What is Actually Going on Right now!
We are seeing a slowdown in economic activity across the board. And it’s worse in some areas — travel, live events, some energy companies — than others. People aren't participating in the economy as much because they are staying put due to the coronavirus. That slows down the economy, and corporate profits. There are some assets that do well when economic growth is better than expected, like stocks and oil. Those have been decreasing in value. Meanwhile, bonds, which often do well when the economy is struggling, have by and large been doing well.
Businesses will suffer. Weaker businesses will suffer more.
The government’s response is crucial. Most importantly for public health, but also to make sure the financial crisis doesn’t become bigger than it needs to be.
Financially, the government can step in to help the sectors most affected by the virus, for example by supporting municipalities that can't run deficits but need to provide a lot of services, or guaranteeing financing to affected companies. The government can also give people money directly by writing everybody a cheque or using the tax system to deposit money in everybody's accounts, which will help maintain spending, which in turn fuels the economy. Offering things like paid sick leave for workers who might be unwilling to take off work even if they're sick would help prevent the spread of the virus and provide stimulus.
And to keep the system from teetering, what you want to see is by and large what we are seeing: central banks providing a lot of liquidity and making sure the banking system works. On this last dimension, we are in better shape than we were 10 years ago. While some businesses will fail, the banks are looking relatively strong.
In the long run, as long as this doesn't become a banking crisis, and I haven't seen any indication that is on the horizon, you would expect to see a rebound in economic activity and asset values once this plays out.
At the moment, it is best to stay safe !
We are seeing a slowdown in economic activity across the board. And it’s worse in some areas — travel, live events, some energy companies — than others. People aren't participating in the economy as much because they are staying put due to the coronavirus. That slows down the economy, and corporate profits. There are some assets that do well when economic growth is better than expected, like stocks and oil. Those have been decreasing in value. Meanwhile, bonds, which often do well when the economy is struggling, have by and large been doing well.
Businesses will suffer. Weaker businesses will suffer more.
The government’s response is crucial. Most importantly for public health, but also to make sure the financial crisis doesn’t become bigger than it needs to be.
Financially, the government can step in to help the sectors most affected by the virus, for example by supporting municipalities that can't run deficits but need to provide a lot of services, or guaranteeing financing to affected companies. The government can also give people money directly by writing everybody a cheque or using the tax system to deposit money in everybody's accounts, which will help maintain spending, which in turn fuels the economy. Offering things like paid sick leave for workers who might be unwilling to take off work even if they're sick would help prevent the spread of the virus and provide stimulus.
And to keep the system from teetering, what you want to see is by and large what we are seeing: central banks providing a lot of liquidity and making sure the banking system works. On this last dimension, we are in better shape than we were 10 years ago. While some businesses will fail, the banks are looking relatively strong.
In the long run, as long as this doesn't become a banking crisis, and I haven't seen any indication that is on the horizon, you would expect to see a rebound in economic activity and asset values once this plays out.
At the moment, it is best to stay safe !
Learn more by clicking on the links below !
|
|