DEPRESSION ONSET ?
By Karl Arnold Belser
3 April 2020
|CURRENT ECONOMIC SITUATION
Over ten million people have applied for unemployment insurance in the last two weeks. Cities like New York have seen a huge number of corona virus deaths. A large part of the US population is sheltered at home. These occurrences have panicked the government of the United States.
The US stock market has lost probably thirty percent of its peak value in January and I expect that it will continue to fall as the full impact of smaller consumer demand occurs. Further the Real Estate investment Trusts (REITs) have fallen dramatically even though housing prices have not changed much here. I view REITs as a leading indicator of a housing price collapse.
Any government rescue package can only delay the long term effects of delinquent student loans, mortgages, car loans and credit card debt. I have read that more than fifty percent of the US population has essentially no savings. Now many of these people have no jobs either. What can't be paid won't be paid. Hence there will be default.
The Federal Reserve Bank (Fed) is largely responsible for the economic problems in the US. The Fed has a dual mandate to keep both the rate of unemployment and inflation rates low. The Fed printed money using Quantitative Easing (QE) which has enormously increased the national debt and kept many nonviable businesses alive. These nonviable business employed a lot of people which kept the unemployment rate low because these companies could borrow at essentially zero interest rate. What appears to have happened is that shutting down the economy to control the corona virus has collapsed many of these nonviable business dumping many people on the street.
The governmental response has been to pass a two trillion dollar rescue package to save some businesses and to give some extra income to the unemployed/ This rescue package is not an economic stimulus measure. It is free money. And like any quickly drafted political action there is a lot of waste. Because of its size the political commentator David Brooks calls it the worst peice of legislation in US history. However I think that the rescue action was necessary.
The US GDP is projected to drop at least fifteen percent. The unemployment rate is projected to rise to more than thirty percent. One quarter of the US businesses are projected to collapse. If these projections happen the United States will be in a depression.
The governor of California recommended that most business and schools close and that everyone shelter in place. This early warning has greatly reduced the spread of the corona virus in the San Francisco Bay Area where I live. A majority of people here have complied such that the streets, malls, churches, and community centers are empty. It is so quiet here that when I walk around my neighborhood it seems like it was in the 1950s,
Jackie and I have adapted to the change. We order groceries on line and then pick them up. We sleep late,eat much smaller meals, read, play the piano, watch the news, telephone and video conference with friends and play games. Our house is big so we are not suffering at all. Life is good.
My game plan is to enjoy the rest of my life as well as I can. I am old and medically compromised. I expect to die in the next few years, maybe because of the corona virus.
Last updated April 3, 2020
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