“The possibility of a ‘Great Depression’ cannot be ruled out…”: Zhu Jun, director of the international department of the People’s Bank of China: SCMP

(image courtesy of pixabay.com and Gerd Altmann)

The economy has suddenly shut down due to the “social distancing” rules enforced on over 90% of the US population.  Ten million people succeeded in applying for unemployment over the last two weeks, even though the lines were jammed by an enormous influx of applications.  The stock market is in bear territory.  The South China Morning Post (SCMP) reports that a People’s Bank of China official is warning of the possibility of a new “Great Depression” worse than that which occurred starting in 1929.

The only thing that will prevent a depression now is the application of economic stimuli by our Treasury and the levers of government, which are capable of borrowing vast amounts of money.  Over $2 trillion has already been legislated, and more is under contemplation by the House.  Those who suffer the most from the economic consequences of sudden cancellation of all public events will be the homeless and the unemployed.  Here’s hoping that the economic stimulus won’t flow to stock buybacks and CEO compensation, as it did when the last downturn happened twelve years ago.

If not for government action to support the economy (the next step is the infrastructure programs which have been talked about for over three years) then, by the time a vaccine becomes widely available (in twelve to eighteen months) the world will already be in depression.