Historically the greatest economic depressions have started with unexpected events on the periphery of major financial markets. That was the case in May 1931 with the surprise collapse of the Austrian Creditanstalt Bank in Vienna which brought the entire fragile banking system of postwar Germany down with it, triggering the Great Depression in the United States as major US banks were rocked to their foundations. Will it be again an unanticipated event outside the financial markets, namely the China 2029 Novel Coronavirus and its effects on world trade and especially on US-China trade that triggers a new economic depression?
Until around January 20 when the news broke about the coronavirus exploding in China’s Wuhan and surrounding cities, global financial markets and especially in the US were optimistic that the combined actions of the Federal Reserve to pump in more liquidity and of the Trump Administration to do all possible in an election year would keep the economy positive. Stocks continued their artificial climb as Fed liquidity fueled the fires of the most overvalued stock market in US history for January.
However since then, as official China infection numbers soar daily and the deaths attributed to the corona virus climb, it is beginning to sink in that the world’s major manufacturing center and source of a huge part of the global industrial supply chains, China, could face catastrophic economic consequences from the health emergency and resulting cordon sanitaire closings of cities involving at this point more than 77 million citizens and the manufacturing that is linked to it. That in turn could drag the entire world, most especially the USA, into a severe economic downturn at a time it is ill-prepared.
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