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Op-Ed: No more public support money? Say goodbye to the economy

In the United States, the money support ends in July. Anticipated outcomes are mass evictions, and that’s just the start. Exactly how people are to pay bills and deal with daily needs hasn’t been explored. With 13-14% unemployment, the result will be catastrophic. This is likely to be nationwide. There’s nowhere to hide.
From a business perspective, it’s even murkier. If businesses can’t collect debts and their cashflow is destroyed, they’re in big trouble. Defaults can cascade very easily. Mainstream businesses like groceries are also likely to be hit hard with the sudden disappearance of customer money.
Credit markets
This is to say nothing of personal and business debt. No money equates to no credit payments, which can backfire up the entire credit chain to lenders. Those lenders could find themselves well short of the required money.
Rehiring? You think?
Rehiring isn’t the answer. There’s no reason to believe that large-scale rehiring can be done quickly, or that it will necessarily be the same business scenario for employers. If the rest of the economy is crashing, why would they rehire? Rehiring is likely to be a very timid beast indeed.
Assets at risk
There’s also a downside on asset values. People who don’t have money can’t pay premium prices. Asset values will have to fall, perhaps severely. The big American property market is the classic case. High rents, high property values, state and county taxes, you name it; they’re all underpinned by asset values, and those values don’t have a chance.
The stock market is also highly vulnerable if anything goes off track. This charming environment of altruists exists in a happy haze of future rewards. A blink at the wrong time could trash it completely in this situation. An economy with no money won’t help much, either. Check out the NASDAQ charts for a psychological epic fun tale of glee.
Trade
Global trade can seize up, fast, in a no-money environment. Importers and exporters will be first into the fire. Add uncertain forex values and dubious levels of demand, and trade can capsize. Trade will contract anyway, but if done without supporting demand, it could all too easily be catastrophic.
Oh, there’s a pandemic, too? You don’t say!
The pandemic is still raging. It’s not getting better. Infections are increasing at about 130k per day. That situation needs to be recognized and ultimately brought under control. If not, the current economic situation will get a lot tougher over time. Reopening seems to make it noticeably worse.
Forget politics, this is about survival.
This is not an ideological issue. It’s common sense. There’s nothing to discuss any more. Capitalism requires capital. If that capital vanishes in a haze of smoke and verbose commentary, it’s still gone. No amount of wishful rhetoric can change that. To survive, the economy needs money, and lots of it.
No real choice
Governments around the world don’t have much of a choice, if any. The public financial assistance did stave off an almost instant crash in the US. You can’t have 40+million unemployed and expect there to be no effect.
That scenario applies again, as of the end of June. The alternative makes the Great Depression and the GFC combined look like a kid’s first birthday party at best. At worst, it’ll be much deeper, much longer, and truly nasty.
A word of advice for governments
The advice is simple – Shut up. A single word could panic the markets and the world. Talk won’t achieve a damn thing anyway. You can’t talk up a non-existent economy. You can’t tell people how great it is to be broke. The best option is to simply maintain what’s in place, on the basis that it’s necessary, which it is. You’ll get credit for not being stupid, which is better than credit for trashing the entire economy single-handed.
Talk can be counterproductive. Scaring people can’t help. There’s little enough public confidence without destroying it entirely on the basis of a need to open your mouth. The old Roman saying, “If you’d kept your mouth shut, we’d have thought you were clever” applies today like it rarely has ever before.
Post script: The White House is talking about a second stimulus package, but no details are available. Something is expected to be decided in the next couple of weeks. The maximum figure cited is $6000 per household, but nothing in terms of regular money, which is what’s needed.

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Editor-at-Large based in Sydney, Australia.

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