I discussed the problem of maintaining liquidity in the face of what has become a national financial meltdown on this blog about a week ago. (LINK)
Economics aren’t based on the casting of runes (usually). If people stop spending money, the economy will compress, causing a recession and that’s where this economy seems to be heading.
The S&P 500 plunged 8.1 percent at the opening bell to 2,490.47, stopping trading for the third time since last week. The index triggered a so-called circuit breaker that halts trading for 15 minutes if it falls at least 7 percent.
The Dow Jones industrial average plummeted 2,250.46 points, or 9.7 percent, before trading stopped while the Nasdaq composite plunged 6.1 percent.
The massive drops came after the Fed slashed its benchmark interest rate to near zero on Sunday — a move that suggests the central bank is bracing for a recession. And the recession will come even if Congress is able to pass a sort of Plague bail out. As people stop going out to eat, stop buying cars and durable goods, stop attending public entertainment events, etc. the economy will become worse.
It all revolves around the perception of consumer spending in the face of the Chinese Plague.
I realize that many people who read this blog are concerned, justifiably, by massive government debt, that’s about to become a lot more massive. As financial systems are stressed and the companies that employ people consider laying off, a recession is inevitable. The question is how long it will last and how deep it will go.
My consulting business has dropped to zero. The projects in Greece are delayed, but some of them are likely to be approved as they are part of national survival. But it will be much slower coming since that country is as shut down as Italy and Spain are. The national security related matters that we’re working on are paused because all activity has stopped as people try to assess what the new normal will be. My business in China stopped two months ago when that place went into free fall. The relationships between nations are being re-examined and while that would usually be great for me, and may end up working out, it’s all on hold. And that is emblematic of the world right now. We’ve never had to deal with the release of a “novel” or “weaponized” virus before.
A lot of people are waiting for the next shoe to drop.
I expect that Congress will come up with some sort of infrastructure bill even though the Democrats hate President Trump. It will mean a lot of porkbarrel spending, but if managed well, it might be able to turn the economy around more quickly than would happen if that didn’t happen.