The world’s largest us economy is quickly recovering from coronavirus-induced recession. Politicians are happy that the crisis was over before it began. Economists warn there is nothing to celebrate, everything is very shaky and if you interrupt the cash therapy ahead of time, the scars will not resolve an entire generation. About it writes BBC.
The US is well ahead of other countries in the number of deaths from Covid-19, and chaotic response, the United States Donald trump on the biggest crisis of his presidency reduces the chance of re-election for a second term at the November presidential election. White house hurries to turn the sad page and return to the election campaign, the main asset of which prior to a pandemic, and quarantine was a strong economy.
After a week of reassuring statistics trump gathered the first time in a long rally and boasted successes.
“Your income has fallen slightly, but we made it back. The stock market is breaking records. We have a phenomenal economy we have a bright third quarter. And if we don’t do anything stupid November 3 (election day), the next year our economy will be the best,” said trump.
The reasons for optimism he has. Applying for unemployment benefits has been declining for 11 weeks in a row, retail sales soared in may to an unprecedented 18%, permits for housing construction issued by as much as 14% more, and Industrialists for the first time since February, showing in the polls confidence in the future.
“We have a great chance that the economy will recover as rapidly as she failed, said a week before the rally trump his chief economic Advisor Larry Kudlow. — I think in the second half we are waiting for solid GDP growth by 20 percent, and unemployment will fall below 10%”.
“2021 will be another year of solid, very solid growth,” said Kudlow.
The enthusiasm of the White house does not share the main independent appraiser of the economic situation in the country — the head of the U.S. Central Bank’s Jerome Powell.
“In recent days, some indicators point to stabilization and even partial recovery of economic activity, he told the senators in mid-June. — At the same time, the production of goods and services, and employment remain well below pre-crisis, and about the timing and extent of recovery there is considerable uncertainty”.
The end of generosity
In the same statistics, which boast the trump and Kudlow, Powell had no difficulty in finding a cause for depression.
May in may, the labor market has recovered, adding 2.5 million jobs, and unemployment fell to 13.3%, but in February it was at a record low of 3.5%. During the pandemic of the 45 million Americans applied for benefits.
Industrial production may have risen in may, but only 1.4%, and according to the Central Bank, still more than 15% lower than before the crisis February.
When trump came to power, he promised to achieve economic growth “at 4%, maybe 5% and even 6%” per year. In 2018, he did not reach 3%, and in 2019 slowed down to 2.3%.
In the current, according to the Central Bank, growth and even change decline by 6.5%. The collapse of business activity in the current second quarter (April — June) will be the most dramatic in modern U.S. history, warned Powell.
“While the population does not believe that the virus is done, full recovery is unlikely,” he warned congressmen.
Advisor of the trump Kudlow called the fed’s “too gloomy”. And offered the recipe for economic recovery: to deprive the unemployed of crisis allowance to the manual, thanks to which average payments reached $4 thousand per month.
“The money beat off all hunting to get back to work. We pay people to not work. More than they previously received in salary, he said. — A couple of months it may be useful, but at the end of July it is necessary to put an end to it”.
To extend the premiums, you need to approve a new aid package in Congress, but supporters of the trump of the Republican party until block approved by the Democrats act. The United States has allocated from the Treasury more than $3 trillion, but that is not enough, many believe.
Powell personally asked senators not to save, and then signed a letter of 150 economists, among which are its predecessors on a post of the head of the American Central Bank. They asked lawmakers to learn the lesson of the financial crisis a decade ago and quickly allocate more money to stimulate the economy.
“Not a strong response of the congressmen during the great recession has prolonged unnecessary suffering and kept economic growth. Congress should not repeat this mistake,” the letter reads.
The house of representatives, controlled by Democrats, has approved another $3 trillion bailout, but the Senate, where most Republicans, approve it refused, citing the fact that the economy is already recovering.
The dispute will resume in July after the parliamentary recess, and some money will definitely be highlighted, but most likely the package will be modest.
“Spend as much as possible!”
Everything will depend on statistics — it will show whether the strong recovery of activity, said the Advisor to the trump Kudlow. Not worth waiting, I bet him the fed’s Powell: economy needs powerful stimulant to quickly recover.
“The longer the downturn, the greater the potential long-term damage from the loss of jobs and the ruin of the business. Long periods of unemployment have a negative impact on workers ‘skills and employment prospects”, he said.
Furthermore, the crisis increases inequality and stratification in society is fraught with political turmoil.
“Not all Americans equally feel the brunt of the downturn. The jump in unemployment in a much more significant extent affected the poorest families, ethnic minorities and women. If the crisis is not quickly overcome, the wealth gap among different population groups will worsen, and all the efforts of the past record of the period of recovery after the previous crisis will come to naught,” said Powell.
He announced the current during the current crisis, the consensus of economists and international financial institutions: a strong and massive monetary injection reduces the likelihood of prolonged illness, which will leave eternal scars on the body of the economy and society. Better to spend now and return to the previous rate of wealth creation than to save money and for a long time to languish.
Economists explain the unexpectedly mastered them desire to waste a feature of cataclysm: the world is facing a pandemic, not man-made crisis.
Not that we were doing something very wrong, and the crisis has revealed abnormalities, and now you need to remove distortions before spending the money to rebuild. Nothing of the sort: the global economic machine worked relatively well, the body was healthy and growing, albeit sluggishly, but he was struck by the virus. And because surgery is not required, sufficient artificial respiration, a powerful dose of adrenaline in the form of anti-crisis cash injections and everything will be launched with the same force.
“The important thing is to get out of this crisis with minimal scars. From the IMF it is rare to hear, but we say: waste, — said the head of the International monetary Fund Kristalina Georgieva. — Spend as much as possible!”
The situation has had to this: lending rates are at zero, and inflation expectations. Developed countries can take the money in debt free. And history suggests that it’s a long time that only encourages the supporters of a large-scale demand stimulation and production due to the budget.
In the recently published work of three economists estimated the effects of past pandemics and came to the conclusion that in contrast to the wars, from the invasion of bacteria and viruses the world is restored decades, and the consequences are felt on average about 40 years.
As a result, as shown by the analysis of the previous 15 episodes of the plague to the Spanish flu, inflation and thus rate loans years are in a depressed state. It has a bright side: free money allows the government to endlessly increase the national debt, and stagnant prices provide a faster growth in real incomes.