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Illustration: Sarah Grillo/Axios

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.

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.

Between the lines: The cavalry may not be coming to the rescue this time.

  • The Federal Reserve, which helped rescue the economy after the 2008 crisis, is effectively out of ammunition.
  • Starting in 2007, the Fed cut interest rates by 500 basis points, bought an unprecedented amount of U.S. debt and unleashed a flurry of stimulus programs that propped up the economy.
  • Rather than winding them down, the Fed has had to extend the programs throughout the recovery.
  • As a result, after last week's emergency rate cut — and possibly another that's expected at next week's policy meeting — the central bank has limited ability to take action.

Threat level: Government also increasingly looks broken. The dysfunction in Washington is dimming hopes for major fiscal stimulus that economists say will be needed to offset the outbreak's negative impact.

  • The $8 billion allotted to coronavirus so far "is an insult," Claudia Sahm, who formerly served as top economist for the Fed's Board of Governors, tells Axios. "It has to be hundreds of billions of dollars, and it has to be now."
  • "I want to see it — and maybe I will," Sahm, now director of macroeconomic policy at the Washington Center for Equitable Growth, says. "But without that piece, we are in a recession before the end of the year."

Go deeper

Scoop: Border officials project 13,000 child migrants in May

The "El Chaparral" border crossing at Tijuana. Photo: Stringer/Picture Alliance via Getty Images

A Customs and Border Protection staffer told top administration officials Thursday the agency is projecting a peak of 13,000 unaccompanied children crossing the border in May, sources directly familiar with the discussion told Axios.

Why it matters: That projection would exceed the height of the 2019 crisis, which led to the infamous "kids-in-cages" disaster. It also underscores a rapidly escalating crisis for the Biden administration.

7 hours ago - World

U.S. strikes Iran-backed militia facilities in Syria

President Biden at the Pentagon on Feb. 10. Photo: Alex Brandon - Pool/Getty Images

The United States on Thursday carried out an airstrike against facilities in Syria linked to an Iran-backed militia group, the Pentagon announced.

The state of play: The strike, approved by President Biden, comes "in response to recent attacks against American and Coalition personnel in Iraq, and to ongoing threats to those personnel," Pentagon press secretary John Kirby said in a statement.

Senate parliamentarian rules $15 minimum wage cannot be included in relief package

Photo: Al Drago/Getty Images

The Senate parliamentarian ruled Thursday that the provision to increase the minimum wage to $15/hour cannot be included in the broader $1.9 trillion COVID relief package.

Why it matters: It's now very likely that any increase in the minimum wage will need bipartisan support, as the provision cannot be passed with the simple Senate majority that Democrats are aiming to use for President Biden's rescue bill.