Why A Flu Outbreak In China Can Spook Global Markets

Why A Flu Outbreak In China Can Spook Global Markets by John Rubino for Dollar Collapse

When people talk about empires of the past, they generally mean Rome and Britain. But the biggest and in some ways most interesting empire was built and run by the Mongols in the 13th and 14th centuries. At it’s peak it stretched from China to Eastern Europe, which is more territory than Rome ever controlled.

Across that expanse there was free trade and unrestricted movement of people via the original “Silk Road” network. For a while there was a single currency which was accepted everywhere.

Genghis Khan — think of him as the Mongols’ (gleefully bloodthirsty) George Washington — organized his army along what we today would call colorblind lines. Instead of units based on clans and tribes, he mixed and matched soldiers of varied backgrounds and trained them to be loyal to one another regardless of origin. He also ordered his men to marry women from conquered cities, and to integrate into local cultures.

And he loved technology, collecting engineers and other people with useful skills from conquered lands and putting them to work developing new weapons and better agricultural practices.

“Pax Mongolica,” in short, had all the makings of a nascent modern system, hundreds of years before the Industrial Revolution.

Then came the Black Death.

Free movement of people allowed the disease to move quickly and uncontrollably. Local populations panicked and closed themselves off, frequently slaughtering their Mongol governors in the process. Trade collapsed, the Silk Road went dark and the Mongol empire expired.

Now fast forward to today’s world, where virtually anyone can fly or drive to virtually any other country — and millions each year do so. Trade is a huge part of most major national economies. A handful of currencies are accepted pretty much everywhere, while locals mix with visitors in melting pot mega-cities of 20 million-plus inhabitants, all breathing the same air.

Meanwhile, factory farms pump antibiotics into even healthy animals, turbocharging the natural tendency of microbes to evolve immunity to drugs. “Super-bugs” that can’t be killed with existing tech are now proliferating.

We’re primed, in other words, for a pandemic of some sort and everyone who’s paying attention knows it.

So the fact that a new virus has killed six people (fewer than the daily death toll from scooter accidents in most Asian cities) in China has a lot more impact than it otherwise might.

Financial markets understand that should a contagious, fatal virus start to spread not just within a given country but between countries, the immediate response will be to shut down air travel from stricken places and to limit other kinds of interaction, including trade.

The result: a global economy designed around multi-country supply chains and free movement of materials, parts, and finished products grinds to a halt. Add in the fact that the current system is leveraged to the hilt with no hope of redemption even in relatively stable times, and it’s easy see how six deaths can look like something way more ominous.

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John Rubino

DollarCollapse.com is managed by John Rubino, co-author, with GoldMoney’s James Turk, of The Money Bubble (DollarCollapse Press, 2014) and The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.