Is A Pandemic Led Economic Depression Inevitable?
COVID-19 has broken apart the financial fabric of almost all major economies in the world. So is a global economic depression inevitable?
The verdict on this question is still moot. At least it is so for conservative economists, calling the current economic crisis, “a self-imposed economic coma”.
Nicole Smith, the chief economist at Georgetown University’s Center on Education and the Workforce questions the lockdown in the US, holding that the general public is still healthy and pressing the economic pause button was unnecessary.
The other side of the political aisle also agrees and comes to the same assessment. Kimberly Amadeo from thebalance is convinced that the U.S. economy’s size makes it resilient. “It is highly unlikely that even the direst events would lead to a collapse.”, she said.
Amadeo added that if necessary, the US government can act quickly to avoid a total collapse. But economists at Harvard Business Review (HBR) offers caution.
HBR on a recent publication explained that, “The path from a deep crisis to a depression happens when the economic diagnosis is clear, and the remedies are known, but politicians stand in the path of solution. It’s a problem of willingness, more than understanding and mindsets.”
With over 6 millions confirmed cases worldwide and over 300,000+ dead, the situation does not inspire much optimism in the average person.
So what if the U.S. economy actually collapses? What happens to the rest of the world?
If the U.S. economy collapses, on an economic perspective, there will be no access to banking. Demand will exceed the supply of food, gas, and basic amenities. If we go a step further, local governments may lose all funding, meaning general public services and fundamental services (water and electricity) will be affected, or worse, be shutdown.
For the rest of the world, a broken U.S. economy can lead to global panic. The dollar will take nosedive and U.S. Treasury would collapse. Investors would run to other currencies, such as the yuan, euro, or even gold. It would create not just inflation, but hyperinflation, as the dollar would have dropped in value to other currencies.