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article imageOp-Ed: IMF — ‘The New Great Depression’ is the wrong message

By Paul Wallis     Apr 9, 2020 in World
Sydney - The IMF has stated that this is the worst economic downturn since the Great Depression. It probably is, but it’s the wrong message to send when people are looking for a way out.
The IMF’s statements are based on some hard economic truths. The overall projection is that it will push impoverished communities over the edge. That’s not exactly a revelation. They already were long since over the edge, it’s just that their very low base norms looked normal, for them.
Poverty is a measure of economic failure, pretty much by definition. Healthy, prosperous societies have fewer poor people. The IMF works in these environments continuously and knows better than most the realities involved.
Now, however, the “wealthy” part of the world is being hit hard enough to notice the downturn. People are understandably scared to spend. An unspecified period of lack of income is a truly lousy experience. There’s no clear path, yet. The fear is doing more economic damage than the disease.
The potential risks are real enough. Prices could spike. Incomes could dry up even more severely. Lack of money could cause serious issues. Lack of strong economic responses, however, as in the UK and US, is creating havoc.
The general perception is that the rich will just sail through, smugly pocketing trillions from their little friends in governments as usual while everyone goes broke. That’s the blue sky version. The reality is that the next quarter will see murderous results and a lot of them. The smugness will be hit, hard.
Please note – This pandemic won’t last forever. The downturn is indicative of itself, nothing else. A few lousy numbers are only to be expected.
The weakness of the Main Street economies has remained since the GFC. Massive amounts of debt will be circling overhead in the upper financial echelons. Negativity is poison in this environment.
Planning for the reboot
In this environment, positive messages are required to be seen and put into practice. Rebuilding, adapting and developing new lines of income are the key to a rebound. The global economy will need to be jump started.
The good news about that is:
Everyone will be keen to get back to normal. Who’d have thought a global catastrophe could be so unspeakably dull? Lockdowns save lives, but they’re hardly what you’d call entertaining and exciting. This big mental stimulus will do more for the global economy than anything else.
Jobs will definitely be there; this restart will require a lot of high-octane liquidity. The IMF could be talking up its role and showing the strong positives, not the hideous negatives.
Trade will restart as fast as it can. Nobody wants to think about any other option. That’ll also kick start the large services sector, reviving the mainstream economy cashflow, which is exactly what it needs.
Debt management needs to be seriously considered to reboot a healthy financial sector. There are too many non-viable debts. What debts can be wiped? (The alternative to write-offs is a lot of massively toxic “assets” on the books. The credibility of these debts is lower than junk bonds and sub primes. They need to go, even if it doesn’t look “nice” and involves some losses. These debts aren’t just dead, they’re extinct. Phased write offs could do the job with less pain.)
While you’re at it
The cost of living in most countries is absurd. Rent, insurance, you name it; this cost regime is nothing but over-gouging by any possible stretch of definitions. If people had had any money at the outset of this pandemic, the impact would have been much less. Money must go back into Main Street to insulate against the risks of big hits like this. Whether it’s a pandemic or a financial sector crash, money cures the problems money causes.
The IMF can make a good case for better wages, sane living costs, and more responsive and accessible services. The virus has proven that if it was a problem, the sheer lack of assets in the society made it much worse. Fix that.
Stay on message
That said – Telling people it’s bad is redundant. They know that. What’s needed is to be clear and specific about recovery. A credible future scenario will do more good than any other message.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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