Inflation could increase due to negative impacts on the supply curve and the supply chain in a number of industries. Potential concerns: inflation and financial system fragility If that happens, there could be two major consequences. Since the Fed never reduced its balance sheet, 2020’s pandemic relief will compound the fiscal deficit and may lead to an even larger balance sheet for a longer period of time. Like last time, it’s possible we will be in a zero-rate environment for years to come. The Fed took a while to begin re-normalizing after the last financial crisis and while history never repeats itself, we can observe very similar patterns. In 20, we worried about the potential blowback from all the spending, but the pending crash that many anticipated never occurred. Yet today, the Fed has spent twice as much from a balance sheet perspective, while the federal government has distributed three times the amount in federal stimulus. In 2008, the Federal Reserve (the Fed) and the government took extreme measures to address the financial crisis, spending $86 billion in total. Some of the industries most impacted include transportation, food, retail, and travel. Ultimately, we may find the constraint to a full recovery is a medical one, which means we need a vaccine to help push impacted industries back to pre-coronavirus operating and employment levels. Governments not only have to determine how to reopen local economies, but also how to overcome the public’s reluctance to practice social distancing. The constraint in 2020 is the coronavirus spread, which is on the rise again. The constraint in 2008 was the impairment of the financial system. But we still must understand the current constraints, as well as the necessary measures for a full recovery. While we saw a violent downturn in March, quick and aggressive fiscal and monetary responses resulted in a strong rebound. To start, the economy’s strength at the beginning of 2020 and the banking system’s ability to lend during this pandemic have helped us avoid a full-blown financial crisis. Though both significantly impacted our economy, there are key differences between the two. Many clients have asked how the financial crisis of 2008 compares with the pandemic-driven economic crisis of today.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |