America is in the midst of the largest balancing act ever attempted. On one hand, practices like social distancing, workers staying home, and other public safety measures are intended to curb the spread of the highly infectious COVID-19. On the other hand, vital parts of America’s vibrant consumer economy are decimated, the consequences of which will long outlive the virus.
Across the county, restaurants, entertainment venues, movie theaters, sports leagues, and retail stores have closed. Airlines are cutting routes at an unprecedented pace, and auto manufacturers are no longer making cars. Markets have been rapidly declining as reflected by oil and gas prices dropping. Toilet paper and essentials supplies are also hard to find.
An economy that was the world’s envy just a few weeks ago could now be headed into dire straits, according to economists. COVID-19 has done what international terrorism, wars in Afghanistan and Iraq that have lingered for almost two decades, and other recessions could not – knock out the strongest pillars of the US economy.
President Trump seems to agree with the assessment of top economists. On Monday, the president said,
“We can’t have the cure be worse than the problem. We have to open our country because that causes problems that, in my opinion, could be far bigger problems….Life is fragile, and economies are fragile.”
Is the Economy Headed for a Depression?
Economists are constantly revising reports regarding the massive increase in job losses as economic activity continues to decline. They now say that the economy is the worst it’s been since the Great Depression of 1929, which lasted for around 10 years. World War II was a substantial reason why the Great Depression ended as people went back to work to support the war effort.
Economists agree that the US economy is already in a recession. Analysts at Morgan Stanley said they expect the worst quarterly performance in 74 years.
States are reporting dramatic increases in jobless claims week after week as companies furlough or layoff workers. This is because state governments have had to order shutdowns that result in decreased consumer spending. In 1982, the all-time weekly unemployment filing record was 700,000. Goldman Sachs estimates as many as 2.25 million new filings could happen in a single week.
Mortgage companies and borrowers are also expected to be in big trouble. As a result, Congress is considering a mortgage payment forbearance program on a national scale. While that may help workers who fall behind on their mortgages, the Mortgage Bankers Association says otherwise. If 25% of borrowers use forbearance for 6 months or longer, mortgage providers could be responsible for $75 billion – $100 billion. That scenario could be beyond the ability of providers to handle.
The Economic Damage Is Done
Even with the government injecting trillions of dollars into the economy to help workers and businesses, few economists believe it will offset the damage already done to the economy.
RSM Chief Economist Joe Brusuelas said the economic shutdowns caused by COVID-19 will create “depression-like shocks” and that, for the foreseeable future, government intervention will be required to stabilize the US economy.
To prevent further damage, Economic Adviser Larry Kudlow said “we can’t shut in the economy. The economic cost to individuals is just too great… we’re going to have to make some difficult trade-offs.”
Will our government be able to balance the economy to prevent a full-blown depression? Together, we are going to have to wait and see.
By Don Purdum, Freelance Contributor
Thank you to our friends at United Voice for contributing this piece.