Daily Management Review

A Persistent US Recession Possible If Coronavirus Is Left Unattended


A Persistent US Recession Possible If Coronavirus Is Left Unattended
While economists and analysts agree that the United States economy has slipped into a recession, they are wondering how much worse can the situation get.
An entire generation of Americans was severely impacted by the Great Depression that started in 1929 with a crash of the stock market and lasted until 1933 as there was massive unemployment and reducing economic output.
That economic shot changed the country for ever as there was a shift in migration patterns and fibbing rise to new styles of music, art and literature. However, a wide range of programs like unemployment insurance, Social Security retirements benefits, and bank deposit insurance were  drawn up under the leadership of President Franklin Delano Roosevelt to ensure that such a situation is never repeated.
Economists are now drawing similarities of the current economic crisis caused by the coronavirus pandemic, because of the unpredictable and unprecedented nature of the crisis, to the  Great Depression, particularly in terms of similarities in the rise in the rate of unemployment and the drop in the percentage of economic output.
However, according ot to analysts and economists, for the economic downturn caused by the pandemic to match that of the Great Depression, there has to be massive loss of jobs of Americans – to the tune of millions and decline of gross domestic product in double digits within the next few weeks. And such a situation will need to persists over years – not just months.
"There is no specific definition of a depression," said Bernard Baumohl, chief global economist of the Economic Outlook Group. But "it's palpably different," than a recession in terms of its length and depth, he added.
For example, there was a loss of 20 per cent of all American jobs in a three year period during the Great Depression, which was four times greater than the jobs that were lost in the country during the 2—7-08 financial crisis.  
For the four year period over which the Great Depression played havoc, almost one third of the GDP of the country was lost.  While there are many analysts and economists who forecast a 14 per cent or a bit more drop in the annualized output of the US in the April to June quarter, there are few who believe that such a situation will persist over a longer period of time.
A difference can be made however by government spending. While the unemployment claims in the country have reached record levels, the government is also spending record amounts of money which are to be transferred to people and companies of all sizes.
The policies taken by the central bank is also an important factor. It has been argued that the  Great Depression was caused by the policy mistakes and failure to prevent a run of bank closures by the US Federal Reserve.
This time however, the US Fed, as well as many other central banks, have opened up their coffers to cushion the economic hit due to the pandemic and have announced new programs in an attempt to reduce the risks of business failures and prevent sustained period of large rates of unemployment.