Coronavirus creates global economic crisis

Crescent International

Sha'ban 06, 1441 2020-03-31

Daily News Analysis

by Crescent International

The global economic crisis created by the coronavirus is unlike any other in history. No solution exists in standard economic policies.

The rapidly spreading virus has created a supply and demand crisis globally.

Demand for goods and services has plummeted sharply because people everywhere have been ordered to stay at home.

This automatically suppresses demand.

Even when there is demand for certain goods and services, many organizations are finding it difficult to provide them as their logistical operations have been hit and most employees are on unpaid leave.

Problems faced by the airline industry, tourism and restaurants have been widely discussed.

However, as people are forced to stay away from work, other sectors are also experiencing economic problems.

On March 27, IMF chief Kristalina Georgieva stated that “it is clear that we have entered a recession that will be worse than in 2009 following the global financial crisis. Over 80 countries, mostly of low incomes, have already requested emergency aid from the International Monetary Fund. With the worldwide economic ‘sudden stop’, the fund’s estimate for the overall financial needs of emerging markets is $2.5 trillion.”

The virus, COVID-19, is not only causing a massive health crisis but is also creating great disruption to the economies of poor countries.

On the day the IMF chief issued her statement, Harvard Business Review (HBR) also published an analysis on the economic shock of COVID-19.

Standardized predictions of the economic crisis are “dubious now as there are simply too many unknowable aspects: the virus’ properties are not fully understood and could change, the role of asymptomatic patients is still imperfectly understood, the true rates of infection and immunity are, therefore, uncertain, especially where testing is limited, policy responses will be uneven, often delayed, and there will be missteps and the reactions of firms and households are uncertain,” the Harvard analysis said.

Its analysis concluded that “it is fair to say the risk profile of the Covid-19 crisis is particularly threatening. While there is a policy playbook for dealing with financial crises, no such thing exists for a large-scale real economy freeze. There is no off-the-shelf cure for liquidity problems of entire real economies.”

While the long-term economic outlook is certain about uncertainty, the media machinery behind the US dollar is pushing the idea that the green back is proving its resilience.

Markets are drifting towards the US dollar, away from the traditional safe haven like gold, the media asserts.

The current economic crisis has shown that there is physical shortage of gold in comparison to US dollars which can be printed physically or “produced” through quantitative easing.

Some financial market observers point out that while the dollar’s rise might seem like a positive development for both the US and global economies, as it provides some safety and security, this observation is based on the assumption that collapse of the dollar is an event and not a process.

The dollar’s rise might also be harmful for the US economy as it will make US goods and services more expensive.

Thus, the US will become less competitive compared to other countries.

On March 26, the US Labor Department reported a record number of jobless claims which surged to 3.28 million.

If Americans don’t have a job, how does it benefit them if a strong US dollar is traded on the playground of the rich—the foreign exchange market.