With unprecedented force and speed, a global recession is likely taking hold | Hacker News Reader

With unprecedented force and speed, a global recession is likely taking hold

washingtonpost.com

48 pointspseudolus31 comments

It's important to keep in mind that the current state of things is temporary. When the virus blows over, there will be a significant rebound. This situation is V-shaped, it's just unclear how high the right side of the V will be. And in the meantime businesses will have to weather a period of hardship, and some of them will fail to.

But there is nothing fundamentally wrong in the long run. The analogy to a hurricane seemed correct. 2008 was the total collapse of an enormous financial house of cards. Things broke that could not be repaired. The things that are broken at this moment, on the other hand, will repair themselves. They'll just really hurt in the meantime.

How about the climate crisis which is also still a huge background issue ?

It’s set to wipe trillions off the economy over the next several decades.

Could you imagine a few climate change fuelled natural disasters thrown into the mix with this issue happening ?

I’m not saying civilisation won’t recover, but we’re really starting to skate on thin ice here.

That seems irrelevant to the present discussion. Most of climate change's worst effects will be several decades, if not a century, down the line. The time scale of the virus crisis is a couple months, the time scale of a recession is usually a couple years.

However, we're discussing it now, because there's a presidential election underway whose winner will presumably determine regulatory and economic policy in regards to climate change in both the short and long terms.

You'd be surprised how fast a decade goes...

This would be true now, but over several weeks and months serious damage will be done (layoffs, bankruptcies, regulatory disruption) that will result in a permanent reduction in economic activity. The economy will repair itself, but the longer it takes, the less likely we will get a V-shaped recovery and the more likely it will take us much longer to get back to where we were.

Yeah. By this rationale, any recession or depression is V-shaped. Which is true (or has been so far), but it doesn't help those who suffer from it.

I'm also struck by the analogy to the Smoot-Hawley act and the theory that the breakdown in international trade contributed to the Great Depression. We don't yet see restrictions on cargo trade, but:

1. We could. 2. There seems to be some imperfect analogy to the effect of remote work (in the case of knowledge workers) and paused work (in the case of retailers and the like).

The degree to which a number of developed economies have come to a practical stop in recent days is shocking. Will we recover, like, eventually? Sure, quite likely. Will there be lasting effects for the economy? Definitely.

(I am, however, heartened by one other analogy to the Great Depression--perhaps, as in that case, an economic decline now will serve to reduce skyrocketing inequality, though it's hard to see that as a sufficient silver lining.)

The virus is temporary but the knowledge of what a fear of pandemic does to the market is forever. It needs to be priced into all future businesses and real estate exposed to risk of people in quarantine. The price will be a hedge on those types of investments in the form of increased interest rates on leveraged investments in those sectors. Wealth was marked higher than reality due to unknown risk. It needs to be rebalanced. We won’t go past the previous peak until we recover all previous economic activity + new activity to cover increased costs of pandemic exposed businesses.

Sure it’s V shaped based on the virus itself which causes a slowdown and I would also guess that it will recover just like someone does after a flu. It’s not a systemic issue like the Great Recession was.

The only problem with your logic is that you underestimate the longevity of the virus. This isn’t something that will slow us down for the month while everyone is quarantined or while events are cancelled. It’s predicted to continue for 3-6 months and likely come back in the fall and next year and the year after that and the year after that [1]. Its predicted the coronavirus will rise back up when quarantines are pulled back (and their economy put back into to movement) [2]. The only thing we are really doing is shifting the peak and spreading the load on our health care system through time. So if it is the case that our economy is tied to the state of the outbreak, which I as well believe is the case, it’s still not something that will blip in and out within a matter of weeks.

edited with refs:

This ted talk outlines the difficulty of containing the coronavirus, and how its here to stay:

[1] https://www.youtube.com/watch?v=Fqw-9yMV0sI

This interview of Infectious Disease Expert - Michael Osterholm - outlines the characteristics of COVID-19 and how its not a "corona-blizzard" but a "corona-winter" also suggests it will be back in China once quarantines are pulled back:

[2] https://www.youtube.com/watch?v=cZFhjMQrVts

I'm not convinced the current economic situation is entirely due to the coronavirus. The yield curve has been inverted for about six months now, which has been a sure fire predictor of recessions for as long as it's been measured.

Maybe coronavirus popped the bubble early. But a popped bubble is a popped bubble. It doesn't matter whether high oil prices or a pandemic is the needle doing the popping.

When US injects 1.5T into the markets, it seems a lot like the US theoretically can absorb 1.5T of goods and services from the rest of the world with money that didn't exist the day before. It seems absurd if true. Can anyone with knowledge on the matter clarify?

Money only has meaning during exchange. If it’s sitting in someone’s coffers and not being traded for goods or services then it is essentially removed from the market. By dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions. They seem to think that if you’re hoarding X dollars then an additional Y dollars will be less valuable to you to hoard and more likely to be traded for goods and services. Except they gave it to the wrong people. It appears that instead companies bought back stock or otherwise didn’t stimulate trade. People who have little money to hoard are more likely to spend an additional dollar of income than people already able to hoard money.

Edit-there are about 128 million households in the US. That 1.5 T would be about 11,718$ per household if given straight to them.

That money wasn’t given, it is lent overnight. What is a US household going to do with a collateral-backed $11718 loan made today that they have to repay tomorrow morning?

Continue on with the full details of the loans please.

What precisely are you looking for? They’re overnight duration and nearly riskless: they’re repo-market loans collateralized with treasuries, so even if the bank just runs away with the money the fed still has made a profit.

It's a overnight loan, backed by US Treasuries of some type (ie Bond's guaranteed by US Government). Bank gives Bond, Fed gives $$, swap back a few hours later.

The closest analogy would be a homeowner offering their house as collateral for a ~12 hour loan....

My point holds. The details underlie that it’s an even weaker effort. I said “by dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions (...) instead companies bought back stock or otherwise didn’t stimulate trade.”

The details only serve your point in so far as they muddy the waters. My point holds. The fundamental problem is that people must socially distance to flatten the curve.

That’s having all sorts of ripple effects as people are being laid off due to the crashing of demand for their services. So now whole swaths of people are facing hardships leading to missing home and rent payments.

For instance MGM:

https://www.fox5vegas.com/coronavirus/mgm-resorts-announces-...

Payday loans are another analogy, with some added price gouging on top because f*ck the poor.

Here's my previous pay check (s), so the payday loan place knows how much money I make; here's some sort of proof that I haven't been fired yet, so they believe that my next pay check is coming within a few hours/days; and heres's some legal-equivalent of the title to my car, for them to repo in case I'm not able to pay back the loan.

A 12-hour loan of $12k might seem ridiculous but an entire industry has been built on top of $300 loans for 72-hours, at great profit (until regulations came in to cap the profit).

They’re not really apples for apples comparisons as people don’t have the same abilities to make money in 12 hours that businesses do. Overnight loans serve a purpose to businesses that people or households don’t have a direct analog to use. I’d recon it’s more useful to offer a household or person a 1-3 month loan or credit line to help cover any lost wages due to sickness or fallout from the covid response.

"By dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions"

I believe this is wrong. Nobody's increasing or trying to increase the amount of money by a large amount. They're just trying to provide a lot of money to be borrowed in the short term, which should have absolutely no inflationary effect. And it's vital to be able to borrow money, because everybody needs to deal with a crisis now rather than in a week or month or year.

It's just about taking resources from the future, not taking from the rest of the world.

Paywall prevents me from reading the article, but from what the title implies I'd like to posit that there is precedent for the scale of this shift.

Bummed I didn't see this so obviously before my 401k lost 25% :(

Aren’t we talking about where things were at in 2017 then?

No. I had more in 2017 because my money was just sitting in cash.

Are you retiring tomorrow? If not, it doesn't really matter does it.

Well, or potentially in the next couple years depending on how things go. But the principle still applies.

Some people are. And I will one day, so not sure why you think it doesn't matter. Will it return? Sure. But that still leaves 1-2 years with no growth.

Your portfolio should already be no more than 60% equities if you’re near retirement.

If you’re not ready to retire, you have much time for the value of your portfolio to recover and continue to grow.

“Time in the market” is the primary consideration, but also proper diversification (less growth, but also less risk) as you get closer to retirement.

If you're younger and able to keep your job, think of it instead like stocks are now on sale. You can buy them cheaply and make good profits(for the market as a whole. Individual stocks are relatively risky as some companies will crash)

No.

You need to have available funds to do this though - for those fully invested, they will have to wait for their paychecks/contributions, which could be peanuts compared to their current exposure

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