Here's the difference between a recession and a depression
Julia Chatterley is an anchor and correspondent for CNN International based in New York. She anchors First Move with Julia Chatterley live from the floor of the New York Stock Exchange weekdays at 9 a.m. ET on CNN International. The opinions expressed in this commentary are her own.
Two weeks ago, I was standing on the balcony of the New York Stock Exchange as the S&P 500 (SPX) plunged by more than 7% at the open. Circuit breakers were triggered and trading was halted for 15 minutes. The delay was to steady a panic, let investors evaluate the situation and offer something that the stock market so rarely gets — extra time to think.
While that delay may have calmed some nerves and prevented a panicked sell-off, the stock market decline since then has been precipitous. Heavy losses have triggered subsequent market pauses, and significant stimulus packages from around the world have done little to calm investors’ nerves.
The message from Wall Street is clear: Time for a solution has run out. We are now squarely in the midst of a health crisis, an economic crisis and a brewing, calamitous job crisis.
And yet, as I write, policymakers cannot agree on a desperately needed, decisive move to resuscitate an economy that is flatlining. Every day, the numbers become bleaker. On Monday, James Bullard, president of the Federal Reserve Bank of St. Louis, reaffirmed that a 30% unemployment rate in America is a realistic prospect. That’s more than 47 million Americans out of work at a time when 40% of US households can’t write a $400 check in an emergency. The underlying fragilities of the US economy have been revealed: Another Great Depression could be upon us.
On Monday, the Fed pledged to buy bonds with no limits, created three new credit facilities and announced a Main Street lending program. Economists have talked a lot in recent weeks about the need to pull out the economic bazooka to fight this battle. Well, this was the entire arsenal.
The problem now is that, to continue the militaristic analogy, this fight needs real air cover — and that must come from Congress.
The stimulus package currently being debated in Washington needs to be all-in. There is simply no point in half measures at this stage. It might seem ridiculous to describe a possible $2 trillion package as a half measure, but that may be exactly what it is: If you look at the commitments made by countries, such as the UK and Germany, as a percentage of GDP, the US package will fall short. The key will be if they can somehow scale up the loans using financial leverage, then the scale of the lending capacity could be multiple times the size. We’ll hopefully soon see.
The US stimulus should not be considered a measure to prop up or bail out big business, but rather an investment in survival.
The key is giving small- and medium-sized businesses and private individuals the confidence to know that they need not fire people, or that their jobs are safe in the short term. That’s where 85% of employment in the US resides. They need to know that no matter what, the government won’t saddle them with debt.
That means the government needs to deliver grants with as few strings attached as possible. Only that will bring the certainty everyone is craving so desperately for in this most uncertain of times. Immediate cash infusions to ordinary people and a suspension of debt payments and utilities — as some states have already done — would also help.
When industries, such as travel and hotels, are reporting as many as 70% of workers are either furloughed or laid off already, the sense of urgency and the need for decisive, massive intervention is clear.
President Donald Trump has been widely criticized for taking his time at the outset of this crisis, but now both Democrats and Republicans are slowing things down as they try to lever broader political objectives into the deal.
There will be a time and place for political debates, and these questions must be addressed; but the survival of individuals and workers for the next two to three months should be the priority now, when every second counts, and every delay costs.
None of us is sure how long this economic decline will last, but immediate action is nevertheless critical. A time will come when the pain inflicted by the cure — on jobs, livelihoods and people’s futures — outweighs the pain of the health crisis itself. The time may come when policymakers have to loosen the restrictions and let the economy breathe again, while protecting only the most vulnerable.
Those painful decisions are coming, and perhaps the only chance we have to avert them is for the politicians here to act, and act now.
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