V, U, or Hockey Stick?

The world's economies will recover after COVID 19. 

The debate now underway concerns whether there will be a "V" recovery, where we spring right back to where we were prior to the crisis; a "U" recovery where we get back only slowly over time; or a "Hockey Stick" recovery, where we never recover the economic growth that we are losing while we are shut down.

I think we are looking at a mini "V" followed by a "Hockey Stick W", perhaps for decades to come.

The world was on the cusp of a new Great Recession before COVID 19.  The yield curve had inverted in the United States of America three times in nine months last year. Yield curve inversions are followed by recessions an average of nine months after the first inversion, but this can take as long as 18 months.  The economic conditions that were driving this have been subsumed into COVID 19, but they will return after the post-COVID 19 recovery.

For consumers, businesses and governments, there will be a short-term "happy time" starting in about a year - when we get a vaccine and are able to end the crisis and get back to normal, but "normal" was an impending recession. 

When growth stumbles after this short-term sprint back to growth, we will see economies decline worldwide under the weight of debt that is simply unsustainable for hundreds of millions of people and many countries and sub-national governments (...hello Ontario.) Economic growth will then stumble, slowly wavering up and down until we bite the bullet and arrange for debt refinancings and defaults on a worldwide basis that clears the way for a new era in economic growth.

The key question going forward is not whether we will grow - we won't until we deal with debt. The key issue will be who will take the hit in world-wide debt defaults? More precisely, will private lenders - international financial institutions and the wealthiest 1% - get to convert the bad loans that they have made to nations throughout the world to public debt, and leave the public holding the bag when this mass of debt is written off? 

Not only is this the key economic issue, it is also the key political issue of the next twenty years, and it gets to the bigger question of who actually runs the world and for whom is the world run?