The coronavirus and its attendant consequences on the global economy are are wreaking havoc on the financial markets.
Here are two entirely speculative scenarios on what could happen next:
The coronavirus burns itself out in the spring or summer, and things will eventually return to normal. That would be the ideal scenario.
However, the coronavirus situation in both Singapore and Australia suggest that this might not happen.
- The virus persists until a vaccine is made available to the public (which won’t happen for another 12 – 18 months).
- The global economy freezes up because people around the world stay at home to stop the virus from spreading instead of going to work or go out shopping.
- Global corporate debt is about $10 trillion dollars. With a decrease in business activity, what happens if corporations can no longer service their debt payments or roll over their debts in the bond markets? They default and eventually have to file a bankruptcy proceeding or get bailed out by the governments where they reside.
- Moreover, about 28 million Americans have no health insurance and hence have limited access to healthcare because the public healthcare system in the United States is basically non-existent. So if 28 million Americans can’t afford to get tested for the virus, it will likely spread very quickly across the United States.
- Moreover, when a vaccine is finally made available to the public, how will these 28 million Americans pay for it? The current U.S. Secretary for Health & Human Services literally said the following: “We would want to ensure that we work to make it affordable, but we can’t control that price because we need the private sector to invest,” he told a congressional committee on Wednesday in response to a question about affordability. “The priority is to get vaccines and therapeutics. Price controls won’t get us there.”
- Finally, if the virus does spread among millions of Americans what will happen to American insurance companies once they start paying out all those millions (billions?) of virus-related healthcare claims? Will they have enough money in their float to do so? Or will they also be rendered insolvent because of this unforeseen event? In that case, they’d also for a bankruptcy proceeding or get bailed out by the U.S. government.
Under scenario 2, what we’re seeing now may be considered the “opening act” of a major shitshow. The main attraction may be much worse than what we’re seeing now.