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Coronavirus Chaos

Can the U.S. Economy Climb Out of the Coronavirus Recession?

Donald Trump in Oval Office
President Trump Speaks on the Phone with Prime Minister Benjamin Netanyahu of Israel, and Sheikh Mohammed Bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the United Arab Emirates

Back at the end of February, my bosses at the Center for the National Interest asked me what would happen if there was a global pandemic thanks to Coronavirus. I laughed, saying there was no chance of a pandemic and the threat was overblown, with little to fear when it comes to economic growth.

Needless to say, they don’t ask me anymore for my global health forecasts anymore–I will stick to geopolitics, at least for now.

So how bad could things get? What is the state of the global economy and where is the U.S. headed in the months and years to come? I asked my friend Milton Ezrati, chief economist for the NY-based communications firm, Vested, to give me a sense of what the future holds. You can read the full interview below:

Given the economic turmoil resulting from the COVID-19 pandemic, the global economy is clearly struggling far worse than the Great Recession of 2008-2010. Are there any lessons we learned from the last recession that can ease the pain of this one?

Of course, the two recessions have entirely different roots. The biggest lesson from ‘08 that has applicability today is the need to cultivate confidence about the future among individuals and especially businesses. Confidence encourages spending generally, but more, it is essential for aggressive hiring, investment, and expansion generally.

If there is no economic stimulus passed going into the fall, will this slow or stall the U.S. economy heading in Q4 and 2021? Could this create the much-dreaded double-dip recession economists fear?

Even without additional stimulus, I am reasonably confident that the economy can avoid a second “dip” as long as the re-opening proceeds. The big danger of a second dip hinges on a fall virus spike that forces a reversal of the re-opening or inspires enough fear to stall the re-opening even without new official shutdowns.

U.S. debt levels are out of control, with fears of a major credit ratings downgrade being discussed in the press. How much debt is too much for the U.S.? At what point do markets react to the threat this possesses? Is there any danger of a credit crisis?

Debt is indeed out of control, but I would rather have that than no support in this emergency. Emergencies are when government debt is right. (It is when debt builds from ongoing budget policies that we sow the seeds of economic trouble.)

A downgrade for the United States is possible. We saw one early in Obama’s first term. But it is meaningless. It is not that the country can’t pay its debts. After all, it “prints” the stuff with which it meets its obligations.  The payment may come with inflation and so worthless dollars, but the United States will not default on its legal obligations.

Markets will show their fear with concerns over inflation.  Because the Fed is flooding markets with liquidity, credit crisis possibilities seem slight, but that flood only raises the prospects of inflation.

When?  I’ve been worried for years, but so far, nothing.

Written By

Harry J. Kazianis (@Grecianformula) is a Senior Editor for 19FortyFive and serves as President and CEO of Rogue States Project, a bipartisan national security think tank. He has held senior positions at the Center for the National Interest, the Heritage Foundation, the Potomac Foundation, and many other think tanks and academic institutions focused on defense issues. He served on the Russia task force for U.S. Presidential Candidate Senator Ted Cruz, and in a similar task force in the John Hay Initiative. His ideas have been published in the New York Times, Washington Post, Wall Street Journal, Newsweek, CNN, CNBC, and many other outlets across the political spectrum. He holds a graduate degree in International Relations from Harvard University and is the author of The Tao of A2/AD, a study of Chinese military modernization. Kazianis also has a background in defense journalism, having served as Editor-In-Chief at The Diplomat and Executive Editor for the National Interest.