Dubroff: Predicting the impact of coronavirus on the economy
One thing is clear about the coronavirus pandemic — it is moving so fast moving that it is an almost perfect made-for-Twitter event.
News updates come so frequently that it is a 24/7 phenomenon. But that speed sometimes makes for a poor framework for decision-making and, as Nobel laureate Daniel Kahneman told me in a recent interview, sometimes you have to hit the pause button to really understand what’s happening.
So, stepping back from the tweetstorm that invades my iPhone every morning, here are some thoughts about coronavirus and the economy:
• Global markets stared into the abyss and then pulled back from the brink. Timely and coordinated action by the Federal Reserve and other central banks certainly helped, and so did talk of a $2 trillion infusion of cash and loans into the U.S. economy. Investors who’ve held on through a wild ride will almost certainly be rewarded in the long run.
• The global economy has been shaken like a snow globe, with some unusual results. As one of my favorite wealth management experts around observes, investors are rooting for the return of an oil cartel to “fix” prices and keep debt-ridden shale producers from insolvency, while toilet paper is the most valuable commodity in many households. I would add that we are applauding a positive yield curve that has Treasury yields negative at the short end and 10 year Treasuries yielding well under 1 percent.
• The latest forecast from California Lutheran University’s normally pessimistic CERF experts has GDP falling about 13 percent in the second quarter but that’s more optimistic than some economists and CERF sees the U.S. economy back on trend early in 2021. And that was before any announced stimulus or the last round of Fed intervention to support commercial paper and municipal bond markets.
• Much of the effectiveness of the stimulus will depend on how some $350 billion in support for small businesses actually plays out. I know from experience that every small business is different and each one has a unique set of financing needs. Most of us, my self included, are a bit leery of financial support from government that does not involve a straightforward purchase of goods and services or an SBA-guaranteed loan to buy equipment or property. I happen to agree with Matthew Fienup and Dan Hamilton, however, that keeping as many of America’s three to four million small businesses and nonprofits operating, and their employees working, is one key to the recovery.
• Truly reciprocal relationships only go so far. There is a lot to be said for concerted action by central banks and for flexible rules that allow for barriers to be broken. Elon Musk bringing 1,000 ventilators to California from China is a good example. So is the concerted effort by central banks to helicopter in trillions of dollars, euros and yen to help stabilize the global debt markets when they started to freeze up.
• George Wolverton, who worked with me as the Business Times’ first publisher for more than a decade, wrote and said he expected America’s natural capacity for innovation and experimentation to carry the day and lead to treatments or other ways to limit the impact of the pandemic.
As we are learning, sometimes painfully at the Business Times, experiences like the global outbreak test your systems to the breaking point and they require a lot of sacrifice. We will learn a lot of lessons along the way and we will get through this.
But as journalists we also know that the solutions to the current crisis will unearth new problems to be addressed, just as the bailout of the 2008-2009 panic handed big banks large windfalls, penalized smaller financial institutions and left millions behind.
And, finally, there is this — the lessons from the current crisis may or may not help prepare us for the next one. And there will be a next one.
• Contact Editor Henry Dubroff at [email protected].
