◼ COVID-19 / ECONOMY Bloomberg Businessweek10
Federal Reserve Chair Jerome Powell has
dismissedcomparisonsofthebusinessborrowing
bingetotheprecrisishousingdebtbubble,argu-
ingthatthefinancialsystemis nowbetterableto
handlecreditlosses.Buthehasacknowledged
thatsomedebt-ladenbusinessescouldfacesevere
strainsif theeconomydeterioratesandthatthey
couldamplifyanydownturnbylayingoffworkers
andcuttingbackoninvestment.
TheFedis tryingtocushiontheeconomy—and
thecorporatesector—fromtheblowofthecorona-
virusbycuttinginterestratesandpumpingmoney
into the financial system. Behravesh says Congress
and the White House will also have to act. “We’re
going to need them to set up a bailout fund, then
decide where to distribute it,” he says.
On March 9, stock markets posted their worst
losses in more than a decade. President Trump told
reporters later in the day that he’d seek a payroll
tax cut and “very substantial relief ” for industriesInspired Home Show in Chicago in mid-March.
But the trade show, like so many others, has been
canceled. “I’d booked hotel, flight ticket, and a
booth—everything was ready,” says Ni, who’s based
in Los Angeles. “But seeing the situation in the U.S.,
I began to feel afraid of going on business trips.”
There’s also a risk that the outbreak in China isn’t
really under control. Although government statis-
tics show a marked decline in the number of new
infections registered daily both in Hubei province
and in the rest of the country, there are suspicions
that authorities are manipulating the data, as case
numbers have been repeatedly revised through
the course of the outbreak. Also, health special-
istshavewarnedthatthecountrycouldexperiencea resurgence in cases as factory staff return.
No matter how quickly life returns to normal,
China is facing its first quarterly economic con-
traction in decades and the weakest year since the
early 1990s. But though unemployment is likely
to rise, it’s starting from a relatively low level of
5.2%, and there’s no evidence of widespread job
losses yet. Consequently, there’s been little talk
yet of a stimulus package on the scale of the one
Beijing cobbled together in response to the 2008
global financial crisis, which equaled about 12%
of the size of the economy. That may change as
the machinery of government, also disrupted
by the virus, resumes working. �Jeff Black,
JinshanHong,andJamesMayger○Thecoronavirusisthreateningtoexposethe
AchillesheeloftheU.S.economy:heavilyleveraged
companies.Astheexpansionstretchedintoa record
11thyearandinterestratesstayedatultralowlevels,
businessdebtballoonedandnowexceedsthatof
householdsforthefirsttimesince1991.
What’smore,borrowingincreasinglyhasbeen
concentratedinriskiercompanieswithfewerfinan-
cialresourcestorideoutvirus-drivendifficulties.
A waveofdefaultswouldintensifytheeconomic
impactofthecontagion.“Itwilladdtorecession-
arypressuresintheU.S.,”saysNarimanBehravesh,
chief economist at consultant IHS Markit Ltd.
Energy companies are especially vulnerable
because of a collapse in oil prices. But they’re
not alone. Debt tied to travel companies such as
American Airlines Group Inc. and Hertz Global
Holdings Inc. has been hit hard in the fixed-income
markets, as have the obligations of movie theaters
and casinos.“It will add to
recessionary
pressures in
the U.S.”Could there be
a financial
contagion?