American stock markets fell 15% in just a few days, one of the worst weeks in history for the markets. More cases of the virus are appearing in countries around the globe, many with no known connection to travel to infected countries or visits with people known to be infected.
Is this a repeat of the Spanish flu where millions were killed globally? Are we headed to a major recession, or even a repeat of the Great Depression of 1929?
That is the subject of today’s 10-minute episode.
Let’s start out with the core of what is happening: The economic damage will be widespread and will take months to resolve. But it is the very steps that need to be taken to contain the virus that are causing the economic harm. For example, China, a source of much of the world’s finished goods as well as necessary components, correctly shut down entire factories and whole cities. The same with another example country, South Korea. And both countries represent strong consumer bases, and much consumer activity in both countries has been disrupted. Some purchases, like a car or a new smartphone, will be simply postponed. Other purchases, e.g. going out to eat or to a movie, are lost forever. No one is going to double or triple up on their entertainment once the concern about the coronavirus has passed.
The needed containment measures; quarantine, travel restrictions, factory and city shutdowns, appear to be working where they have been in force for a while. For example, China reports that the number of new cases is diminishing, and factories are slowly re-opening. In other areas, the second wave of the virus if you will, the US and Europe for example, these closures and quarantines may be just beginning. Schools could be closed; sporting events played with no crowds allowed. Air travel, already restricted by regulation and personal choice, could be further reduced. Near empty restaurants, sparsely visited tourist spots, hotels reducing rates in the hopes of attracting guests. Remember: All of these must-do containment measures will cause real economic damage. But better the economic hardships than more worldwide illness and death.
Let’s take a moment to put the virus-related stock market losses into perspective. The coronavirus-related 15% decline is reminiscent of what has happened in the recent past.
- The Zika virus in 2015-6, prompted a 13% decline.
- SARS (remember SARS?) in 2003, also triggered a 13% fall.
Other points to consider:
- The US economy is fundamentally very sound, robust, in fact. There is no fear at all of something like the coronavirus revealing underlying weaknesses.
- Central Banks, including the US Federal Reserve, have announced their intention to use monetary policy authority, specifically lowering interest rates, to stimulate the economy if need be during this downturn.
Today’s Key Point: The underlying weakness in the US, our country, America, is not the economy, it is not an inadequate response to various crises, including this one. The underlying weakness is that we politicize everything; sports, the Supreme Court, successes like a good economy, Thanksgiving, threats like potential pandemics–pretty much everything.
Here is my question for you. Could we come up with dramatically better ways to handle crises, like the current coronavirus crisis, if we all worked together, rather than taking this disaster as an opportunity to score political points? In WWII, political leaders and citizens of all ideologies forgot their differences to face–and defeat–the enemy. Why can’t we do that any more? And how is it that some of the very same leaders who claim often and loudly that the coronavirus represents a near-existential threat, are the ones who are sitting on their hands while claiming that others are whistling past the graveyard.
Shame on our leaders for not buckling down, forgetting their egos and party loyalties, and working together–night and day if necessary–to do their jobs for us and the world.
And shame on us for not holding them accountable. Remember, if we want better candidates and better office holders, we must be better voters.
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Will Luden, coming to you from 7,200’ in Colorado Springs.