The United States was in an extremely unusual situation that would paralyze the country’s economy for a long time.
This was reported by the Bloomberg agency.
The paradox is that the US unemployment rate is declining amid labor market health deteriorating. This is a consequence of the protracted pandemic of the coronavirus.
“The country is at the center of two simultaneous recessions – a short-term, caused by fear of coronavirus, and long-term, which will be more like a traditional recession. Unfortunately, the latter is just beginning, ” the publication says.
The agency indicates that the adjusted unemployment rate showed a faster decline than the primary. This is explained by the “accumulation of labor” when the employer sends his employees home to quickly return them at any time. Some workers in these conditions continue to receive a salary, while others are sent on free leave. Such an approach across the country becomes a threat, because it can paralyze the economy if the crisis drags on.
The problem is aggravated by the fact that the United States faced two crises at once. The first, as predicted by the media, may end in the fall, especially if a vaccine against coronavirus infection is developed.
“This, however, will not immediately return the American economy to its full potential. A deeper and longer recession begins, which will not be so acute, but which may last much longer, ” continues Bloomberg.
The first reason for the secondary recession is massive bankruptcy. The lack of economic activity during the pandemic will lead to the disappearance of thousands of enterprises. Even with the restoration of demand, it will take time to restore the business. All this time, many people will remain unemployed, and since the unemployed have less money, the recovery in demand will be slower.
The second reason is overt pessimism. Looking at the damping of the economy in the coming months, investors and consumers will behave with extreme caution.
Finally, the third reason is to change the very structure of American business. Enterprises such as cinemas can “go to landfill,” classical education will suffer.
“This is not a normal cause of the recession, and it can cause a supply shock, which partially negates the deflationary effect of falling demand, while increasing unemployment,” the agency explained.
“The supply shock may not be enough to push the economy toward stagflation comparable to the 1970s, but it could make the Federal Reserve more cautious use bold monetary policy to deal with the recession.”
Thus, the secondary recession will be protracted, dangerous and “vile”, because reducing unemployment and neutralizing the most obvious damage from the pandemic will make politicians think that the government’s mission has been completed.
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“If permanent unemployment continues to grow by half a percent every month, it can reach the level of the Great Recession by the end of the year,” the agency said.