Economic crisis coming up?
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  Economic crisis coming up?
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Author Topic: Economic crisis coming up?  (Read 8871 times)
Lechasseur
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« on: March 11, 2020, 03:48:42 PM »

How badly do you think Covid-19 will hit the economy?

We'll almost certainly be going into recession now, but how bad do you think it will be?
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windjammer
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« Reply #1 on: March 11, 2020, 05:11:24 PM »

Recession and then rebound, not worried about long term prospects
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pbrower2a
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« Reply #2 on: March 20, 2020, 04:32:09 AM »

CORVID-19 is the pretext. We have other factors, and something else could have caused a crash.

Realities of early February:

1. Insane price-earnings ratio.
2. Inadequate savings to keep stock prices rising (there were going to be no more new buyers if the market started down).
3. Inverted yield curve -- short-term loans more expensive than long-term loans. (Installment credit, short-term loans for plant and equipment, and cash to keep shaky entities alive get unduly expensive and make collapses possible)
4. Inadequate investment in plant and equipment that is the source of new jobs in manufacturing (but it is largely personal savings that banks lend for this purpose).
5. Corrupt, incompetent political leadership
6. Stale bull market that fosters bad business habits.

Don't be surprised to find some accounting scandals blowing up.     
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John Dule
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« Reply #3 on: March 27, 2020, 08:06:14 PM »

Does anyone else think that this impending recession will be far, far less disastrous than 2007/2008? Whereas last time the downturn came about as a result of structural problems within the economy, this time people see it as an external force affecting the market, which will do less to weaken people's faith in institutions. Also, the damage being done thus far feels largely impermanent; yes, people are losing their jobs, but many of them are being told that their job will be waiting for them once the quarantine is lifted. That did not happen in 2008, when companies cut costs by automating jobs away and outsourcing-- those jobs never came back. I could be very wrong, and this all depends upon how quickly normalcy is restored, but I think the recovery from this will be much speedier than in 2008.
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KaiserDave
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« Reply #4 on: March 27, 2020, 09:32:35 PM »

Does anyone else think that this impending recession will be far, far less disastrous than 2007/2008? Whereas last time the downturn came about as a result of structural problems within the economy, this time people see it as an external force affecting the market, which will do less to weaken people's faith in institutions. Also, the damage being done thus far feels largely impermanent; yes, people are losing their jobs, but many of them are being told that their job will be waiting for them once the quarantine is lifted. That did not happen in 2008, when companies cut costs by automating jobs away and outsourcing-- those jobs never came back. I could be very wrong, and this all depends upon how quickly normalcy is restored, but I think the recovery from this will be much speedier than in 2008.

I agree, but I think there may be structural problems in the current economy.
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brucejoel99
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« Reply #5 on: March 27, 2020, 09:33:38 PM »

The economy will likely see several waves & ripples as folks take advantage of an inherent economic upturn following this crazy valley that we're currently in, but it'll generally continue to remain rocky for a while until news from Washington is such that investors feel fully confident in putting cash back in the market. This could take anywhere from 6-18 months, but I'm leaning towards the latter. The speed at which markets return to normal will be at least partially contingent on how fast people can get back to work, which - of course - is contingent on how fast the virus itself can be contained &/or treated.
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Southern Senator North Carolina Yankee
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« Reply #6 on: March 28, 2020, 01:29:12 AM »

It comes down to time and the longer it is, the greater the threat of some unraveling be it corporate debt or otherwise.

There is also discussion of a commercial real estate collapse as well. As rents are being blocked, this could leave debtor owners of commercial property insolvent leading to a big problem.

The one upside here is most of the jobs being eliminated are service sector jobs, so barring the firms liquidation most of them should return.

I must say I agree with Pbrower's assessment of some of the underlying problems. The lack of savings and long term investments has been a general weakness in our economy that is built on heavy debt loads and spending like crazy until you hit the limit, then you get the hard crash.
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Tintrlvr
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« Reply #7 on: March 28, 2020, 11:37:04 AM »

I don't think there will be a long-term crisis, though there will obviously be a lot of short-term pain. I think by late 2021 into 2022, coronavirus will look like a distant memory, economically speaking, which is quite a contrast to how things felt in, say, 2010. I think there is some cognitive bias as a result of the last recession being very drawn out to assume that every recession results in a major long-term economic crisis, which is certainly not the case historically; most recessions of the past 100 years were very temporary events with fast rebounds on the upswing. And the fact that this is a external-shock recession rather than a financial-crisis recession strongly points to a fast rebound.
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jaichind
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« Reply #8 on: March 28, 2020, 01:38:04 PM »

https://www.bloomberg.com/news/articles/2020-03-27/one-corner-of-u-s-oil-market-has-already-seen-negative-prices

Quote
The first crude stream to turn upside down was Wyoming Asphalt Sour, a dense oil used mostly to produce paving bitumen. Mercuria Energy Group Ltd., a trading house, bid negative 19 cents per barrel in mid-March for the crude, effectively asking producers to pay for the luxury of getting rid of their output.
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John Dule
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« Reply #9 on: March 28, 2020, 02:24:00 PM »

Does anyone else think that this impending recession will be far, far less disastrous than 2007/2008? Whereas last time the downturn came about as a result of structural problems within the economy, this time people see it as an external force affecting the market, which will do less to weaken people's faith in institutions. Also, the damage being done thus far feels largely impermanent; yes, people are losing their jobs, but many of them are being told that their job will be waiting for them once the quarantine is lifted. That did not happen in 2008, when companies cut costs by automating jobs away and outsourcing-- those jobs never came back. I could be very wrong, and this all depends upon how quickly normalcy is restored, but I think the recovery from this will be much speedier than in 2008.

I agree, but I think there may be structural problems in the current economy.

I think so too, but rather than exposing them, the virus might distract from them, which could be very beneficial to those who wish to keep the status quo.
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peenie_weenie
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« Reply #10 on: March 28, 2020, 03:06:14 PM »

Also, the damage being done thus far feels largely impermanent; yes, people are losing their jobs, but many of them are being told that their job will be waiting for them once the quarantine is lifted. That did not happen in 2008, when companies cut costs by automating jobs away and outsourcing-- those jobs never came back.

I hope you're right but you can also imagine a scenario where small businesses which fail during the crisis don't come back and are replaced by larger corporate stores which were able to absorb losses and retain their workers and continue to pay rent and upkeep on their physical stores. In a situation like this, you'd see a larger supply of workers than what businesses are willing to hire as the economy comes back to life; this is not an environment favorable to labor.

It's true that this current crisis is currently limited to a shock to consumer spending which can be easily resumed. But, if the crisis goes on long enough and aid to uninsured/underpaid workers continues, this could percolate up to affect banking. For example if there's no prolonged rent relief and mortgage payment moratorium then housing may be affected which could lead to another banking crisis. This isn't guaranteed to happen but, for a prolonged enough panic, it's possible.
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jaichind
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« Reply #11 on: March 30, 2020, 08:07:49 PM »

The PRC Composite PMI for March surged back to 53.0 after calling to a record low of 28.9 in Feb which indicating an expanding manufacturing and non-manufacturing sectors. At least according to official statistics the PRC economy if coming back to life after the Feb deep freeze.

Of course April PMI numbers will be more critical as that will take into account that the rest of the world are moving into an economic lockdown which will clearly hit demand for PRC goods and services.
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Fudotei
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« Reply #12 on: April 26, 2020, 01:27:17 AM »
« Edited: April 26, 2020, 04:00:57 PM by Virginiá »

I hate to cite a lot of Raoul Pal permabull types -- but I get the feeling this kind of event could be very big for increasingly thin-margin firms who're relying on good capital availability to stay in business. In recent times we've been seeing longer growth periods with significantly worse growth margins. I don't think COVID represents a one-off event, but rather a significant end to a growth period that has been largely propped up by good monetary/fiscal conditions.

So the rebound/recovery, if you can imagine that, will probably be even slower, more funded by central banks, and more prone to populist outrages than the post-08 recovery.

(FT had a really good graph of this -- average growth rate has decreased for each period of expansion, segmented by recessions, since WW2 -- but it is unfortunately not on this computer)

If there's anything the Marxists have a point on, we're headed towards a point where the real economy just doesn't grow faster than it can be held up.

"The slowdown in long run growth in the developed economies therefore seems to have become a permanent fact of life, rather than a temporary result of the financial crash that will disappear over time. But the actual path for GDP has fallen well below even the depressed long run equilibrium path since 2009." - Gavyn Davies, FT
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