ML-Implode News - Debt, defaults, and devaluations: why this market crash is like nothing we've seen before

For many market watchers, a confluence of factors - led by oil, but encompassing China, the emerging world, and financial markets - are all brewing to create a perfect storm in a global economy that has barely come to terms with the Great Recession... Unlike previous pre-recessionary eras, the current sell-off has seen commodity prices, equities and credit conditions all move in dangerous lockstep.
... a tipping point may well be approaching. According to [Oliver] Blanchard's calculations, a 20pc decline in stock markets that persists for more than six months, will translate into a decline in consumption of between 0.5pc to 1.0pc.
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Spreads on high yield US energy corporates have soared to unprecedented highs. "They make Lehman look like a walk in the park" says Thygesen.
More than a third of the entire US high yield bond index is now vulnerable to crude prices remaining low or falling even further, according to calculations from Oxford Economics.
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The question exercising the minds of economists and investors is the extent to which this contagion could metastasize beyond the energy sector, as banks cut off credit access, loans turn bad, and financial conditions enter a critical tightening phase.
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Over the last 45 years, the S&P500 has suffered a loss of more than 12.5pc on 13 occasions. Six of these have given way to a recession in the US, providing a near 50pc probability that a global downturn is just around the corner.
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What, if anything, could halt this pernicious cycle of events from unfolding?
In the short-term, analysts are unanimous: all eyes are on the US Federal Reserve. The central bank's first rate hike in seven years last December has come to look frighteningly premature in the space of just eight weeks.

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Debt, defaults, and devaluations: why this market crash is like nothing we've seen before