In order to fully understand what the pandemic will mean for the global economy, we first need to take into consideration the state of the economy as a whole. I highly suggest reading my article that summarized how the economic machine works according to Ray Dalio. Before the pandemic hit, the economy seemed to be doing well. The markets were fairly high and unemployment levels very low, but that's a superficial analysis of what’s really happening underneath the hood of the economy. Dalio’s analysis is that we were currently near the end of the long term debt cycle, where debt burdens are becoming larger than income levels and interest rates are nearing 0% meaning there cannot be an influx of credit to deal with these burdens. This means that the economy would fall into a deflationary period of negative growth within the next few years. This has been his public position since 2018.
What will COVID-19 do to the economy?
The coronavirus pandemic has essentially shut down all growth in the economy, but aside from the immediate economic implications of the virus, we also will have the long term debt cycle to contend with after the pandemic has been managed. The economy would have rebounded more easily if COVID-19 had occurred a few decades earlier, when the debt burden wasn’t as high. Instead, this pandemic will have triggered the downward spiral into a depressionary period where the accumulated debts of previous decades will have to be managed along with the costs of dealing with the virus. We will most likely have a lost decade of economic growth to face after the pandemic has passed due to our place in the long term debt cycle.
What this means for society?
The economic crisis we find ourselves in for the coming decade will only serve to feed more disruption in politics and culture that we began to see by the rise of populism across the globe since 2016. I recommend you read my article on populism linked here. This will be a trying time in every aspect of life, but we can overcome it with proper principals that have been tested throughout history. If this time of crises is managed well, we can expect a new era of growth and opportunity.
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