Catastrophe at the Wall Street at the Start of Covid-19 Pandemic

 Catastrophe at the Wall Street and elsewhere

Most of us little guys in North America who had saved for their retirement saw their savings wiped away in the last three weeks of the Wall Street disaster. The Wall Street responded to the unfolding Coronavirus disaster in China, which was spreading to elsewhere also in a typical Profit oriented businessman manner. Now you would inquire, what is the connection. The Wall Street is dependent on profits of the companies doing business with China. In the last twenty years US has allowed China to take over all US manufacturing and relocate it to China, lock stock and barrel. Even the deep manufacturing knowledge which US took a hundred years to acquire was gone in a flash. The beneficiary was China. The latter started to supply most consumer products and a bulk of the intermediate products which go to manufacture large industrial products in the West. That was the result of cheap labor (50%) and about 30% lower other industrial inputs like power, lax environmental consideration, subsidies and other infrastructure items. That kept production costs low and resulting profits high. The latter were divided between China and US. The Chinese had cash to build more infrastructure since factories were being built with incoming FDI (Foreign Direct Investment). The American divided their share of the profits between government who financed deficit (wars) and companies who showed big profits, of course at the expense of lost manufacturing.

Now let us look at the Coronavirus germ which appeared in January this year. It upset the above equation. First, it claimed a heavy toll of life in China and spread very quickly to other places all over the globe. Its major impact was disrupting the supply chain of products from China to the rest of the world. Second, the Wall Street sensing this disruption could be long, reacted the only the way it knows best. It started the downward spiral. On February 21st the current downward spiral began, and it flattened a bit for a day or two when the honchos at the The Wall Street were digesting the news and then the spiral continued until a few days back in mid March the downward spiral arrested a bit. By then the damage to the finances of little guys like me was done. Half of my retirement cash had been wiped out. I am not alone, all my friends had the same fate. We were sullen in mood and cursed the day we put our money in the Wall Street, but of no avail. We are retired old men and saw no other alternative. At present we are dependent upon possible Wall Street recovery.

President Trump is assuring that the Wall Street will roar back. The Federals have made two interest rate cuts to maintain the business credit flowing. The problem is, that foolishly US has set itself into a single source supplier position. Until China recovers and restores confidence in its physical as well economic health, no buyer is going back to China to make volume purchases. 

Hence, what do we suggest - that US should get out of the single supplier situation. Right now it is China only, this source be diversified into a few other nations. Hence, if a disaster strikes at one place, other countries are able to take up the slack. Then a disruption of this type does not visit us again......... cheers.

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