What’s Next: Recession, Depression, Economic Collapse or Rebound?

Photo by chris panas on Unsplash

I suggested to my wife that we consider buying more meat from one of the local farmers we deal with, but she thinks we have enough beef in the freezer.  We do, under normal circumstances, but I not worried about what we’ll be eating in the next 30 days; I’m now worried about 90 days and beyond.  I’m worried about what happens to the economy after the coronavirus peaks and the lockdowns and quarantines are behind us.  Will there still be groceries on the shelves?  Will restaurants reopen?  Will we see a recession, depression, or experiencing a total economic collapse? Or will we bounce back and recover quickly? 

I don’t think anyone knows for sure, but I think we can all agree that when we emerge from our lockdowns and the coronavirus is just a bad memory, there will be a new normal and it may be quite different from the life we’ve enjoyed the past few years. 

Yes, America has suffered catastrophe before and persevered.  But the legacy of 9/11 was foreign wars, creation of TSA and Homleland Security, and the birth of a surveillance society.  I expect the aftermath of the COVID-19 outbreak may result in fewer handshakes, more people working from home, more people prepping, and more people glaring at you every time you cough or sneeze in public.  We can’t begin to imagine how the stock market crash will affect everyone who planned to retire in the next few years. We don’t know the impact of a wave of sudden deaths. And we cannot begin to imagine what legislation will come from this or what changes will be made to our relationship with China.

Unemployment Looms

In the shorter term, I think we’ll see small companies run out of money and close, which will lead to extraordinarily high unemployment.  I’ve worked for enough small business to know that restaurateurs and many other small business are going to have to declare bankruptcy once the shutdowns are over.  Some restaurants may be successful and very profitable, but the bulk of them probably can’t pay their rent and the electric bill if they stay out of business more than a couple weeks.  Take out orders will help , but it won’t replace dine-in revenue and employment and it does help the small retailer. We’re having enough trouble keeping small business open on Main Street; this could be their death knell.

Small companies need money flowing in on a regular basis if they are going to pay their insurance, taxes, utilities, trash pick up, and other fixed costs.  Unless there is some kind of jubilee where debts accumulated over the shutdown are forgiven, I predict we’ll see bankruptcies left and right.

When a large company like an airline declares bankruptcy, they often reorganize and come out with new financing and in a better financial position than they were going into bankruptcy. Bankruptcy protection allows them to break contracts for fuel, renegotiate with the unions, and otherwise start fresh.  If a company like a gas well driller were to completely throw in the towel and declare chapter 7 bankruptcy, their drilling rigs and other equipment don’t disappear.  They may be idle for a while, but eventually they are auctioned off (often for pennies on the dollar) with the proceeds used to pay some of the company’s debts.  Who buys them at auction?  Most likely a competitor buys their best new equipment and possibly rights to drill new wells at a significant discount.  So for some industries, bankruptcy can result in a stronger marketplace with bigger, better-financed competitors.  But I doubt that will be the case for local bars and restaurants and many other small businesses

If Joe’s diner goes out of business, Mary’s coffee shop down the road isn’t going buy up their freezers, oven, grill, tables and booths, and they are not going to lease Joe’s space.  Mary is going to be crossing her fingers hoping that a healthy chunk of Joe’s business come’s down the road to eat at her place instead.  Maybe a few of Joe’s employees will get work at Mary’s place, but most of them are going to be unemployed.  I think it will be the same for many small retailers.  All the hard work the owner put into growing their business will be erased by this lengthy shutdown.

I’m hoping that at least one of those local beef growers we deal with will still be around in 60 or so days when our freezer is looking empty.  Hopefully the meat cutter they used won’t be put out of business or have had to shut down because some of his employees got sick.