In the last article, our discussion focused on COVID-19, how we got here, and where we are now. Now, let's move forward by contrasting the Great Recession in 2008 and 2009 to the current black swan induced U.S. and global recession. We will also examine some of the past lessons learned that are still applicable today.
The Great Recession of 2008 and 2009 was, for the most part, an asset bubble in real estate. The cause could be quickly identified as flaws in the banking system, specifically related to shadow bankers or non-regulated lenders. The focus of the downturn was commercial and residential real estate. Geographically, the brunt of the Great Recession was felt in the coastal and sand states including Florida, Texas, Arizona, and Southern California. During this time, the Midwest agricultural sector was in the midst of record profits and land value increases created by the commodity super cycle. This recession was V-shaped and there was a temporary shock in consumer behavior for selected individuals.
The 2020 pandemic economy is totally different because it was caused by a sudden impact shock that has affected nearly everyone in the U.S. and around the globe. As mentioned in the previous article, a lack of priority on proactive resources for the prevention and curtailment of a pandemic contributed to the spread of the virus. The lockdown of the economies in the U.S. and rich nations, which are nearly 70 percent consumer driven, created a steep decline of economic activity. At best, this recession will be L-shaped or like a “Nike Swoosh” as a result of demand destruction created by a more conservative consumer and consumers without employment. The reemergence of bio-shocks, either by mother nature or the bad guys, will persist over the next one to five years.
What are the past lessons learned that can be applied to our situation today?
- Whether it is a business or household, financial liquidity and cash rise to the top of needs in an adverse global event. Second, while the central banks around the globe basically turned the Great Recession around, this downturn will require a combined strategy of both monetary and fiscal policy.
- As government assistance occurs, financial documentation will be imperative. The importance of record-keeping and financial management will be a top skill base for individuals and businesses.
- Next, hunker down and focus. Manage the elements you can and manage around the uncontrollable factors.
Events like these that seem to be occurring about every ten years will have both positive and negative unintended consequences. To some extent, the outcomes will depend on a person's mindset. In the next article, we will discuss oil and many of the other things that COVID-19 has affected.
Check out the first Hot Topics here.
The opinions of Dr. David Kohl are not necessarily those of Farm Progress.