Ask HN: How bad will the 2020 economic crisis be?

On the other hand i predict there will be a huge surge in tourism and partying.

Also, not everyone has insufficient savings.

U.S. focus: Right now the biggest issues are demand and liquidity. Demand fell off a cliff. When demand falls off like that it screws up working capital flows so now there’s a huge demand for cash. That’s why the fed stepped into the treasury, money market, commercial paper and municipal bond markets. It also looks like they may try to step into the corporate bond market to keep it functioning. Prior to all this the general consensus was that markets were priced to perfection, highly priced but not unreasonable given growth. The market needed growth to function. The risk of defaults will be delayed a bit but severe when if/it hits. Much of the market is covenant lite so by the time you report financials, break covs, get through the cure period many businesses will have the entire capital structure wiped out. Events like this tend to have lasting impacts on people, it changes their consumption and savings behavior. People will demand that certain industries have more resilient supply chains and larger economies will take protectionist stances in those industries. There’s so much to unpack here...

I am not an economist but by virtue of working in the fintech space for many years, particularly in credit, feel this specific point acutely-

"economies and democracies cannot idle with incurring enormous financial costs"

This is what worries me about this crisis more than the myriad other issues, like-

-the end is unknown bc we dont have an antiviral treatment or vaccine, and we dont know how long immunity lasts

-we have generally awful, sociopathic high level leadership (I am in the US) and while local leadership may be exemplary (I am in NYS) the ongoing contagion factor means there is no isolation

-so many entities have already been broken that will never return and the implications from which have not begun to be counted

-we have such an awful information availability and consumption imbalance, which will perpetuate bad decision making

Those issues above I believe CAN be dealt with over time, with study, process, mobilization, etc in the course of this pause.

But that work has to be FUNDED.

We DO NOT KNOW how to fund this without

a) creating future "costs" / "obligations" that will weigh on future flows for decades

b) destroying current asset stores in a way that increases uncertainty

I mean, this is what "assets" are for- they are there as a store to create future flows. So for instance I am in favor of a very long block on evictions and foreclosures- 2 years- because many renters have lost jobs and will not be able to find them, in order to force landlords to, where necessary, waive rent and themselves take out mortgages to pay for their own flows. That is what the "value" of their property should be used for, and in times of strife, drawing down on asset stores is sensible.

But that imposes future costs- the mortgage- and even if the mortgage is at 0% there is still principal that has to be returned. And debts are the highest priority obligation.

IOW, we dont have an economic and accounting system where we can just stop, timeout, change the rules, get back on feet, and start again. In our current model the timeout still has to be paid for in the future. And while history is full of debt foregiveness regimes, those were all local. We don't have even the beginnings of a model to institute a global forgiveness regime.

At any rate, the human side of this looks very challenging, though I have optimism that good wins out- but I worry about the accounting side. The rules have to let good come through.

It won't crash now, we are just weeding out the companies that aren't working. Real estate will drop, the money men will become king for a while, manufacturing pulled most countries out of the Great Depression after sometime of struggling trying to get it started.

Save emergency funds and in the next decade of growth and stockpile for the 30s, when we hit real trouble. Find a currency or commodity that won't be washed out, silver kept China out of trouble in the 30s until the US raised demand for it so much that they got dragged in too.

I have no expertise in any area, but I would like to put down my thoughts for posterity (and feedback).

I think we will see governments in the coming week or two start doing broad randomised samples of the population for antibodies and realise that many many more people have been infected than previously thought.

Meanwhile fears for the economic consequences will grow larger. Also (hopefully) countries like Germany and the UK will not see Italy levels of death and misery.

Around the mid of April when spring in the Northern hemisphere is really kicking off people will have been socially distancing/quaranting for 4-6 weeks and will be really tired of it.

These factors will start to lessen the public support for social distancing and life will start to return to normal. Big events will probably still be canceled, people will not travel for holidays etc but economic activity will start to pick up in some sectors.

Some sectors like hospitality (which employs many low skill workers) will continue to see very low demand until July/August (or possibly even longer). If the important summer season doesn't deliver, these industries will be doomed. While many other sectors will get a swifter recovery.

A litmus test for the general economy will be sales of new iPhones this fall. I suspect it will be slightly below last year, but not like 50%. If it is, my predictions were completely wrong and we are probably much worse off than I expected.