With a few states — Florida, Georgia, South Carolina, and Tennessee — now rushing to re-open some businesses as soon as Friday, a conservative economist is warning that anyone expecting the economy to suddenly return to normal isn’t looking at the underlying factors which suggest the U.S. financial picture is headed downward.
Writing in The Bulwark, American Enterprise Institute economist Desmond Lachman notes that the “rapidly deteriorating global economic and financial market outlook” suggests there are some dark days ahead when it comes to the financial outlook. Rosy projections made by some, Lachman writes, aren’t based on reality:
“In particular, they are choosing to ignore the toxic combination of a record-high global debt-to-GDP ratio and the deepest worldwide economic recession in the post-war period. The resulting risks include a vicious return of the European sovereign debt crisis, the abrupt shift of the Chinese economy to a lower long-run growth path, and a wave of debt defaults in emerging markets.”
Lachman then uses Italy as an example of what he foresees happening across the globe:
“According to the IMF, Italy will be among the European economies hardest hit by the coronavirus epidemic and could see its GDP shrink by as much as 10 percent in 2020. Were that to occur, Italy’s public finances would become unsustainable. With a widening budget deficit, its public debt-to-GDP ratio would skyrocket to 160 percent. At the same time, the country could be headed for a banking sector crisis, with companies and households struggling ever harder to make debt payments.”
China, too, is headed for a downturn in their economy, Lachman continues. And the Chinese economy has been one of fastest-growing in the world:
“Over the past decade, China was the main engine of world economic growth and the world’s largest consumer of internationally traded commodities. A permanent long-run slowing in the Chinese economy would almost certainly have profound implications for the world economic outlook.”
The United States is also facing bad days ahead, as was evidenced this morning when it was announced that another 4.4 million Americans filed for unemployment last week, bringing the total filings over the past five weeks to 26.5 million, the largest surge since the Department of Labor began tracking such data in 1967.
All of this leads Lachman to make the following conclusion:
“Even if the virus disappeared tomorrow, the world economy and global financial markets will still be stalked by structural risks. Whether it starts sooner or later, American policymakers should plan for a slow and difficult recovery.”
Could we be facing a second Great Depression? Only time will tell, but it certainly looks like things are going to get much worse before they get better.
Featured Image Via NBC News
