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Is the worst of the Economic Crash still ahead?

July 8

As of the last jobs report, the unemployment rate stands at 11.1%. While this is an improvement over the peak of 14.7%, it is still the highest level we have seen since the Great Depression, when unemployment peaked at 10%. At the same time, the US has struggled to manage a virus that Europe has all but contained. A disjointed coordination between the federal and state government at the start of the pandemic led to one of the biggest failures in the history of the US government. Ultimately this leaves the US in the worst possible position when dealing with this pandemic. The economy was ruined and at the same time the virus is still not under control.

Frustrations grow on Wall Street as many CEO’s grow furious over the America’s failure to contain a virus that our European counterparts have had under control for weeks. This week there were massive spikes in COVID cases in California, Texas, and Florida, the three largest US states. Despite all this, the economy seems to be recovering. However, there is one major catch which we have yet to address in this article: Government stimulus.

The reason that consumer spending has not fallen faster than it has despite such a large unemployment rate is due to massive amounts of government stimulus. Essentially, the economy right now is like a house on stilts, one knock and it could come crashing down. While government stimulus has been holding the economy together in recent months, it is expected that Congress will not extend the unemployment benefits. Due to the COVID-19 pandemic, Congress added $600 a week on top of existing unemployment levels to ensure that Americans would not fall through the crack. There is much debate on whether this was a good policy or not but the extended unemployment along with other stimulus measures clearly did work.

Many are concerned that Congress will fail to extend these additional benefits. This combined with a massive spike in the virus could lead to a very bad situation in the US. Spiking virus numbers tend to spook corporations and the stock market. Even without another shutdown, it could lead to many job losses. This means that many people could lose their job and their health insurance while COVID starts to get out of control. We certainly hope this is not the case, it is looking very likely that this scenario could play out. You may hear that more jobs were created in the month of May than at any point in US history. Technically this is true. However, to compare this with another situation, if you have $10 and then lose $9, you now have just $1. If you make another dollar, you could easily say you doubled your money, yet clearly you are still worse off than you were before someone took the $9. That is very much the situation the United States is in today. As the virus continues to spread, it’s likely that economic activity will start to decline again. While I hope I am wrong, I fear the worst of the economy as well as COVID are still to come.