Question

Read through the paragraph below. Afterward, create a thread in the discussion forum and in it, explain why the cope of coronavirus-induced economic downturn is worse than any recessions in the past?

Federal Reserve Chairman Jerome Powell urged the White House and Congress to spend more money to ensure their initial response to the coronavirus-induced economic downturn isn’t squandered. “There is a growing sense that the recovery may come more slowly than we would like…and that may mean that it’s necessary for us to do more,”. He warned that, with revenues depressed for longer, waves of business bankruptcies could follow, risking a much slower pace of improvement in the job market. “Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Mr. Powell said. For example, if small businesses that were viable enterprises before the crisis fail, “we would lose more than just that business. We lose something more fundamental,” he said. “And it won’t be able to be replaced quickly.” “The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” Mr. Powell said. Wall Street journal – May 13, 2020).

Answer 1

The past recessions or crises have revolved around the instability of the financial sector, for instance, the 2008 crisis was due to the risk-taking behavior in the financial and housing sector whereas the current downturn is a result of a conscious decision taken by authorities to contain the health crisis. This crisis is not based on financial speculation but on human behavior and choices. Unlike the other crisis which impacted aggregate demand first, the virus led to a complete shutdown of international trade, industries, and organizations inducing an economy into supply shock hence the prolonged duration of the shut down put the economy into demand shock. The lockdown led to increased unemployment especially with respect to migrant and daily wage workers but also a cut in wages. With the complete closure, trade has been minimal hence putting economic integration into a backseat. Many economies, for instance, Saudi Arabia has been affected by the fall in demand for oil which has impacted its revenue drastically. The economies due to the experience of the past recession know how to deal with a fall in aggregate demand but today it's more on the supply side and economies lack experience and don't have sufficient knowledge as to how to get economies out of this supply slump. The prolonged shut down has also induced a financial crisis as there is a fall in cash flow and liquidity hence has put all markets that are labor, goods, and currencies into stress. The government is offering fiscal packages to domestic firms so as to improve the supply chain which will induce employment hence aggregate demand. The monetary policies have been eased so that people have more purchasing power.Hence the long term impact of COVID on the society, markets, and the exchange rate will depend on the policies implemented and regulations during the phased opening up as economies were able to recover from the crisis of 2008 but today reports are skeptical about the recovery as just recently WHO report stated that COVID-19 may never go away.