By Jerry Kroth
February 07, 2020 "Information
Clearing House" - It looks
like a very rare bird finally landed on our planet.
Moody’s Analytics called the coronavirus “a Black
Swan like no other.” [1] Ditto for Anthony Fauci,
Director of the National Institute of Allergy and
Infectious Diseases, who says, “It’s very, very
transmissible, and it almost certainly is going to
be a pandemic.” [2]
One respected Wall Street analyst said the disease
will impact both global supply and demand and
ultimately “paralyze China.” [3]
But Wall Street shrugged off these prognostications
and is in such a mania of late, it managed to
convince itself—on almost no evidence at all— that
the virus is curable. Not only has it discounted the
pandemic, but its ditzy moods pushed markets to all
time highs as if to show its scorn for any intrusion
sanity which might otherwise interrupt the frenzy.
Stephen Roach, former Morgan Stanley chief
economist, says Wall Street’s mania is ludicrous:
“This is a market where if you declared it was World
War III, they would rally on reconstruction!” [4]
Tesla doubled in value in less than a month. Nothing
seems to temper the delirium.
But Frances Collins, NIH Director, says this disease
is serious and transmissibility is incredible. One
person was infected after only 15 seconds of
exposure —and that was at a distance. [5]
The fact is this disease is only in its incipient
stages, its transmissibility is horrific, and
frankly we haven’t seen anything yet.
So let us dig down into some of the implications.
Take a look for a moment at the house of cards—that
is the world economy— over which this black swan is
flying. It sits upon a foundation of an unimaginable
$253 trillion in debt, something the IMF repeatedly
has warned is excessive and egregious. [6]
|
Are You Tired Of
The Lies And
Non-Stop Propaganda?
|
The debt is 3 times greater than the
entire global gdp.
Yanis Varoufakis, the former Greek finance minister,
once said if you borrow $10,000 from a bank and lose
your job, you’re in trouble, but if you borrowed a
million dollars, the bank is in trouble. [7] If the
coronavirus precipitates a global recession, or
worse, what will happen to the $253 trillion in
obligations that can’t be paid back?
We’ve heard a lot about “too big to fail,” but far
less about “too big to save!” Such gargantuan debt
levels, particularly in emerging markets, may simply
be too large to be saved by more money printing.
Besides pointing to a market crash, a collapsing
dollar, or the repetition of the Great
Depression—something forewarned by the IMF’s
Kristaline Georgievea [8]—the teetering house of
cards has one more problem to consider, the shadowy
vicissitudes of the derivatives market.
Derivatives were the primary culprit which caused
the Great Recession, but most observers felt that
derivatives were roundly chastised with the Volker
rules and weren’t going to be a threat anymore.
So we haven’t been paying much attention.
Actually, today the derivatives market has grown to
$1.4 quadrillion. [9] The volume of derivatives
trading rocketed to obscene proportions. Believe it
or not, derivatives speculation is 3 times greater
than it was on the eve of the financial crisis. Over
$6.5 trillion per day is being wagered as gamblers
flock into this casino like there was no tomorrow.
[10]
(Well, actually, maybe they’re right, and maybe
there isn’t!)
But let’s not be too negative. We should try a
little optimism, or at least some healthy fantasy:
Maybe a real cure has been found for the virus, and
Wall Street’s giddiness is fully justified. If so,
we can sit back and watch this black swan fly
harmlessly off into the distance missing the market
mania and the ever-ascending Dow, the
impossibly-sized valuations, the ballooning
derivatives speculation, and the mountainous levels
of corporate, private, and sovereign debt.
The virus is cured. The black swan flew away. Whew!
What a relief!
Ah! How sweet to relax into the ersatz world of
repos, QE, and all that sumptuous debt and leverage
which continues to prop up the pretty house of cards
we still can call home . . . . at least for now.
Jerry Kroth, Ph.D., is an Associate Professor
Emeritus from Santa Clara University in California
and may be reached through his website
www.collectivepsych.com
Do you agree or disagree? Post
your comment here
Notes
[1]
https://www.ai-cio.com/news/chinese-virus-black-swan-like-no-moodys-says/
[2] https://www.nytimes.com/2020/02/02/health/coronavirus-pandemic-china.html
[3]
https://www.cnbc.com/2020/02/03/el-erian-says-coronavirus-to-paralyze-china-dont-buy-stock-dips.html
[4]
https://www.barrons.com/articles/coronavirus-could-push-global-economy-into-recession-why-one-economist-calls-market-complacency-ludicrous-51581081300
[5]
https://www.vice.com/en_us/article/v747jx/chinese-authorities-say-it-takes-just-15-seconds-for-coronavirus-to-spread
[6]
https://www.cnbc.com/2019/11/15/global-debt-surged-to-a-record-250-trillion-in-the-first-half-of-2019-led-by-the-us-and-china.html
[7] Varoufakis address to Oxford Union, 2019.
[8] EU Times, Jan. 2020
[9]
https://www.goldonomic.com/education-hall/category/derivatives
[10]
https://www.investmentwatchblog.com/interest-rate-derivatives-trading-explodes-to-6-5-trillion-day/
==See Also==
Hong Kong shoppers snap up
rice and noodles as coronavirus fears mount
JPMorgan Now Expects China Q1
GDP To Drop To 1%, Crash To -4% If Coronavirus Is
Not Contained
