Posted May 23, 2020 by Martin Armstrong
Hertz has now joined the ranks of filing for bankruptcy as this lockdown has caused car rentals to crash to virtually zero. Of course, Climate Change activists led by Bill Gates are celebrating. They cheer every bankruptcy they have managed to create with the absurd lockdowns were the first time in history you quarantine the entire population rather than just those who are sick.
The total economic destruction we have said is about $30 trillion in businesses. If we add real estate which cannot be sold, that is most likely $35-$45 trillion. Then add on top of that the coming wave of sovereign bond defaults which will include emerging markets that have witnessed their exports collapse. Global GDP is about $90 trillion. The global bond market is about $100 trillion.
Commercial Real Estate is worth about $32 trillion and Agricultural Real Estate about $27 trillion. Total residential Real Estate is about $170 trillion at the end of 2019. If we have to put a number of that we reach about $230 trillion.
The total world equity market at the end of 2019 was nearly $90 trillion.
Therefore, if we add up what I call Capital Formation, this is the combination of real estate, equities, and bonds. This number works out to be about $420 trillion.
Consequently, the economic contraction in just the current GDP of $90 trillion is about $30 trillion, and Capital Formation is probably about $120 trillion illiquid out of $420 trillion if they even tried to sell. Anyone who thinks that governments can possibly stimulate their way out of this or create hyperinflation by spending even $10 trillion are not taking into consideration the full scope of this economic collapse.
There is NO POSSIBLE way to restore the economy. We are NOT putting Humpty Dumpty back together again. Life has changed and the store all have their Social Distancing signs and plexiglass shield with employees all in masks despite the fact that the CDC at the outset said masks will not prevent you from getting any virus. They are used in Asia by people who were sick, not the other way around. You touch things and that is good enough with any virus. As one reader said, they wear masks when driving alone which is like wearing a condom while sleeping alone. That is the average mentality of people who just believe whatever they say on TV.
Even just a 10% correction of this magnitude across all sectors amounts to $42 trillion. There is NO AMOUNT of stimulus that will prevent an economic contraction into 2022. This will be a STAGFLATIONARY trend because this insane lockdown has also seriously reduced the world’s capacity to produce food. Food prices overall are rising faster than anyone realized. The increase last year was only 1% whereas this year the increase is touching 3% in just 8 weeks. This is the direct result of the destruction of the capacity to produce food which will threaten a rising famine over the next two years as well.