A Greater Depression?

Dr Doom Nouriel Roubini in the Proj Synd piece:

With the COVID-19 pandemic still spiraling out of control, the best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis. But given the flailing policy response so far, the chances of a far worse outcome are increasing by the day.

…..

Unless the pandemic is stopped, economies and markets around the world will continue their free fall. But even if the pandemic is more or less contained, overall growth still might not return by the end of 2020. After all, by then, another virus season is very likely to start with new mutations; therapeutic interventions that many are counting on may turn out to be less effective than hoped. So, economies will contract again and markets will crash again.

Moreover, the fiscal response could hit a wall if the monetization of massive deficits starts to produce high inflation, especially if a series of virus-related negative supply shocks reduces potential growth. And many countries simply cannot undertake such borrowing in their own currency. Who will bail out governments, corporations, banks, and households in emerging markets?

In any case, even if the pandemic and the economic fallout were brought under control, the global economy could still be subject to a number of “” tail risks. With the US presidential election approaching, the COVID-19 crisis will give way to renewed conflicts between the West and at least four revisionist powers: China, Russia, Iran, and North Korea, all of which are already using asymmetric cyberwarfare to undermine the US from within. The inevitable cyber attacks on the US election process may lead to a contested final result, with charges of “rigging” and the possibility of outright violence and civil disorder.

Similarly, as I have  previously, markets are vastly underestimating the risk of a war between the US and Iran this year; the  of Sino-American relations is accelerating as each side blames the other for the scale of the COVID-19 pandemic. The current crisis is likely to accelerate the ongoing balkanization and unraveling of the global economy in the months and years ahead.

This trifecta of risks – uncontained pandemics, insufficient economic-policy arsenals, and geopolitical white swans – will be enough to tip the global economy into persistent depression and a runaway financial-market meltdown. After the 2008 crash, a forceful (though delayed) response pulled the global economy back from the abyss. We may not be so lucky this time.

Terrible news all around..

Gulzar has a round up of more such depressing articles

One Response to “A Greater Depression?”

  1. Roberto Says:

    Pessimist scenario that is. Base line scenario is economies will grow, investors will get to invest due to the opportunity provided etc

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