Does COVID-19 Mark the Beginning of The Next Great Recession? No.

4 min read

In my previous article, I listed many global and domestic problems that were being vastly ignored by the bullish market that will eventually lead to a global recession, the next great recession. Most of the problems I noted were based on economic imbalances, caused by bubbles and environmental issues. The article listed everything that is currently going wrong that is creating stress cracks on our global economy that will eventually lead to a great recession. What the article did not list was a potential pandemic. Though I did not think of it at the time, I will explain why it still would not have made the list in my previous article.

Even having watched Contagion (yes, I too rented this movie last week to feed into the frenzy which is the Coronavirus), I still don’t see COVID-19 as a global economic threat. Even witnessing the potential threat of worldwide economic collapse that the media portrays this virus to be, to the point that it has erased nearly one-tenth of the total market value of the largest companies by market cap in a matter of weeks, I still am not convinced. The fact that this massive crisis has consumed 24-hours of news coverage, far beyond any news coverage given to most of the problems on my list, has not lessened my unworthy opinion, at least for street credibility. Believe me when I tell you, I can use some street cred in this crowded wannabe New York Times online op-ed industry. I could easily jump on the bandwagon and amend the article, but I won’t because, and I may be wrong, it just doesn’t rise to that level of something that will cause the next great recession. It’s just not a worldwide pension crisis, student loan debt crisis or global warming crisis. It is not a cliff or ticking time bomb or a building on the verge of collapse. It’s a virus. It cannot be diffused or contained by a mere change in economic policy. Much like a hurricane or wildfire, it cannot be reasoned with, taxed or voted against. And much like prior viruses, it comes, makes its impact and then goes into our history books. There is no economic cure here. It is something that has to play itself out as all past world pandemics have. There will be suffering and in the end, there will be a vaccine.

COVID-19 is a threat to us. There is no question that this is the case. It is just not an economic threat. It is a health threat that is best handled by the medical establishment with the cooperation and assistance of governments, local community leaders and corporations if possible. There is nothing the Federal Reserve can do. All anyone can do is listen to our health advisors, educate ourselves as best we can, adhere to proper hygiene and maintain safe distances from others for a couple of weeks if we are at risk of carrying the virus.

There will be fear and suffering, and there will be pain. There will be victims. It is an unfortunate truth that we are all mortals and we must accept our time when it comes, whether there is a virus outbreak or not. But for the majority of us, this virus will be an inconvenient encroachment into our daily routines. It will set us back or delay our progress in some way either at home or at work or both. It will adversely affect most small businesses in affected regions if not beyond. An unlucky few among us who actually contract the virus may have to suffer through a stubborn fever and cough as we attempt to sleep our way through this virus. For some of us, it will be much worse. We must do what we can including engaging in self-quarantine to protect our most vulnerable.

There is also no question that Coronavirus will remain with us for some time. However, much like many deadly viruses that exist in our lifetime, we will become accustomed to life around it. We will wash our hands with more constancy, we will bump elbows with each other and waving instead of shaking hands and hugging, and we will adjust to keeping our office doors open to avoid touching doorknobs. We will order in more often and we will be greeted by a bag of food waiting at our doorstep when we do order in. Some of us will even, dare I say it, learn to cook. Eventually, the smoke will clear. The headlines about Coronavirus will slowly give way to other headlines, and this will happen way before a vaccine is developed. When a vaccine is eventually developed, it won’t be the top headline news of the day. COVID-19 will go the way of the measles, chickenpox, the flu, cancer, and so many other viruses and diseases that also kill tens of thousands of people every year including the elderly and those with compromising health conditions.

If Coronavirus is not the problem here, then what caused the market, government and media reaction? The answer is fairly simple: irrational fears. As I said earlier, government and monetary policies won’t change anything. What has us at the point of near pandemic is not the virus but irrational fears. Rational fear is the loss of employment or debilitating illness. Coronavirus is neither of those. It is an irrational fear of catching something that is no worse to most of us than catching the flu. Anti-vaxxers have, for many years now, gambled their lives, their children’s lives and their communities live for not vaccinating against much deadlier viruses. For the markets, the fear here is not the unemployment rate or consumer confidence index. The unemployment rate remains at historic lows. Consumer confidence is evident more now than ever. People won’t go out to eat as much because they are spending all of that money on hundred-dollar bottles of Purell. What this means is that most Americans and most people in the workforce today are not worried about becoming unemployed. We are just worried about getting sick. This is why the market fears are unreasonable and are therefore not sustainable.

I don’t see the recent corrections in the markets as a bad thing. I mentioned in my previous article that overvalued stocks were a major problem. So we lost all of our gains in the last 12 months, we knew going into 2019 that the market was due for a major correction eventually. Now it did, and the economy is still doing well. Is today a good day to buy or sell large quantities of stock? Probably not. But it may be a good day to hold your stock or maybe buy a few stocks you’ve been wanting to add to your portfolio. This isn’t a turning point in either direction. It is a response to fear, an unknown, or better described, a poorly understood crisis. Of course, what would I know? I didn’t mention a possible pandemic in my previous article and I may be wrong not to appreciate the potential long term effects from an economic perspective.

Regardless of COVID-19’s impact on markets, I still believe these to be short-term effects and for this reason, I do not believe it will push us towards a great recession. It’s just another virus attempting to threaten our daily routines, mostly by way of fear. Our economy is strong, the jobless claims are low, interest rates are low, and consumer spending remains relatively stable. At worse, we lose a good amount of money on paper (if you don’t sell during this panic period), at best we get to buy some more stocks for a lot less money during this period of market instability. Hopefully, by this time next year, we will have completed human clinical trials and will be entering production stages. By then, most stocks will have fully recovered to normal level pre-Coronavirus, unlike a true recession which would take years for markets to recover from. A year from now, most of us will be used to life after COVID-19, and anti-vaxxers will be fighting against receiving these vaccines too. Although the world could desperately use a vaccine against Coronavirus, imagine a vaccine that could stop a much deadlier virus, fear.

Fred Romero Fred is the CEO of a prominent large New York City-based non-profit. He obtained a master's degree from Columbia University School of Social Work and a master's degree from CUNY Baruch College Zicklin School of Business.

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