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The coronavirus pandemic is, first and foremost, a health crisis, but it has also had a profound economic impact. The unemployment rate in the U.S. was 3.5 percent in February. By April, amid a nationwide shutdown to stem the spread of the virus, it had risen to 14.7 percent, the highest rate since the Great Depression. Before the outbreak, the U.S. economy had been enjoying the longest period of growth in history.
The current recession is different from other recent downturns, like the 2008 financial collapse, which saw a more gradual decline caused by instability within the economy itself. The virus, however, caused the economy to collapse almost overnight. Some economic indicators rebounded strongly as lockdowns were lifted in parts of the country, raising hopes of a V-shaped recovery in which things return to normal as rapidly as they had declined. President Trump called the economy “a rocket ship” after the release of promising unemployment numbers in early June.
Despite those gains, there are signs that the recovery is stalling as the number of COVID-19 cases spike in several parts of the country. It’s too soon to know the full economic impact of major outbreaks that have hit states like Arizona, Florida and California. But some economists have expressed concern that the economy may be on the brink of a true collapse.
Why there’s debate
Though the recent resurgence in the virus may make a V-shaped recovery unlikely, there are still reasons for optimism. Though key economic indicators like unemployment and consumer spending suggest a dire scenario, the actual impact of the downturn on Americans may be less extreme than those numbers may indicate.
A $2 trillion stimulus package passed by Congress in March — which included $1,200 direct payments, boosted unemployment payments by $600 a week and hundreds of billions of dollars in loans for businesses — has been credited with preventing the worst-case scenario for the economy over the past few months. Bans on evictions at the federal and state level, along with mortgage relief, have helped struggling families remain in their homes. The stock market has regained most of the losses it suffered at the onset of the pandemic.
These hopeful signs may be hiding the true state of an economy on the brink of another major crash that sends the country into a depression, some economists fear. One of the major reasons for concern is the end of many measures that have kept the nation afloat. Enhanced unemployment is set to expire at the end of July, and the loans may not be enough for businesses to keep their doors open. Eviction moratoriums are also due to end soon. State budgets have cratered because of lost tax revenue.
It’s unclear whether Congress would be willing to spend more money to keep these programs running and bail out states. A worst-case scenario envisioned by economists could see federal assistance drying up at the same time businesses begin to shut down en mass, state government jobs disappear and millions of Americans lose their homes. The combined result of all these crises hitting at once could even spark another financial collapse like the one that caused the Great Recession, experts fear.
Democrats in the House of Representatives passed a $3 trillion stimulus bill in May that would, among other things, extend enhanced unemployment and provide another round of stimulus checks. The Republicans in the Senate and the Trump administration appear to be eyeing a smaller package that totals less than $1 trillion. A final stimulus bill is expected by the end of the month, Treasury Secretary Steve Mnuchin said.
The economy is on the brink of collapse
“The U.S. economy right now is like a jumbo jet that’s in a steady glide after both its engines flamed out. … It will likely crash into the side of a mountain.” — Tom Gara, BuzzFeed
The current crisis is so unique, all forecasts are essentially guesses
“There are lots of economists, analysts and experts pontificating on the future of the U.S. economy. Don’t believe any of them. No one really knows.” — Gene Marks, The Guardian
Congress can prevent a worst-case scenario if it’s willing to spend enough
“If Washington won’t provide more support to working-class families now, there won’t be enough consumer spending to keep struggling Main Street businesses alive much longer. And if those businesses fail, other dominoes will fall.” — Rex Nutting, Marketwatch
A housing crisis may be coming soon
“Like every other aspect of the lockdown crisis, the coming avalanche of housing-related debt has been entirely predictable. With real estate prices grotesquely inflated and wages that were already stagnant either falling or non-existent, something like this was bound to happen sooner or later.” — Matthew Walther, The Week
The fate of the economy is directly tied to the state of the pandemic
“Financial aid, while vitally important for reducing the economic pain caused by Covid-19, will not hasten the end of the pandemic. The only way to end our financial crisis and restore the economy is to address the pandemic itself.” — Steven Berry and Zach Cooper, Politico
Short-term stimulus has hidden truly dire state of the economy
“America’s economic crisis is worse than it looks. For that reason, it’s about to get worse than it is.” — Eric Levitz, New York
Another financial collapse is possible
“Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed. You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash.” — Frank Partnoy, The Atlantic
Keeping businesses alive through the current virus surge is necessary to prevent disaster
“The thing that stands between the present severe, sharp recession, and a second Great Depression, is doing everything possible to ensure that when the virus is tamed (and it is a when, not an if), employers will still be around to pay their workers.” — Daniel Alpert, Business Insider
Reopening prematurely created the illusion of a recovery
“President Donald Trump pushed relentlessly to reopen, on the mistaken belief that it would fire up the economy, and devoted Republican governors quickly obliged. Reopening creates a flicker of economic activity, a fleeting illusion of recovery, followed by an explosion of disease and death, which demands further shutdowns.” — Frida Ghitis, CNN
Mass inequality made the U.S. economy more vulnerable
“No matter how you distribute income or organize industry, a deadly, highly transmissible virus is going to be bad for business. But the gross inequities of the modern U.S. economy have deepened the COVID-19 recession.” — Eric Levitz, New York
The chances of a swift recovery are gone
“If there were still hopes of a ‘V-shaped’ comeback from the novel coronavirus shutdown, this past week should have put an end to them. The pandemic shock, which economists once assumed would be only a temporary business interruption, appears instead to be settling into a traditional, self-perpetuating recession.” — David J. Lynch, Washington Post
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