World will need new financial system after Covid-19
The world as we know it is about to change radically as a result of Covid-19. How we live our lives, how we work, how we socialise and how money moves will change – and profoundly. We’ll leave others to figure out the first three but in terms of how money moves around the world, we will need to find a new way of financing the global economy when this virus has passed.
And before you say it’s too soon, please remember that the Bretton Woods conference, which set out a postwar economic system, was agreed a year before the end of hostilities and only a month after D-Day in 1944. It established a new global exchange rate system tied (in part) to the value of gold, created the International Monetary Fund and the World Bank to bail out struggling countries and decreed that the US dollar would be the global reserve currency – or the currency into which all other currencies should be exchangeable.
The world needs to start thinking about a New Bretton Woods now and not muddle through, hoping to put it all back together with sticking plaster over the next few years.
Over the coming weeks, consumption will collapse, as will confidence. The hospitality sector as we knew it will be over. Most airlines will have ceased flying. House-buying or selling will disappear and with it home furnishing and renovations. No one will start a major new project and very few will be completed. Broadly speaking, the economy will cease to function.
Even if they are proactive now and lend immediately to robust businesses backed by last year’s profits, banks will experience widespread default from unpaid loans, mortgages and overdrafts.
Capitalism will be suspended. The most optimistic view is that we put the economy to sleep, inoculating it as best we can with massive injections of cash or “helicopter money”. This could be done if governments and central banks – acting together – deposit free money in businesses’ and people’s accounts, not so much to maintain spending as to prevent contagious mass default. This monetary ‘vaccine’ would best work alongside (and not instead of) governments taking on the wage bill for workers.
Helicopter money could be delivered without incurring significant debt but, intellectually, it would mean tearing up the central-banking rule book. Although this is the most sensible thing to do, governments may well choose to raise the money (unnecessarily in our opinion) by issuing massive amounts of sovereign debt.
As Ireland is one of the most export-dependent economies in the world, it’s not unreasonable to assume that Ireland’s national income or GDP could sink by 10-25 per cent this quarter and next – depending on how long this crisis continues. The budget deficit (or national overdraft) could spike to 20 per cent of GDP. Unemployment, even with the wage subsidy to dissuade employers from laying off staff, is bound to sky-rocket – possibly to 20 per cent.The usual escape valve of emigration will not be open to Irish youth because nearly every developed country in the world will also be in recession with mass unemployment.
At the outset, politicians will tend to prefer maintaining the current system – even though it will have been completely broken by Covid-19.
Having taken the measures outlined above, debts will be crippling, but interest rates will remain on the floor. Big central banks will create more money and use quantitative easing to fund this debt.
Globalisation, of which Ireland has overwhelmingly been a beneficiary, is predicated on travel, trade and the free movement of capital. This will go into reverse. The speed of any reversal will depend on the type of governments that emerge from the crisis. There is a higher likelihood of more nationalist, protectionist and less cosmopolitan politicians emerging in countries traumatised by the virus.
If we want to preserve the liberal order, which has delivered relative prosperity for the past 40 years, we need to convene the G20 immediately with a view to a new Bretton Woods arrangement.
This disparate group includes major nations from all continents and the three biggest economic players: the United States, China and the European Union.
The UN is too cumbersome.
Before its first emergency meeting (via Zoom or Skype), the G20 would have asked its brightest thinkers and economists to come up with some creative ideas to kick-start the post Covid-19 world. Alas, these recommendations will inevitably be watered down once the politicians get their hands on them. The US, for example, would probably demand that the dollar remain the global reserve currency but China simply wouldn’t wear that and the Chinese might even be backed by EU governments.
Assuming the gravity of the situation forces politicians to come to a compromise, we could be looking at a brand new global reserve currency, which might be based on a basket of currencies including the yuan, euro and dollar.
This new virtual unit of credit (eg the ‘Globo’ or the ‘Mundo’) could then put a worldwide value on all debts and assets. That could then restart supply and demand and might even lead to cash and coins being issued in the new clearing currency by a reconstituted IMF – one which the old western countries would no longer control.
Apart from what kind of money we’d all be using, the most pressing issue would be debt.
In the worst case, bankrupt western governments might have to print trillions of euro and dollars to give their citizens enough money to survive. It’s not unreasonable to assume that they would consider nationalising vast swathes (if not all) of the economy – especially those in travel, hospitality and essential services such as rubbish collection and banking (again). This is already under way in some countries.
That means sovereigns – for a while – would own hundreds of thousands of distressed companies, all their debt, all their assets and all of their wage bills which could then be leased or sold back in chunks to those who could afford it.
Ireland and Germany have recent experience in how to do this. Unpalatable as it may sound, those who ran the National Asset Management Agency and the Treuhand (which disposed of East German assets after the fall of the Berlin Wall) would become the most sought-after consultants in the world. In fact, “Nama-isation” could go into the global lexicon as the byword for returning distressed assets back to the private sector.
But even if none of these ideas is implemented or even debated, something urgent and drastic will have to be done. Just as the calendar was bifurcated into BC and AD, the economic future will be delineated into two eras: ante-corona (AC) and post-corona (PC).
David McWilliams writes for The Irish Times and presents The David McWilliams Podcast @davidmcw. Joe Lynam presents the Newsroom programme on the BBC World Service.
Photo by Markus Spiske on Unsplash
News by irishtimes.com, edited by Dowling Financial.
Things worth noting
Mortgage lenders push back against automatic payment breaks during lockdown
Mortgage lenders have pushed back against a call by a leading broker to re-introduce automatic payment breaks for people who will be unable to work […]
Demand for mortgage exemptions expected to surge this year
APPLICATIONS for mortgage exceptions are expected to surge to record levels in January as lenders respond to pent-up demand from borrowers. Exemptions to the strict […]
Controversial equity release loans for older people are back
An equity release provider is reopening in this market years after the banking crash closed off the availability of these loans. Equity release involves older […]
Experts cautious about 2021 property market
Property prices are predicted to take a minor dip in 2021 before recovering to current levels by the end of next year, according to two […]
Why living together could cost you tens of thousands of euro
Marry in haste, repent at leisure as the saying goes. But if you think cohabiting is any less risky than marriage, think again. High rents, […]
Borrowers here paying €2,000 more a year than European counterparts
This was down 14 basis points on the same month last year. But the average across the euro area is less than half of this […]
Ulster Bank ‘self-inflicted review will mean Irish mortgages will remain costliest in Europe’
The uncertainty over the future of Ulster Bank is already helping the big two mortgage lenders, AIB and Bank of Ireland tighten further their grip […]
Home loan limbo – the growing number of buyers struggling to get their mortgages
Many housebuyers who’ve been directly or indirectly affected by the Covid crisis are experiencing issues with banks and accessing mortgages. Those who will struggle to […]
Average Irish person now ‘worth’ €166k
The impact of Covid-19 has been to make households wealthier while the State sunk €14bn deeper into debt, according to the Central Bank’s Quarterly Financial […]
Lenders told to be upfront with mortgage applicants on impact of wage supports
BANKS and other lenders have been told to be upfront with mortgage applicants whose employers are using the State wage subsidy scheme. It comes after […]
Mortgage holders leaving thousands of euro on the table by failing to switch home loan providers – CBI research
Some mortgages could save more than €1000 in the first year and more than €10,000 over the remaining term of the loan. Mortgage holders are […]
Switching your mortgage could see you keep €200 a month in your wallet
Avant Money has brought fresh competition to the Irish lending market. Switching your mortgage can seem like a pain. It was hard enough to get […]
David McWilliams: Why an Irish mortgage costs €80k more than a German one
The macroeconomy operates with two arms: the fiscal arm and the monetary arm. It can been seen as a boxer, with a left jab and […]
We need mortgage interest relief to make mortgages more affordable
While the pandemic may have grabbed the public’s attention in recent months, the housing crisis, which dominated the last election, has not abated. Unfortunately, quality […]
What the loss of Ulster Bank would mean for consumers
When news broke on Friday that NatWest, parent of Ulster Bank was considering the winding down of the Bank, the market was surprised. It had […]
Your money: Seven things you must know on the new mortgage playing field
Cheaper home loans will be up for grabs for house hunters and homeowners in the coming weeks and months following the entry of a new […]
Avant Money enters mortgage scene with lowest rate on market
Leitrim-based consumer finance company Avant Money has begun taking applications for its products from Monday with a fixed rate mortgage offering that is the lowest […]
Spanish giant to rattle the cages of big firms who have Irish market cornered
You would be forgiven for thinking that competition in the mortgage market had gone by the wayside, like many things during the pandemic. Banks are […]
Interest rate war brews as new bank joins market
A Spanish banking giant is to enter the Irish mortgage market in a move sure to put massive pressure on existing lenders to slash their […]
Banks block drawdowns until end of pay subsidy
Builders and brokers say hundreds of agreed home sales are being placed in jeopardy because of an unintended consequence of the State’s emergency wage subsidies. […]
Banks have yet to heal the €60bn bailout wounds of a decade ago
A decade after a €60bn taxpayer bailout of the country’s main banks, we still have a problem with trust when it comes to how they […]
Ireland faces second mortgage arrears crisis when payment breaks end this autumn, leading financial advisers warn
A leading debt adviser has warned that 30,000 households — or around half of the 62,480 currently on home loan payment breaks — will fail […]
Property body calls for extension of Help-to-Buy to secondhand homes
IPAV chief Pat Davitt says Covid-19 presents “compelling logic” for scheme’s expansion. The Institute of Professional Auctioneers & Valuers says the prospect of incomes being […]
House prices due to fall sharply in wake of pandemic
House prices are likely to fall sharply over the next year, a leading think tank has predicted. The Economic and Social Research Institute (ESRI) has […]
Central Bank boss defends banks withdrawing mortgage offers
Central Bank Governor Gabriel Makhlouf has defended banks that are withdrawing mortgage offers to people whose incomes are hit by the fall-out from the pandemic. […]
Irish Banks Again Europe’s Worst Performer as Crashes Add Up
Once again, Irish banks are at the sharp edge of a global crisis. In 2008, it was the melting away of liquidity. Just over a […]
Househunters squeezed as banks tighten rules in Covid-19 crisis
Getting a mortgage can be stressful at the best of times. Add a pandemic and things ratchet up. Whether you are applying for a mortgage […]
Mortgage borrowers hit by Covid-19 jobs slump ‘facing problems securing mortgage breaks’
Mortgage borrowers previously in arrears but who are now up to date with their monthly payments have had difficulties in automatically accessing the three-month mortgage […]
Banks add Covid-19 income conditions to mortgage offers
Raft of assurances are sought over bonuses, overtime and future job security Several Irish banks and lenders are adding new conditions to mortgage loan offers, […]
Self-employed may feel chill from Covid-19 for some time
The self-employed face mortgage struggles. All business owners are weighing up the effect of the Covid-19 closures on their trade at present, with many trying […]
House valuations are being reduced by 10pc during the mortgage process due to Covid 19 according to brokers
Some bank valuations are lower than agreed sale prices due to Covid-19 “The valuations are coming in at less than what the agreed purchase prices […]
Judge says fairer debt settlement system needed for Covid-19 economic crash
A High Court judge has criticised the “all too common” practice of practitioners copying and pasting paragraphs from court papers in other cases without regard […]
Q&A: Where do we stand on mortgage holidays and payment breaks?
As the Covid-19 crisis deepens across the world, many are concerned about how they’ll continue paying outgoings when the money coming in the door is […]
Family with €1m house would be ‘better off trading down’ as judge rejects personal insolvency deal
A High Court judge has refused to approve proposed personal insolvency arrangements for a couple aimed at allowing their family to remain in a five-bedroom […]
David McWilliams: We need to totally reimagine economics
Our Central Bank has unforgivably abdicated in this crisis, precisely when it was needed. When events change, we change our minds. Old rules go out […]
Insolvency lawyer warns of ‘disaster’ if firms reject Covid-19 wage subsidies
The head of insolvency at one of Ireland’s top corporate law firms has warned that recent criticisms of the State’s scheme to pay 70 per […]
Home truths: Covid’s duration will determine its impact on values
Speculation about where house prices and the property market will end up in the aftermath of Covid-19 has already started, with the publication during the […]
Doubts raised over Covid-19 wage subsidy scheme after lawyers warn the initiative is unworkable
The crucial wage subsidy scheme aimed at keeping hundreds of thousands of people in jobs has been thrown into doubt after lawyers warned it was […]
Irish banks fielding 7,000 calls a day on mortgage breaks
The Republic’s five mainstream banks have been dealing with an average of 7,000 calls a day from homeowners since they agreed last week to industry-wide […]
New house prices to fall 15% to 20% – analyst
Investors believe that the Covid-19 crisis will slash new house prices by 15 to 20 per cent, one stock market analyst says. A note from […]
Those who test positive likely to struggle to get life and mortgage protection cover
Concerns: Michael Dowling fears some people will be unable to take out life cover People who test positive for Covid-19 may struggle to get life […]
Apple’s €15bn back tax could fund Ireland’s cash crunch
Where will the money come from? The cash being thrown at economies around the world will, in the first instance, be borrowed. Ultimately, taxes will […]
How to navigate the property market during the pandemic
These are testing times. Covid-19 has reached into every sector, including the property market, and everyone is scrambling to adapt to the challenge. For those […]
State may need to ramp up spending to €34bn
Employers’ group Ibec and trade unions have called on the Government to step up payments for workers and companies in response to the economic damage […]
No hit to credit record for those who get mortgage break off bank
A deal is being hammered out between the Central Bank and main lenders so people who avail of a Covid-19 mortgage payment break will not […]
Temporary ban on all evictions is to be introduced for duration of coronavirus crisis
The Government has confirmed that a temporary ban on evictions and rent increases will be introduced for the duration of the Coronavirus crisis. Housing Minister […]
Dublin house sales fall 1.5% as affordability pushes buyers out
Biggest slowdown in sales were in Dublin 6 and Dublin 13, down 22,3% and down 30.1% respectively The number of houses sold in Dublin fell […]
€32m debts written off by court in three days
More than €32m in personal debt has been written off this week under insolvency arrangements approved by the High Court. The huge sum relates to […]
€2m debt write-off for publican approved
The High Court has rejected objections raised by a vulture fund to a personal insolvency arrangement (PIA) writing off €2m in debts owed by a […]
Chasm between values of new and second-hand houses
A growing chasm between the values of new and second hand homes has been highlighted by the banking sector which says loans issued to first-time […]
Irish banks still lack ‘consumer-focused culture’, regulator warns
Central Bank highlights risks to Irish consumers of ‘irresponsible unsecured lending’ The Central Bank has identified a number of key risks to consumers of financial […]
Coronavirus: Irish banks offer relief to borrowers hit by coronavirus
Goldman Sachs sees coronavirus fallout wiping €30bn off European banks’ profits Banks in the Republic said they will offer relief, including short payment holidays on […]
Dermot Desmond: Everyone has a right to a home. Here is how it can be done
We have allowed homes to become a globally traded financial asset, inflating the price of those homes, the profits of developers, and the value of […]
Dublin’s cool Northside moves ahead of stuffy Southside to hold the housing hotspots
Q Two northsiders are travelling in a car. The music is turned off and the windows are up. Who’s driving? A: The Garda. Q: How […]
AIB drops fee for mortgage customers breaking out of fixed rate
AIB is allowing some customers to break out of fixed mortgages and lock into lower ones at no cost, in a move that is likely […]
Ulster Bank fined €4.6m over data on mortgages
ULSTER Bank has been fined €4.6m by the Central Bank for failings around mortgage data it supplied to the regulator. The fine would have been […]
Debt-for-equity swaps could help thousands of insolvent people
Seniors could resolve unaffordable mortgages if law ‘tweaked’, say debtor advisers Thousands of older people in long-term arrears on their mortgages could benefit from a […]
Pressure now on more banks to cut their rates in mortgage price war
More banks are coming under pressure to reduce their mortgage rates after market leader AIB announced a number of reductions. The focus is now on […]
Just 8,000 houses built last year offered for sale on open market, says CIF
Investment funds bought 95% of 3,644 apartments completed last year Only about 8,000 of the 21,000 new homes built in the Republic last year were […]
Mortgage holders here still paying double Euro average
MORTGAGE rates in this country have fallen below 3pc for the first time in years. But there is scope for much deeper cuts, mortgage experts […]
Revolution in fintech keeps the bankers awake at night
Shake-up: Revolut and other fintech firms are forcing banks to increase their tech focus I was more than a little surprised at the response I […]
AIB was always going to lose battle – it’s just a pity it waited so long to concede
AIB was always on to a loser trying to defend its actions in denying 6,000 customers tracker mortgages. The bank tripped itself up and was […]
Pensions reform should be high on everyone’s political agenda
Graying vote has set political parties a-jitter hence the ill-judged promises. Pensions have became the unexpected issue of the election. And just for once, it is […]
The changes still needed to tackle the banks’ bad management cultures
Regulation: Unlike the UK authority, the Central Bank of Ireland does not have competitional law enforcement powers, an issue which deserves to be reconsidered Banking […]
Paul Joyce: Mortgage arrears have been ignored but not solved
Housing, homelessness, and healthcare have justifiably dominated the election so far. But one aspect of the housing crisis, however, that has received little attention is […]
Home truths: The story of Eoghan and the home hoovers
The big view on Ireland’s property market Whenever Eoghan Murphy is asked about his unforgettable term as Minister for Housing, one of the first things […]
Typical household wealth has risen to €184,900 – but renters are losing out
The wealth of households has shot up due to rising property values. But renters have very little wealth, according to figures from the Central Statistics […]
Most people unaware about credit card interest rate they are charged
The majority of Irish credit card users are unaware of the interest rate they pay, or how it is applied. And even those who say […]
Divorce: what happens to the family home?
For parting couples with property to divide, it’s complicated. When love leaves the building, what happens to the home? For most, the family home is […]
Frank McDonald: Housing policy a litany of failure
Current housing policies benefit wide array of monied interests Whoever forms the next government will have to deal with Ireland’s utterly dysfunctional housing sector and […]
First-time buyers drive growth in mortgage values and volumes
Banking & Payments Federation Ireland publishes figures for fourth quarter of 2019 First-time buyers drove increases in the volume and value of mortgage drawdowns during […]
Housing crisis: What the rest of the world can teach Ireland
High-densities, smart rental systems and container living – just some of the ideas we could adopt LOW-COST RENT Vienna, Austria Among the most discussed ways […]
Mother (93) has right of residence upheld despite judgment against son
Any failure to properly provide for Eithne Ryan ‘lies squarely’ with her son, says judge A 93-year-old woman is “perfectly entitled” to continue residing at […]
Housing crisis: Seven solutions to Ireland’s biggest problem
Cut building costs, incentivise buy-to-rent and overhaul property tax, experts advise ‘The Housing Fix’ is an Irish Times series exploring solutions to Ireland’s housing crisis […]
Fianna Fáil may have just pressed the pause button on the property market
The party’s new SSIA may cause a significant number of housebuyers to put their plans on hold for an unspecified period The man who is […]
Court approves debt for equity swap insolvency arrangement
Decision is first to be approved by High Court involving a debt for equity swap The High Court has approved a personal insolvency arrangement (PIA) for a […]
Record €60m debt write-off for former quarry operator gets High Court approval
A former quarry operator has had a €60m debt write-off approved by the High Court – the largest ever under personal insolvency legislation. Enda Patrick […]
State-backed mortgage scheme hikes interest rates steeply despite bank cuts
The interest rate on the Government’s Rebuilding Ireland Home Loan product has been increased massively. Rates have shot up by up to 0.75pc at a […]
Home truths: Big time housing promises without taxes are hollow
What can you get for €16bn these days? Well €16bn is the total amount estimated that Irish people will spend online this year. The Consumer […]
One in 10 mortgage arrears cases involve separated borrowers – BPFI
Banking lobby group calls for State to introduce measures to help separated borrowers. About one in 10 mortgage arrears cases involve borrowers who are separated, […]
In your pocket: Switching mortgage can bring major savings
Rates are falling and lenders are keen to offer better deals – it’s easier than you think. Up to 160,000 Irish families are out of […]
Mortgage interest rates dip but remain more than double euro-zone average
Central Bank statistics show weighted average interest rates on new mortgages was 2.9% in November. Interest rates on mortgages taken by Irish consumers were lower […]
New buyers pay €2,000 a year more than rest of eurozone
RIP-OFF mortgage rates in this country are costing new home buyers €2,000 a year more than our European neighbours. New figures from the Central Bank […]
Pensions deliver decade-best growth of 20.6% in 2019
Zurich Life tops peers as funds recover from calamitous end to 2018. Irish pension funds delivered bumper returns in 2019, making it the best year for investment returns in […]
Another year of dysfunction ahead for Ireland’s property market
Looming general election and UK-EU trade talks add to uncertainty for developers. With the new year now a week old and a raft of predictions […]
Responsible Homeowners Betrayed
Thousands of responsible homeowners have been betrayed by the sale of their mortgages by PTSB into a bond fund which will be serviced by […]
Revealed: Ireland’s most expensive streets and their €2m plus homes
Daily growth of €15m in value of housing stock fuelled by new supply rather than increasing prices, writes Wayne O’Connor A leafy Dublin street sandwiched […]
Harsh austerity ‘imposed on Ireland’ by Berlin, says ex-official
Republic caught in crossfire between Germany and other bailout states Ireland was hit with unnecessarily harsh austerity measures a decade ago at Berlin’s behest, […]
Value of residential property in Ireland up by 5.3bn euro in last 12 months
SEVEN HUNDRED AND fifteen properties worth €1 million or more have been sold in Ireland so far this year, according to the latest Wealth Report from […]
Want to start the process?
Let us guide you through the mortgage process