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Covid 19

Economic Scenarios for the Effect of Coronavirus on the US

The infection rates in the United States are increasing at an alarming rate. There is no doubt that the whole world is now well aware of the seriousness of the situation, but the price of reacting too late is a heavy cross to bear. Both governments and people are in a state of panic because no matter how ready and prepared a country might be, a pandemic can overwhelm the system completely from the inside.

The invisible COVID-19 health threat is proving to be a hard foe for the US economy, with an unprecedented magnitude of destruction. While it is still far too early to predict what the market and the economy will look like in the future, the irreversible damage that is already happening makes it hard to be optimistic. The United States is being put into a headlock by the volatility of the pandemic, casting a similar shadow that resembles the silhouette of the 2008 major financial and economic crisis.

Many scenarios are springing forward as the superpower tries to anticipate the far-reaching impact of this global outbreak, but not all of them are quite viable. As such, it is important to try and closely monitor the financial pulse of the United States, to be able to narrow the endless list of possible catastrophe scenarios down to realistic expectations.

Progression of the Reaction to the Pandemic

With the US reigning at the very top of the list of the total number of infections from Coronavirus, the situation is looking grimmer than ever, especially in light of the rapid and exponential growth of the contamination. The latest projections show a relatively high death toll estimate by the end of the year; the US is trying to find a way to keep these forecasts from becoming facts. The initial, almost nonchalant attitude toward the gravity of the pandemic has fast-tracked the country onto a path that will entail fiercer and more aggressive social and economic government-enforced counter-responses. The closing down of schools, venues, gatherings, as well as other physical and social distancing prevention measures were the first steps in the more serious plan to tackle the Coronavirus crisis head-on.

The federal infrastructure of the US is making it harder for the country to impose national restrictions, such as lockdowns and interstate travel bans. The diverging reactions across different states is not helping either, especially with citizens still able and free to travel from one area to another with minimal restrictions. By the time all states shut down their schools, universities, and other public gathering venues, the number of infected individuals had already skyrocketed. The initial government-imposed restrictions on social and economic levels were expected to end earlier than anyone thought. However, it didn’t take more than a few days to prove that lifting those restrictions at the present time can mean very serious trouble. As a result, we will be witnessing an increased duration of the restrictions until at least the end of April. Projects show this could ultimately continue into June and even into July.
The federal government managed a nation-wide response by closing the borders and prohibiting arrivals from many countries. And yet, this is still not enough; the federalist system will not allow the President to forbid interstate travel since only Congress has the constitutional powers to impose such a restriction. While the sovereignty of the states and the federalist system have produced wonders throughout the history of the US, it is now directly challenged by the Coronavirus outbreak.

The Centers for Disease Control and Infection, a federal executive body, has, in reality, very little power on banning interstate travel, in addition to restrictions on enforcing state-wide quarantines. Even the President, the highest executive power in the nation, is completely out of cards to play as far as having direct authority over imposing or withdrawing infection control regulations, like quarantining and interstate travel bans. The governors of each state that have the power to do so are also trying to find a way to bypass constitutional and political safeguards that were put in place. In addition, the American public is very reluctant to cooperate because they aren’t willing to give up their rights to the government.

The Mirror Scenario with China

Big countries like the US and China resemble very big well-oiled machines capable of producing miraculous financial wonders when they are left to achieve their potential. The problem with machines is that the bigger they grow, the harder it is to awaken them from slumber. Wall Street was utterly in the dark about the pandemic, and investors were getting used to the fact that there were no limits to market funds. The pandemic tore through even the most pessimistic earlier predictions about major negative impacts on stocks and investments like butter. The estimated drop in US gross domestic product is unprecedented, even by the 2008 financial crisis’ measures.

In contrast, China has been battling with the COVID-19 pandemic earlier than any other country, deploying its best efforts to mitigate the economic wreckage as much as humanly possible. The West is basically using similar containment tactics, but the heavy authoritarian rule was bound to crack its whips in the fight during the initial phase more efficiently. Still, economic stagnation in China was still inevitable. The industrial, service and manufacturing productions have taken on very serious damage during the last two months. Real estate and retail services have been disrupted to a point where predictions on where things will go from there now seem like fiction.

The US may have it easier when it comes to restarting the industrial sector because there is no need for millions of migrant workers to return to factories to initiate the recovery. That said, having a reduced supply shock does not necessarily mean the recovery will go smoothly. The absence of both nation-wide quarantine and proper medical care for millions across the country can mean that people will not be easily swayed into staying at home, causing the virus to spread even further. The gradual disappearance of expenditures on sporting events, flights, and various other powerful economic sectors can disrupt the economy even more than it could in China.

Short-Term Recession

The approval of a massive stimulus relief package by Congress and the president has helped reinject a lot of money into people’s pockets at a very dire time, even though the package is nowhere near enough to jolt the economy back into gear. While the extra cash reduces the financial burden for millions of Americans, consumer spending, the major economic activity in the US, will receive the brunt of the damage from the pandemic. The wave of layoffs was quite predictable in lieu of the sudden halt in consumer activity, causing unemployment rates to soar. The negative impact on all industries can quickly instill a state of recession into the economy.

The supply and demand shocks from halted business activities will most likely cause a recession, which can also be forecasted from the anxious dynamics of investors in the bond market. The Federal Reserve’s emergency meeting in response to the impact of the Coronavirus on the economy has yielded favorable results. Impressive interest rate cuts were presented by the Federal Reserve, in addition to the unprecedented reduction of the yield on 10-Year Treasury Notes. The emergency leave package issued by the government will also boost the economy, helping in the coverage of paid emergency leave for many Americans.

While interest rate cuts and stimulus relief packages are quite useful in the battle against the pandemic, it is not enough to keep recession at bay. The fortunate scenario will be the ripening of an economic rebound pad that would take very little time to get the economy back on its legs. Many believe that a lot of stocks that are clocking all-time lows will eventually bounce back to all-time highs. The slashes on long-term interest rates are believed to be the key; in this scenario, that will allow the US economy to beat the recession within a few months.

Unemployment Spirals Out of Control

The record-breaking mass filing for unemployment in the last few weeks has proven to be one of the great challenges the American government must face. The effectiveness of the government in controlling and limiting layoffs and containing unemployment rates will determine whether or not the lack of jobs becomes the catalyst for another Great Depression. Numerous businesses are shutting down completely, while the ones still in operation are reducing their working staff with each passing day. Unemployment benefits claims are rising unstoppably as the number of laid-off workers keeps skyrocketing.

While the influx of jobless claims is gradually thinning after the stimulus package was signed, is it still a threat that is moving quickly. The numbers of claims are piling up to such an extent that officials are blocking the release of daily figures, particularly after the labor department’s shocking release of the numbers. The majority of layoffs belonged to the retailing and service industries, as these sectors are responsible for the employment of a large segment of the labor force in the US. Unemployment rates are bound to come back to normal, but this is the price that must be paid for years to come and which will make it even harder for millions of Americans to relinquish their original lifestyles.

The popular opinion according to which workers need to return to work as soon as possible—held by a lot of public officials and business owners—is highly disputed by health experts and economists, because it is seen as a hasty step that will only make matters worse by diverting people’s focus from preventative measures to unsafe conduction of business. Even if the employment rates start rising again, many people who lost their specialized and high-paying jobs won’t ever be able to return to them. This will result in serious discrepancies between job and skill availability, also known as structural unemployment. It is still too early to predict the fate of millions of workers in the US, but judging from earlier projections, the scenario’s likelihood of happening increases each day.

A Battle of Endurance

These couple of weeks are critical in determining whether the spread of the virus will grow out of control. The likelihood of this scenario taking place in the US is higher than in many other countries, due to the fundamentally different approach practiced by the White House. The constricted reaction of the government to the pandemic caused by the federalist non-hierarchical governance model can limit the ability of health officials and policymakers to take prompt and decisive actions that can safeguard the economy. All eyes are now on the exponential increase of infected cases, knowing that it may take some time to transition into linear or reverted growth. If the problem persists beyond everyone’s anticipation, irreparable damage will tear through consumers and business supply chains alike.

The continually diminishing confidence of investors and consumers in the economy will start producing echoing effects, known as “second-round” effects. This second wave can cause a major shutdown of many businesses that were clinging onto the temporality of the situation by staving off laydowns to start laying off more workers, knotting the circulation of money. The Federal Reserve’s recent boost with stimulus packages is already starting to cause it to slowly bleed, reducing the chances of reviving the economy. The lack of liquidity compounded by people’s unwillingness to spend can throw a wrench into the economy’s well-oiled gears.

Invariably, the unreliability of forecasts shown in unemployment and infection control projections makes it hard to accurately predict the true proportions of the impact of Coronavirus on the economy. The government, businesses, and people are locked down into a battle of endurance with the pandemic to flatten the curve. The longer the battle, the more dramatic its aftermath is likely to be.

The lack of an instantly uplifting note throughout most of these potential scenarios can cause a great deal of anxiety across the board. After all, the world has suddenly stopped, with many people holding their breath waiting for the right time to pop their heads out of the water. The fast and unexpected spread of the pandemic is expanding the list of variables the government has to deal with. The US economy is being dealt with one of the worst hands in recent history, as the true repercussions of the COVID-19 outbreak are gradually being felt. Ultimately, whether the US economy gets back on its feet quickly or is pushed into a long-lasting recession, a strong and united front will eventually overcome the most difficult of circumstances.