How ugly could it get? Trump faces echoes of 1929 in coronavirus crisis.
Forecasters see historic job losses and deep economic pain on the horizon — but with a sharp rebound, if Congress steps up.
Pedestrians walk by the New York Stock Exchange in New York City.
| Spencer Platt/Getty Images
By BEN WHITE POLITICO 03/16/2020
The early signals from the coronavirus crisis point to a scale of damage unseen in the modern U.S. economy: the potential for millions of jobs lost in a single month, a historic and sudden plunge in economic activity across the nation and a pace of sharp market swings not seen since the Great Depression.
As the coronavirus outbreak ravages a paralyzed nation, Wall Street suffered another brutal bloodbath on Monday with the Dow Jones Industrial Average diving around 13 percent in its worst percentage loss since 1987’s “Black Monday” crash. A reading on business conditions in the New York area plunged a record 34.4 points to -21.5 in March, suggesting a recession is underway that could be sharp and deep as revenue quickly bleeds out of major industries from airlines to hotels, restaurants, bars and sports leagues.
The Standard & Poor’s 500-stock index, the broadest gauge of U.S. companies, fell 12 percent. It has shed $6 trillion in value since peaking in February, slamming retirement accounts for millions of Americans in ways that could have psychological ripples for many months to come. The last time the S&P had three days of similar wild swings was 1929, on the eve of the Great Depression.
The S&P is now only around 300 points away from wiping out all its gains since Donald Trump won the White House in November 2016. President Trump himself, one of the grandest boasters of the strength and resilience of markets and the American economy, appeared to capitulate on Monday with a more somber tone reflecting the immense magnitude of the challenge facing the nation.
“We have an invisible enemy,” he said, acknowledging that the virus could push the U.S. into recession. “This is a bad one. This is a very bad one.” Trump urged Americans not to gather in groups over 10 and to avoid bars, restaurants, food courts and other public spaces.
The VIX, a gauge of fear and panic on Wall Street, hit 82.69 on Monday — bringing it to territory unseen since the worst of the financial crisis in 2008. Oil prices tanked 10 percent — after a severe plunge last week — as traders bet the virus will ignite a global recession that sharply reduces demand for fuel.
The massive sell-offs have led to suggestions by market professionals that regulators may have to take dramatic steps seen during the Great Depression and after the 9/11 terrorist attacks. That could include shuttering Wall Street — perhaps for days — until more is known about the direction of the coronavirus spread in the United States and until Washington comes up with a massive, bipartisan policy response to shore up flagging industries and direct money straight into the pockets of American citizens losing work as they remain shuttered in their homes at the direction of the government officials.
For now, Securities and Exchange Commissioner Jay Clayton pledged to keep markets open, despite the waves of panicked selling. “Markets should continue to function through times like this,” he told CNBC. Still, many traders expect that if the market plunges several more thousand points, and trips more circuit breakers that temporarily halt trading, the administration could be forced to simply shut Wall Street down.
“With new measures being put in place by the hour, the federal government at some point will have to consider a modern version of the bank holiday imposed by the Roosevelt administration back in 1933,” RSM Chief Economist Joseph Brusuelas wrote in a client note. “That four-day holiday was put into place to restore confidence in the banking and financial system. Perhaps the governing authority should consider a 10-business day holiday until Congress can act.”
Wall Street analysts are already assessing the damage done to the economy thus far: stark and likely to get far worse, very quickly.
“Movie box-office revenues are down more than 60 percent in data through March 15 and more than 70 percent relative to the average of recent years,” JPMorgan analysts wrote in a research note. “Broadway box office revenues were already down about 20 percent relative to trend in data through March 8, and are presumably set to be down essentially 100 percent after theaters closed last Thursday, a result we also expect to see for professional and college sports revenues.”
Restaurant bookings were collapsing in many cities and may now plunge to zero. Streets are increasingly empty as citizens follow government warnings to slow the spread of the virus.
The hope on the part of White House officials is not to avoid a sharp economic slowdown — they all know it is coming — but that the short-term pain from extreme measures will lead to a flattening in the curve of the virus spread. Then economic activity can be made up when the crisis ebbs.
But that will require agreement on a massive package of aid for both individuals and corporations to stave off mass bankruptcies and waves of layoffs. The White House hopes for a V-shaped economic cycle this time: a recession in which growth plunges then sharply recovers as consumers emerge from their bunkers with jobs to go to and money to spend.
Kevin Hassett, the former White House Council of Economic Advisers chairman who remains in contact with Trump and the White House, said in an interview that jobs reports for March and April could show horrific numbers that will force massive congressional action if it has not already occurred by then.
He predicted losses of perhaps over 1 million jobs in coming reports and a spike in the jobless rate. “We really could see the worst jobs reports we’ve ever seen in our history.”
Hassett said he did calculations over the weekend with conservative economist Larry Lindsey showing that the economy could contract by 5 percent in the second quarter, though a swift containment of the virus could lead to a bounce-back in the third quarter. (Goldman Sachs economists also predicted a drop of around 5 percent in economic growth in the second quarter.)
And he noted that infighting between the House and Senate and uncertainty about the next stimulus package from the White House could make matters far worse. The White House is trying to settle on a package that would include a payroll tax suspension and emergency lending facilities, including from the Federal Reserve, and other measures for impacted businesses that would stop short of direct cash “bailouts,” a politically toxic word since the bank rescues of 2008 and 2009.
By BEN WHITE POLITICO 03/16/2020
The early signals from the coronavirus crisis point to a scale of damage unseen in the modern U.S. economy: the potential for millions of jobs lost in a single month, a historic and sudden plunge in economic activity across the nation and a pace of sharp market swings not seen since the Great Depression.
As the coronavirus outbreak ravages a paralyzed nation, Wall Street suffered another brutal bloodbath on Monday with the Dow Jones Industrial Average diving around 13 percent in its worst percentage loss since 1987’s “Black Monday” crash. A reading on business conditions in the New York area plunged a record 34.4 points to -21.5 in March, suggesting a recession is underway that could be sharp and deep as revenue quickly bleeds out of major industries from airlines to hotels, restaurants, bars and sports leagues.
The Standard & Poor’s 500-stock index, the broadest gauge of U.S. companies, fell 12 percent. It has shed $6 trillion in value since peaking in February, slamming retirement accounts for millions of Americans in ways that could have psychological ripples for many months to come. The last time the S&P had three days of similar wild swings was 1929, on the eve of the Great Depression.
The S&P is now only around 300 points away from wiping out all its gains since Donald Trump won the White House in November 2016. President Trump himself, one of the grandest boasters of the strength and resilience of markets and the American economy, appeared to capitulate on Monday with a more somber tone reflecting the immense magnitude of the challenge facing the nation.
“We have an invisible enemy,” he said, acknowledging that the virus could push the U.S. into recession. “This is a bad one. This is a very bad one.” Trump urged Americans not to gather in groups over 10 and to avoid bars, restaurants, food courts and other public spaces.
The VIX, a gauge of fear and panic on Wall Street, hit 82.69 on Monday — bringing it to territory unseen since the worst of the financial crisis in 2008. Oil prices tanked 10 percent — after a severe plunge last week — as traders bet the virus will ignite a global recession that sharply reduces demand for fuel.
The massive sell-offs have led to suggestions by market professionals that regulators may have to take dramatic steps seen during the Great Depression and after the 9/11 terrorist attacks. That could include shuttering Wall Street — perhaps for days — until more is known about the direction of the coronavirus spread in the United States and until Washington comes up with a massive, bipartisan policy response to shore up flagging industries and direct money straight into the pockets of American citizens losing work as they remain shuttered in their homes at the direction of the government officials.
For now, Securities and Exchange Commissioner Jay Clayton pledged to keep markets open, despite the waves of panicked selling. “Markets should continue to function through times like this,” he told CNBC. Still, many traders expect that if the market plunges several more thousand points, and trips more circuit breakers that temporarily halt trading, the administration could be forced to simply shut Wall Street down.
“With new measures being put in place by the hour, the federal government at some point will have to consider a modern version of the bank holiday imposed by the Roosevelt administration back in 1933,” RSM Chief Economist Joseph Brusuelas wrote in a client note. “That four-day holiday was put into place to restore confidence in the banking and financial system. Perhaps the governing authority should consider a 10-business day holiday until Congress can act.”
Wall Street analysts are already assessing the damage done to the economy thus far: stark and likely to get far worse, very quickly.
“Movie box-office revenues are down more than 60 percent in data through March 15 and more than 70 percent relative to the average of recent years,” JPMorgan analysts wrote in a research note. “Broadway box office revenues were already down about 20 percent relative to trend in data through March 8, and are presumably set to be down essentially 100 percent after theaters closed last Thursday, a result we also expect to see for professional and college sports revenues.”
Restaurant bookings were collapsing in many cities and may now plunge to zero. Streets are increasingly empty as citizens follow government warnings to slow the spread of the virus.
The hope on the part of White House officials is not to avoid a sharp economic slowdown — they all know it is coming — but that the short-term pain from extreme measures will lead to a flattening in the curve of the virus spread. Then economic activity can be made up when the crisis ebbs.
But that will require agreement on a massive package of aid for both individuals and corporations to stave off mass bankruptcies and waves of layoffs. The White House hopes for a V-shaped economic cycle this time: a recession in which growth plunges then sharply recovers as consumers emerge from their bunkers with jobs to go to and money to spend.
Kevin Hassett, the former White House Council of Economic Advisers chairman who remains in contact with Trump and the White House, said in an interview that jobs reports for March and April could show horrific numbers that will force massive congressional action if it has not already occurred by then.
He predicted losses of perhaps over 1 million jobs in coming reports and a spike in the jobless rate. “We really could see the worst jobs reports we’ve ever seen in our history.”
Hassett said he did calculations over the weekend with conservative economist Larry Lindsey showing that the economy could contract by 5 percent in the second quarter, though a swift containment of the virus could lead to a bounce-back in the third quarter. (Goldman Sachs economists also predicted a drop of around 5 percent in economic growth in the second quarter.)
And he noted that infighting between the House and Senate and uncertainty about the next stimulus package from the White House could make matters far worse. The White House is trying to settle on a package that would include a payroll tax suspension and emergency lending facilities, including from the Federal Reserve, and other measures for impacted businesses that would stop short of direct cash “bailouts,” a politically toxic word since the bank rescues of 2008 and 2009.
No comments:
Post a Comment