Dear Reader,
What really happened in China to cause a virus to spread worldwide and bring the global economy to its knees?
We still don’t know the answer…or what the repercussions will be.
But as Jim Rickards reveals below, there is talk of US-based litigation that may hold China liable for US$2 trillion in damages.
Read on for more.
| Until next time, |
 |
| Shae Russell, |
There Will Be Repercussions from This…
For that matter, forget the dotcom crash of 2000, the Russia-LTCM panic of 1998, the Mexican ‘Tequila Crisis’ of 1994, and the one-day 22% market crash of 1987.
Forget every recession, financial panic or crisis in your lifetime.
Almost no one alive today has a living memory of the market crash of 1929, but even that does not capture the full magnitude of what has happened to the US economy in the past three months. It is unprecedented in US economic history.
We all know the reason. The US economy was locked down to prevent the spread of COVID-19, which was unleashed on the world from Wuhan, China late last year.
The circumstances under which the new virus was allowed to spread by China are still pretty cloudy. Let’s quickly review the situation…
The Chinese virus
There are two main theories. The first is that the virus was transferred from animals (probably bats) purchased in so-called ‘wet markets’ in Wuhan, where the Chinese buy bats, ferrets, and pangolins (a scale-covered mammal that resembles an armadillo in appearance and is considered a delicacy by the Chinese) for food.
The second theory is that the deadly virus leaked from a biological research laboratory in Wuhan. The leak was not intentional; it was an accident due to Chinese negligence in handling deadly viruses and other pathogens.
It will take scientists and the intelligence community some time to resolve these competing theories. We don’t have to get into that dispute right now.
What is not in dispute is the Chinese handling of the virus once the disease began to spread. The Chinese covered up the disease at first, and then only slowly acknowledged it when the death count went too high to ignore.
Whistleblowers were arrested, medical journals were suppressed and deleted from the web, eyewitness accounts of mass deaths and mass cremations were scrubbed from social media whenever possible.
China did not bar travel outside China by its citizens, so the disease spread rapidly around the world where it soon ravaged Italy, Spain, Germany, and the UK.
In the end, the US was hit hardest of all. As of 9 June, the US had suffered 1,62,025,691 total confirmed infections and 113,051 deaths. Both numbers will rise because the spread of the disease is far from over (although the rate of new infections and fatalities is slowing down in most places).
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A criminally negligent cover-up
What the Chinese did after the outbreak was at best grossly negligent and at worst criminal.
There will be repercussions from this, possibly including US-based litigation that may hold China liable for US$2 trillion in damages. The US could easily recover most of this money from China by simply seizing Chinese holdings of US Treasury securities (which today are about $1.4 trillion).
This will not happen overnight. The litigation could easily take years and China could gradually reduce its holdings of US Treasuries in the meantime.
Still, simply to state the scenario (which has already commenced and is not far-fetched) is to convey the magnitude and seriousness of the economic and financial problems confronting the world today.
Much of the economic damage is caused not directly by the virus, but rather by our reaction to the virus.
Was an economic lockdown really necessary? Did it do any good? After all, the virus is still with us and is still spreading. We may even be in for a more lethal ‘second wave’ before the end of this year.
Investors need to focus on the economic fallout, not just the virus
As the pandemic rages on, investors should turn their focus to the Great Depression of 2020. After all, the consequences of the pandemic are as dramatic and disturbing as the pandemic itself.
However, despite the breathtaking economic damage and continued uncertainty, it’s possible to protect your portfolio from further losses and potentially prosper immensely going forward.
Certain assets — like gold and cash — have held up very well during this downturn.
In particular, gold has been a superstar, up 61% since the start of the new bull market in December 2015, and up 28% in the past year alone. I expect this rally in physical gold to continue, and for performance in gold mining shares to do even better.
Cash is another star asset. It’s essential to preserve wealth and can even be your best-performing asset (in real terms) during periods of deflation, which I expect.
In a future edition of The Daily Reckoning Australia, I’ll offer an incisive view of the Great Depression of 2020. Stay tuned.
| Regards, |
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| Jim Rickards, |
PS: Jim Rickards warns that a total financial collapse is imminent. Learn how to protect your savings and investments…before it’s too late. Click here now.
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