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With businesses shuttering, professional sports leagues suspending their seasons and widespread travel restrictions initiated around the world, the economic fallout from the new coronavirus outbreak may continue for months. Vijay Vaitheeswaran, U.S.business editor for The Economist, joins Hari Sreenivasan for more on the financial impact of the virus.
The economic fallout from the new coronavirus outbreak is worldwide and may continue for months. Joining us now via Skype is the U.S. Business Editor for The Economist, Vijay Vaitheeswaran. You know, our first priority is obviously to think about the health stories and what's happening on the ground. But then when we see the impacts, when the businesses start to close, when the airplanes are flying less, there's a ripple effect here. How're we going to feel this?
This is an unprecedented crisis, because it's a double whammy. We have both supply and demand hiy at the same time, which was not, for example, the case with the global financial crisis. And at the same time as the health crisis is unfolding, we also had an oil shock, a global oil shock. And so this is posing unusual challenges for governments as we respond. In terms of the likely implications, I have bad news and good news. The bad news is the markets are obviously in deep distress. We can see from the financial markets and stocks that this is going to affect the real economy in terms of companies, especially small and medium businesses. We're headed for a cash crunch. J.P. Morgan is already calling a recession, two quarters of declines in economic growth. So that's the bad news. But the good news is it may be a brief recession, if indeed that's what happens. Maybe just two quarters with a little impact on employment and maybe even a bounce back or a sharp bounce back when demand rebounds… If government responds aggressively.
This last week, the Fed, which the president criticized at great length today, the Fed tried to say, hey, we're going to inject another trillion and a half dollars into this and make it easier for banks to lend with each other, we're going to keep decreasing these rates. Didn't seem to matter to Wall Street.
Again, this is an unusual kind of crisis because we haven't had this kind of a health crisis, which is what it is primarily. Let's remember the great tragedy are the human victims and the uncertain rates of fatality and transmission that we're dealing with, right? That's really where the source of this crisis comes from. And that we mustn't lose perspective. For that reason, the right first response is to help the first responders, meaning people on the front lines of health care. In America we've unfortunately given inadequate resources to our frontline responders. That's being remedied quickly. We're a bit late to the party, but we can see now, both through the declaration of national emergency, but as well, mobilization of resources to hospitals, getting more resources to them. That's the right thing to do. But the second kind of response–you talked about, what can government do? The Fed cutting interest rates isn't going to make your supply chain deliver your parts to a widget maker in Ohio any quicker. Right. And rates are almost at zero anyway in Europe. They are zero and below in Japan as well. So the tools available to central banks are not adequate to the task when it comes to the kind of stimulus we might have expected.
Nevertheless, there are a couple of things government can and should do. One is we talked about companies running out of cash. That's the number one concern in the next six months. We can encourage banks, for example, not to call in loans. It's not like in China where the government controls the banks. They've already told the banks don't call in loans. But we have done this before where government can extend credit and encourage. And the Fed has done this, to its credit, the last couple of days, encouraged bankers not to call in loans to show forbearance. And I think that's sort of talking up of good corporate citizenship is important as well as providing credit. And I think that we've seen this after Hurricane Katrina. We saw that as well in the global financial crisis.
But there's something else, and that is we need people to come forward who are sick. That's the number one thing we can do in terms of helping deal with the spread. If you're uninsured, as nearly 30 million Americans are, if you have little or unreliable sick pay. Are you likely to come forward? And the answer is maybe not. And so we need to be much more forthright in saying government has to step in to provide payments to individuals and families that are doing the right thing.
All right. U.S. business editor of The Economist Vijay Vaitheeswaran joining us via Skype tonight. Thanks so much.
Thanks for having me.
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