
IMF predicts worst downturn since Great Depression - bookofjoe
https://www.nytimes.com/2020/04/14/us/politics/coronavirus-economy-recession-depression.html
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merricksb
Discussed yesterday:

[https://news.ycombinator.com/item?id=22865127](https://news.ycombinator.com/item?id=22865127)

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brenden2
A lot of people comparing this to 1929, but there are a few things that are
substantially different:

* unprecedented scale and speed of QE and government stimulus

* the Federal Reserve has stated they will provide "unlimited QE"

* the markets are a lot more efficient now than they were in 1929

* in the 1930s, credit and banking was, in many ways, still in its infancy

* today's widely available technology was science fiction in the 1930s

PS: There's an interesting documentary on YouTube about the Great Depression,
part 1:
[https://www.youtube.com/watch?v=bCEJ65H_1XE](https://www.youtube.com/watch?v=bCEJ65H_1XE)
part 2:
[https://www.youtube.com/watch?v=gO42ZfCN9ug](https://www.youtube.com/watch?v=gO42ZfCN9ug).
It's worth watching if you want to understand what happened in the 1930s.

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JohnJamesRambo
Most of your differences involve just creating money out of thin air more. I
don’t see how that will fix it.

What it reminds me of most are things like assignats before the French
Revolution. But at least those were said to be based on something (seized
church land). We make our money up based on nothing right now. It’s absurd and
after it all falls it will seem so obviously stupid to historians.

[https://en.wikipedia.org/wiki/Assignat#France](https://en.wikipedia.org/wiki/Assignat#France)

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SpicyLemonZest
Modern recessions aren't like famines, where there simply isn't enough stuff
to go around. We have plenty of stuff, our productive capacity is still
available, and the problem is just getting it allocated properly. Magic money
creation based on nothing can help with that kind of problem.

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brenden2
That would be true if there was wealth distribution happening, but there
isn't. Most of this money goes into the hands of the richest people.

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SpicyLemonZest
I'd love to see poor people have more money, but I don't see why that's a
critical feature for a plan to keep the economy running well. There are many
important problems that just don't have much to do with income inequality.

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brenden2
The economy only works when everyone has money to spend. If 30% of the
population is broke, that's going to cause a huge drop in economic activity.
Most economic activity is driven by consumer spending.

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SpicyLemonZest
Agreed. Current response plans won't handle 30% of the population being broke;
if that happens something very different will be needed.

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atomi
The way you fix that is by redistributing wealth. The government is doing this
in a roundabout way by borrowing the money for a massive stimulus and
recouping that money by increasing taxes on the wealthy later - likely with a
Democrat administration so Republicans can maintain their rhetoric.

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glofish
This makes me realize that I never understood macroeconomy.

After shutting down the economies for the developed world for multiple months
the prediction for the global economy is ONLY 3% down? I don't get it. Makes
no sense frankly.

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brenden2
Stock markets != economy

Edit: I misread, thought the parent mentioned markets.

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glofish
I am not sure I follow, the stock market is not discussed here, it is about
the global economy,

the word "stock" is not even present in the cited work.

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overkill28
The IMF is predicting the global economy will contract by 3% this year, which
would be the worst since the great depression.

However what made the Great Depression so painful was its depth, scope and
_length._ The US experienced 4 straight years of negative growth in 1930s (up
to -12%) and in many ways the economy did not fully recover until World War 2.

So far I don't see anyone predicting a downturn of that size.

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smdz
Even if we consider a global lockdown impact of 3-4 months, the fall in output
should be roughly between 25-30%. The best case could be 13.4% i.e
3.3-16.7(for 2 months)

Not an economist, but I don't understand how they calculate just 3%

Further, when this is over, I think the crisis will lead into a geopolitical
crisis. Also it is good to assume that multiple countries will not let China
(govt) simply get away with this. There could be policies that can end up
resulting into collateral damage

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HaseebQ
All productive output doesn't stop during a lockdown. And not all of the world
is locked down, including China, the second largest economy in the world.

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smdz
You are right, we have at least 20-30% productivity in lockdowns. But most
large economies are in lockdown and China is just 15-16% of world economy. It
is export oriented and only essentials have demand and functional supply
chains in these lockdowns. Even with all the best case scenarios, that 3%
number does not feel right

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fallingfrog
The economy is basically a big network of relationships; employee
relationships, business relationships, etc. Unfortunately such relationships
tend to break quickly and in a self reinforcing cascade but can only be
rebuilt slowly as businesses find that there is enough profit margin and
demand to bring new people in, one at a time. That’s why recessions happen
quickly and recovery time is proportional to how many people lose their jobs.
You look at unemployment data for the last 50 years and the pattern is very
simple: a rapid increase in unemployment and a steady recovery. The higher the
spike, the longer the recovery. That being the case I would guess that the
recovery from this shock will take a decade or more.

[https://www.whitehouse.gov/wp-
content/uploads/2019/05/April-...](https://www.whitehouse.gov/wp-
content/uploads/2019/05/April-Jobs-Report-1-820x493.png)

Now I’m not saying it’s impossible for everyone to just get hired back but
this would be the first time. You can’t put a broken egg back together;
entropy doesn’t go in reverse. The old jobs don’t come back, new ones are
created, that’s just the way it works.

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chmaynard
The hidden assumption of many economists is that unfettered economic growth is
always a good thing. I'm not arguing against growth. I just think it's
important to state our biases and assumptions when we make an argument.

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mojuba
Growth is always good for the poor, as it is good for entire poor nations. The
problem with modern capitalism though is that the rich benefit from growth to
a greater extent compared to the rest. The gap is only widening. Then there's
stagnation/recession/depression when it's the opposite: the poor lose more
than the rich compared to what they have. So no, growth is a good thing, but
it needs some serious fixing too.

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TheOtherHobbes
Growth is only good for the poor when it's evenly distributed, which it mostly
isn't, and when it doesn't have negative impacts on personal health and the
environment, which it mostly does.

Most "growth" is really just stripping the house and burning it down to make a
fire - while a small number of people get most of the benefit.

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mojuba
Not true, no. We all become more productive over time, then we develop even
more productivity tools etc. That's real growth. There's of course the
inflated component in it which gets corrected regularly.

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claudeganon
It’s going to be even worse when the second wave hits. Politicians cowing to
the demands of their donor base are laying the runway to “reopen” the economy,
knowing the loss of life that will entail in the absence of any meaningful
preparation.

South Korea has shown that it’s entirely possible to remain “open,” with
massive testing, alert systems, and on demand health access expansions. But
none of the people arguing that this is necessary are not doing anything
similar to prepare and respond.

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chmaynard
You probably meant "are NOT doing anything similar".

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claudeganon
Thanks! Corrected.

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sdiw
_No raises_ is gonna be the new norm then.

And the stock market has been pumped globally, which shows the Economy has
nothing or very little to do with the stock market.

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chewz
> shows the Economy has nothing or very little to do with the stock market.

I disagree. Stock ownership is not universal and fiscal stimulus and unlimited
QE, low intrest rates is very good for people who own majorority of stock
shares.

If you have access to credit and some political clout you can expect getting
richer with no effort over next few years.

It is the other story for the rest.

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girvo
I think I’m misunderstanding your point (and I agree with your conclusions):
how are you disagreeing?

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chewz
I meant stock market going up with economy crashing is not as illogical as it
may seem.

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DeathArrow
I hope IMF is wrong as usual.

[https://www.ft.com/content/60581224-3335-11e8-b5bf-23cb17fd1...](https://www.ft.com/content/60581224-3335-11e8-b5bf-23cb17fd1498)

