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Page added on March 10, 2020
A tipping point for the global economy
The conflict over oil production between Saudi Arabia and Russia this weekend has sent oil prices plummeting and comes on the heels of growing worries about the spread of coronavirus.
This marks the first time the global economy has been buffeted by simultaneous supply shocks. The two are related. The conflict among oil producers was spawned by a slump in oil demand caused by the spread of coronavirus worldwide and its impact on the global economy.
The combined shocks have sent Treasury yields close to zero and the U.S. stock market near bear territory on the eleventh anniversary of a record bull run. The 7 percent sell-off of the Dow Jones on Monday marked the worst day since the 2008 Global Financial Crisis. Markets are now signaling a tipping point has been reached with the global economy on the cusp of recession.
Last week, the Organization for Economic Cooperation and Development (OECD) already had lowered its projection of 2020 global growth to 2.4 percent, just below the threshold it uses to gauge worldwide recession. This projection assumes the coronavirus epidemic peaks in China this quarter and outbreaks in other countries are mild and contained. The OECD anticipates global growth could drop to 1.5 percent in 2020 if the outbreak is not contained.
Prior to this weekend’s developments, most forecasts for the U.S. economy called for growth to slow this year but for it to avert recession. One reason is the economy gained momentum in the latter part of 2019 in response to Fed easing and the phase one trade deal with China. Also, recent jobs growth has been solid and consumer confidence has stayed high.
Yet, investors now fear a U.S. recession. One reason is a growing number of industries are feeling the fallout of coronavirus, including airlines, cruise lines, transport, hotels, restaurants and other services. With oil prices plummeting, moreover, U.S. shale oil producers once again confront price levels close to break-evens for them, just as they did in 2015.
The situation in financial markets is extremely fluid. While the media have focused on the sell-off in equities, the corporate bond market is critical because it is the principal source of finance for many businesses.
One concern is that liquidity in the corporate bond market has dried up. And credit spreads for corporate borrowers have widened considerably, especially for lower quality issuers. Looking ahead, their access to credit is likely to become limited.
But the current situation is not as bleak as it was in the fall of 2008. The main difference today is financial institutions are better capitalized and less vulnerable to runs.
By now, the Federal Reserve is widely expected to lower interest rates further and ultimately bring them closer to zero. But the impact of Fed rate cuts on the economy will be limited considering how low they are.
It remains to be seen whether investor confidence will be bolstered by further expansion of the Fed’s balance sheet. Some commentators have mentioned the possibility of the Fed purchasing corporate securities. However, even if the Treasury secretary were to sanction it, the feasibility is questionable because the corporate bond market is less liquid than treasuries or agencies.
For these reasons, most economists believe the more effective channel to combat fear of the coronavirus is via fiscal policy and informed health care policy. The Trump administration reportedly is considering a payroll tax cut that could elicit bipartisan support. Beyond this, however, it will be tougher for the two parties to find common ground.
So, where does this leave investors? My take is they should keep several considerations in mind.
First, the fallout from the coronavirus and plummeting oil prices will be temporary, not permanent. In this regard, it is clearly easier for oil producers to reach a compromise that will stabilize prices than it is to halt the spread of coronavirus. But the virus will be contained at some point, hopefully by late spring or summer.
Second, the U.S. economy has proved to be highly resilient to shocks in the past because it is well diversified, both in terms of industries and geographic location of businesses. Even during the 2008 financial crisis, which was the worst the country experienced since the Great Depression, it subsequently went on to experience an enduring recovery and financial prosperity.
The big unknown today is whether policymakers will craft policies that can bolster investor confidence and aid the natural adjustment process. While the stock market rallied on Tuesday’s open, it is likely to remain highly volatile until there is greater clarity on the impact of the coronavirus spread.
132 Comments on "A tipping point for the global economy"
makati1 on Tue, 10th Mar 2020 10:38 pm
I think the depression elephant just landed on the 2020s US economy scales. Hmm?
Theedrich on Wed, 11th Mar 2020 1:05 am
The precipitous drop in oil price joins the virus. Russia and Saudi Arabia will not kiss and make up. And American shale oil cannot compete with the ultra-lowprice conventional oil from Siberia and Araby. This is in addition to the fact that the Wuhan virus now puts “airlines, cruise lines, transport, hotels, restaurants and other services” at great risk. In short, business-as-usual (i.e., roaring economy, readily available, cheap fuel, just-in-time (JIT) production, etc.) is looking over a Seneca cliff. If the double whammy is not overcome soon, the nation — and the interlocked world that depends on it — will be jerked back multiple decades, maybe into another Great Depression.
Naturally, the Leftist DeepState will blame it all on Trump and his Deplorables. The result could be a Democrat takeover in November, resulting in a one-party state forever. But the Lefties cannot understand that viruses and oil do not care about Yankee or Euro-socialist wishdreams, and will not obey their virtue-signaling. History does not care whether Jenghis Khan or Jesus Christ is the people’s preference.
It may just be that modern America, with its ethic of White genosuicide, has run out of time.
JuanP on Wed, 11th Mar 2020 1:20 am
“The great American shale oil bust.”
https://wolfstreet.com/2020/03/09/great-american-shale-oil-bust-turns-into-massacre/
It appears the Saudis and/or the Russians decided that the time was right to flood the market and drive prices down to bankrupt the American shale drillers. That is a dangerous bet to make; this could drag out for years. The COVID-19 global pandemic leading to the collapse in Chinese oil imports from 10 Mbpd to 7 Mbpd in January and February may have been the motivation to pull the trigger at this time. The Russians can do this for a decade, but I don’t know how long MbS can hold on to the reins in KSA with oil at these prices.
makati1 on Wed, 11th Mar 2020 3:23 am
JuanP, the Russians claim they can manage for 6-10 years of low oil prices. They are not in debt and have a big savings account in gold. I think they are not bluffing.
They know Saudi Arabia cannot last nearly that long without riots and a lot of heads rolling, literally. Not to mention the demolition of the US oily industry even sooner.
Interesting to watch the current events unfold.
Davy on Wed, 11th Mar 2020 4:32 am
“I think the depression elephant just landed on the 2020s US economy scales. Hmm?”
Severe economic situation is already in full swing in Asia, makato. Last I checked this is a globalized world so there are economic contagions. Here in the west we can thank your Asian’s for your sloppy handling of a virus and your overpopulation that helped magnify it so it could infect the world.
Davy on Wed, 11th Mar 2020 4:38 am
“It appears the Saudis and/or the Russians decided that the time was right to flood the market and drive prices down to bankrupt the American shale drillers.”
Dumbass speaks again. This si about Saudis and Russians not cooperating. Russia is a different kind of oil place. It is not easy for the Russians to curtail production like the Saudis. You think this is all just a game to hurt the Americans. LOW IQ shit. Shale drilling can fire up or down relatively quickly. It is not the same kind of production.
“That is a dangerous bet to make; this could drag out for years.”
Who knows what will happen stupid. This si the oil market. Was is apparent globalism is dying and the oil markets will be shaped by this.
“The COVID-19 global pandemic leading to the collapse in Chinese oil imports from 10 Mbpd to 7 Mbpd in January and February may have been the motivation to pull the trigger at this time.”
Duh, are you trying to look smart or something. LOL
“The Russians can do this for a decade, but I don’t know how long MbS can hold on to the reins in KSA with oil at these prices.”
Bullshit, the Russians can do something for decades but there will be consequences for Russia on decline in eturn on their effort. You are an economic fool who just thinks the game not the science. Oh, yea you try to mix the two to look smart but you are just a loud mouth fool.
Davy on Wed, 11th Mar 2020 4:44 am
“JuanP, the Russians claim they can manage for 6-10 years of low oil prices. They are not in debt and have a big savings account in gold. I think they are not bluffing.”
They have very low growth makato and big dependence on natural resources for income so know you are just talking out your ass. They are better positioned than third world oil produces but there will be more consequences for a Russia already in tough times. Now China is likely in a down economic cycle that will check that area of growth. This is a bad time for this to happen to Russia because they were on an up slope and now will be heading down IMA with everyone else.
“They know Saudi Arabia cannot last nearly that long without riots and a lot of heads rolling, literally. Not to mention the demolition of the US oily industry even sooner.Interesting to watch the current events unfold.”
Makato, when have you been right lately. You have one wrong position after another and this is because this is a game for you of AsiaUp and Westdown instead of being rational with science and common sense you live in a fantasy world.
Abraham van Helsing on Wed, 11th Mar 2020 5:48 am
“VW Will Be The 1st Mass Market Electric Car Profit Maker: Report”
https://www.forbes.com/sites/neilwinton/2020/03/09/vw-will-be-the-1st-mass-market-electric-car-profit-maker-report/#78537b495415
VW will beat Tesla and as of 2022 will begin to make stiff profits from the e-business.
Says UBS investment banking.
Davy on Wed, 11th Mar 2020 6:01 am
“VW will beat Tesla and as of 2022 will begin to make stiff profits from the e-business.”
LOL, more wishful thinking. Lets see if demand for new cars comes back in a recessionary climate. Making a 2022 claim at this stage of the game is more stupidity.
Cloggie on Wed, 11th Mar 2020 8:31 am
Samsung Lithium-metal battery breakthrough. No more liquid electrolytes. Energy density almost 1 kWh/liter. Car batteries of 100 liter will suffice.
https://deepresource.wordpress.com/2020/03/11/new-samsung-lithium-metal-battery/
Abraham van Helsing on Wed, 11th Mar 2020 8:37 am
2020 is going to be between Trump and Biden, provided of course that the latter can remember it.
https://www.spiegel.de/politik/ausland/joe-biden-gemeinsam-schlagen-wir-donald-trump-a-a044a0a3-94b0-49aa-87cb-02eb1a62980c
JuanP on Wed, 11th Mar 2020 11:08 am
“Russia can live with $25 oil for years”
https://oilprice.com/Latest-Energy-News/World-News/Russia-Can-Live-With-25-Oil-For-Years.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+oilpricecom+(Oil+Price.com+Daily+News+Update)
Davy on Wed, 11th Mar 2020 11:15 am
“Russia can live with $25 oil for years”
Sure, big deal, juanPee but they won’t prosper and grow. There won’t be cheering like your dumbass does with your “Go Russia!” “Putin 2024”. Stick to your Muzzie jerk stupidity it fits your personality better
Duncan Idaho on Wed, 11th Mar 2020 11:27 am
And, as usual, we march into the future while looking backward.
Davy on Wed, 11th Mar 2020 11:35 am
“Russia can live with $25 oil for years”
We gots to admit though juanPee. It’s a REAL Big deal. To us. Or we wouldn’t be getting all triggered and defensive about it.
Duncan Idaho on Wed, 11th Mar 2020 11:45 am
Nasdaq
8,012.69
-331.57(-3.97%)
Lets see if it goes down beyond 8—
Interesting times at the Dog Track.
Duncan Idaho on Wed, 11th Mar 2020 12:08 pm
Nasdaq
7,981.80
-362.46(-4.34%)
Well, that didn’t take long.
Lets see if the Fat Boy and the Thugs can turn this around.
JuanP on Wed, 11th Mar 2020 12:10 pm
“Oil price crash: 50% of US shale could go bankrupt.”
https://oilprice.com/Energy/Crude-Oil/O … ews+Update)
But I believe there will be no shortage of idiots willing to buy their assets for pennies on the dollar and start a new shale boom. It probably will never be the same, but those plays are not played out, and there is a sucker born every minute in the USA. Same as it always was!
Trump 2020! Gabbard 2020! Putin 2024!
JuanP on Wed, 11th Mar 2020 12:11 pm
https://oilprice.com/Energy/Crude-Oil/Oil-Price-Crash-50-Of-US-Shale-Could-Go-Bankrupt.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+oilpricecom+(Oil+Price.com+Daily+News+Update)
JuanP on Wed, 11th Mar 2020 12:28 pm
I totally understand your getting all triggered up by this, Exceptionalist! It must really suck for a Sinophobic American Exceptionalist like you to see the USA failing miserably where China so brilliantly succeeded.
Trump 2020! Gabbard 2020! Putin 2024!
Davy on Wed, 11th Mar 2020 12:40 pm
Translation: juanPee jabbering bullshit.
juanPee is unable to give a coherent comment without slipping into his usual insanity. He is a turd that won’t flush.
juanPee fan club on Wed, 11th Mar 2020 1:13 pm
JuanPee, any more update on how the virus ain’t shit? LMFAO. Can you give us some muzzie shit or better yet some crazy new sock. FUCKNUT
Davy on Wed, 11th Mar 2020 1:26 pm
“Oil price crash: 50% of US shale could go bankrupt.”
Who cares fucknut. Well just buy all are oil from Russia.
Davy on Wed, 11th Mar 2020 1:34 pm
There you go juanPee. Good boy. more of your ID theft. Please give us some muzzie shit too! FUCK NUT. I love pulling your chain. You are a prisoner to your obsessions.
Davy on Wed, 11th Mar 2020 2:55 pm
“”Deeper Than Corona” – The Real Causes Of The Oncoming Economic Collapse”
https://tinyurl.com/tv9keg7 zero hedge
“That while the coronavirus may in fact be the catalyzer for the oncoming financial blowout, it is the height of stupidity to believe that it is the cause, as the seeds of the crisis goes deeper and originated much earlier than most people are prepared to admit.”
“Household debt, student and auto debt has skyrocketed and since wages have not kept up with inflation causing even more unpayable debts have been incurred in desperation. Industrial jobs have collapsed consistently since 1971, and low paying service jobs have taken over like a plague.”
“The last report from the American Society of Civil Engineers concluded that America desperately needs to spend $4.5 trillion just to bring its decayed infrastructure up to safety levels. Roads, bridges, rail, dams, airports, schools all received near failing grades with the average age of Dams clocking in at 56 years, and many water pipes over 100 years old, and transmission/distribution lines are well over 60 years.”
“The factories which once supplied those infrastructure needs are long outsourced, and much of the productive workforce that had that living knowledge to build a nation are retired or dead leaving a deadly generation knowledge gap in its place filled with millennials who never knew what a productive economy looked like (and aging baby boomers who have tried hard to forget what it was).”
“American farmers have probably been the most devastated in all this with dramatic population losses across the entire farm belt of America and the average age of farmers now 60 years. It was recently reported that 82% of U.S. Agricultural family income comes from off farms, as mega cartels have taken over all aspects of farming (from equipment/supplies, packaging and the even the actual farming in between).”
“America luckily has a China-Russia alliance that have created a powerful “New Deal” of win-win cooperation in the form of the evolving Belt and Road Initiative with invitations for western nations to jump on board.”
Its are only hope.
JuanP is stupid on Wed, 11th Mar 2020 3:24 pm
Are you triggered stupid LMFAO. The following is stupid:
Davy said “”Deeper Than Corona” – The Real Causes Of The Onc…
Davy said There’s nothin manly about a bunch of black guys c.
JuanP is stupid on Wed, 11th Mar 2020 3:25 pm
JuanPee I thought you said this virus ain’t shit?? FUCKNUT
This is from stupid
Davy said “”Deeper Than Corona” – The Real Causes Of The Onc…
Davy on Wed, 11th Mar 2020 3:36 pm
It is the height of stupidity to believe that the coronavirus is the cause for the oncoming financial blowout juanPee.
stupid
Inquiring minds want to know on Wed, 11th Mar 2020 3:45 pm
Question Davy aka REAL Green aka Various Socks…… why do you suck so bad. Perhaps the perfect combination of genetics and environment created a monster of unparalleled equal.
Davy on Wed, 11th Mar 2020 3:45 pm
The first reported case of coronavirus reported in the US was on Jan 19 juanPee. There’s been over 5000 people killed in car accidents since then. And only 6 deaths from the virus outside of an old age folks home in Washington State.
Driving to and from work is over 800 times more deadly then the stupid virus is.
dumbass
JuanP on Wed, 11th Mar 2020 4:12 pm
It is the height of stupidity to believe that the coronavirus is Not the cause for the oncoming financial blowout
stupid
Davy on Wed, 11th Mar 2020 4:14 pm
That’s why we call you stupid, juanPee. You are dumb as a box of rocks. The virus popped the bubble therefore it will be the primary cause of something that could have gone on for years
JuanP on Wed, 11th Mar 2020 4:15 pm
The first reported case of coronavirus reported in the US was on Jan 19. There’s been over 5000 people killed in car accidents since then. And only 6 deaths from the virus outside of an old age folks home in Washington State.
Driving to and from work is over 800 times more deadly then the stupid virus is.
dumbass
Davy on Wed, 11th Mar 2020 4:17 pm
You stupid fuck your little mind is unable to see the big picture of a healthcare system overwhelmed and economies shut down plus deaths.
juanPee fan club on Wed, 11th Mar 2020 4:19 pm
Question juanPee aka Various Socks…… why do you suck
Davy on Wed, 11th Mar 2020 4:25 pm
Never underestimate the power of large groups of stupid people like me juanPee. Specially when were all afraided.
makati1 on Wed, 11th Mar 2020 5:34 pm
Annual US deaths, major causes of:
1. Heart disease: deaths per year: 635,260
2. Cancer: deaths per year: 598,038
3. Accidents (unintentional injuries): deaths per year: 161,374
4. Chronic lower respiratory diseases: deaths per year: 154,596
5. Stroke: deaths per year: 142,142
6. Alzheimer’s disease: deaths per year: 116,103
7. Diabetes: deaths per year: 80,058
8. Influenza and pneumonia: deaths per year: 51,537
9. Kidney disease: deaths per year: 50,046
And on and on…
Why would I be worried about a new flu when all of the above are more dangerous?
Perspective, people! Perspective!
makati1 on Wed, 11th Mar 2020 5:51 pm
Davy is still rearranging the deck chairs on the USS YUGE DEBT as it sinks into oblivion. He cannot accept that the US is swirling down the shitter faster and faster every day while the East (Asia) is still moving forward. When the country is lead by dumbed down arrogant morons like Trump, what can you expect?
The West is panicking because they are all spoiled brats that have never known real poverty since the Depression. The lesson is painful for those who did not prepare.
As I said before, Mother Nature is going to pull out her big guns as we get closer to the extinction cliff. Locusts, new diseases, old diseases returning, drought, floods, erratic weather, and on and on. Laugh at the preppers all you want. They will have the last laugh.
JuanP on Wed, 11th Mar 2020 6:01 pm
Mak, of all the people on this forum you are probably the most screwed. That virus will rip through your country with a vengeance. You and all your health problems mean your days are numbered
JuanP on Wed, 11th Mar 2020 6:03 pm
“Why would I be worried about a new flu when all of the above are more dangerous? Perspective, people! Perspective!”
Mak, it brought your China to its knees. It’s economy in shambles. ROTFLO
JuanP on Wed, 11th Mar 2020 6:04 pm
Never underestimate the power of large groups of stupid people like me juanPee. Specially when were all afraided.
JuanP on Wed, 11th Mar 2020 6:08 pm
Delusional Davy “Never underestimate the power of large groups of stupid people like me juanPee. Specially when were all afraided.”
I never did. That is why I sterilized myself and never produced biological offspring. I have very clearly understood since I was a little boy that humans are too many, too stupid, too ignorant, and too selfish. That is why I have been a survivalist and a prep per all my life; there is absolutely no way that you don’t end up destroying the biosphere and making Earth uninhabitable for our species. That is why I already have more water, food, medicine, guns, ammo, gold, silver, and other supplies than necessary to deal with this and any other crisis. It is only a matter of when. Are you ready, Exceptionalist? Are there any modern hospitals and doctors in hillbilly country?
Davy on Wed, 11th Mar 2020 6:16 pm
You are a turd juanPee and totally unprepared. There was a time when you were serious about prep but then you drifted into mental illness and probably drugs. Now you spend your days trolling instead of doing something. Pretty stupid hanging out in Miami Beach if SHTF. What a stupid fuck you are. I love pulling your chain and busting your ass in debate. Victory
world grater supremacists muzzies love assn on Wed, 11th Mar 2020 6:24 pm
above is superatd obv.
makati1 on Wed, 11th Mar 2020 6:35 pm
Davy, give it up. You are not JuanP and posting under his name is too obviously you. Keep moving those deck chairs!
I say again. US Down! Asia Up! LOL
JuanP on Wed, 11th Mar 2020 6:36 pm
You are the most deranged American I’ve interacted with in my life, goat sucker! Such a widlle pathetic fuck! LOL!
makati1 on Wed, 11th Mar 2020 7:06 pm
JuanP, even billy goats have a bigger one than Davy. His nanny wants to migrate to a farm with a real billy, not hillbilly. LOL
makati1 on Wed, 11th Mar 2020 7:08 pm
JuanP, give it up. You are not Davy and posting under his name is too obviously you. Keep moving those deck chairs!
I say again. US Down! Asia Up! LOL
makati1 on Wed, 11th Mar 2020 7:10 pm
JuanP, even my pet monkey has a bigger cock than yours. My nanny monkey wants to sleep with me. I may try it.
Anonymouse on Wed, 11th Mar 2020 7:11 pm
Mak, you are sick. A monkey is an animal not a person.