Where the Business Collapse of the Financial Crisis of 2020 Leads
Economists are warning in early April, 2020 that the risk to jobs now are unprecedented since the Great Depression. This after only a few weeks of social distancing where consumer activities have been shut down on a temporary basis. For the 21st century, it’s not just a pandemic, it’s an economic crisis.
We are also seeing a breakdown in supply chains of medical equipment (PPE), with Turkey (from Spain) and the U.S. (from Germany) violating where equipment was supposed to go. This is a breakdown in social cohesion in global supply chains where countries are behaving in a protectionistic manner.
However more long lasting will be the small business breakdown of jobs. Even stimulus packages may not get liquidity into the hands of small business owners fast enough for them to survive. We also expect several cycles (waves) of coronavirus contagion comparable to what we saw in the Spanish Flu of 1918.
With the strongest economy in the world being arguably the hardest hit country, job losses in the U.S. and a slow recovery in China point to a significant financial crisis of 2020 that is still playing out. We see unemployment rates in the U.S. and Europe getting up well up into the teens, even as the numbers haven’t caught up with the reality.
Expected Surge in Unemployment
Unemployment is likely to rise from 3.4% to over 15% in a matter of just weeks. The shock wave of that event is unlike anything we have experienced in modern times. There has never been such a concentrated business collapse and it’s not clear how it will reshape capitalism in a winner-takes-all type scenario. Corporate entities with $Billions of cash on hand could thrive like never before, and countries with economic growth and innovation, like China, could take market share away from the U.S. and Europe.
The so called back-of-the-envelope calculation by the St. Louis Fed is simply staggering. They said that American unemployment could hit as high as 32%, worse than the worst times during the Great Depression. If up to 47 million jobs of the 160 million person labor force are displaced in a short time, what happens to society? We just don’t know, it’s never happend before. Eventually it will impact the Banks and potentially lead to a prolonged financial crisis.
Bank economist Miguel Faria-e-Castro wrote a blog post laying out the logic behind the “back-of-the-envelope” estimate. How many of those jobs are also prone to becoming automated? Automation itself comes in bursts and the pandemic could be a sign that automation will be seen as the path to the best recovery for many industries. This presents significant challenges to the future of work for vulnerable workers.
What Will be the Small Business Mortality Rate and Corporate Debt Crisis Ahead?
If the pandemic has a global 3.4% mortality rate, what is be the business mortality rate? For restaurants, small retail stores and self-employed micro businesses, it won’t likely be very low. Early figures in the application for unemployment benefits shows how fast the job loss may be happening. The 9.96 million combined claims of the past two weeks is equivalent to the total in the first 6 1/2 months of the 2007-2009 recession.
If the financial crisis of 2020 is several times the magnitude of the 2008 great recession, the impact will be felt for an entire generation. That’s what happened with the impact of 2008.
Small business jobs and consumer sentiment could plunge into “great depression” territory and even with a dead-cat bounce back, things might never be the same for those who fall out of the Middle class in this epic economic macro event. Wealth inequality will be permanently augmented by the shutdown. The global poor will be at a significant disadvantage in their ability to rebuild their lives.
The stay-at-home crisis of 2020 will likely lead to unemployment figures of 15-20% in May, 2020. If consumer spending drives up to 80% of the American economy, and the American economy is the biggest in the world, this means how the U.S. and China are impacted by the pandemic will impact global GDP for years.
Depending on how severe the pandemic is in the U.S., China may be months or years ahead in the recovery from the financial crisis of 2020. We can think of them from a health crisis perspective to be approximately 3 months ahead. However will their economy be more resilient in how it bounces back?
According to the Brookings Institute and following common sense, because small businesses have greater credit constraints and are more sensitive to weak consumer demand, they are often hit the hardest in economic downturns. In a world already dominated by technology corporations that behave like global monopolies, what does the downturn of the SMB and SME sector mean for the future of business? Imagine a retail sector where Amazon, Walmart and Costco just got even stronger.
Some Corporations & Entities Benefit from the Liquidity Crisis
The novel coronavirus just gave mega corporations a reason to be the dominant business and political actors of the 21st century. Small businesses will come and go, and even social cohesion may warp nation states, but corporations like we are seeing in the U.S. and China might not just become weapons of their state, but economic titans that corrupt democracy, capitalism and even China’s version of an authoritarian socialist protectionist state. The business collapse of the financial crisis of 2020 might favor the 1% and those corporations that were already monopolies.
While $Trillions of dollars vanish in a liquidity crisis, it’s a redistribution of future wealth into the hands of the ultra-elite (called the 1% in symbolic terms). It doesn’t just amount to a temporary crisis of unemployment, but a new economy after the crisis where technology companies further monopolize their power, influence and ability to sustain antitrust attacks, since they are too significant ‘job creators’. Guess what, the FTC might not go after Google, Facebook and Amazon in 2020 after all, now that the pandemic has occurred.
The financial crisis of 2020 for future generations isn’t just an anomaly, it’ s an economic turning point in the future of global “free market” capitalism. A time when a cold tech war had already begun between monopolies in the U.S. vs. those in China.
Consumer debt was already high with millions of workers living “paycheck to paycheck”. This means after the financial crisis they may be repaying their debts for the rest of their lives. With a gig economy that treats employees like contractors without full worker rights and access to benefits, a kind of technological slavery is likely to occur for the most at-risk and vulnerable workers.
The middle class continues to churn members as social mobility in the U.S. is reverse engineered. Such an event can be staged and is not 100% for sure a natural occurrence. It’s unlikely, but we have to assume it is possible. We have to think, in such a scenario of an economic shutdown, who stands to benefit?
The financial crisis of 2020 is likely to be a small business apocalypse. The US economy also shed 701,000 jobs, according to March data, far more than the 100,000 fall expected on average by economists. But March data hardly includes the majority of jobs impacted by the shutdown, of which we’ll know after the April, 2020 data has come in. Significant unemployment and a re-starting of the economy will create significant economic opportunities for certain industries and corporations in society.
Millions of Americans already have lost their jobs due to the coronavirus crisis and the worst of the damage is yet to come and it’s not the Great Recession and the impacts of it, it’s the society that comes after the crisis. It’s that “different world” that comes into place and the system of the future. The rationale will be let AI and automation do those things that makes society function, so if another pandemic comes, we won’t experience the same economic collapse. Obviously this isn’t good for many people who will depend on the deterministic freedom of the old version of American capitalism.
The ‘AI Agenda’ is Furthered by the Financial Crisis of 2020
We’ll move increasingly towards a world of remote work, E-commerce, grocery delivery and social distancing where AI and not the consumer becomes the central part of human society. The levers of production, consumption and demand will be alterted and engineered accordingly. If algorithms already took over a larger place in how human beings behave on the internet, what happens when AI takes on the same role in the actual physical economy? In the 21st century we’ll find out, and it won’t be a more human-centric system.
The business collapse of 2020 ironically leads us to greater centralization and a distribution of wealth that favors a more extreme pyramidal capitalism, where human agency is more limited and the economy is more determined by automation, algorithms, AI and powerful corporate companies. The stock market of 2019 already saw that technology companies such as Apple, Microsoft and FANG stocks become “overweight”.
The financial crisis of 2020 isn’t a great depression, it’s a great reorientation of the global economy. A liquidity crisis and business collapse favors the wealthy and forces downward social mobility for the rest of us. It kills small businesses and uplifts powerful companies with huge reserves of cash.
The global economy post 2020 will be vastly different and will likely favor countries like China, which are rapidly investing in technology and AI. The temporary shock to the global economy is a global reset that favors the business models of the most dominant technology companies of the world.
Economists expect April to be the first reporting month when the damage starts to show up. We won’t know the severity of the Financial Crisis of 2020 until May. While April is considered the worst month for the epicenter of the U.S. pandemic, in places like New York City it’s only the beginning of the first wave. The economic price of social distancing will mean new winners and new losers in the global economy. The liquidity crisis will lead to new levels of debt.
The 2020s Will Never Be the Same
We talk about what kind of impact the financial crisis of 2020 will be, but not what comes after. The liquidity crisis becomes a debt crisis. The small business apocalypse also changes the trajectory of the lives of vulnerable workers. A lockdown is worse than a purging of our already overpopulated planet. The consequences of stopping the global economy won’t just be a shock, it will be like giving the keys to the future to a new world order, if you will.
The news cycle focuses on the health and economic uncertainty. Social distancing has had a catastrophic effect on otherwise viable businesses. Many firms are closing. But what does the rebound and L-shaped recovery look like? How does it impact the national rivalries and corporate warfare for innovation and AI that will determine the future of humanity in the 21st century?
At the Last Futurist, these are some of the stories and narratives that we’re interested in. It’s not all doom and gloom, it’s social engineering by an existential crisis. While automation may have ruined Boeing in a twist of fate, automation will surge post collapse. The mega corporations will say automation is needed and we’ll all fall in line. In that scenario, the average person in the world will matter less in a less human economy.
The health and financial crisis of 2020 won’t likely test social cohesion, but it could test the future of work and how wealth inequality continues to erode American capitalism leading to a Chinese dominated global economy in the second half of the 21st century. A death of small businesses and fall of the middle class means a return to feudalistic times with AI as the governor.
The U.S. debt is the sum of all outstanding debt owed by the federal government. As of September 2019, the total was $22.7 trillion. After 2020, how large do you think it will be? If the U.S. labor market is 160 million workers, how much could it shrink post-crisis? The oil crisis, liquidity crisis, supply-chain breakdowns, corporate debt crisis, small business collapse, real estate collapse (due to unpaid rent) are just some symptoms of the financial crisis of 2020, but what will be the consequences?