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Will China Virus Trigger New Great Depression?

15 6 59
13.02.2020

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.

US Economy Already Fragile

What is usually downplayed in major media is the fact that the world’s largest economy, the United States, was already showing alarming signs of economic decline before the China virus shock.

One of the most alarming declines in the past months before January was the sector that many believed was the lead of an American energy renaissance, namely the once-booming shale oil and gas sector. Over the past decade, to the surprise of much of the world, the USA emerged as the world’s largest producer of oil, passing both Russia and Saudi Arabia. At the beginning of January US oil production stood at 13 million barrels a day. The vast share of that rise was due to unconventional shale........

© New Eastern Outlook