The US is rapidly emerging from the economic crisis: why it's too early to rejoice

The largest US economy in the world is quickly recovering from the recession caused by the coronavirus. Politicians rejoice: the crisis ended before it began. Economists warn: there is nothing to celebrate, everything is very precarious and if you interrupt the money therapy ahead of time, the scars will not resolve for a generation. Writes about it with the BBC.

Photo: Shutterstock

The United States is confidently ahead of other countries in the number of deaths caused by Covid-19, and Donald Trump’s chaotic response to the biggest crisis of his presidency reduces his chances of being re-elected for the second term in the November presidential election. The White House hurries to turn a sad page and return to the election campaign, which had a strong economy before the pandemic and quarantine.

After a week of encouraging statistics, Trump gathered the first rally in a long time and boasted of success.

“Your income fell a little, but we brought it all back. The stock market is breaking records. We have a phenomenal economy, and we're looking forward to a great third quarter. And if we don't do something stupid on November 3rd (Election Day), next year for our economy will be the best year in history," Trump said.

He has reasons for optimism. Applications for unemployment benefits have been declining for 11 consecutive weeks, retail sales soared in May by an unprecedented 18%, housing permits were issued as much as 14%, and for the first time since February, industrialists have shown confidence in the polls in the future.

“We have an excellent chance that the economy will recover as quickly as it sputtered,” his chief economic adviser, Larry Kudlow, said a week before Trump’s rally. “I think that in the second half of the year we will see solid GDP growth of 20 percent, and unemployment will drop below 10%.”

“2021 will be another year of solid, very solid growth,” Kudlow said.

The White House's enthusiasm is not shared by the main independent assessor of the economic situation in the country, the head of the American Central Bank, Jerome Powell.

On the subject: The world leaves quarantine: when the economy of the countries affected by the pandemic will recover

“In recent days, some indicators point to a stabilization and even partial recovery of economic activity,” he told senators in mid-June. “At the same time, the output of goods and services, as well as employment, remain well below pre-crisis levels, and there is serious uncertainty about the timing and scale of the recovery.”

End of generosity

In the same statistics that Trump and Cadlow boast of, Powell easily found a reason for longing.

Suppose that in May the labor market recovered, adding 2,5 million jobs and unemployment fell to 13,3%, but in February it was at a record low level of 3,5%. During the pandemic, 45 million Americans applied for benefits.

Industrial production even rose in May, but only by 1,4%, and according to the central bank, it is still more than 15% lower than in the pre-crisis February.

When Trump took office, he promised economic growth of “4%, maybe 5%, even 6%” a year. In 2018 it fell short of 3%, and in 2019 it slowed down to 2,3%.

In the current year, according to the central bank, growth will completely give way to decline - by 6,5%. The collapse in business activity in the current second quarter (April-June) will be the most dramatic in modern US history, Powell warned.

“Until the public believes that the virus is over, a full recovery is unlikely,” he warned congressmen.

Trump adviser Kudlow called the Fed chairman's forecast "too gloomy." And he proposed a recipe for reviving the economy: depriving the unemployed of the anti-crisis bonus to benefits, thanks to which average payments reached $4 thousand per month.

“This kind of money discourages anyone from returning to work. We pay people not to work. More than they previously received in salary,” he said. “It may be useful for a couple of months, but at the end of July we need to put an end to it.”

To extend the allowances, a new congressional assistance package needs to be approved, but Trump supporters from the Republican Party are still blocking the Democrat-approved act. The US has already allocated more than $ 3 trillion from the treasury, but this is not enough, many are sure.

Powell personally asked the senators not to save, and then signed on to a letter from 150 economists, among whom were his predecessors as head of the American Central Bank. They asked lawmakers to learn the lesson of the financial crisis a decade ago and to quickly allocate more money to stimulate the economy.

“Congress's insufficient response during the Great Recession prolonged unnecessary suffering and held back economic growth. Congress must not repeat this mistake,” the letter said.

The House of Representatives, controlled by the Democrats, has already approved another $ 3 trillion of anti-crisis assistance, but the Senate, in which the Republicans have the majority, refused to approve it, citing the fact that the economy is already recovering.

On the subject: Will Quarantine Kill Business and the Economy: Understanding the Spaniard Epidemic 100 Years ago

The dispute will resume in July at the end of the parliamentary holidays, and some money will definitely be allocated, but most likely the package will be more modest.

“Spend as much as possible!”

Everything will depend on statistics - whether they show a confident recovery in activity, said Trump adviser Kudlow. There’s no point in waiting, Fed Chairman Powell argued with him: the economy needs a powerful stimulant to recover quickly.

“The longer the recession drags on, the greater the potential long-term damage from job losses and business failure. Prolonged periods of unemployment adversely affect workers' skills and employment prospects,” he said.

In addition, the crisis exacerbates inequality and stratification in society, fraught with political upheaval.

“Not all Americans are feeling the brunt of the recession equally. The jump in unemployment has hit the poorest families, ethnic minorities and women disproportionately. If the crisis is not addressed quickly, the wealth gap will widen and the efforts of the last record-breaking recovery from the previous crisis will be undone,” Powell said.

He voiced the consensus of economists and international financial organizations over the current crisis: a decisive and large-scale monetary injection reduces the likelihood of a protracted illness that will leave permanent scars on the body of the economy and society. It is better to spend now and return to the previous pace of wealth creation than to save and eke out a miserable existence for a long time.

Economists explain the sudden craving for wastefulness as a cataclysm feature: the world is facing a pandemic, a miraculous crisis.

It’s not that we’ve done anything very wrong, but the crisis has exposed anomalies, and now we need to correct the distortions before spending money on recovery. Nothing of the kind: the world economic machine was working relatively well, the body was healthy and growing, albeit sluggishly, but it was struck by a virus. And therefore, no operation is required, just artificial respiration, a powerful dose of adrenaline in the form of anti-crisis cash injections - and everything will start as before.

On the subject: WSJ: US economy shows signs of resuscitation

“The main thing now is to get out of this crisis with minimal scars. You rarely hear this from the IMF, but we say: spend it,” said the head of the International Monetary Fund, Kristalina Georgieva. - Spend as much as possible!

The situation has disposed to this more than ever: credit rates are at zero, as are inflationary expectations. Developed countries can borrow money for free. And history tells us that this is for a long time, which only encourages supporters of large-scale stimulation of demand and production at the expense of the budget.

In a recently published paper, three economists assessed the effects of past pandemics and concluded that, unlike wars, the invasion of bacteria and viruses, the world has been recovering for decades, and the consequences are felt on average about 40 years.

As a result, as an analysis of the previous 15 episodes - from the plague to the Spanish flu - has shown, inflation and, accordingly, loan rates have been in a depressed state for years. This also has a pleasant side: free money allows the authorities to endlessly increase the national debt, and stagnant prices ensure faster growth in real incomes of the population.

Read also on ForumDaily:

Record Low Rates: US Mortgage Demand Rises to 11-Year High

WHO: quarantine weakening could lead to a second wave of coronavirus outbreak

10 most devastating riots in US history

Most of the victims of the pandemic will not be from COVID-19: deadly diseases will cover the world

5 reasons why stores in the US are better than in Russia: an immigrant opinion

Do you want more important and interesting news about life in the USA and immigration to America? — support us donate! Also subscribe to our page Facebook. Select the “Priority in display” option and read us first. Also, don't forget to subscribe to our РєР ° РЅР ° Р »РІ Telegram  and Instagram- there is a lot of interesting things there. And join thousands of readers ForumDaily New York — there you will find a lot of interesting and positive information about life in the metropolis.