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Coronavirus Pandemic Leading To Global Economic Crisis Due To Unprecedented Demand Destruction

March 12th, 2020

Now that the World Health Organization has declared Covid-19 a pandemic, it seems inescapable that the world will be plunged into a massive economic crises. The initial steps by central banks to slow the bleeding occurring in global equity markets have been blown away by the scale of the cooronavirus outbreak, as the realization seeps in that the combined health and economic crisis will be of an undetermined but unquestionable prolonged duration.
In 2007 a contagion in the form of subprime mortgages froze the world’s credit markets, leading to the Global Financial Crisis of 2008.

This time it is an actual microbe, a virus, that is the contagion. The Covid-19 pandemic has led both sovereigns and consumers into policies and behaviors leading to massive and accelerating demand destruction. Ironically, this demand destruction will also freeze credit markets, perpetuating the character and scale of the unfolding global economic crisis.
It should be noted that the world is far more polarized than in 2008, and this will exacerbate the scale of the economic and financial collapse that is now upon us. As for the possibility that the cooronavirus pandemic will be of short duration, this is not a likely scenario. It will take at least t one and half to two years to perfect a vaccine, if that is even possible. In a worst case scenario, the health and economic emergency could linger for years.

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