The coronavirus is bringing a painful but much-needed end to an era of economic excess

The global economy and its credit-fuelled markets have a long way to fall and things will not return to normal after the epidemic; consumption will not ride to the rescue

The hope is that governments, forced to spend to boost the economy, will invest sustainably in welfare, education and other sectors that target inequality

Reading Time:3 minutes

An empty shopping centre in Beijing. No amount of monetary easing will spur consumption beyond basic necessities when serious threats to the economy and jobs remain. Photo: Simon Song

Published: 3:00am, 9 Mar 2020Updated: 3:00am, 9 Mar 2020

If you are riding a bicycle across a tightrope high above the ground while standing on the handlebars and doing a juggling act as you go, you need to maintain momentum and avoid shocks at all costs. Any slowing or wobbling could send you crashing and bring the high wire act to an abrupt and painful end.

That’s a pretty good analogy of what’s happening in financial markets and to the global economy. Even a pestilence as virulent as the coronavirus could not be bringing down the economy so quickly and dramatically if it were not already riding precariously high.

This is a point many people appear to be missing as they scan the headlines daily for any evidence that the coronavirus spread is slowing and that, therefore, things can revert to “normal” fairly soon with financial markets resuming their ascent and business activity picking up.

This will not happen. The economy and financial markets need to take a double fall, first from the coronavirus shock, then from the unsustainable highs they had reached on the back of seemingly endless monetary easing, low interest rates, inflated asset values and credit-fuelled consumption.

That is a long way to fall and the economy that has been performing the most impressive and death-defying balancing act of all – that of the United States – stands to fall most precipitously. As they say, “the bigger (or taller) they are, the harder they fall.”

Amid a plethora of economic analyses pouring out almost daily from the likes of the International Monetary Fund, Organisation for Economic Cooperation and Development, UN Conference on Trade and Development and Institute of International Finance, all cataloguing the woes of the macro economy, one from data analytics company J.D. Power in California was particularly ominous.

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