How the Coronavirus Could Reignite a Lurking Debt
Bomb
David Dayen notes:
“Coronavirus has ushered in a demand shock that is
already roiling markets. When China, home to the largest consumer base in the
world, goes on lockdown for more than a month, nobody there shops at stores for
discretionary goods like luxury items. Nobody goes out to eat. People work from
home, and don’t turn on the lights or the air conditioning at the office. And
perhaps most important, nobody travels to work, and factories don’t use any
energy. This demand shock for energy could resurrect a
persistent risk in the economy that hasn’t yet manifested: a years-long surge
in corporate debt”.
Why a Coronavirus Recession Would Be So Hard to
Contain
A supply shock is not a problem our usual economic
tools are particularly good at solving. But it’s the one we face.
“In assessing the economic impact of the virus, some
analysts have interpreted the market slide as a temporary shock to production—a
“supply shock.” Thinking along these lines, a number of Wall Street forecasters
have bravely predicted that economic growth, after taking a hit in the first
part of this year, will rebound sharply. This matches what happened after the
shock of 9/11, and it could happen again. But there is another, darker
narrative in which rising infection rates, falling stock prices, and the
widespread adoption of emergency restrictions on international travel and
internal movements combine to produce a substantial fall in spending by
consumers and businesses—a “demand shock,” which then interacts with the supply
shock to produce a deeper and more lasting downturn”.
Markets Are in Crisis, Not the Financial System
