Turn the key and the economy will restart.
That’s a myth a lot of people in the mainstream have peddled since governments started shutting down the economy in response to the coronavirus pandemic.
That’s not going to happen. We’re not going back to normal.
In fact, things weren’t “normal” before the pandemic.
As Peter Schiff has been saying, too many mainstream pundits and prognosticators have focused exclusively on the pin and ignored the economic bubble that it popped. They argue that since the economic damage due to the COVID-19 shutdowns was self-inflicted, it’s not a real recession. It’s not a real economic collapse. It’s not that businesses are closing because the economy is bad. We just decided to shut them down. Therefore, we can just decide to open everything back up and everything will be fine. But as Schiff said, it’s not that simple.
What matters is that we got a wound. Look, if I grab a knife and I stab myself in the chest, I’m not OK because the wound is self-inflicted. … It doesn’t matter how I got stabbed. What matters is I have a knife in my chest and I’m bleeding. So, I can’t just ignore the wound because I was dumb enough to stab myself.”
I’ve been saying the same thing for weeks. The economy doesn’t stop and start on a dime. Just because Donald Trump snaps his fingers and says, “Go!” doesn’t mean that the crisis ends. The economic damage done to the economy by that knife is deep. In fact, the economy was already suffering from multiple knife wounds long before COVID-19 reared its ugly head.
It appears some people in the mainstream are starting to wake up to reality — sort of. Reuters recently ran an article headlined “With confidence shattered, the road to a ‘normal’ US economy looks long.”
The writer points out that the 9/11 attacks shut down airlines for three days. It took three years for the industry to recover. After the housing crash, it took five years before the balance between builders and buyers was healthy enough to revive the construction industry.
And the economic damage already inflicted by the government shutdown is staggering.
In just three weeks, 10% of the US labor force filed for unemployment. Another 5.2 million Americans filed jobless claims this week, bringing the four-week total to nearly 22 million people.
Meanwhile, US manufacturing output hit its lowest level since 1946. Factory production dropped at a 7.1% annualized rate in Q1 2020. That’s the sharpest decline since the first quarter of 2009. A separate survey showed New York state manufacturing activity plunged to its lowest level in the history of the survey.
And retail sales plummeted 8.7% in March. That means we’re about to see the biggest plunge in consumer spending in decades.
Those self-inflicted wounds can kill.
The Reuters’ columnist said we can’t expect consumers to just snap back to normal when the government begins lifting the coronavirus meltdown. As he put it, when public behavior suffers a shock, it’s slow to recover.
There is no doubt that this downturn will be historic in depth. But the nature of the event behind it is the core hurdle to an economic restart: A health crisis that has killed more than 28,000 people in the country, according to a Reuters tally, and has left fear and confusion in its wake. Behavioral economists note that even much smaller shocks to how people perceive the world can cause lasting effects in how they behave.”
Schiff pointed out that this will be a wakeup call for a lot of people that will also shift behavior. They will realize they need to have savings. They almost certainly won’t just jump in and start spending again.
Source: Michael Maharrey | SchiffGold
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