As per the title, I don’t think now is comparable to 2009.<p>In 2009, the economy collapsed because of bad loans. In 2020, the economy is shutting down because we shut it down.<p>That’s said, our shutdown could certainly snowball into serious issues with the economy where the pre-existing economic activity doesn’t come back.
Just reading the headline, what this means to me is that the "world economy" is doing a lot better than most of us are doing as individuals. I'm on a 25% furlough. Sales from my side business have dropped to zero. My other side job has dropped to zero. Among working people, I'm one of the lucky. My family actually has a little bit of money in the kitty.<p>"The economy" refers to a system that's primarily designed to concentrate and protect private wealth, and a 3% loss of private wealth isn't all that bad at all. The people who are really hurting have no wealth to lose.<p>I hope an outcome of this crisis is that we start to think about "the economy" in more humane terms.
The stock market is basically at late 2019 levels when everything was totally fine. The disconnect between the market and the economy is quite dystopian.
Does anyone have an explanation (preferably with source links) for why the US stock market is not absolutely tanking given the depths of economic disruption? I mean I get that the government is supplying stimulus, but I don't see how that can make up for the years of rebuilding that will be ahead even after we reach the bottom of the current jobs-and-small-business freefall.
The actual report that this article is based on is here:
<a href="https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020" rel="nofollow">https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/we...</a><p>including the terminology "The Great Lockdown"
Amazing - how <i>did</i> they figure out that when only everyone has been saying it for the last month? Besides coronavirus, we were already in a period of anemic growth masked by the arguably inflated performance of the stock market. Federal Reserve activity going back to last September or so suggested an economic overhang.
As I see it GDP measures national revenue, not national profit. The closest proxy to national profit has historically been net exports, which is why every country wanted to export a lot but import very little.<p>Frankly, if "the economy" falls 0.1% in a Great-Depression (as alluded to by the current Democratic presidential candidate) scale catastrophe (for reference, the Great Depression was more believably 25% of GDP) maybe we've massaged the statistics too far. So frankly, why not just gauge "the economy" not by GDP but by estimating actual human profits of working, the money they have left over after rent is paid, food is on the table, and health taken care of. Further, take into account diminishing marginal utility of surplus income. How much do people have <i>left over</i> and how does that change over time?
Does anyone know what the "3% contraction" is actually referring to? The IMF report[1] it is based on says GDP, but world GDP contracted 1.9% during the great recession[2], so that doesn't make much sense.<p>Also, looking at their calculations they have "advanced economies" (basically US, Europe, UK, Japan etc) forecast to contract 6.1%, India expand 1.2% and China 1.0%, ASEAN expans 1.9% and everything else shrink. That can't possibly make a 3% contraction (if 2/3rds of the world's economy shrinks 6%, then 1/3rd can't make it up by expanding 1.5%!).<p>[1] <a href="https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020" rel="nofollow">https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/we...</a><p>[2] <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2009&locations=1W&start=2005" rel="nofollow">https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2...</a>
It will be an interesting test to see what happens after things return to "normal".<p>Real economic downturns happen because deep structural issues have developed in the economy that cannot be dealth with other than by broad scale cyclical restructuring. But in this case there is not an underlying structural issue - everything was "fine" and then an externality prevented normal productivity. So in one theory of things, once the lockdowns are over people will mostly go back to doing what they were doing before and apart for some one-off bad debts, etc life will just resume. In another theory, economic downturns are like self-fulfilling prophecies and once started will take many years to work out.<p>It will be interesting to see which one of these happens.
I was surprised by this article:<p><a href="https://www.nytimes.com/2020/03/26/opinion/covid-economy-unemployment-europe.html" rel="nofollow">https://www.nytimes.com/2020/03/26/opinion/covid-economy-une...</a>
you know what? things are kinda bad right now, I even lost my job but I'm still hopeful. Hopeful that this "thing" will end and we as humans will grow from that bad experience.
I think the 3% refers mostly to the effect on large corporations, and I think that number is low, even understanding that most government bailouts are going to the financial industries and mega corporations.<p>I think that number is very low when talking about regular people, their purchasing power and what I predict to be a large drop in discretionary spending.
Like predictions mean anything right now.<p>We have 4 months of real-world experience with the threat but we're supposed to project what 1 year of it looks like. We're not even done with the very first phase.<p>Color me skeptical.<p>Such hubris is vain at best and dangerous at worst in times like these.
3% is massive. You can't just compare it with other things contracting 3%, thinking it doesn't sound like a big deal. The effects of each 0.1% the world economy contracts will shift whole industries.
I believe <a href="https://en.wikipedia.org/wiki/Chiemgauer" rel="nofollow">https://en.wikipedia.org/wiki/Chiemgauer</a> is the Cure
OK, I officially do not get economics. Close to everything has stopped for 2 months, lots of lost jobs and econ goes down only 3%?<p>If I lose 3% in my worst year, I'd be jumping from joy.
How does this translate into human deaths? Does that amount outweigh the potential human deaths adverted by causing the economic downfall through worldwide lockdowns in response to covid-19?
Travel, hospitality, and events are something like 20% of the US economy. That 20% will be crushed until we have a vaccine next year at the earliest.<p>I am deeply suspicious of this prediction.
In case anyone is having issues with the paywall, <a href="https://github.com/iamadamdev/bypass-paywalls-firefox" rel="nofollow">https://github.com/iamadamdev/bypass-paywalls-firefox</a> seems to work well for me.<p>(Note: I am not affiliated in any way with that extension. I'm just a happy user.)
I still think there's way too much naive optimism out there that things will all be back to normal a month or two from now. I found this [1] deeply fascinating. Some highlights:<p>- Corporate earnings have been pretty much flat since 2014 (this one in particularly surprised me). So the last 5 years has been a disconnect between earnings and valuation and that always comes crashing back to earth at some point, Covid-19 was just the spark.<p>- The demand for US dollars will likely devastate some developing nations (who borrow in US dollars) with all that entails;<p>- The US is in a fiscally weak position;<p>- Because of the strong dollar and huge deficit the US essentially has to print money to buy its own bonds. A real (rather than nominal) devaluation in US government debt is not out of the question;<p>On the Covid-19 front:<p>- Making a vaccine takes time. Proving it works and is safe takes time. Even after you've done all that you have to manufacture it somehow. This is a nontrivial problem. For the flu vaccine the US government actually pays billions to grow eggs for this purpose [2]. This is unsatisfactory in many ways and there has been a long search for an alternative but so far to no avail. Influenza viruses reproduce in chicken eggs. Coronaviruses do not.<p>- It will take time--possibly <i>years</i>--for spending to return to previous levels. We have examples of this already with the SARS and MERS outbreaks in Hong Kong and South Korea where spending took 6 and 12 months respectively to return to previous levels [3].<p>- Some industries will take years to recover. Cruise lines are an obvious one but airlines, hotels and tourism are in the same boat (at least it's not the Diamond Princess). I wouldn't be surprised if a lot of frequent flyer miles just evaporate or getting hugely devalued;<p>- Some businesses just won't come back. Those businesses spend money. They paid employees who spend money. All that money went to other people and businesses who then spend money.<p>- Social distancing may be here for the long term [4].<p>- My own belief is that the protracted response to this is there will be some permanent changes in behaviour. This will create new opportunities but also devastate some sectors.<p>For some reason, share buybacks are the latest bogeyman and I really don't understand why. They're just another form of dividend (ie returning money to shareholders). Borrowing money at low interest for share buybacks is just a tax deferment strategy (one that I don't think should exist but it does).<p>There's still significant market and economic downside potential and at best I think we'll have stagnant growth for several years.<p>The problem here is that many people now have no memory of what an actual recession looks like. Even the GFC was quite localized (but of course devastating to many).<p>[1]: <a href="https://www.lynalden.com/global-dollar-short-squeeze/" rel="nofollow">https://www.lynalden.com/global-dollar-short-squeeze/</a><p>[2]: <a href="https://edition.cnn.com/2020/03/27/health/chicken-egg-flu-vaccine-intl-hnk-scli/index.html" rel="nofollow">https://edition.cnn.com/2020/03/27/health/chicken-egg-flu-va...</a><p>[3]: <a href="https://www.abc.net.au/news/2020-04-14/retailers-warned-not-to-expect-post-coronavirus-spending-bounce/12144354" rel="nofollow">https://www.abc.net.au/news/2020-04-14/retailers-warned-not-...</a><p>[4]: <a href="https://edition.cnn.com/2020/04/14/health/social-distancing-research-coronavirus-2022-trnd/index.html" rel="nofollow">https://edition.cnn.com/2020/04/14/health/social-distancing-...</a>
Well, if COVID's R0 is 5.7, then herd immunity is 82%, which we could hit before there's a vaccine. Death rate is 3.4%, according to WHO (which is absurdly low in my mind), then population would drop by 2.8%, meaning GDP would drop by the same...assuming those that die spent an average amount of money
If the WSJ wants me to show some concern, they should eliminate the paywall on certain articles. I don’t care that the large amount of their content is paywalled, but if they want me to read their opinions, they can’t hide them.
Just gonna leave this here: <a href="https://twitter.com/eladgil/status/1250530780666671105?s=21" rel="nofollow">https://twitter.com/eladgil/status/1250530780666671105?s=21</a>
One of the issues of such a contraction is its impact on stocks. People often think it's just for the rich. It's not! Think of all the teachers, firefighters, nurses, police - all those first responders whose pensions are invested in stocks. Such contraction will terrible for their eggnests.