Black swans are bringing uncertainty!
Israel is facing its biggest crisis in 75 years due to judicial reform. The country’s Prime Minister Netanyahu was rushed to the hospital last weekend, and 550,000 people across the country participated in demonstrations. According to the media, a conflict is coming, and now is the time for the government, especially Netanyahu, to take action, otherwise it will be too late. If Israel is in chaos because of this, the situation in the Middle East will also undergo major changes, which will inevitably affect the world again.
Extreme weather is also turning into a black swan event. The city of Phoenix in the United States is being scorched, with temperatures above 110 degrees Fahrenheit (43.3 degrees Celsius) for 23 consecutive days. As Phoenix and much of the U.S. are battered by a record-setting heat wave, the massive extreme heat has not only taken a toll on millions of Americans, but has also driven up costs for businesses and weighed on the economy. Sectors such as agriculture and construction have suffered the most, but no industry or business has been spared.
Notably, another storm looms. According to data compiled by Bloomberg, a corporate debt crisis of more than $500 billion has swept the world. That figure is expected to rise further, deepening concerns on Wall Street that the fallout from such a predicament could slow economic growth and weigh on credit markets that are still recovering from heavy losses.
According to a report by Israel’s “Jerusalem Post” on the 23rd local time, the Israeli Prime Minister’s Office issued a statement in the early hours of the same day, saying that Prime Minister Netanyahu received a pacemaker implantation operation at Israel’s Sheba Medical Center in the early morning. During this period, Israeli Deputy Prime Minister and Minister of Justice Yariv Levin will act as acting prime minister. Sheba Medical Center announced later in the day that Netanyahu’s surgery went well.
A cabinet meeting scheduled for every Sunday morning was canceled this week. The Knesset is scheduled to vote on a controversial judicial reform bill on the 24th. Netanyahu said he was “in time” for a parliamentary vote. Since the beginning of this year, the Israeli government has been committed to promoting judicial reform in order to increase the government’s influence in the country’s political life. Relevant measures include allowing the parliament to veto Supreme Court decisions with a simple majority and giving the government greater power in appointing judges.
The above-mentioned measures have triggered a wave of large-scale protests in Israel since their announcement. According to the “Times of Israel” report on the 23rd, tens of thousands of demonstrators walked from Tel Aviv and other places to Jerusalem for many days. When night fell on the 23rd, the demonstrators arrived in Jerusalem and set up hundreds of tents outside the parliament, preparing for a new round of demonstrations in Jerusalem on the 24th. Demonstration organizers said that about 550,000 people participated in demonstrations across Israel on the 23rd, including 240,000 in Tel Aviv, 100,000 in Jerusalem, and the rest in Haifa, Netanya, Kfar Saba, and Beersheba.
According to the New York Times, Israel is facing the worst domestic crisis since its founding 75 years ago.
The popularity of Phoenix in the United States may not even be felt by China’s four major “stove” cities. Residents of Phoenix said that the recent weather has been too hot and uncomfortable. Even at night, when the sun went down, it was still hot. And this extreme weather has already hit the economy.
As Phoenix and much of the U.S. are battered by a record-setting heat wave, the massive extreme heat has not only taken a toll on millions of Americans, but has also driven up costs for businesses and weighed on the economy. Recent studies have shown that extreme heat could cost the United States $100 billion a year in lost productivity alone. Left unchecked, it could consume a sixth of global economic activity by 2100.
Recent heat waves and hot summer temperatures show the economic cost of heat stress, said Chris Lafakis, director of economic research at Moody’s Analytics. Heat waves can kill and disrupt business continuity. Heat waves can also stress regional power grids, increasing the cost and availability of space cooling. Plus, workers, especially those working outdoors, are less productive. Chronic physical risks from heat stress could reduce global GDP by up to 17.6% by 2100.
“When the heat hits, our thinking slows down, we have trouble concentrating, our hand-eye coordination suffers, we’re tired and we make mistakes,” said Kathy Baughman McLeod, director of the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Center for Resilience.
Sectors such as agriculture and construction have suffered the most, but no industry or business has been spared, she said. Even if employees work in an air-conditioned environment, that doesn’t necessarily mean they have the same luxuries at home. And disrupted sleep can lead to exhaustion and poor performance the next day. “Temperatures are rising so fast that our self-perceptions of risk are not keeping up,” she said. “So that also means, as employers, our perceptions of risk to workers are not keeping up either.”
Economist Joshua Graff Zivin, a professor at the University of California, San Diego, said hot temperatures lead to fewer hours worked and, ultimately, less output. “This may be the first time in modern U.S. history that quarterly GDP (if not annual GDP) has fallen slightly. It’s not crazy to imagine that this quarter’s GDP would be different.”
In addition to the shock of extreme weather, it seems that the debt shock will also be staged.
According to data compiled by Bloomberg, a corporate debt crisis of more than $500 billion has swept the world. That number is expected to rise further and fuel Wall Street’s concerns. The fallout from that predicament could slow economic growth and weigh on credit markets that are still recovering from heavy losses.
Beneath the surface of these bankruptcies lurks an even more troubling problem — the massive debt loads that have accumulated during historically low interest rates. Those debt loads are getting heavier for companies as central banks around the world raise interest rates and signal their long-term stance. Many businesses have taken advantage of easy access to cheap credit to postpone the consequences of financial challenges.
In the U.S. alone, high-yield bonds and leveraged loans owed by riskier and less creditworthy businesses more than doubled from 2008 to $3 trillion in 2021, before the Fed raised interest rates aggressively. In Europe, junk bond sales are up more than 40% in 2021. These debt levels lead to a looming debt wall, with $785 billion due over the next few years.
Non-performing bonds and loans in the Americas have surged more than 360% since 2021, the data showed, suggesting a potentially widespread cycle of defaults is on the horizon.
Analysts believe that even a small increase in the default rate will pose a challenge to the overall economy. Rising defaults could lead investors and banks to scale back lending, exacerbating financial distress for more businesses as financing options dwindle. In addition, bankruptcies would have an adverse effect on the labor market, leading to job losses and subsequent declines in consumer spending.
The current surge in bankruptcies suggests that defaults are becoming a more widespread problem. Richard Cooper, a partner at Cleary Gottlieb, a top law firm specializing in corporate insolvency, said this cycle feels different compared to previous cycles. The rise in defaults is concerning because it puts pressure on the global economy. Defaults affect not only the companies themselves, but also have broader implications for credit markets and economic growth.
According to Bloomberg’s analysis, the challenges posed by the $500 billion corporate debt turmoil engulfing the global economy go beyond superficial bankruptcies. With the build-up of debt in an era of cheap money, tighter monetary policy, vulnerabilities in commercial real estate and concerns about private equity debt and consumer spending, the implications are far-reaching. While the exact impact remains uncertain, businesses, investors, and policymakers must keep a close eye on the changing corporate debt landscape and take steps to address potential risks. Proactive management and strategic decision-making are essential to respond to volatile situations and minimize the long-term impact on the global economy.