IMF Says Great Lockdown Recession Likely Worst Since Depression
bloomberg.com
bloomberg.com
Tech's been living in a bubble for a long time and reality is starting to hit. Get out and talk to real people, not your Slack buddies working in SF.
To reinforce this concept, take a look at how unemployment now compares to previous recessions: https://twitter.com/stephsmithio/status/1250122624094490624
Uh, nah, don't do that yet
We're a software company backed by a brand name VC in SF. The board is in total meltdown.
You think any government is going to give you money as a business owner? Maybe if you're lucky but how much time and paperwork is it gonna take? You're not guaranteed to see any of it or when. Meanwhile, you're accruing significant debt from each employees and suppliers day over day, with no end in sight.
Now, the larger company / industry bailouts -- those seem less well-defined. I haven't seen the latest on those but I'm sure the government would _like_ to tie them to employment as much as possible but we'll have to wait to see.
[1] https://smartasset.com/financial-advisor/paycheck-protection...
I have experience in Go, Ruby, Python and I'm excited to hack again.
This is one of the biggest fallacies in modern finance. COVID was merely the catalyst which exposed terrible finances. The idea of unforeseeable black swans has become nothing more than a trope of an excuse that it's lost all meaning. Sure, the pandemic itself is a "black swan" but the subset/collection of events that lend itself to economic disaster is actually not that rare. Case in point: 9/11, Tech Bubble burst, Financial Crisis, Covid-19. This was all in a span of ~20 years.
So let's revisit this: Is economic collapse really that rare? No. But people construct their businesses as if they are, and we always see these house of cards tumble. The other group of businesses who acknowledge the possibility of an economic collapse subscribe to the false pretense that THEIR company is immune because they're so "essential." In both cases, growth at all costs seems to be the mantra. How is this sustainable beyond the Fed Lottery? At this point, it hasn't become a Lottery anymore.
In values, I have read a lot praise for risk taking over years and rewards for it. I have read comparatively less praise for prudent decision making or what happen when risk part of risk happen. People are said to get rich because they "took the risk" and are poor because they were either lazy or did not took risk. But the part when people take the risk and become poor is never said, as if we wanted to pretend it never happens.
In finances, companies that risk a lot and grow and now are about to fail are way more likely to be saved then a company that was more responsible.
When every org, smb, landlord and individual takes on too much leverage, it is the macro economic system we exist in that is at fault
But the downside to that is: if in fact you can’t pin this moralistically on bad actors, then you are definitely going to see the same behavior over and over, until policies change.
Which is something else then "my company took on way too much leverage".
I never pretended I am poor. I work as programmer and so does my partner. Most people on this forum are not poor. We are comparatively well paid group.
There is debt and then there is excessive debt or "leverage". Ans when management take on excessive leverage so that you fulfill your dream of being big and then company fails, yes it is management fault.
"We took excessive debt and then failed by no mistake of ours" is an oxymoron and illogical statement. That is not nearly the same as debt because your kid would die without it or something like that.
Artificially setting interest rates so low (say 1%) that by saving money, you are actually losing money to inflation (real inflation at least 5%, if you include healthcare, real estate and higher education) promotes over-leveraging and that's what we got.
https://www.massive.se/job/online-infrastructure-engineer-si...
https://www.whitehouse.gov/wp-content/uploads/2019/05/April-...
Edit: I can’t make new posts. Someone has suggested that people will just be re-hired; historically, that has never happened. Not saying it’s impossible but this would be the first time. You can’t put a broken egg back together; entropy doesn’t go in reverse. The old jobs don’t come back, new ones are created, that’s just the way it works.
Many small mom and pop shops are not coming back. Big chains, and franchises survive.
Permanent changes in customer behavior. Many people with resistance and habits against 'new ways' are forced to learn internet shopping and delivery. Their habits can change permanently.
Just as companies are re-thinking the fragility of supply chains that depend on a single country, maybe this will help counter-balance the consumer trends toward huge retail.
Yes, many of the ones that shut will not reopen. But new ones will be started. Over time, not all at once.
The most important one though is how long the lockdowns will last.
The answer to your question actually depends on how long lockdowns last. The longer businesses are shut down, the harder it is to restart them.
Most of those folks are contractors that pay rent (for their "small spot") or some sort of cut to the entity that owns the physical salon, right?
Though your point stands for the owners of such places, many of them probably working owners.
Technically, I think it even takes 2 quarters to call a recession.
But I get your point... even if we don't have the stats for six months or two years, we all know where this is going. It's just the standard terminology doesn't help right now.
A recession is two or more quarters of negative economic growth in a row.
A depression isn't clearly as defined, but some common definitions are "a 10% decrease in real economic output" or "a recession lasting more that two years"[1].
Neither of these definitions are met.
[1] https://en.wikipedia.org/wiki/Depression_(economics)#Definit...
1. https://www.nytimes.com/2020/04/03/upshot/coronavirus-jobles...
>Be warned, these numbers yield an imprecise estimate of today’s unemployment rate, and the truth could easily be quite a lot higher or lower. This is not an estimate of the official unemployment rate for March, which reports the state of the economy a few weeks ago when the labor market was in better shape, nor is it a forecast for the official rate in April.
I don't find it useful to implicitly embed a financial forecasting model in the use of the term "depression".
I wonder how they get those numbers. At least half the US economy is in shutdown right now. Two months of that is equivalent to one month of the whole economy being shutdown; to 1/12th of annual GDP lost, or around 8.3%. Add another month and its 12.5% of output lost.
They explain in their article: https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/we...
That's a take that is gained from reading two many doom and gloom writers and not looking at the data.
The data shows that economies - on average - expand and have done consistently, long term since the renaissance.
Once you look at that, you see recessions as mistakes. Most large ones since the start of the 20th century have been caused by errors in the capital markets (1929, 1987, 2008) or commodity price shocks (1970s).
Perhaps the run up in stock prices should have been corrected. But that would have been a recession caused by a financial market correction, so another 2001 "dot com crash" style thing. Nothing like this.
is there any merit towards my naive optimism
By most measurements this is the biggest economic shock since 1929 (and possibly larger). It's the first time we've have economic activity stop this quickly across so many industries all across the world ever (perhaps the black death in the 1300s was similar because many farms went unharvested because of the lack of labor - up to 80% of people died in some areas[1]).
It's possible this will turn around quickly. We certainly stopped things quicker than I would have believed was possible a 4 months ago.
But provided you understand that is an optimistic view and isn't really supported by history it's ok.
[1] https://eh.net/encyclopedia/the-economic-impact-of-the-black...
Honestly, I'm not an expert. But before coronavirus, the wild growth in the markets seemed--to me--out of line with the realities of the economy.
But this is nothing like that at all. A stock market crash takes months to move through the economy.
A big crash means things like 700,000 new unemployment claims (2008 had that many at its peak).
The US just had 6 million new unemployment claims.
It's a whole new level.
Yes we intentionally stopped things, but that would have happened either way as the disease spread and people got sick.
Look at the meat packing plant in SD where 1 case turned into ~300 and they had to shut down [1]. If we had not shut down things, that would be the story at workplaces across the country. Think about schools and universities throughout the country. If they had not shut down as the pandemic was ramping up, they would have become breeding grounds for the disease and would have had to shut down anyway as students and teachers fell ill.
Yes we shut down things intentionally but our hand was forced. The flip side of this is we cannot re-open things just as intentionally because the result will be a flare-up of cases. So while it may seem like we have control over when we start/stop the economy here, really the virus is controlling the timeline.
[1] https://abc7news.com/smithfied-foods-coronavirus-meat-packin...
I wonder if lack of public health infrastructure in the us will come to haunt it in the coming months as other countries recover faster and get a head start. That sort of economic opportunity cost from not having more public health infrastructure tends to have been left out of past discussions completely.
There have been national strikes in some countries before - perhaps we should be looking at the impact of them to try to understand this.
> That compares to a January projection of 3.3% expansion and would likely mark the deepest dive since the Great Depression. It would also dwarf the 0.1% contraction of 2009 amid the financial crisis.
Growth would have an impact on the decline in absolute dollar values (inflation adjusted or not). But wouldn't have much of an impact on relative decline measured in percentage.
life?
There are no modern equivalents to compare to, so the best thing we have is the Great Depression; but when you look at the circumstances, it's not exactly a comparison that gives you a lot of confidence.
First of all, the GD had purely financial causes. Over-speculation in the stock market, high debts, combined with a struggling agriculture sector. As reality dawned, a mass sell-off took place that snowballed into what we now know as "the Great Depression".
If we for the sake of argument assume that what's happening now is exactly what happened during the GD, you still have to take into account how different the world is today. We are no longer in a mostly industrial, manufacturing economy. Our capacity for producing everything that keeps people alive is higher than it has ever been, which is another way of saying that our economy is more efficient than it has ever been. This is why most people can "get away" with not producing essential goods: many, many people work in "non-essential" jobs (for survival) like the service sector.
The only sane thing to say right now is that noone knows exactly how this will turn out, but saying that things will be worse than the GD is not only saying that the circumstances are way worse (that's absolutely not obvious to me), but also that our economy is weaker than it was 100 years ago, which to me sounds quite absurd.
I guess this being HN people are more used to long winded soliloquies than single sentence terse remarks, served me right I suppose.
If we assume a sharp downturn in Q1 and Q2 of 2020 and a subsequent uptick and prolonged recovery in the second half of 2020 and continuing in 2021 that pretty much corresponds to how stock markets have been reacting over the past few weeks.
"Whatever it takes" to backstop the stock market is apparently working.
Make no mistake, there will be huge shifts and upheavals, regarding the ways we work and buy stuff for example.
Many of today’s incumbents might not exist anymore in two years’ time but there’ll be others to take their place.
Many of today's incumbents WILL exist in two years' time, because they are the recipients of "helicopter money" to prop them up, even if they deserve to die.
The real losers will be small and medium businesses who will get some token (not enough to survive) help, so that politicians can claim that everyone was helped.
Hot air that will crash eventually.
same 'analysts' mostly didn't notice a 11M city going into full lockdown.
I think people are just buying in now while things are cheap and that's leading to a "recovery". Particularly given the longer the run the more risk averse cash you attract while prices are discounted. I bet there's another "crash" coming.
I'm not sure enough to short my money where my mouth is though, so to speak.
If the Fed stops buying junk bonds, yes. Until then it looks like the current market prices this bailout in.
(I'm not saying that I think the stock market is a good indicator of future economic growth and actually even the parent comment didn't explicitly say that.)
I'd say the stock market value reflects traders' short term opportunistic view of what they can make in the stock market - especially with a huge stimulus package landing. So basically a bet on companies, not on working people income.
Whether millions will be added to the jobless and new poor, is not much of a concern for such a bet.
That said, the past two weeks the claims seem to have hit their processing limit, with people still not getting through - it's guaranteed to continue rising for the rest of the month, past the numbers I have here.
[0] https://fred.stlouisfed.org/series/ICSA
[1] 3.3 million + 6.8 + 6.6 = 16.7 million, 16.7 / 160 million (number I've seen for estimated working-age people) = 10.4%, 10.4% + 4% (previous unemployment rate) = 14.4%
Quick edit, unemployment rate is updated monthly here: https://fred.stlouisfed.org/series/UNRATE - based on when it updated, that 3.3 million is already included in the 4.4%, so actually more like 4.4% + ((6.8 + 6.6) / 160) = 12.8%-ish (and more than likely still rising)
The question is, will these increases fully offset the permanent loss of existing revenues + the cascading costs of disruption due to things like job losses.
For extremely fewer people...
>The question is, will these increases fully offset the permanent loss of existing revenues + the cascading costs of disruption due to things like job losses.
It wont even be close...
To expand a bit on how to think about the problem in general:
Don't focus on revenue when looking at the situation, focus on productivity and what people can and do produce.
A few people are busier, some are just as busy as before. Most are less busy and severely restricted in what economically useful activities they can do.
They will point out that 99% of deaths were related to economic effects of our response, not the disease itself.
Hundreds of millions will starve or die in failed states in an economic slowdown, while only hundreds of thousands die of disease.
Economic slowdowns cause some states to fail, leading to civil wars, refugee cities, and famines and other diseases spreading. Thats where most of the deaths will occur.
So recession in the US will lead to people dying.
Maybe countries that feel developed but still experience this should reconsider their policies.
And because of that, these recessions and depressions are far less devastating than they used to.
Of course I'm saying this living in a rich country that does have all of these amenities; in poorer countries that don't yet take care of their poor (and possibly the US that chooses not to take care of its poor), things may still feel like the 1930s. But in a rich, well-organised country, there's really no need for that anymore. We can easily get through this is we want to. Skip a vacation, buy a luxury item less, make sure the poorest don't fall through the cracks (and there will be more cracks of course), and we'll be fine. The misery is mostly a political decision.
Wow that is pretty out of touch with reality. If you have a household where two people were all of a sudden out of a job at the same time with absolutely no warning or preparation, having to pay for two kids, a mortgage and no prospect to find a job in the next few months then I'm afraid skipping a vacation or not buying a luxury item will not cut it! And this shit doesn't just happen to the poor. If you are a restaurant manager on a high salary but all of a sudden the restaurants are forced by the government to be closed and before they are allowed to open again might have gone bankrupt, and the other person is in a high paying office job (fashion buyer for a big brand) and has been sacked because the entire fashion industry is having a fucking heart attack now then both people might be out of work for nearly a whole year before they can get back to anything like what happened before our governments decided to completely shred our livelihoods to the grounds for some yet known overall good. These people will be fucked for years and can be lucky if they are not going to loose their homes, get divorced and become alcoholics.
Of course there are countries, like the US, that seem eager to fuck this up, but again, that's a political choice. There's no doubt that the US has the economic capacity to get through this if it wants to. The problem is that its political class has other priorities.
In Netherland, people who lose their job still get paid. Restaurants survive by switching to delivery. Some companies may go bankrupt, many people will have to take a step back in their lifestyle, but overall, life here has been pretty good, and we have that leeway to make that step back.
That doesn't mean nothing will change once this is over; I think and hope a lot of people will reassess what's important. I hope we'll pay the people in these "essential jobs" better than we've done so far. And I hope people will learn to appreciate the essentials of life more and be less eager to get back into the rat race of status and useless crap. But we do have a lot of useless crap in our society that we can easily cut back on without letting anyone fall through the cracks.
In western Europe at least. I'm well aware that some other countries love rugged individualism for the poor and care more about bailing out the rich. But again, that's a political choice.
You seem to think that being poor in a first world country is just skipping few vacations and luxury items but otherwise life can be wonderful. I think you severely underestimate how poor people can get even in countries with strong social security, like the nordic countries.
Also the idea that misery is mostly political decision sounds just silly. Most of Europe hardly recovered from 2008 financial crisis and are already cracking under the demographic shift, baby boomers retiring. Add a covid depression into the mix and things can get really bad. There's just not enough money in the economy to share for both the retirees and a large number of unemployed. This can cause a vicious cycle as the increasing social spending will increase taxes, increased taxes will go to increased labour cost, increased labour cost will drive down demand on European goods increasing the unemployment even more etc...
There's always a cynic to rain on your optimism :)
Our economic system is not nearly robust enough for these suddenly 5-10% unemployed and underemployed citizens. We can not "easily get through this if we want to".