The first six months following the 2020 lockdown were the hardest, but humans are a resilient species and despite the sharp spike in worldwide deaths due to the COVID-19 coronavirus, and the economic toll caused by the immediate suspension of economic activity, people soon began to adapt to the new reality.
Today, June 24th, 2023, in Toronto, Steve Robinson is looking forward to spending the weekend with his girlfriend Shirley. Since a COVID-19 vaccine was finally discovered and then approved in October of 2021, 70% of the global population have now been inoculated against the virus that to date has taken 3 million lives worldwide, including 300,000 in the U.S. and 15,000 in Canada. The rollout of “COVID shots” was slow at first as manufacturers struggled to ramp up production under a universal licence made available to any pharmaceutical company ready and willing to undertake production. Governments across the world sought to have local production begin in order to provide for their domestic populations.
Not surprisingly, developed economies moved to the front of the line quickly and rapidly made the vaccine available to hospitals, clinics, individual medical practitioners and even pharmacies. Developing nations without local manufacturing capability had to rely on the efforts of the WHO and a reserve portion of the vaccine output of wealthier economies to ensure distribution across their populations. Despite the heavy toll that the virus has taken, resistance to the vaccine still exists among “anti-vaxxers” and rural populations of developing nations have not yet all been reached by international aid organizations. A proof of inoculation was gradually implemented in most countries and is now required for entrances to places of work, schools, restaurants and to any public gathering area.
Steve and Shirley are planning to go out for dinner to celebrate the first anniversary of their relationship. Many restaurants closed following the initial 2020 lockdown since the economics of most restaurants required an 80% occupancy during prime time to justify the fixed costs of rent, taxes and the investment in equipment and leasehold improvements, versus the “new normal” prime time social distancing maximum of 40%. Staffing and food costs could be adjusted for a smaller occupancy, but those fixed costs could not. As a result, the only restaurants to survive were take-out and high-end establishments whose expensive offerings made their existence still viable despite the low occupancy rates. With social distancing rules beginning to relax somewhat with the increasing inoculation of the population, there is some hope that smaller restaurants will slowly begin to return.
Steve’s job in the financial district used to have him commuting 5 days a week to his office but, based on the forced experiment of working from home due to the 2020 lockdown, remote work has become the standard approach for many people in similar roles and he now travels to the office only once or twice a month to attend face-to-face meetings and have a drink after work at one of the surviving watering holes.
Due to a collapse in ridership, public transit has undergone a massive transformation in the time since the onset of the virus. A combination of layoffs, reduced service and the injection of government support has kept them operating. With social distancing not such an issue anymore, ridership is returning somewhat but the “work from home” culture has kept the volume of passengers well below that of the past.
Shirley used to travel by air frequently for work, but her business trips have been dramatically reduced from what they were prior to the virus crisis. A general comfort with, and acceptance of, video conferencing has eliminated all but essential business air travel and although the availability of inoculations and “COVID passports” have made it possible to have densely seated airplanes again, the stress on the industry in the past few years has forced the merger of many smaller carriers with their larger competitors and, as with public transit, the industry has only survived this far with a combination of layoffs, reduced service and government funding.
The impact on the environment had been immediately apparent as worldwide industrial activity and transportation came nearly to a halt. “Green” climate targets suddenly became more achievable and much support was gained globally as populations saw how much could be done in such a short space of time. Some environmentally beneficial changes (i.e. transit reduction) continued after the resumption of economic activity but other green initiatives will still take longer and still require massive investments that indebted governments are even less in a position to shoulder than they were before the crisis.
While interest rates have remained extremely low for the past few years, potential real estate buyers have not yet seized the opportunity to bid prices up and have focused on deleveraging. For many displaced by job losses, the focus has been on basic survival. Condos, in particular, have been hard hit with declining prices due, in part, to the collapse of the short-term rental market.
Governments around the world have spent the last year winding down support programs that were in place for as much as 24 months following their initial introduction. In Canada, these programs have morphed into a form of guaranteed annual basic income which is administered by Revenue Canada and which has now replaced many other programs including employment insurance, welfare and disability support which were expensive to monitor and deliver. For the last 3 years, since the initial gradual return of economic activity, consumers have only re-entered the marketplace reluctantly. As a result, production has outpaced consumption with deflationary results. Recently, an equilibrium seems to have formed and, with a gradual return to what was once considered “normal”, the prospect of moving to full economic activity and the expected pressure of pent-up demand has set the stage for the forces of inflation to gain the upper hand soon.
From a geopolitical perspective, analyses completed two years ago determined that the failure of China to be transparent in the early stages of the COVID-19 crisis and that country being the source of repeated epidemics, together with it being guilty of human rights abuses on a large scale and its use of its economic power to bully the international community, have required an international response. The 2022 resolution of the G-18 (China and Russia excepted) plus Taiwan commits those nations to reduce their annual imports and exports to and from China by 5% annually until China has agreed to be bound by and be accountable to a set of international standards set by the G-18 (plus Taiwan).
Knowing all this, Steve and Shirley are house hunting. They want to get into the market soon before it begins to catch fire. They want to buy the largest house that they can afford with the smallest down payment that they can. With many governments now deeply indebted and unable to raise taxes sufficiently to be able to run surpluses sufficient to reduce their debt load, they now look to the solution that governments have depended on historically. Central banks came to the rescue early in the COVID-19 crisis, printing money to keep their economies afloat. As the problem began to subside, the banks did not pull back. The printing presses kept running and now inflation is coming. Assets will be king, not cash, and debts will be minimized, saving governments and other debtors alike.
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