WILL THE CORONA VIRUS CAUSE A GLOBAL ECONOMIC COLLAPSE? THE BDI SAYS YES!
Under the category, the more things change, the more they stay the same. Along this line of thinking, I feel like it’s the Monday before Black Tuesday in 1929. I know that many of you have family members who think you are insane to suggest that your bank could fail and the economy could fail due to the spread of the Coronavirus.
My heart breaks for many of my fellow Americans who will never know what hit them. Despite several and multiple warnings coming from both this publication and dozens of others that the crash of the U.S. economy could come at any time, and the warning signs, but globally and domestically are already in place. However, the cognitive dissonance crowd will continue to go through life as if nothing is wrong. How can we be certain that bad days lie ahead?
The Baltic Dry Index
In the light of the Coronavirus, which is spreading with no end in sight, more people are feeling compelled to ask the question, will the global economy fail? Some are predicting that the global economy, including the US economy will fail due to the introduction of new factors such as the Coronavirus. How will we be able to tell if this happening?
Before the introduction of the Coronavirus, the global economy was already in deep trouble. What people should know is that back in December of 2019, before the Coronavirus went active, the global economy was on the verge of collapse. How do we know? We know because of what the Baltic Dry Index was doing. The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel. In short, the BDI is one of the best indicators on how the global economy is performing. The fact that the Baltic Dry Index focuses on raw materials is important because demand for raw materials provides a glimpse into the future. In short, the DBI tells economists and governmental leaders how the global economy is doing at a given point in time as well as provides a means to predict future economic trends much like the futures market.
Before the introduction of the Coronavirus, Chinese-American trade tensions had already been contributing to a plummeting BDI, which would indicate that the global economy is in trouble and certainly the American economy would follow suit. In December, analysts were already associating the relentless slide of the BDI with an end to front-loading, triggering by easing of US-China trade tensions due to the new trade agreement signed by both side. The two sides signed the phase-one trade deal, which had been doing the rounds since the beginning of the final quarter of 2019.
Before the trade deal was signed, the BDI had already plummeted by a staggering 78%!
The preceeding chart makes is crystal clear that the global economy was on verge of collapse prior to the signing of the Chinese trade deal. With the subsequent signing of the deal, happy days should be here again because of the new trade deal. However, there is a new variable that has entered the scene and it is the Coronavirus and certainly this virus has all the makings of an uncontrolled pandemic. In these circumstances, people begin to become reclusive. They avoid public places. Malls get less foot traffic and as a result retail sales may plummet. In addition, people will eat out less, go to less public events and travel less. The latter factor has been excacerbated because the Coronavirus has invaded Carnival Cruise Lines. Trade will also slow down. How do we know? Because the BDI will tell us so. Many economists that I have spoken to are concerned that the global economy will continue to decline as a result of the Coronavirus. Do these fears have merit? It does not matter. Perception drives reality. If the people on this planet believe that their health is threatened by this virus, the global economy, already on thin ice, will collapse.
An economic collapse is exactly what the Democrats ordered. It gives them a fighting chance in November. Present investigations are looking at this pandemic as the planned takedown of the economy and Trump's candidacy.
The following explains the BDI in more detail.