system... The OECD report notes that compared with previous credit cycles today’s stock of corporate bonds has lower overall credit quality, longer maturities, inferior covenant protection — bondholder rights such as restrictions on future borrowing or dividend payments — and higher payback requirements. Longer maturities are associated with higher price sensitivity to changes in interest rates, so together with declining credit quality that makes bond markets more sensitive to changes in monetary policy. Current market volatility is further exacerbated by banks’ withdrawal from market-making activities in response to tougher capital adequacy requirements since the crisis...
In a downturn, some of the disproportionately large recent issuance of BBB bonds — the lowest investment grade category — could end up being downgraded. That would lead to big increases in borrowing costs because many investors are constrained by regulation or self-imposed restrictions from investing in non-investment grade bonds. The deterioration in bond quality is particularly striking in the $1.3tn global market for leveraged loans, which are loans arranged by syndicates of banks to companies that are heavily indebted or have weak credit ratings. Such loans are called leveraged because the ratio of the borrower’s debt to assets or earnings is well above industry norms. New issuance in this sector hit a record $788bn in 2017, higher than the peak of $762bn before the crisis. The US accounted for $564bn of that total.8. Nice set of graphics in WSJ explaining the transmission channels of coronavirus from China.
9. Finally, a good representation of China moving up the textiles value chain,
China’s share of global clothing exports ebbed from 37% in 2010 to 31% in 2018, according to the World Trade Organization. Yet over the same period, China’s share of global exports of textiles—which is made into apparel—rose to 38% from 30%. Producing textiles is highly automated, which means China has remained a favored destination despite rising labor costs. Chinese fabrics are shipped to Vietnam, Pakistan and Bangladesh for labor-intensive cutting and sewing, accounting for roughly half to three-quarters of their textile imports. These newer manufacturing nations also depend on China for more complex products, such as zippers and fasteners, that rely on higher-skilled workers... In Bangladesh, factories can’t easily stockpile fabrics and other materials because they don’t know what styles of clothing buyers will request. Both Vietnam and Bangladesh are increasing textile production, but industry experts say they will rely on imports for years to come.10. Finally, a fascinating peek at the economics of buffets (HT: MR).
Given low margins, it is economies of scale that makes buffets profitable.
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