More to Fear than the Virus
For many, the idea that a pandemic might sweep the globe and sicken or kill millions of people is quite enough to contemplate. There are, however, other ramifications to consider.
Economic fallout from a pandemic is high on my list.
While major investment houses and the World Bank have in recent months tried to put a price tag on a pandemic, nearly all admit it is nearly impossible to do so right now. Much depends on the severity, and duration, of a pandemic. But nearly all believe the effects will be major, and we need to try to anticipate them, and try to mitigate them if we can.
Early indications are, that if the H5N1 virus goes pandemic, it could be worse than the 1918 Spanish Flu. Up until now, that was considered the worst-case scenario. No longer. The H5N1 virus has to this point killed more than 50% of its victims. That makes it 10 times more lethal than the Spanish Flu. The hope is that this mortality rate will drop. But right now, that is just a hope.
While it may seem crass to consider the problems financial in the face of millions of deaths, it is an important subject. This isn’t about making sure that the oil companies continue to make obscene profits, or that the CEO’s and shareholders of large corporations do well, this is about our ability to keep the nation’s economy alive
Wildly optimistic estimates state that 40% of workers may be out sick, or out taking care of sick family members. What isn’t mentioned is how many will be thrown out of work when restaurants, movie theatres, shopping malls, and nearly every other public gathering place is shut down to slow the spread of the virus. Or how many will simply refuse to report to work in a pandemic, fearing contagion. And there will be many who will be called up by the National Guard, or who will volunteer to help in a pandemic.
Frankly, I’d be surprised if 30% of the workforce has a paying job during a pandemic.
Those with money in the bank will likely want to get some (or all of it) out before the pandemic strikes. Human nature. And probably not a bad idea for the individual, but a terrible idea for the nation.
Banks generally only have about 7% cash reserves. That means for every dollar they have deposited, they only have about 7 cents on hand. The rest is loaned out, so that it can make money for the bank, and so the bank can pay interest to depositors.
If the projections are true that electricity, phones, and even internet access may be disrupted during a pandemic, then credit cards, debit cards, and even checks may not be accepted for payment. Even if that doesn’t happen, the fear that it might will spur on a bank run. And this will happen across the land, not just in your community.
FDIC, which insures most bank accounts up to $100,000, only has 1.35 cents in their fund for every dollar they insure. The system was set up to handle occasional, scattered bank failures. Not a systemic run on the banks.
If people, rightfully concerned about their ability to pay bills and buy food during a crisis, rush to the bank to withdraw their funds, banks could well close their doors.
As a pandemic could last a year or longer, this would have a devastating effect on the economy.
How will people (70% not drawing a salary) make their mortgage payments? What happens to the banks, and the economy if they default?
If phones, power, and Internet are down, how will those companies still operating cut checks, or make deposits? How will they handle their accounts receivable?
Would the Federal Government declare a `financial holiday’ for the duration? Suspend all payments of debts, and forbid evictions until further notice. Would that do any good? Hard to know. It might work for a month, maybe two. But I know of no way to legislate the laws of economics into submission.
And if a pandemic lasts for months or even years, can we simply restart everything when it is over? What if the power is down? Or gasoline is scarce because the refineries are largely not in operation? How do we restart things then?
If a significant number of people in the workforce die, or are disabled permanently by this pandemic, would we have the skilled employees needed to restart the economy?
The potential outfall from a medium worst-case pandemic boggles the mind.
A pandemic is more than a public health problem. It is infused with cascading events, any of which can impact us severely.
I’m not a financial wizard. I have no advice to give, beyond talking to your financial advisors now about how you will handle your assets during a pandemic.
I only suggest you do it now. While there is still time.
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