You Ask, I Answer: Economic Forecast For The Pandemic Recession?

In today's episode, Mike asks, Hey Chris, what is your opinion on job losses, economy shrinkage, duration, real estate values, and where that puts us in comparison to whatever the last comparable date. Oh, well, we're in uncharted territory here, is the best way to put this. We don't have great economic models for uh a situation where you're just shutting down the U.S. economy. Uh the last time we had to face any kind of pandemic that had a substantial impact on the economy was 1918.

And most of our economic data, at least the things you would use as uh economic indicators, don't go back that far. Many of our measures really stop uh around the mid-1960s. So that information, we don't have anything that we can uh use as a model. The two most recent system shocks that had uh substantial impacts on the economy were of course uh September eleventh, uh back in 2001, and we do have data uh from that time period, and the Great Recession from 2007 to 2009, which was caused by a credit market crash. And again, these are both events where they do not directly uh have the same economic underpinnings that I guess wanna we're gonna call this the pandemic recession.

Um have in the case of step September eleventh, it was a terrorist attack that uh uh really s created this massive mobilization by the US government, but day-to-day life was not impacted for the most part for most people. Uh the same is true of the Great Recession, thus the uh collapse of credit markets really caused substantial damage in the financial system and impacted uh a lot of people's retirement accounts uh and employment, but day-to-day activities were not really changed during that time period. You still went to work, you still bought groceries, you went to concerts. What we're seeing in this pandemic is, of course, unprecedented in recent history, where people are in lockdown in their homes, in their uh communities, and the ways for them to spend money are very few. Basically, groceries and online entertainment.

So we can't say with any level of authority that we know what's going to happen. Um what we can be reasonably sure of is we can be reasonably sure that um job losses will be high. Uh we know job losses, particularly in small and mid-sized businesses will be high because those companies simply cannot float the amount of uh cash needed to stay open. A restaurant has inelastic demand. Um people don't store up their demand.

I will give you an example. When if you are forbidden from going to your favorite sandwich shop for two months, when that uh restriction ends, you will not go to that sandwich shop and buy two months' worth of sandwich. You will go back to that sandwich shop and you know, maybe buy an extra one that you missed it so much, but that sandwich shop cannot recoup that demand. Uh, whereas if you're into something like the construction industry, uh demand can be deferred, right? You don't do that home improvement now or build that new addition now, but you will build that later.

Uh, and you're not gonna build five of them because you know the it doesn't have as as much um supply uh influence. So we know job losses will be high. Um the initial reports as I record this on uh the nineteenth of March uh are already up thirty-three percent uh for which is you know a substantial jump. We know the duration will be long. Um when you look at the economic data from the Great Recession, it was a relatively short system shock, and it still took two years for the recession to end, and really about another three years after that for uh you know initial jobless claims and things to come back down into a healthy territory.

Uh it took uh another two or three years for things like treasury bonds and things to recover. So realistic time frame would be after the pandemic has ended, would be anywhere from two to five years for the economy to fully recover from uh this assuming that uh you're there are not you know substantial changes to the fundamentals underneath. Uh in terms of real estate values, nobody knows. Uh again, consumers don't have money to spend, they're not going to be buying anything. Uh so you know there will be a system shock, at least until the end of the pandemic and the lockdowns and the ability for people to go to work.

Um and then economy shrinkage. Uh what we do know from simulations by Johns Hopkins University's Center for Health Security is that the pandemic they simulated, which was also a coronavirus pandemic, uh the first year was a minus eleven percent GDP planetarily, and the second year was a minus twenty-five percent uh GDP planetarily. That is a massive amount of money. You know, we're talking tens of trillions of dollars that will uh uh effectively vanish for a while until the the engine gets restarted. The economic engine that we have in our society right now is consumer-driven and it functions a lot like in some ways, like a nuclear reactor, right?

It's easy to stop it, but then it's really difficult to to get it restarted to get it up and running again. So we will need to give consumers time. They will need to have jobs and they will need income. And so our priorities are to make sure that people uh have income to spend because without that nothing else works. So when we talk about next steps, employers to the best of their ability need to be able to keep employing people.

A lot of small and mid-sized companies will go out of business and those people will need to find work and people will still need to buy and things but they will need to have money to buy things with and so the solution for this unfortunately has to come from a large part from the government because money doesn't actually exist right money is a is a theoretical construct. It's a faith-based construct that we use to make life easier but it doesn't have any intrinsic value in and of itself right you can't eat money. And so I would expect to see you revival of barter at you know at some level on a small level interpersonally among individuals and the government just needs to print a whole bunch of money. Once it does that it can then take that money back in and slowly delete it out of existence over time through taxes bringing the money supply back under control. But functionally in order for the American economy to and the world economy to emerge from this uh with anything uh that is not like outright dire consequences the government will need to print a whole bunch of money hand it to citizens to spend uh as opposed to corporations and uh let citizens spend their money once they've gotten through the the the lockdown period they can go out and they can you know pay off their debts they can go and uh they can buy stuff again it's gonna be a long time saying that now it's gonna be a long time and it's not gonna be easy for a lot of companies and a lot of people so be ready as best as you can personally and professionally uh make sure that uh you are as marketable an employee as possible if you work at a company make sure your business is as appealing a business as possible from your sales and marketing perspective so that when we do turn the consumer engine back on uh you can be as best positioned as possible for your business to benefit.

Good question there's a lot more to unpack here and there's so many more unknowns that we just don't have information for yet. We will in the days and weeks and months to come keep an eye on all those economic indicators that are important for judging the health of the economy and uh you know ask good questions. Speaking of which if you have follow up comments leave them in the comments box below. Subscribe to the YouTube channel on the newsletter and I'll talk to you soon. Take care.

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