Some economists say the US economy will rebound quickly after the COVID-19 epidemic is brought under control, but hedge fund billionaire Ray Dalio (Dario) is skeptical.

"We won't go back to normal," Dario said. He believes that the current economic situation in the world is most similar to the Great Depression, which lasted from 1929 to the 1930s and is considered to be the worst economic crisis in American history. Just like that time, Dalio predicts that the coming recession will require a recovery period that lasts several years or even five years.

Epidemic crisis vs. The crisis of the 1930s

"think of the virus as an impending tsunami," Dalio said. "even if it disappears completely and we will never see it again, it will still cause losses, including economic losses, income losses, balance sheet losses, which will hinder economic recovery. In fact, Dario warned of the trajectory of the economy long before the outbreak. As early as January 2019, Dalio warned that the recession would come as early as 2020, when he pointed out various economic red flags that he thought were still reminiscent of the Great Depression and the 1930s.

"this happened before the recession, which makes the economy particularly vulnerable," Dalio said. First, he points out that the United States already has very low interest rates. With the Fed unable to cut interest rates further, the central bank's effectiveness in boosting the economy has been limited, as has been the case in past recessions, including 2008. He believes that the Fed's relatively inefficient monetary policy is reminiscent of the Great Depression, when many economists believed that the Fed failed to prevent the massive bank failures that followed the stock market crash of 1929.

Dario also believes that America's growing debt burden bears some resemblance to that of the 1930s. At that time, US debt soared to record levels in a decade. He also compared Roosevelt's action in 1933 to the U.S. government's decision to issue stimulus checks to the public in April, and the Federal Reserve's plan to inject up to $2.3 trillion into the economy through its corporate loan program and corporate bond purchase program. The U. S. government announced that it would send these checks to these people, and the Federal Reserve announced that it would print money and buy financial assets. This is the same as in 1933.

He pointed out that it is no coincidence that America's rising debt levels are similar to those after the Great Depression. The national debt has risen to about $25 trillion as the US borrowed a record $3,000bn this quarter to bail out the economy, pushing up the federal deficit to its highest level in decades. Economists warn that such high debt levels will only make it harder for the United States to pull out of recession. At the same time, with the release of new economic data, the impact of the coronavirus epidemic on the US economy is becoming more and more obvious. In April, economists at JPMorgan predicted that US GDP would fall by 40 per cent this quarter, reminiscent of 1930, when GDP fell by nearly 30 per cent.

The time needed to recover

Although the crisis of 1930 lasted for several years, Dalio believes the current recession may be "relatively short" by comparison, but the recovery cycle-how long it takes for the economy to return to its previous growth trajectory, may take "three, four or five years", and more companies will start adding jobs once manufacturing across the US starts to reopen. Most importantly, there are many social security programs, such as unemployment insurance, food stamps and social security, that did not exist during the Great Depression that should help many people make ends meet during a severe recession. Former Federal Reserve Chairman Ben Bernanke takes a similar view, arguing that the current downturn may be painful, but it should last shorter than the crisis of the 1930s. Bernanke said the economy will not recover in a quarter or two, but if the epidemic is properly brought under control, the economy will recover sharply, and the recession should be much shorter than the Great Depression.

A catalyst for economic change

At the same time, Dario is optimistic about the future. He says this recession will lead to a major restructuring of the economy, as happened after the Great Depression. "every industry is being subverted," he said. Artificial intelligence and data, in particular, will create many opportunities for the future, such as industry leaders who can quickly embrace new technologies for innovators who can come up with new ways to achieve them. Dario believes that the upcoming restructuring process will be difficult, but in the long run, compared with the overall economic growth over the past few decades, the recession is ultimately a flash in the pan. Still, he thinks many people will still have to endure years of difficulty in finding a job, and wages are likely to fall before the economy fully recovers.