Skip to content

Banks might collapse due to expected mass defaults due to Corona Virus

Banks are at high risk of collapsing as 30% of mortgage owners, and perhaps even more, may default in the next two months bec
Banks are at high risk of collapsing as 30% of mortgage owners, and perhaps even more, may default in the next two months because of lockdowns.

According to the Bloomberg report, some 30% of Americans with home loans, which are about 15 million households, could default if the US economy stays hobbled by shutdowns for the next few months. In the United Kingdom, renters are being hit hard due to no support from the government unless they were and are in a PAYE job where 80% of the wages are guaranteed. Despite the government’s announcement of several stimulus packages, people are finding it difficult to get through the shutdown period.

Unemployment claims continue to climb in the United States.

Unemployment claims in the United States have been skyrocketing week after week. More than 6.6 million new claims were filed last week, taking the two-week total to over 10 million. These numbers of unemployment claims have not been seen in the US for a long time. The future looks grim as experts believe a recession worse than 2008 is around the corner as there still no silver lining on the horizon. The unemployment rate in the United States is expected to reach nearly 30% because of the coronavirus pandemic.

How would the world change once the pandemic is over?

Several experts are saying that the things would not be the same as they were before the pandemic once the virus dies off. There is still no set timeline as to when once can expect the shutdowns to be over and non-essential markets to open up for business once again. It might take a very long time to recover from this pandemic financially. According to experts, the global economic meltdown can not be compared to the recession of 2007-08 as it is more uncertain, and it has affected several large economies and not just one.

Self-employed people are suffering the most.

Governments in several countries have announced some sort of relief packages to people with jobs and who are daily wage workers. In the United Kingdom, self-employed people will not get any help until June, and even after that, the help would be minimal. People with gigs and part-time jobs have also lost their means of income due to the lockdowns enforced by governments to stop the spread of COVID 19. People living with a paycheck to paycheck, which is the vast majority of millenials, will also suffer the most if shutdowns are prolonged and the virus is not contained.

How would capitalist democracies revive the economy?

Recently, there was a huge debate in the United States about the stimulus package of two trillion dollars, which got passed through the senate in the third attempt. The Democrats had argued that the stimulus package favors big corporates and not the working class. They further claimed that most of the money given to big corporates would be used to buy back the stocks. Democrats insisted that more relief should be provided to poor and working-class people, so the economy has a trickling up effect and not trickling down.

Poor countries might face hyperinflation in the future.

There is no denying that most of the countries are state capitalists, and their priorities would be to bail out big corporate companies. The next few months would be quite challenging for governments as they would have to decide whether to open up the markets or prolong the lockdowns to contain the virus. It is speculated that some $13 trillion might be spent globally to deal with this, which is as much as China’s GDP. If governments decide to “print” more money to bail out corporates, the burden of inflation would be on the younger generation as some not so rich countries might fear hyperinflation.