The great coronavirus market crash

So it happened. The markets stopped their bull run. Sure, I didn't expect it to be suddenly replaced by one of the worst economic crisis ever, but here we are. So, what now? Well, let me put it straight: we are facing doomsday scenario here. Actually, things might even get worse, at least in some countries.

Let's go with order. The general consensus, with which I happen to agree, is that there will be no V-Shaped Recovery, but rather an L-Shaped Recovery. This is hardly surprising: the virus is still around, only a minority of the world population have been infected and are immune to it, and so we simply cannot go back to normal. We have to travel with the v-brake (pun intended) activated, which would be bad for the economy in normal times, let alone after months during which billions of dollars of wealth have not produced because of the lockdowns. Sure, central banks and governments are throwing in the usual monetary and fiscal stimulus, and more of it might arrive. However, this is not going to help much: in order for a stimulus to work, you need something to stimulate. If businesses cannot go back working at full speed because of the COVID-19 containement measures, not much can be done. Hopefully we will have a vaccine by next year, but it may also be that we won't have one anytime soon and we will have to wait for global herd immunity...

So, we are the middle of the desert, with a punctured tire which we can't repair or substitute, only blow air in it that will come out in a matter of minutes, and the nearest place where we can get some help is many km away. How could things be worse? Well, we might run out of water because we've drank all of it earlier, thinking we would arrive at our destination safely with no accidents. That's the situation highly indebted countries with a sluggish economy are in. Their economy may completely sink, which implies falling tax revenues, and at the same time their public expenditure will go up. Their public debt would become unsustainable. A particularly interesting situation can be found in the EU: countries that kept their expenditures in check during good times will suffer from the crisis, but have the means to survive. Those who didn't...well, they can only ask the former to help them stay afloat. And that's the kind of solution we're going to see. Is this going to end well? I don't think so.