A looming depression? Excepts from LeMetropole Cafe, a US financial newsletter today.
The world is entering simultaneous lockdown, which is an historic first. Many income-producing activities are being halted. But lots of people need income if only to service debt, and there’s an historically unprecedented amount of debt out currently. We are in uncharted waters.
The main talk now is twofold:
*Quarantine for all.
*The US Government sending families $1,000 so they can survive.
Clearly something has to be done or there will be riots soon.
I’ve been talking privately with a few business people and bankers. They are scared sh*tless. The already insolvent local and state, budgets now face massive increases in unemployment payouts and other Coronavirus expenses at a time when tax collections are practically plummeting to zero.
We all agree that debtors are going to run away and hide, and creditors will get killed. The sub- prime auto and housing creditors are screwed. Credit card debt, student loan debt, you name it, they’re all getting ready to go delinquent. The only option to avoid social catastrophe is CTRL-P to infinity.
All debt gets paid eventually, either by the borrower or the lender. Moral hazard abounds.
Printing money can help ease income and debt problems in the short term, but it’s only money:
Economic production … and … personal incomes are being sharply curtailed, so there is talk of “helicopter money” to replace incomes. But “helicopter money” won’t restore production, just support demand and reduce personal debt defaults.
Every hour billions or trillions in dollars and other currencies are being created and thrown at problems here, there, and everywhere, even as production declines. …
But though we had plenty of money. There was nothing our money could buy. …
Negative interest rates, common elsewhere, now are coming to the United States too … now government currencies not only fail to pay interest but are openly devalued when banked.
There are going to be many precedents set soon if the virus isn’t curtailed very quickly. We are on the cusp of some historic changes to the financial landscape.
As for governments that don’t print money but borrow — to be repaid later — you really have to wonder. What is the point in the government using its expensive bureaucrats to redistribute money between people? Sure it stimulates the recipients of their munificence, but it depresses those who have to cough up the cash. How dumb is that? If you are going to stimulate everyone, you need freshly manufactured money. Alan Moran makes that point too:
Josh Frydenberg’s Treasury advised $750 hand out to pensioners proved a neat windfall to them, while imposing a $4.8 billion yoke around the economy’s neck. the Treasurer is threatening to make that even heavier.
Similar largesse to combat the Global Financial Crisis by Rudd/Swan advised by the same Keynesian Treasury socialists led to a boom in the pokies, and a legacy of debt that continues to dog us. …