The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Coronanomics 101

03/18/2020

This recession is very different than any before.  It started as a biologic crisis and is rapidly morphing into an economic crisis.  There are some hints that it MAY continue morphing into a financial crisis, but there is almost no sign of a credit crisis yet.

The descent into this particular recession is not particularly unusual, except in one key respect — speed.  In January, the economy was booming.  Two months later, it is collapsing.  Using the stock market as a proxy of the economy, the market dropped 19% in three months in Nov-Dec of 2018 and that terrified many Americans.  The current market dropped 30% in only three weeks — this is warp speed.  Because the collapse has been so sudden, there will be greater damage to the economic infrastructure, which will slow our recovery.  I see virtually no possibility of a V-bottomed recovery.

Normally, I am very focused on the danger of another financial recession (think 2008), which is much more  serious than a mere economic recession.  Remember:  A financial recession always causes a economic recession, but an economic recession does NOT always cause a financial recession.  So far, the financial problems caused by this biologic crisis and economic recession appear to be “plumbing” problems caused by the speed of the collapse.  Such problems are usually eased by simply flushing them with liquidity.  We are very fortunate that our recent experiences in 2008-10 gives the Fed many tools they did not have before.  I am not yet worried about a financial recession.

While this economic collapse may be fascinating to economists and political scientists from an academic standpoint, it is terrifying and heartbreaking to millions of good decent Americans, who don’t deserve what is happening to them!

 

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