Bank of America says the recession is already here | Hacker News Reader

Bank of America says the recession is already here

cnbc.com

61 pointsspking45 comments

Certain sectors of the US economy (mining, agriculture, manufacturing) have already been in and out of recessions for a few years now. These sector recessions have largely been hidden from the public because the banking sector is so much larger and has growth that outpaces the losses from the other sectors. So when you look at total GDP, the US economy was growing. But when you break GDP down into specific industries, you'll see that many of them have been struggling for a few years.

The US BEA website has some great tools for exploring industry-specific economic output.

Everyone wants to blame COVID-19 for the economic mess that's unfolding. But in reality, the trade war we went through with China hurt sectors of the American economy a lot. The country has been in a precarious position throughout 2018. It was just overlooked due to the performance of the financial industry, which is now beginning to wane.

Edit: not => now

Yeah, I really think COVID-19 is the straw that broke the camel's back, so-to-speak.

What recession? Market is dropping 1-2 times faster than it did in 1928. The entire economy is about to shut down for two months - the world over. Treasury Secretary predicting up to 20% unemployment, and I bet they were being conservative to prevent even more of a panic, because in the last 20s we also had 20% unemployment.

This isn't a recession. It's a depression. The US is about to experience true hardship for the first time in decades.

> Market is dropping 1-2 times faster than it did in 1928.

That doesn't mean anything in itself. The market is much more efficient and communication is faster now.

> Treasury Secretary predicting up to 20% unemployment,

If no government actions were taken.

> The entire economy is about to shut down for two months - the world over.

The "economy" isn't shutting down, only certain sectors (travel being the most notable). Obviously this has ripple effects on everything.

Fun fact: The Chinese stock market only fell about 10% during the lockdown. You should expect a U-shape recovery, just with some permanent loss (lack of cash flow, expensive containment measures that must be maintained, etc.)

>That doesn't mean anything in itself. The market is much more efficient and communication is faster now

>If no government actions were taken

Points taken, but as for the rest, I think you're underestimating the scale and ripple effects of shutting down an economy built around consumption. And your optimism also seems to assume that the market was healthy before all of this kicked off. That's where our perspectives differ. Airline industry, auto industry, tourism, consumer goods and especially electronics, what proportion of the economy do those sectors alone represent?

>Fun fact: The Chinese stock market only fell about 10% during the lockdown.

Considering that China has only tightened it's red curtain and the propaganda machine is at full steam, I'm not so sure we can trust any positive news out of China. Especially considering the regulated semi-private nature of the Chinese Economy. Face is everything to an authoritarian government - without the appearance of strength and/or competence, opressed peoples revolt. This is why authoritarian states tend to have work camps.

Looking at how China locked down it's cities and how most western politicians reacted including your president. You should not assume how the effect in China and the rest of the world will be same. This is how China controlled the spread https://youtu.be/YfsdJGj3-jM

I'm not real optimistic about things, but... maybe things will come back to life quickly if we get a handle on the actual problem?

Yes, once we have a decent treatment/mitigation/herd immunity for the virus we will be able to pick things right back up where they were. The only difference will be that the value of the dollar is going to get cut by 50%. Expect massive inflation as we bailout everyone.

It is significantly more complicated than this. Have you looked at foreign exchange rates lately? Other currencies are getting crushed relative to the USD because of COVID-19.

That's not how it works. Inflation and dollar value vs. other currencies is only loosely tied to bailout-type measures. See, for example, the mostly non-existent inflation following the financial crash bailouts last time. Also see current strengthening of the dollar vs. other currencies because it's a safehaven.

> the value of the dollar is going to get cut by 50%

Against what? Aren't all currencies going through a similar hardship?

A cheap and effective treatment that means that it's suddenly not very deadly, or at least not likely to put a huge strain on the healthcare system would be what could turn it around.

A miracle would be great, but I'm not counting on that in the short term.

Recession and depression have very specific definitions, and they don't involve the stock market. It's based on GDP.

Huh! I was about to say "no, we have to see two quarters of decline". Except, NBER no longer uses that rule and hasn't for a decade:

> The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. For more information, see the latest announcement from the NBER's Business Cycle Dating Committee, dated 9/20/10.

[1] https://www.nber.org/cycles.html

In some areas it is still technically 2 quarters of negative growth however manufacturing has been in a recession for a few quarters now using this definition.

It is ongoing but previously limited to specific sectors that were hard hit by tariffs and other policy decisions.

The current recession (which we are undoubtedly technically in) is mainly due to governments everywhere mandating that the economy go into recession due to a public health emergency. Once that's done, business will almost certainly bounce back. Of course the economy is in a recession when all world governments have essentially mandated that it do so.

Is that entirely true, though? At least some folks are losing their jobs, and at least some businesses are not able remain solvent. The effects from these events can't simply be reverted once the emergency is "done" (if we can even hope to be able to use the term "done" at some point), and it seems like they will almost certainly have at least some long-term negative impact. "How much" and "how long" remains to be seen.

Given that the government is being generous with a stimulus, and that most banks will see the writing on the wall which is that these businesses are not insolvent due to lack of demand, but rather the fact that demand was legislated away, only to be reintroduced in (hopefully) a few months), most banks and financial institutions will almost certainly salivate at the thought of almost guaranteed loan yields if they have the funds to wait it out. And banks of course certainly do have the funds to wait it out.

I like how you put it "governments everywhere mandating that the economy go into recession due to a public health emergency". Which is very true. While yes the coronavirus is the initial cause, the fact remains that governments put the economy on hold, for the greater good of humanity. Which means that it should bounce back, hopefully quickly in my optimistic mind.

That's right. Most companies have not stopped business due to bodies lining the streets. If they had been forced to close due to the sheer reality of unconstrained growth, the recession would be terrible. However, right now, most countries are closing businesses preemptively, which is great, but if the government mandates a recession, they will be forced to compensate (which they're doing)

Yeah, everything will be back to normal - if you can weather the storm.

The problem is that many small business can't/won't. How will government help them?

Sounds like a perfect (horrible) storm.

Most governments have announced pretty generous packages to businesses

>The current recession (which we are undoubtedly technically in) is mainly due to government's everywhere mandating...

Unlikely. The writing has been on the wall for a while. The inverted yield curve and the long overdue 7 year cycle, among other indicators suggest that the virus was just a trigger.

And we'll see it was a trigger for much more - the world has been an increasingly overstuffed powder keg for years. Do you know that Turkey and Greece are inching toward war over the refugee situation, and Greece already has support from multiple European Nations in shutting down migration? Imagine how many nations will be pulled in if one of the saber rattling incidents actually turns deadly...

COVID-19 is the chaos that is about to shake loose every crack in the global socioeconomic system. Imagine how the geopolitical landscape is about to change when billions of Indians and Africans are exposed to the virus...

In terms of the broader economic picture, companies have more cash than ever. Just a few years ago, the new york times had an article decrying the situation and accusing companies of 'hoarding' cash. My how the times have changed: https://www.nytimes.com/2016/01/24/magazine/why-are-corporat...

Since the last time we've seen an economic disruption like this has been decades, if not a century ago (the World Wars and the Great Depression come to mind), I don't think our modern definitions of "recession" or economic response really apply to this current situation.

Government should be focused on keeping people healthy, fed and sheltered first, then focus on how to help businesses recover. For example, airlines are effectively shut down right now, only carrying a fraction of their normal passenger load, so there's not much that can be done to revive them until people can fly again.

Recession is a weak word for this pandemonium that we are experiencing. We need to coin a new word for this.

In fact "recession" is the new word. Previous downturns were called depressions. But after the Great Depression, they wanted a word that said "a downturn, but not like that", and they invented "recession".

Nothing new needed - this tune has been played before: Depression.

It's going to be the Great Depression of the 21st Century.

Only unlike the American Great Depression that happened about 100 years ago, it will be world-wide.

What is your basis for calling the 1929 crash "the American Great Depression"? It began with Creditanstalt in Austria, and affected far more than the US.

And what is your basis for saying that it wasn't worldwide?

How has this not been painfully obvious to everyone in the world for weeks? I really don't understand why it is taking so long for people to accept this.

The west has grown fat after decades of easy living. The reaction thus far from the public has convinced me that the vast majority of people are helpless and ignorant. This virus was an obvious threat in early January - long before the WHO was turning a blind eye to China's censorship.

Wishful thinking and false optimism.

I wonder how Bitcoin is going to fare during all of this.

Why the down votes? Bitcoin was invented for times like these. E.g. criminal banks receiving bailouts, and governments printing money. You can't keep printing money to solve problems...

Bitcoin and cryptocurrency markets were shocked last week when the bitcoin price briefly plunged to under $4,000 per bitcoin, sparking fears of a crypto wipeout.

The sudden fall was led by Seychelles-based bitcoin and cryptocurrency exchange BitMEX, with the bitcoin price dropping to a low of $3,600 on the exchange before it was closed for "maintenance."

Maybe the markets will start to flatten out now?

My guess is that the markets won't settle down until we have a handle on the public health crisis.

Not even close. I think everyone knows things will get worse, but at this point there are too many unknowns to quantify that. The market will remain stable for a few days, but there will continually be more data that will cause the market to continue to drop.

We still haven't seen any country match China as far as total cases. Once Italy gets to 80k and then 160k 4 days later a new wave of anxiety will pass through people.

Italy has more reported total deaths than China at this point. Spain is also catching up fast.

When did Italy lock down the country? Last week? So then next week should hopefully be their peak.

Hopefully you're right and this is why the market is stable for now. Maybe it will happen that Italy will stabilize. I don't think there are any epidemologists right now who don't think that Italy will reach 80k cases and 160k as well, but the distance between 80k cases and 160k might be much longer than I mention.

But this brings its own uncertainty. If we succeed in not overwhelming the medical system then everyone will remain on lockdown longer which will have it's own unique economic impact.

The point I'm making is that it most certainly will get much worse, but exactly how and what that means is very uncertain right now so virtually impossible to price correctly.

Hopefully. People are still allowed to go to work, and there are a number of people not respecting the rules. Everyone keeps hoping to see the numbers dip, but they aren't yet.

Have we considered rescheduling?

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