Whether this week’s collapse of stock and oil prices will spiral into a much deeper economic crisis, perhaps even eclipsing that of 2008, depends on how the United States and other governments react.
The United States has now, belatedly, taken drastic actions on travel and announced some support for businesses. But these are too late to prevent the coronavirus from spreading and too little to stave off a deeper economic downturn.
Swamping the markets with liquidity, as was done in 2008, is not going to resolve the problem this time. The markets are already awash in cash, and as was again demonstrated in early March, further cuts in interest rates no longer translate into growth. What is needed now is leadership that focuses on the domestic challenges and seeks to build international cooperation — rather than scapegoating other countries.
Wide-ranging targeted interventions, including tax cuts for the lowest-income earners, would restore confidence and help working people and the businesses that could be devastated. However, national policies alone, adopted government by government, will not be enough to forestall a global catastrophe.
The world needs a coordinated economic response. Vulnerable governments that risk buckling under the strain of the pandemic require financial support to prevent the global health crisis from also becoming a financial crisis.