It’s Going to Get Better…After It Gets Worse

It's going to get better after it gets worse.

While we all hunker down and follow whatever quarantine procedures are currently in place to prevent the spread of the coronavirus, it’s hard not to absorb just some of the news about the economic impact this pandemic is having.

Not to downplay the incredibly scary health impact it’s causing at the same time, but that’s another story entirely.

Many in the financial sector have been pontificating about how damaging this pandemic will be to the US economy. How bad will it get? How long will it last? What will life look like when it’s over?

Of course, we all know that nobody has any of those answers. We’re all in this together, and we’re all winging it.

From the epidemiologists at Johns Hopkins University to the cajun cuisine chef with his food truck parked in the alley behind his house, we all have the same mountain of questions and the same sparse smattering of answers.

But there appear to be some signs to help us better understand the magnitude of the crisis we’re facing.

Record $2 Trillion Stimulus Package

Exhibit A would likely be the unprecedented $2 trillion dollar stimulus package passed by the government in an effort to keep people spending, thereby keeping the economy moving.

Of course, with most places of business closed to help prevent the spread of the virus, it’s hard to see that money trickling into the hands of local businesses anytime soon.

In the short term, that money will help some people keep their lights on and put food on the table, but it’s hard to imagine a lot of that money being used for the more frivolous activities we used to enjoy before this pandemic.

But it’s possible spending the money isn’t even on people’s minds anyway.

Record Unemployment

Exhibit B would be the fact that nearly 3.3 million people filed for unemployment last week. That’s a record, and not by just a little.

The previous single week high for unemployment applications in the US was 695,000 back in 1982.

And during the 2008 recession, the highest single-week for unemployment applications was 665,000, nearly 5 times less than the 3.3 million last week.

This shows just how broadly this pandemic has hit our economy. While the 2008 recession mostly left Wall Street and its ancillary parts reeling, this pandemic has crushed businesses across every sector without prejudice.

And it’s exactly during these types of unsettling world events that most people, let alone those that just lost their jobs, aren’t looking to spend money that they could be saving to help keep food on the table and a roof over their head.

Keep your Rent

Which brings us to housing.

Exhibit C would be the Keep Your Rent movement.

Started by a small community organization in Toronto, Canada, the idea has already spread to places like Seattle, Los Angeles, and New York.

The idea behind the Keep Your Rent movement is that since homeowners are getting some financial relief from their mortgages as part of the government stimulus package, renters are being left to wither on the vine.

So renters are banding together, vowing to not pay their rent, as a way to fight for some financial relief themselves.

It seems fair that financial relief should be doled out equally to homeowners and renters alike but, of course, it’s more complicated than that.

Some landlords rely on their rental income as their sole source of income. If all their tenants decide to keep the rent for the next several months, then those landlords have essentially just lost their jobs.

Landlords in this situation have every right to enforce their rental contract and demand payment, but with federal and local governments enforcing No Eviction rules during the pandemic, landlords have little recourse. (Not to mention the added perception of looking like a bunch of greedy pigs in the process.)

And so the trickle-down effect of the pandemic rolls through the economy as stores shutter their doors requiring them to lay off employees who are then forced to make a hard choice between paying their rent or feeding their kids.

The economic destruction is ugly no matter how you look at it.

But Things Will Get Better – Eventually

A good investor knows that the stock market always goes up, but there are frequent dips and sometimes significant drops along the way.

A good investor also knows that there is no way to guess when those dips and drops will occur, or when the market will start rising again. We’re all just along for the ride.

So it is with the economy.

The US economy, in particular, has proven to be incredibly resilient over the last 125 years. We’ve suffered our share of economic dips as well as significant recessions (and one major depression), and the economy has come roaring back every time – eventually.

How long is eventually? That’s the big question none of us have an answer to. From the most senior economic policy advisors at the Federal Reserve to the lady who cuts my hair, we’re all just guessing – and hoping.

My hope is that the recovery will be quick, but it’s probably best to assume it won’t be.

The first step, of course, is dealing with the coronavirus and those affected by COVID-19. It’s only after that is under control that we can focus on returning to an increased level of economic activity.

The big question, though, is how much economic activity will there be left to return to?

Many medium and small businesses simply won’t exist after this is all over. It’s possible even a few larger organizations may find themselves in significant financial trouble, going into bankruptcy or disappearing altogether.

It will take time to rebuild the economic engine that allowed all these great businesses to exist in the first place. How long will it take to rebuild? Nobody knows.

But the longer it takes to get the coronavirus under control, the more stress and strain will be placed on businesses and the individuals keeping them running.

The one thing we can do now is anything to help keep the coronavirus from spreading. For many of us, that means staying home and not going about our normal routine. It means working from home, educating our children at home, and engaging with people via technology instead of in person.

It may not feel like much, but if we can all do that, it might be the very best thing we can do to help move beyond this terrible crisis as quickly as possible.

Stay strong, my friends. Stay safe.

And please stay home.

Live Your Wage Budget Spreadsheet Promo Image

Subscribe today and get my LYW Budget Spreadsheet for free.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.