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http://www.informationclearinghouse.info/52959.htm

When a black swan flies over a house of cards: The Coronavirus & global collapse

It looks like a very rare bird finally landed on our planet.

Moody’s Analytics called the coronavirus “a Black Swan like no other.” [1] Ditto for Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, who says, “It’s very, very transmissible, and it almost certainly is going to be a pandemic.” [2]

One respected Wall Street analyst said the disease will impact both global supply and demand and ultimately “paralyze China.” [3]

But Wall Street shrugged off these prognostications and is in such a mania of late, it managed to convince itself—on almost no evidence at all— that the virus is curable. Not only has it discounted the pandemic, but its ditzy moods pushed markets to all time highs as if to show its scorn for any intrusion sanity which might otherwise interrupt the frenzy.

Stephen Roach, former Morgan Stanley chief economist, says Wall Street’s mania is ludicrous: “This is a market where if you declared it was World War III, they would rally on reconstruction!” [4]

Tesla doubled in value in less than a month. Nothing seems to temper the delirium.

But Frances Collins, NIH Director, says this disease is serious and transmissibility is incredible. One person was infected after only 15 seconds of exposure —and that was at a distance. [5]

The fact is this disease is only in its incipient stages, its transmissibility is horrific, and frankly we haven’t seen anything yet.

So let us dig down into some of the implications. Take a look for a moment at the house of cards—that is the world economy— over which this black swan is flying. It sits upon a foundation of an unimaginable $253 trillion in debt, something the IMF repeatedly has warned is excessive and egregious. [6]

The debt is 3 times greater than the entire global gdp.

Yanis Varoufakis, the former Greek finance minister, once said if you borrow $10,000 from a bank and lose your job, you’re in trouble, but if you borrowed a million dollars, the bank is in trouble. [7] If the coronavirus precipitates a global recession, or worse, what will happen to the $253 trillion in obligations that can’t be paid back?

We’ve heard a lot about “too big to fail,” but far less about “too big to save!” Such gargantuan debt levels, particularly in emerging markets, may simply be too large to be saved by more money printing.

Besides pointing to a market crash, a collapsing dollar, or the repetition of the Great Depression—something forewarned by the IMF’s Kristaline Georgievea [8]—the teetering house of cards has one more problem to consider, the shadowy vicissitudes of the derivatives market.

Derivatives were the primary culprit which caused the Great Recession, but most observers felt that derivatives were roundly chastised with the Volker rules and weren’t going to be a threat anymore.

So we haven’t been paying much attention.

Actually, today the derivatives market has grown to $1.4 quadrillion. [9] The volume of derivatives trading rocketed to obscene proportions. Believe it or not, derivatives speculation is 3 times greater than it was on the eve of the financial crisis. Over $6.5 trillion per day is being wagered as gamblers flock into this casino like there was no tomorrow. [10]

(Well, actually, maybe they’re right, and maybe there isn’t!)

But let’s not be too negative. We should try a little optimism, or at least some healthy fantasy: Maybe a real cure has been found for the virus, and Wall Street’s giddiness is fully justified. If so, we can sit back and watch this black swan fly harmlessly off into the distance missing the market mania and the ever-ascending Dow, the impossibly-sized valuations, the ballooning derivatives speculation, and the mountainous levels of corporate, private, and sovereign debt.

The virus is cured. The black swan flew away. Whew! What a relief!

Ah! How sweet to relax into the ersatz world of repos, QE, and all that sumptuous debt and leverage which continues to prop up the pretty house of cards we still can call home . . . . at least for now.