I actually sat down for a few hours to calculate what would have happened if this pandemic happened in the 50s, and no one could work (especially true since there was no internet). Seems like people saved enough for a year at home, on average. Today people are so levered up not only do they not have savings, they have to pay back debt.
Look at the unemployment claims chart. This has never happened before in the entire 20th century. That’s not a pin. That’s a collapse in employment.
It doesn’t really matter whether or not people have savings.
Economic recessions don’t mean “people don’t have their savings anymore.” They’re a reduction in economic activity. That doesn’t have to happen because people are literally out of money, it can happen because people are unwilling to spend as much as they used to.
Take the best-off person right now as an example. They still have a job, working from home. They have 6-12 months of emergency fund. Despite all this, are they going to buy anything but essentials right now? Plus, in many cases, they don’t have a choice. They’re not allowed to pay for their gym membership. They’re not allowed to take dance classes. They’re not allowed to go on vacation.
They’re sitting at home buying groceries and nothing else just like the person with no savings.
Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, with exception that there is no war that could take all the unemployed hands to the front and to producing weapons.
But let's not forget that this wasn't caused by the virus itelf, it was consciously decided by politicians to trade an (unknown in magnitude) risk for a huge recession.
I've been saying for a few years that a recession is coming but I'm not going to pretend I thought it would be started by an event like this. Recessions are simply a natural part of the business cycle and after such a long 'boom' period there was certain to be one eventually.
Odd that you don’t mention wages. Seems like middle-income wages are stagnant while housing, healthcare and education get more and more expensive. Not hard to see how that would cut into household budgets and encourage debt.
No, but inverted yield curves do.
