Virus Update 2020 Depression

POSTED August 3, 2020

SUMMER 2020 World Economic Depression or Deep Recession

Most economists now predict a deep world recession, but I think much of the world will have a depression similar to the 1830s British depression era and the 1930s depression era. These are depressions characterized by rapid technological advancement, high productivity, and the satiation of consumer demand for the available kinds of products. Unemployment will be high. But as I explain here, the US might do remarkably well by reindustrializing and becoming more self sufficient and export oriented instead of being as import dependent as it was only several years ago. The US will probably do better at handling this epidemic due to several advantages in the long term.

Second Quarter 2020 Results

Around the world, economies have slipped into recession in the 2nd quarter of 2020 with some of the biggest economies officially reporting that it was their worst quarterly performance in 50 years or longer. Germany had a 10.1% drop after contracting in the 1st quarter. The US announced a slightly smaller 2nd quarter drop than did Germany after it had a large expansion and a record stock market in the first quarter. Overall, the EU countries recorded a record 12.1% decrease for the 2nd quarter.

The EU was already in an economic slump at the start of this year of 2020, and this world epidemic has put the world in a clear path to at least a deep recession if not a worldwide depression. There may be severe famine and natural disasters.

The World Is in a Kondratiev Wave Trough

So this decade is clearly showing the features of an industrial revolution era economic long wave trough. This downturn will extend for years as I’ve described in articles. This type of productivity acceleration associated economic slump period has lasted longer than a decade in the past. This one started in 2008, and though trillions of dollars of annual deficit spending and money production around the world kept consumption high until 2019, now unprecedented deficit spending can not stave off the deep recession or depression in much of the world. There is a big likelihood around the world of record corporate and consumer bankruptcies along with national bankruptcies similar to the Great Depression of the 1930s. Governments, consumers, and companies have borrowed heavily since around 2006 in order to keep consumption high and stave off poverty.

The US Is Handling the Severe Epidemic Better Than Most

Southern hemisphere countries are in their winter flu season now (August 2, 2020), and there are epidemic spikes in Australia, Brazil, and other countries. This suggests there will be similar seasonal spikes in the northern countries this fall.

The death toll in the US is now about 160,000, and the number of recorded Wuhan virus cases is the highest of any country in the world at about 4.6 million. However, considering the large Mainland Chinese population in the US and the great number of arrivals of people from China from the end of 2019 when this epidemic started, the US is faring fairly well. The death rate is low or average compared to countries in Europe.

The large number of recorded virus cases in the US is the result of the US having much broader testing capability. About 60 million tests have been performed in the US. Perhaps no other country has tested as broadly. For example, the UK has performed almost 16 million tests, and Germany performed about 8 million tests so far. France has a large population, but they only performed 3 million tests. So the large number of cases in the US is a reflection of the extensive testing.

The US Economy Might Fare Better Than Most Countries

I think that the US might handle the epidemic better than most countries due to the high tech infrastructure and the open reporting. Some countries such as China that are severely affected by the epidemic hide the death tolls and don’t report the number of cases. China claims only 4,700 total deaths in their huge population. Though they say they have performed about 90.5 million tests as of August 2, 2020, they report finding only about 88,000 cases total. This seems impossible given the scale of the quarantine measures that are still in effect in China, internal reports that leaked out, and the size of the country. Small countries such as Belgium with advanced medical technology report far more deaths and total cases.

Of the world’s economies, the US might perform the best. The epidemic is encouraging domestic production, and Trump’s trade policies encourage production in the US of everything from energy and raw materials to industrial products to agricultural products. Simply by threatening to raise import barriers of the same scale that the other big economies such as China and the EU trading bloc countries already had set up to shield themselves, Trump is able to negotiate better trade relationships. So, the US may reindustrialize and become more self sufficient as he further promotes US trade with the Asian countries and now begins to tackle the difficult trading relationship with the EU trade bloc and other issues.

Continuation of the Long Wave Slump

Around the world, countries accepted unprecedented deficit spending during the past decade in order to keep their economies and governments functioning at the pre-2008 level. But we are still in a long wave economic slump era. The effects of automation, high debt, the satiation of consumer demand for the available standardized products, and natural disasters such as epidemics and the locust swarms in Asia and Africa will result in increased unemployment and a drop of consumption.

The deep economic recession or depression may affect most of the world and result in great political changes in this decade, but if Trump is reelected so the pro US growth and development policies continue, the US might actually experience a resurgence during the worldwide slump. The US has internal growth and development potential because for decades Americans were hampered by living under a disadvantageous system including unfavourable trade relationships and policies that were unfavorable for US industry, agriculture and energy production. As trading relationships become more equitable, the advantages of the US economy in technology, natural resources, and a large population will make the economy grow.

POSTED April 3, 2020

As I predicted would happen when I developed this theory of scientific revolutions causing economic depressions in advanced economies in 1990, the advanced economies have entered into a depression that started when China and then other countries started to quarantine and lock regions or their entire country down in January.  This is the second dip that I’ve long waited for. This model has long predicted not only a deep recession or depression period starting in 2009 or so (this started in 2008) but that the entire decade of the 2010s and early years of the 2020s would be a depressionary or deep recessionary period. The theory was proved right. So far, each major prediction of this theory since it started giving predictions in 1990s have been proved accurate.

In my Economics News Updates page on the dashboard, in the February 27, 2020 post, I wrote I thought that the other major economies of the world would go into depression or a deep recession this year, but I thought the US would escape it and actually experience a boom. I thought that this pandemic situation would seriously affect China, East Asian and European economies and others, but that Trump’s early closure of flights from China would help protect the US. I also thought that of all the countries in the world, the US had the best chance of isolating yet independently growing economically since it is a large country with sufficient resources internally and since it was in the process of reindustrializing as companies and organizations transferred their production from abroad back into the US. However, the US too is now in a depression. People are predicting that as the shutdown and quarantines continue, 30 or 35 million Americans will not be working by May of 2020. Maybe a substantial percentage of people will find ways to work from home or where they are sheltering though, and maybe some regions of the US, especially in sparsely populated areas, may not be put under quarantine regulations.

The government in America did not follow up quickly enough on stopping flights from other countries and stopping border crossings from Mexico and Canada. The states and the federal government did not implement serious preparations for this virus including producing sufficient masks, telling people to social distance and wear masks, and producing medical equipment and medicines until this month or so. So now there is an epidemic in the US too.

Trump’s trade policies to promote industry and businesses in the US and China’s actions such as trying to force their staff into the boards of foreign companies in China made companies want to move production back into the US. There was a general trend of increased economic production, a boom in the stock market, and historically high levels of producer and consumer optimism up to January of 2020 or so.

The shutdown of Chinese production is causing Americans to try to make products such as masks, medicines, medical gear and essential parts and equipment in the US or to try to source from other countries such as India. However, India is now in a national shutdown and quarantine also.

It looks like the economy of China is collapsing. Though they say there several new deaths in the last two weeks or so, the evidence and internal reports indicate otherwise, and a vast population is still either in quarantine conditions or effectively locked in such as that other provinces will not allow people from central China to enter. The officials themselves act as if there is still an emergency, and reports show a second wave is happening.

In Europe, major economies such as Italy are already in depression, and there is no end in sight for when conditions will improve. Economies may collapse this year.

Japan and Taiwan seem very successful so far now relative to other countries. But with world trade depressed, I can’t see that they can escape depression unless perhaps if they can keep up industrial production, these two countries may be able to fill in the gap left by the collapse of the economies of China, major European countries, and other countries.

In general, I think the US will record a depression or a recession this year, but if it can come out of this pandemic less scathed than other countries, reindustrialize and make products internally, and have a successful year agriculturally, then if in some way there is a cure or people find effective medical treatments, the US still might boom economically once this pandemic period ends. Hydroxychloroquine looks promising based on use in Korea and other countries. Hopefully, it will end soon. However, I think China and Europe will experience devastation this year as has already been happening.

Based on the historical pattern, this theory predicted that this would be a technological acceleration depression era. What this means is that a depression or deep world recession would happen around the world at this time 40 years after the start of the 1970s deep recession because of the inherent unemployment effects of the rapid productivity growth and the automation of production during these technological acceleration eras. So thus far, the major predictions of this model keeps proving accurate. This model predicts a deep recessionary or depressionary era for the next few years. Historically, these technological acceleration caused depressions have lasted from about 13 to 24 or so years.  See the chart and the animation at the top of the page to see the depressionary pattern and the pattern of technological revolutions.

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