Pandemic threatens to unleash economic chaos

Pandemic threatens to unleash economic chaos
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The chaos wrought by the coronavirus pandemic has thrust the U.S. economy into an unprecedented downturn with no clear end in sight.

In less than two months, the U.S. has gone from enjoying a record-breaking stretch of economic growth to bracing for a deep recession driven by the near total shutdown of entire industries. 

Thousands of workers across the country have been laid off as businesses forced to close during the pandemic struggle to stay afloat.


The unemployment rate is feared to spike from half-century lows to levels not seen since the Great Depression, leaving millions of Americans without work and states struggling to overcome sudden budget shortfalls.

Unlike past recessions driven by a chain of events that derailed the economy, the coronavirus crisis has forced the U.S. to suspend the longest expansion in modern history to prevent a widespread loss of life.

“The economy is in a medically induced coma,” said Daniel Alpert, managing partner of investment firm Westwood Capital, who estimates that 37 million Americans may be vulnerable to layoffs. 

“The world has effectively come to an abrupt halt,” he said.

Claims for unemployment benefits rose sharply this week and will likely soar as businesses lay off workers. Consumer spending, which drives roughly two-thirds of the U.S. economic growth, is expected to plummet as a country with fewer jobs earns less money to spend at a dwindling number of open businesses.

While economists are hopeful that the pandemic recedes soon enough to allow an end-of-year rally, economists at Goldman Sachs warn U.S. gross domestic product (GDP) could fall by up to 24 percent annualized in the second quarter of 2020.


Public health officials have implored Americans to practice strict social distancing practices that have left restaurants, bars, retail stores, hotels, and thousands of small and midsize businesses vacant and teetering on collapse.

“It's just a remarkable decline in consumption, the likes of which I don't think we've ever seen," said Constance Hunter, chief economist at audit and consulting firm KPMG. “This is really, truly unprecedented.”

Hunter compared the impact of the widespread social withdrawal and steep decline in air travel to the aftermath of the Sept. 11, 2001, terrorist attacks, but one that spread across the world.

“You had a fall in air travel, but all over the rest of the country, and obviously over the rest of the world, you had people going out and living their normal lives. So imagine taking 9/11, multiplying it by a huge factor,” Hunter said.

The sudden evaporation of global economic activity has sent panic through financial markets, leading to steep falls in the stock market and causing a sell-off of Treasury bonds, high-rated corporate bonds, and a wide array of investment products seen as safe havens in times of turmoil.

All three major U.S. stock indexes have crashed nearly 30 percent from record highs set barely a month ago, forcing the Dow Jones Industrial Average below 20,000 points for the first time since Trump’s January 2017 inauguration.

Trump has sought to reassure Americans that a quick economic rebound is waiting on the other side of the pandemic. The president had depended on a strong U.S. economy to clear a path reelection, but the emergence of the pandemic and the recession it is expected to cause poses steep political risks.

"I think there's a tremendous pent-up demand both in terms of the stock market and in terms of the economy," Trump said Monday. "Once this goes away, once it goes through and we're done with it, I think you're going to see a tremendous surge."

Until then, Trump and lawmakers are scrambling to pass a massive economic rescue plan to help stave off a potential stream of layoffs and bankruptcies that could deepen the toll of the pandemic. 

Senate Republicans proposed a $1 trillion stimulus bill that includes direct payments for all U.S. adults making less than $100,000, loans for small and mid-size businesses that will be forgiven if used to pay workers and rent, and bailouts for industries such as airlines and hotels that could collapse amid the pandemic.

The Federal Reserve has also taken aggressive steps to stabilize financial markets and given banks additional cash to keep credit flowing. The central bank has slashed its baseline interest rate range to zero percent, announced it would purchase hundreds of billions of dollars in bonds and securities, and ramped offerings of short-term loans to help spur a bond market crucial to the global credit markets.

Economists broadly agree that the best tool to dig the U.S. out of recession is bolstering the medical response that allows Americans to emerge from isolation as soon as public health officials deem it safe. While the economic toll of social distancing is stark, economists say failing to mitigate the pandemic’s spread would be far costlier in the long run.

“This is a situation where physically, people cannot move. If you were simply talking about, you know, turning over the economy to fight a war, that’s easy. Rosie the Riveter would come out and rivet planes together,” Alpert said.

“The fact is," he added, "Rosie the Riveter is sitting at home sick or fearful of getting sick.”