What if the Great Depression never happened
Crisis for Beginners: Ten Questions About the Economic Crisis
The coronavirus is scary, but the economic consequences of the measures taken against it are at least as terrifying. Large parts of the economy around the world are at a standstill, hundreds of millions of people have lost their jobs in a very short time, and countless companies fear for their very existence. In the meantime, national debt is skyrocketing unchecked. This raises numerous questions for which even economists often have no clear answers.
1. Why is this crisis so much deeper than previous economic crises?
The world is experiencing the worst economic slump since the Great Depression almost a century ago. Crises usually follow the pattern of falling dominoes: A part of the global economy, such as the housing market in the USA, the national coffers of a Eurozone or oil prices, experience a shock and pass it on to neighboring sectors and trading partners.
Because of the rapid spread of the novel corona virus, all of the major states suddenly had to isolate their populations. So the economy was deliberately put into a coma by politics - that has never happened before. Many industries lost their customers overnight. As if a big hand was flattening all the dominoes at once.
2. Why are there so many unemployed when economic output is getting a little smaller again?
Broken down to a value of one hundred: This year we are likely to earn only 95 euros, although we came to 100 euros in the previous year. That doesn't seem dramatic. But instead of 100 unemployed in the previous year, 160 people were registered as unemployed in April. The fact that many people perceive the crisis on the labor market as worse than the slump in economic output is due to the fact that you immediately notice when many people lose their jobs.
We don't yet know exactly how much GDP actually slumped in April. And if you estimate how big the economic output will be for the whole year, the deep cut will be watered down during the shutdown.
In addition, this crisis hit service providers such as tourism and gastronomy in particular. There are a particularly large number of employees in these sectors. Another factor: if a company is short of cash, it has to close after just a few weeks with no sales. Then all employees suddenly lose their job.
3. Where is the money that is not currently being spent?
If the Stammbeisl does not serve anything, the mats are rolled up in the yoga studio and the seats in the cinema remain empty, Austrians have to spend their money elsewhere or save. Certainly people bought more online series, yeast and toilet paper. But the sad reality is that many incomes have shrunk because of the crisis. Because the expenses of one are the income of the other. If money is not spent, someone else becomes poorer.
Instead of hoarding money that cannot be spent, more Austrians have to fall back on savings or hope for public help. Economists therefore expect savings to shrink overall. If you have money left over that you couldn't spend as usual, you can leave it in your account or invest it in stocks, for example. The crisis has made some people more cautious. After all, according to a Gallup survey, every tenth Austrian wants to save his leftover money.
4. Can the state restart the economy as easily as it shut it down?
In principle, yes, but not really. What sounds like the answer in a radio Yerevan joke shows the contradiction between legal possibilities and economic reality: the government was able to paralyze the economy in no time with a law. It could just as quickly remove all restrictions. But it will take longer for the economy to benefit. Because insolvent companies are not restructured or replaced that quickly.
Terminated workers must first find a new job. And not all consumers fall into a buying frenzy the moment the shops reopen. In addition, the fear of a second corona wave and ongoing restrictions on life are also putting pressure on the economy. Domestic economists are currently assuming that Austria will only achieve the prosperity of 2019 in three years.
5. Are all businesses that are now closed going bankrupt?
First of all, it depends on how high the running costs such as rents or insurance premiums are, whether these can be reduced, how much financial reserves a company has and how much help it receives. The aim of the many government measures is to avoid bankruptcies.
Some businesses can also agree with the landlord on a deferral or suspension of the rent, because the landlord has nothing to do with bankruptcy. So far, the big wave of bankruptcies is not in sight. But if recovery is a long time coming, a series of bankruptcies is certain.
6. What is the state doing now to help?
In a crisis, the state can do three things: First, it can spend money. This happens, for example, by partially taking over salaries from employees, paying more to the unemployed, supporting small business owners or catching an airline.
Second, the state can take less money from people. This is what a government does, for example, when it lowers income tax. In addition, crisis-ridden companies are allowed to pay their taxes a little later.
Third, the state can vouch for companies that need to borrow money from the bank. The Austrian government has already planned a total of 43 billion euros in aid.
7. How much money can Austria spend now without becoming insolvent itself?
There has been a surplus of savings in the world for years that countries with good credit ratings can easily tap into. The interest rates are even negative: large funds pay to be able to borrow money from the Republic of Austria. Seen in this way, there is no limit to new borrowing in the fight against the crisis.
According to the forecast, Austria's debt level is set to rise to 78 percent of GDP this year. In Japan it is 230 percent and the country has the best credit rating. However, investors have to trust that the state will return to sound budgetary policies after the crisis and will always be able to pay its interest. That does not mean that savings must be made immediately after the crisis. But in the long term, a state cannot spend unlimited amounts of money.
8. Is the euro in danger, as it was after the financial crisis?
After 2008, the global financial crisis triggered a massive loss of confidence in several euro countries with high levels of public or private debt and thus endangered the cohesion of the euro zone. This was only ended when the European Central Bank pledged itself in 2012 to support those states "no matter what the cost" and thus restored confidence.
Unfortunately, two of the countries hardest hit by the pandemic in Europe are among those that have already suffered severely from the financial crisis. Then there is Greece, which will be hard hit by the lack of tourists in the summer.
The crisis instruments that were created then are now being used, and the banks are far more stable today than they were a decade ago. The euro is therefore not in danger in the short term. But if the countries in the south slide into a depression and are not helped enough by their stronger economic partners, then this could actually tear the euro zone apart.
9. How quickly can the economy recover? What does it depend on?
At the beginning of the measures, some economists predicted a so-called V-curve for the economy: a massive crash, followed by a rapid recovery when the shutdown ends again. But it doesn't look like that at the moment. Many restrictions will remain in place for fear of a second wave of infections. A wave of corporate bankruptcies would weigh on the economy for a long time.
The crisis in tourism and the weakness of the global economy are also threatening to delay the recovery in Austria. Nevertheless, unlike in the financial crisis, there are no deeper structural problems. With the right boost, such as massive public investments or an increase in export demand, the economy could grow again quickly. The timing and extent are also a question of luck.
10. What are the possible long-term consequences of the corona economic crisis?
Fewer and fewer experts believe that after defeating the virus, everything will go back to the way it was. If the worldwide desire to travel remains subdued for a long time, the entire tourism will shrink. This is likely to affect cruise ships and aviation in particular, which have an uncertain future due to the climate crisis. Free trade was under pressure even before the Corona crisis.
If many countries now set themselves the goal of reducing their dependence on imports, there could be a severe setback for globalization. Some would benefit from it, developing countries least, and the world as a whole would be poorer.
It remains to be seen whether the state will maintain its active role after the crisis. Even if politicians and citizens so wish: The high debts will restrict the scope of the state. Many predict that the economic system will change. But how nobody knows at the moment. (Leopold Stefan, Eric Frey, May 10, 2020)
- What is metaphysical dualism
- Gives Syrian citizenship to any country
- What are the best tools for business promotion
- Can I have sugar in my diet?
- Why do pathogens have antigens
- What are the disadvantages of being healthy
- Who succeeded the first emperor of China
- What if the voltage is too low
- Eating turtle salad
- How does WordPress org make money
- Why are Indian parents so conservative
- Who came first to Plato Aristotle or Socrates
- What makes a question silly
- What does Medium think of Quora blogs
- How can I be a great electrician
- What is a quasar 3
- What does the Bible say about qigong
- What is 10 10 10 5 10
- What is a personal blog
- Why do British universities have a lot of vacations
- Is age important for sex?
- Is CPA Marketing 2019 Dead
- Why do Gatling cannons spin
- What is c2c
- How do I send money to India
- Why are you applying on Quora
- How bad is Chow Mein for you
- Fat shame should be viewed as a crime
- What is special about muons
- Why did Git beat Mercurial
- Why do my wishes never come true
- Is it bad to seriously hate reality?
- What kind of channel are you starting