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A Government Too Rash Could Leave the Global Economy in the Wilderness

Is Trump about to make a historical error as he watches China reopen? Moving too early and this pandemic may well be here to stay.
Bob Mason
US Economy

As we all sit in lockdown mode working remotely, some governments have greater resilience than others.

In fact, if every government had Beijing’s will, power and commitment to combat the COVID-19 pandemic, we would not be writing about it today.

Accusations continue to fly around but one reality remains. Beijing made unprecedented moves leading to many governments and human rights organizations raising concerns over the confinement measures taken.

Fast forward to late March and we no longer hear from said human rights organizations or governments.

In fact, if other governments had taken China’s lead, the total number of cases may have been far less.

At the time of writing, the dominos continue to fall.

We have seen the UK go into shutdown, with Boris Johnson giving police the authority to deliver on the spot fines for those flouting lockdown rules.

Things have gotten so bad that governments have had to leave their own citizens high and dry, with many stranded overseas. There had been a mad dash across borders in the last week and those that didn’t make it will undoubtedly wish they had.

There’s little to no embassy support, particularly for those looking to cover day to day living costs.

The Opening Door

This week, China announced that Hubei will come out of lockdown. In fact, the doors were unlocked overnight on Tuesday.

A government too eager or one looking to make confident steps towards economic recovery, with the knowledge that the worst is over… As we consider the latest coronavirus numbers, China appears to be the latter.

Unfortunately, in this completive day and age, other governments may feel pressure to follow suit.

The U.S has only just had the National Guard roll into cities including NYC and Chicago. Talking of ending lockdowns seems ludicrous. Not unless, of course, Washington either has a cure or can isolate those at most risk to succumb to the virus.

While Trump, the businessman appears eager to talk of a quick reversal, the UK has taken more aggressive steps to contain the virus. The last thing that the UK government needs is isolation. Imagine a situation where the UK government loses control, while the EU gains control. Macron may get his wish to seal Le Tunnel…

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What Lies Ahead

The markets will need to be wary of any governments jumping the gun too early. The medium-term impact could be irreparable, particularly for the likes of Trump and Johnson.

How things play out could also, once more, question the viability of the EU and the Eurozone as we know it.  It should also question the political structure in the U.S and other countries, but that is a story for another day.

The failings to agree to close borders across the EU and for a united front on monetary policy proves, yet again, that the model does not work.

When considering the fact that voters, across a number of member states, have become ever more disgruntled, could this be the straw that broke the camel’s back?

When the dust settles and governments and central banks begin to see through the mist, there may be a realization that both and all took one or two steps too many.

It will take some time for those printing presses to cool off…

Bitcoin

We then have the entire reason for Bitcoin’s existence and why Satoshi looked to deliver a monetary system that falls out of the purview of governments and central banks.

If the last few weeks are anything to go by, there is a long way to go before Satoshi sees his dream become reality.

As we saw, risk aversion across the global financial markets showed just how much of the cryptocurrency market is or has been, fueled by helicopter money.

The worst is not yet over for either and investors will need to be wary. Calling a bottom when governments are keen to change the narrative is a dangerous one.

Today, the EUR has found support though it has been an unconvincing move. While we have seen the Dollar Spot Index slide back, it may be more a liquidity resolution than a shift in sentiment. The market is certainly not completely convinced of a risk-on environment…

At the time of writing, the EUR was up by 0.20% to $1.08086.

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