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post covid

The scale of the economic shock is unprecedented, both deeper and sectorally wider than the Financial Crisis of 2008/09.

There will be profound macro economic implications and there will also be second order impacts on financial services and the market infrastructure industry.

Governments failed to address the debt issue post 08/09 and that debt mountain is the fundamental macro-economic issue facing the world. 

Low/zero rates have been distortive to the proper functioning of markets because risk is mis-priced. Low rates have kept zombie companies alive and punished savers and impacted pension and investment returns.

Corporates have taken the opportunity presented by low rates to finance growth through debt issuance. Servicing that debt is dependent on cash flow. This is going to be a major issue for many sectors. 

At a macro level, cyclical fiscal solutions based on tax and spend levels will not scratch the surface. In the coming weeks two far more dramatic policy solutions will be floated: wealth taxes and debt cancellation. 

I think the latter is more likely and there are potential technical approaches available.

In terms of market infrastrcuture, the leading industry firms will further extend their market dominance in the relevant part of the market.

Stressed market conditions necessarilly drive volumes back to the main venues and CCPs. This will make it even harder for new ventures to gain traction.

The scale of debt issuance will drive further digitalisation of the fixed income market place.