What does our recovery look like?
Many of us are nearing the end of 2 months in lockdown. I am thankful to still have a job that pays but I am mindful that many more have been furloughed or laid off completely. To give you an idea of the economic impact of the lockdown, as of today, nearly 7.5 million Canadians have filed to receive the government’s CERB payment. That’s about 37% of the workforce in Canada. Not all of them are unemployed; many are working reduced hours and are using CERB to cover the income shortfall. Still, that’s a staggering number of people.
The shape of our economic recovery is going to depend on all kinds of factors but getting people safely back to earning a living will be among the most important steps. That part won’t be easy to accomplish. Let me give you an example. I normally work at an office building in downtown Toronto. On a good day there are probably around 10,000 people in the two building complex. There is an entire ecosystem within this one building of shops, fast food places and restaurants built to serve the needs of those 10,000 people and those in neighbouring buildings. What has happened with everyone gone? Well, we already had the first domino fall in early April. Will more parts of that ecosystem be forced to shut their doors too? A lot of that will come down to how quickly 10,000 office workers can return to the office. The slower it happens, the slower our economy will return to normalcy.
What about the debt? Personal edition
Slower return to normalcy also impacts businesses outside of the ones in my office building. We are a nation awash in personal debt and any amount of job loss is going to crush a lot of families that have borrowed money. There is no magic pill to solve debt issues, but if you are stressed about debt then you should be talking with your financial institution early. It might even need the help of an Insolvency Trustee. It will be helpful to understand your options and the difference between a consumer proposal and bankruptcy. My hope is that you never need their help but knowing what IS available to you can do a lot to help your mindset now and even save you from financial trouble.
What about the debt? Government edition
This is the topic that is going to get the most media ink spilled over the next 10 years. I am not concerned about the federal government debt. Some provinces have been disproportionately impacted by this and their debt levels will jump sharply higher. That is a concern for sure. But what else can they do?
The initial government programs are just the start and I think we all need to understand that. It was about saving people from immediate financial ruin and trying to “flatten the curve” there too. These programs are important and absolutely necessary and were designed to provide temporary support. They aren’t permanent programs. So what happens to businesses and employment as we slowly reopen and not everyone has a job to go back to? Some businesses will not be able to come back from this. Some of the job losses that seem temporary will become permanent.
CERB and the like will eventually transition to unemployment benefits. It remains to be seen whether they could become something like Universal Basic Income (UBI). Supporting our communities will remain necessary for some time, and it will lead to increasing government debt.
All of this debt - personal, corporate and government - has all kinds of negative consequences for our economies. A little leverage can help boost growth if it is used for productivity improvement. But it’s one of those things with diminishing returns. Each successive round of quantitative easing (QE) after the global financial crisis had lesser impact on GDP growth than the previous. Now with total global debt having hit 320% of global GDP BEFORE Covid19, will we see GDP growth bounce back strongly? I don’t know the answer.
Into this unknown steps an interesting thought from John Mauldin of Mauldin Economics in the US: a global debt reset. It sounds insane, and Mauldin admits that himself in his post from November of last year, but that doesn’t mean we shouldn’t at least consider this as a possibility. I honestly don’t know what an idea like this means in the long run but what I DO know is that the old ways of economics have been slowly taken out behind the barn in the past 20 years. We will see more ideas that, like debt resets and UBI, seemed outlandish not too long ago but are gaining traction as we try to navigate in an over-indebted world. We are all struggling with how to properly manage the recovery from the first real global pandemic in over 100 years.