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The Dawn of A Second Great Depression?

Dealing with the possible “fallout” of the economic policies being implemented at this time.

The Dawn of A Second Great Depression?

The Dawn of A Second Great Depression?

by Pete Ketcham

This article is not intended to criticize the Trump administration or the individual Governor’s efforts to combat the Coronavirus Disease (COVID-19) that Is sweeping the nation (world), nor is it meant to be critical of any efforts by anyone who is providing any service in the fight against this monstrous disease. This article is primally dealing with the possible “fallout” of  the economic policies being implemented at this time.

As we look back in our economic history, there are some characteristics of the current economic crisis that we are experiencing today that were present during the 1930’s Great Depression, two of which are as follows:

■ The 1930’s Stock Market had excessive high and low fluctuations just before the crash. We are now experiencing similar fluctuations today, but do have the circuit breaker that automatically shuts down trading when it plunges to excessive lows.

■ We are experiencing similar massive unemployment with numerous businesses shutting down as was prevalent in the 1930’s, but today there is a possibility that some of these business may be able to restart within a reasonable time frame.

I believe that eventually our economy will recover from this Coronavirius catastrophe, but expect some long term consequences that we are unable to visualize at this time. Our nation is now sailing in uncharted waters with the largest financial “government assistance” in our history.  Quite frankly I am not as optimistic as Treasury Secretary Steve Mnuchin is as reported by Fox News “that while he is unsure of just how bad the effect of the coronavirus outbreak will ultimately be on the U.S. economy, he is confident that it will only be a short-term problem that will be resolved in a matter of months”.

What concerns me most about the economy is the business shutdowns that I believe will have far greater consequences than are currently being anticipated. Illustrating this concern is the complete shutdown of a large relatively upscale inclosed mall here in Medford.

This mall has ninety-five shops including a day care center, large food court, and large department stores such as JC Penny, Macy’s, and Kohl’s, all of which are currently shut down. In Order for the mall corporation to function, these mall shops need to be able to make monthly lease payments, utility (lights) payments, and inventory renewal, which being closed they can not do for very long. There is the possibility that the mall corporation will “forgive” tenant lease payments until the mall reopens, and in like kind the mortgage holder of the mall corporation could suspend mortgage payments untill the mall reopens. The permanent survival of these mall shops and stores (throughout the US) will require a new “forgiving”  relationship down through the entire chain of finance.

But it is still important to realize that businesses large or small depend on a consistent cash flow to stay alive, stopping this flow for four to eight weeks will close some of these businesses permanently. This is due to the fact that many businesses operate on a relatively small profit margin (especially restaurants) , and a cash flow stoppage has an immediate effect. In a Fox interview, Chip Rogers, CEO of the American Hotel & Lodging Assn indicated that many large hotel chains, such as Marriot franchisees may go broke in a relative short time due to the shutdown of the world wide travel industry.

No one realy knows the time frame or the difficulty of restarting these closed business. It seems the general expectation by some is that the minute the quarantine/stay in place restrictions are lifted, these mall business (and others) will immediately spring back to life with “business as usual”, and the mall will suddenly be filled with hundreds of customers ready to spend their money. But the reality is,  the former customers will be recovering from an “out of work” period of survival and will have little to no funds to spend on anything but the necessities, such as groceries, gas, etc.

CONCLUSION
Even though the Federal Government is initiating significant (direct deposits) monetary relief for businesses and employees (which was not done in the 1930’s),  I still believe the economic impact on this economy is going to be  greater than a recession, and will be more on the order of a second depression for the following reasons:

■Even though the  1930’s depression was caused by faulty stock market and banking procedures and this one is caused by a virus, the long lasting results may be very similar. In a sense what has caused the depression becomes almost irrelevant in light of the impact of it.

■ All the emergency economic efforts (this is not a criticism of these efforts) by the Federal Government, State Government and the private sector are designed as a survival means for businesses and their employees, not as a restoration to previous economic status.

■ Lastly, never in our history have we voluntarily shut down our economy, (not even during the Civil War), and there is no historical precedence of the forthcoming economic impact except for the 1930’s Great Depression, (which characteristic’s look very similar to what could be coming in the near future), but it all boils down to speculation, as we are sailing in uncharted waters, we have never sailed in before.

 

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