Wall Street disaster, Asian
financial crisis and Sars crisis can't be compared with the global depression
about to occur
WITH the spread of
Covid-19, lockdown measures have been ongoing in a number of countries. Poland
has taken drastic measures by shutting down its roads and cutting off its
frequently used highway network connecting it to Europe.
The US and Europe, and
most of Asia, have imposed measures and closed their borders to foreign
These measures are all
unprecedented. Such actions have paralysed the world and caused the global
economic situation to change dramatically. Every day we see new developments
regarding the situation.
In the US, many are
frightened by the turmoil on Wall Street. At first, it was thought the market
would return to normal the day after the crash. After the Federal Reserve's
intervention, people became even more optimistic that there would not be a
It wasn't until after
successive slumps that people realised things were turning ugly.
Suddenly, the US stock
market fell by one-third, and global liquidity tightened. The US dollar
exchange rate has been continually hitting new heights.
To curb the spread of
Covid-19, the US government has ordered millions of workers, students, and
consumers to stay inside, which has resulted in a surge of unemployment claims
across the US.
In Ohio, more than 48
000 people applied for jobless benefits in the first two days of the week. In
the same period last week, there were only 1 825 people. In Pennsylvania, about
70 000 people sought unemployment assistance in one day, which was six times
the previous week.
As more people apply for
jobless benefit cheques, a new problem arises. Treasuries in the US states are
in a state of collapse.
The economic stimulus
package proposed by the Trump administration may be close to $1 trillion,
including issuing cheques to Americans within weeks to help them pay for
groceries, bills, mortgages and rent.
The Senate approved
another bill on March 18 that would inject US $1 billion into the state
unemployment insurance plan.
However, efforts of this
size might not be able to solve the problem. The last recession caused the
unemployment trust funds of 35 states to go bankrupt.
To pay the wages of
unemployed workers, these states had to bear more than $40bn in debt.
Goldman Sachs estimated
that to initially resolve the problems in the US, trillions of dollars would be
As of now, the US
federal government's assistance will almost certainly exceed the "Great
Recession" of 2008.
As for the future US
economy, more and more economists believe the US may enter, or has already
entered, its first recession since 2008.
The actual deterioration
of the global economy will not be solely felt by the US. China, like the US, is
the world's largest economy, and also faces the impact of the viral outbreak.
The impact of the
Covid-19 outbreak has been far more severe in China than in the US.
Despite China and the US
having different economic structures, industries, levels of wealth and living
standards, the macro scale of the impact on the American economy can still be
compared with that of China. If the US needs trillions of dollars to put its
economy on a sounder footing, China's needs shouldn't be much different.
China's economy as a
whole is still on a downward trajectory. From 2013 to 2019, China's economic
growth rate over the years were 7.7%, 7.3%, 6.9%, 6.7%, 6.5% and 6.1%,
respectively. Even under "new normal" circumstances, the economy has continued
Such a situation is far
from comparable to the economic resilience during the Sars outbreak in 2003.
Although the Chinese economy was greatly affected by the outbreak, the economy
was taking off at that time, and investments, consumption and exports were
doing well. There was no big problem in the world market. With the support of
external demand, and the continual transfusion of foreign funds, China was able
to recover quickly, and the economic growth rate of the whole year still
reached 10% in the end.
In the field of
government finance, the central government has already had a budget deficit,
and now it is even worse. The finances of local governments are also difficult.
In 2019, the fiscal deficit of first-tier cities such as Beijing and Shanghai
were respectively RMB 102.3 billion and RMB 40.8 billion.
China made concessions
in its trade war with the US to preserve its overseas markets and maintain its
current economic growth, but now that the outbreak has occurred, even without a
trade war, its overseas markets have fallen.
The Chinese overseas
export of much-needed products such as masks and ventilators cannot solve the
problem, let alone the fact that China needs them for its own use. Therefore,
such products cannot be effectively exported, and maintain China's export
Just like the situation
in China, Asian European countries have little room for optimism. The number of
cases of the virus has been rapidly increasing.
Forced by the situation,
and facing condemnation from many, the blockades between European countries
have basically been fully implemented. The tide of unemployment and bankruptcy
is emerging, and the economy and markets are on the verge of collapse.
Facing the epidemic
situation, under the tremendous pressure of public opinion, every country has
implemented extreme measures.
In these six months, the
population of 1 billion people in the developed markets will stay at home;
850million students have been suspended from school, and the world economy will
be essentially stalled.
around the world have greatly underestimated the impact of the pandemic.
If this situation can
still produce good results, and the world economic order returns to normal, it
will simply be a miracle. Of course, we do hope that miracles will happen, and
the virus might gradually disappear, but it is probable there will not be a
miracle for the economy, which means the greatest depression after World War II
will probably occur.
China might still blame
countries for not taking drastic measures and failing to do a good job to
prevent and control the outbreak of the virus. However, it will soon be forced
to require those countries to open their boundaries and restore and stabilise
No one can afford to
drag on like this because all economies will start to collapse. What is worse
is that the authorities in the global medical community do not dare to
guarantee that this virus will not make a comeback. This alone means the world
is in a deep environmental crisis.
The Wall Street stock
disaster in 1987, the Asian financial crisis in 1997 and the Sars crisis in
2008 cannot be compared with the global depression about to occur. This is the
biggest postwar depression.