as the pandemic protracts, the “hidden” financial crisis grows

In an interview with Bloomberg on Wednesday morning, World Bank chief economist Carmen Reinhart said bluntly, “Don’t mistake a rebound for a recovery.” Reinhart said that “the recovery this year still leaves per capita income lower than it was before the covid crisis – it would be wrong to call it a recovery.” She went on to say that a year later, the world is still facing a ‘record’ infection rate, adding that “the longer this (viral pandemic) lasts, the more disruptions in terms of jobs, in terms of business closures, that can really go back to something like normal. ” Reinhart said she “is very concerned that the longer it goes on, the more the pressure on the balance sheets of individuals, households, firms and countries is the cumulative loss that I think would create classic balance sheet problems.”
Blaming the resurgence of the virus pandemic, she said economic growth in 2021 is “slowing.” She also said that “there was a problem that was postponed but could not be avoided” – the ability of households to pay off their mortgages and pay off any other debts. During the virus pandemic, financial institutions around the world agreed to give businesses and households grace periods so they don’t have to pay back their debts. Reinhart then asks the trillion dollar question: What happens when these grace periods come to an end?

To summarize, Reinhart suggests that the world will face a financial crisis if the pandemic continues to disrupt the global economy. This was similar to the message in which SoftBank CEO Masa Son warned a couple of months ago of an impending “catastrophe” that could bring global markets down. More recently, a recent research note by GMO co-founder Jeremy Grantham suggested that “this bubble will burst in due course, no matter how hard the Fed tries to prop it up, with a consequent devastating impact on the economy and portfolios, for most investors today it could be the most important event in your investment life. ” And given the sharp rise in 10-year nominal yields in recent days, the bubble is likely to burst much faster than we think.

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