Covid 19 and The Trillions: The Worst Economic Downturn In History

 It’s been a long time since I wrote in this blog, but recent events caused by an organized pandemic made me write and give my take on the current situation.

Our world has changed dramatically in the past three months. A rare disaster, a coronavirus pandemic, has resulted in a tragically large number of human lives being lost. As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown. The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.

This is a crisis like no other, and there is substantial uncertainty about its impact on people’s lives and livelihoods. A lot depends on the epidemiology of the virus, the effectiveness of containment measures, and the development of therapeutics and vaccines, all of which are hard to predict. In addition, many countries now face multiple crises—a health crisis, a financial crisis, a psychological crisis  and a collapse in commodity prices, which interact in complex ways. Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown.

Under the assumption that the pandemic and required containment peaks in the second quarter for most countries in the world, and recedes in the second half of this year, in the April we  could project global growth in 2020 to fall to -3 percent. This is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period. This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.

Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, we could expect global growth in 2021 to rebound to 5.8 percent.

This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit. The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.

This is a truly global crisis as no country is spared. Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions. Emerging market and developing economies face additional challenges with unprecedented reversals in capital flows as global risk appetite wanes, and currency pressures, while coping with weaker health systems, and more limited fiscal space to provide support. Moreover, several economies entered this crisis in a vulnerable state with sluggish growth and high debt levels.

For the first time since the Great Depression both advanced economies and emerging market and developing economies are in recession. For this year, growth in advanced economies is projected at -6.1 percent. Emerging market and developing economies with normal growth levels well above advanced economies are also projected to have negative growth rates of -1.0 percent in 2020, and -2.2 percent if you exclude China. Income per capita is projected to shrink for over 170 countries. Both advanced economies and emerging market and developing economies are expected to partially recover in 2021.

Alternative scenarios

What I have described is a baseline scenario but, given the extreme uncertainty around the duration and intensity of the health crisis, we also explore alternative, more adverse scenarios. The pandemic may not recede in the second half of this year, leading to longer duration of containment, worsening financial conditions, and further breakdowns of global supply chains. In such cases, global GDP would fall even further: an additional 3 percent in 2020 if the pandemic is more protracted this year, while, if the pandemic continues into 2021, it may fall next year by an additional 8 percent compared to our baseline scenario.

Exceptional and immediate policy actions

Flattening the spread of COVID-19 using lock downs allows health systems to cope with the disease, which then permits a resumption of economic activity. In this sense, there is no trade-off between saving lives and saving livelihoods. Countries should immediately  spend generously on their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies. 

While the economy is shut down, policymakers will need to ensure that people are able to meet their needs and that businesses can pick up once the acute phases of the pandemic pass. The large, timely, and targeted, fiscal, monetary, and financial policies already taken by many policymakers—including credit guarantees, liquidity facilities, loan forbearance, expanded unemployment insurance, enhanced benefits, and tax relief—have been lifelines to households and businesses. This support should continue throughout the containment phase to minimize persistent scars that could emerge from subdued investment and job losses in this severe downturn.

Policymakers must also plan for the recovery. As containment measures come off, policies should shift swiftly to supporting demand, incentivizing firm hiring, and repairing balance sheets in the private and public sector to aid the recovery. Fiscal stimulus that is coordinated across countries with fiscal space will magnify the benefit for all economies. Moratoria on debt repayments and debt restructuring may need to be continued during the recovery phase.

Multilateral cooperation is vital to the health of the global recovery. To support needed spending in developing countries, bilateral creditors and international financial institutions should provide concessional financing, grants, and debt relief. The activation and establishment of swap lines between major central banks has helped ease shortages in international liquidity, and may need to be expanded to more economies. Collaborative effort is needed to ensure that the world does not de-globalize, so the recovery is not damaged by further losses to productivity.

There are some hopeful signs that this health crisis will end. Countries and leaders should succeed in containing the virus using social-distancing practices, testing, and contact tracing, and treatments and vaccines may develop sooner than expected.

In the meantime, we face tremendous uncertainty around what comes next. Commensurate with the scale and speed of the crisis, domestic and international policy responses need to be large, rapidly deployed, and speedily re-calibrated as new data becomes available. The courageous actions of doctors and nurses need to be matched by policymakers all over the world so we can jointly overcome this terrible crisis.

Greek bailout The Millions in the European Union (part two)

Back to the normal rutinary days followed by a great sunny day... I finally have time to express all the ideas on the objective of the Million Euros in less than 5 years. After taking a short trip to Amsterdam to celebrate their freedom day! and see a couple of friends in there I'm back the news are quite extreme, everything financially speaking circles around Greece and Europe, therefore I have to write a follow up article to my article writen on february 2010.

The follow up has to do with Greece and the final bailout that not so many were expecting including me, I still perceive a bunch of exagerated facts and issues let me explain:

The European finance ministers triggered a record 110 billion euro ($147 billion) bailout for debt-stricken Greece last week after Athens committed itself to years of painful austerity.

After weeks of tough talk and procrastination due to fierce public opposition to handouts for the Greeks, German Chancellor Angela Merkel finally threw her full support behind the EU/IMF package, vowing to fight for parliamentary approval.

Euro zone ministers, meeting in emergency session, approved the three-year package of emergency loans and agreed the first funds would be released in time for Athens to make a big debt repayment to creditors on May 19.

In exchange for by far the largest bailout ever assembled for a country, Prime Minister George Papandreou announced further spending cuts and tax increases totalling 30 billion euros over three years on top of tough measures already taken.

"It is an unprecedented support package for an unprecedented effort by the Greek people," a sombre Papandreou, told a televised cabinet meeting.

Merkel called the programme very ambitious and said she would work to achieve swift parliamentary approval of Berlin's share -- the biggest of any EU state at about 22 billion euros out of 80 billion -- of the rescue loans.

U.S. President Barack Obama told Papandreou on Sunday he welcomes Greece's "ambitious" reform program, the White House said. He also praised the "significant support" from the IMF and Eurozone members.

Euro zone leaders held a special summit on Friday to formally launch the rescue after obtaining parliamentary approval where necessary. International Monetary Fund chief Dominique Strauss-Kahn forecast the IMF board approved its 30 billion euro contribution to the package this week.

Greeks have already taken to the streets to demonstrate against the austerity drive and past governments have backed off from reforms to defuse often violent protests. But Papandreou, a Socialist with a strong personal approval rating, has insisted the country must face the bill for years of drift and graft.

"These sacrifices will give us breathing space and the time we need to make great changes," he said. "I want to tell Greeks very honestly that we have a big trial ahead of us."

The first rescue of a member of the 16-nation euro zone aims to stem a debt crisis that has shaken financial markets, dented confidence in the euro and begun to spread to fellow euro zone weaklings Portugal and Spain. Berlin's hesitancy has fuelled market panic.

The chairman of the Eurogroup of finance ministers, Jean-Claude Juncker, said that at Germany's insistence, all ministers would discuss with their national banking sectors the possibility of voluntary contributions to the aid package.

Some 10 billion euros of the overall amount was earmarked to help stabilise the Greek banking sector if necessary, EU Economic and Monetary Affairs Commissioner Olli Rehn said.

Greece is such a particular case that could not be compared to any other state. Now what really worries me behind all this propaganda is that The euro zone loans will carry an interest rate of about 5 percent -- just half the rate demanded by markets last week to buy Greek debt, but nearly 2 percentage points more than the rate on Germany's benchmark bonds. Here is my main question and concern. How would Grecee be able to pay a loan with a loan?

European Commission and the International Monetary Fund will monitor Greece's progress quarterly and loan disbursements will be tied to those reviews.

Telling angry Greeks to choose between the painful rescue or economic collapse, the government now aims to bring its towering budget deficit back to the EU limit by 2014, two years later than originally promised.

"These measures are tough and unfair," said Stathis Anestis, a spokesman for private sector union GSEE. "They lead workers to misery and the country deeper into recession."

Economists were more positive. "The aid package will help defuse the primary cause of concern for creditors which is the imminent risk of default," said Lena Komileva, head of G7 market economics at Tullett Prebon. But she noted that there was still a question mark over political approval across Europe.

The Greek rescue dwarfs the previous record bailout. South Korea -- a country with a population nearly five times that of Greece -- obtained a $58 billion rescue package from donors including the IMF during the Asian financial crisis in 1997.

Citing a choice "between collapse or salvation", Finance Minister George Papaconstantinou announced a three-year public sector pay freeze, further cuts in civil servants' benefits, higher sales and fuel taxes, an increase in the effective retirement age and reductions in pensions.

Papaconstantinou said the deal would cover a large part of Greek borrowing needs for the next three years. In return Athens promised to slash its budget deficit to the EU limit of three percent of GDP by 2014 from 13.6 percent last year.

Papaconstantinou said Greece's public debt would soar to nearly 150 percent of GDP -- a higher peak than forecast earlier -- but start falling from 2014. Both he and EU and IMF officials insisted there had been no talk of restructuring Greece's debts. It seems that there is some clear lack of specialization concerning finacial issues in this particular case, we basically have to consider some basics on financial matters. Austerity and stop the credit crunch lately the world has seen a bunch of financial bubles and here comes my second questions Why we just don't get it? Stop getting loans that you are not able to pay.

Economists say that if the rescue fails to calm markets, European countries could end up footing a bill of half a trillion euros ($650 billion) to save several other nation. I ask the Economist Who will be able to re pay those bills? why to go that far, instead we should go back to the basics of the market to learn to live between our means stop the credit crunch be environmentaly friendly and make a decent but multiple profit.

It seems to me that the Greek classics are comming back specially with the The Allegory of the Cave, also commonly known as Myth of the Cave, is an used by Plato in his work. The Republic to illustrate "our nature ". (514a) The allegory of the cave is written as a fictional dialogue between Plato's teacher Socrates and Plato's brother Glaucon, at the beginning of Book VII.

Plato imagines a group of people who have lived chained in a cave all of their lives, facing a blank wall. The people watch shadows projected on the wall by things passing in front of a fire behind them, and begin to ascribe forms to these shadows. According to Plato, the shadows are as close as the prisoners get to seeing reality. He then explains how the philosopher is like a prisoner who is freed from the cave and comes to understand that the shadows on the wall are not constitutive of reality at all, as he can perceive the true form of reality rather than the mere shadows seen by the prisoners.

So it seems to me that maybe we should see what is going on behind the shadows, having in mind the following:

-Grecee is not the whole of Europe
-Greeks must be ready for long sacrifice
-Athens promises extra 30 bln euros in cuts over 3 years
-The bailout will have to be paid (with interest)
-In the past the USA approved 100 billion loan to IMF.
-Learn from the past and stay out of debt!

Final comment: Any heart weak investor should go out off the stock market immediatelly, others like me will stay inn strong waitting for the great oportunities to come, last month Nokia was around 11.30€ a share after all this news it came down to 8.40€ a perfect time to buy don't you think?

Keep your mails and comments coming and let's make it happen!

Here you have two different points of view:

The Millions in the European Union

My purpose is stronger than ever one Million Euros in less than 5 years, now I see this objective more than interesting due to the fact that during the week in which I moved my positions to a safer place, and just when I was ready to leave the coldness of Helsinki for a month in Mexico, and more than ready to enjoy the sun and the sand in the beach, I was surprised of the events during the last week in the European stock market's downfall, few colleagues and Pasive Investors followed my advise of cashing out temporarily (just in time) and come back to the Bullish market during March, I was surprised to find out that Greece has come under pressure to implement austerity measures after the European Union announced plans to monitor the country's efforts to cut its budget deficit

Pressure on Greece to get its public finances into shape increased during this weeks as the European Union announced unusually strict measures against the country. The European Commission, the EU's executive body, is to put Greece under closer monitoring than any euro-zone country has ever been subjected to and also criticized Athens for faulty reporting of statistics.

Speaking at a press conference Wednesday, European Economy Commissioner Joaquin Almunia welcomed Greece's new plan to reduce its enormous budget deficit. On Tuesday, Greek Prime Minister George Papandreou announced a package of austerity measures that includes a freeze on salaries in the public sector, a possible increase in the retirement age and a hike in fuel prices.

Almunia said that the Commission was endorsing the program, which he described as "ambitious" but "achievable." "We know that the implementation of the program will not be easy," he told reporters. "It's extremely challenging, but absolutely necessary and urgent."

However, the EU wants Greece to do even more and is urging it to adopt a "comprehensive structural reform package" that would include cuts in pension spending and reform of the health-care system. The Commission also wants Greece to increase the competitiveness of its economy by making its labor market more flexible, among other demands.

At 12.7 percent of GDP, Greece's budget deficit is more than four times higher than the maximum of 3 percent allowed under euro-zone rules. The European Commission's recommendations are aimed at bringing the country's deficit under 3 percent of GDP by 2012. I really want to believe that is possible but some experts will have to take control.Greece's progress and the new plans would be rigorously monitored through so-called "economic surveillance." Athens will be required to submit a first report in mid-March and will then need to submit quarterly progress reports beginning in mid-May.

It is the first time that the Commission is using such a strict monitoring system, but Almunia insisted the program "is needed given the circumstances." Greece must be prepared to adopt additional measures if the country was not on track to reduce its budget deficit by the agreed deadlines. The country is under massive pressure from financial markets and other EU members to get its finances under control. The budgetary crisis has caused the euro to fall against the dollar in recent weeks and increased the cost of borrowing for the Greek government amid fears it could default.

There is speculation that Greece may have to be bailed out by other EU members -- something the country insists will not be necessary -- and something I believe is not going to happen! and there are also concerns that the country's woes could have a knock-on effect on other euro-zone members with high deficits, such as Portugal, Italy, Ireland and Spain.

This should warn us Investors not to go too far yet, we have to remember certain meassures in this difficult moments, this is not as difficult as it seems we have to remember that the European Union has 27 member and every member state must fulfil the economic and political conditions generally known as the Copenhaguen criteria. These basically require that a candidate Member State must enjoy a secular, democratic system of government, together with the corresponding freedoms and institutions, and respect the rule of law.

It is not only Greece with high deficits but also Portugal, Italy, Ireland and Spain. I guess is just about time to learn some austerity from the Nordic countries and the Nordic Model. The Nordic Model refers to the economic and social model of Iceland, Denmark, Finland, Sweden and Norway. This particular adaptation of the mixed market economy is characterized by more generous welfare states (relative to other developed countries), which are aimed specifically at enhancing individual autonomy, ensuring the universal provision of basic human rights and stabilizing the economy. It is distinguished from other welfare states with similar goals by its emphasis on maximizing labour force participation, promoting gender equality and extensive benefit levels, large magnitude of redistribution, and liberal use of expansionary fiscal policy. The Nordic Model however is not a single model with specific components or rules; each of the Nordic countries has their own economic and social models, sometimes with large differences from the neighbours.

To conclude this post and get to undestand what has been called as a crisis in Europe a term that is exagerated at the moment, see the next video, and now that we are talking about Nordic countries a good example of a Nordic model can be provided by Finland and The Foreign Minister of Finland Alexander Stubb.

Keep writing to me it keeps me alive and the objective is there make it happen! the sand, sun and family are waiting here I come... Enjoy the video: