“That will affect the economy, just as it did before,” Goolsbee said in the interview.
A worsening of the economy would lead to the collapse of countless companies and small businesses, forcing already affected banks to suffer massive losses.
“It could cause a financial crisis,” said Goolsbee, currently a professor at the Booth School of Business at the University of Chicago. “We could return to conditions like the 2008 financial crisis.”
Big banks prepare for trouble
Analysts are confident, so far at least, that US banks are up to the challenge.
Dodd-Frank, the 10-year-old financial reform law, forced banks to accumulate loss-absorbing capital.
Real-time indicators flash yellow
A recovery tracker created by Oxford Economics has shifted to retracement, falling for the third time in the past five weeks.
“The foundations of this recovery are cracking under the weight of a poorly managed health crisis,” wrote Gregory Daco, chief economist at Oxford Economics, in a report on Thursday.
Morgan Stanley: daily infections could reach 150,000
Goolsbee’s research shows that there is a very strong correlation between fear of the virus and consumer behavior, regardless of whether governments issue blocking orders.
“The virus is the boss,” he said. “When people think they are going to get infected, they stop going out.”
“This is really playing with fire. They must control the spread of the virus. That is what almost all other countries have done,” Goolsbee said, noting the success in Germany, South Korea, Japan and New Zealand.
A two-speed recovery?
He believes that political considerations led the United States to prematurely reopen parts of the economy before it was safe to do so.
“It reflected the personality from above. A deliberate effort to minimize the danger can be seen at all of the president’s press conferences,” Goolsbee said.
The economic repercussions could be serious if social distancing and the use of masks are not widely adopted.
“I am afraid that if we continue to politicize this, we will split into two economies,” Goolsbee said. describing a bifurcated recovery where states that take the pandemic seriously outnumber those that don’t.
However, Goolsbee is still hopeful that the United States can handle the health crisis before it causes further loss of life and damage to the economy.
“We are not that far from gaining control of the virus,” he said. “I am cautiously optimistic that it doesn’t take much effort to get back on the path where the virus is shrinking, rather than exploding.”
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