The short-term new normal for the stock market and economy brought about by the coronavirus is unlike anything one has ever seen before, suggests financial crisis historian and Harvard professor Carmen Reinhart.
Not only are investors witnessing a real-life financial crisis playing out, Reinhart suggests, it’s next to impossible to predict when things in the economy and market will get better.
“In terms of looking for a historic precedent, there is none previously. The policy response [during the Great Recession] was nothing like what we are seeing with the social distancing and the closures. So what you have to begin to look at is to what extent is this morphing into a financial crisis. It certainly has a lot of the elements,” Reinhart said on Yahoo Finance’s The First Trade.
Reinhart is also the co-author with professor Ken Rogoff of “This Time is Different”, the widely regarded book looking back at past financial crises.
Indeed, the current situation for the U.S. economy, some sources have begun to tell Yahoo Finance, is starting to feel akin to a mini-Great Depression. Malls are ghost lands as retailers such as Nordstrom, Macy’s and Abercrombie & Fitch, Nike, Under Armour and Lululemon have closed all their stores for weeks to contain the outbreak. And McDonald’s, Starbucks and other restaurants have moved to take out only. Meanwhile, cities such as San Francisco have ordered people to stay at home.
In short, the U.S. economy has pretty much come to a standstill. Hence, you get a session for the Dow Jones Industrial Average on Monday where nearly 3,000 points get wiped out. Even a reported $850 billion coronavirus relief package by the Trump administration hasn’t eased the minds of many on Wall Street.
“This is something quite severe. If this drags on beyond a few weeks, then I don’t see how you’re going to get out of bankruptcies and we’re talking about a much more drawn out process,” says Reinhart.