How bad will the 2020 economic crisis be?

Hopefully everyone will keep in mind that bailouts should go to the citizenry at large to resurrect demand, not to large multinationals which need to pay off debt they should have never incurred in the first place (and which was spent on high-risk growth projects or shareholder buybacks).

"Take Boeing. The aerospace giant of course wants a $60 billion bailout. Financial problems for this corporation predated the crisis, with the mismanagement that led to the 737 Max as well as defense and space products that don't work (I noted last July a bailout was coming). The corporation paid out $65 billion in stock buybacks and dividends over the last ten years, and it was drawing down credit lines before this crisis hit. It is highly politically connected; the board of the corporation includes Caroline Kennedy, Ronald Reagan’s Chief of Staff Ken Duberstein, three Fortune 100 CEOs, a former US Trade Representative, and two Admirals, one of whom is the board’s only engineer. Using the excuse of the coronavirus, Boeing is trying to get the taxpayer to foot the bill for its errors, so it can go back to making more of them."

https://mattstoller.substack.com/p/stop-the-coronavirus-corp...

I've heard economic forecasters predict that the economy will spring back once the crisis is over. Their reasoning is that the crisis is an external issue, not a problem with the economy itself, as with the housing crisis. Once it becomes more contained and controlled, there will be work for people to do, and people available to do that work, and the economy will just start humming along again.

I'm more pessimistic. The extent of the layoffs, even if temporary, is just too large to not have a lasting impact. What happens when people with inadequate emergency savings get laid off and can't pay their bills? There's a cascading effect. Maybe they owe a landlord with inadequate emergency savings who now can't pay his mortgage. Maybe they owe a bill to a small business operating on small margins that can't stay afloat. Maybe they owe a corporate behemoth that has aggressively taken on debt and now needs to lay off a bunch more people to be able to pay off that debt. The federal government's mortgage deferral solution might help homeowners, but it's not going to solve the problem that people are going to continue to need to buy things and not have the money to buy them. Even those of us who are fortunate to have some emergency savings will see those savings dwindle down if we're laid off.

And keep in mind that in a lot of cases, when people lose their jobs in the U.S., they also lose their health insurance. Not a great position to be in during a public-health crisis.

I’m an economist and I wish I had some guidance to offer, but unfortunately I have none. I’m struggling to get a grip on this situation.

Firstly, though I have not worked there for six months or so, I am Italian (from Milan, in the north, the worst-hit area). The economy there has basically shut down. Consumer spending has collapsed, production has collapsed, and logistics are increasingly untenable.

What can we expect? Six months of this (and some people are projecting up to eighteen months) are going to shut down demand. There’s a term going around now “demand destruction” — I’m not going to pretend to know more than I do, so I’ll admit forthright that I had never heard it until a few weeks ago — that seems to meet the requirements here.

It’s uncertain whether the supply side of the economy will be similarly affected. Probably yes, as governments curb production to slow the spread at the workplace.

Even three months will be dreadful.

Now, let’s think of a few things: governments are stepping in with public support to support businesses, provide liquidity, and support workers that do not have income. That means debt. That means interest payments in future, for those businesses that are fortunate enough to survive. Taxpayers will be on the hook for decades.

The situation is so severe that German economists are proposing a 1 trillion euro Eurobond issue to help support the economies because the southern economies cannot hope to cope with this.

I guess I’ll sum it up thusly: this might turn out to be a “great pause”, but economies and demographics cannot idle without incurring enormous financial costs.

Some thoughts:

- Short term we need government to step in and avoid a large-scale meltdown of businesses that would be more catastrophic than the virus itself. This will likely involve taking equity stakes in airlines etc. Warren Buffet might also be willing to help here again, he has 128 billion USD saved up for times like these :)

- Stock market likely hasn't seen the bottom yet. There will be more deleveraging and panic selling. Long term (10+ years) it's still a good point to buy (perhaps with one third of the capital you do not need anyway)

- Western countries might lose some civil rights that are necessary to quickly control new outbreaks (e.g. analysis of cell movement data to locate all places an infected person visited)

- There will be long-term impact with regards to stricter controls necessary to quickly contain new outbreaks. This will increase costs for a few, potentially a lot of industries (everything travel, potentially logistics)

- I have some fear that some countries which are simply not able to get the virus under control will be disconnected from the rest of the world economy, since no one wants to risk importing the virus from them again.

I hope most of the countries go the way China went in Hubei: Take the most radical measures immediately - i.e. total lockdown, government backs the economy. This will make it possible to lift them after a very short time and affect the economy the least while controlling the spread of the virus.

As others have said, this is largely a guessing game right now. How swiftly and how boldly governments act is going to determine a lot. In 2008 you had people like Paulson and Bernanke who studied the Great Depression and desperately wanted to avoid the mistakes of the past. They saw those mistakes largely as a failure to act quickly. I’m not an economist, but in my humble opinion what we need is cash in the hands of working people who are losing work at an alarming pace. What I’m seeing is too much feet-dragging, means-testing, and timidity. This is a situation where every second counts, so for the best sense of how this all resolved, once again, pay close attention to how swiftly and how boldly governments act to provide stimulus to help people weather the next 18 months.

I have no expertise in any area, but I would like to put down my thoughts for posterity (and feedback).

I think we will see governments in the coming week or two start doing broad randomised samples of the population for antibodies and realise that many many more people have been infected than previously thought.

Meanwhile fears for the economic consequences will grow larger. Also (hopefully) countries like Germany and the UK will not see Italy levels of death and misery.

Around the mid of April when spring in the Northern hemisphere is really kicking off people will have been socially distancing/quaranting for 4-6 weeks and will be really tired of it.

These factors will start to lessen the public support for social distancing and life will start to return to normal. Big events will probably still be canceled, people will not travel for holidays etc but economic activity will start to pick up in some sectors.

Some sectors like hospitality (which employs many low skill workers) will continue to see very low demand until July/August (or possibly even longer). If the important summer season doesn't deliver, these industries will be doomed. While many other sectors will get a swifter recovery.

A litmus test for the general economy will be sales of new iPhones this fall. I suspect it will be slightly below last year, but not like 50%. If it is, my predictions were completely wrong and we are probably much worse off than I expected.

We of working age need to be thinking of ourselves a the rebuilders.

Let’s get through this, support each other, and be doing everything we can to be ready to spring back into economic action when COVID gets under control.

I think it’s entirely up to the people’s response. The spirit of the country (and govt policies) will determine more about what happens after then pure economics can tell us.

I personally don’t think there’s a good economic analogy so everyone is just guessing.

U.S. focus: Right now the biggest issues are demand and liquidity. Demand fell off a cliff. When demand falls off like that it screws up working capital flows so now there’s a huge demand for cash. That’s why the fed stepped into the treasury, money market, commercial paper and municipal bond markets. It also looks like they may try to step into the corporate bond market to keep it functioning. Prior to all this the general consensus was that markets were priced to perfection, highly priced but not unreasonable given growth. The market needed growth to function. The risk of defaults will be delayed a bit but severe when if/it hits. Much of the market is covenant lite so by the time you report financials, break covs, get through the cure period many businesses will have the entire capital structure wiped out. Events like this tend to have lasting impacts on people, it changes their consumption and savings behavior. People will demand that certain industries have more resilient supply chains and larger economies will take protectionist stances in those industries. There’s so much to unpack here...

It's going to be bad for the following reasons:

1) Governments are not shutting everything down fast enough. Many countries are in the phase of "oh, we only have 200 cases, not a problem, look at Italy". They are just a few weeks behind Italy.

2) Some people, especially young ones, are not following quarantines. All it takes is one super-spreader to start another wave of infection.

3) People will run out of money soon. Governments will have a choice of either

    a) printing money

    b) distributing food and meds to everyone

    c) letting people work in masks / googles / gloves

4) Not nearly enough testing is done. South Korea and China are the only countries that did it right. Italy is not testing everyone suspicious (though more than other countries).

5) Most countries are not ready for thousands of patients requiring an ICU. No country is ready for a million ICU patients.

I think our only hope at this point is one of the drugs works very well. People suck.

There are some trends since the seventies: higher productivity per employee and for marginal groups more and more difficulties to get a job. The pandemic economic crisis accelerates these trends.

Let's have a look at company A and company B. Company A employs many people and is not able to offer remote work. Company B doesn't employ many people and can offer remote work. If these companies compete it is clear that company B will grow during the crisis, and company A won't.

In other words, we have structure change bombed upon us.

CEOs and owners say, let's see, a pandemic and suddenly labor disappears. How can we mitigate such problems in the future?

My hunch is that after the crisis is contained economy returns, however it will be even more difficult for people to have a job than before. If the state doesn't help the people, economy will stay depressed because people are laid off and just don't have the money to buy things.

Edit: many little improvements.

We are in uncharted territory. At this point it's just guesses (educated or not).

It won't crash now, we are just weeding out the companies that aren't working. Real estate will drop, the money men will become king for a while, manufacturing pulled most countries out of the Great Depression after sometime of struggling trying to get it started.

Save emergency funds and in the next decade of growth and stockpile for the 30s, when we hit real trouble. Find a currency or commodity that won't be washed out, silver kept China out of trouble in the 30s until the US raised demand for it so much that they got dragged in too.

It doesn't have to be bad, on the contrary. Black Death in XIV century have invigorated European economy.

Think of it as much needed reset on multiple levels. New supply chains will be created, new business opportunities. Capital re-allocated. It is going to be wonderfull times.

Also historically plagues allow for great upward social mobility which is kick-start for the economy.

I live in SF. The company I worked at, which you’ve heard of, shed all its contractors on Friday. One week into the shelter in place. i just moved back here to take the gig a few months ago. Now I have a Bay Area rent obligation with little probability of finding a job until this is over, and then some.

I keep saying wait one or two “1st of the month” milestones, see how things look. That’s where my own decisioning is headed.

Chance of 1929-style Economic Depression: ~60% (Recession chance: >95%)

Make sure you have the cash to live properly and satisfy urgent needs if necessary over the next 6-12 months or longer. Only invest the remaining in highly-rated bonds or great stocks with long-term resilience.

The world is facing a liquidity crisis, along with both demand & supply shocks that can’t be easily fixed by governments.

We are in a war with the virus and, in most of the world, we are losing.

Global economy can be rescued only if we can mostly mitigate the virus impact. The other 40% is for the case where we found a way to do that and the liquidity injection & fiscal measures are sufficient.

Way too early to tell what’s going on but worse than 2008. Everyone is too busy writing bullshit about covid to see the 2nd and 3rd order effects. Italian and Spanish banks have been near insolvent for a good part of a decade they are going to completely blow out. A lot of other Banking institutions will fail as well because levered bets got blown out and we had a 3 or 4 sigma event nobody headges for not to mention lack of payment that will show up on balance sheets 4-6 months from now.

I doubt anyone is going to be super keen on investment in that money loosing miracle startup now money will dry up soon it’s just been so sudden people haven’t really adjusted yet. I don’t think it will be as bad as the depression of 29 though. There is plenty of food available and some limited safety nets will keep people from starving. The gears of forclosure are so slow many will stay in “free” houses for 2-3 years. The real question is jobs, will Americans work the fields? Or Will they just sit on government benefits? Will manufacturing come back? How do we deal with global labor and ecological arbitrage. Honestly I don’t think trump or Biden are going to be capable of addressing these Structural issues so we’re gonna loose 4 more years and risk a second smarter and more dangerous Trump in 2024

The Big One is coming. This is just gonna be a recession, no one is going to lose their retirement or social security this time. Still, big banks like American Savings and Chase are going to be buying up lots of property ("seizing" is probably a better word for it). When The Big One comes, we will all have to forfeit our property to the Federal Reserve, and they will start the cycle all over again.

I think the cycles are getting shorter, because of computers and the internet which allows this manipulation of the economy to literally happen at the speed of light.

It is possible to maintain our current standard of living without the work of the Federal Reserve, but such would require drastically cutting military spending and other uneccesary expenses (conversation for another time). One way to cut the military budget, without actually reducing our firepower would be to merge all branches together into one command structure to facilitate interoperability between machines. For example, military contractors will sell the DoD 3 different copies of the same helicopter with slight differences which make it hard for them to interoperate; you would need 3 different mechanics/computer techs, with 3 different sets of parts and tools.

If I was running a company of any size and revenue dived by 20x I would probably consider emergency measures. Skeleton crew of only the most essential employees, unpaid leave for the rest (that will accept it) and underline that these are temporary measures to keep the company alive.

Some will inevitably look for and find other work, but if the whole company goes under everyone will be in the same boat. I'd say this is not going away in the near term and if you're not acting like it's a crisis now you may be unprepared for a sustained or even worse drop in revenue.

Just my five cents, obviously noone can predict this with any certainty.

I expect things to get much worst before it gets better, but I do believe some industry will profit of the situation, like food delivery, some will adapt like services switching to remote ans some will strugle and eventualy die.

Well the stock market is now down below what it was when Trump took office, so we've already lost 3 years worth of gains in one month, which is pretty poor.

Goldman put out a note saying the GDP would dip about 9-10.5% over the first quarter of the year, which is almost the worst we've ever seen. And that's a single quarter, a single quarter. US GDP maybe down 20% by the time this is over.

And keep in mind no doctor that I've talked to thinks this will be over any time before mid 2021.

And probably the worst news is that this is the type of drop that won't be V shaped, for all the talk of 2008, atleast it went down and then went right back up.

Most recession affect a specific geographical area or market sector, This pandemic affects the entire world at the same time, which hasn't really happened since the 1970's gas shortages.

The recovery here will not be V shaped, it will take years and years to recover. People have spent their savings just to survive, governments are delaying tax payments and throwing money at the problem.

This recession/depression will be with us for years to to come and will be the worst thing that anyone alive can remember.

Can anyone make the case that the recovery will be quick? Because I haven't seen anyone make that case yet in a believable way.

My view is that this isn’t an underlying financial crisis. However, of course the temporary disruptions will be of such magnitude that they will create one. Worst case IMHO is that it could be way worse than the Great Depression due to the very tight coupling, high leverage, high overhead and JIT nature of the global economy today. There will be a huge cascading failure effect.

That said, interventions can have a huge impact on the extent of that. Interventions that delay/defer/mitigate economic damage at the entity and individual levels I think can do the most to simply “pause” the economy and prevent underlying degradation while we deal w the pandemic.

Imagine the benefit of just all debt being rolled over month-by-month to the end of the loan term, and similar for renters. Defer irreversible economic decisions and go into subsistence mode. I think that will be the best best for the maximal eventual recovery. That will be the difference in a return to prior levels taking 6-12 mo vs 5-10 years.

Sadly I don’t think the US is heading in this policy direction. I half wonder if we should just do it grassroots and then there will be ample support to reimburse it via tax or other incentive.

That’s how I am thinking about it anyway.

The individual countries of the EU have not coordinated on this whatsoever and I can't see it remaining in its current form post-crisis. We're probably looking at a more loosely-defined trade union and a trend away from further integration. I'm not sure if this will be good or bad for the European economy, but it will certainly affect it in the short-term.

I found this article to be insightful re the economic impact: https://www.economist.com/business/2020/03/21/much-of-global...

What I want to know: With all this god damn quarantine and stay at home, what's to prevent one sick person to go out after the all clear and just reinfect everybody. This stay at home situation is not sustainable. Is this an economic war from China?

Just focus on the strength and depth of the government responses, most especially the establishment of martial law. No sector is actually an island because the economy is an abstract concept used to describe certain types of interactions that impact resources. It isn't like you can just turn the A/C in a car off to make the gas last a little longer because it isn't a singular, engineered thing with clear systems. It is a system more complicated than anyone understands.

It may depend on the time frame. The markets were inflated, with a lot of voices telling how unsustainable things would be soon enough, and then this black swan happened.

The current situation will last at least a month (and how bad it will be while it lasts is yet to be seen), and after that keeping social distances, and closed borders will remain for many months.

The rules will be just different. It may be very bad for some old industries (travel, tourism, are easy ones), and good for some of the emergent ones.

I have been wondering: Isn't this (likely) downturn a chance? Don't we need to rebuild our economies anyway given climate change? Maybe it is a good thing that airlines are going away because you shouldn't be able to fly from Paris to New York for 400€. It seems that we now have a chance to build something new so instead of rescuing these companies we should let them shrink and support former employees to transition to less carbon intensive sectors.

Last crisis (Spanish flu) caused a 5% decrease in global GDP and that was without widespread shutdowns and an already depressed GDP from the first world war.

I think realistically the drop in demand, the onslaught of bankruptcies, the stopping of lending and the depletion of consumers' and corporate cash savings will lead to a prolonged recession of at least 5% GDP decrease.

On the upside, climate change is now within bounds for the coming years.

The crisis is tied to an ongoing pandemic whose scope and consequences are global, but not predictable. No one can credibly claim to know the extent of the disruption, other than the simple observation that large parts of the economy have stopped and might not come back for a while. Anyone who claims to know more is guessing.

I'm not well versed in economy and I have a maybe dumb question: how would large public infrastructure projects financed by the government in the post-crisis period help with keeping people employed and help the economy spring back? Edit: are there historical examples relevant?

This crisis will be very large and also very drawn out because of all the debt and other economic overhang. The thing to focus on the most, though, is that there will be recovery and with that great opportunities for buying stocks and lows and expanding into markets as they regrow.

If we look at previous five years, basically there was constant increase in consumer demand and the supply did reflect to fulfill the same. To come back to that condition will take another five years.

> Our revenue this week is down 20x compared to the average of the past 4 weeks

What industry are you in that things are this bad? Surely it must be one that's directly impacted by people not going out?

It’s probably going to be worse than the Great Depression.

I’m betting on a V-shaped recovery. Reasons:

1. There’s so much friggin stimulus coming that something big will happen. The (U.S.) Fed is buying trillions of anything resembling bonds at the moment. Treasuries, commercial paper, muni’s. And doing a trillion PER DAY in the repo market. Plus $2+ trillion coming from Congress, which includes checks directly to consumers and also up to $4 trillion more in direct lending to small businesses with forgivable loans. Not to mention interest rates at 0% and gas prices at $1.50/gal. The financial sector is healthy. Big tech companies are still sitting on a few trillion in cash.

2. Everyone has cabin fever and missed their spring breaks and perhaps summer vacations. Prices on travel and leisure are at an all time low. A weeklong trip to Hawaii for a family of 5 is down to like $1500.

3. At some point (I believe in days/weeks) there will be a medical breakthrough. Hydroxychloroquine+Azithro has had stunning results in South Korea, China, and France. Many US docs are already prescribing now. Even if this works only 40% of the time, that’s significant enough to flatten the curve and most importantly lower the death rate around the seasonal flu. Early anecdotal evidence suggests it’s been effective in 90%+ of cases.

4. I think by mid-April folks especially in the U.S. are gonna say enough is enough and break containment. The rest of the 80% of America isn’t willing to shutdown the entire economy for the 1% who face almost certain death from this disease. I know that’s crude and sounds cold-hearted, but Fox News is going to be very convincing that we should just resume our normal way of life and let the chips fall where they may. Election season starts in earnest in mid-Spring and Trump I believe will end the shutdowns and tell us to go back to living our lives. Biden will almost certainly do the same with a focus on rebuilding America. People can shut down for a week or two, anything longer than that and you face rebellion. School has been out since early March and the soccer moms here just want to go back to being normal. Expect a presidential candidate to jump out first with a “let’s get America back to work” strategy and end the shutdowns and maybe only recommend quarantines for the at-risk population.

What about putting everyone in chômage technique ?

Oh it has just started. 2008 will be a fart in the wind compared to the shitstorm we're heading towards.

It would be wise for mostly everyone in the West as an investment for the medium and long term status post the pandemic to start learning Chinese.

Oh it has just started.

The Buffett Indicator.

It will be as bad as 1974.

Why are you posting this question as if anyone here knows the answer?

The more the economic crisis worsens, and the more people have to watch their parents and grandparents die prematurely, the more virulent the global anti-China sentiment will get. The #fuckchina hashtag is really popular (not trending though, probably due to censorship) on Twitter:

https://twitter.com/search?q=%23fuckchina&src=typed_query&f=...

I don't think the CCP realizes yet just how harsh the backlash is going to be. China has zero soft power now. Expect to see supply chains being rerouted.