Could We Be At The Start Of The Next Depression? Here’s What Top Economists Have To Say

Economists say we’re already coming into a recession. The question now is, will it get bad enough and last long enough to qualify as a depression?

Thursday’s 3.28 billion jobless claims figure from the Labor Department put something into painfully sharp focus: the U.S. is entering a recession.

The U.S. is now the epicenter of the coronavirus pandemic with cases surpassing even China’s and Italy’s.

At the beginning of the month there were roughly 100 cases in the U.S. Last week, the number of cases surpassed 5,000 as the U.S. began ramping up testing. 

As of Thursday, cases have surged to more than 85,000. And officials have acknowledged that the number of confirmed cases likely underestimates the true number of infected across the nation as testing has been hampered by delays and restrictive diagnostic criteria that have limited the number of people who qualify to be tested.

Amid the growing crisis, several states have issued stay-at-home orders and orders for all non-essential businesses to temporarily close. Across the U.S., companies have sent workers home, and restaurants and shops have closed.

While the market has known that an economic slowdown has arrived, Thursday’s jaw-dropping jobless claims report was the first piece of data to really illustrate just how great the slowdown has become.

And while the Federal Reserve has unleashed a suite of tools to keep the credit market running smoothly and Congress is on the verge of passing an historic $2 trillion coronavirus stimulus package, there’s a growing fear among economists that the current downturn has some of the markings of a full-on depression.

As business activity has effectively halted in many corners of the economy and layoffs have surged, prominent economists including former White House chief economists Glenn Hubbard and Kevin Hassett, as well as former Federal Reserve Vice Chairman Alan Blinder, say there are parallels to the the Great Depression, though they aren’t yet forecasting we’re heading in that direction now. 

“We’re going to have to either have a Great Depression, or figure out a way to send people back to work even though that’s risky,” Hassett said to CNN this week. “Because at some point, we can’t not have an economy, right?”

The COVID-19 outbreak has caused a global synchronized interruption in economic output that hasn’t been seen in decades, according to former International Monetary Fund chief economist Maury Obstfeld, who says the best possible comparison he can make is: “Well, maybe the Great Depression.”

Depressions differ from recessions in that they require the downturn to last for a long time, even years, while recessions vary in length. There has only been one since 1900, from 1929 to 1933, and during it, the entire economy shark by roughly a quarter as unemployment jumped to around 25%.

It’s already clear that the U.S. will suffer a huge economic contraction as businesses close and consumers stay home, and in fact, it’s possible the economy is headed toward its worst quarter on record since 1947.

JPMorgan sees gross domestic product shrinking at an annualized rate of 14% in Q2. Goldman Sachs sees a 24% decline in GDP. And Bank of America and Oxford Economics both see a 12% drop.

St. Louis Fed President James Bullard says the unemployment rate could hit 30% next quarter as shutdowns continue, and anticipates as much as a 50% drop in GDP. 

But whether the contraction proves to last long enough to be considered a Depression relies primarily on how long it takes to get the coronavirus outbreak under control enough to restart the economy.

President Donald Trump is eager to have things up and running again by Easter, and will hear recommendations from the White House coronavirus task force this weekend on plans to “open the country up” in the near-term.

However, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said that the U.S. can only “start thinking about getting back to some degree of normality when the country as a whole turns that corner” of reducing the spread of the coronavirus outbreak which isn’t happening yet, and other health experts have argued that even tighter restrictions than are already in place in many places will be needed to slow the spread of the deadly virus.

“Unless this virus miraculously disappears from the population over the course of the next few months, it is a reasonable scenario that we might be in this lockdown setting for quite a while, measured in quarters,” said Harvard professor and member of the National Bureau of Economic Research panel that dates the timings of recessions, James Stock.

Fauci also said this week that COVID-19 could become a “seasonal cyclic” disease, adding that the U.S. will likely at least see a second outbreak.

“What we’re starting to see int eh Southern Hemisphere of Southern Africa and the Southern Hemisphere countries, is that we’re having cases that are appearing as they go into their winter season,” Fauci said at a White House press briefing. “If they have a substantial outbreak, it will be inevitable that we need to be prepared that we’ll get a cycle a second time.”

“We think of a depression as a recession that is very, very deep and very, very long,” said Blinder. “That’s the kind of thing that could happen” if infections peak only temporarily and a second wave comes in the Fall.

By the way, if you liked this article, you'll LOVE this Meaty free training I just published on the top 3 questions and challenges every investor faces AND how to overcome them. It's titled "10k into $2.4 Million in 18 months" and you can grab it for free here


There are risks inherent in all investments, which may make such investments unsuitable for certain persons. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities. You may lose all of your money trading and investing. Do NOT enter any trade without fully understanding the worst-case scenarios of that trade. And do NOT trade with money you cannot afford to lose. Past performance of an investment is not necessarily indicative of its future results. No assurance can be given that any implied recommendation will be profitable or will not be subject to losses. Information provided by the Company is not investment advice. The Company is not a registered investment adviser, stock broker, or brokerage. You agree that the Company does not represent, warrant, or take responsibility that any account will or is likely to achieve profit or losses similar to those shown. Examples published by the Company are selected for illustrative purposes only. They are not typical and do not represent the typical results of all stocks within the Company’s software or its individual scans and searches. No independent party has audited any hypothetical performance contained at this Web site, nor has any independent party undertaken to confirm that they reflect the trading method under the assumptions or conditions specified.

FREE TRAINING - TRADERSPRO PRESENTS: Retire In 18 Months With $2.4 Million?

Join Us Now
X