The unprecedented market rout in the United States owing to the coronavirus impact has promoted Chinese analysts to predict and impending economic depression in the US. Over the last month the US markets have fallen more than 25 percent. Some analysts are predicting that the US stock markets could potentially drop another 20 percent, wiping off several trillion dollars more of investor wealth. China's Global Times is saying the market pain is a sign of nother Great Depression.
"The US has likely already entered a recession as shown by the stock market rout. If market panic intensifies and the Fed's policy fails to calm it, US stocks may tumble further, meaning the stock market crisis would parallel the Great Depression of 1929," the China government mouthpiece wrote.
Jobs, consumption to be hit
The market meltdown was not stopped by the Federal Reserve, which took emergency measures to cut interest rates and boost spending. The multi-billion dollar stimulus package offered by the Trump administration also failed to cheer up sentiments on the Wall Street.
The Global Times article reads more into the situation than just the stock market behaviour. It says that the continued turmoil reveals the falling levels of trust in the system. It also points out that consumption will stay muted and job creation will be stunted. The essay even suggests that the US retirees would one day start fretting about the safety and worth of their savings.
"With the stock market crash, risks are growing for consumption, business solvency and employment. But the real issue is that market performance affects not only shareholders but also millions of workers participating in the country's retirement savings 401(k) plan," it adds.
Falling trust in the system
Interestingly, a recent survey of US investors had shown that trust was eroding. As many as 68 percent of those surveyed were anxious about the coronavirus impact on the financial markets, the survey by Harris Poll for debt managing app Tally showed, according to CNBC.
A US recession is already factored in, and markets will eventually recover. But if things get worse from here the world's largest economy slips into a depression. "The market could recover from the short-term effects of the coronavirus quickly if there is a recession, which is usually temporary. But what if the market collapse continues and triggers a depression, which may last for many years and bring a severe downturn?"
Already worse than 2008 crisis
The article notes that the tempo of US stock market meltdown over the past few weeks is faster than what was sen during the 2008 financial crisis. "The risk of a depression has not been so great since the Great Depression of 1929," the article says.
US market watchers have been talking about the 'Buffett Indicator' -- the stock market capitalization-to-GDP ratio. And what they find is not healthy. Warren Buffett had predicted a large correction in the markets ahead of the dot com bust of 2000. The Berkshire Hathaway CEO had said in 1999 that stock valuations were unreasonably high. His logic is that, if the country is not producing enough to substantiate the inflated stock valuations, a correction is bound to happen. The 'Oracle of Omaha; had made similar predictions before the 2008 credit crisis.
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