Why the world should not be throwing stimulus money at stock markets

There is something grimly appropriate about the coronavirus pandemic forcing people and countries into quarantine and isolation. It reinforces the trend towards economic autarky and trade protectionism already being promoted by populist politicians.

Diagnosing accurately the pre-existing condition in global financial markets that made them vulnerable to a devastatingly, sudden and profound collapse is essential to rebuilding the system on a more sustainable basis once the bottom is reached. And there will be more pain before any cure takes effect.

Couple the damage done by trade wars and financial trauma to production, investment and consumption in advanced economies with record outflows of capital from emerging economies, and you have the makings of a perfect storm that could force the world to close its doors to commerce and investment.

A situation that requires the closing of national borders, the locking down of major cities and even a kind of mass “house arrest” of populations (along with official promotion of social distancing, teleworking and online shopping) could become the final nail in the coffin of globalisation.

Apocalyptic scenarios abound as stock prices plunge into a seeming abyss and sovereign bonds slide, as investors hoard cash rather than put money into anything other than short-term securities. There are even suggestions that financial markets could be shut down altogether to avoid implosion.