OPINION: Why My Coronavirus “Lehman Moment” Made Me Nervous
- Published on
- 09 Mar 2020, 03:11 PM
By Sophia Rodrigues
We all know and dread the “Lehman moment” because none of us wants to go through another global financial crisis.
At the same time, we are all alert to such a moment.
So, when coronavirus began making news headlines a few weeks ago, I began looking for the Lehman moment – one that would tell me that this could spiral into a serious problem – while hoping I won’t find any.
But one headline that really worried me was last month when a cruise company announced cancellation of several cruises.
The second was an article that said one could get reinfected with coronavirus.
This was on top of news of China quarantining an entire city.
MOVING TOWARDS OUR NEW NORMAL
My biggest worry was, and still is, that the outbreak would eventually become our “new normal.” But before we accept it as our normal, we would all go through a period of pain and that pain would be similar to a GFC.
That cruise companies would cancel cruises because of coronavirus outbreak was to some extent a no-brainer. So, the news itself was not worrying. What worried me was the implication of this.
A cruise ship employs hundreds, if not thousands, of people. A cruise reflects my demand for recreation.
Suddenly those employees will be without work. Some may still earn some income, but many are on contract and might not earn any.
I want to go on a cruise, I have the money to go and I want to spend. But if a cruise is cancelled, it means forced end to my demand.
It is this demand shock that is worrying because the demand shock could easily translate into income shock.
And take us to a GFC-like situation.
GFC was triggered by credit events caused by households defaulting on mortgages. The current one would have similar implications but it would be demand-shock that could cause it as individuals and companies react to the coronavirus outbreak.
A striking feature of the demand shock is that most of the slowing would be “forced.” That “forced” fall in demand would lead to supply shock. In some cases, it would work vice-versa.
To put it simply, I would like to go to cinema hall to watch a movie. I have the money and the time to do it, and to spend on say a popcorn. But because of my fear of contracting the coronavirus, I am forcing myself to cancel my demand.
If many of us do this, it would lead to few movies playing in cinema halls, and if it persists, it could lead to closure.
Then there is income shock. People who are losing income because of both demand and supply shock. That loss of income could then translate to demand shock.
WHY POSSIBILITY OF RE-INFECTION CONCERNS ME
The article that one could get reinfected with the virus concerned me because it was worse than the worst-case scenario I had in my head. My worst-case scenario was that one by one each one of us would be infected with the virus. A big majority would survive. Some would die. But we don’t have to worry about it again.
If there’s a possibility of reinfection, our worries would not end, and our demand would not revive.
DEMAND SHOCK BIGGER WORRY
To be clear, I have no view on coronavirus itself. Maybe it’s not as dangerous as the reports suggest.
My worry is the demand shock and its spiralling impact on the global economy.
One line I always think is – never underestimate our survival instinct. What this really means is we all do what we can to survive. It doesn’t mean we will be able to avert our death but until that day, our instinct will always be to do everything we can to live.
At the same time, we also live life accepting things we can’t control. If we are not able to contain coronavirus, we will eventually accept it as a way of life, just like we have accepted that we could become victims of gun violence or terrorist attack.
The only question is how long until we accept our new normal. Or if we are lucky, how long until we are able to contain the outbreak.
The bigger question is whether we would be able to prevent a crisis between now and then.