We just finished the worst economic year since the Second World War. What’s next?
The final numbers on the economy for 2020 are in (subject to the usual adjustment processes). In the US, GDP growth for 2020 was negative 3.5%.
How bad was that? It was worse than 2009, when growth collapsed about 2.4%. It was worse than the 2000 and 1990 recessions, which were both quite mild. It was worse than the severe recession of 1982, when growth fell about 2%. In fact, it was the worst decline since 1946, during the demobilisation after the Second World War. Before that, you have to go back to the Great Depression years of 1930, 1931 and 1932 to find a worse collapse.
In a US$22 trillion economy, a 3.5% collapse equates to about US$770 billion in lost output. The actual damage was far greater because output figures and GDP do not capture lost wealth in the form of failed businesses, lost skills, and declining asset values in commercial real estate, airlines, resorts, cruise ships, and many other endeavours.
This article provides the details.
The 2020 collapse was bad enough, but where do we go from here?
Most analysts and TV commentators say that growth will come roaring back in 2021, and we’ll be back to 2019 levels of output by mid-year. Don’t believe it.
First-quarter 2021 growth will be severely curtailed by the new surge in coronavirus cases and fatalities that began in mid-November, and the lockdowns that accompanied that surge. That surge is now abating, but the lockdown damage is done.
The vaccine injection program is gaining momentum despite a rocky start, but new virus strains are raising questions about whether new vaccine-resistant surges are on the way.
Even when lockdown relief is granted, restrictions such as 25% capacity on indoor dining in New York will keep a lid on the economic benefits. A new recession in the first half of 2021 (the first back-to-back recession since 1980–81) cannot be ruled out.
Stocks are way out on a limb and set for a fall to more realistic levels. We’ll get the pandemic behind us eventually, but it’s far too early to sound the all-clear.
Meanwhile…
Green idealogues are now in charge of national security
The Biden administration is off to one of the fastest starts of any administration since FDR in 1933. Elections have consequences, so it’s not surprising that Biden would want to move quickly with his priorities.
The Biden team is almost exclusively made up of Obama officials now back in the White House with new titles. They recall that Obama and the Democrats controlled the White House, Senate and House of Representatives in 2010. But their only accomplishments were Dodd-Frank financial reform and Obamacare.
After that, Republicans retook the House in 2010 and retook the Senate in 2014 and held control for the rest of Obama’s two terms. In effect, Obama could get things done for two years and was a lame duck for the next six years, relying on his ‘pen and phone’ to govern at all.
Biden staff know the Republicans could retake the Congress in 2022 and are losing no time in implementing their priorities and undoing as much of Trump’s legacy as possible. Executive Orders have been signed by Biden on immigration, carbon emissions, education, healthcare and many other policy initiatives. These orders are highly revealing about where the country is headed.
It’s no surprise that the Green New Deal is important to Biden. It’s also no surprise that he wants to make changes to defence policy. Yet this article describes a bizarre mash-up of those two critical areas. Biden has ordered the Pentagon to include climate risk assessments in wargames. That’s nuts.
The science of climate change is highly contentious
Contrary to the mainstream media, the science is not ‘settled’ and there is ongoing debate. Some scientists take the view (supported by ample evidence) that global cooling is a more realistic outcome than global warming. Other research finds almost no discernible impact from CO2 emissions. In fact, CO2 functions as plant food (plants absorb it and convert it to oxygen). A CO2 shortage may be emerging that harms forests.
It’s true that the climate does change; I lived for years on a body of water that used to be a glacier. But that change from a glacier to a sound took 10,000 years from the end of the last ice age.
The only reason the cost of hurricanes is increasing is because the rich are building mansions on sandbars (thanks to federally subsidised flood insurance), not because the storms are worse or more frequent (they were much worse in the 1940s).
There’s nothing immediate or ‘existential’ about climate change
25 years ago, the climate change fanatics said the ecosystem would collapse in 10 years. Somehow, we survived.
Biden’s order to the Defense Department is just for show. It’s a bone thrown to the green lobby. It’s too bad national security resources must be wasted on a problem that doesn’t exist. It’s just another example of the triumph of ideology over common sense. The fallout is not limited to wargames.
Energy prices will be on the rise as carbon taxes are imposed and the fracking industry is destroyed. The economy will suffer slower growth even as the Pentagon pretends to worry about a non-problem.
All the best,
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Jim Rickards,
Strategist, The Daily Reckoning Australia
PS: Australia’s Great COVID Recession — Learn which investments to accumulate and which ones to avoid in order to give you the best chance of preserving your wealth during the recession. Click here to learn more.
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