The coronavirus is already the most serious threat to the U.S. economy since the financial crisis, and the dominoes are aligned for a severe recession that could erase much of the 11-year recovery, Axios' Dan Primack and I write.
What's happening: While the outbreak itself is unlikely to drive an economic collapse, the U.S. has been something of a ticking time bomb for some time.
- Growth has declined over the last two years despite higher government spending and a $23.4 trillion national debt.
- While the labor market has boomed, many of the jobs added have been hourly service-industry positions that offer limited scope for savings or health insurance.
- 44% of all U.S. workers earn barely enough to live on, a Brookings Institution study found in January.
Where it stands: While President Trump said late Monday that he would work with Senate Republicans on a "very substantial" payroll tax cut and relief for hourly workers, such measures — if they can be enacted — could still be insufficient to fend off a recession.
At the same time, corporate America is more heavily indebted than ever before, due to years of record-low interest rates and increased borrowing.
- The Federal Reserve has repeatedly warned that this spike in leveraged lending — combined with loosening covenants — has created risks not only to bond issuers, but also to the wide network of hedge funds and mutual funds (yes, mutual funds) that actually hold the debt.
- In short, it's an economic haystack awaiting a match.
One big difference between 2020 and 2008 is breadth. The financial crisis began with financial services companies and insurers, which meant bailouts and structural fixes could be aimed at Wall Street. But this crisis is hitting the entire economy with a single blow — harming not just the Fortune 500, but also mom-and-pop businesses.