by Jan Nieuwenhuijs, Voima Gold:

The coronavirus is swallowing the world. What started in January as a local issue in Wuhan, China, is now a global problem. Although there remains uncertainty around the health hazards of the virus, its impact on the world economy is clear. Early on, we witnessed large segments of the Chinese economy grinding to a halt and supply chains collapsing. As the virus is spreading, major economies will likely suffer the same fate as the Chinese. Across the globe, schools and companies are closed. Events are canceled, and traveling is brought to a minimum. People that can work from home are asked to do so.

From Macau to the Alps, hotels are emptying as the outbreak spreads https://t.co/6IFS4Xn7Wr

— Bloomberg Markets (@markets) March 4, 2020

Government officials are taking precautions as well and for a good reason. In Iran, 23 Members of Parliament have been infected, and one of Ayatollah Khamenei’s top advisers died of the virus. On Wednesday, the first case of corona in an EU institution was confirmed.

The European Central Bank called off a meeting on Tuesday out of fear for contamination, and the International Monetary Fund decided to change the spring meetings to a virtual format (video conference). In France, President Macron ordered to confiscate all stockpiles of face masks and to nationalize production, just before the news came out by the World Health Organization, that “the mortality rate for COVID-19 [coronavirus] is 3.4% …, higher than previous estimates of about 2%.”

My concern is that the virus has set in motion a domino effect in a brittle world economy. After the Great Financial Crisis, central banks have over-stimulated the economy through quantitative easing (“printing money”) and extremely low interest rates. Unconventional monetary policy has spawned asset bubbles, zombie companies and banks, decreased productivity growth, and global debt to GDP is at a historical high of 322%. Although unconventional monetary policy has worked counterproductive, any subsequent economic downturns will make central banks double down on their previous policy: more stimulus.

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