Coronavirus And Credit – A Perfect Storm

Seeking Alpha — February 14, 2020

Excerpt:

Summary

• This article posits that the spread of the coronavirus coincides with the downturn in the global credit cycle, with potentially catastrophic results.

• The credit crisis was already likely to be severe, given the combination of the end of a prolonged expansionary phase of the credit cycle and trade protectionism.

• These were the conditions that led to the Wall Street crash of 1929-32.

This article posits that the spread of the coronavirus coincides with the downturn in the global credit cycle, with potentially catastrophic results. At the time of writing, analysts are still trying to get to grips with the virus’s economic impact and they commonly express the hope that after a month or two, everything will return to normal. This seems too optimistic.

The credit crisis was already likely to be severe, given the combination of the end of a prolonged expansionary phase of the credit cycle and trade protectionism. These were the conditions that led to the Wall Street crash of 1929-32. Given similar credit cycle and trade dynamics today, the question to be resolved is how an overvaluation of bonds and equities coupled with escalating monetary inflation will play out.

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