The Impact A Second Covid-19 Lockdown Will Have On Global Economy

Covid-19 has decimated the world in so many ways, but a second lockdown may create more financial hardship that even the Great Depression of the 1920s created.

How Would A Second Lockdown Impact the Global Economy?

The Covid-19 pandemic has destroyed the lives of hundreds of thousands of people. This is not just a matter of the lives lost due to the virus but has been due to the impact it has had on the economies of virtually every nation across the globe. Thousands of businesses were shutdown, millions of people were either laid off or lost their jobs, and schools were shut down just about everywhere.

Most of the impact came from an initial lockdown that was imposed by many countries. This forced the closures of tens of thousands of businesses as it was hoped that this would stop the pandemic. However, that does not appear to be the case and now there is talk of a second worldwide lockdown, leaving many wondering if the second such event could destroy the economies of every country on the planet.

The First Lockdown Was Devastating

While there is support for the idea that the first lockdown was necessary, there is also no denying that the lockdown may have had a more crippling impact on the lives of people than if they would have actually contracted the illness. Most who have died from the illness have been elderly or have suffered from some other illness that made them more susceptible to the effects of the virus.

For those who are healthy, the death rate has been less than one percent. However, the impact of the lockdown has been universal for all who have been denied the ability to go to school or work. As reported by the following infographic, the lockdown has likely cost the global economy more than $20 trillion, much of which was lost as salaries, bonuses, and other forms of revenue.

One of the major concerns related to the lockdown was what would happen once businesses were able to open again. These companies have the funds necessary to sustain them during the lockdown and yet still have enough to be able to resume operations once conditions permit them to do so.

The problem is that many have not had the available assets to be able to reopen. Those companies that had loans were still required to pay banks and other financial institutions during a time when they did not have revenue of their own. This led temporary closures to become permanent ones, as thousands of organizations were forced to close their doors for good under the weight of the enormous debt they were still required to pay.

And Now a Second Lockdown?

This is disturbing news on many levels, but even more troubling is the fact that several governments are now considering a second lockdown. Some have already reinstituted procedures and policies to close businesses and schools in an effort to reduce the second wave of Covid-19.

While leaders are attempting to reduce the spread of the virus, the reality is that they are setting a trajectory for a worldwide depression through these policies. According to the Organization for Economic Cooperation and Development, or OECD, a second shutdown would drop the world GDP by more than 7.5%. This would be the largest decline in GDP in more than 60 years. An additional 40 million people would lose their jobs.

Compounding the problem is that many governments may not have the available resources to be able to support citizens during a second lockdown. In response to the pandemic, several countries offered stimulus money to help offset the loss of jobs or income. This gave people the ability to buy necessary goods and keep themselves afloat, even if it was for a brief period of time.

However, this was often money spent that the governments did not have available to them. Plus, there was the added issue of a greatly reduced revenue system, because people have been out of work and have been unable to pay income tax. They also have been unable to purchase many of the common luxury items that would have generated additional revenue for the government in terms of taxes on the items and the labor.

A Second Great Depression in the Making

Any government offering additional stimulus at this point is simply giving away money without any concern about the long-term impact this may have on the country and the world as a whole.

Major commodities are already suffering. It is expected that the gas and oil industry will see a decline of 30% and that capital investments will decrease by as much as 20% during 2021 should a second lockdown occur.

All of these factors are leading some economists to ring the alarm bell that a second Great Depression may be on the way. The first occurred in the late 1920s and lasted for nearly 10 years. In fact, had it not been for the start of World War II the depression may have continued.

At that time, U.S. GDP dropped by 4.3%, but it has already dropped by 8% this year and a second lockdown would surely increase that number. Industrial production fell by 47% across the United States, and that has been seen in many industries globally.

One of the major causes of the depression was increased spending across Europe as a result of war debt and the requirement of Germany and other axis countries to pay war reparations. Money was simply printed that had no real value or backing to it, which caused a worldwide economic collapse.

The stage may be set for this once again, especially if the second lockdown is implemented. People would be unable to work, making the governments responsible for providing some kind of economic relief to assist struggling families to stay in their homes or apartments, purchase food and other needed goods, and pay for any medical issues that may arise. That would put a significant strain on the government, as they already are facing a serious decline in revenue.

The inevitable outcome of simply giving away money that the government does not have available to them will be that these currencies will drop in value. They will have virtually no value at all, much like what happened in countries like Germany during the Great Depression.

Protecting Yourself for Tough Times Ahead

The problem is that Covid-19 is being dealt with in a political way. Very little actual scientific and medical information is being provided that is not tainted by government interference. The recent presidential election in the United States only compounded the problem as both sides painted a picture of this virus that were either too bleak or too positive.

The political impact on this virus is beyond measure. The fear it has generated has probably made the situation 100 times worse and it is clear that the vast majority of countries across Europe and North America are going to impose a second lockdown. Some already have done so.

So, what can you do? The first thing is to consider getting into an asset that does not depend upon any country’s currency. One of the best options is choosing a form of digital currency, such as bitcoin. Because these cryptocurrencies are not impacted by government spending, they will maintain their value. Plus, a significant number of businesses are accepting digital currency as a form of payment.

You can easily pay for any goods or services you need at major retail sites and are able to cash out the digital currency at a major financial institution, giving you hard currency if you need to buy things at a store or other local retailer.

You may also want to consider purchasing commodities that retain their value, such as silver or gold. Should these currencies lose significant value, it is only going to increase the value of the silver, gold, or copper. These are items you can use for trade or to acquire hard currency to be able to conduct business.

If you can afford to do so, it is also a good idea to begin stocking up on non-perishable goods that can help you through another lockdown. One of the biggest problems that many faced was that they did not have items necessary for survival available because people were frantically buying them in large quantities. If you live in a country where it is likely that another lockdown is coming soon, it pays for you to start stocking up on these items so you can withstand 4 to 6 weeks or longer in your home.

Sorry to Dampen Your Mood

It is sad that this is the state the world is about to reach, but the second lockdown is going to be even more crippling than the first. Most people have used up all their available resources and assets, so they are going to struggle to survive and governments are not going to be able to help them. No doubt, should there not be a dramatic change soon, the world is in for a calamity it has not seen for 90 years.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.