By Kevin Biggiani
The economic disruption caused by the coronavirus has caught everyone by surprise. Millions of Americans have been instructed to stay at home on mandatory lockdown. Businesses are also closed, as social distancing and reducing chances of exposure is the best way to fight the virus. Unfortunately, as businesses are closed, employees are not needed. Since March 2020, more than 36 million Americans have filed for unemployment benefits. People on lockdown still shop online, but unemployed people have less money to spend. In April, the fall in consumer prices nationally was the steepest monthly fall since the 2008 financial crisis. This raises the possibility of deflation occurring here in the United States. So, what is deflation?
The most dramatic deflationary period in United States history took place between 1930 and 1933, during the Great Depression. Sadly, in March and April the Consumer Price Index fell, and this movement is likely to continue. As the coronavirus slows economic growth and consumer spending, the result is that prices will go down further. People may see their unemployment benefits go further when prices are lower; however, deflation stops economic growth. Usually, wages remain lower too. Families may lose their homes if they cannot make mortgage payments. Distress home sales and foreclosures will follow. Will there be buyers who even want to purchase homes during a pandemic and or who have sufficient funds to do so?
Many people want the United States to open businesses again and end the lockdown, but even when it is safe to do so, that may not be enough. Big retailers Neiman Marcus and J.Crew have already filed for bankruptcy as many stores wonder if their customers will return when the lockdown is lifted. If consumers cannot return to normal spending habits after the pandemic crisis is over, unemployment will persist, and so may a longer period of deflation.
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