A new crisis on the horizon
By Justin Pyvis – Delivered on 05 Nov 2021

Good morning! There was yet another COVID-19 scare in Queensland yesterday, with three new local cases linked to Goondiwindi, an inland town right on the border with NSW. No restrictions will be imposed because of the town's high vaccination rate (83.5% fully vaccinated).

Not so fortunate were those in the Northern Territory, parts of which were fully locked down due to low vaccination rates (Katherine) while in others such as greater Darwin only the unvaxxed were ordered to stay home. The cause of the scare was an unvaccinated contract worker at the Royal Australian Air Force who tested positive for COVID-19 without having left the territory recently, meaning there's untraced community transmission occurring.

Elsewhere, WA Premier Mark McGowan refused to offer up any spoilers about today's reopening roadmap announcement, although he did temper expectations by warning that "nothing is certain, we do our best to provide detail but everything is, unfortunately, always subject to change".

We will, of course, have all the details for you on Monday morning. Until then, have a great weekend!

Fully vaccinated population (aged 12+)


Daily % change




AU Yield (%)



US Yield (%)









Brent (bbl)



Gold (oz)



Iron ore (t)






Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 gained 0.42% overnight, recording its 63rd record high this calendar year after weekly US initial jobless claims hit a better-than-expected pandemic-era low of 269,000.

Locally, the ASX200 finished up 0.48% on the strong US lead the night before despite declining energy prices (-2.0%) and a horrific -18.4% selloff for Domino's, which reported its worst trading performance since 2017.

Of interest was Australia's first ever crypto ETF, ASX:CRYP, which "smashed previous debut trading volume records within just two hours... experiencing $A24.5 million worth of trading volume by 12pm".


A brief pause: Retail trade in Australia plunged 4.4% in the September quarter, the biggest fall ever recorded (there are nearly four decades of data). However, it was entirely the result of extended lockdowns in NSW and VIC – trade was up 1.3% in September from August, suggesting it was but a brief pause in the pandemic recovery.

Fun while it lasted: Australia's trade surplus fell by $A2.5 billion in September to $A12.2 billion, "driven by falls in iron ore prices".

Slowly normalising: German factory orders recovered slightly (+1.3%) in September from the huge 8.8% decline registered in August, although the result was still below expectations for a 2% rise. Orders remain elevated at around 8.6% above February 2020 levels (i.e. pre-pandemic).

Holding firm: The Bank of England left its cash rate unchanged at 0.1% despite previously signalling it would start tightening to thwart inflation, with one analyst saying the decision raises "concerns about the BoE's credibility as an inflation targetter, especially following recent hawkish comments from MPC members including Governor Bailey".

Tightening: Poland's central bank raised its cash rate by 75 basis points, taking the benchmark rate to a 16-month high of 1.25%. Consumer price inflation is currently running at 6.8% annually, almost double the upper limit of the central bank's target. Only two months ago the bank claimed inflation was transitory, pledging to keep borrowing costs on hold until at least 2022.

...And more tightening: The Czech central bank hiked rates by the most since 1997, raising its cash rate by a full 125 basis points to 2.75% "to tackle soaring inflation amid the economy's recovery from the coronavirus pandemic". Consumer price inflation is currently running at 4.9% annually, well above the bank's 2% target.

A new crisis on the horizon

The New Zealand Initiative released a report titled Walking the path to the next global financial crisis, including a foreword from former Reserve Bank of New Zealand chief economist and chairperson Arthur Grimes warning that "the walk may be short."

Breaking it down: The report is 85 pages long, so do check it out for yourself. But the TL;DR summary is:

Rising public and private debt levels have "ratcheted to new heights... [increasing] debt default concerns".
Global governments, central banks and financial institutions never addressed the causes of the last two financial crises, leaving in place the incentives necessary for people to continue making "a one-way bet to get rich" on rising asset prices.
Monetary policy has become politicised, an act that "is dangerous for financial stability" as it props up wasteful zombie companies and increases fiscal deficits.
There are risks of both deflation and inflation, depending on policy responses.

Why this matters: Global governments, including Australia's, took on enormous debt to keep their economies idling as pandemic restrictions took hold. That debt has made the world more 'fragile', but the decisions that need to be made to reduce that fragility may prove to be politically impossible.

For example, in Europe the central bank is already purchasing government bonds exceeding "the government budget deficits of Italy and some other countries for appreciable periods". That's going to be a tough habit to kick, and if inflationary pressure start driving up repayment rates it could end in defaults (see the chart above).

Looking forward: The paper's "wishful thinking", optimistic scenario involves governments using "revenue growth to reduce budget deficits rather than to increase spending... [and] avoiding where possible commitments that permanently increase spending".

Another scenarios is "Japan", which means elevated public debt, low inflation and low interest rates but where "economic growth limps along as the population ages".

Finally there are two crisis scenarios, "1970s-stagflation" and "1930s-Great Depression". Under stagflation, "decades of macroeconomic difficulty are involved" as governments slowly erode debt in a low-growth, inflationary environment ripe with "financial repression", defined as "arrangements to induce people to buy public debt at below the interest rates that would prevail in freer circumstances".

In the Great Depression repeat, "a calamitous global asset market collapse occurs", causing "unprecedented economic distress and unemployment".

According to the authors, some pain is unavoidable – "Under all scenarios, governments will surely seek to address their public debt problems by some combination of private wealth expropriation and higher income and/or expenditure tax rates. People with assets, retirement savings and higher incomes are direct targets, but the most vulnerable will be those who are least employable or most dependent on government spending for their livelihood."

Sobering stuff.

The Wrap Up
    🎙️Radio broadcaster Alan Jones will depart Sky News Australia after the network said it would not be renewing his contract.
    👨NYT: Why men are much more likely [50%] than women to die of COVID-19 [TL;DR a mystery, with many possible inconclusive causes].
    🍓Fair Work Australia ruled that peace rate fruit picking must also include a guaranteed a minimum wage, currently $A25.41 per hour.
    🤔This year's annual Shonky awards went to bladeless fans, sugary toddler snacks and a 'pointless' compost bin.
    ⚖️The lawyer representing the armorer in charge of the prop guns on the set of Rust, where a cinematographer was shot dead last week, claimed "somebody put the live round in that box – which, if you think about that, the person who put the live round in the box of dummy rounds had to have the purpose of sabotaging the set".
    🏉Kurtley Beale will become the latest ex-Wallaby to be invited back from exile, joining the squad ahead of Sunday's match against Scotland due to injuries to Tom Banks and Reece Hodge.
    🏭After US President Joe Biden said China not showing up for the COP26 climate conference was "a big mistake, quite frankly", a Chinese spokesperson responded with "What we need to deal with climate change is concrete action rather than empty words".
    🕵️‍♀️Facebook – sorry, Meta – reportedly considered recruiting children as young as 6 to its various apps to compensate for declining user numbers.
    🦗Australia demolished Bangladesh by 8 wickets (with 82 balls remaining) at the T20 World Cup to move back into second spot in their group.
    💊The UK's medicines regulator became the first to approve molnupiravir, the COVID-19 antiviral treatment pill for which Australia has a standing order of 300,000 courses.
    💉US President Joe Biden ordered all US firms with 100 or more employees (~84 million Americans) to ensure their employees are vaccinated by 4 January or face fines from $US13,653 to $US136,532 per violation.
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