Even The Best-Case Scenario Is Pretty Grim, by Investment Watch.

Put yourself in the expensive shoes of a multinational company CEO. You’re staring into the abyss on this Monday morning, praying to your version of God and promising that if He lets you off the hook this time you’ll mend you ways. You’ll simplify those supply lines, bring as much action as possible back home, and end your reliance on debt-ridden “global manufacturing platforms” with unreliable public health systems. And you’ll start stockpiling inventory against what you now understand to be inevitable future disruptions.

These aren’t idle promeses, to be forgotten the minute the crisis is past. Your board of directors and most of your shareholders now understand that globalization means “excessive risk” and while they may give you a pass on some bad earnings comparisons in 2020, they won’t accept a repeat performance in later years.

So…major companies in pretty much every corner of manufacturing will be forced to scale back their work in Asia and the rest of the developing world and bring much of it in-house or at least physically closer. This is by and large a good thing for the US and maybe Europe, but more than offsetting a modestly expanding manufacturing sector at home will be the financial impact on China’s vast and massively over-indebted contract manufacturing sector and hyper-leveraged municipalities that spent the spent the past decade building roads, airports and entire cities with borrowed money.

Which means the best case scenario is the long-awaited Chinese financial crisis. And with the rest of the world just as over-leveraged as China, the implications of the second biggest economy shifting into reverse and possibly descending into chaos are hard to predict in detail but easy to envision generally: turmoil in the currency, fixed income and stock markets which force the major central banks to push interest rates into negative territory and require governments to run deficits that dwarf those of the Great Recession. If any major fiat currency is still functioning at the end of this process, that will be the real miracle.

It’s not hard to see the general features of the next phase. The timing and details are of course murky.