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Economists predicting coronavirus pandemic will lead to more bankruptcies than the Great Recession: report


'This is going to be worse ... so you've got to brace yourself'

Anthony Lanzilote/Bloomberg via Getty Images

The coronavirus pandemic that has infected more than 500,000 Americans and killed over 20,000 is also expected to result in more bankruptcies than the Great Recession did from 2008-2010, the Washington Examiner reports.

In conversation with the Examiner, Desmond Lachman, an economist at the American Enterprise Institute, said, "The assumption is that whatever happened in 2008 to 2009 in terms of bankruptcies, this is going to be worse. So you've got to brace yourself for the whole wave of bankruptcies."

Aaron Klein, a fellow of economic studies at the Brookings Institution, argued similarly that the expectation is that things will be worse this time around, though he said his predictions are largely dependent on when American society returns to normal.

"You tell me when baseball starts and I'll tell you [if we exceed Great Recession bankruptcies]. If baseball resumes on June 1, maybe not; if baseball resumes around the All-Star break, then maybe. If there is no season, definitely," Klein said.

The number of bankruptcies, both personal and corporate, soared to over 1.5 million in 2010 as a result of the financial crisis that began in the years prior. That number rose from 1.4 million bankruptcies filed in 2009 and 1.1 million in 2008, according to the Administrative Office of the U.S. Courts.

Early indications show that America is set for a similar trajectory as a result of statewide lockdowns and subsequent business closures amid the COVID-19 outbreak.

Bloomberg News reported on Friday that new research by economists at three federal reserve banks predicted coronavirus-related bankruptcies could reach 1 million by the end of the year. That figure could easily be surpassed "because the economy could deteriorate more than what we assume," acknowledged one of the economists.

In the article, another economist, Edward Altman, the professor emeritus at New York University's Stern School of Business, warned that even if rates don't surge past Great Recession totals, dollar amount totals will.

"Whether it's corporate bankruptcies or personal, this is unprecedented," Altman, who is known for developing Z-score, a widely used method for predicting business failures. "We will break the record in dollar amounts because there are much greater amounts of debt outstanding now than in any prior downturn."

The economic fallout from the coronavirus pandemic has already surpassed that of the Great Recession in some areas.

Take job losses, for an example. As of the week ending on April 4, nearly 17 million Americans had filed unemployment claims as lockdown measures forced countless businesses to furlough or lay off employees.

"Job losses totaled 8.7 million for the entire Great Recession," the Washington Examiner notes.

The hit on small businesses has also been harder. The Financial Times reported that over 630,000 small businesses have been forced to close their doors — though hopefully not permanently — since the start of the outbreak in the U.S. Compare that to the 170,000 that closed their doors between 2008 and 2010.

Additionally, according to polling by the U.S. Chamber of Commerce, one-quarter of small businesses say they are less than eight weeks away from having to close permanently.

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