What Lies Ahead?
The comments below are an edited and abridged synopsis of an article by Dr. Jack Rasmus
Rasmus recently wrote about why the 3rd quarter US GDP would falter, leading to a W-shaped recovery, as is typical of all Great Recessions. The current recession was compared with 1929-30 and 2008-09, with eight reasons why the economic rebound (not recovery) would falter. In this follow-up post, a longer-term scenario is added to the prior 3rd quarter view. It focuses on the more permanent effects on the economy that will continue into 2021 and beyond.
“The US economy at mid-year 2020 is at a critical juncture. What happens in the next three months will likely determine whether the current Great Recession 2.0 continues to follow a W-shape trajectory, or drifts over an economic precipice into an economic depression. With prompt and sufficient fiscal stimulus targeting US households, minimal political instability before the November 2020 elections, and no financial instability event, it may be contained. No worse than a prolonged W-shape recovery will occur. But should the fiscal stimulus be minimal (and poorly composed), should political instability grow significantly worse, and a major financial instability event erupt in the US (or globally), then it is highly likely a descent to a bona fide economic depression will occur.”
“The prognosis for a swift economic recovery is not all that positive. Multiple forces are at work that strongly suggest the early summer economic ‘rebound’ will prove temporary and that a further decline in jobs, consumption, investment, and the economy is on the horizon.”
Up for discussion: A second wave of permanent job losses; rent evictions, child-care and education chaos; global recession and sovereign debt defaults; permanent industry transformations; the return of fiscal austerity; financial instability; and political instability.
“Like another financial-banking crash, a major political instability event—domestic or foreign—could easily send an already weak US economy struggling in the midst of a Great Recession into the abyss of the first Great Depression of the 21st century.”