printing money

[Bubblesofearth]

Is this the time when radical fiscal moves should be considered?

Printing money without associated debt would be one. It's been mooted before in theoretical exercises and now could be the time for some practice.

Not sure the best way to do this but giving everyone an amount per week whilst the crisis lasts could be an option. This could not only help individuals but could be coupled with businesses retaining but not having to pay staff. Also tax, rates and utilities holiday. Basically remove the bulk of operating costs. Direct payment to utilities etc that provide essential ongoing services.

Be interesting to see what HMG do come up with but unless it is radical there is a real chance of 30's style depression, esp if this goes on for a year or more which seems likely.

BoE

[colin]

I don't think so, this will not be a normal recession caused by the economic cycle turning. There will be shortages of goods, GBP has fallen against $ and €, we import 50 % of our food and we just had a winter so wet farmers could not plant winter crops , inflation will increase as goods available decreases helicopter money won't put food on supermarket shelves but it will make everything more expensive.

[Bubblesofearth]

I don't think so, this will not be a normal recession caused by the economic cycle turning. There will be shortages of goods, GBP has fallen against $ and €, we import 50 % of our food and we just had a winter so wet farmers could not plant winter crops , inflation will increase as goods available decreases helicopter money won't put food on supermarket shelves but it will make everything more expensive.

The problem is global not local so the solution should also be global, i.e printing agreed by all countries.

There is no shortage of goods and services but rather a collapse in demand. At the global level this is massively deflationary not inflationary. Add to that the high levels of debt and IMO the ingredients are there for debt deflation and depression. Printing money would be a way to prevent individuals and businesses from going bankrupt and if managed carefully could avert economic collapse.

BoE

[dealtn]

I don't think so, this will not be a normal recession caused by the economic cycle turning. There will be shortages of goods, GBP has fallen against $ and €, we import 50 % of our food and we just had a winter so wet farmers could not plant winter crops , inflation will increase as goods available decreases helicopter money won't put food on supermarket shelves but it will make everything more expensive.

The problem is global not local so the solution should also be global, i.e printing agreed by all countries.

There is no shortage of goods and services but rather a collapse in demand. At the global level this is massively deflationary not inflationary. Add to that the high levels of debt and IMO the ingredients are there for debt deflation and depression. Printing money would be a way to prevent individuals and businesses from going bankrupt and if managed carefully could avert economic collapse.

BoE

This is a supply shock, not a demand shock!

The economy is struggling not because people don't want to consume, but because they are not being able to work, workplaces are being closed etc. You need a totally different tool set. Printing money won't get people spending if they can't get to the shops, or goods aren't there due to supply issues. The danger is that at the time when demand can begin to be met again you have increased the money supply, then it can feed into inflation.

[Bubblesofearth]

This is a supply shock, not a demand shock!

The economy is struggling not because people don't want to consume, but because they are not being able to work, workplaces are being closed etc. You need a totally different tool set. Printing money won't get people spending if they can't get to the shops, or goods aren't there due to supply issues. The danger is that at the time when demand can begin to be met again you have increased the money supply, then it can feed into inflation.

Oil at <$30 doesn't look like a supply shock to me. It's not about getting people to spend, it's about avoiding individual and corporate bankruptcy whilst the crisis lasts. If people are not earning then giving them money simply maintains their level of cash wealth rather than increasing it. Allowing bankruptcy to run riot will reduce the money supply by destruction of the same. Letting heavily indebted individuals and businesses borrow more money during the crisis will only help those strong enough to shoulder the increased debt burden and will have the effect of reducing spending overall for a long time to come.

Inflation was the enemy in the 70's and that still seems to be the ogre people remember. But this is a problem more like the 30's, something not many people, for obvious reasons, have much direct experience of.

BoE

[dealtn]

This is a supply shock, not a demand shock!

The economy is struggling not because people don't want to consume, but because they are not being able to work, workplaces are being closed etc. You need a totally different tool set. Printing money won't get people spending if they can't get to the shops, or goods aren't there due to supply issues. The danger is that at the time when demand can begin to be met again you have increased the money supply, then it can feed into inflation.

Oil at <$30 doesn't look like a supply shock to me. It's not about getting people to spend, it's about avoiding individual and corporate bankruptcy whilst the crisis lasts. If people are not earning then giving them money simply maintains their level of cash wealth rather than increasing it. Allowing bankruptcy to run riot will reduce the money supply by destruction of the same. Letting heavily indebted individuals and businesses borrow more money during the crisis will only help those strong enough to shoulder the increased debt burden and will have the effect of reducing spending overall for a long time to come.

Inflation was the enemy in the 70's and that still seems to be the ogre people remember. But this is a problem more like the 30's, something not many people, for obvious reasons, have much direct experience of.

BoE

Not sure giving people money to maintain their cash wealth (whatever that means) will raise the demand, or price of oil. The oil at $30 is due to Saudi Arabia and Russia increasing Oil (what's that word again?) "supply".

[odysseus2000]

This is a supply shock, not a demand shock!

The economy is struggling not because people don't want to consume, but because they are not being able to work, workplaces are being closed etc. You need a totally different tool set. Printing money won't get people spending if they can't get to the shops, or goods aren't there due to supply issues. The danger is that at the time when demand can begin to be met again you have increased the money supply, then it can feed into inflation.

Oil at <$30 doesn't look like a supply shock to me. It's not about getting people to spend, it's about avoiding individual and corporate bankruptcy whilst the crisis lasts. If people are not earning then giving them money simply maintains their level of cash wealth rather than increasing it. Allowing bankruptcy to run riot will reduce the money supply by destruction of the same. Letting heavily indebted individuals and businesses borrow more money during the crisis will only help those strong enough to shoulder the increased debt burden and will have the effect of reducing spending overall for a long time to come.

Inflation was the enemy in the 70's and that still seems to be the ogre people remember. But this is a problem more like the 30's, something not many people, for obvious reasons, have much direct experience of.

BoE

Not sure giving people money to maintain their cash wealth (whatever that means) will raise the demand, or price of oil. The oil at $30 is due to Saudi Arabia and Russia increasing Oil (what's that word again?) "supply".

A lot of the price of oil has been its perceived status as a safe asset. The argument being that to run a modern economy one had to use oil, hence oil would always be a store of wealth.

Now we have move away from oil using engines to electric vehicles and suddenly oil is not longer the must have commodity that it was. To try and make the demand for oil hold up, the producers have ramped up supply to lower the consumers price. I doubt this will work as politicians will ramp up co2 taxes to mitigate the oil price crash.

Regards,

[ursaminortaur]

Trump is apparently going to be sending cheques directly to American citizens.

https://www.theguardian.com/world/2020/mar/17/us-government-to-give-citizens-emergency-financial-aid

Donald Trump has dramatically stepped up the US government’s response to the coronavirus outbreak by announcing plans to send cheques directly to American citizens to give them emergency financial aid, while agreeing to purchase up to $1tn (£830bn) of corporate bonds.

The White House said it was preparing to send the payments to Americans within two weeks as part of a vast stimulus package to shore-up confidence in the world’s largest economy as the efforts to contain the disease threaten a global recession.

At a special briefing in Washington, the the US Treasury secretary, Steve Mnuchin, said: “This is stuff that needs to be done now. The president has instructed me, this is no fault to American workers, for medical reasons we’re shutting down.”

Speaking after the Republican senator, Mitt Romney, proposed sending $1,000 cheques, Mnuchin said the value of the payments would be “bigger than what’s in the press”.

[Jam2Day]

Oil at <$30 doesn't look like a supply shock to me. It's not about getting people to spend, it's about avoiding individual and corporate bankruptcy whilst the crisis lasts. If people are not earning then giving them money simply maintains their level of cash wealth rather than increasing it. Allowing bankruptcy to run riot will reduce the money supply by destruction of the same. Letting heavily indebted individuals and businesses borrow more money during the crisis will only help those strong enough to shoulder the increased debt burden and will have the effect of reducing spending overall for a long time to come.

Inflation was the enemy in the 70's and that still seems to be the ogre people remember. But this is a problem more like the 30's, something not many people, for obvious reasons, have much direct experience of.

BoE

Not sure giving people money to maintain their cash wealth (whatever that means) will raise the demand, or price of oil. The oil at $30 is due to Saudi Arabia and Russia increasing Oil (what's that word again?) "supply".

A lot of the price of oil has been its perceived status as a safe asset. The argument being that to run a modern economy one had to use oil, hence oil would always be a store of wealth.

Now we have move away from oil using engines to electric vehicles and suddenly oil is not longer the must have commodity that it was. To try and make the demand for oil hold up, the producers have ramped up supply to lower the consumers price. I doubt this will work as politicians will ramp up co2 taxes to mitigate the oil price crash.

Regards,

But have we really moved away from oil. Sure, we would all like to do so but technology and logistics are simply not able to bridge the gap at the moment. Deflation is really the source of the problem in the economy largely through cheap money and technological advancements which has undermined the productivity of the mass job market. I have lost count of the number of 'job creation schemes' out there care of central government policy. Machines are and always will be preferable to a labour workforce and that gap is only going to widen over time under freemarket forces. But there is the catch because freemarket forces in the markets notably risk capital are defunct which is why we face the very problem we are witnessing right now. Friedman economics endorses this principle and is most closely aligned to the evolutionary and innovative principles of natural selection. Unfortunately, Keynesian economics is favoured by the centralists and social planners for obvious reasons which is hardly surprising when you consider that Keynes was known for his rather ambiguous judgements on textbook economic discipline to the extent that when consulted by the acting PM of his time he predictably offered two answers as to which leaver to pull. Ask Friedman the same question and he unquestionably would have replied that the markets would decide for themselves. The real problem is that governments should stay well away from matters of enterprise and stick to politics and administration but therein lies the oldest chestnut of all.

[Bubblesofearth]

Not sure giving people money to maintain their cash wealth (whatever that means) will raise the demand, or price of oil. The oil at $30 is due to Saudi Arabia and Russia increasing Oil (what's that word again?) "supply".

To repeat, it's not about raising demand (that cannot happen during isolation/lockdown), it's about preventing insolvency and preventing a further large rise in indebtedness. A short term measure whilst the crisis lasts.

An estimated 10 million bbls per day fall in oil consumption is a demand shock.

BoE

[GoSeigen]

Not sure giving people money to maintain their cash wealth (whatever that means) will raise the demand, or price of oil. The oil at $30 is due to Saudi Arabia and Russia increasing Oil (what's that word again?) "supply".

To repeat, it's not about raising demand (that cannot happen during isolation/lockdown), it's about preventing insolvency and preventing a further large rise in indebtedness. A short term measure whilst the crisis lasts.

An estimated 10 million bbls per day fall in oil consumption is a demand shock.

Then this is an absolutely stupid policy. I am appalled at what our CommunistConservative government is doing and the limp acquiescence to their insanity by our supine population. Empty shelves in the shops, closed borders, bans on large gatherings! Absolutely disgusting. I'm SOO glad I have migrated elsewhere. "Up yours" to the anti-migration lobby!

How easily we abandon our liberty.


GS
P.S. Just watch how the CP starts nationalising everything too. Starting with BA perhaps. They have abandoned all principle.

[dealtn]

Not sure giving people money to maintain their cash wealth (whatever that means) will raise the demand, or price of oil. The oil at $30 is due to Saudi Arabia and Russia increasing Oil (what's that word again?) "supply".

To repeat, it's not about raising demand (that cannot happen during isolation/lockdown), it's about preventing insolvency and preventing a further large rise in indebtedness. A short term measure whilst the crisis lasts.

An estimated 10 million bbls per day fall in oil consumption is a demand shock.

BoE

Airlines being told not to fly, people being told not to go places (and drive cars and use fuel etc.) is not a demand shock.

If you are put on a forced diet by a strict doctor you might be eating less food, as its supply is restricted. You are still hungry and have the demand to eat.

[colin]

Somehow capitalism needs to be suspended otherwise there won't be an economy to come back to after coronovirus but I don't think sending cheques to people will be much use when economic activity itself is what is spreading this virus.

[redsturgeon]

Somehow capitalism needs to be suspended otherwise there won't be an economy to come back to after coronovirus but I don't think sending cheques to people will be much use when economic activity itself is what is spreading this virus.

Unless you need that money to buy food and pay rent.

John

[colin]

Somehow capitalism needs to be suspended otherwise there won't be an economy to come back to after coronovirus but I don't think sending cheques to people will be much use when economic activity itself is what is spreading this virus.

Unless you need that money to buy food and pay rent.

John

Such essentials have been covered for a long time by unemployement and housing bennefit, in that respect the norm has been to suspend capitalism for those affected at a survival level but giving people more money to buy food that is not on the shelves can only exacerbate coming price rises .

[redsturgeon]

Somehow capitalism needs to be suspended otherwise there won't be an economy to come back to after coronovirus but I don't think sending cheques to people will be much use when economic activity itself is what is spreading this virus.

Unless you need that money to buy food and pay rent.

John

Such essentials have been covered for a long time by unemployement and housing bennefit, in that respect the norm has been to suspend capitalism for those affected at a survival level but giving people more money to buy food that is not on the shelves can only exacerbate coming price rises .

You think 93 quid a week covers that?

John

[Bubblesofearth]

Airlines being told not to fly, people being told not to go places (and drive cars and use fuel etc.) is not a demand shock.

If you are put on a forced diet by a strict doctor you might be eating less food, as its supply is restricted. You are still hungry and have the demand to eat.

The economic definition of demand is based on both the willingness and ability to purchase. If people are less able, or unable, to purchase then this represents a drop in (economic) demand, regardless of whether they would like to purchase. The market is agnostic as to the reason for the inability.

BoE

[Jam2Day]

The fact that governments are positioned to instruct the public in a number of ways is symptomatic of the very core issue, namely, that society has been conditioned and increasingly weaned on central dictates at the expense of common sense and the ability to think and act for themselves. We are, in my view, seeing Orwell's visionary '1984' play out under our very noses. It is no surprise to me that there has been a run on 'bog paper'.

[dealtn]

Airlines being told not to fly, people being told not to go places (and drive cars and use fuel etc.) is not a demand shock.

If you are put on a forced diet by a strict doctor you might be eating less food, as its supply is restricted. You are still hungry and have the demand to eat.

The economic definition of demand is based on both the willingness and ability to purchase. If people are less able, or unable, to purchase then this represents a drop in (economic) demand, regardless of whether they would like to purchase. The market is agnostic as to the reason for the inability.

BoE

There are people sitting in airports with tickets, and cash, wanting to travel home. There are no planes. Giving those people more cash doesn't help them, supplying a way of getting home does.

At the point that this develops such that people are out of work, businesses are closed (permanently) etc. then there will need to be all kinds of economic measures to help, some conventional, some less so. We are beginning to see some of these already.

A "helicopter drop" at this stage is counterproductive.

[Bubblesofearth]

There are people sitting in airports with tickets, and cash, wanting to travel home. There are no planes. Giving those people more cash doesn't help them, supplying a way of getting home does.

At the point that this develops such that people are out of work, businesses are closed (permanently) etc. then there will need to be all kinds of economic measures to help, some conventional, some less so. We are beginning to see some of these already.

A "helicopter drop" at this stage is counterproductive.

I guess we can agree to disagree. All I see at the moment is a willingness to allow people and businesses to become ever more indebted. I've said before that high levels of debt make economies more vulnerable to shocks. This is an (extreme) example of such a shock. IMO the biggest economic risk following the crisis is debt deflation and depression. Not saying it will definitely happen but the odds are shortening.

Guess, as always, time will tell.

BoE