The Covid-19 Economic Crisis Will Change Everything: Short Term and Long Term Effects
by Daisy Luther
Whether you think the global pandemic is “just the flu” or you realize it’s the real deal, one thing is difficult to debate – many Americans are already feeling the economic pain being caused by the outbreak and the measures taken to stop it.
Unemployment claims skyrocketed this week as businesses laid-off employees in an attempt to weather the storm. More than 281,000 people filed for unemployment and those numbers would have been even higher if the influx of claims had not crashed the systems in several states.
In a news release, the Department of Labor said:
During the week ending March 14, the increase in initial claims are clearly attributable to impacts from the COVID-19 virus. A number of states specifically cited COVID-19 related layoffs, while many states reported increased layoffs in service-related industries broadly and in the accommodation and food services industries specifically, as well as in the transportation and warehousing industry, whether COVID-19 was identified directly or not. (source)
At the same time as employees are filing claims, businesses are trying to figure out how to stay afloat. Restaurants are switching to carry-out only. Bars are closed. Retail sales are down unless the business happens to be selling vital supplies like medications, food, and the new gold standard, toilet paper and Lysol wipes.
The Covid-19 pandemic is causing an economic crisis that will have both short-term and long-term effects. This will challenge your adaptability skills, but I want to stress something: life will be different, but that doesn’t mean life is over. Here’s what you need to know.
Recession or Depression?
This is just the beginning of the economic crisis bearing down on us. As social distancing measures become more widespread, less and less money will be in play – both earned and spent.
Fortune reports that we’re heading straight into a recession.
…the next Great Recession began this past week, as the U.S. virtually shut down its economy to prevent further spread of COVID-19.
First, the NBA suspended its season, followed in rapid succession by the NHL, the MLS, the MLB, and most recently, the PGA’s cancellation of the 2020 Masters golf tournament. Then Broadway closed down, followed by cancellations at nearly all major venues. Businesses told their employees to work from home. In Minneapolis, the normally-packed Mall of America parking garages are virtually empty. In New York City, Mayor Bill de Blasio just limited all restaurants, cafes, and bars, to takeout and delivery. (source)
Others suggest what’s coming is going to be more of a depression than a recession. What’s the difference? It’s all about the length of time the economic downturn lasts.
A recession is the contraction phase of the business cycle. A common rule of thumb for recessions is two quarters of negative GDP growth. A depression is a prolonged period of economic recession marked by a significant decline in income and employment. (source)
Considering the fact that the US government is preparing for a Covid-19 siege that could last 18 months, it appears we’re looking at the D-word.
Our immediate financial problems
While this economic crisis looks as though it may continue for quite some time, let’s break this up into immediate and long-term issues.
Currently, many people are facing an abrupt loss of income. And it’s likely that a lot of the folks losing their income don’t have the safety net of a large emergency fund – 60% of Americans are only one missed paycheck away from disaster.
At the same time as this downturn in income, people have been spending a fortune on food and other supplies to get through a potential quarantine that could last anywhere from 2 weeks to multiple months. This is not an extravagance – it’s a necessity. And there are fewer goods to buy, leading people to purchase whatever is left rather than whatever is the most affordable.
Our supply chain is broken because of our heavy reliance on Chinese goods. There are shortages, whether the government wants to admit it or not. You need only to walk into the nearest grocery store in most towns in the US to see large bare spots on the shelves. Instead of canned goods being lined up all the way to the back of the shelves, they’re perhaps two-deep to make the shelves look fuller. Meat coolers are half empty. There’s no bleach, no toilet paper, no Lysol wipes, no rice, and no beans to be had in many areas.
Our immediate concerns are the loss of income, paying current bills that are due, and getting enough food and supplies to see our families through whatever quarantine or isolation measures are demanded by the government. I wrote more about the cost of a Covid-19 quarantine here.
And unfortunately, this is just the beginning.
Our long-term problems
As the economy continues to plummet because people are only purchasing the bare necessities, we’ll see other issues arise. How will you pay your rent or mortgage if your job qualifications are in a field that is now considered a luxury? How will you keep your utilities on when you’re not making any money? How will you feed your family, keep a roof over your head, pay for medical care, and maintain a vehicle?
If you’ve never been through personal financial hardship before, you could be in for a terrible reality check when the cost of your most basic essentials is out of reach. But many of us have been there. We can tell you that it often makes you feel powerless – it’s difficult and humiliating, but you can get through it.
If you’re a business owner, how will you keep operating if you have no working capital? How can you hire people if you don’t know whether you’ll be able to keep them on board for more than a couple of pay periods? How can you buy more inventory and can you even acquire that inventory anymore? Will you be able to get the parts you need to repair items if you run a repair service business?
As you can see, there are more questions than answers. The future is quite uncertain.
If you have prepped for disruptions, you’ll be okay…for a while. You will have used up a lot of your stored goods getting through the quarantines, should they occur, and making up for the shortages in stores. This certainly gives you a jump on the crisis, but do you actually have enough for the 18 months to two years of disruption being predicted?
It’s scary to think about surviving an economic depression, especially after we in America have been more or less pampered for most of our lives. But it’s better to face reality now than to be shocked by it later. Knowing ahead of time can prevent financial mistakes you’ll regret for years.
Things are going to look a lot different in 2021 than they did in 2019. Remember that we are the children and grandchildren of those who survived the Great Depression. We will get through this.
How do you survive in an economy like this?
I know the things I’ve laid out here are alarming, maybe even terrifying. You may be wondering how in the world you can survive.
Well, you can. This has happened before, maybe not on such a massive scale, but there have been other recessions and depressions. People have lived through drastic changes in their circumstances. I’m not suggesting it’s easy but it is possible.
- Right now, cut your expenses. You need to stop making purchases that are frivolous. You need to get rid of gym memberships, third phones, and subscription boxes. Make these cuts now. Ignore anyone who tells you that you are further damaging the economy by these cuts – they aren’t the ones who are going to feed your family.
- Look at your living situation. I’m not suggesting you move right this minute – on the contrary, that would be a nightmare with quarantines and curfews looming. But begin to consider whether or not you are living in the most economical way. It’s likely that you will soon see more extended families and friends living together to save on bills. You may need to relocate or you may need to allocate space in your home to others. Again – don’t do it right this second, but start to think about your options.
- Go back to basic skills. Now’s the time to start some seeds and begin figuring out a garden, even if it’s just a few plants on your patio or balcony. Learn to mend and repair things instead of throwing them out and replacing them. Cook from scratch instead of buying processed food or ordering out. Start now to live more simply and focus your spending on the tools required for that.
- Practice hardcore frugality. I’ve written a lot about living inexpensively. You can find the archives here. You need to embrace a thrifty state of mind instead of railing against the system that means you can no longer afford a $6 coffee every morning on your way to work. This may be difficult – anger is a normal response to a change in circumstances that is beyond your control. But the faster you can get past the anger, the sooner you can find a new normal and some peace of mind.
- Help others. That probably sounds crazy after I just said to cut your expenses, but helping others builds a sense of community and that is essential during difficult times. If you have elderly neighbors, take over a hearty, filling meal or visit with them (once it’s safe to do this.) See if they need anything picked up from the store. Offer a hard-working mom some free babysitting one afternoon so she can just take a nap. If you’re shoveling your own snow, go a little further and shovel somebody else’s walk too.
- Create some odd jobs for yourself. When things get to the point where we can get out and do things again, you may find that working a regular job is no longer possible. If you can’t find work, you can come up with odd jobs you can do.
- Stay in contact with creditors. As this all unfolds, staying in touch with the people to whom you owe money is the best way to protect your credit rating and your possessions. They realize everyone is in the same position right now, and many of them will be happy to help if they know you intend to pay them.
- Understand there could be a point when you simply can’t pay your bills. You may end up with the terrible realization that you can’t afford to pay your bills. Of course, you took out credit cards or loans with the full intention of paying the money back, but sometimes circumstances are beyond our control and we have to prioritize survival: keeping a roof over your head, keeping the power on, and having food to eat. If you reach that point, check out this article on how to survive when you can’t pay your bills.
We could be looking at an entirely different version normal when this all shakes out. You can’t completely close down an economy and expect everything to just start back up again in a few months like nothing ever happened.
But you and your family can survive this.
About the Author
Daisy Luther is a coffee-swigging, globe-trotting blogger. She is the founder and publisher of three websites. 1) The Organic Prepper, which is about current events, preparedness, self-reliance, and the pursuit of liberty on her website, 2) The Frugalite, a website with thrifty tips and solutions to help people get a handle on their personal finances without feeling deprived, and 3) PreppersDailyNews.com, an aggregate site where you can find links to all the most important news for those who wish to be prepared. She is widely republished across alternative media and Daisy is the best-selling author of 5 traditionally published books and runs a small digital publishing company with PDF guides, printables, and courses. You can find her on Facebook, Pinterest, Gab, MeWe, Parler, Instagram, and Twitter.