Michael Pento | On March 26, 2020

The U.S. National Debt is about to surge like never before, along with the rest of the entire planet’s gigantic pile of sovereign IOUs. America started with a $23.5 trillion debt before the Wuhan virus outbreak, with annual deficits running over a $1 trillion; and projected to be at least that amount for the next dozen years. But then, the stock market and economy crashed due to the catalyst of the COVID-19 pandemic, which pricked the massive bubble in junk bonds and equities that I have been warning about for years.

In addition to the automatic stabilizers that kick in during a recession, like unemployment insurance and food stamps, the Treasury is now buying commercial paper, suspending interest payments on student loans, and writing checks to small businesses. There are bailouts and a newly-passed stimulus package; the IRS is allowing taxpayers a deferment for three months of up to $300 billion. The government will soon be sending checks to nearly every American. Helicopter money is now coming, and both parties embrace it with alacrity.

A global depression is now here, but the question is for how long. A small taste of the miserable data that is to come came from the Empire State Manufacturing Survey for the month of March. The index plummeted by the most in history to an incredible minus 21.5. Since the survey was taken, we have seen entire counties shut down, U.S. schools and corporations shuttered, and at least 50 major retailers are shutting their doors, and that number is growing daily. The retail sector employs a total of 15.7 million people. There will be about 3.5 million jobs that are predicted to be lost if this economic slowdown turns out to be like the average since WWII. However, it is clear this economic contraction will be nothing like the typical recession. Indeed, when was the last time a great portion of the world’s population was told to shelter in place. Around 67 million Americans think they will have trouble paying their credit card bills due to the coronavirus, according to WalletHub. And, nearly 80% of Americans are living paycheck to paycheck—we really need this virus to dissipate quickly, but the probability of that outcome is impossible to know.

To give you further insight as to how bad the unemployment numbers could get, let’s look at where the jobs are now. In the U.S., most of the jobs created since the Great Recession ended back in 2009 have been in the Leisure and Hospitality sectors. According to the BLS, there are nearly 17 million people employed in those two sectors alone. But now, a great deal of those doors have been closed. Many of these people are 1099 employees and have no access to unemployment insurance. Those that are W-2 employees will see a huge reduction of their income and may not see an immediate request to be rehired once the economy begins to recover.

This is because there will be a serious degradation of consumer and business’ balance sheets. Coming into this crisis, there was a record amount of household debt and a record amount of corporate debt both in nominal terms and as a percentage of GDP. There is now a significant shock to the incomes of the public and private sectors, while all the existing debt remains and new debt is being accumulated. Government assistance can help, but it will not make people 100% whole.

Michael Pento

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.

Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors.

Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street. Earlier in his career he spent two years on the floor of the New York Stock Exchange. He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.