Considering the Crash of 2020, it’s too early to tell whether (a) the worst has passed or (b) collapsing stock prices are a preamble to greater economic setbacks. If you had to pick, (b) looks like the better bet. Still, it’s a close call, and wild daily market swings make it hard to identify a clear trend.

For months, there has been a tug of war between economic optimists who marveled at stocks’ resilience and skeptics who warned of a speculative “bubble.” If the bubble “popped” — meaning that prices drop sharply — the adverse side effects on production, profits and employment could trigger a recession. (That’s commonly defined as two quarters of a shrinking economy — gross domestic product, or GDP.)

What further complicates the outlook are the coronavirus and the plunge in oil prices. The coronavirus has shaken consumer confidence. Trips have been canceled, schools shut and workers told to stay home. The combination of the virus and the huge drop in stock prices is likely to trigger a wealth effect. People spend less because they feel poorer.

Meanwhile, lower oil prices may force many energy companies to miss their loan payments. All told, these developments will have unpredictable implications for the economy and the presidential election.

Economists are already revising their forecasts. In January, Moody’s Analytics predicted that the economy would grow 1.9 percent in 2020, with a year-end unemployment rate at 3.6 percent. Moody’s Mark Zandi says now those figures have been revised to 1.4 percent GDP growth and a jobless rate of 3.9 percent.

Under Zandi’s forecast, the economy escapes a full-blown recession. However, this prediction assumes that the White House and Congress enact a “stimulus” to boost growth. Zandi supports a package of about $400 billion, including payments to workers who may have suffered income losses.

Still, for all the drama, the stock market losses are well within historic experience. From Feb. 19 to March 9, stocks in the Standard & Poor’s-500 index lost $5.3 trillion in paper wealth, according to Howard Silverblatt, senior analyst for S&P Dow Jones Indices. This represented a decline of 18.89 percent, which fell slightly short of a “bear market” definition of 20 percent. Since the late 1920s, there have been 13 bear markets with an average loss of 39.9 percent.

All this has played against a continuing debate over economic policy. The chief optimist has been President Trump, who has repeatedly criticized the Federal Reserve for not lowering interest rates sooner and faster. The attacks continued even though the Fed reversed course in 2019, cutting rates rather than raising them.

Fed Chair Jerome H. Powell has justified the interest-rate reversal on the grounds that inflation was low and likely to remain so. Fighting inflation is the standard reason for raising interest rates. The theory is that a slowing economy will relax pressures to increase wages and prices. Since 2012, the Consumer Price Index has increased by roughly 2 percent a year.

Powell has also argued that low interest rates have not fueled unsustainable financial speculation. “The U.S. financial system is substantially more resilient than it was before the financial crisis,” the Fed said in its latest semi-annual report to Congress. By contrast, the Fed’s critics have argued that low interest rates have encouraged many companies to take on too much debt.

These issues are almost certain to come under renewed scrutiny, especially if — as seems likely — the economy weakens or drops into a recession. Stay tuned.

President Trump asked bankers on March 11 how they would rebound the economy from the coronavirus, and said his own payroll tax cut idea "would be great." (The Washington Post)

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