Political scientist and noted global risk expert Ian Bremmer, who is president of the consultancy firm Eurasia Group, in a recent podcast indicated that in his view the world is now headed into a severe economic depression. He indicated in his podcast that while a uniform formal definition of an economic depression does not actually exist, the statistics of economic destruction emanating from the Covid-19 pandemic exceed the parameters of a recession.
Ian Bremmer pointed out in his podcast that a technical recession is defined as two quarters of consecutive negative economic growth. A depression would mirror the coronavirus pandemic in that it has far greater depth and duration than a normal event. The global health emergency generated b y Covid-19 has resulted in a level of economic shutdown and contraction throughout the world that far exceeds the formal definition of a technical recession.
Though there is resistance at the early stages of this new Global Economic Crisis to label it a depression, Bremmer points out that there was also hesitation towards labeling the coronavirus outbreak a pandemic in its early phases. The noted political scientist is convinced that we are entering the first new economic depression in nearly one hundred years. Ian Bremmer also believes the world of the 21st century is stronger financially and economically than was the case with the Great Depression of the 1930s. This is the only positive insight he offered, in what was otherwise a prediction of economic doom and gloom.
In a chilling yet cogently delivered live Twitter lecture on likely economic trends stemming from the Covid-19 pandemic, NYU professor and economist Nouriel Roubini gave a harsh yet realistic overview on the unfolding crisis. Professor Roubini was one of the few economists to predict the global financial crisis that occurred more than a decade ago.
The views Roubini relayed in his Twitter presentation can be summed up as follows:
- The health policy response will determine whether or not the world faces a severe recession or a greater depression. A global recession worse than the 2007-09 global financial crisis is already baked into the cake. However, perusing a mitigation strategy to contain the coronavirus pandemic will ensure the global economy heads into a severe depression. Only a suppression strategy as implemented by China initially and now Italy can prevent the worst economic damage. Though a suppression strategy that shuts down the economy for 2 or 3 months is very painful, a mitigation strategy will ensure that Covid-19 spreads like wildfire, leading to a temporary reopening of the economy followed by further and deeper shutdowns. Roubini urges policymakers to adapt draconian suppression measures as the only alternative to far more calamitous economic collapse.
- The right policy responses will be crucial to preventing a greater depression. The current wave of unprecedented monetary and fiscal measures, adapted in a very short timeframe, are correct. In particular , very large fiscal deficits equivalent to ten percent of GDP, which in turn are fully monetized by the central banks, are necessary in the short-term. However, such extraordinary measures are unsustainable in the long-term, and will lead to stagflation.
- The health emergency crippling the global economy is not the only shock confronting it. Roubini identified a geopolitical depression exacerbated by revisionist powers (China, Russia, Iran and North Korea) seeking to further destabilize the United States through cyber warfare. In particular, the emerging cold war between China and the U.S. is leading to decoupling of supply chains and de-globalization, which will increase costs of production and hence inflation.
- Professor Roubini sees a great risk that Iran’s regime will initiate a full-scale war with the United States as the only means of preserving itself from being overthrown, if Trump is reelected and the economic sanctions lead to its collapse. Such conflict will close the straits of Hormuz, leading to a massive spike in oil prices.
In summary, a sobering and harshly realistic analysis of the global economic crisis now underway.
The Economist, one of the leading financial magazines in the world and a leading voice for free enterprise economics, presented a bombshell in its most recent edition: the economy of the United States is in the throes of a depression rather than recession. As many economists who concede that the global economic crisis has inflicted the worst financial turmoil in the U.S. since the Great Depression still refuse to use the “D” word, this is a major turning point in public perceptions of the economic disaster that is now unfolding.
In formulating its dire assessment, The Economist based its conclusion on an analysis of past depressions. The Economist stated that the U.S. economy is manifesting the characteristics of a depression, taking into account the causes of the current economic crisis.
According to The Economist, the primary distinction between a recession and an economic depression is not linked to the decline in growth nor its duration, which are factors encountered in an economic recession. The magazine indicated that a depression is triggered by a bursting of the asset and credit bubble, a contraction in credit, and a decline in general price levels, all the indicators being experienced in the current Global Economic Crisis, especially in the United States.
The U.S GDP figures for the fourth quarter of 2008 declined by an estimated six- percent. Though less severe than during the Great Depression of the 1930s, The Economist maintains that the decline in American GDP is more closely aligned to an economic depression, given that it was facilitated by the bursting of the largest asset and credit bubbles in financial history. The findings by The Economist add substance to the growing consensus that the Global Economic Crisis will be a worldwide catastrophe of monumental proportions.