What is happening with the economy cannot be compared with the global financial crisis or even the 1929 stock market crash that ushered in the Great depression. Comparing what is happening now with any economic crisis in the past will not fully capture the magnitude of the economic damage as a result of this outbreak. To fully understand the economic impact you might have to go back to the mid 14th century when we had the Black Plague. What we have is a total economic collapse and society collapse in a manner we have never experienced in the History of America.
At the beginning of this economic fallout, no one took it seriously. Everyone thought that it would be a short term economic decline but everyone was totally wrong including the so-called experts. Many experts like Jim Rickards have warned that for many years to come, the economy will not return to normal. Many businesses have already gone bankrupt and the reality is that even when the economy will reopen, thousands of businesses that have been bankrupted by this crisis will not reopen.
In the United States, small and medium-sized businesses are the backbone of the economy. Businesses like restaurants, pizza parlors, hair salons, dry cleaners, and other small businesses contribute to nearly 44 percent of the total United States GDP. At the same time, these small businesses employ about 47 percent of all working Americans. As a result of this outbreak, this is the sector of the US economy that has been the most affected, and because of this; tens of millions of American workers have lost their jobs.
This has turned out to be a historic economic meltdown in the United States that has unprecedented scope and size.
We are living in shocking times when the previously so-called ‘too big to fail’ companies are on the verge of a collapse. Many enterprises will close permanently and this will obviously translate to a historic rate of unemployment numbers as more workers get laid off. When we compare the current unemployment numbers to what we had during the great depression, it is clear that this economic meltdown is of a bigger magnitude than the great depression.
In addition to plummeting demand and consumption, the global supply chains have been disrupted in a big way because of multiple transportation bottlenecks. Social distancing will make it extremely hard for companies and businesses to perform at maximum capacity even if the economy was opened today. On top of this historic disruption in production, we are at a point where the market sentiment is totally driven by fear. There is a significant drop in the willingness of investors to spend especially with the recent collapse of the stock market. Everyone is in fear mode as some speculate that we might have a second wave of a market crash. Some investors have lost billions of dollars in the recent stock market crash and as a result, there is a big psychological barrier that is preventing them from investing because most still have a perception that it is risky to invest at this point. Many investors are still holding cash and they will not invest until this crisis is over. This means that less capital is being injected into the economy and this is further slowing the economy.
It is clear that this is very serious economic fallout and at this point, everyone is still afraid that the worse is yet to happen. The unemployment numbers are past 20 percent and this means that the US economy is already in a depression. The Federal Reserve is doing anything possible to boost the economy but it looks like this continued deficit spending by the government will not help. Instead, it will create more problems in the long run because it will take years to pay off these debts. Based on the analysis of many economists, we should expect a very slow recovery from this depression. Jim Rickards has warned that the US GDP growth will shrink and it will take a lot of time to recover some of the lost jobs. This is a the economic collapse and we all have to learnt from this to position ourselves in a way in which we will be able to avert similar economic challenges in the future.
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