Flattening the Curve vs Flat-lining the Economy

Shutdown of the Canadian economy under the Carona virus has come fast and hard. Restaurants shut down, Hotels as 5% occupancy, airlines laying off employees by the 1,000s. March Employment Insurance applications reached nearly 1 million by the end of the third week, representing 5% of the Canadian Workforce. Unessential businesses have been shutdown along with schools and most public buildings. From 100 km/hr to complete stop in 2 weeks.

Images from Italy, Spain and the rest of Europe show the horror this virus is putting on health care systems. Patients over 60yo denied access to Intensive Care and needed ventilation machines. Make-shift triage tents to house the overflow of patients needing hospitalization. And over worked health care workers pleading for support and supplies. Mass media froths over the sensationalism of the story, stoking fear across Canada. And with good cause. The death rate of COVID-19 while appearing to still be about 1% is still 6x more deadly than the influenza virus. The incubation period appears to last between more than a few days to over a week, creating unknowing spreaders.

The long-term financial impact to Canadian families can not be understated. Whilst everyone concerns themselves with the direness of the virus, the real threat to our livelihood will be the aftermath of the financial impact. According to a 24 March 2020 Financial Post article, 20% of Canadian households have less than a month of cash reserves. And this includes money from lines of credit, government aid, and cashing out investments. As this shutdown moves from two weeks to 2 months and beyond, the lasting effects on Canadians will not be quickly reversed.

Federal government has responded with a $27B spending plan and $55B in additional tax breaks and credit. Many feel that isn’t nearly enough. the US is planning on a $4 trillion dollar bail out plan. Using a 10:1 common ratio between the US and Canadian economies, Ottawa would need upwards of $1 Trillion in spending. That would more than double our current federal debt of about $750 Billion. Going forward, that debt level jeopardizes funding for many benefits plans Canadians have come to rely on.

Looking out to the latter half of 2020, if we have an extended shut down we can expect to see the financial restraints of Canadian families have a trickle down effect to the economy. Non-payment of rent leads to evictions and lower cash flow for landlords, which can lead to inability to make payment on their mortgages. reduced spending at restaurants leads to non payment of commercial leases. Same is true for many other retailers. At some point, the perceived indestructibility of Canadian banks may come into question.

Eventually, as with all challenges, Canadians will find a way to muddle through and we will come out of this episode stronger and in better shape. That might take years rather than months. We will have a nationwide conversation about the balance of future virus risks and the protection of Canadian livelihoods. There will be an acknowledgement that measures taken in 2020 were too harsh, financially. And we need to find a better policy. A better balance.

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