SoftBank unmasked as ‘Nasdaq whale’ that stoked tech rally

Japanese conglomerate has been snapping up options in huge amounts over past month

Kana Inagaki, Katie Martin, Robert Smith and Robin Wigglesworth

SoftBank has established an asset management unit for public investments using capital contributed by its founder Masayoshi Son, pictured © Reuters

SoftBank is the “Nasdaq whale” that has bought billions of dollars’ worth of US equity derivatives in a move that stoked the fevered rally in big tech stocks before a sharp pullback on Thursday, according to people familiar with the matter.

The Japanese conglomerate has been snapping up options in tech stocks during the past month in huge amounts, fuelling the largest trading volumes ever in contracts linked to individual companies, these people said. One banker described it as a “dangerous” bet.

The aggressive move into the options market marks a new chapter for the investment powerhouse, which in recent years has made huge bets on privately held technology start-ups through its $100bn Vision Fund. After the coronavirus market tumult hit those bets hard, the company established an asset management unit for public investments using capital contributed by its founder Masayoshi Son. 

Now it has also made a splash in trading derivatives linked to some of those new investments, which has shocked market veterans. “These are some of the biggest trades I’ve seen in 20 years of doing this,” said one derivatives-focused US hedge fund manager. “The flow is huge.”

The surge in purchases of call options — derivatives that give the user the right to buy a stock at a pre-agreed price — has been the talk of Wall Street in recent weeks, as the sheer size of the trades appears to have exacerbated a “melt-up” in many big technology stocks over the summer. Shares in Tesla soared 26 per cent in under a week to September 1, while Amazon and Google parent Alphabet gained about 9 per cent.

One person familiar with SoftBank’s trades said it was “gobbling up” options on a scale that was even making some people within the organisation nervous. “People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

SoftBank declined to comment.

The options boom means that the US stock market remains vulnerable to further bursts of volatility, according to Charlie McElligott, a strategist at Nomura. “The street is still very much in a dangerous space, and that flow is still out there,” he said in a note on Friday, adding that this leaves the market open to swings higher or lower.

The overall nominal value of calls traded on individual US stocks has averaged $335bn a day over the past two weeks, according to Goldman Sachs. That is more than triple the rolling average in 2017 to 2019. The retail trading boom has played a big part of the frenzy, but investors say the size of many recent option purchases are far too big to be retail-driven. 

Single stock call option volume has been rising rapidly

Unusually, single-stock call trading volumes have surged beyond the average daily volumes of calls on the broader US stock market, and are almost as high as the level of trading in index puts — which give the buyer the right to sell at a pre-set price and act as a popular form of insurance against stocks falling. 

The size and aggressiveness of the mysterious call buyer, coupled with the summer trading lull, has been a major factor in not only the buoyant performance of many big tech names, but the broader US stock market, according to Mr McElligott. This week he warned that dynamics around options meant the heavy purchases forced banks on the other side of the trades to hedge themselves by buying stocks, in a “classic ‘tail wags the dog’ feedback loop”. 

This also helped explain the unusual sight of the US stock market climbing in tandem with the Vix index — often referred to as Wall Street’s “fear gauge” — and meant that equities were fragile and vulnerable to the kind of sudden setback that erupted on Thursday. “The equity volatility complex is acting ‘broken’ and indicative that ‘something’s gotta give’,” Mr McElligott warned in a note shortly before the Nasdaq fell 5 per cent. 

One banker familiar with the latest options trading activity said Thursday’s market pullback would have been painful for SoftBank, but he expected the buying to resume. A larger and longer-lasting stock market decline would be more damaging for this strategy, and would probably involve rapid declines, he added.

The options buying comes alongside $10bn in public investments SoftBank is targeting through its new asset management arm.

According to a filing to the Securities and Exchange Commission last month, SoftBank has bought stakes of nearly $2bn in Amazon, Alphabet, Microsoft and Tesla — investments that are partially funded by cash from its $41bn asset sale programme that was triggered by a collapse in its share price during the Covid-19 market turmoil. 

Additional reporting by James Fontanella-Khan

Democrats cannot rule out Trump victory

Pinning hopes on positive polls puts party in danger of ignoring the lessons of 2016

Gideon Rachman

© James Ferguson/FT

There was an undercurrent of fear at last week’s Democratic convention. But the anxiety gnawing at the party was not focused on worries that Republican incumbent Donald Trump would actually win the US presidential election. It was that the president would steal it — by sabotaging the vote or refusing to concede defeat. The comedian, Sarah Cooper, summed up the prevailing view when she said “Donald Trump knows he can’t win fair and square.”

The president has, after all, refused to commit to accepting the results of the election. But, by focusing on the danger of a stolen vote, the Democrats are in danger of underplaying a more conventional risk — that Mr Trump could win without cheating. 

It is true that polls show Joe Biden, the Democratic nominee, well ahead of Mr Trump and have done for months. Those who point out that the polls also predicted victory for Hillary Clinton in 2016 are reminded that Mr Biden’s current average lead of around 9 percentage points is much larger than that held by Mrs Clinton. 

But leads like the one that Mr Biden currently enjoys have been overcome before. In 1988, Democrat Michael Dukakis was 17 points ahead after his party’s convention but lost in November. The electoral college system also structurally favours Republicans, meaning that Mr Biden may need to be four points ahead in the national tally to be sure of victory.

The betting markets are certainly not discounting the possibility of a Trump victory. Recent odds have put the president’s chances of re-election at between 36 and 43 per cent

Even some of the polls that show Mr Biden well ahead contain details that suggest there may be hidden support for the president. One survey taken in mid-August showed Mr Biden seven points ahead. But when voters were asked who they thought their neighbours were supporting, Mr Trump was ahead by five points.

This may point to the existence of a group of “shy” Trump supporters, who will not admit their allegiance to pollsters. Another survey, taken in July, showed that 62 per cent of Americans agree that “the political climate these days prevents me from saying things I believe”. Among Republicans, the figure was 77 per cent.

A Monmouth poll taken in July in Pennsylvania — a key battleground state — showed a 13-point lead for Mr Biden. But when voters were asked who they thought would win the state, they opted narrowly for Mr Trump by 46-45. And 57 per cent of those polled believed that there were “secret voters” in their community who would vote for Mr Trump.

Some experienced Democratic politicians in swing states are nervous. Debbie Dingell, a Michigan congresswoman told The Atlantic in July that a poll that showed Mr Biden ahead by 16 points in Michigan was “bullshit”. As Ms Dingell pointed out, the Michigan polls also predicted victory for Mrs Clinton in 2016. In the event, Mr Trump won narrowly — the first time a Republican had carried the state since 1988.

The congresswoman also pointed to the number of “Blue Lives Matter” signs she had seen in her district — expressing support for the police against the Black Lives Matter movement. She summed up her concerns about voter sentiment, by quoting a viral social media post that complained — “I used to think I was pretty much just a regular person. But I was born white into a two-parent household, which now labels me as privileged, racist, and responsible for slavery.” 

Even quoting a passage like that could be controversial in Democratic party circles — since some supporters might see it as giving credence and tacit support to racist sentiment. The Democrats initially reacted to defeat in 2016 with determination to engage with the woes of the white working-class. But that has been displaced by outrage about the president’s conduct — and a passionate focus on racial injustice. The book Hillbilly Elegy has been replaced on bedside reading tables by White Fragility.

That, potentially, presents Mr Trump with an opportunity. His electoral strategy is aimed precisely at whipping up the anger and resentment of white voters. He will welcome an election that focuses on issues of race. 

Even so, Mr Trump faces formidable obstacles — many of his own creation. The coronavirus pandemic and America’s high death rate have cruelly exposed his managerial incompetence. It has also highlighted the importance of issues that play well for Democrats, such as healthcare and paid leave.

The president had been planning to run on a strong economy — but Covid-19 has put paid to that. Former Trump aides, such as ex-national security adviser John Bolton, have denounced him. Steve Bannon, who ran the president’s 2016 campaign, has just been charged with fraud. (He has pleaded not guilty.)

Many Democrats struggle to understand how anybody could vote for Mr Trump — they assume it must be racism or mental incapacity. But it is that very inability to summon up much sympathy or comprehension for people who are considering voting for the president that is the Democrats’ biggest potential weakness.

The Trump campaign will do its best to convince their core voters that they remain, in the words of Mrs Clinton, the “deplorables” — a downtrodden and despised group. That strategy of resentment has worked before. It gives Mr Trump a chance of winning again.

European banks load up on government bonds, raising concerns over ‘doom loop

S&P says rapid build-up is different to period before eurozone crisis but long-term risks loom

Tommy Stubbington in London

S&P said banks in the eurozone’s former crisis-hit ‘periphery’, such as Italy, Greece and Spain, have the highest exposure to their governments’ debt © Bloomberg

European banks have loaded up on more than €200bn of their own governments’ bonds since the start of the Covid-19 pandemic, in a move that could reawaken fears about the sector’s growing stockpiles of risky sovereign debt.

According to research by S&P Global Ratings, banks had increased their holdings of home-country government bonds to nearly €1.6tn by the end of June, up 15 per cent from the end of February. The rating agency said the pace of purchases was seven times faster than in the same period in 2019.

S&P said banks in the eurozone’s former crisis-hit “periphery” — such as Italy, Greece and Spain — have the highest exposure to their governments’ debt, along with those outside the euro area in central and eastern Europe.

The figures are likely to revive concerns about the effect that wild swings in the price of government bonds could have on banks’ balance sheets. During the eurozone crisis, sell-offs in sovereign debt repeatedly dragged down profits and share prices in the banking sector, in turn raising the prospect of a further hit to the economy — a dynamic labelled the “doom loop”.

“The surge in home-government bond investment in Europe is a temporary response to excess market liquidity, in our view. We think this time is different than in the run-up to the European sovereign debt crisis starting about 2011,” said Cihan Duran, a credit analyst at S&P Global Ratings.

“If this turns out not to be true and the trend persists in Europe, overlooking sovereign risks could unleash a new ‘doom loop’ in the distant future, particularly where banks have built up extremely large exposures to sovereign debt,” he said.

The spread of the pandemic in March triggered a sell-off in global bond markets, which was particularly acute in the countries on the periphery of the eurozone. The European Central Bank helped to avert a new debt crisis with a €750bn emergency asset purchase programme, which was later expanded to €1.35tn in June. 

The central bank followed up with a fresh round of super-cheap loans to banks, resulting in a rush to borrow €1.3tn at negative rates.

While the injection of cash has increased the financial sectors’ ability to lend to households and businesses, much of it has ended up parked in sovereign debt, according to S&P. Banks in the EU do not have to hold any capital against their own governments’ bonds, which are considered a “risk-free” investment by regulators.

“We believe the central bank’s policies are unintentionally acting as an incentive for banks to add to their sovereign debt holdings. The ECB may take additional accommodative measures that might accelerate this trend,” the report said.

However S&P added that the huge run-up in government bond holdings is likely to unwind once the recovery from the Covid crisis kicks in. 


by Egon von Greyerz

“Ground control to Major Tom … Your circuit is dead, there’s something wrong.

Can you hear me Tom.

Can you here me Tom”….

Tom: “I am floating around in my tin can and there is nothing I can do.” (David Bowie)

Yes, Ground Control in the form of the major central banks have totally lost control and the world economy is now floating around helplessly without direction.

Since the end of 2006, the major CBs (Fed, ECB, BOJ & PBOC) have increased their balance sheets from $5 trillion to $25.5t today. The great majority of the extra $20t created since 2006 has gone to prop up the financial system.

And even with these $20t the world economy is more rudderless than it has ever been. Clueless CBs are doing what we had expected them to do which is doing the only thing they know – namely printing endless amounts of money that has zero value since it is created out of thin air.

But the CBs money creation is just a small part of the problem. On the back of CB’s $25t balance sheets, global debt has exploded from $125t in 2006 to $280t today.

None of this colossal extra debt has benefitted ordinary people. It has propped up the banks and made the gap between the haves and the have-nots dangerously high. In the US for example 10% of the population hold 70% of the wealth. No wonder that we are seeing an increasing number of protests and riots. And as the economy deteriorates the violence is sadly going to increase substantially.


So what is the destiny of this Space Oddity (name of Bowie’s song above) with not only central banks having lost control of but also governments?

We can just take the US as an example since it is the biggest economy in the world and also the most vulnerable. But many countries are in the same situation.

Here are some of the areas which neither Trump nor Biden will come to grips with:

CV-19 – Man made virus paralysing the world, no effective vaccine for long time, if ever

Economy – The precipitous fall is more likely to accelerate than recover

Industry – Will contract rapidly and also trade

Asset bubbles – Stocks, bonds property will crash, massive wealth destruction

Dollar – Will implode leading to hyperinflation

Deficits – Will accelerate for years to support economy, people & financial system

Debts – Will surge to 200% of GDP quickly, much higher when banks collapse

Unemployment – 20-30% will be the floor, higher likely

Social unrest – Only beginning now, much more to come with empty stomachs

Civil war – Government can’t cope with protests now, risk of escalation major

Pensions – Will disappear as asset markets collapse, most people don’t have pension

Social security – Will be insufficient with bankrupt government and hyperinflation

Political turmoil – No party or leader will be trusted – not even coming Marxists

The problems are endless and all of the mess above has been created by humans, even Covid-19, so we are looking at a world falling apart due to human failure and mismanagement – not that this is new in history.


Anyone who understands sound money cannot seriously believe that the explosion of debt since 1971 (when Nixon closed the gold window) will end well.

One of the most important attributes of sound money is that it must be scarce. The explosion of money supply and debt since 1971 proves what happens when money is infinite. The Keynesians and MMT (Modern Money Theory) followers believe that money can be pulled out of a hat like a rabbit.

And for 50 years they have got what they asked for without understanding the consequences.

Because for every wilful action, there are always serious consequences.

For 50 years, unlimited paper or fiat money has been created without any service or goods produced in exchange. Since 1971, total US debt has gone from $1.7t to $78t. In the same period, prices for houses, goods and services have exploded but most consumers are not aware of this since it is a slow process.

As the chart below shows, debt has surged 46x in 1971-2020 whilst GDP is up only 18x. So the US economy is running on empty as more debt is required to raise GDP.

As the money created to expand the economy is fake, the increase in GDP is not either but just an inflated figure due to chronic currency debasement.


The creeping inflation that the US and most of the world has experienced for half a century is best illustrated in the debasement of currencies.

Since sound money must be scarce, fiat money can never be sound since unlimited amounts can be and have been created. One of the very important features of gold is that it is scarce. The total global gold stock only increases by 1.7% or 3,000 tonnes per annum.

So scarcity is one of the important reasons why gold is the only currency that has survived in history. If we look at the gold price in US dollars since Nixon abandoned the gold backing of the dollar in 1971, the dollar has lost a staggering 98%.

Only in this century, the dollar has lost 85% against real money or gold. There is no better proof of the total failure of the policies of the Fed and other CBs than the destruction of the currencies.


The world has now entered the final phase or the end of the end of this economic era which started in 1913 with the creation of the Fed. The beginning of the end was 1971 with Nixon’s fatal decision.

The very final phase started in August 2019 when the ECB and the Fed told the world that the financial system is bankrupt. They didn’t quite use those words but their semi-veiled language and especially actions were crystal clear for once.

Trouble in the financial system meant that the Fed and the ECB would do whatever it takes and this is what they have done for the last 6 1/2 months. Total asset of primarily the Fed and the ECB have gone up by $6t since Aug 2019.

But this is just the mere beginning. With first a bankrupt financial system, an extremely weak world economy and a pandemic on top of that, the Fed and the ECB are totally lost. They are continuing to throw petrol on the fire as if that would solve the problem. But instead of extinguishing the inferno, they are just making it bigger and more dangerous by the day.


The directionless world economy is unlikely to continue to drift endlessly whatever CBs do. On the surface these banks are under the illusion that the world has confidence in them since stock markets continue to defy reality. The disconnect with the real economy continues to get bigger by the day. And the implosion of markets and the world economy are not far away.

Just look at the Nasdaq which is now more than 10x!! higher than the 2009 low. It seems that investors believe that the world will just sit at home on benefits and play with their iPhone and iPad, buy things from Amazon they don’t need and then watch Netflix shows all day.

But even if they do, with 30% unemployed in the US they are hardly in a position to support the stupendous valuations of these companies. Netflix is valued at $217 billion with an 83 p/e. It has an infinite multiple of free cash flow since that has been negative to the extent of $11 billion in the last 5 years. Amazon is valued at $1.6 trillion with a p/e of 126! Many other companies are on p/e’s that guarantees a coming crash soon.

The US government will need to extend the unemployment benefits in perpetuity in order for these companies to justify the current valuations. But not even that will be enough.


The legendary Richard Russell coined the phrase “Inflate or Die”. We have sadly gone past that point and the world economy is more likely to experience INFLATE AND DIE. But it is not just about inflating or printing money to subsidise the unemployed or ailing companies.

The next big phase of QE will be to prop up the financial system on a much bigger scale.

Neither companies nor individuals will be in a position to service or repay loans in coming years. Nor will be the government, states, municipalities etc. Instead everybody will need more debt to survive.

Credit losses for the banks will be astronomical. Even with current low interest rates, bad debts are increasing rapidly. And most banks have most certainly not yet recognised the problem adequately. The 15 largest US banks have so far set aside $76b to cover bad debts and the 32 biggest European banks €56b.

This is the highest loan provision since the 2006-9 crisis which brought down Lehman and Bear Stearns. The consultants Accenture estimates that losses from bad debts could rise to $880b by the end of 2022. That would be 2.5x the 2009 loan provisions.

But I doubt that banks have realised the magnitude of the current economic problems. Central banks clearly see the risks. Otherwise they wouldn’t have panicked back in August 2019.


Just take Deutsche Bank (DB) which is the worst of the lot. They have total assets of €1.3t and equity of €62b. The equity is 4.7% of their total assets. So loan losses of 5% would wipe out their capital.

I would be surprised if the coming loan losses would be less than 25% and probably a lot more. And if we add the gross derivatives exposure of $50t, a 0.1% loss would be enough to bankrupt DB.

Now people will argue that gross exposure should be reduced to a much lower net figure. The problem in a crisis is that gross exposure remains gross when counterparties fail.

So in the next crisis, DB is very unlikely to survive. As one of the biggest banks in the world, DB will have positions with all major banks worldwide. So a fall of DB would most likely lead to systemic collapse with the whole system imploding.


The Fed and ECB are clearly totally aware of this risk and are therefore standing watch. They will initially do everything in their power which is helicopter money, stopping withdrawals, bail-ins, bail-outs, negative rates etc.

There is also likely to be a new reserve currency in the form of a cryptodollar, debt moratoria etc and a possible reset linked partly to the gold price. This might work for a limited period but will fail in the end.

The Chinese and Russians will not agree and will challenge the US financial solidity as well as the real level of their gold holdings which is likely to be substantially below the declared 8,000 tonnes. The second reset will be disorderly and this is when the banking system will not survive in its present form.

At that point the world will realise that the central banks have totally lost control of the system as the money they are printing will be recognised as having ZERO value.

“And there is nothing they can do” as Bowie said.


When we reach that point, governments will also be in disarray and powerless for most of the time. The people will always back the opposition parties which will promise the earth but when they gain power deliver very little.

So government changes will be frequent and there will be periods of anarchy.

A dark scenario sadly but the die is already cast and I cannot see any chance of avoiding “a final and total catastrophe of the currency system involved” (von Mises).

I clearly hope that this scenario won’t happen but the chances of avoiding it are slim. It is only a matter of the degree and severity of the collapse.

Not easy for ordinary people to protect themselves against Armageddon. Financial protection in the form of physical gold and some silver is absolutely essential but that is only a small part of things to prepare for.

The most important support is a close family and close friends and also appreciating non-material and virtually free values such as nature, books and music.

The effects on markets and money will of course be dramatic but more about that in another letter.

Covid Crisis Drives Historic Drop in Global Trade

Trade flows collapsed in the spring. Despite recent signs of a rebound, a reshaping of world trade could follow the pandemic.

By Paul Hannon

A container ship sits moored in Yokohama, Japan. Manufacturers in the country reported a recent drop in export orders. / PHOTO: TORU HANAI/BLOOMBERG NEWS

Global trade flows collapsed in the spring, marking the largest fall in two decades, as coronavirus lockdowns disrupted air and sea transport and dealt a blow to the demand for many consumer and investment goods.

In more recent weeks, signs have emerged of a rebound in the movement of goods across national borders. But the enormous economic and social disruptions caused by the pandemic are expected to reshape global trade in the longer term.

Global trade had weakened before the crisis, hobbled by trade tensions and fresh tariffs.

Coming on top of those disruptions, the pandemic has raised fresh questions about the resilience of supply chains that stretch across the globe and drive a third of world trade.

Now, some governments—stung by shortages of domestically made medical supplies when the coronavirus hit and worried about a reliance on Chinese-made products—are advocating the erection of trade barriers and are pushing to bring manufacturing home, in what could be a rebalancing of world trade after the global health crisis abates.

The CPB Netherlands Bureau for Economic Policy Analysis on Tuesday said flows of goods across borders were 12.5% lower in the three months through June than in the first quarter of the year. That was the largest drop since records began in 2000, exceeding the hit to trade in the wake of the global financial crisis.

China was the first major economy to enter lockdown, and the first to leave it. So its exports rose in the second quarter, by 2.4%, following a 7.7% drop in the first quarter. Since the U.S. and the eurozone were in lockdown for much of the three-month period, their exports fell by 24.8% and 19.2% respectively.

As the second quarter drew to a close, some trade flows had bounced back more rapidly than others. According to Germany’s statistics agency, sales of goods to China were 15.4% higher in June than a year earlier.

However, German sales to the U.S. were 20.7% down on a year earlier, reflecting the fact that the world’s largest economy was just emerging from lockdown, with American consumers still wary of returning to the nation’s stores and businesses unsure of their investment plans.

German imports showed a similar pattern, with purchases from China up 20% compared with June 2019, and purchases from the U.S. down 17.4%.

Globally, trade flows rose by 7.6% in June, following a decline of 1.1% in May and 12.3% in April.

The rebound in trade as the second quarter drew to a close, together with more-recent indications from seaborne freight volumes and export orders reported by manufacturers, suggests a pickup in trade flows is likely in the third quarter.

As a result, the Geneva-based World Trade Organization said trade volumes will likely fall by 13% this year compared with 2019, in line with the more optimistic of the two scenarios it forecast for the year. Earlier, it had warned trade flows could fall by a third, the largest drop since the 1930s.

There are some signs that trade flows are rebounding rapidly. On Tuesday, a measure of container traffic compiled by Germany’s Leibniz Institute for Economic Research and the Institute of Shipping Economics and Logistics recorded a sharp rise in July, to a level not far below that seen a year earlier.

“Container throughput is approaching the level reached before the corona crisis,” said Torsten Schmidt, economic director at the Leibniz Institute. “The recovery is affecting more and more regions.”

But there are also signs that the recovery in exports isn’t reaching every corner of the global economy. U.S. and German manufacturers responding to a survey of purchasing managers last week reported a jump in export orders in August, with the former seeing the largest rise since September 2014.

By contrast, French and Japanese manufacturers reported a drop in new orders.

And there are other signs that it will take time for trade flows to return to their pre-pandemic levels.

One challenge is capacity. Businesses prefer to send smaller, high-value items by air when they are selling to customers who are far away, while air travel is also essential to make up for shortages as a result of delays in shipping by sea. But many aircraft remain grounded in response to the sharp fall in air travel as restrictions on the movement of people across borders remain in place, and even those who can move freely are reluctant to do so.

Xeneta, a company that offers data and a platform for booking freight to large consumer companies, estimates that seagoing capacity is still 10% down on pre-pandemic levels, reflecting still-weak demand.

“There are still a lot of idle vessels and capacity to be moved around,” said Patrik Berglund, Xeneta’s chief executive officer. “When they get orders from customers, they will put those vessels back on the water.”

Why All Countries Should Contribute to Ending Global Poverty

In 1969, richer countries agreed to commit 0.7% of their gross national income to international development aid. The world has changed since then, and a new era calls for a fresh approach to poverty eradication, involving a scaled financial commitment from all countries.

Andy Sumner

sumner1_NOEL CELISAFP via Getty Images_povertyrichslumcity

LONDON – Trillions of dollars have already been spent on the global response to the COVID-19 pandemic, and no one knows what the final bill will be. Is it possible to respond to a much longer crisis – global poverty – with even a fraction of these resources?

Richer countries are currently committed to spending 0.7% of their gross national income (GNI) on international development aid. This target was established by the Pearson Commission in 1969, and approved in a United Nations General Assembly resolution the following year. Countries reached this agreement a half-century ago in a world in which global poverty was at very high levels. At the time, the world was justifiably perceived in binary terms: The North was wealthy, and the South was poor.

Much has changed in the intervening 50 years. Some countries have met the 0.7% target, but many others have yet to do so. Many developing countries experienced rapid economic growth in the 2000s – not only China and India, but also a number of African countries. Although all gains are currently in jeopardy, prior to the pandemic, at least, the world had entered a new era, with fewer low-income countries. At the same time, the higher global ambitions set out in the UN’s Sustainable Development Goals (SDGs), committed countries to end poverty in all its forms by 2030.

A new era needs a new approach. The COVID-19 pandemic makes this need even more urgent. My colleagues and I propose a scaled financial commitment to development, with a twist: it should be universal across all countries, rich and poor.

Before describing the proposal, it is necessary to ask what has changed since the 0.7%-of-GNI target was adopted. During this period, two “new middles” emerged. The first is an increase in the number of middle-income countries – now home to much of the developing world’s population. In many of these countries, aid levels are already low relative to domestic resources and non-public international flows.

At the other end of the spectrum, about 30 countries remain “stuck” in terms of growth. These highly aid-dependent states are home to approximately 10% of the population of developing countries – not a “bottom billion,” but a bottom half-billion.

The other “new middle” comprises those who have escaped poverty, but remain vulnerable to falling back into it. This group, as we show, represents more than two-thirds of the developing world’s people.

If measured using the World Bank’s definition of extreme poverty – living on $1.90 or less per day – global poverty has fallen (although the decline is more modest when China is excluded), and income has grown among many of the world’s poorest. Extreme poverty now affects only some 10% of the population in developing countries, down from around 50% 40 years ago.

But poverty remains at startling levels when measured at the World Bank’s poverty thresholds of $3.20 and $5.50 per day. It is sobering to note that every 10 cents added to the poverty line increases the global headcount of the poor by 100 million. Moreover, the poverty count at $1.90 doubles when one considers multidimensional poverty, which includes health, education, and nutrition.

When using a threshold that is associated with a permanent escape from the risk of future poverty – $13 per day in 2011 purchasing-power-parity terms – some 80% of the population in developing countries remains poor. Furthermore, poverty does not only occur in Sub-Saharan Africa and in fragile or conflict-affected states. It is widespread. In short, the second “new middle” are those in developing countries living above the $1.90 poverty line, but below the $13 vulnerability-to-future-poverty threshold.

Against this backdrop, and amid the global pandemic, our proposal calls for a “universal development commitment” (UDC) from all countries – rich and poor alike. Given their aim of poverty eradication, the SDGs would inevitably be the core focus of any such UDC.

One option for a UDC would be to institute a sliding scale. For example, high-income countries could keep the commitment at 0.7% of GNI, while upper middle-income countries would contribute 0.35%. Lower-middle-income countries would earmark 0.2% of their GNI, with lower-income countries contributing just 0.1%. These are gross contributions, not net. In this scenario, the total finance available for development would amount to almost $500 billion per year.

These additional resources could, in principle, lift the remaining approximately 750 million people out of $1.90-per-day poverty; end hunger and malnutrition for an estimated 1.5 billion people; end preventable child mortality; make primary and secondary schooling possible for all children; and provide access to safe and affordable drinking water for over one billion people, as well as providing adequate sanitation for more than two billion people. And in this scaled-contribution scenario, $200 billion would still remain available to support the achievement of other SDGs.

Developing countries would gain by contributing, because a universal development commitment would lead to more resources for those countries overall. Moreover, and equally important, contributing would ensure that poorer countries have a voice in funds’ governance, whether symbolically, as a sign of their moral right to be heard, or physically, as members of the board deciding on priorities and policies.

There are undoubtedly numerous other questions our proposal raises. But the principle remains simple: Every country pays into the system, and the money is spent on ending global poverty. Amid a global pandemic, and with the SDG deadline a decade away, the world needs a universal development commitment sooner rather than later.

Andy Sumner is Professor of International Development at King’s College London and a non-resident senior research fellow at UNU-WIDER.