A friend on social media posted this fascinating piece by Lyn Alden Schwartzer, a prominent financial researcher and analyst, on what macroeconomic impacts to expect from the economic shock wave of the coronavirus pandemic response. It is a longish and detailed read, but well worth the time. Schwartzer provides the clearest explanation I’ve seen of how the current situation differs from previous economic shocks like the Great Depression and the Great Recession.
To summarize, she predicts that as a result of coronavirus our economy will take a significant but short-term deflationary hit as demand dries up and the economy contracts, followed by a longer term period where the US will experience the return of significant inflation.
It’s a convincing argument, though I’ve learned to take all economic prognostications like this one with a healthy grain of salt. Regarding Schwartzer’s prediction of a looming inflationary surge, I admit I was surprised after the big rounds of quantitative easing during the Great Recession 12 years ago that those actions to flood the economy with money did not produce, as many expected, a major inflationary spurt. With trillions more now being pumped into the economy by the Fed and federal government, maybe the dam is finally going to break on that front, as Schwartzer predicts, we’ll see.