US will pull others down with it – Vanguard

What would the World look like after coronavirus, economically, politically and socially?Armageddon looms if no cure comes by August

Mir Muhammad Ali Khan (MAK) is a Pakistani investment banker and capital advisor in Wall StreetJournal. He is an author and world known capital and investment expert. His latest very comprehensive well researched article on post Coronavirus Economic and its Social Implications was sent to Lt Gen Abdul Qayyum (Retd). The same is as under:- USA may pull other countries down with it.

By Mir Mohammad Ali Khan(MAK)

Paris is not so romantic anymore. Is it? Manhattan sleeps very early now. Doesnt it? Giving hugs and kisses is considered a sign of ignorance now. Isnt it? Sitting near your grandparents is looked upon as a risk towards them. Right?

Well I read this somewhere today or something similar to it and it imprinted in my mind forever.The world has run out of gas, it feels like, and even that on a deserted highway millions of miles away from a gas station. Coronavirus has gripped our lives. We woke up in 2020 like we are still sleeping through a nightmare. Some say that the world is going to end and others say that it a wrath of God. Well, I would refrain from commenting on the world ending or the wrath part because that would involve an emotional statement and at a time like this, as an investment banker, my duty becomes to guide the people as to what I foresee. And my expertise lies in finance and by default the field of investment banking on Wall Street is very intertwined with watching political economy and its volatilities unfold, globally.

So many questions come to mind at once. Will this affect the globalization of the past 25 years? Will it tilt the balance of economic power away from one region to another? Will America weaken and China or Russia strengthen? Will it create a new trading or cooperation block/s in the World? Will the World see new currency dominate instead of the Dollar? Will the education system shift from the brick and mortar to an online distance learning based platform, albeit slowly? Will the democracies that will or have failed to protect their people lose value in the eyes of the voters? Will the selfish countries be isolated by the world communities based on their memories from the time of Coronavirus and non-cooperation?Well the questions are endless and most of the answers will be nothing more than speculations. So let us stick to facts. Facts that can be calculated 12 months forward based on numbers in light of 50 years backwards.

WORLD ECONOMY

Will the world economy collapse soon? No. But if this ordeal continues for another 6 months then we are looking at some very grave consequences. Consequences that this world is not prepared for. Before I go on with my topic, let me shed some light on the facts where people compare this to the events of 2008 world financial crisis. 2008 was a car crash. This could be a train wreck. 2008 was a sudden event built up over a period of a few years based on just one financial product and that product was high risk mortgage securities. It was not an Armageddon. It did not affect the logistics. World tourism. Petrol prices. Airline industries. Textiles around the world. So on and so forth. This affects 193 countries. And all of them at once and in every aspect possible not just financial.

The world GDP as we stand right now is approximately $88,081 billion dollars or $90 trillion. The 1st 3 months since including February and March, we have lost $3.2 trillion in global GDP. World capital markets have lost double that amount. Corporations that declared their earnings or will do so will do it including the month of January when it was not so bad and February when it started to get bad and March where it has become a pandemic. These figures will not look as bad as for the next quarter which includes April, May and June. Apple alone is facing a revenue loss of $1 billion a day because of its stores closure around the world. Airlines in Asia alone have swallowed a loss of $129 billion dollars. This loss can never be made back because airlines are already a high debt low profit margin business. Tens of airlines will go bankrupt within the next few months.

America being the biggest economy will pull so many other countries down with it but before it pulls others down, IF this pandemic continues for the next 3 to 4 months, America will see damage to its economy that will be absolutely irreversible.

70 million people are working from home right now. Working from home very soon is going to change into staying at home without work. The highest unemployment claims came in last week in America, 3.2 million jobless claims. This can increase to a number anywhere between 8 to 12 million within the next 6 months. 12 million jobless claims or even 6 million, half of it, which can be filed next month, spells disaster for America. Why? Because out of work America means mortgage default on homes.

America has approximately $15.8 trillion in mortgage debt. $11.1 trillion or the highest portion of the debt is in home loans. $3 trillion is in commercial properties. $1.6 trillion is in multifamily units or what you may call apartment buildings. And $254.1 billion approximately in farm loans.

Add to it the national American debt which rose by another $3 trillion in 60 days to above $23 trillion because of the $2 trillion relief package announced by Trump. $2 trillion cannot and will not help America more than a few months, not even 2. It will require a package of $6 to $10 trillion. Which will take the American national debt to its highest level ever. Money that America does not have or maybe has spent on wars, $14.8 trillion, instead of domestic spending or savings.

Back to the mortgages. Out of work Americans means no mortgage payments. No mortgage payments on top of a sinking economy due to deserted roads, no retail, no food, no travelling, no tourism and no money, will create a snow ball of foreclosures. Foreclosures unlike the 2008 bad loans. Here, it will be the people with the best credit history and decades of great payment history will be declaring bankruptcies. Corporate earnings for the next 2 quarters dwindling will force companies to lay off people. That will be an icing on the cake.

American capital markets may have a few Dead Cat Bounces (quick upward rallies) but the future of it is dependent upon the corporate earnings not Trumps plans to inject funds. No corporate

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US will pull others down with it - Vanguard