COVID-19 And The New Great Depression

In a new book by James Rickards, the author explores both the COVID-19 pandemic and its economic impact. A prolific writer, Economist, and adviser, Mr. Rickards predicts years of economic turbulence ahead. In The New Great Depression, Mr. Rickards sees the pandemic through an historical lens, where crisis presents a gateway between one world and the next. With an eye towards history, he concludes that the Keynes practical definition of a depression fits, and we are now in a new depression that is more far reaching than a mere technical recession. Along the way, the author wades into controversial topics such as China’s role in spreading the virus and the lockdown that ensued (which he calls the biggest policy blunder ever).

Based on the pattern of four influenza pandemics he studied, he positions three scenarios among the most likely patterns to expect in the months ahead. He found that three of the four great pandemics since 1918 have followed scenario 2, which he stated as follows:

Scenario 2 also involves repetitive waves. The difference is that the second wave (arriving in 2021) would be far more lethal than the first wave of 2020, due possibly to a mutation or recombination of genetic material. This pattern was seen in the 1918 Spanish flu, the 1957 Asian flu, and the 2009 swine flu. In all three pandemics, a moderate yet lethal wave began in the spring and subsided by the early summer. Then, in the fall, a larger, super lethal wave of infections arrived.

The timeframe of this writing was October of last year, so the winter wave we experienced could indeed be the lethal wave predicted. Beyond the virus, the book explores the economic conditions he expects post-pandemic. Mr. Rickards effectively looks at past economic crisis and how they evolved. His conclusions point to a period of economic decline. As is the case across topics, the virus has accelerated issues and trends that existed pre-pandemic – and the economy is no exception. Here is a view of that from the book:

The best evidence points to slow growth for thirty years. A March 2020 study entitled “Longer Run Economic Consequences of Pandemics” by a Federal Reserve economist and two academics from the University of California, examines the economic impact of pandemics with at least 100,000 deaths, beginning with the Black Death in 1347. The authors conclusion states: “Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed.

As the author describes this possible future, he looks at several factors including debt, deflation, increased savings, reduced consumption, Modern Monetary Theory, monetary policy, fiscal policy, and inflation. In doing so, he draws the conclusion that the world has reached another turning point. He compares it to prior turning points and what made them so: The 1962 Cuban Missile Crisis was a turning point, as the Cold War was never the same after that crisis, prompting a multi-decade era of arms-control treaties designed to contain the arms race. The 1973 oil embargo was also a turning point, as it marked the emergence of oil as a geopolitical weapon and the creation of Henry Kissinger’s petrodollar standard, which has prevailed ever since.

Crises such as these are not always turning points. He indicates that the 1987 flash crash was not a turning point, as not much changed except the introduction of circuit breakers on the New York Stock Exchange. Neither was the 2008 financial crisis, as it came and went. The 2020 pandemic and depression in his view is a turning point because in his words “our lives will never be the same. It will take years for the full implications to play out, yet we will not return to business as usual.”

I highly recommend any book that explores our post-pandemic future, and this one is no exception. I have added it to my Book Library.

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