America is on the brink of a depression that could last for decades. History shows the Coronavirus Depression could last for a decade or longer.
Data reveals the Coronavirus Depression has begun. America’s Gross Domestic Product (GDP) shrank by 32.9% in 2nd Quarter 2020, the US Bureau of Economic Analysis (BEA) estimates.
National Public Radio (NPR) estimates the GDP drop is the worst ever recorded. In fact, NPR claims the 2nd Quarter 2020 GDP drop was almost four times bigger than the worst quarter on record. To elaborate, the previous record GDP fall was 10% in 1958.
Thus, the United States is facing its greatest economic crisis since before World War II. To elaborate, NPR reports, America’s economy shrank by 9.5% between 2nd Quarter 2019 and 2nd Quarter 2020.
Depression Level Unemployment
The United States faces levels of unemployment that rival or exceed those of the Great Depression. For example, CNBC estimates 33 million Americans were receiving jobless benefits on June 20, 2020.
Frighteningly, 1.25 million to 1.5 million people filed initial unemployment insurance claims in the third week of July 2020, USA Today estimates. Those numbers are down from the 6.9 million filers in March, but still high.
Disgustingly, 23.9 million Americans admitted they could not afford food on 21 July 2020, the US Census Bureau estimates. Moreover, Bloomberg claims the number of American households facing food insecurity (hunger)was almost 30 million on 21 July 2020.
Disturbingly, over 25 million American workers will lose their $600 a week in unemployment insurance when the Federal CARES Act expires at the end of July 2020, USA Today estimates. That could make depress the economy further because 25 million people will have less money to spend.
The Coronvirus Depression could decimate the Middle Class
Moreover, job losses could continue for years. Advertising agencies alone could shed 52,000 jobs in 2020 and 2021, The New York Times estimates. Advertising job losses are frightening because advertising is a high paid professional niche of work.
Ad men and women are not the only middle-class professionals facing unemployment. United Airlines (NASDAQ: UAL) could eliminate 36,000 employees in October, The Chicago Tribune claims. Those laid off could include 2,250 pilots, 15,000 flight attendants, 11,000 customer service workers, and 5,500 maintenance workers.
United will be forced to furlough almost half its workforce if it loses a federal subsidy the CARES Act created. United is not alone, American Airlines (NASDAQ: AAL) could eliminate 25,000 jobs, when the CARES Act ends, USA Today claims . Thus I estimate just two companies could eliminate 61,000 middle-class jobs in October.
Consequently, the Coronavirus Depression could devastate the Middle Class. Millions of middle-class professionals could find themselves unemployed or working menial jobs. For example, a former airline pilot could deliver pizzas.
I think mass middle-class unemployment is a recipe for political unrest and possibly violence. Historically, it is the middle class, not the workers who lead revolutions.
The Coronavirus Depression could last for a long time
We need to be scared because history shows depressions can last for a long time. Some economists think the so-called Long Depression of the late 19th Century lasted for 23 years.
TS Lombard Economist Dario Perkins thinks the Long Depression lasted from 1873 to 1896. Other economists think the Long Depression only lasted for six years, from 1873 to 1879. Thus, the United States could face several years of suffering under the best-case scenario.
Similarly, the Great Depression lasted for around 12 years from 1929 to 1941. In fact, America’s 1939 unemployment rate of 17.2% was worse than the 1931 unemployment rate of 15.9%, The Balance estimates. Moreover, the 1941 U.S. unemployment rate of 9.9% was higher than the 1930 rate of 8.7%.
Thus, Great Depression level unemployment could linger for years. Plus, we could be at a Great Depression level of unemployment now. The US Bureau of Labor Statistics estimates the June 2020 unemployment rate at 11.1%. Higher than the 1930 unemployment rate of 8.7%.
Can we spend our Way out of a Coronavirus Depression?
Hence, if you judge by unemployment, we are in depression. Disturbingly, it could take an extraordinary event to end the Coronavirus Depression. Remember, it took World War II and unlimited federal spending on weapons to end the Great Depression.
Investors and others need to understand this situation because history shows the Coronavirus Depression could last for several years. Plus, government could make the situation worse by refusing to spend money.
US unemployment fell from 14.6% in 1940 to 2.2% in 1945 because of World War II spending, The Balance estimates. Therefore, we could need massive amounts of government spending to get out of depression.
Is Ending the Coronavirus Depression Politically Impossible?
Unfortunately, such spending could be politically impossible in today’s America. Republicans, in particular, are hostile to any spending that does not involve weapons or corporate bailouts.
For instance, U.S. Senator Chuck Grassley (R-Iowa) believes unemployment insurance is paying people not to work, Route Fifty reports. Notably, Grassley is the chairman of the US Senate Finance Committee.
Thus, one of America’s two dominant political parties opposes the spending necessary to end a depression. Instead, the Republicans hope the economy could recover from a depression on its own.
Frighteningly, that is the same strategy an earlier Republican President Herbert Hoover (R-California) tried the early years of the Great Depression. Under Hoover, the US unemployment rate rose from 3.2% in 1929 to 24.9% in 1933. Moreover, The Balance estimates the US Gross Domestic Product (GDP) fell by 8.5% in 1930, 6.4% in 1931, and 12.9% in 1932 the last year of Hoover’s presidency.
Under Hoover’s free-spending successor, Franklin D. Roosevelt (D-New York) the US GDP grew by 10.8% in 1934, 8.9% in 1935, and 12.9% in 1936. However, the US GDP shrank by -3.3% in 1938 when FDR traded his New Deal for balancing the budget.
Therefore, America’s best hope to escape a coronavirus depression that could last for a decade is to spend, spend, and spend some more. Yet ironically, we have politicians afraid to spend.
Everybody needs to prepare for a Coronavirus Depression that could last for years.
Originally published at https://marketmadhouse.com on July 31, 2020.