Inconvenient Truths About US Debt Explosion

What are some of the effective implications? 

The great coronavirus contraction just got worse

Only a few weeks ago, I projected US second-quarter decline to be a historical -33%. Now, thanks to the COVID-19 resurgence, that contraction could be closer to -53%. 

Prior to the COVID-19 resurgence, many observers hoped that US economy had bottomed out in May, which would have kept the full-year contraction at about 5.0%. That’s no longer in the cards. In reality, the plunge could amount to -8% to -9%.

Thanks to the pandemic resurgence, US recovery is likely to prove slower than anticipated. Not only will the recovery linger, it is likely to prove more fragile than anticipated, due to concerns for new COVID-19 waves in the fall and uncertainty about when an effective vaccine, therapies, or both will be available.

Those who hoped US unemployment would remain below 8% may be frustrated. The lingering recovery may keep unemployment rate close to 9% at the year-end, and it may not return to pre-crisis levels until the end of 2023; if even then. In a downside scenario, it would remain closer to 10% in 2020 and improve more slowly. 

Despite the jobs liftoff in May, some 20 million jobs have been lost since the pandemic. Many of those jobs may be gone. And since small businesses, which have benefited from the new PPP (Paycheck Protection Program) loans, are obligated to rehire only 60% of their pre-crisis workforce, adequate incentives for full employment are missing.

Thanks to the misguided trade wars plus the coronavirus contraction, trade volumes have collapsed. In turn, a new flare-up of trade tensions – since President Trump has now ruled out a Phase 2 truce – will suppress private investment. That, in turn, will penalize business and residential investment severely 

Yet, there was nothing inevitable in the current trajectory that heralds a historical debt crisis in America. It was paved with policy mistakes and unipolar arrogance. It could be corrected with right policies and multilateral cooperation. 

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Based on Dr Steinbock’s briefing on July 10, 2020

Disclaimer: Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. ...

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