Desperate problems can sometimes justify extreme solutions, but leading economists fear financial interventions intended to ease the coronavirus crisis could cause even more fundamental problems. The cure might create a financial catastrophe of its own.
Just a few years ago, right-wing politicians were mocking left-wing rivals and warned voters not to believe promises of governments distributing “free stuff” in the United States; nor in “the magic money tree” in the United Kingdom.
Now those self-same right-wing realists seem to have discovered a whole forest of magic money trees in their quest to prevent COVID-19 from causing another Great Depression.
Such fears are not unfounded. Last week the International Monetary Fund (IMF) forecast the deepest contraction for the global economy since the 1930s.
Kristalina Georgieva, IMF managing director, said that 170 of its 189 member countries would suffer falling output per head in 2020 and added: “The bleak outlook applies to advanced and developing economies alike. This crisis knows no boundaries. Everybody hurts.”
No wonder the US President, Donald Trump, has abruptly abandoned his previous scepticism about the seriousness of the crisis or the potential benefits of government spending and, instead, opted for an estimated $2 trillion aid package.
As Trump trumpeted: “It’s going to be big, and it’s going to be bold,” telling reporters at a White House briefing there was “enthusiasm” on Capitol Hill for the measures.
Coming down from the clouds, shoppers are being encouraged to spend money they do not have on credit cards and homebuyers are being offered temporary relief