Question

What is the potential long-term economic impact of the COVID 19 pandemic in America?

Answer 1

The U.S. economy has almost definitely entered a contraction Unemployment insurance claims announced for the weekend ending March 14 showed a sizeable increase, but the real downturn actually started It appears that millions of Americans have already lost their jobs, perhaps at a rate that exceeds job losses in the worst weeks of the Great Recession. Even if economic activity in the United States did not shut down in favor of social distancing, the current spread of the COVID-19 pandemic worldwide decreases competition in the global economy and complicates supply chains, and the collapse in share prices decreases household income to an degree that would have triggered a significant slowdown in the United States.

The central problem facing the economy is not a lack of liquidity but a temporary halt to operation due to safety constraints and a fundamental solvency dilemma for many businesses and individuals. Therefore, Federal Reserve activities are significant, but unlikely to be enough. The Federal Reserve is the front line of defence in several economic slowdowns. In this situation, it has already lowered interest rates to zero and began massive asset purchases along with liquidity injections into financial markets. These actions are necessary but are unlikely to protect the economy against widespread harm.

Usually, the Federal Reserve stimulates the economy by making borrowing easier and less costly, allowing businesses and customers to speed up investment and purchase decisions. In this scenario, the uncertainty about the potential outcomes of the COVID-19 pandemic and the economic effect the make it quite difficult for businesses to borrow irrespective of rates (the credit risk that prevent banks from borrowing), and more significantly, the choice value of waiting to see the pandemic resolve is likely to slow down any investment or big purchasing decisions.