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MNI EXCLUSIVE:Coronavirus Crisis Won't Be Grandpa's Depression

By Greg Quinn and Evan Ryser
     (MNI) - The coronavirus depression won't look like the 1930s even if
employment and GDP show similar drops, with a quick restart possible because of
unlimited stimulus for economies with a more resilient starting point than the
Great Depression, current and former government officials say.
     The G20 has said USD5 trillion of fiscal aid is coming to shore up
confidence, including a USD2.2 trillion package from the U.S. Congress. The Fed
is bringing an unprecedented Main Street lending program and backstops for
corporate and even municipal debt. The ECB, BOE, BOJ and BOC are also flooding
financial markets with cash to keep credit flowing.
     While unemployment may surge to 20% levels seen in the 1930s, James Bullard
and Charles Evans at the Fed and BOC Governor Stephen Poloz said recoveries
could begin as soon as the third quarter if COVID-19 is contained. Even if it
takes a few years for GDP to return to where it was before the pandemic because
of new outbreaks, it's much sooner than the decadelong Great Depression that was
shaken off in part by the onset of World War II.
     The downturn "probably won't be as long and drawn out as the Great
Depression," with a restart instead of a recovery that could start soon after
health shutdowns are lifted, said Stephen Gordon, a former BOC adviser who
teaches at Laval University in Quebec City. 
     "We do have the social safety net in place, we also have learned a lot more
about monetary policy, for example the Great Depression was made a lot worse by
countries adopting wrongheaded monetary policy, now we know not to be worried
about tight monetary policy and inflation at this time," Gordon said. 
     The IMF says global GDP will fall 3% this year, the worst slump since the
Depression, and there will be a partial output recovery with 5.8% growth in
2021, calling it a "great lockdown" to suggest a re-opening, rather than a lost
     "We are finding ways to stop the clock, wait out the pandemic, and restart
the clock," Poloz told lawmakers Thursday. Comparisons to the depression aren't
helpful, he said, adding he could see a recovery starting in a few months. That
optimism came even as he said GDP could drop 15%-30% between the end of last
year and the middle of this year in a worst-case scenario. 
     Advisers MNI interviewed also had less concern about deflation and a
downward wage-price spiral today that would turn a V-shaped recovery into a U-or
and L-shaped depression like the 1930s. 
     "It's a hugely sped up version of the depression -- where it took years in
the depression is taking a month now," said Joseph Gagnon, a former Fed
associate director and Treasury official. "It took them four years to get where
we are now in the Great Depression and I believe it will not take us four years
to get out. We'll be halfway out in two months." 
     --NO BUBBLE
     Today's global economy has much stronger programs to cover jobless and
health benefits, so while U.S. states are overwhelmed with applications for a
few weeks, it's also a sign people are being tided over. That makes policy
makers' pledges they can restart economies once COVID-19 is contained more
credible. There are also few major impediments to a recovery like rotten housing
markets in 2008 or droughts that ruined less industrial economies in Canada and
the U.S. in the 1930s.
     The restaurants and hotels that are being closed down are also fairly easy
to re-open even after a bankruptcy, rather than deeper damage from say shutting
down power plants, farms or de-leveraging banks and mortgage lenders.
     "The current turmoil is fundamentally different from recessions of the
past. The challenges before us do not stem from vulnerabilities at banks or the
bursting of a bubble -- I can only liken them to a natural disaster of global
proportions," New York Fed President John Williams said Thursday. 
--MNI Ottawa Bureau; +1 613-314-9647; email:
--MNI Washington Bureau; +1 202 371 2121; email:
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MNI Washington Bureau | +1 202-371-2121 |

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