The 2020 pandemic, even in the highly unlikely event that it ends immediately, will have left its mark indelibly. It will affect human relationships, consumer habits, working conditions, in a similar way that they were affected by the onset of AIDS.
Unemployment prospects and debt will put pressure on households to take a different approach to their economic future. There is already a shift in the way people save and invest. For some, it means less risk-taking. For others the opposite, as they look for a way out of zero interest rates.
Some are pessimistic, such as Robert Kiyosaki, an investor, financial commentator and author of the global bestseller "Rich Dad, Poor Dad." Kiyosaki was one of the few favored by the 2008 financial crisis, thanks to his forecasts in the real estate industry. He claims that the problem is now very deep. The first girl has fallen.
In their efforts, governments, instead of correcting the problem, make it worse. Why; Because they are trying to change the rules of the game. Kiyosaki thinks it just ca n't be done. As you can not change the force of gravity to fly because you are tired of walking. You can not change the time of sunset because you want more light.
Let's look at the impact of Central Bank (CB) policies due to the pandemic on the most valuable asset, real estate. It is estimated that the total value of Real Estate exceeds 280 trillion worldwide.
The property was the safest way for a large part of the population to preserve their savings. To transfer property to his children, to sell it in time of need, to finance his business by mortgaging it. Owning it creates a sense of wealth, the well-known wealth effect : I spend and invest if I think I have something on the side that I will liquidate in case of need. If it is suddenly left unclaimed or the bank does not accept it as a mortgage, the citizen will feel poorer. It will reduce consumption and investment, deepening the recession. It will plunge the economy into a downward spiral.
The worst category of real estate that an owner can possess today is the commercial ones , which constitute 12% of the total worldwide. Why do we distinguish them? Because they are the ones who will be hit the hardest.
Shops to house small businesses will be available. As well as dining areas. But how many businesses will be able to stay open when customer attendance and turnover decline due to fears about the virus and reduced purchasing power? Buildings and offices will continue to exist. But employees?
Legally, the reduced demand will lead to a lower level of their value. Who will want to buy at the previous prices? Only in a few isolated cases, which clearly can not be taken as a rule.
The problem goes even deeper. The government bases much of its revenue on commercial real estate. Either from direct taxes or from other forms of collection measures. For example, municipalities collect fees from catering businesses. Also with fewer small and medium enterprises, thus cumulatively reduced revenues, there will be less revenue from income taxes and corporate profits. Everything is a chain. Where will governments replace them?
What embarrasses those who follow economic developments is the ease with which the size of CB balance sheets increases. Economies are addicted to these policies. Like drug addicts, they can not function without their pinch. We see this when they go to collect liquidity. The CBs are self-trapped . Absorption of excess liquidity will undoubtedly create a recession. Even if they change their mind tomorrow, it is too late. As if they decide to brake on the ice.
The debate over Central Bank intervention is not a debate between good and evil. There are positive aspects as well as negative ones. The world is complicated and this is no different. However, we do not decide. We are not interested in protecting ourselves or even taking advantage of the new conditions.
The tool typically used by the authorities through CB is printing and interest rates. When interest rates are zero, all that is left is liquidity. The Fed, the leading force among CBs, is printing huge sums of money to keep Wall Street at tolerable prices, as a crash would lead to the depletion of policyholders' savings. This should be avoided by any means, as it will bring about dangerous tectonic changes.
Moreover, if they did not issue so many dollars, the increased demand from the countries that desperately needed it would have skyrocketed their currency, creating competitiveness problems in the US. Therefore, from what it seems, it is a one-way street.
It is equally important not to dismantle the tower with the CLOs playing cards . The shady banking system. On the iceberg is not the visible place that sinks you. What is dangerous is under water. In 2008 the system collapsed because people who did not justify their income were buying houses on loan. Unemployed were found with villas. Today, with exactly the same reasoning , zombie companies are lending , distorting healthy competition. With the difference that at that time the problem was hundreds of billions. It is now trillions.
The news from the digital currencies of the Central Banks
* The Fed issued a statement informing about the progress that has been made around the creation of a new electronic currency (CBDC - Central bank digital currency). He is reportedly participating in a coalition with other Central Banks, which are in the experimental stage investigating problems such as the issue of cyber security .
* China is set to expand its digital currency testing program to major cities, including Beijing, the Commerce Department announced on Friday. Digital currency policy planning is expected to be completed by the end of this year. So far, the digital currency pilot project is being implemented in four cities: Shenzhen, Suzhou, Chengdu and Xiong'an.
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