Note: This thread is related to #Coronavirus #COVID19

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Tuomas Malinen+ Your Authors @mtmalinen PhD econ. Chief Economist of GnS Economics. Adj. Professor of Economics @ Uni Helsinki. Economic growth, economic crises, monetary unions and central banks. Mar. 13, 2020 2 min read + Your Authors

I want to re-iterate one point.

It's UTTERLY useless to fight the global economic crisis put in motion by the #CoronavirusOutbreak .

Here's why. Thread.

First, as we know, #COVID19 hits the supply-chains. No amount of fiscal stimulus will fix them.

And, #China leads. 👇 1/

As insightfully noted by Z. Pozsar and J. Sweeney, “supply-chain is a payment-chain in reverse”. This is the part that governments can do something.

But, gov. support for households and students, will NOT fix payment issues of corporations caused by supply chain problems. 2/

Most importantly, no amount of money will cure fear and quarantines, which seriously dampen consumption.

This is NOT a short-term issue.

So, any fiscal stimulus enacted now, will just add to the burden of highly indebted governments WITHOUT fixing the underlying issues. 3/

Like we explained in our recent forecasting report, the negative shocks of the #coronavirus will come in waves. 👇

Each wave of "demand destruction" will push the world #economy deeper into a #recession. 4/ 

And, like we have been warning for long, Chinese and European banking sectors will not be able to cope with a global #recession.

Chinese banking sector assets have grown by 500%(!) since 2009. This is just nuts.

And the 'shadow banking' sector is massively bloated. 5/

The European banking sector is not far behind.

"As a result of all these policy mistakes, a large part of the European banking sector has probably been insolvent for the past 10 years". 👇 6/

We will need government support for banks in the crisis. 

As we predicted in December 2019, the Onset of the crisis will be followed by the Counterattack. 👇

However, this time around it's not just futile but also stupid.

We have only the 'fiscal bullet' left. What happens if we use it now? 7/ 

Then we have nothing left for the actual #recession and banking crisis.

We were already sliding towards a recession before the #coronavirus hit. GDP growth figures outside the US were just dismal in Q4.

Fiscal stimulus can just give us a little more time with the cost of... 8/

...dooming us to a total economic annihilation, when the effects wanes.

So, global leaders, please do not try to enact fiscal stimulus now. We cannot stop this anymore.

Like with #coronavirus, we can just enact economic containment measures 👇. /End 

You can follow @mtmalinen.


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