New York, 1930: Mounted police disperse a demonstration by unemployed workers at Union square. Photo: AFP / Library of Congress

What the world is going through could be a two-year ordeal, worse than the Great Recession of 2008 and approaching the Depression of the 1930s.

On February 24 a friend sent me an article that quoted Harvard epidemiology professor Marc Lipsitch: “I think the likely outcome is that it will ultimately not be containable.” On that date the number of confirmed Covid-19 cases was 45 in the US.

The article in a nutshell: You can get the virus and carry on without symptoms. Even while you’re asymptomatic, the virus can be highly contagious. Most infected individuals will be only moderately ill, but some will die.

This is a Goldilocks virus: not too lethal to bring down vast numbers of carriers (think Ebola), but lethal enough to kill (ten times more than the common flu).

People cannot work in such a world. Cities will have to shut down and they are doing so. People not working means global income will be crushed and so will global production.

After reading Dr. Lipsitch’s analysis, I wrote my friend this meant we were headed into a recession, the markets would plummet and the 2020 Olympics would be canceled. That was then. 

On March 27, 3.3 million Americans filed for unemployment compared with 211,000 the week before. On that day the Johns Hopkins Coronavirus Resource Center reported 85,996 Covid-19 cases in the US and 2,401 deaths around the world.

That is equivalent to ten wide-body jets crashing every day. And we are only looking at the first wave of Covid 19.

“A pandemic will last 18 months or longer and could include multiple waves of illness,” says the US Government Covid-19 Response Plan, dated March 13, 2020. What could that possibly mean?

We don’t know. “We do not make the timeline, the virus makes the timeline,” as the head US epidemiologist Dr. Anthony Fauci famously said.

So we can only assume and speculate about reality. 

On March 30 in the real world there were 721,584 confirmed cases, 149,122 recoveries and 33,957 deaths, the Johns Hopkins notes.

The daily increase is currently around 70,000 new cases. If this rate should be sustained, there would be over two million new cases in one month. But we know these rates move either exponentially up or exponentially down.

There is hope warmer weather may lead to a deceleration. But of course when it gets warm in the northern hemisphere, the weather cools in the southern.

In the meantime, the global economy is decelerating fast. This is what mega US investment bank Goldman Sachs had to say on March 20:

“We expect declines in services consumption, manufacturing activity and building investment to lower the level of GDP in April by nearly 10%, a drag that we expect to fade only gradually in later months.

We now forecast quarter-on-quarter annualized growth rates of -6% in Q1, -24% in Q2, +12% in Q3, and +10% in Q4, leaving full-year growth at -3.8% on an annual average basis and -3.1% on a Q4/Q4 basis.”

We do not know all the assumptions built into Goldman’s model. Warm weather effect? Second wave coming? Vaccine to the rescue?

But a 24% contraction in the US economy should be joined by similar contractions in Europe, Japan and around the world. A sharp recovery in the July-September third quarter depends much on the underlying strength of the global economy. 

The US has been sliding on thin ice these several years. Total corporate debt has surged past $10 trillion or equal to half the nation’s output. Many of the bonds are BBB rated and likely to drop below investment grade.

Half of small businesses in the US cannot survive a three-month shutdown and 40% of households cannot meet a $400 emergency without borrowing.

The pandemic is slamming the US following a legacy of low interest rates that had deepened corporate dependence on debt, as well as widening income inequality that had weakened household finance. And after the needs of the nation’s heath care system had been pretty much placed on hold.

The economic consequences of such a path could be hugely consequential. I am not an epidemiologist, just a worn-out financial analyst – and we wear out fast because we claim to know too much too often. But I think this could be worse than the 2008 Great Recession.

A retired Tokyo-based analyst for a major US investment bank, Matt Aizawa now crunches numbers beside a lake north of the city.

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