On Coronavirus and Money Changers

American Thinker.com ^ | March 14, 2020 | Drix Dressler

[Kaslin]

The numbing refrain that the Wuhan coronavirus (COVID-19) is unilaterally pushing world financial markets to near collapse is growing as tiresome as it is misdirected. A basic forensic analysis would likely shed telling light on the real reasons for the epic stock market swings of late. Namely, that the real culprits may very well be the world’s money changers and the processes and systems that they have helped create and perpetuate.

The world’s stock markets make up only a part of the global financial system that sports a regular cast of players including commercial banks, investment houses, insurers, central banks, Non-Governmental Organizations (NGOs like the IMF, World Bank, WTO), hedge funds, private markets, traders, investors, savers, arbitragers, and the like. Despite the many interrelationships and complexities of the global financial system and all the associated punditry, a simple and sad truth is that the bigger players can and do swing entire markets pretty much at will. Abject fear is an additional catalyst to volatility. And, is often the case, lots of non-financial institutions, companies, individuals, and even nations can get hurt and somehow end up holding the bag if things go south as they have again recently. Recall the 2008 financial crisis for perspective.

As goes the United States, so goes the world. The U.S. dollar is still the premier trading currency and basis for trillions upon trillions of dollars in contracts, trade, sales, monetary exchange and worldwide financial flows. The following chart shows that the U.S. accounts for over half (54.5%) of the world’s stock market capitalization and related wealth. Consequently, bringing down the U.S. market is a huge deal by any standard.

[ConservativeInPA]

I read the article and tried to make quick sense of it. I can't dispute and I agree on the facts. The article offers no solutions, and perhaps it was not intended. Reading between the lines I saw three major problems: black box derivatives, China's seeming resilient stock market and NGOs. I'm not a fan of NGOs' influence in markets. We didn't elect them. We don't control them. As for China's stock market, I am 99% sure it is manipulated by the Chinese Communist Party. Enough said on that one - it's not close to capitalism. And black box derivatives are something we seemingly can't eliminate. I say institutions that trade them do so at their own risk, and should suffer the consequences (no-bail outs - should have been that way in '08-'09). Don't confuse black box derivatives with everyday derivatives - futures and options. Those are necessary tools in markets. They are not black box, as they are well defined and the downside is known.

It seems to me that the solution to this problem is a healthy dose of pure capitalism. As for markets being moved, there will always be someone bigger, that has more capital, that can move the market. It's the playing field that needs to be adjusted, and some contestants removed because of doping, to use a sports metaphor.

[webheart]

I would have trouble composing a sentence that says the dollar is how you measure trillions and trillions of dollars.

[gogeo]

The numbing refrain that the Wuhan coronavirus (COVID-19) is unilaterally pushing world financial markets to near collapse is growing as tiresome as it is misdirected.

Markets are not the economy.

The economy is the economy.

What does he have to say about the economy?

[ConservativeInPA]

Markets affect the economy and the economy affects the markets. They are not two closed-loop systems. A few weeks ago, our economic fundamentals were sound. This was partly due to policies put in place by Trump - lower taxes, less regulation, tariffs, trade deals, etc. It was also partly due to what business and consumers were doing. There is psychology to go along with the economy. That has many reasons to develop, including policies, markets, and news events. (I'm being generic on the news events - think disasters.)

The policy fundamentals are in place for a sound American economy, favoring less global companies. I think a lot of what Trump is trying to do right now is manage American's psychology, err, optimism. To put it bluntly, he simply wants Americans to get back to work and get back to consuming. That simple cycle - work, spend, work - keeps the economy going. I think his advisors, Larry Kudlow for instance, see stimulus as a way to kick start that cycle after it has been shut down.

[gogeo]

But the markets are not the economy, any more than accounting is business.

[ConservativeInPA]

I am not going to argue with you. The market and economy affect each other. There is a relationship between the two. If you don’t get that, I don’t know how to explain it to you. Accounting isn’t business, but accounting is required by business to make decisions. How you do accounting is affected by how you do business. There is a relationship between the two - which is different from the relationship between markets and the economy. So that is apples and oranges.