Opinion: This economic crash is different

by Duvi Honig. Stimulus packages. Promises of more cash and more cash. Advice to “Buy now!”

These are the “solutions” that we’re hearing from all too many current and former government officials, business analysts and others.

Unfortunately, it’s increasingly clear that these stale talking points; comparisons to previous downturns; and useless solutions; aren’t helping. Two weeks ago, I expressed my fear that the market will lose 30% of its value – when it seemed far-fetched to most. Today, unfortunately, the market had its worst fall in over 30 years, closing nearly 30% lower than it did a month ago.

We can no longer afford to misread what’s happening.

If we want to effectively respond to an economic collapse, we need to properly understand its dynamics. We are facing a unique and monumental crisis that doesn’t abide by the conventional rules of economic downturns and market volatility. Just as dollar bills cannot put out a fire, they cannot rectify the current underlying threats to economic stability. Coronavirus is not a matter of spreadsheets and dollars-and-cents. To every person on earth, it is a matter of health and wellbeing, even life and death.

In previous economic downturns, factors such as bad loans and expensive oil were primarily to blame. Now, the economy is collapsing because people’s actual life routines are grinding to a halt. They aren’t traveling. They aren’t shopping. They aren’t going to events. Their kids aren’t going to school. They aren’t spending. Many suddenly find themselves with little to no income as well.

There is a real fear and uncertainty. Coronavirus testing is not properly accessible. There is no cure or vaccine. Our healthcare system is unprepared. Manufacturing and importing are disrupted. Human resources are disrupted. You cannot get toilet paper, adequate water or bleach in many neighborhoods. Our very lives and survival are at stake. Cheap airline or cruise tickets; cheap stock prices; stimulus grants; and all; won’t get anyone to go about their business at the expense of their personal or family safety.

Of course, the solution is not panic. On the contrary, we must be optimistic and motivated to make things better. And if we properly understand the threat, we can do so effectively.

Hopefully, the world’s governments, healthcare professionals and corporate powerhouses can effectively work together to effectively limit the spread of Coronavirus and provide proper resources to prevent, diagnose and treat the disease. It is particularly crucial for governments and the business world to make long term adjustments based on the fast changing realities on the ground, such as reduced reliance on imports from China and other parts of the world.

I pray along with the rest of the world that we will see brighter days ahead.

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Duvi Honig is the Founder and CEO of the Orthodox Jewish Chamber of Commerce, a Wall Street based global business and community service network.

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3 COMMENTS

  1. The stock market is not the economy. Sure the performance of the stock market impacts the economy, but they are not the same.

    The virus will likely have an impact on the U.S. economy, particularly in industries related to travel, as well as some businesses who had supply chain interruptions, but the impact, at this point, is unknown.

    You are right, this is very different than the economic collapse in 2008/2009. That collapse was due to a collapse of much of the banking system. Large banks failed, and may others were on the verge of doing so. Banks also tightened up lending, contributing to economic contraction and long term stagnation. This underlying issue in the banking industry lasted years.

    The current situation is much different economically. There is no fundamental problem with the financial system or business climate. There is a temporary issue which is causing temporary disruption.

    Once that disruption resolves, there will likely be a massive economic boom due to the removal of bottlenecks in the supply chain and pent up demand.

    That being said, it may take a very long time for the stock market to recover, primarily because the stock market was massively over-priced by historic standards prior to this crash. Even considering the recent crash, many stocks are still trading at high P/E ratios, form a historical perspective. However, the stock market, is not the economy.

    FYI. THERE IS NO DISRUPTION IN THE SUPPLY CHAIN FOR TOILET PAPER/TISSUE PRODUCTS. 90% of what is consumed in the U.S. is made in the U.S. the other 10% is made in Canada and Mexico

    In other countries these items may not b made locally, so people hoarded them, p[people in the U.S. have copied this behavior irrationally, which has caused stores to run out. The stores are still getting their regular deliveries, manufacturing is domestic and largely automated. It would likely be the last thing to have an issue with the supply chain.

  2. The stock market downturn is being caused by the democrats and their propagandist media who are trying to tank the economy to give senile Joe an iota of a chance to win in November.

  3. Duvi, thanks for the article. At the end, you wrote: “It is particularly crucial for governments and the business world to make long term adjustments…such as reduced reliance on imports from China…”

    I respectfully disagree with this statement. Comparative advantage is an economic reality wherein you do what you do best and export that product while the other country does what it does best and exports that product. Imports are not bad when it is significantly cheaper to produce offshore. Paying an American workforce to produce the same products would harm our consumer-driven economy.

    Instead, the focus should be on fairness and enforcement of international law. The IMF Articles of Agreement Art. IV sec. 1(iii) prohibits manipulating a currency for economic advantage. Both the US and China became IMF members in 1945 and are therefore bound by the IMF Articles of Agreement.

    China manipulates its currency, the Yuan (aka RMB), by purposely devaluing it so it exports are cheap. In contrast, US exports to China are expensive. Because China has so a huge cache of US dollars, due to the money coming in from its products and because China is such a big purchaser of US bonds, it can manipulate the currency.

    Recently, Trump issued tariffs against certain Chinese products in an attempt to level the playing field. Still, China has an unfair advantage and is in violation of international law.

    Since 2012, the derivatives market has gone through changes that account for catastrophic occurrences (ie uncleared margin rules). The rest of the market should do the same.

    Bottom line: this is not about reliance, it is about fairness and planning.

Comments are closed.