Economic disruptions to help curtail the spread of the coronavirus started off small, but have now reached "critical mass" in the U.S. and across the world, Allianz Chief Economic Advisor Mohamed El-Erian said on "Bloomberg The Open."
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The point of "critical mass" was reached over the weekend and the entire economy is close to a full-stop, he said. While this may be necessary as health concerns trump economic concerns, the fact is there will be a lot of financial and economic damage.
"Very few people understand the economics of sudden stops," he said. "Even fewer understand the economics of fear and we are just starting to understand the economics of circuit breakers."
It remains unclear how long the health-related measures will be in place and this is not "an economic issue." As such, no one knows for sure the full extent of the damage and many people are guilty of holding an over-optimistic outlook by applying "old mindsets" and "old models."
El-Erian said a coming global recession is a "done deal" as unemployment levels will rise while supply disruptions will remain. The major question yet to be answered is how far will the financial deleveraging go.
"I hope that my predictions is wrong but I fear that we are still underestimating the depths of this recession that is going to hit this economy and what it is going to do for financial relationships," he said.
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Photo by World Economic Forum via Wikipedia.
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