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The virus takes the West the wheel of the world economy. Ivan Danilov

The virus takes the West the wheel of the world economy. Ivan Danilov

Judging by the tone of mainstream and financial press of our Western partners, they are not so much afraid of the coronavirus, how many measures for the relief of the epidemic. The latter, afraid of the West, just collapse of the credit house of cards, which has turned its economy in recent years.That is why on the pages of Newspapers and flashed not only the comparison with 1918, when I started to rage a massive and deadly epidemic, “Spanish flu”, and compared to 2008 — a time of world economic crisis which, as it turns out, the global economy by and large has still not recovered.

“The markets are falling. The economy stops. The panic is spreading. All this creates a strong sense of 2008” is the title of the main American print media — newspaper the New York Times. If you bring in one phrase the essence of the problem, the formulation of the economic observer of the new York edition Peter Goodman is quite suitable: “ineffective monetary policy, poor actions on the part of governments and fear of the leadership vacuum is alarming about the economic shock from a pandemic”. You should not assume that the problem is uniquely American. The Independent describes the same phenomenon, not only at the macro level and at the level of a British citizen: “Coronavirus bankrupt more people than kill, and this is a real global emergency. Maybe we will then look at the coronavirus as the moment when the thread that binds the world economy was broken”.

In theory, a large and diversified economy and under this description fall the US and the EU, and the UK — should be easy to withstand the problems associated with temporary (lasting one to two months) decline in economic activity. However, practice shows that this axiom functioned relatively well in the past, but not now. In terms of a record debt load of business, population and state budgets not even a very long pause in economic activity may lead to panic and a chain reaction of defaults with unpredictable (but hardly positive) economic consequences. It is worth Recalling that a few weeks ago in the Western media with outright pleasure to savor Chinese poll of small and medium-sized businesses were no signs the Chinese economy is no good. Agency Nikkei reported that “according to research by Tsinghua University and Beijing University, 85 percent of 1506 of small and medium enterprises interviewed in early February, pending the exhaustion of funds for three months” — and, accordingly, many commentators are anticipating a massive Chinese defaults with a potential economic collapse and crisis in the banking system.

China came out of the situation through extremely tough measures against the epidemic, and fit it in the time limit — it is clear that the economic damage will be, but no collapse was observed. While China (and incidentally Russia, which is engaged in preventive closure of some borders, mass testing, early application of certain quarantine measures) in the Western media decided to blame the use of “authoritarian” methods of dealing with the epidemiological threat, alluding to the fact that these methods will not be applied in the countries of “developed democracy”. This is my clear position, but it has serious drawback — the vulnerability of the US economy or the European Union is sharper than that of China or Russia, and public finances in the worst condition. Neglect of epidemiological risk is very costly for the economy as a whole, and the collapse of the financial markets of the US and the EU may be just a prelude to what will happen if Washington and Brussels will not start to show that they take the situation very seriously.

In this context it is necessary to understand the reaction of the us stock markets, which on Friday evening was growing on the background of the Declaration of President trump a state of emergency: the question is how much is enough of this optimism. The problem is that even in the USA few people understand what exactly is broken in the “financial house of cards”, and they are getting worse. The typical estimate from The New York Times: “Behind the facade of numbers (quotes) that are published in the headlines, was a series of market movements that do not make sense, if they match. These movements are not final, but the warning signs: something breaks in the financial system, even if it is not entirely clear what it is. <…> There have been reports from traders of banks and financial institutions that many assets that normally are liquid — they are easy to buy and sell — frozen, and securities not traded actively. This was true in respect of bonds issued by municipalities and large corporations, but, more interestingly, also in relation to Treasury bonds (US Treasury), which usually based global financial system”.

When The New York Times describes bonds as the basis of the global financial system, it is not exaggerating a single drop — it really is. Us government bonds are for the world economy the so-called risk-free asset — debt country that issues the main currency of the world. And, consequently, in periods of global economic turmoil, buyers should be lining up and almost begging the U.S. Treasury or other holders of such bonds to sell them the most trusted security on the planet.

But this time, judging by the statements of the American media and the actions of the Federal reserve, which announced the infusion in the financial system that’s about five trillion dollars, not everything goes according to plan. Observed simply a shortage of private and foreign buyers, the main U.S. asset, the demand for which, in fact, provides both cover the us budget deficit and the stability of financial markets.

Perhaps the fed will have the strength to pour the whole problem with money and (directly or indirectly) to Finance the relief of all economic problems associated with the coronavirus, and make it so that the dollar is not broken in an inflationary tailspin. However, the fact that in conditions of financial stress investors deserted the market of us government bonds, indicates that at least part of financial market participants and is considering other, much more unpleasant scenarios.

Because of the globality of the modern world economy successfully overcome the risks of financial collapse of the United States and the European Union against the background of the epidemic will bring economic benefits to both China and Russia. When you suffer economy importers of the Chinese and Russian exports, it creates a negative impact on our export-oriented country. But regardless of how the outcome of the current episode of financial turbulence, the work on the construction of an international, but does not depend on “the collective West” of the economy — should definitely receive a new impetus. Too vulnerable and over again are our Western partners. Source

News site REMMONT.COM. Using the materials, put the link back.

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The virus takes the West the wheel of the world economy. Ivan Danilov

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