The global pandemic is perhaps at the beginning of its end. The hope is the many vaccines, but there is much uncertainty about how well the vaccines will solve the global status.
Let us look at two images of the current fiscal situation in previous great events.
The Macroeconomic effect is the great fiscal deficits and growing government debt. Government debt is normally built with wars and can leave a country with little room to move. After WWI nations struggled to pay off debts and one effect was the great depression. WWII surprised virtually all rich nations. The effect of debt and other bungling had produced depression after WWI, and there was great fear that this would happen again. But there was a global boom, led by the USA whose massive spending on armaments was quickly applied to commerce, and other nations followed.
So the question is whether massive Covid-spending is going to create a global boom or another depression? Experts say there are three ways to eliminate massive government debts. Introduce a regime of austerity, and this would most likely to lead to depression, or at least a dragging recession that leaves many people unemployed and many others underemployed.
Second is keep spending so that debt surges and eventually becomes very difficult to manage, ending the boom.
Or, thirdly, an option that I have been told is mentioned in the Christian bible. Have a ‘Jubilee event’ where all debts are cancelled. Perhaps difficult to find a formula, but might be the best way to handle massive debts if spread widely. I can imagine countries like Switzerland and Singapore with relatively little debt might feel poorly done by, but perhaps they could be given some global money to compensate.
Many people say that the most likely way to diffuse debt is for governments, via central banks, to produce inflation. Central banks these days are apposed to goods and service inflation, although they happily generate asset inflation. (This is an issue to discuss on another day.)
Goods and services inflation is often a result of overspending by governments and after withdrawing their valued ‘independence’ the national Treasuries will again sit on central banking boards with a mandate from government to eat government debt by inflation, thereby robbing private sector businesses and consumers.
My money is on inflation. Even though there has been 40 years of low goods and services inflation, central bankers are likely to be blamed.
Kulture
Fiona Prior is impressed by the cultural breadth of Dominik Moll’s ‘Only the Animals’. You may never view those email scams from Nigeria in quite the same way again. More here.