Wednesday 25 March 2020

We are facing a depression and there will be no sharp recovery

There is too much of the econmy shut down for Australia ( and other countries) not to experience a depression i.e. a drop in output of 10% or more).

Just think over and above the industries shut down.
Who is going to go to the dentist, doctor etc when there is such uncertainty
Who is going to buy a takeaway.
Who is going to get a tradie to do anything unless it is essential like a toilet.

The very large elephant in the room is the highly indebted household sector. This has the potential to blow up the economy.

Once all this is mostly over the recovery will take time.
Supply chain problems have not gone away.
People will attempt to build up their savings to begin with. Again this means no gyms, few coffees, not very many restaurant meals etc.

Be scared, Be very scared.

In terms of politics the budget deficit looks rising to at least 10% of GDP. Yep even Sinclair Davidson might believe that is expansionary.
The nest election will be all about responsible fiscal consolidation which is something Sinclair Davidson knows nothing about.
As Wayne Swan found out if you try austerity too quickly it simply slows the econmy down.


Update:
As Ken Henry says the-unemployment-rate-doesnt-go-back-to-normal-after-a-recession-there-are-long-term-effects,

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