U.S. Headed for a Depression

Yves Smith has an excellent "where we are now" write-up this morning in "Why Sending $1,000 Checks to Everyone Won’t Solve the Coronavirus Crisis":

Now we may get lucky. The cornavirus may mutate into a milder form. Perhaps someone will come up with a drug cocktail that can be administered to reduce the severity of most cases and thus result in a much lower percentage of the afflicted needing hospital care.

But absent that, things are not looking good. The Imperial College COVID-19 Response Team report makes for grim reading. Not only does it remind us that a vaccine is at best a year to eighteen months away, but it also points out that new vaccines often don’t have great efficacy. And the Wall Street Journal reported that Singapore, Taiwan and Hong Kong, lauded for their early and effective responses to the coronavirus, are now seeing a second wave of cases. That strongly suggests that letting up much, any time soon, on serious restrictions on activity isn’t likely.

As many experts pointed out, the number of deaths resulting from an economic depression would be worse than from the coronavirus itself. Treasury Secretary Steve Mnuchin told senators that refusing to take forceful enough action could lead to 20% unemployment.

Smith then goes on in the rest of her post to critique the economic stimulus thus far proposed, particularly the Democratic response.

Since there is next to no testing at this point in the United States, it's impossible to say how many have been exposed and are now positive. My assumption, living in Seattle, is that I have been exposed, probably weeks ago. I ran a 5K race on February 29 and chatted with a young woman who said she was just getting over a brutal two-week flu.

What's particularly troubling are the reports of reinfection. As Mike Davis reminds us,

[L]ike annual influenzas, this virus is mutating as it courses through populations with different age compositions and health conditions. The variety that Americans are most likely to get is already slightly different from that of the original outbreak in Wuhan. Further mutation could be benign or could alter the current distribution of virulence, which now spikes sharply after age fifty. Trump’s “corona flu” is at minimum a mortal danger to the quarter of Americans who are elderly, have weak immune systems, or chronic respiratory problems.

In other words, ending school and business closures in mid-April might be greeted by another spike in the contagion as people return to everyday norms only to be infected by a mutated virus.

So we don't know how long the virus is going to hang around. We also don't know the number of unemployed it will create. My guess is that it will be worse than 2008/2009. A guy who works for the printer we use dropped off an order yesterday. He said that he was returning to the shop for a staff meeting where layoffs would likely be announced by the owner; there was no work.

I hadn't even thought about the impact of the pandemic on small printers. It makes sense though. Much of what we use the printer for is the announcement of upcoming meetings.

The longer it lasts the longer it will be to come back. The last remaining weekly newspaper in town announced layoffs last week and said that it would suspend production of its print edition.

Unemployment in the range of 15-20% does not seem outlandish. Given all the talk about the debt bubble in the private sector, it's looking like the U.S. economy is headed for a depression.