Is COVID-19 The Cause or Trigger To Economic Crisis
- Written by Paul The Freedom Journalist
- In Economic Warning
As the whole world is battling COVID-19 Pandemic, number of infection and death toll soars all over the world. Many countries including United States have since taken extraordinary measures to stop the spread of the virus by implementing aggressive social distancing, limiting travels, closing businesses, schools, and social gatherings. In many countries, mandatory “stay-at-home” order have also been issued. As a result, US economy is essentially frozen. People are not able to go out and about as they normally would. The longer this goes, the more bankruptcies, layoffs/furloughs, and unemployment claims are to be dealt with not to mention other collateral damages such as crimes and social stability as fear and anxiety have also taken its toll on people’s psychological well-being.
It is hard for anyone to imagine that we would even be in this position just a few months ago when people were celebrating the New Year 2020, the beginning of a new decade. Now as many experts and government officials would agree, it is without question a dark cloud of economic crisis is looming ahead. While some believe that this would be merely a shorter-term recession, others argue this could turn into a prolonged depression. Those who think this will be just a short-lived recession likely also believe that this is just a pandemic-induced recession as California Governor Gavin Newsom put it during his speech on April 17th 2020. In other words, if it wasn’t because of COVID-19, we wouldn’t have this recession at all so it is safe to say that COVID-19 is the cause of this economic crisis. On the other hand, many also argue that COVID-19 only triggers the collapse of an economy that was on its last-leg anyway, and that it has since become the perfect scapegoat and blind us from the real problems. They tend to believe that this economic crisis will be much long lasting because even if the COVID-19 situation has been contained right away, consumer confidence was already damaged and will take much longer to restore. So here in the article, we will try to analyze objectively whether COVID-19 is the cause or merely a trigger to the economic crisis we are facing?
Unemployment Surges Due To Frozen Economy
In just the first three weeks (3/15/2020 – 4/4/2020) of our country shutting down, the official unemployment claims surged to close to 17 million. This includes 10 million in the first two weeks and an additional 6.6 million in the third week. It seems that not only do we have the jobless number skyrocketed; the rate of the increase also becomes steeper. The longer that this virus lasts, we can expect the domino effect to trickle down to more industries and affect more people’s lives. Many would think that this unemployment situation supports the argument that COVID-19 is the CAUSE to this very economic crisis because we didn’t have this surge in unemployment before. After all, our country was in a good economic position, just as our own beloved President Trump always claimed that the job number had never been better and our country was as healthy as ever. Okay perhaps this is a valid point but is it enough to draw conclusion based on the employment number alone? Can we take a look at this from a different angle?
70% of Americans Have Less Than $1000 Saved Up
In a study conducted by GoBankingRates since 2014 to see how much Americans have in their savings accounts, it is quite jar dropping to learn that in 2019, 69% of the respondents said they have less than $1000 in their savings account. Please keep in mind that these studies were concluded way before we had this pandemic situation. In fact, the article reveals that this number is an increase from the number in the previous year (2018) which was 58%. So Americans are actually becoming poorer and poorer. Now I understand from the perspective of the polling accuracy, there may be a plus or minus of a few percent points but regardless, they are all alarmingly high. People are actually living paycheck to paycheck considering $1000 is really not a lot of money in today’s economy. In many places of the country, $1000 can’t even afford you one month of rent. It is quite suffocating to think that most people are really just one flat tire or one bad luck away from being on the street homeless or having to move in with their parents. All across the country, we see many homes’ driveways becoming parking lots where multiple families are now sharing to live in a “single-family” house. No wonder our job numbers had been so good prior to this pandemic because more and more are required to work 2 or 3 jobs just to make ends meet; this actually gets reflected as a positive thing in the jobs report, which is completely disconnected from people’s quality of living.
In the article, it actually says, “Despite a strong economy, a majority of Americans seem to be struggling to save money…”. For me personally, even this statement alone is quite sarcastic. How can there be a strong economy when the people in economy are struggling to make ends meet? How can we call ourselves the wealthiest country in the world and yet our citizens are struggling financially?
The reason people are living paycheck to paycheck are largely because things have become more and more expensive over time. The price of home, rent, car, healthcare, insurance premiums (and many more) have all gone up over the years yet our salary remain relatively stagnant compared to the inflation.
Even Many Riches Are Living Paycheck to Paycheck
Now you may think that living paycheck to paycheck is the “privilege” of average Americans. That is not entirely true. You may be shocked to learn that even some of the wealthiest people are also living like that. According to a sports news on April 10, 2020 from the abovethelaw titled “Many NBA Players Are Living Paycheck-To-Paycheck, Which is Why They Need Pay During Coronavirus Crisis”. It is no secret that NBA players make a lot of money. We are not even talking about the top-tier players like Lebron James and Stephen Curry; they are making hundreds of million dollars a year. Even some of the less famous ones are likely also making hundreds of thousand and even millions of dollars a year. In the article, it mentioned that an interview has been conducted with Portland Trail Blazer guard CJ McCollum in reference to how the cancelled season could impact the economic well-being of the players. He estimated that out of 450 active players, there are probably 1/3 of them living paycheck to paycheck. NBA players are among some of the highest pay people in the world (top 0.01%). If his estimate is anywhere near valid, then even among the top 0.01%, we still have one out of every three people living paycheck to paycheck. For the average people, this may be due to not making enough money amidst all the inflation. But if this situation is also among the riches, this likely says a lot about our spending behavior. America’s economy has long been a consumer-based economy. In fact, 70% of our GDP (Gross Domestic Product) is consumer spending. In other words, our economy is dependent upon people spending money. Sadly we don’t manufacture anything anymore. Most of our goods today are imports from other countries with cheaper labor. Our leaders and politicians have been allowing this to happen over the last several decades which in turn drive our manufacturing industry out of business. Our government and central bank (aka Federal Reserve) have always been encouraging people to spend money to “stimulate” the economy, even with money that we don’t even have (aka debt). But of course, without people continuously borrowing to spend, our consumer-driven and debt-driven economy would’ve tumbled down long ago.
Americans Are Broke
To understand Americans’ financial situation better, it is also important to look at the debt situation of average American household. In a study conducted by nerdwallet titled “2019 American Household Credit Card Debt Study”, it indicates that credit card debt, mortgages, auto loans, and student loans are the four most common debt in a typical American household and they have an average balances of $7,014 (credit cards), $192,618 (mortgages), $27,934 (auto loans), and $46,679 (student loans) respectively. Even though these numbers are household numbers, they are still a lot higher compared to the $1000 saving account balance for most Americans. So it isn’t hard to see that most Americans actually have negative net worth. Americans are broke.
Should COVID-19 Be The Scapegoat For The Economic Crisis
While many are blaming COVID-19 for all the economic repercussions due to lockdown, maybe if Americans and our businesses have a little more saving and a little less debt, we would be in a greater position to weather the storm much better. If we were to have more saving and less debt, perhaps this lockdown will be just like an extra vacation time for us to be with our family. Yes we can’t go anywhere but at least we get to be with our family. Before the lockdown, people complained they were always working and don’t have time to be with family. Now we got a “mandatory” vacation yet most people can’t enjoy it because they got to worry about how to pay the bills, how to bring food to the table, how to pay the rent and mortgage etc. This isn’t saying these aren’t legitimate worries, but the point is our economy was already struggling even before this pandemic. Of course, if you watch mainstream medias or pay attention to the stock market, you would think our economy was healthy. The reality is people were struggling financially long before this pandemic. This pandemic just couldn’t come at a better time to cause a lockdown to be labeled as a perfect scapegoat. So, the bottom line is COVID-19 isn’t the cause but the trigger to this economic meltdown.
America's Biggest Crisis: Debt Crisis
Some may argue does it really matter whether COVID-19 is the cause or just the trigger to the economic crisis. We are already in the crisis, what do we go from here? Of course, that is a great mindset but the first step of solving a problem is to identify what causes the problem rather than finding a convenient scapegoat in COVID-19 to blame. So, what is the true cause to the economic crisis?
It is the debt. Our country is in a debt crisis. There is a giant debt bubble that has been growing for several decades and not only has it start to burden this economy, it is on the brink of bursting. Recent data coming out suggests our national debt standing all-time high at 24 trillion, our corporate debt and personal debt have also been at an all-time high. And believe it or not, if you are living and breathing, you contribute to this debt bubble in some ways. So when this bubble bursts, not a single person can escape its impact. Some may argue that this is nothing new, debt has been around for a long time. Yes, that is correct, but it is also important to notice its impact to the economy now compared to before. In our grandparents’ days, say 30-40 years ago, people can easily afford a house with their income. In fact, many of them don’t even need to get a loan. You can have a family of six (mom, dad, and four kids) with only one parent working and you can live a pretty abundant life without any financial stress. Isn’t that what American Dream was all about?
Nowadays, people are working 2 or 3 jobs just to make ends meet. Couples are putting off having children because they can’t even afford the bills. Not only do people need to go into debt to live in a house and drive a car, people also get in debt to go to school. Some even need to get in debt to be able to afford a phone via payment plan, others need to use CareCredit to see a doctor or dentist. Pretty soon (I know many already do), people need to get into debt to buy everyday necessity stuff. How pathetic do we come down to this situation as a country and still think everything is normal? How do we even get here in the first place?
I think it is a combination of reckless spending behavior to go along with all the false propaganda and monetary policy that encourage it. Over time, people lose common senses and the discerning ability, then they start believing everything they hear on TV, from their financial analysts, insurance agents, and realtors are the common senses because everybody else is also doing it. I got nothing against these professionals as they do provide valuable services, but often time, they sway people into taking on more debts so that they can earn their commission-based living. In fact, they will never call it “debt”, they call it “credit” like it is some sort of a good thing. Again it is not all theirs to blame but also people being too brain-dead to discern.
Our government and central bank aren’t exactly angels either. Instead of allowing the free market to dictate supply and demand on its own, they decided to make the interest rate very low for a long time to entice people into more spending and borrowing with money they don’t even have while at the same time punishing the savers, those who willingly sacrifice to live within their means. In 2008 after the financial collapse, instead of solving the very problem that causes the collapse, they decided to reward the bad behaviors of those institutions and corporations that went into trouble by bailing them out. At the same time, they pumped trillions and trillions of money created out of thin air into the financial markets via multiple rounds of “Quantitative Easing” leading to massive inflation across all assets. While the main street Americans working their butt off earning paychecks, the wall streets and corporations are getting trillions of free. Are we talking about a fair game? No wonder the riches always get richer. When an entity has the authority to create/print money without the backing of any commodity, it sparks nothing but trouble for an economy and the middle class.
This debt bubble is going to have to burst one way or another because as a matter of fact, all bubbles burst. In fact, the bigger it grows, the uglier the bursting gets. At this point, I think we’ve past the point of no return. All it takes is a trigger to pop this ugly bubble. Because America’s economy is almost entirely a consumer-based economy, I would think a likely trigger will be something that disrupts the consumer confidence. This can be a war, a disaster, a disease, or can even be just a supply shortage of one industry sector causing a ripple effect to other industries since all of them are deeply connected. Regardless, the COVID-19 pandemic certainly makes a perfect trigger that is hard to beat.
But people for sure have all kinds of beliefs about taking on debts. Some would look at it from the perspective of an investment and argue that there are good debts and bad debts. Credit card debt without any doubt is a bad debt because you are almost guaranteed to lose money because of its high interest rate. On the other hand, business loans and mortgages of a rental properties can be considered good debts because it can produce positive cash flow after servicing the debt obligations. Some even said the mortgage of your own home can be a good debt as well because your home price will increase over time resulting in extra home equity. While these arguments may sound very legit, they all seem to be sales pitches for people to buy things they don’t have money for. After all, no investment is guaranteed to make money. It is very premature to think that home prices can only go up and not the other way around. Ask anyone of the 1.4 million Americans whose mortgages went underwater during the ’08 financial collapse. In the end, it is certain anyone would agree that an investment with a debt has more risk than the same investment without a debt. So debt is never a good thing. The question here is really whether you should take on a debt when you don’t have money.
People have different opinions about debts, and that is fine, we are all entitled to our opinions. But perhaps it is more important to refer to the Bible to see what Almighty God has to say about debt. At the end of the day, his words are the only thing that counts.
Biblical Reference On People Taking Debt
It says very clearly and precisely in Proverbs 22:7
“The rich rule over the poor, and the borrower is slave to the lender” – Proverbs 22:7
Here it specifically uses the word, “slave” to describe the relationship between borrower and the lender because it is simply the best representation. During the time of ancient Israel, slavery is a popular business. People frequently buy and sell humans to be used as helpers or workers. When somebody pays a price to have you as slave, he or she has the authority over you that is protected by the law and you won’t have the freedom until your owner releases you from the obligation. Similarly, when you borrow money from someone, your lender has the authority over you which may compromise your freedom or free will. So evidently, debt is never a good thing from the biblical standpoint.
It is important to know that God wants us to be FREE. He never intends us to be enslaved by anything. This is why He didn’t just create a whole bunch of robots that obey him; instead He gives us the freewill to choose including whether or not we want to follow him. He respects our sovereign will and want us to take responsibility for it. I guess God really values that we choose to follow with our freewill. Second, God gave us freedom. Because He created and designed every single one of us uniquely, we have rights to express ourselves. This is why Christianity-founded nation like USA grants its people freedom of speech, freedom of religion, freedom of press, freedom to assemble, and freedom to petition the government in the Constitution. Lastly, God gives many blessings to us free of charge and yet we often take it for granted. During this horrific pandemic, many people were sick and got sent to the hospital. Some are required to use oxygen and ventilator. For the oxygen, hospitals charge you by the amount of minutes you use and it is quite expensive. Ladies and gentlemen, God gives the air to breathe for free. He does not send us the bill.
So, our best bet to prepare for this giant debt crisis is to walk closer to God and do everything within our ability to get out of debt. If the resources permit, please also help your neighbors get out of debt. It is never too late to begin fixing the problem. Thank you and God bless!
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