Great Recession showed countries can’t fight the coronavirus economic crisis alone
The whole world is going through very difficult economic times. Supply chains are being disrupted and the global economic collapse spreading all around the world. The United States has the largest economy in the world but also it has not been spared by this global economic meltdown. The US economy has also been shut down at this moment we are at the verge of a total economic collapse.
If the US economy remains shut for the next 2-3 months, we will witness a historic number of layoffs that has not been experienced for many decades. What has already happened so far is difficult to believe. It is just last week when the department of labor announced that more than 3.3 million Americans had already lost their jobs and they were filing for unemployment benefits across various states. This is more than four times compared to the last all time unemployment claims. Things are getting worse every passing day and this week experts are warning that the number of unemployed people will continue surging as more companies and businesses shut down their operations. This will be the most challenging time for the United States economically because this level of unemployment was lastly seen during the great depression back in the 1930s. We might wake up one day only to realize that 30-50 million Americans have already lost their jobs. This sounds crazy but the Federal Reserve has already warned that up to 32 percent of Americans might lose their jobs. If this happens the great depression will look like nothing. The economy of the United States is already at the tipping point and this is just the beginning of the economic collapse.
We have the worst economic meltdown and a lot is changing in the society and it might be a matter of days before most Americans find it almost impossible for them to place food on the table. More than 40 percent of the American populations do not have enough savings to support themselves for even 2 months if they lose their jobs today. Most people live pay check to paycheck and this will make it almost impossible for most people to survive the next 2-3 months if the economy does not open up. This time round everyone in America will have to be bailed out.
All across the country everyone is fearing that this economic crisis will spring up social unrest. Actually some of the high end stores across the country have been boarding up their stores as they fear social unrest. This has already begun happening in other countries like Italy where people are taking advantage of this crisis to steal whatever they can lay their hands on. In a few weeks a lot is coming to America and this will be a historic economic and social meltdown. The 2008 global financial crisis will look like nothing when compared to what is happening in our society.
People are panicking and everyone is buying as much as they can from the food stores. Food banks all over the nation are overwhelmed with an ever increasing demand and people have to wait for hours to pick up food. As people run out of money- food shortage will be a real thing in the US. Many household in America were unprepared for this level of social and economic disruption and the middle class workers are the ones who will be hit most.
In the middle of this economic turbulence, the banking sector in the US is also in a big trouble. Many banks were overleveraged by issuing credit beyond their limit. Because of this economic downturn, most of the creditors will default and this will leave most banks at the verge of collapsing. Very soon credit lines are going to freeze and the whole economy will be brought to an abrupt halt. The financial markets are also in a free fall and the stock market has already fallen by more than 30 percent and in the process Americans have lost a big chunk of their investment.
It is really painful for the American people but there is no way we can avoid this. Unless the health problem is solved, it will be difficult to open up the economy. The government should focus on solving this health problem that is crippling the economy. At the same time we have to acknowledge that we have a system that is unsustainable in the long run. This crisis is differentiating the fake from the real and this is the time when we should acknowledge that there is a need for a better system that will serve the American people even when there is an economic collapse.
As the world economy enters an unprecedented crisis caused by the COVID-19 pandemic, and policymakers in Washington and other global capitals prepare record fiscal stimulus plans, stakeholders should heed an important lesson from the last financial downturn in 2008: Recovery is only possible through coordinated global action.
A little more than 10 years ago, as the world was entering the Great Recession, stakeholders had to look far back in the rearview mirror to the Great Depression for policy guidance. While the actions of the 1930s did offer important lessons for 2008 — most notably the need to expand the money supply — the economy of the 1930s was fundamentally different than the global economy of the early part of this century.
A lesson from the Great Recession
Between 1932 and 2008, the S&P 500 had grown approximately tenfold, the world’s labor market had moved from one largely rooted in agriculture to one firmly based in industrial and digital sectors, and the global trading system had become the foundation of national economies. Compared with the 1930s, stakeholders in 2008 were operating in an interconnected world with a global financial system and were therefore largely in unchartered waters.
If there is a silver lining in the economic portion of the crisis we are seeing unfold today, it is that the relatively compressed timeline between 2008 and today means there is great relevance in one of the most consequential approaches policymakers employed then. In particular, the lesson of 2008 is that a globalized economy necessitates a global solution.
Today, the economic outlook for the world is bleak, with the coronavirus crisis already causing one of the most severe shocks to global growth in a century. Projections are that the second quarter of 2020 will be the worst quarter in generations.
Though the scale of today’s crisis may be larger and the contours certainly different than that of 2008 — notably, we are facing a supply shock as leaders are rightly enacting measures to physically prevent industries from operating — the fact is that in its interconnections, today’s economy is structurally similar to the one that was in place a little over a decade ago.
Because the economy of the 2008 period was so interconnected, analysts referred to the subprime lending that triggered the crisis as “contagions.” That June, three months before the collapse of Lehman Bros., two economists at the International Monetary Fund compared these shocks to an “epidemic in which an invisible virus infects many people and communities.” These words are darkly apt for today.
After the coronavirus:America needs to reengage with the world, not retreat from it
Understanding that the world’s economies were intertwined, policymakers took unprecedented steps. Most notably, in October 2008, major central banks across the world cut interest rates simultaneously. And with the threat of another Great Depression looming, the Group of 20 leading nations became a powerful, action-oriented body, convening heads of state and government in coordinating a global response to the crisis. These actions were key to staving off the worst and repositioning the world economy toward growth.
Trade should not be a weapon
Unlike a decade ago, this time we are fighting a real contagion. And unlike a decade ago, we are faced with a much more polarized world with a weaker economic “immune system.” The pandemic comes within an unsettled global environment, as major economic powers have been using trade as a weapon rather than a means for joint prosperity.
Market unions that were once strong have been tested by fracture. And many countries have looked at shared challenges, such as climate change, through a prism of competition rather than coordination. At the same time, overall global debt has reached a high of $184 trillion — more than 11 percentage points of GDP higher than in 2009. This is before needed stimulus has been spent.
Look to history for hope: Past crises show how we can learn and grow
But like a decade ago, it would be a mistake for leaders to think they can respond to the crisis alone. While the coronavirus necessitates the distancing of those who are sick and the closure of borders in some instances, these measures cannot be prescriptions for our long-term economic well-being. Trade represents close to 60% of global gross domestic product, and national economies cannot thrive in isolation.
As the virus abates, countries will need to strengthen global commerce together and ensure those countries challenged by less resources in reserve have the means to recover. Leaders are hopefully looking back and approaching the recovery in a posture of coordination.