There are currently two crises underway simultaneously. The advance of the novel coronavirus is taking a terrible toll in terms of physical and emotional well-being. At the same time, job losses resulting from ‘social distancing’ are sending the economy into a tailspin. To fight on both fronts, governments are advancing rescue packages of never-seen-before dimensions. Every day, the tremendous number of factors in play reconfigure in a new way. These ‘from the trenches’ notes attempt to shed some light along a murky pathway.
- Matters pertaining to who is owed what due to the coronavirus crisis will soon fully engage the legal and insurance professions. But there is a segment of the business community, ‒ although more truly it’s off to the side, keeping an eye on things (i.e., companies and governments) ‒ that is about to step into the spotlight. The weight of the world, and I don’t say that lightly, is about to descend on debt rating agencies.
- Standard & Poor’s (S&P), Moody’s, Fitch Group and others will be tasked with hair-raising responsibility. Debt is skyrocketing throughout the private and public sectors. A corporation or government receives a ratings downgrade (i.e., starting from Triple A and descending from there) when it is judged to be at greater risk of defaulting on its debt obligations (loans or bonds). The greater risk assessment forces it to pay more in carrying costs, regardless of whether the central bank is managing to keep its official interest rate low and stable.
- The higher debt carrying costs can become an unbearable burden. At the least, they divert funds from other, more worthwhile, uses. A priority at this time for governments is to provide desperately needed bailout money, come what may. Pity the poor rating agencies. It’s their job to monitor the consequences and, if they carry out their obligations faithfully, to implicitly speak with a dissenting voice.
- Are there stresses and strains from five adults (Donna and me and three grown children) and three pets all living under one roof? The other day, I gathered everyone together and informed them I’d been on the Internet to rent one of those spaces you see in the TV show Storage Wars. I let them know that’s where they, not me, would be living for the remainder of the pandemic. Funny thing happened, though. They seized the moment and upended the situation and now it’s me posting this Trenches report from my lovely new storage unit. Except for no windows, a cement floor and a single flickering lightbulb, it’s not so bad. Oh, and I have a new friend, a rat named George. (Just kidding folks. We’re all still living at home in decent-enough harmony. One of the keys has been to not aim for the moon. Want a piece o’ pizza, George?)
Read the previous article here: The Economy Under COVID-19: Notes from the Trenches – May 20, 2020.
Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985. Links to his numerous articles are featured on Twitter @ConstructConnx, which has 50,000 followers.