Madness, as you know, is like gravity, all it takes is a little push. — The Joker

The world is in a precarious place. In the past year, global debt hit new records led by the US and China.

Household debt has surged.

This includes credit card debt which is also at record highs.

The private sector has debt.

The public sector has debt.

And the largest governments in the world all have record amounts of debt and a slowing economy. There are increasing fears a single collapse in any sector could lead to a domino effect everywhere.

The past decade was also marked by globalization and a quest for extreme efficiency. Worldwide competition, economies of scale and comparative advantage touted by economists meant that many types of production became specialized in a few areas. Meanwhile, they ignored the downside that a single disruption could cascade into a system-wide failure. Supply became dependent on a few producers and local alternatives became unable to compete with manufacturing in low-cost areas. Just-in-time manufacturing means that many parts of the supply chain time their shipments and sales with little buffer so that they never have to hold much inventory, saving on storage and cash flow costs but vulnerable to total failure. Some have warned about the risks of this dependency and the US-China trade war has made some shipments more expensive. However, the prisoner’s dilemma meant that few companies could act on it and decentralize their supply chains. Shifting their supply chain would mean adding costs, reducing their competitiveness. Meanwhile China has spent the past decade weaponizing its supply chain to increase dependence and control maritime trade.

Enter the Coronavirus, a global health emergency that has already caused the Chinese government to put over 700 million Chinese citizens under some form of lockdown. Comparisons to SARS are futile. The world is much more connected and transportation is quick and convenient, meaning any virus can spread faster than ever. In its second month, the Coronavirus has already killed over 2 times more than SARS had in its eight month history. China’s annual economic output has also multiplied more than eightfold since 2003, to nearly $14 trillion from $1.7 trillion, according to the World Bank. Its share of global trade has more than doubled, to 12.8 percent last year from 5.3 percent in 2003. The sudden complete stop of economic activity in China will decimate supply chains and harm debt-laden economies around the world.

I don’t need to make any specific predictions about the future. The best case scenario is that things are going to be really bad. In a world where the coronavirus is wiped out tomorrow, 100% of Chinese factories start up and the entire supply chain starts running again, many firms will already be bankrupt and a cascade of defaults will occur. Unfortunately, the Coronavirus is already spreading across the world…