Survival, Stability, and Prosperity
The stabilization process, which will likely take a few quarters, should be followed by a period of gradual return to prosperity as consumers and businesses gradually resume some level of activity, jobs are regained and spending resumes.
The U.S. economy and most major world economies are facing their worst crisis in over 60 years. Each economy is struggling to survive the social and economic shutdown resulting from the COVID-19 pandemic. What will determine each country’s ability to survive is largely predetermined based on three factors:
- Strength, resiliency and prosperity of their economies prior to the crisis
- Monetary and fiscal capability to support the economy during the shutdown
- Political governance and policy actions
What every major nation, including the U.S., needs to do during the crisis is make sure we survive this unprecedented decline in the economy by applying the maximum possible monetary and fiscal reserves available. Survival is the only objective now. Every nation, whether it is the U.S., China or Germany, has to put to use the national financial resources available to offset the losses happening to workers, consumers and businesses during this shutdown.
Each country has a sum of monetary and fiscal capital they can put to use to mitigate the potential for long lasting recession after the COVID-19 crisis. We want to emphasize the importance of spending all appropriate and available resources to replenish what consumers and businesses are losing due to the shutdown. How well each country does this will determine how well each economy will stabilize and eventually return to growth and prosperity. The failure of any country to spend generously now will likely lead to years of lower living standards for millions of that country’s consumers and businesses.
Those countries that can survive in reasonably good economic condition will be best positioned for the post-COVID-19 world. Based on economic analysis in terms of fiscal and monetary balances, countries like the U.S., China and Germany are notably better positioned to implement stronger actions. Those countries that do not have or apply such fiscal and monetary funds at this time will suffer longer and deeper recessions.
The stabilization process, which will likely take a few quarters, should be followed by a period of gradual return to prosperity as consumers and businesses gradually resume some level of activity, jobs are regained and spending resumes. The level of growth depends on many factors, primarily the degree to which consumers and business believe they are safe from COVID-19 illness, the jobs creation cycle and consumer willingness to spend at some level approaching prior norms. Each country around the world will likely be slow to regain normal levels. How slow and how long depends on the jobs created and how many businesses return. In the U.S., we have confidence positive trends will resume, albeit slowly, for several quarters once the shutdown ends. We believe the shutdown will end through a phased reopening at different levels in different states.
There will be a time when all the money spent by the governments and borrowed by consumers and businesses will have to be repaid. That presents a long-term challenge. How these debts are repaid will determine each country’s ability to sustain prosperity and moderate inflation over the long term. As it stands now, the U.S. is amongst the best positioned countries globally to come out of this crisis.