Lagarde is warning of a corona shock similar to the GFC, but the only thing this downturn has in common with the GFC is that share prices and oil are going down, and the economy rapidly slowing. In all other respects the analogy is entirely false.
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Replying to @LT3000Lyall
You don’t think there is potential for financial contagion? So many different industries will have their incomes go to Zero. If any have debt it can set off a domino effect quite easily, just to name one means of similarity to CFC
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Replying to @Molson_Hart
There are risks for sure, but there are many different types of downturns/bear markets/crises, with different causal factors and potential vulnerabilities. Analogising the GFC is reductionist and the situation calls for greater nuance imo.
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Replying to @LT3000Lyall
Ok. I get you now. Imho, this will certainly unfold differently and must be responded to differently but is of similar magnitude (if not wayyyyy bigger) and will also require (different) significant government intervention.
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Replying to @Molson_Hart @LT3000Lyall
I think it's possibly bigger than GFC because 1. corporate debt bubble and 2. horrible companies were kept alive longer than in the past from this. There's a feedback loop if they all go out of business, people lose jobs/spending power, this crashes more marginal businesses, etc
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Replying to @orrdavid @Molson_Hart
Generally speaking, the debt is structured much differently though - maturities are typically fairly long & few companies are relying on short term paper. Base rates are lower and we dont know how long the opec+ disagreement and corona fallout lasts. It might only be a few months
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Molson Hart Retweeted Molson Hart
Yeah but more companies and larger when you add them up than just USA housing: https://twitter.com/molson_hart/status/1237752172651126788?s=21 …https://twitter.com/Molson_Hart/status/1237752172651126788 …
Molson Hart added,
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