The great hope is, if the coronavirus is contained or disappears within a reasonable time-frame, we can all emerge relatively unscathed, with no significant damage to the economy or our pocketbooks
China is seeing their number of cases drop, but the virus is growing at breakneck speed in Europe and the United States. World Health Organization officials have stated that the outbreak has developed into a pandemic. It is virtually certain that the virus will eventually spread to every community throughout the world. -- (Guardian.)
Although several drugs are being tested, a vaccine to stop the spread is still at least a year away. -- (CDC)
PANIC SELLING ON WALL STREET
The panic caused by the pandemic resulted in a stock market crash on Thursday, 03/12/2020. The Dow Jones Industrial Average lost 2,352.60 points, its worst finish since 1987. It was the single, largest one-day point drop in the history of the stock market.
The Standard & Poor's 500 index plunged 9.5 percent as stocks spiraled down into a bear market — signifying a 20 percent decline from the all-time high.
On Thursday March 12th and Friday March 13th, the New York Fed made $1.5 trillion in short-term loans available on Wall Street to keep the big banks properly capitalized, avoiding the possibility of looming bankruptcies. This has resulted in the banks' abilities to continue lending to one another.
The central bank also announced it will buy $60 billion worth of Treasury bonds from March 13th through April 13th, providing the necessary liquidity to prevent a credit freeze.
The Fed's revealed actions did nothing to break the downward spiral of the markets, however. The Dow sank nearly 1,700 points, but it was the S&P 500's 7 percent slide that triggered a 15-minute break (called a circuit breaker) to stop the market free-fall and give traders time to regroup.
The Dow continued trading lower and closed at 21,200.62, a whopping 9.99 percent decline. The S&P 500 dropped 9.5 percent and the Nasdaq fell 9.4 percent.Washington Post
On the very next day (Friday, 03/13), a huge stock market rally commenced, with the Dow Jones Industrial Average up by almost 2,000 points, or 9.36%.
The reason: A $50 billion emergency relief plan unveiled by President Trump. The President declared a national emergency during the same press conference.
The Nasdaq rose more than 9% on the news, as did the S&P 500, which had its best day in 12 years.
(Deadline)
ECONOMIC OUTLOOK
It is certain that the virus, if left unchecked, will have disruptive effects on the economy.
Outside China, the outbreak has affected supply chains as other countries have taken steps to slow the spread of the virus.
This will cause disruptions in the supply of products globally, making it difficult for U.S. businesses to fill orders. Layoffs will occur in affected areas, slowing the demand for U.S. products and services.
An easing of monetary policy will not help because of historically low interest rates combined with the pandemic, which is showing no sign of slowing down.
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The Harvard Business Reviewpredicts that the brunt of the impact will occur in mid-March, forcing thousands of companies to slow down production or temporarily shut down assembly and manufacturing plants in the U.S. and Europe.
This disruption of supply chains will make it especially difficult for US multinationals to bring their goods to customers, resulting in a global reduction of exports from the U.S. in the next few months.
This is problematic because governments, businesses and households are deeper in debt now than they have been in the past. The nonfinancial corporate debt of US multinationals is currently about $10 trillion, up from $4.8 trillion in 2003.
Analysis by Deutsche Bank shows that the world's major economies possess the highest debt levels in the past 150 years, with World War II being the exception.
The high debt levels are a fixed cost, which all those affected must continue to repay regardless whether or not tax revenues, customers and jobs decline for the reasons stated above. Without some form of government intervention, this could wreak havoc upon the US economy.
Those holding significant debt will have less money to spend, exacerbating the economic decline. Central banks can't help ease the slowdown because interest rates are already very low.
If that isn't enough, as the virus spreads, many workers around the world may be unable or unwilling to work, further reducing economic activity.
There are two scenarios to consider when discerning the impact of the virus.
First, individuals will buy less goods and services than before for fear of exposure to the virus. This will result in hotels and air travel companies experiencing major slowdowns. It will also cause less demand for products sold by food and beverage companies.
As the virus spreads, Americans will worry about keeping their jobs as well as their 401K retirement packages. This will drive them to further cut back on their spending.
Second, when businesses are forced to close, workers will receive either less money or no money at all, resulting in softer demand for all kinds of products and services.
The two scenarios, when combined, constitute a one-two punch that will contract economic activity, although the degree of the slowdown is uncertain. (American Progress)
Since consumer spending is 70 % of GDP, we could soon be facing a severe recession. (The Balance)
The great hope is, if the coronavirus is contained or disappears within a reasonable time-frame, we can all emerge relatively unscathed, with no significant damage to the economy or our pocketbooks.
