Congress’ Lack Of Action Threatens Another Great Depression

The global economy is again in the grip of a financial crisis and economic contraction of unknown depth and duration.

In 2008, reckless behavior in financial markets — subprime mortgage lending — undid the real economy, whereas this time the equivalent of a natural disaster is panicking investors and businesses.

As COVID-19 shut down Chinese manufacturing, inventories kept U.S. store shelves stocked and factories that rely on Chinese components operating. However, as the virus invaded the United States investors became fearful of business closures here.

The stock market slid into a bear market because when investors buy shares they are betting on future corporate earnings. They could not evaluate how quickly the epidemic in America would spread, and how long it would last and businesses would be shut down.

Federal Reserve interest rate cuts could do nothing to ensure imports from China resumed or halt the spread of COVID-19 in America. Successive waves of bad news about the contagion have pushed markets sharply lower after brief, insincere rallies — with good reason.

Many restaurants, schools, factories, and retailers are now closed, and heathy folks are working from home and not traveling. What began as a potential supply-side crisis — a shortage of Chinese products and components — is now at least a Keynesian recession: Consumers are not spending.

While some businesses are experiencing surges — medical supply manufacturers and Walmart from panic buying for household supplies — many more are laying off workers.

Unite Here represents 300,000 employees in hospitality, restaurants, airports and other industries. It estimates 80 percent to 90 percent of those will be laid off. State unemployment offices are seeing overwhelming surges in new claims.

Businesses facing declining sales and losses became desperate to fortify cash balances and ran down lines of credit. They sold Treasuries and other securities usually held for liquidity. That cratered stocks, bond, and commodity markets — and pressured lending limits of banks and threatened money market funds, which also provide short-term credit to businesses.

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Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster ...

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