Reducing the Collateral Damage in the War Against the Virus

We are losing our minds and our freedoms to a virus. Our leaders decided to shut down the global economy to stop the virus from spreading. This could cause a global depression that could permanently destroy millions of our jobs and businesses if the shutdown lasts more than eight weeks, in my opinion. The result could be social and political chaos, and many more lives being lost and wasted than there would have been otherwise.

The alternative was to keep calm, carry on, and take some more vigilant health precautions while the virus spread. The available data show that at least 80% of those who are infected suffer mild symptoms and recover completely, also developing immunity to the virus. The most vulnerable segments of our population are very old people, especially those with pre-existing health issues. They could have been protected from the virus, and its asymptomatic hosts, through quarantines with lots of professional medical support. Such measures are being implemented now as assisted living facilities and nursing homes are restricting their residents to their rooms and apartments.

Granted, this isn’t a perfect solution either. Left unchecked, overwhelmed hospitals and mounting deaths might have induced enough fear to keep many of us in our homes and out of public places without the government’s proclamations.

However, as a result of the pandemic of fear stoked not just by the virus but also by government officials and the media, many of us are restricted to our homes, unable to go to work and carry on with our normal lives. While we’ve all been gripped by shock at how terrible the virus can be in some cases, we are just as fearful of the extreme measures that governments have chosen to take to protect us from the virus. They’ve done so on our behalf without seriously considering the trade-off between learning to live with the virus and, in effect, imposing martial law with 24/7 curfews.

We are told that such enforced “social distancing” should contain the pandemic and end it if we stick with it for just a few weeks. No one knows whether that’s two weeks, four weeks, six weeks, or longer. It could take 18 months to win the war by developing a vaccine for the virus, according to some experts. The longer it takes, the longer will be the awful collateral damage to our economy and financial system. The longer it takes, the greater will be the calamity for our social and political fabric.

Who will decide when it is safe to go to work, to a movie theater, to a restaurant, and to the mall? How will they make that decision?

The immediate result of the governments’ quarantines, lockdowns, and border closings is a global financial collapse, as evidenced by soaring credit quality spreads and plunging stock prices. In addition, unemployment is soaring as businesses are forced to shut down for the duration of the crisis. In recent weeks, there has been an unprecedented mad dash for cash as individuals and businesses anticipate that they will need cash to survive the freefall in their incomes and cash flow. The pandemic of fear is hitting our capital markets very hard as assets are sold indiscriminately to raise cash. The calamity resulting from the Great Virus Crisis could well exceed the calamity of the Great Financial Crisis.

That will be increasingly likely if the Great Virus Crisis lasts more than a few more weeks. Governments are scrambling to provide support to incomes, cash flows, and liquidity. That will balloon government deficits and the balance sheets of the central banks. That may buy us some time, but not much, given the unprecedented hemorrhaging of individual incomes and business cash flows.

For now, we are on the course set for us by our governments. Let’s hope and pray that social distancing works well and quickly. There’s a good chance that it might. Some period of flattening the infection curve through social distancing is essential for the sake of the people who are most at risk of hospitalization, because overwhelmed hospitals will mean some patients can’t be treated.

Let’s hope and pray that the medical community’s mad dash for cures and vaccines delivers a solution as soon as possible. If it doesn’t, we should consider the alternatives, which might be worse for our health but much better for our lives. The healthiest alternative would be mass testing for the virus so that infected people can be isolated for their own good and for the good of the rest of us. We need to mobilize surveillance teams with the authority to conduct contact tracing. We can learn from countries that have done this well, especially South Korea.

Meanwhile, we need to ramp up hospital capacity and build ventilators as soon as possible now that hospitalizations for COVID-19 are soaring. The US government did not prepare properly for what is happening but is moving faster now. Hospital capacity is being expanded rapidly, partly by setting up makeshift medical facilities in convention centers, college dormitories, and hotels.

We will survive this crisis. But let’s not lose our minds, our jobs, and our businesses without considering our options and the consequences of our actions.

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Dr. Ed is one of LinkedIn's 2019 Top Voices in economy & finance. Institutional investors may sign-up at https://lnkd.in/eYNwch8 for a complimentary trial of his research service. His book, "Predicting the Markets," is on Amazon. His new book, "Fed Watching for Fun & Profit," is also available there at https://lnkd.in/dM_Yw_W