COVID Economics Discussion; How bad will it get?
Regardless of fiscal stimulation, monetary policy, or social distancing measures, the damage has been done.
16 million people are filing for unemployment in the past month. Only 69% of people made April’s rent per Wall St Journal. That’s down from 82% prior.
Is this Black Monday bad in that the economy will recover by late 2020? Or will it be 2008 prolonged, nauseatingly sleep-inducing decade long recovery?
It’s going to be horrible. Even when we do go back to relative normal, I don’t see people spending as much as before. I know I won’t and that too many more won’t be able even if they wanted.
Also seems like the Fed doesn’t have the luxury of cutting rates so many over-leveraged companies will be going bankrupt unless the govt steps in again.
They’ll get their part of the 2 trillion stimulus, then pay off their high interest loans, and have a zero % loan to pay back to the government. More businesses will survive than we originally thought would have.
April 12th, 2020 at 10:54 AM ^
The FRB has already stepped in to support "liquidity" in the high-yield corporate bonds markets, among many other things. They are basically supporting pretty much everything except equities and that is probably next in some of the darker scenarios. I see some of the actions as reasonable regarding Munis, repos, commercial paper, RMBS, maybe even CMBS and investment grade corporate bonds but junk bonds is ridiculous. Illiquid markets and lack of demand because something is shitty sometimes overlap.
People spend too much on stupid shit anyways. A new normal would be a good thing.
I'd love to agree with you, but if people didn't learn after 2008, they ain't learning now.
Yes. People are talking about the total overhaul of society, and it sounds completely insane to me. Of course some things will change, and things are always changing. Hopefully government policies and preparedness for one!
Being forced into this has made me realize how easy and enjoyable cooking is
As a bonus it’s incredible how much cheaper it is
cant imagine I’ll eat out as much even when restaurants reopen and Covid fades
just one small stupid anecdote but the world is indeed gonna be changed for a while on the other side of the lockdown. Actions have consequences
It’s way healthier too. I make good food choices when I eat out, and despite that I always gain a few pounds when I’m eating out more than very infrequently.
Glad you found cooking. I never cooked until I met my wife. It’s life changing. You save on groceries and when you splurge on fancy shit, or high quality as some call it, you realize how much your meal would cost at a restaurant.
having said all that we are definitely supporting some local businesses after this is over.
My skills in the kitchen have sky rocketed. Trying dishes I’d never have the confidence to entertain before.
If it was up to me, I would never eat out. However it isn't up to me, I'm married.
April 12th, 2020 at 12:51 AM ^
Aside from the lives lost, there will be no permanent change resulting from this. People will forget about it almost as quickly as it hit us. The economy will suffer, yes, but people won't change their habits from it.
Very bad. Depression bad. Even if we said “everything is open,” a good portion of the population with compromised immune systems And perhaps their families won’t participate in the economy to as they were. Best case is still an economy at 80%. Which is why our total lack of a plan for widespread testing is devastating.
Also, economists prettymuch all agree that opening things back up when there's a strong chance of a resurgence would cause more economic damage than keeping the lockdowns in-place. This is from the panel of IGM economic experts: http://www.igmchicago.org/surveys/policy-for-the-covid-19-crisis/
Also, schools are closed for the rest of the year. How do you open up the economy in that situation?
Anytime someone thinks testing is the way to fix this is way over simplifying things. People going out to get the tests are actually spreading it. I wish less people were getting tested tbh.
April 11th, 2020 at 10:04 PM ^
Do you actually have any data to back this up or are you just spouting off opinions? Because it’s not helpful.
I can't figure it all out but:
Stimulus = $4,300,000,000,000 assuming no overlap of funds between two announced amounts
Americans = 330,000,000
Therefore stimulus per person is about $13,000
My general thoughts
- that is a lot of money and it won't get distributed evenly
- Most American's keep living above their means
- It is hard to predict what will happen when the federal government has so much power
- got all my money exposed to the market for now
We were already overdue for a stock market correction and recession. It should have happened a couple years ago, but we kept feeding the markets cocaine via tax cuts and lowering interest rates.
This recession is going to be long. Mainly because people aren't going to go back to their normal habits, spending and otherwise, once the lockdowns are lifted.
Anything involving large crowds or travel is fucked until we get a vaccine or an effective rona treatment.
My father has an Econ PhD from Michigan and when I ask him about this he just makes exasperated noises, but generally agrees with your take. In addition, Without gimmicks like stock by backs and leverage tricks we would have had a market correction two years ago.
Stock buy backs aren't a gimmick but a valid tool that can be very beneficial to companies for a whole bunch of different reasons. Stock buy backs of companies getting government bailout money would be a different story.
I think the government is being too aggressive with propping up some of these industries...not sure what the answer is but some of them would have been in trouble in a recession anyway. Now we will have large zombie companies in our market which I think is going to just delay the inevitable. Everyone, and I mean everyone, is lining up at the federal trough right now.
I"m worried as I try to keep money in my savings for rainy days and it is going to be devalued as hell with all this digital money the fed is creating and giving away like candy.
Leveraged buybacks are a gimmick. In addition, by backs are used to artificially inflate share price in order for mediocre executives to justify their salaries when there hasn’t been much real growth for their companies. They also mean money that otherwise might go to employees or R&D is just stolen by mercenary executives. They should be heavily regulated.
if you don't like companies that have stock buybacks or have no real growth, then don't buy those stocks. it's really that simple.
The counterpoint would be why do we need to raise rates if inflation is okay.
Why not keep prolonged recovery? Obviously in hindsight we can say a pandemic would destroy that fragile upswing.
I'm not an expert, but the rationale I've heard for the past 20 some years has been that you want the rates higher so that you can lower them when times get tough. The Fed started raising rates in 2015, twice during Obama's admin and then 7 more times under Trumps. If you keep juicing it when times are good you're f'd when the inevitable downturn happens.
This is exactly correct, and it's the approach that the Fed always took up until the, *ahem,* current administration.
Economic policy from legislators and the president will usually have the goal of short-term success to improve chances of reelection. Even with low unemployment, they'll try to keep juicing it so they can repeat bigger, sexier numbers come November.
That's why the Federal Reserve was designed to be apolitical and FOMC board members serve 14 year terms — they shouldn't have to worry about reelection and can always act in the best interest of the people.
Jerome Powell, though unqualified to head the Fed from the beginning, tried to uphold that legacy at first, but the board ultimately folded under pressure from the president and started cutting rates last July. Now, cutting rates is less effective because they're already negative with inflation, and negative rates are w e i r d . The Fed's only tool to combat the upcoming recession will be quantitative easing, which is unconventional, regressive, and also w e i r d .
tl;dr: interest rates are negative because Fed cut rates under political pressure, now they can't cut them more which is bad.
Source: upper-level econ student at umich with a fetish for monetary policy and liquidity traps
It's my opinion that the economy has been artificially propped up since 08 with the artificially low interest rates. If businesses can only survive with rates under 2 or 3 percent, those companies shouldn't exist.
I'm old enough to remember a great economy with full employment and the fed rate at like 7%.
This vaccine and “effective” treatment is so overblown. Does everyone know the flu vaccine does NOT prevent u from getting the flu! There is NO treatment for the flu! It’s been around for decades so we’ve built up immunity in our bodies and yes the flu kills people with poor immune systems. This coronavirus is sort of new, we’ve had different strains. A vaccine won’t prevent u from getting it, only help build antibodies.
It’s been here since December and this is overblown in many parts of our state and country that aren’t affected. Thanks Gretchen for your poor leadership
How can so much wrong be in one post?
The flu vaccine does prevent you from getting the flu if the strain matches. And even if it doesn't, you have more mild symptoms than you would without a vaccine.
Also, xofluza is a very effective antiviral for the flu. I've taken it twice and was better in 36 hours.
Same that Xofluza shit is a freaking miracle drug...I was getting my ass kicked thought I was going to have to go to the hospital and it made me feel like a new person in 24 hours
Mad hatter your an idiot, the flu vaccine which I shouldn’t call it a vaccine cuz it’s a shot, gives u antibodies to help u fight the flu if u get it. it doesn’t stop u from getting it
Anyone have an idea how many people would die from the flu yearly I’d we didn’t have a vaccine? Vaccine doesn’t just help the person who got it but also everyone because of herd immunity.
April 12th, 2020 at 12:01 AM ^
Fewer than you may think. A quick check of the CDC data for "influenza/pneumonia" shows that the death rate per 100K Americans held steady at around 30-35 during the 1980s and 1990s, then dropped suddenly to about 24 in 1999, and then gradually fell to around 15 by 2009. The number of vaccine doses distributed was about 20MM /yr in the '80s; rose to about 80MM /yr during the '90s, and has climbed steadily to over 160MM /yr now. The correlation doesn't really seem that good -- the number of vaccine doses given in 1999 and 2000 Isn't much higher than 1997 and 1998, but the death rate plunged.
According to the CDC, the effectiveness is all over the map, which makes sense -- "the flu" refers to a wide variety of different viruses, and the "flu shot" is based upon a guess, made months before the start of flu season, as to what strains will be the most prevalent this year. They've recently moved from a trivariant shot to a quadrivariant shot in the hopes of getting better coverage, but it's not really clear how well it's working. (Note that the CDC is using different criteria for effectiveness than the death rate; I think they're using hospital visits and confirmed case counts).
If we went back to the 1980s numbers, 35 deaths per 100K residents, at 330MM Americans, we'd lose about 115K per year, vs. about 50K now. But that's attributing 100% of the change in death rate to vaccination, and none to new treatments or more effective hospital procedures or anything.
TL/DR: The flu shot is helpful, but it's no panacea.
PS: Googling for vaccine effectiveness information is full of pitfalls. Be very careful; the anti-vax pages often look as professional as the actual pages -- they just sneak the pseudoscience in.
April 11th, 2020 at 11:47 PM ^
It's hard to even know where to start with all the factual and logical flaws in this argument. 1) The flu vaccine does often prevent the flu. 2) It more often weakens the symptoms. 3) Coronavirus is much more dangerous and much more contagious than the flu. There's not a health organization out that that thinks we should just ride it out and hope for the best.
economy will come back.
Dude. It takes about 1 month to recover for every 1 week of interruption. So if its 8 weeks it's 8 months, 12 weeks it's 12 months, etc. Please stop with the doom and gloom. There will be unbelievable pent up demand for goods and services when restrictions last. Next you'll tell me we'll have 200,000 deaths in the US from corona virus by the end of the month...
You said We we. Heehee
UE rate will hit about 30% by June, but that will fall back to 10% by the Fall. To get back to less than 5% UE might take 3-4 years.
As someone in manufacturing I'm very optimistic we'll come back quickly...I talk to engineers & project people (automotive) who are working at home. The lights went off quickly and they will come back on quickly.
Unfortunately, as with any mass layoff environment, not everyone will have a job to come back to although the job situation should be as good as it was before Covid-19 hit...my 2 cents.
You might be less optimistic if you were in retail or a service industry. Who buys the manufactured goods when a sizable chunk of the population isn’t going to be traveling, going out to eat, and just staying home waiting for an immunization to come on line in 2021?
there is a significant risk of a deflationary spiral.
I'm skeptical that a sizable chunk of the population will refrain from traveling, eating out or other frivolous spending for too long after all of this ends. There's no doubt that certain industries will be impacted immensely, some even that won't recover (although many of those were likely on the way out or due for massive change anyway), but most will go back to normal in short order. People have been itching to travel and go out and I expect the bulk of people who were doing that the most before COVID will get back to it rather quickly.
Like others have said, we were due for a correction anyway, and the Dow Jones is only 20% off its February high right now anyway so getting back to 90% of what it was pre-COVID is what we should expect, and I do.
That assumes some restrictions aren’t kept in place and/or there aren’t some structural changes that come out of this.
if there are limits in large gatherings, the hospitality industry will take a hit. If there is a move towards more long teem work from home, city centers will take a hit. If people fear a second spike, they will be more frugal. At least some state governments will probably have to cut back which will have ripple effects,
Yeah, the key is “after this ends.” You have some inside info on that Wolvin?
No, of course not. But I thought the question was regarding how the economy will respond post-COVID, not asking when specifically post-COVID will begin. This is an economic discussion, not a clinical one.
But the spread has already started to slow, before any medical intervention beyond social distancing.
Agreed it appears it has started to slow. BUT, if even 10 percent of this country (likely much more) can’t risk full economic participation cause they might die...that is both clinical and economic. So “over” is not a real thing that really exists for a long time.
You're way over-estimating the long term impact on the service industry. People I talk to are already sick of being cooped up at home. We'll adapt - something us humans are surprisingly good at. I'm also interested to see what the real mortality rate of Covid will be once all is said and done. Less than what many of the media outlets are spouting is my prediction. Way less.
Even after whatever we count as a "recovery" things may be very different and worse for most.
Struggling to see how this turns out anywhere near normal for many of the 16 million and counting people losing their jobs over this.
So much of the recovery has little to do with the “market”. It’s about cash flow and getting the economic turbine spinning again. No reason it can’t. The difference between now and 2009 is that people lost their homes( myself included) This is a giant pause and things will hopefully start spinning again soon