Article Image
IPFS News Link • Economy - Recession-Depression

COVID-19 Isn't the True Culprit of the Coming Recession

• https://fee.org, Klajdi Bregu

The recent chaos created by COVID-19 in the markets has many economists worried and asking for the Fed and the government to take action. The Fed cut interest rates to zero on March 15 as a response to the panic created by the virus. Yet, while the virus can negatively affect the economy if it is only temporary and the economy is strong, the Fed and the government should not be this worried. Once the virus is under control, the economy should bounce back up.

The issue here is that there are many structural problems in our economy. During and after the last recession, the Fed and the government bailed out many at-risk businesses instead of allowing the market to "clean-up the bad businesses" and allow resources to be allocated to those that were sufficiently healthy. In addition, the Fed lowered interest rates to "help the economy."

This kept the economy weak since then and has created more structural problems that only need an event such as the one we are experiencing to appear. So, the recent response of the Fed and the federal government have nothing to do with the virus outbreak but rather with the structural problems that underlie our economy.