Economics 101 - During COVID 19

AMG1988

Can someone from an Economic background teach me rule 101;

With the government subsidizing wages, flying planes to China to buy PPE etc.. we will obviously have to repay this in the future through increased taxes, NI..

Why cant the government just write this off?

I apologize in advance for my stupidity..

DeVore

The government doesnt print the money. They will borrow this money in order to pay it to us.

The government needs to pay back the money to the people it borrowed it from (probably Eurobonds but thats a whole other discussion).

The only source of income for the government is taxes from us (including companies).

The government either reneges on its debt (which would be very bad if we ever need to borrow again, which we will) or it pays it back with money we pay in taxes.

Wanderer78

With rates currently at record low, negative in some cases, we re partially getting some of this money for free, hopefully the ecb has enough ink for the printers, keep printing lads

Beasty

But the money that is being printed will not go as far as it did in the past. Companies are out of pocket. Individuals are mostly going to be out of pocket. Jobs are being lost, and the job market will take longer to recover

Very importantly though anything that is being borrowed now has to be paid back at some stage, either by current or future taxpayers

In addition countries will have to revisit their "operating models" in connection with healthcare. Resources will need to be diverted there on a continual basis, as no-one will allow governments not to be prepared for something like this again. That's more taxes again

In addition to more taxes (VAT, payroll taxes, taxes on corporate earnings) there will be less to spend elsewhere. That means another extended period of austerity

Having said that we're getting used to not doing/spending much. That means we may already be thinking about adjusting our sights in terms of economic outlook. But if people do cut back on spending that has an adverse impact on the wider economy

On the flip side we are finding smarter ways of working. I thought working from home would really take off over the next decade. I now think a lot of the workforce will be doing it in a couple of years. Maybe we can reduce all the time spend commuting (and consequent pollution)

The money that is being thrown at this now really is needed as the sooner we can get on top of this the less it will cost overall. It's going to be a massive hit to government finances and the wider economy though

paw patrol

Wanderer78 wrote: »

With rates currently at record low, negative in some cases, we re partially getting some of this money for free, hopefully the ecb has enough ink for the printers, keep printing lads

this is a bit misleading - we still have to pay back the principal
That means taxes will remain high for the foreseeable maybe even increase.

It's important to take the measures we are currently but at some stage we do need to bite the bullet and return to normal included in that assessment should be the economic cost.

Harry Palmr

National debt is a bit of a distraction in any discussion - if you can pay the interest you can afford the debt. Right now the annual bill is 4.5bn, which is a lot (basically about the same as the money that Ireland has available to fire at the current crisis) but at a time when Bonds are being refinanced at a negative interest rate it's not something to keep people awake at night (unless they are ideologically of that frame of mind).

Wanderer78

paw patrol wrote:

this is a bit misleading - we still have to pay back the principal That means taxes will remain high for the foreseeable maybe even increase.

This to is misleading, it's common for government debts to be rolled over continually, provided these loans are continually serviced, are monetary systems won't collapse, and again, with rates currently at record low, negative in some cases, effectively, we re getting free money from central banks. The only other option is, refuse this money, take our chances with the on coming downturn and the virus, then hope for best, but I suspect that wouldn't end too well!

I personally think some of this central bank money should be used as so called helicopter money, but neoclassical economists believe this is the work of the devil himself, and would lead to veneuro or something, but shur we might as well carry on with our qe hyperinflated deflation

Beasty

Harry Palmr wrote: »

National debt is a bit of a distraction in any discussion - if you can pay the interest you can afford the debt. Right now the annual bill is 4.5bn, which is a lot (basically about the same as the money that Ireland has available to fire at the current crisis) but at a time when Bonds are being refinanced at a negative interest rate it's not something to keep people awake at night (unless they are ideologically of that frame of mind).

That's fine when interest rates are so low. However what if they suddenly shot up to 10%. I can remember when mortgage rates hit 15% in the UK. What the crash and the current crisis has shown is that the world can very quickly be shaken out of its cosy "business as usual" situation by something completely left field. You might lock into low rates for a while, but that can be a ticking time bomb as a country moves towards refinancing while rates are increasing

Arguably the last trick in the book was quantative easing which seemed to work after the crash. How much capacity to do that remains? Do we risk hyper-inflation by continually devaluing currencies. Indeed if everyone's doing the same across the world the net result is nil, as you cannot "create" value out of nothing

Beasty

Just to add - every cent of this will ultimately be paid for by individuals. be it through their taxes, their pension funds devaluing, their investment returns (particularly dividends) decreasing. Everything is ultimately held by people. It may be that some of that wealth is disproportionately held, but all of our standards of living will ultimately reduce as we pay for this. Borrowing more simply puts more of a burden on future generations

jams100

Wanderer78 wrote: »

This to is misleading, it's common for government debts to be rolled over continually, provided these loans are continually serviced, are monetary systems won't collapse, and again, with rates currently at record low, negative in some cases, effectively, we re getting free money from central banks. The only other option is, refuse this money, take our chances with the on coming downturn and the virus, then hope for best, but I suspect that wouldn't end too well!

I personally think some of this central bank money should be used as so called helicopter money, but neoclassical economists believe this is the work of the devil himself, and would lead to veneuro or something, but shur we might as well carry on with our qe hyperinflated deflation

I don't get this helicopter money idea. If you give everyone €1,000 right now barely anyone will spend it sure all the shops are closed and given the current state of affairs and the unknown we're heading into most will just save it anyway. Am I wrong?

Wanderer78

Beasty wrote: »

That's fine when interest rates are so low. However what if they suddenly shot up to 10%. I can remember when mortgage rates hit 15% in the UK. What the crash and the current crisis has shown is that the world can very quickly be shaken out of its cosy "business as usual" situation by something completely left field. You might lock into low rates for a while, but that can be a ticking time bomb as a country moves towards refinancing while rates are increasing

Arguably the last trick in the book was quantative easing which seemed to work after the crash. How much capacity to do that remains? Do we risk hyper-inflation by continually devaluing currencies. Indeed if everyone's doing the same across the world the net result is nil, as you cannot "create" value out of nothing

the old model and thinking of monetarism isnt happening, by the looks of things, the only inflation processes such as qe create is asset price inflation, it is highly unlikely we ll end up in a hyper-inflationary period for a long time, as we re in a period of deflation. its very likely rates are gonna remain low for the foreseeable future, central banks have been unable to create much inflation, possibly partially due to the over indebtedness of worlds population, particularly in relation to private and corporate debts.

again, this is effectively free money, provided we continually service these debts. again we could refuse this money, potentially crippling our health service in fighting this thing, and tell all those newly unemployed people, sorry folks, you re on your own, i suspect that wouldnt work out too well for us in the long run. as other posters have said, this really all comes down to ideology, the balance the books brigade, or just fcuking spend your way out of this, and hopefully reduce the damage caused. the private sector is retracting, as usual in such circumstances, this is where we re left with no choice but to turn on the taps of the public sector, its either that, or people die.

jams100

AMG1988 wrote: »

Can someone from an Economic background teach me rule 101;

With the government subsidizing wages, flying planes to China to buy PPE etc.. we will obviously have to repay this in the future through increased taxes, NI..

Why cant the government just write this off?

I apologize in advance for my stupidity..

Essentially if the government try write off the debt it will become harder for them to borrow on international markets and because we would be seen as more risky to lend to as a country the interest rates would skyrocket.

This is not entirely related to your question but I done an article on our national debt a while back

https://www.linkedin.com/pulse/irelands-national-debt-we-nearing-very-serious-james-redmond

Wanderer78

jams100 wrote: »

I don't get this helicopter money idea. If you give everyone €1,000 right now barely anyone will spend it sure all the shops are closed and given the current state of affairs and the unknown we're heading into most will just save it anyway. Am I wrong?

as respected commentators have said, economies are about confidence, if everyone loses confidence in each other, particularity in relation to having money or not, businesses stop being businesses, and scary stuff happens your economy, i.e. wide scale, potentially rapid job-losses. in downturns, people have a tenancy to stop spending, and start hoarding, particularly money, why, because theyre scared. throw a few quid, of no strings attached money at them, and they ll probably spend it, this also gives businesses confidence amongst themselves, that everyone has a few quid in their bank accounts, keeping businesses afloat. helicopter money has been done globally on small scales before, and it seems to have been largely positive, hong kong being one of the most recent, and other countries, the yanks, considering it.

jams100

Wanderer78 wrote: »

as respected commentators have said, economies are about confidence, if everyone loses confidence in each other, particularity in relation to having money or not, businesses stop being businesses, and scary stuff happens your economy, i.e. wide scale, potentially rapid job-losses. in downturns, people have a tenancy to stop spending, and start hoarding, particularly money, why, because theyre scared. throw a few quid, of no strings attached money at them, and they ll probably spend it, this also gives businesses confidence amongst themselves, that everyone has a few quid in their bank accounts, keeping businesses afloat. helicopter money has been done globally on small scales before, and it seems to have been largely positive, hong kong being one of the most recent, and other countries, the yanks, considering it.

It kind of makes sense, the problem is we already owe 206 billion and that's before all this covid pandemic situation, we hardly have money to be just throwing around like this. The idea we can afford to throw 5 billion at people like this seems madness to me. Maybe we could make these retail vouchers that expire in 12 months or something instead? That way people can't just save it?
I imagine when all this Coronavirus calms down people are going to spend anyway regardless of whether or not we throw 1,000 at people. (Obviously a proportion wont be able to spend)

Wanderer78

jams100 wrote: »

It kind of makes sense, the problem is we already owe 206 billion and that's before all this covid pandemic situation, we hardly have money to be just throwing around like this. The idea we can afford to throw 5 billion at people like this seems madness to me. Maybe we could make these retail vouchers that expire in 12 months or something instead? That way people can't just save it?
I imagine when all this Coronavirus calms down people are going to spend anyway regardless of whether or not we throw 1,000 at people. (Obviously a proportion wont be able to spend)

again, public debt is a bit of a misnomer, even though you cant just ignore it, there does have to be some sort of restrictions on it, but particularly during current conditions, you can kinna ignore it. if we dont take on this debt, prepare for very scary stuff regarding this virus, and the oncoming downturn. it is possible to put restrictions and rules on helicopter money, to 'encourage' people to spend it, but since the euro zone is a radical idea free zone, dont expect it to occur at all.

of course the economy will return to some sort of normality, eventually, but what we do, or dont do now, will have great effects on how and when that happens. expect savings to rise again, as people react to this, and demand to fall or spending to fall, for a period of time.

Harry Palmr

Beasty wrote: »

That's fine when interest rates are so low. However what if they suddenly shot up to 10%. I can remember when mortgage rates hit 15% in the UK. What the crash and the current crisis has shown is that the world can very quickly be shaken out of its cosy "business as usual" situation by something completely left field. You might lock into low rates for a while, but that can be a ticking time bomb as a country moves towards refinancing while rates are increasing

Arguably the last trick in the book was quantative easing which seemed to work after the crash. How much capacity to do that remains? Do we risk hyper-inflation by continually devaluing currencies. Indeed if everyone's doing the same across the world the net result is nil, as you cannot "create" value out of nothing

Broad fiscal policy makes stagflation almost impossible, below is the ECB base rate chart, maxed out at 4.5% during the boomest boom period and on the floor since the 2008 crash, it ain't rising and the ECB won't let it rise beyond 2% even if things are ticking over which they ain't. Certain sectors will help this policy as well, traditional energy markets are in decline as the renewables start to become cheap, an upward oil price shock would now be almost inconceivable.



Of course low/zero rates have their own effects on savings and yet here's Ireland with 100bn in the clearing banks, imagine if some of that was let loose.

jams100

Wanderer78 wrote: »

again, public debt is a bit of a misnomer, even though you cant just ignore it, there does have to be some sort of restrictions on it, but particularly during current conditions, you can kinna ignore it. if we dont take on this debt, prepare for very scary stuff regarding this virus, and the oncoming downturn. it is possible to put restrictions and rules on helicopter money, to 'encourage' people to spend it, but since the euro zone is a radical idea free zone, dont expect it to occur at all.

of course the economy will return to some sort of normality, eventually, but what we do, or dont do now, will have great effects on how and when that happens. expect savings to rise again, as people react to this, and demand to fall or spending to fall, for a period of time.

Absolutely, we have to take on alot of this extra debt now, but for the right reasons ie for the hse, social protection and to subsidize transport etc.

But if were going to launch an extra 5 billion in "helicopter money" why not build a metro (another metro), a Luas for Cork etc? That will create jobs and ultimately increase footfall into urban districts as well as reduce emissions and thus reducing the fines we will have to pay for missing our greenhouse emissions targets.

Alot of companies are going to go to the wall anyway after this epidemic and in my view giving everyone €1,000 is not going to materially change that. Sure hasn't usit already gone into liquidation? I know that if I got 1,000 I'd just save it and I know I'm not alone in that so maybe 1/2 of that money goes back into the economy whereas investing in public transport or the likes you can be sure that the money will go back into the economy as well as taking a longer term view of its benefits

FVP3

Beasty wrote: »

Just to add - every cent of this will ultimately be paid for by individuals. be it through their taxes, their pension funds devaluing, their investment returns (particularly dividends) decreasing. Everything is ultimately held by people. It may be that some of that wealth is disproportionately held, but all of our standards of living will ultimately reduce as we pay for this. Borrowing more simply puts more of a burden on future generations

Heart goes out to the rich.

Debt can be monetized. If government debt is monetized then

from https://en.wikipedia.org/wiki/Monetization

In the latter case, the central bank may purchase government bonds by conducting an open market purchase, i.e. by increasing the monetary base through the money creation process. If government bonds that have come due are held by the central bank, the central bank will return any funds paid to it back to the treasury. Thus, the treasury may "borrow" money without needing to repay it. This process of financing government spending is called "monetizing the debt".

Be hard to imagine that there will be no monetization of debt after this, preferably in Europe by the ECB.

Seems to have started:

ECB announces €750 billion Pandemic Emergency Purchase Programme

https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html



Ireland gets about 1% of those purchases, IIRC.

FVP3

Harry Palmr wrote: »

Broad fiscal policy makes stagflation almost impossible

Yes, it was a once off. No economic theory predicted it because no major economic theory really modelled oil. In general you dont get stagnation and inflation.

Of course low/zero rates have their own effects on savings and yet here's Ireland with 100bn in the clearing banks, imagine if some of that was let loose.

Im not sure how the government can get their hands on that.

FVP3

jams100 wrote: »

Absolutely, we have to take on alot of this extra debt now, but for the right reasons ie for the hse, social protection and to subsidize transport etc.

But if were going to launch an extra 5 billion in "helicopter money" why not build a metro (another metro), a Luas for Cork etc? That will create jobs and ultimately increase footfall into urban districts as well as reduce emissions and thus reducing the fines we will have to pay for missing our greenhouse emissions targets.

A lot of companies are going to go to the wall anyway after this epidemic and in my view giving everyone €1,000 is not going to materially change that. Sure hasn't usit already gone into liquidation? I know that if I got 1,000 I'd just save it and I know I'm not alone in that so maybe 1/2 of that money goes back into the economy whereas investing in public transport or the likes you can be sure that the money will go back into the economy as well as taking a longer term view of its benefits

Time delimited money would be the best idea, to stop saving. Not possible I suppose.

As for where the government could get some of this money for public transport, from taxing the helicopter money when spent.

Beasty

jams100 wrote: »

It kind of makes sense, the problem is we already owe 206 billion and that's before all this covid pandemic situation, we hardly have money to be just throwing around like this. The idea we can afford to throw 5 billion at people like this seems madness to me. Maybe we could make these retail vouchers that expire in 12 months or something instead? That way people can't just save it?
I imagine when all this Coronavirus calms down people are going to spend anyway regardless of whether or not we throw 1,000 at people. (Obviously a proportion wont be able to spend)

I'll be amazed if the cost of this is 5 billion or less. Tax takes will reduce significantly through the rest of the year. Costs of subsidising those out of jobs will rocket. The costs of implementing and maintaining restrictions cannot be ignored. And all of that is before the incremental costs of providing health services

At the end of all this we could well have increased hospital waiting lists by 6 months

All of this has to be paid for either by us or by future generations. And I really do not buy this "we can just borrow more" argument. While we have Germany propping up the Euro there may be some argument along these lines, but can Germany really afford to bale out Italy, Spain, France and Ireland? They have their own problems and are putting massive resources into tackling this already.

The EU has been pretty anonymous throughout, but when it's over the books have to be balanced. This may well signal the end to the Euro, and in turn the idea that the likes of Germany do support everyone else in the Eurozone

jams100

Beasty wrote: »

I'll be amazed if the cost of this is 5 billion or less. Tax takes will reduce significantly through the rest of the year. Costs of subsidising those out of jobs will rocket. The costs of implementing and maintaining restrictions cannot be ignored. And all of that is before the incremental costs of providing health services

At the end of all this we could well have increased hospital waiting lists by 6 months

All of this has to be paid for either by us or by future generations. And I really do not buy this "we can just borrow more" argument. While we have Germany propping up the Euro there may be some argument along these lines, but can Germany really afford to bale out Italy, Spain, France and Ireland? They have their own problems and are putting massive resources into tackling this already.

The EU has been pretty anonymous throughout, but when it's over the books have to be balanced. This may well signal the end to the Euro, and in turn the idea that the likes of Germany do support everyone else in the Eurozone

The 5 billion was only for the suggested helicopter money.
This epidemic is going to cost multiples of this probably 20+ billion (a complete guess) heard its costing €3.5 billion for unemployment each week, I could stand corrected on this though

Sono Topolino

There are a few concepts that need to be highlighted:

1) The effects of economic stimulus measures: during periods of full employment, government stimulus is usually wasted as it crowds out private sector investment. This creates inflation and destroys wealth.

During periods of high unemployment, like we have right now, government stimulus has no ill effects per se. By hiring loads of temps for the HSE and paying people's wages, so they can continue paying for necessities, the government is creating economic activity that otherwise would not have occurred.

2) The impact on national debt: national debt has to be paid back or else you suffer serious consequences (see Argentina), but governments obviously have a lot more leeway than private borrowers. Because of low interest rates, the government can borrow with no short term consequences. However, no short term consequences is not the same as no consequences. The national debt will be higher after this is over, both in absolute and Debt to GDP/GNI* terms. What this means over the long term remains to be seen.

If interest rates remain low over the long run, the consequences may be so small as to be easily disregarded. The government will be able to continue rolling over debts with fresh borrowings. However, if interest rates rise even to 2%, the government will either have to repay a portion of the principle to keep the interest bill manageable or pay more in interest. Either way, tax revenues will have to increase to pay for this.

This may again not be as bad as it sounds, if tax revenues increase organically due to economic growth. But compared to the baseline scenario (no pandemic and no need for borrowing) the tax bill will be higher.

3) The state of the economy after the crash: despite the economic life support measures introduced by the government to keep businesses from going under, a lot of businesses will close permanently and the economy will either go into a recession or depression this year. The pain will continue even after this is over. As a result of this, the government has an opportunity to steer the direction of the economy due to the principle introduced in point one - government spending will not be inflationary and will not cause crowding out, due to high unemployment.

This would be a good time for the government to dust off its shopping list of cancelled/deferred infrastructure projects from the last 20 years. Having more affordable houses, better public transport and internet infrastructure would help the economy bounce back. If this results in a higher interest bill on government debt, provided the projects are smarter and growth enhancing, it would have been worth it.

We're all Keynsians now.

snotboogie

Sono Topolino wrote: »

There are a few concepts that need to be highlighted:

1) The effects of economic stimulus measures: during periods of full employment, government stimulus is usually wasted as it crowds out private sector investment. This creates inflation and destroys wealth.

During periods of high unemployment, like we have right now, government stimulus has no ill effects per se. By hiring loads of temps for the HSE and paying people's wages, so they can continue paying for necessities, the government is creating economic activity that otherwise would not have occurred.

2) The impact on national debt: national debt has to be paid back or else you suffer serious consequences (see Argentina), but governments obviously have a lot more leeway than private borrowers. Because of low interest rates, the government can borrow with no short term consequences. However, no short term consequences is not the same as no consequences. The national debt will be higher after this is over, both in absolute and Debt to GDP/GNI* terms. What this means over the long term remains to be seen.

If interest rates remain low over the long run, the consequences may be so small as to be easily disregarded. The government will be able to continue rolling over debts with fresh borrowings. However, if interest rates rise even to 2%, the government will either have to repay a portion of the principle to keep the interest bill manageable or pay more in interest. Either way, tax revenues will have to increase to pay for this.

This may again not be as bad as it sounds, if tax revenues increase organically due to economic growth. But compared to the baseline scenario (no pandemic and no need for borrowing) the tax bill will be higher.

3) The state of the economy after the crash: despite the economic life support measures introduced by the government to keep businesses from going under, a lot of businesses will close permanently and the economy will either go into a recession or depression this year. The pain will continue even after this is over. As a result of this, the government has an opportunity to steer the direction of the economy due to the principle introduced in point - government spending will not be inflationary and will not cause crowding out, due to high unemployment.

This would be a good time for the government to dust off its shopping list of cancelled/deferred infrastructure projects from the last 20 years. Having more affordable houses, better public transport and internet infrastructure would help the economy bounce back. If this results in a higher interest bill on government debt, provided the projects are smarter and growth enhancing, it would have been worth it.

We're all Keynsians now.

This is a great post

FVP3

Beasty wrote: »

The EU has been pretty anonymous throughout, but when it's over the books have to be balanced. This may well signal the end to the Euro, and in turn the idea that the likes of Germany do support everyone else in the Eurozone

Germany is a major beneficiary of the Euro and the Eurozone as it drives its export market. In fact, in retrospect, the germans came in a too low a level in regards to the mark.

The EU has been anonymous and if it wants to survive it had better pull out all the stops. Not the punishment, greek style, of large austerity but some kind of debt forgiveness, monetization or whatever is needed. The last thing we need is for the Eurozone to collapse after this, as God knows where that will lead.

Balf

snotboogie wrote: »

This is a great post

Not so sure. Sounds like the Fallacy of the Broken Window.

Sono Topolino

I just wanted to make another point about supply and demand. Neoclassical economists generally hold that supply side economics creates short term pain for long term gain, and demand side economics is popular in the short term but creates long term inefficiencies. Still, most economists hold that in the case of a crisis, there is a place for demand side policies.

Paying a larger unemployment allowance to people made unemployed because of Covid-19 is classic demand side economics. This works if the economy suffers a demand shock, but is only viable in the short term. This is probably why the government has placed an end date on the payments.

Hiring people into the HSE and paying them is obviously boosting demand, if (as is problem) these people would have had no job otherwise and therefore would have relied on the dole. Assuming they're paid more money than they would have had on the dole, they can spend more money as a result, and this helps keep those sectors of the economy still functioning ticking over.

However, if these new hires make the health service more effective at identifying and isolating cases of Covid-19, and therefore these people infect less individuals, the country gets through the pandemic faster and we allow businesses to reopen sooner and people to go back to work sooner, then this is also boosting the supply side of the economy. It should hopefully kill two birds with the one stone.

Additionally, by investing in housing and infrastructure projects in the post-Covid-19 depression, the government is obviously engaging in Keynsian demand management: hiring people who are unemployed/under-employed, paying them a wage and creating demand for construction materials etc. However, if the effect of this is that we have better transport infrastructure and cheaper houses, then this will have long term benefits for the supply side. If housing is cheaper and transport is faster and less stressful, then this makes our cities and towns more liveable, and the labour market more dynamic. As is the case, these supply side effects are only visable after a significant period of time has elapsed.

Balf

FVP3 wrote: »

Be hard to imagine that there will be no monetization of debt after this, preferably in Europe by the ECB.

Is the ECB allowed to monetise Government debt?

FVP3

Balf wrote: »

Not so sure. Sounds like the Fallacy of the Broken Window.

Not seeing that. The poster isnt saying that the pandemic is good for the economy, but that government spending or borrowing is needed to recover from the economy.

SEPT 23 1989

Don't think people will take crippling austerity after this

The keep your mouth shut "you all partied" line cannot be used by governments this time

I really don't know what they will do

Wanderer78

SEPT 23 1989 wrote: »

Don't think people will take crippling austerity after this

The keep your mouth shut "you all partied" line cannot be used by governments this time

I really don't know what they will do

austerity, what a fcuking disaster that one is!

FVP3

Balf wrote: »

Is the ECB allowed to monetise Government debt?

Well yes.

The ECB will resume buying up eurozone government bonds at a rate of €20 billion as from November, “for as long as necessary,” it said. The quantitative easing could encourage those governments to borrow more money to invest in national projects.

https://www.forbes.com/sites/isabeltogoh/2019/09/12/what-to-expect-from-the-european-central-bank-decision/#50d85a173df9

FVP3

SEPT 23 1989 wrote: »

Don't think people will take crippling austerity after this

The keep your mouth shut "you all partied" line cannot be used by governments this time

I really don't know what they will do

Yes, the "you were all greedy" won't work this time.

We all could be out of a job soon enough. I can see a totally different, and worse, world approaching unless we get some new ideas.

Wanderer78

FVP3 wrote: »

Yes, the "you were all greedy" won't work this time.

We all could be out of a job soon enough. I can see a totally different, and worse, world approaching unless we get some new ideas.

'tighten our belts', go fcuk yourselves lads!

Sono Topolino

SEPT 23 1989 wrote: »

Don't think people will take crippling austerity after this

The keep your mouth shut "you all partied" line cannot be used by governments this time

I really don't know what they will do

I find it hard to imagine that there will be austerity in this instance. In order to justify austerity, interest rates on government bonds would have to increase. Government bonds are commonly classed as safe assets, which certain financial institutions have to hold. Therefore the most likely cause of interest rates going up is a perception of increased risk.

This is a global pandemic and all governments that have the capacity are responding in more or less the same way: shutting down entire sectors of the economy and spending more.

Given that the risks are similar for all countries, there would have to be a move against all countries debt. If this happened, central banks would move to purchase the debt, giving some version of Draghi’s “whatever it takes” speech. As all (or most) countries would be engaging in monetary easing, the effect on exchange rates would be minuscule.

Governments cannot go bust unless politicians want them to. You can’t rule out the risk of that, but it’s fairly unlikely. And experts are cool again, so there’s that.

Correction: Government’s who are able to borrow in their own country’s currency. LDC’s who can only borrow in the dollar routinely get screwed.

_Brian

AMG1988 wrote: »

Can someone from an Economic background teach me rule 101;

With the government subsidizing wages, flying planes to China to buy PPE etc.. we will obviously have to repay this in the future through increased taxes, NI..

Why cant the government just write this off?

I apologize in advance for my stupidity..

They borrow the money they spend.
It upsets people we borrow from when we “write it off”
It would lesson our A+ rating and lead to borrowing being more expensive.

Interest rates are so lot at the moment it’s almost free to borrow.