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$1 Trillion In Credit Losses And Dead Reefs
"Based on this method, the sectors whose activity contracts the most suffer the largest increases in credit loss rates," reads one sentence buried in a 16-page article from the BIS called "How much stress could COVID put on corporate credit? Evidence using sectoral data."
The piece is part of the BIS's latest quarterly review, out Monday. As usual, the review is a compendium of risk factors that doubles as an excuse for smart people to pore over esoteric, albeit usually topical, market issues.
The “reef” is a great metaphor. They are beds for the growth of small fish, nurseries if you will. If the reef goes, so may go the nursery, the little fish, the big fish that eat the little fish, the livelihood of the fisherman and the harbor where the boats are moored, and taxes to keep the harbor storm wall in good repair. The high-paid, white collar jobs are the nursery fish.
This explains the volume of money in the urban ecosystem and the impact when the volume decreases…or disappears entirely.
Somewhere in all this, and maybe it’s already happened, there has to be some research, or thought experiment, into the less well understood effects on the velocity of money in the urban ecosystem from this poisonous tide.
And as near as I can tell even the economists with several PhDs don’t have a serious model that follows the falling dominoes you and H describe so very well. So where we will be after “labor” day is going to be an interesting surprise. One sure thing, all the wannabe politicians getting ready for 2022 will be screaming about how all this or that group got it all wrong but they know the answer, by golly. Me, I’ll still be trying to get a vaccination here in backward MO.
To be fair to the apparent tone deafness of authors of the BIS report, their subject was CREDIT losses. Job losses, although way more tragic than a credit loss are distinct. Many employers have and will avoid imposing losses on their creditors by proactively laying off staff. Conversely some credit restructurings will keep the business going as a concern with most of their staff, while wiping out the equity and imposing a haircut on the creditors.