Origins & Emergence of the 2020 Great Recession in the US Economy

The Great Recession 2.0 is unfolding before our very eyes. It is still in its early phase. But dynamics have been set in motion that are not easily stopped, or even slowed. If the virus effect were resolved by early summer—as some politicians wishfully believe—the economic dynamics set in motion would still continue.  The US and global economies have been seriously ‘wounded’ and will not recover easily or soon.  Those who believe it will be a ‘V-shape’ recovery are deluding themselves. Economists among them should know better but are among the most confused. They only need to look at historical parallels to convince themselves otherwise.

The 2008-09 crash, less serious than the present, did not recover quickly. In the US the recovery was barely 60% of normal recession recoveries for years. Employment recovery was particularly slow, taking six years to return to employment levels just before the contraction in late 2007. Europe experienced a bona fide ‘double dip’ recession, in 2008-09 and a second more serious in 2011-13. In most economies it still had not recovered when the 2020 crisis hit. Japan bounced in and out of recession, stagnation, and weak short recoveries for the past decade.

The early 1930s decade provides yet another historical example from which contemporary, mainstream US economists fail to deduce obvious conclusions: deep contractions in the real economy inevitably lead to financial-banking system crashes that ratchet down the real economy in ever-descending stages.  Deflation and defaults in the real economy inevitably produce banking system lending credit freeze ups and crashes.

The current 2020 contraction is already a great recession. And should the forthcoming business defaults and bankruptcies continue on their current trajectory, bank lending will surely dry up as financial institutions absorb the bad debts they leave on bank balance sheets. Available liquidity will disappear. More defaults and deflation will follow. And the crisis will deepen in the real economy, and erupt as well in the financial.

The Federal Reserve US central bank—and other central banks—understand the potential threat and are engaged currently in a massive, unprecedented experiment: throwing mountains of cash, loans, and liquidity in general into the system. Not only into the banks to prevent a freeze in credit as defaults rise, but directly (and indirectly) into non-financial corporations as well, to try to check the coming defaults and stabilize the related price deflation. After just a month the Fed alone has more than doubled its balance sheet, from $4 trillion to $9 trillion as it floods banks, markets, and corporations with unprecedented liquidity. Time will tell, soon, if this experiment succeeds. The odds are not great that it will. And should it not, the consequences even greater.

Contrary to apologists for the US economy, the misrepresentations of the Trump administration, the US and global economies had become quite weak and fragile on the eve of the impact of the virus.

The virus has not caused the economic crisis. It precipitated and accelerated it. And if the fantasy of a rapid control and containment of the virus happened, the forces now driving the real—and financial—economy will continue.  The economic depression genie has been released from its bottle; there’s no putting it back.

In the four parts that follow, this author’s analysis of some of the key elements of the current crisis economic dynamic are described, as it emerges, still a ‘work in progress’ unfolding.

 In Part 1, the analysis, published in September 2018, predicted the likely course of events of the current crisis, with comparisons of the dynamics during the first great recession of 2008-09 as well as relevant events in the great depression of the 1930s.  The next crisis would share many characteristics of the previous events, but also differ in key characteristics—as all such events do.  In Part 2, the early phase of the 2020 great recession is described, with the focus on the role of collapsing financial asset markets. In Part 3, the focus is on the early phase of the emergence of the current contract of the US economy in February March 2020, in both the real and financial sides of the economy. The early efforts to provide a fiscal and monetary stimulus are described. In Part 4, a partial analysis is offered why the current contraction will not result in a quick recovery.

Part 1: Comparing Crises: 1929 with 2008 and the Next

(September 19, 2018)

It is often said that the initial months of the 2008-09 crash set the US economy on a trajectory of collapse eerily similar to that of 1929-30. Job losses were occurring at a rate of 1 million a month on average from October 2008 through March 2009. One might therefore think that mainstream economists would look closely at the two time periods—i.e. 1929-30 and 2008-09—to determine with patterns or similar causes were occurring. Or to a deep analysis of the periods immediately preceding 1929 and 2008 to see what similarities prevailed. But they haven’t.

What we got post-2009 from the economic establishment was a declaration simply that the 2008-09 crash was a ‘great recession’, and not a ‘normal’ recession as had been occurring from 1947 to 2007 in the US. But they provide no clarification quantitatively or qualitatively as to what distinguished a ‘great’ from ‘normal’ recession was provided. Paul Krugman coined the term, ‘great’, but then failed to explain how great was different than normal. It was somehow just worse than a normal recession and not as bad as a bona-fide depression. But that’s just economic analysis by adverbs.

It would be important to provide a better, more detailed explanation of 1929 vs. 2008, since the 1929-30 crash eventually led to a bona fide great depression as the US economy continued to descend further and deeper from October 1929 through the summer of 1933, driven by a series of four banking crashes from late 1930 through spring 1933 after the initial stock market crash of October 1929. In contrast, the 2008-09 financial crash leveled off after mid-2009.

Another similarity between 1929 and 2008 was the US economy stagnated 1933-34—neither robustly recovering nor collapsing further—and the US economy stagnated as well 2009-12. Upon assuming office in March 1933 President Roosevelt introduced a pro-business recovery program, 1933-34, focused on raising business prices, plus initiated a massive bank bailout. That bailout stopped further financial collapse but didn’t generate much real economic recovery. Similarly, Obama bailed out the banks (actually the Federal Reserve did) in 2009 but his recovery program of 2009-10, much like Roosevelt’s 1933-34, didn’t generate real economic recovery much as well.

After the failed business-focused recoveries, the differences between Roosevelt and Obama begin to show. Roosevelt during the 1934 midterm elections shifted policies to promising, then introducing, the New Deal programs. The economy thereafter sharply recovered 1935-37. In contrast, Obama stayed the course and doubled down on his business focused recovery program in 2010. He provided $800 billion more business tax cuts, paid for by $1 trillion in austerity programs for the rest of us in August 2011.

Not surprising, unlike Roosevelt’s ‘New Deal’, which boosted the economy significantly starting in 1935 after the midterms, Obama’s ‘Phony Deal’ recovery of 2009-11 resulted in the US real economy continuing to stagnate after 2009.

The historical comparisons suggest that both the great depression of 1929-33 (a phase of continuous collapse) and the so-called ‘great’ recession of 2008-09 share interesting similarities. Both the initial period of the 1930s depression—October 1929 through fall of 1930—and the roughly nine month period of October September 2008 through May 2009 appear very similar: A financial crash led in both cases to a dramatic follow on collapse of the real economy and employment.

But the 1929 event continues on, deepening for another four years, while the latter post 2009 event levels off in terms of economic decline. Thereafter, similar pro-business subsidy policies (1933-34) and (2009-11) lead to a similar period of stagnation. Obama continues the pro-business policies and stagnation, while Roosevelt breaks from the business policies and focuses on the New Deal to restore jobs, wages, and family incomes and recovery accelerates. Unlike Roosevelt who stimulates fiscal spending targeting household incomes, Obama focuses on further business tax cutting—i.e. another $1.7 trillion ($800 billion December 2010 plus another $900 billion in extending George W. Bush’s tax cuts for another two years—thereafter cutting social programs by $1 trillion in August 2011 to pay for the business tax cuts of 2010-11.

The policy comparisons associated with the recovery and non-recovery are clearly determinative of the comparative outcomes of 1935-37 and 2010-11, as are the comparisons of the business-focused strategies 1933-34 and 2009-10 that resulted in stagnant recoveries. But the political outcomes of the policy differences are especially divergent and interesting.

No less interesting are the political consequences for the Democratic Party. Roosevelt’s 1934 campaigning on the promise of a New Deal resulted in the Democrats sweeping Congress further than they did even in 1932. They gained seats in 1934 so that by 1935 they could push through the New Deal that Roosevelt proposed despite Republican opposition. In contrast, Obama retained, and even deepened, his pro-business programs before the 2010 midterms which resulted in the Democrats experiencing a massive loss in Congress in the 2010 midterm elections. Thereafter, the Democrats were stymied by a Republican House and Senate that blocked everything. Obama nonetheless kept reaching out and asking for a compromise with Republicans, but the Republican dog bit his hand with every overture.

Obama pleaded with American voters for one more chance in 2012 and they gave it to him. The outcome was more of the same of naïve requests for compromise, rejection, and a continued stagnation of the US economy. Republicans meanwhile also deepened their control of state and local level governorships, legislatures, and local judiciary throughout the Obama period.

The final consequence of all this was Trump in 2016 as the Obama Democrats promised more of the same in the 2016 presidential election. We know what happened after that.

The forces which led to the 2008 banking crash were associated with property bubbles (US and global) and the derivatives markets which allowed the bubbles to expand to unsustainable levels, derivatives which then propagated and accelerated the contagion across financial markets in general once the property bubbles began to collapse.

The 2008 crash was thus not simply a subprime housing crisis, as most economists declare. It was just as much, perhaps more so, a derivatives financial asset (MBS, CMBs, CDOs, CDSs, etc.) crisis.

More fundamentally than the appearance of a collapse in prices of subprime mortgages, and even derivatives thereafter, 2008 was a crisis of excess credit and debt that enabled the boom in subprimes and derivatives to escalate to bubble proportions.

But subprimes and derivatives were still the appearance, the symptoms of the crisis. Even more fundamentally causative, the 2008 crash had its most basic origins in the massive liquidity injections by the central banks, led by the US Fed, that has occurred from the mid-1980s to the present. The massive liquidity provided the cheap credit that fueled the excess debt that flowed into subprimes and derivatives by 2008. (And before than into tech stocks in 1998-2000, and before that into Asian currencies (1996-97), and into Japanese banks and financial markets and US junk bonds and savings & loans in the 1980s, and so forth).

Excessive debt accumulation is not the sole cause of financial crises, however. It is an enabling precondition. Enabling the debt in the first place is the excess liquidity and credit. That liquidity-credit-debt buildup is what occurred in the 1920s decade leading up to the October 1929 stock crash. It’s what occurred in the decades preceding 2008, especially accelerating after the escalation of financial derivatives in the 1990s.

Excessive debt creates the preconditions for the crisis, but the collapse of financial asset prices is what precipitates the crisis, as the excessive debt built up cannot be repaid (i.e. principal and interest payments ‘serviced). So if liquidity provides the debt fuel for the crisis, what sets off the conflagration is the collapse of prices that lights the flame.

The collapse of stock prices in October 1929 precipitated the subsequent four banking crashes of 1930-33. The collapse of property prices (residential subprime and also commercial) in 2006-07 precipitated the collapse of investment banks in 2008, thereafter quickly spilling over to other financial institutions (brokerages, insurance companies, mutual funds, auto finance companies, etc.) after the collapse of Lehman Brothers investment bank in September 2008.

Today in 2018 we have had a continued debt acceleration since 2008. As estimated by the Bank of International Settlements (BIS) in Geneva, Switzerland, total US debt has risen from roughly $50 trillion in 2008 to $70 trillion at end of 2017. The majority of this is business debt, and especially non-financial business debt. That’s different from 2008 when it was centered on mortgage debt. It is also potentially more dangerous.

The US government since 2008 has also increased its federal debt by trillions, as it continued to borrow from investors worldwide in order to ‘finance’ and cut business-investor taxes and continue escalation of war spending since 2008. US household debt also rose further after 2008, as the lack of real wage and income growth over the post-2008 decade has resulted in $1.5 trillion student debt, $1 trillion plus in auto and in credit card debt, and $7-$8 trillion more in mortgage debt. Globally, according to the BIS, non-financial business debt has also been the major element responsible for accelerating global debt levels—especially borrowing in dollars from US banks and investors (i.e. dollarized debt) by emerging market economies, as well as business debt in China issued to maintain state owned enterprises and to finance local building construction.

So the debt driver has continued unabated as a problem since 2008, and has even accelerated. Financial asset bubbles have appeared worldwide as a result—not least of which is the current bubble in US stocks. This time it’s not real estate mortgages. It’s non-financial business and corporate debt that is the likely locus of the next crisis, whether in the US or globally or both.

Since 2008 US and global debt bubbles have been fueled once again—as in the 1920s and after 1985 by the excess liquidity provided by the US central bank, and other advanced economy central banks. The central bank, the Fed, alone has subsidized US banks and investors to the tune of $6 trillion from 2009 to 2016, as a consequence of its QE and near zero interest rate policies.

Since 2008, excessive and sustained low interest rates for investors and business have resulted in at least $1 trillion a year in corporate debt buildup, as corporate bond issues have accelerated due to ultra cheap Fed money. The easy money has allowed countless ‘junk’ grade US companies to survive the past decade, as they piled debt on debt to service old debt. Cheap money has also fueled corporate stock buybacks and dividend payouts to investors, which have been re-funneled back into stock prices and bubbles. So has the doubling and tripling of corporate profits from 2008 to 2017 enabled record buybacks and dividend distributions to shareholders.

In 2017-18 the subsidization locus shifted to Trump tax cuts that have artificially boosted US profits by a further 20% and more. As data showed for 2018, stock buybacks and dividend payouts totaled more than $1.2 trillion. In 2019 it rose to $1.3 trillion. For Trump’s three years in office it was $3.4 trillion in combined buybacks and dividends, and that came after six years of averaging nearly $1 trillion a year under Obama. That’s more than $8 trillion income distributed by corporate America to its wealthy shareholders in the form of buybacks and dividends alone. Interest income, rent income, windfall income from investor-business tax cuts, and other forms are additional.

And where did that mountain of money provided to investors go? Certainly not in raising wages for workers. Certainly not in paying more taxes to government. It was largely diverted into financial markets in the US and globally—stocks, bonds, derivatives, currency, property, etc.; into mergers & acquisitions in the US; or just hoarded on balance sheets in anticipation of the next crisis. Another large part was invested in emerging markets (financial markets, mergers & acquisitions, joint ventures, expanding production operations, etc.) when they were booming during 2010-2016.

So where will the financial asset prices start collapsing in the many bubbles that have been created globally and in the US so far—and thus precipitating once again the next financial crisis? The BIS has been warning to watch US corporate junk bonds and leveraged loan markets. Watch out for the new derivatives replacing the old ‘subprimes’ and CDSs—i.e. the Exchange Traded Funds, ETFs, passive index funds, dark pools, etc. Watch also the US stock markets responding to US political events, to a real trade war with China perhaps in 2019, a continuing collapse of emerging market economies and currencies, to a crisis in repayment of non-performing bank loans in Italy, India and elsewhere, or a tanking of the British economy in the wake of a ‘hard’ Brexit next spring, or Asian economies contracting in response to China slowing or its currency devaluing, or to any yet unseen development. Collapsing prices in any of the above may be the origin of the next financial asset contraction that will spread by contagion of derivatives across global markets. And the even larger debt magnitudes built up since 2008 may make the eventual price deflation even more rapid and deeper. And the new derivatives may accelerate the contagion across markets even faster.

The financial kindling is there. All it now takes is a spark to set it off. The next financial crisis is coming. The last decade, 2008-18, is eerily similar to the periods 1921-1929 and 1996-2007.

Only now it will come with the US challenging foreign competitors and former allies alike as it tries to retain its share of slowing global trade; with a US economy having devastated households economically for a decade; with a massive US federal debt now $21 trillion and going to $33 trillion due to Trump tax cuts; with a US crisis in retirement income, healthcare access and costs, and a crumbling education system; with an economy having created only low pay and mostly contingent service jobs; with a virtually destroyed union movement; with a big Pharma initiated opioid crisis killing more Americans per year than lost during the entire 9 year Vietnam war; with a culture allowing 40,000 of its citizens a year killed by guns and doing nothing; with an internal transformation and retreat of the two established political parties; and with a Trump and right wing radical movement ascendant and poised to move to the streets to defend itself.

Part 2: Global Financial Asset Deflation: Prelude to Next ‘Great Recession’?

(March 9, 2020)

This morning, Monday, March 9, financial asset markets continue to implode: US stocks are further collapsing -6% (Dow down 1650, Nasdaq >500 mid-day). Ditto Asian and Europe stock markets -6%. They were already declining sharply last week due to coronavirus induced supply chain shocks (reducing production) and expanding demand shocks (consumer spending contraction in select industries like travel, hotels, entertainment)–all of which are being forecast by investors to whack corporate earnings in 2Q20 big time. But imposed on the equities market crash of the past 2 weeks now is the acceleration of the global oil price deflation that erupted yesterday as the Saudis deal with Russia last year to cut production and prop up prices fell apart. Collapsing oil & commodities futures prices are now feeding back up equities and other financial asset prices. Financial price deflation spreading, including to currency exchange rates. Money capital fleeing everywhere into ‘safe havens’ (gold, Treasuries, Yen). Historic decline of US Treasuries now below 1% (30 yr.) and .5% (10 yr).

Will the financial asset markets deflation soon spill over to the credit system (especially corporate bonds) and accelerate the decline of real economies worldwide in turn? Are traditional monetary & fiscal policy tools now less effective compared to 2008-09? If so, why? Is the global economy on the precipice of another ‘great recession’?

Financial Asset Markets Imploding

So we have oil futures market prices–i.e. another financial asset market–collapsing now and impacting the stock markets. In other words, a feedback contagion underway on stocks market prices in turn. Feedback is occurring as well on other industrial commodity futures prices that are following oil futures prices downward in tandem. But that’s not all the financial contagion and deflation underway.

The freefall in financial assets (stocks, oil, commodities) is also translating into currency exchange price deflation in turn, especially in emerging market economies in Latin America, Africa, Asia highly dependent on commodity sales with which to earn needed foreign exchange with which to finance their past debt (e.g. case of Argentina whose egotiations with IMF on how to restructure their debt will now break down, I predict).

Currency exchange rates are in sharp decline everywhere as a result. For emerging market economies that means money capital is more rapidly flowing out of their economy, toward safe havens globally like the US dollar, US Treasury bonds, gold, and the Japanese Yen currency.

In short, stocks, oil-commodity futures, and forex currency markets are all imploding and increasingly feeding back on each other in a general deflating downward spiral. This is a classic ‘cross-contagion effect’ that occurs in financial asset market crashes. And crashing financial markets eventually have the effect of contracting the real economy in turn, by freezing up what’s called the credit markets. Businesses can’t roll over their loans and refi their corporate bonds. Banks stop lending. The rest of the real economy then contracts sharply. It starts in the financial markets, spreads to credit markets (corporate junk bonds, BBB corporate bonds, then top grade bonds).

Coronavirus Effect as Precipitating Cause

But it even earlier begins in a slowing real US and global economy that precedes the markets crash. The global economy was already weakening seriously in 2019. The US economy at year end 2019 was also weak, held up only by household consumption. Business investment had already contracted nine months in a row in 2019 and inventories built up too much. And, of course, the Trump trade war took its toll throughout 2018-19.

Then came the Coronavirus which shut down supply chains in China, and then in So. Korea and Japan in turn. That then began impacting Europe, already weakened by the trade war (especially Germany) and Brexit concerns. The supply chain economic impact of the virus developed into a consumer demand economic impact as well, as travel spending was reduced (airlines, cruise ships, hotels, resorts, etc.) and now, in latest development, other areas of consumer spending too. Both supply chain (production cutbacks) and demand (consumption cutbacks) are interpreted by investors as leading soon to a big fall in corporate earnings–which translates in turn into stock price collapse we see now underway. Investors have decided the 11 year growth cycle is over. They’re cashing in and taking their money and running to the sidelines, moving it from stocks to cash or Treasuries or gold or other near liquid financial assets.

So the Coronavirus event is really a ‘precipitating cause’ of the current markets crash. The real economy weakness was already there. The virus just accelerated and exacerbated the process big time. (see my 2010 book, ‘Epic Recession’ for explanation how financial causation comes in different forms as precipitating causes, enabling causes, and fundamental causes. Book reviews are on my website). Again, worth repeating: global and US economies were weakening noticeably in late 2019. The virus further impacted supply chains (production) and demand (consumption), reduced corporate earnings in the near term and thereby simply pushed stock markets over the cliff.

Mutual Feedback Effects: Real & Financial Economies

But financial crashes have the effect of feeding back into the real economy as well, causing it to contract further in turn. What starts as a weakening of the real economy that translates into financial markets crashing, in turn feeds back into a further weakening of the real economy. Mainstream economists don’t understand this ‘mutual feedback effect’; don’t understand the various causal relationships between financial asset cycles and real investment cycles. (For my explanation of this relationship there’s my 2016 book, ‘Systemic Fragility in the Global Economy’ and specifically chapters on the need to distinguish between financial asset investing and real investing and how late capitalism’s financial structure has changed such that the inter-causal effects of financial-real investment have deepened and intensified.) Financial crashes accelerate and deepen the contraction of the real economy. Recessions turn into ‘Great Recessions’ as in 2008-09. They may even turn into bona fide ‘Depressions’ as in the 1930s should the banking system not get bailed out quickly.

Corporate Bonds & Credit Markets Next?

The feedback effect of the current financial asset price deflation–now underway in stocks, commodity futures, forex, (and derivatives)–on the real economy will soon emerge as the financial markets deflation affects the various credit markets. The key credit market is the corporate bond market. Bond markets are far more important to capitalism than equity-stock markets. The credit markets to watch now are the corporate junk bonds (sometimes called high yield corporates). Junk bonds are debt issued to companies that have been performing poorly for years. They are kept alive by banks helping them issue their bonds at high interest rates. Investors demand a high rate because the companies may not survive. In good times they do. But when markets and economies turn down, companies over loaded with junk financing typically default–i.e. can’t pay the interest or principal on their bonds. They go under. The investors that bought their risky bonds are then left holding their debt that becomes near worthless. The US junk bond market today is ‘worth’ more than $2 trillion. At least a third of that is oil & energy (fracking) companies. A large part of their bonds must be rolled over, refinanced, in 2021. But many of them will not be able to refinance. Why? Because global oil prices have just collapsed to $30 a barrel, perhaps falling further to $20 a barrel. At that price, the oil-energy junk bond laden companies will not be able to refinance. They will default. That will spread fear and contagion to other sectors of the $2 trillion junk bond sector–especially big box and other retail companies (e.g. JC Penneys, etc.) that also loaded up on junk financing in recent years. Investors will disgorge themselves of junk bonds in general.

The fear of a crash in junk bonds will almost certainly spread to other corporate bonds, first to what’s called BBB grade corporates. That’s another $3 trillion market. But most of BBBs are really also junk that’s been improperly reclassified as BBB, the lowest (unsafe) level of corporate Investment grade bonds (the safest). So at least $5 trillion in corporate credit is at risk for potential default. If even a part defaults, it will send shock waves throughout the corporate economy that will have very serious implications–for both the financial and real economies, US and global, which are increasingly fragile.

Is Another ‘Great Recession’ on the Horizon?

For example, Japan is already in recession as of late last year. Now it’s contracting, reportedly, by 7% more. Europe was stagnant at best, with Italy and Germany slipping into recession before the virus hit. So. Korea and Australia are in recession now, as other economies in Asia and Latin America are now contracting as well. China economy reportedly will come to a halt in terms of GDP this quarter, or even contract, according to some sources. Meanwhile, Goldman Sachs forecasts the US economy growth will stall to 0% in the second quarter 2020.

So a collapse in risky corporate bonds will occur overlaid on this already weak real economic scenario. Should that happen, then the recession could easily morph into another ‘great recession’ as in 2008-09; maybe even worse if the banking system freezes up and central banks cannot bail them out quickly enough. Or if banks in a major economy elsewhere experience a crash–as in India or even Europe or Japan where more than $10 trillion in non-performing bank loans exist–and the contagion spreads rapidly to banking systems elsewhere

Failed Monetary & Fiscal Policies, 2009-2019

Which leads to the question can central banks now do so? After the 2008-09 crash, the Fed bailed out the US banks by 2010. But it kept interest rates near zero under Obama for six more years. Banks could still get free money from the Fed at 0.15% interest. (The Fed then paid them 0.25% if they left the money with the Fed). The Fed bailed out other financial companies to the tune of $5 trillion more as it bought up bad loans and Treasuries from investors at above then market rates. That is, it subsidized them. And did so for six more years. All this free money flowed, mostly into financial markets in the US and worldwide, creating the stock bubbles that are now imploding. So the Fed and other central banks went on a binge subsidizing banks for years, and in the process broke their own interest rate tool needed for instances like the present crisis. The Fed tried desperately to raise interest rates in 2017-18 so it could have a cushion for times like this. But it then capitulated to Trump and began reducing interest rates again in 2019–as it had under Obama for six years.

The free money from the Fed artificially boosted stock prices. On top of this Trump added a further subsidization of banks and non-bank corporations, businesses, and investors with his $4.5 trillion 10 year tax cuts passed January 2018. Most of that went as a windfall to corporate-business bottom lines. 23% of the 27% rise in corporate profits in 2018 is attributable to the windfall tax cuts. And where did that go? It too was redirected to stock and other financial markets,further inflating the bubbles. Here’s the channel and proof: Fortune 500 corporations in the US alone spent $1.2 trillion in both 2018 and 2019 in stock buybacks and dividend payouts to their shareholders. The stock buybacks inflated the stock markets, and most of the dividend payouts did as well. (Buybacks+dividends under Obama were nearly as generous, averaging more than $800 billion a year for six years).

In other words, the 25% run up in US stock markets in 2017-19 under Trump was totally artificial, driven by the tax cuts and by the Fed capitulating to Trump and lowering rates again in 2019. Very little of the annual $1.2 trillion went into the real US economy. For the past year real investment in structures, plant, equipment, etc. actually contracted for nine months in 2019, and is now contracting even faster in 2020.

Just as the Fed has busted its own interest rate monetary tool as it continually subsidized banks and businesses with low interest rates for years, the chronic corporate-investor tax cutting has busted fiscal policy responses to recession as well. Since 2001 the US has provided $15 trillion in tax cuts, the vast majority of which have gone to corporations, banks, and wealthy investors. That has led to government deficits averaging more than $1 trillion a year since 2008. And accelerated the US federal debt to more than $22 trillion. Fiscal policy is now seriously constrained by the deficits and debt–just as monetary policy as interest rates is now constrained by virtually all Treasury bond rates below 1% in the US and negative rates in Europe and Japan.

Interest rate policy responses to today’s emerging crisis is thus dead in the water. (As this writer predicted it would become in 2016 in the book, ‘Central Bankers at the End of Their Rope: Monetary Policy and the Coming Depression’). After years of monetary policy used as a tool to subsidize banks, it is now ineffective as a tool to stabilize the economy. Ditto for fiscal policy as tax policy. Used by Obama and even more so by Trump to subsidize corporations, stock buybacks, and financial markets, it is confronted by massive annual US budget deficits and accelerating national debt.

The likely responses by politicians and policy makers to the current emerging financial crisis and recessions in the real economy will be to cut taxes even further for businesses. It will have little effect, however. But will exacerbate levels of deficit and debt. That means the follow up will be to attack and reduce government spending, especially targeting social security, medicare, healthcare and education in 2021. Trump has already publicly indicated his intent to do so. On the Fed side, expect more injection of money directly into the economy and failing businesses by means of another major round of ‘quantitative easing’ (QE). That’s coming soon. Ditto for Europe and Japan where negative rates already exist. Watch China too should its economy contract for the first time in 30 years. And watch India, where it’s banking system is already fracturing due to causes totally separate from the virus effect. A banking crash in India is on the agenda. It could result in yet another financial blow to the global economy, adding to the current Saudi-produced oil price shock and the virus effect on supply chains and demand.

Summary and Conclusions

In summary, the global capitalist economy is unraveling financially, and soon further in real terms. Massive job layoffs in coming months in the US are a growing possibility. That will drive the US economy deep in contraction as household consumption, the only area holding up the US economy in 2019, now joins the contraction. It remains to be seen how US monetary and fiscal policy can restore economic stability given its self-destruction by US politicians since 2008. Trump policies have been no different than Obama’s-just more generous to corporate America and investors. Trump’s policies are best described as ‘Neoliberalism 2.0’ or ‘Neoliberal on steroids’. (see my just published 2020 book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’).

The US and global economies are well on their way to a repeat of the ‘great recession’ (or worse) of 2008-09. Only this time traditional monetary-fiscal policy is much less effective. More radical policy responses will likely be developed to try to stabilize the capitalist economies both in USA and elsewhere (where problems are even more severe). Watch closely as the crisis on the financial side moves on from equity (stock), commodities, and forex financial markets into derivatives markets and credit markets–especially junk bond and other corporate bond markets. Watch as the Fed tries desperately to provide liquidity to business and markets via its Repo channel and QE since its traditional rate channels are now ineffective. And watch as US and global capitalist advanced economies try to coordinate new fiscal policy responses to the general dual crisis in financial and real economic sectors of global capital.

Part 3: The 2020 Great Recession 2.0–Or Worse

(March 24, 2020)

In late February 2020 I was convinced the recession I have been predicting since January 2019 had arrived. Two weeks ago I began writing this would be another ‘Great Recession 2.0’, as in 2008-09. Now I’m not so convinced of even that. It may be worse, much worse.

US Real Economy: Contracting Faster Than 2008 or 1932

Just last week Goldman Sachs investment bank was predicting a -14% contraction of the US real economy in the second quarter, April-June 2020. Morgan Stanley followed with its prediction of a -30% drop in US GDP. Goldman has since modified its initial forecast to -24%.

This compares with the worst quarterly decline in 1932, in the depths of the Great Depression of the 1930s, of -13%. The current contraction, in other words, is coming faster and deeper than any on record previously—whether compared to the 2008-09 Great Recession or the 1930s Depression.

As of the close of March 2020, about a third of the US economy is now shutdown. More is about to follow. The US regions most directly and heavily impacted by the coronavirus—Washington State, California and New York—are where business activity has virtually shut down except for emergency services. Other areas, like Illinois, Texas, and Florida are catching up fast.

Given the spreading shutdowns, focused in states of high concentration of economic production, According to current Federal Reserve central bank governors, the unemployment rate will rise as high as 30%, and quickly, according to St. Louis district Federal Reserve governor, Bullard. Predictions are at least 2 million will be unemployed in March alone, just the first month of the crisis. That monthly unemployment rise also exceeds the worst months of the 2008-09 prior Great Recession.

In short, the real economy in the US has fallen into an economic ‘coma’, as some have accurately called it.

But that economy was already weak and fragile when the virus effect pushed it off a cliff. Already in late 2019, business investment had been contracting for nine months, the manufacturing sector was in a recession, trade was negatively affected by Trump’s 2018-19 trade wars, and household consumption was showing serious signs of weakening. For example, with regard to household consumption, the default rate on credit cards for median families had risen to nearly 9% by late 2019, more than 7 million auto loans had defaulted, and student loan defaults were rising as well (although covered up by clever government re-categorizing of loan defaults). The consumer was not in good shape, in other words, keeping spending afloat largely by credit based spending by the middle classes and by the high end income households’ spending based on inflating stock and financial gains (the wealth effect) and Trump’s massive tax cuts of 2018-19 flowing to their bottom lines.

Then the virus hit the economy like a baseball bat to the back of the head!

Financial Markets Price Implosion

Financial asset markets began to plummet. Artificially boosted for three years under Trump, US financial markets were fueled by Trump’s multi-trillion dollar tax cuts and low interest rates in prior years. That tax and cheap money windfall to business, senior managers and shareholders in turn was redistributed to managers and shareholders in the form of a flood of stock buybacks and dividend payouts. More than $3.4 trillion, in fact, in just the last three years!

The buybacks & dividends were then diverted once again in large part back into stocks and other financial markets once more. The artificial financial asset bubbles grew. But it was all artificial, driven by cheap money and massive tax cut income redistribution to investors, corporations, and the wealthiest 1%.

Under Trump, from 2017 through 2019, stock buybacks totaled more than $2 trillion. It went mostly to professional investors and CEOs and senior managers of companies (In tech companies, the amount of the buybacks going to CEOs and senior managers was as high as 70%, as for example occurred in Apple).

Another $1.4 trillion was distributed to shareholders in the form of dividend payouts. That’s a total of more than $3.5 trillion in tax cut and low interest driven income redistributed to the wealthiest households. Most of this massive income windfall was reinvested in financial markets. US stock markets alone under Trump rose by 25%-35% in just three years. And that’s just about the amount the same markets have now crashed in just one month under the virus’s economic impact!

Crashing stock prices are one key indicator of the onset of a Great Recession, nor a normal one. The same applies to the spread of financial asset collapse to other financial markets.

Already US stocks have contracted by 35%-40%. Oil and commodity futures prices by 40% or more, as the price per barrel of crude has fallen from $70 to the mid-$20s per barrel range. Other industrial commodity prices by 20%-30%. Currencies (aka foreign exchange) worldwide devaluing everywhere, with greatest pressure in India, Asia, and Latin America. Bond markets—corporate and government—have now begun to feel the pressure as well and are beginning to fracture. And bond markets are far more important to the stability of the capitalist economy than are even the stock markets.

As financial asset prices deflate rapidly holders of those assets try to dump them to contain losses. Everyone wants to sell; no one wants to buy. Prices deflate further. Often purchased on margin, by borrowing money to buy more assets during the boom period, ‘margin calls’ require even more selling—and even more financial asset price collapse. Investors become desperate to raise cash to cover their losses. A ‘dash for cash’ overwhelms investor, business, and consumer psychology. As losses exceed the ability to raise cash, financial markets begin to implode. And they are now falling line ‘ten pins’, one after the other.

Pre-Emptive Bank & Investor Bailouts

First stock markets, but in the past month, repo markets where banks loan to each other; then commercial paper markets and money market funds; then municipal bond markets; and residential mortgages; and leverage loans (junk loans); and, behind the scenes and intensifying, high yield (junk) corporate bonds and so-called BBB investment grade corporate bonds.

The latter junk corporate bond + BBB market in the US alone is valued at $6 trillion. Leveraged loans another $1.2 trillion. Muni bonds $4 trillion. Residential mortgages $11 trillion. All in trouble now. Plus Repos, Commercial Paper-money funds, and so on as well.

And let’s not forget oil-commodity futures global price deflation, collapsing emerging market economy currencies, and even growing troubles in national government bonds like US Treasuries, Gilts (UK), Bunds (Germany) and others, many of which were already trading in negative rate territory.

In short, the generalized financial markets collapse was a defining characteristic of the 2008-09 financial crisis. And it’s returned now with vengeance.

Also returning is the desperate effort by the Federal Reserve (and other central banks worldwide) to stuff the growing black holes in banks, shadow banks, and corporate balance sheets with new liquidity (money injections) in order to try to prevent defaults and bankruptcies. A bank-corporate bailout has already begun—even before the banks fail. It is pre-emptive in 2020, unlike ‘after the fact’ as in 2008. Banks have not yet crashed and are being bailed out!

The Federal Reserve in one week in mid-March injected $2.2 trillion in the form of $1.5T for the repo market and another $700 billion in Fed direct purchases of mortgage bonds and investor held Treasuries. It followed with unlimited further money to stave off collapse of the commercial paper-money market funds, the muni bonds, mortgage bonds, and reportedly to back up credit card and auto finance companies from their anticipated losses. The Fed also announced it would ‘swap’ US dollars for foreign currencies of other central banks in order to help their economies. The Fed has committed to $4T more in money injections to banks. And that’s in addition to the $2.2T already committed.

In other words, bankers will be bailed out $6.2T, and that’s probably just a start. That amount compares, by the way, to approximately $4.5T used to bailout the banks in 2008-09.

What about non-bank companies? They received a ten year Trump tax cut in January 2018 of no less than $4.5 trillion! They were then awarded with more tax loopholes in 2019 equal to $427 billion more. Now the Republican Senate in the US Congress is proposing another $500 billion with virtually no strings attached.

Yet Another Windfall for Non-Bank Corporate America

In contrast, the fiscal spending stimulus for Main St. and middle-working class families totals about $500B in the pending 2020 crisis recovery bill. It includes a one time cash rebate to households of $3,000 but no increase in unemployment benefits thereafter. It’s clearly a 30 day emergency package, even though the impact on the US economy from the virus will be for months to come.

The US economy generates $1.7 trillion in spending every month. The $1 trillion fiscal stimulus package coming from Congress will thus replace barely half of the lost spending by the US economy.

Big corporate interests and politicians in Washington DC know the depth of the current economic crisis—financial and real. They’re providing for the bankers and investors to the tune of $6.2 trillion, with an open ended checkbook for more if necessary. But they’re only providing for a one month bailout of Main St.

Already Trump is tweeting this package will be reviewed in 15 days. He’s thinking short term. So too are other politicians. Their media is pushing the theme that ‘maybe the economic costs are too high for the cost of the death rate from the virus’ that will occur. Politicians like New York governor, Cuomo, are raising the question, signaling the debate now rising within the economic and political elite; they are preparing the public. They are getting ready to trade off human lives for their economy. They are preparing to send people back to work after a month, regardless the health consequences. They fear economic collapse and their loss of incomes more than the virus and its destruction of American lives.

Trump may soon decide to announce “let them go back to work”. An echo perhaps of Marie Antoinette’s infamous line as her citizens were dying too: “let them eat cake”.  In short, we are now about to see that people’s lives are expendable, for their profits, income and wealth that are not.

Part 4: Why a V-Shape Recovery Will Not Happen  

(April 9, 2020)

Various bank research departments have been estimating the depth and severity of the real economic downturn, admitting the second quarter US economy, April-June, will experience the worst contraction since the 1930s great depression.  Indeed, in job loss terms the current decline is even worse. 17+ million jobs were lost, at minimum, in just the last three weeks. And that’s an underestimation, since it represents only those who actually have filed successfully for unemployment benefits. Many are still in the process of filing or won’t for some time yet.  Actual unemployed totals always exceed those who file for various reasons. 

Millions of small businesses have already shut down or gone out of business. More will follow. The average number of days of cash on hand for small businesses is 27. They will run out of that by mid-April. And the flow of funds from recent stimulus legislation passed by Congress is minimal thus far, bottled up by big banks that are gaming the system and using the crisis to extract concessions out of the federal government on bank deregulation and their share of profits from the lending to small business.

The 10 million plus  job losses that occurred in the last two weeks of March will therefore easily exceed 20 million by mid- April. And 30-35 million by May 1.

That’s a deeper and faster fall in jobs than occurred in 2008-09. The total jobless in just a few weeks in March (more than 10 million) exceeds the total jobs lost over 19 months of the 2008-09 great recession! 

And it’s not just employment that’s in freefall. The consensus among big bank research departments is that US GDP will contract by 20% or more in the second quarter. Goldman Sachs research estimates the contraction in US GDP will be 24%. Morgan Stanley investment bank says 30%. And most recently the bond market investment behemoth, PIMCO, estimates a 30% fall in GDP.

The 2020 CARES ACT & V-Shape Recovery

Whether the 2008-09 crisis or the 1930s great depression, historical parallels support the view that a rapid, deep contraction like the current 2020 recession are not followed by rapid, V-shape recoveries. Apart from historical parallels, however, current US government and central bank policy responses will also fail to generate a prompt recovery to prior economy levels. On the government, fiscal policy side, the programs to date are insufficient in magnitude, are experiencing serious problems of timing, and are imbalanced and poor in their composition to have the desired effect.

The government’s fiscal policy response (CARES Act) to date has been too little, too late; moreover, its composition is too imbalanced in favor of business instead of households to stimulate a quick economic recovery. Simultaneously, the monetary policy response to date by the Federal Reserve US central bank is being ‘gamed’ in the short run by the big banks through which much of the monetary stimulus will flow. And even more important, in the longer run, the Fed’s policy of massive liquidity injections into the banking system will be thwarted by the even greater collapse of money demand that will neutralize the Fed’s massive increase in money supply (i.e. liquidity). The Fed’s policies may succeed in delaying or even preventing a collapse of the banking system, but they will not produce a recovery of the real economy now having contracted to 1930s depression levels.

With regard to magnitude, Congress’s recently passed CARES ACT is grossly insufficient. The US economy spends $1.7 trillion every month. With virtually half of the US economy shut down by various estimates, $2 trillion in spending just keeps a floor under the economic collapse for six to eight weeks. By mid-May at latest that $2 trillion will have dissipated. Finally, the composition is heavily lopsided to loans and grants to business, large and small alike. They will hoard it, use it to pay down debt, and ration the grants and loans piecemeal and minimally until they see an end to the economic crisis months from now. If the Airlines and Boeing are a good example, the loans and grants won’t be used to maintain payrolls. The big corporations in particular will ‘game the system’ and divert the money to other business purposes or hoard it.

With regard to ‘timing’, while the CARES Act was passed relatively quickly, its implementation is showing signs of significant administrative and operational lags and delays. The unemployment benefit increases passed by Congress in its recent $2.2 trillion so-called fiscal stimulus bill has yet to reach the unemployed. Many can’t even get to the filing stage for benefits.  Yet their April 1, mortgages, rents, car payments remain due—and unpaid.  Nor have the much promised $1200/person checks been received as yet. That will take weeks more. In the interim, consumer spending and the economy keep sinking. 

69% of middle class and below households (<$75,000 annual income) as of early April already say they are financially much worse off than just two months ago. That’s not surprising, since more than half of all US households say they have $400 or less for emergencies, per recent research by the Federal Reserve bank of New York.

The picture is no different for small businesses who were supposed to get $350 billion in direct grants and loans by the first week of April, as provided in the same recent Congressional ‘CARES ACT’ fiscal stimulus package. Although Congress per the CARES ACT has authorized the $350 billion and the US Treasury has provided the money to the Federal Reserve Bank for distribution to small businesses weeks ago.  Only $90 billion or so of the $350 billion has actually gotten out to small businesses desperately in need.  As of March, the average days of small business available cash on hand was only 27 days. And that was almost a month ago. So most of small businesses have already run out of funds. Meanwhile the pipeline of loans—from the Treasury to the Federal Reserve to them—has clogged up. Why? The big banks are gaming the system.

Because the way the US banking system works, the big banks are in the driver seat of the distribution of the loans. They are the bottleneck.  This past week they have been using their position to slow the flow of funds to small business. They are leverage the crisis to extract more concessions out of the Fed and the government. They are demanding that before they participate and open up the bottleneck of lending that the US government and Fed reduce banking regulations, which would fatten their share of the profits from the loan distribution and reduce financial regulations they legally must deal with. 

The point, however, is that the $600B rescue of small business hasn’t gotten into the economy any more than has the $500B ‘stimulus’ has for households in the form of unemployment benefits and the $1200/person + $500 per child checks. What all this gaming of the system by the big banks, and the delaying of restoring some of the lost income for workers, means is that the contraction of the real US economy continues to deepen and will do so through most of April. 

Fed Liquidity Diversion & V-Shape Recovery

It is the Fed that is attempting to bail out the collapsing real economy, not Congress. It is monetary policy at the forefront, not traditional fiscal government spending policy.  Monetary policy took the lead in the recovery after 2009 and failed to generate a quick recovery. And monetary policy is always slower and uncertain in generating recovery.

All the major programs targeting small-medium-large corporations are being ‘funded’ by the Fed. The Fed is either pushing money through the private banks with the objective of getting the big banks to lend to non-financial businesses in need of cash. There is some indication the Fed may at times bypass the banks and provide grants and loans, or buy financial securities, directly itself.  But it is largely pushing money into the accounts of the big banks, who are then supposed to lend it to non-bank business customers in need.

When the media refers to $500 billion in loans offered to large (non-bank) corporations under the CARES ACT, or to $350B in loans to small businesses, or another $600B to mid-size businesses, these numbers actually represent anticipated final loans to businesses made by the private banks.  The Fed actually provides the big banks with around one-tenth of these totals in loans. But because the US banking system is what’s called ‘fractional reserve banking’, the private banks are expected to loan out five to ten times the money the Fed deposits in the big banks’ accounts at the Fed.

But what if the big banks sit on the money provided by the Fed and don’t actually loan out 5X-10X? Or maybe loan out only 2.5X and hoard the other 2.5X? Or lend the money to US or foreign businesses offshore instead of in the US? Or loan it out and the businesses invest it in stocks and other financial securities instead of the real economy to restore and grow production? All this is what actually happened in 2008-09. Bank lending to US non-financial businesses in the US actually fell in the years immediately after 2009. Or the Fed’s direct purchase of bad assets (subprime mortgage bonds) from investors or Treasuries resulted in money from the Fed that was diverted by the private banks into financial markets or offshore. That’s why the recovery of the real economy was so weak post-2008. The Fed liquidity injections did not flow into the real economy, into real investment, employment and wage incomes.  Once again, the private banks ‘gamed’ the monetary system then and will likely do so again in 2020, just as they’re already doing with the CARES Act Congressional mandated loans

The point is the current private banking system always functions as a drag on a rapid economic recovery (V-shape) when monetary policy via the Fed is relied upon as the primary stimulus tool. And that’s what is being repeated again in 2020.

To put it another way, relying on massive money supply (liquidity) injections to restore rapid growth to the economy is, under even the best assumptions, always a slower approach to recovery and even more so less likely to produce a ‘V-Shape’ recovery.

But there are other reasons why monetary policy solutions in general also work against a V-Shape recovery; reasons that are independent of the private banks’ bottleneck effect and independent of the central bank, the Fed, pushing a massive supply of money (liquidity) into the banking system.  These other reasons have everything to do with the Demand for Money which is independent of whatever the Fed and the private banks may or may not do.

Money Demand & V-Shape Recovery

What if the Fed, and even the banks, provided a massive amount of loans to business and households and local governments in an attempt to jump start a recovery—but those loan offers were not taken up by business or households?  The liquidity, the supply of money, might be there but the demand for that supply does not materialize.  Or maybe businesses and households ‘borrow’ the money made available, but just sit on it and keep it for emergencies? Or use it to pay down pre-existing debt levels. Or use it not to rehire laid off workers but for other business purposes? Or reinvest it in a rising stock market or use it as collateral to take on more debt, to redistribute to shareholders in the form of more dividends and stock buybacks?

None of these options and possibilities results in a recovery of the real economy, of employment, of GDP.

When a crisis is especially severe, as is the present, the strong incentive for businesses is to take the cash grants and hoard them.  Or take the loans and use the proceeds to pay down prior existing debt—which for a number of US industries has reached historic highs. For example, the US $2.2 trillion corporate junk bond market is at record levels. The (junk) leveraged loan market is more than $1 trillion. The shakiest BBB level of corporate bonds at $3 trillion. Corporate debt in the US, and world wide, is at levels never before seen. On the consumer side it’s no better. Credit card debt is $1.1 trillion. Auto debt $1.3 trillion. Student debt $1.6 trillion. Residential mortgage debt $10 trillion. The point is many businesses will take the $350b (small business) and $500B (large corporations) Fed money injections and use a good part of it to pay down debt.

Another large part will be simply hoarded and held for future emergencies. There is great uncertainty whether the health effects will end in just a few more months. There are likely second and third waves of virus infections coming. Until there is a vaccine and the populace develops what’s called ‘herd immunity’ that uncertainty will remain. Furthermore, as the global economy contracts elsewhere it will enhance the uncertainty.  The longer the current contraction, the more likely will defaults and bankruptcies grow—both business and household and even local governments.  Defaults further intensify the uncertainty. And uncertainty means the money supply increase provided by the Fed and the banks will not be taken up by borrowing; and that which is taken up will be used to pay down pre-existing debt or will be hoarded. And any of the above means the supply/liquidity won’t result in a return of investment, production, or household consumption levels that existed before the crisis. The economy is already wounded. It will take some time to heal even under the best of circumstances concerning resolving the health crisis.

In short, it doesn’t matter how low the Fed reduces interest rates. Or how much money it makes available for loans. Both business and household confidence may fall so low that cheap and available money is not ‘taken up’—i.e. borrowed.  The demand for it may be so low that the supply of money remains unused or is used for activities that don’t actually stimulate the recovery of the economy.  This is not theoretical conjecture. It’s what happened in the wake of the 2009-09 crash, when bank lending for small and medium businesses continued to contract for years. It’s what happened in the 1930s as well, when interest rates were virtually zero for years.

Money demand may therefore negate even very large injections of Fed central bank money supply made available for loans.  That will offset much of any effort to generate a V-shape recovery. That’s not to say that none of the Fed’s current multi-trillion dollar programs targeting small-medium and even large corporations will have no effect whatsoever. Undoubtedly a good part will be loaned by the banks to businesses in need. Some will be taken up in the form of grants. Grants more so than loans. The Fed may provide direct purchases of business assets and state & local governments’ (municipal bonds) debt. But it will not do so quick enough to ensure a V-Shape recovery. And it remains to be seen how much of the available credit is borrowed for hoarding for emergencies or paying down debt and thus not ever getting into investment, production and consumption sufficient to generate a V-shape recovery. And the historical record of similar deep contractions tells us never enough for a V-shape.

From V-Shape to L-Shape Recovery?

An important characteristic of this economic crisis is that the Fed is attempting to prevent a banking crisis by flooding the banking system with liquidity and money.  The crisis is ‘inverted’ in a sense: in 2008-09, it was the financial system crashing that spilled over and brought down a weakened real non-financial side of the economy. This time it is the real, non-financial side crashing that threatens, in turn, to result eventually in a financial-banking crisis. The Fed’s even more massive money injections this time are designed twofold: to bloat the banks with cash and, second, to funnel enough money through the banks, and directly as well, into the non-financial sectors of the economy to prevent defaults and bankruptcies. Should the latter occur in sufficient volume—probably starting in energy and retail and hospitality companies and spreading elsewhere—then these companies will default and go bankrupt in large numbers. That will mean losses by the banks and financial institutions that provided them loans and credit. It could mean thereafter failures of the financial institutions themselves, as occurred in 2008-09 and 1930-33.

The US economy is not there yet. The Fed is trying to head it off. But should it fail to prevent mass defaults, both business, households (credit cards, student loans, auto loans, installment loans, mortgage loans), and local governments alike—then the failures will spread in contagion-like effect to the banking system itself. 

Should events and conditions lead to this advanced state of the crisis, then not only is a V-Shape out of the question. What we’ll have is more an ‘L-Shape’ non-recovery for years. And that’s what describes a bona fide Great Depression.