First, a little background: Over the past decade, the European Central Bank, the Bank of Japan, as well as the central banks of Denmark, Switzerland and Sweden have experimented with negative interest rates. In other words, banks are being forced to pay more of their park cash to the central bank.
Once inconceivable, negative interest rates are now practically accepted, even if they have a significant record of achieving their set policy targets. Not only that, negative interest rates have receded, only Sweden manages to stimulate its economy and return rates to the positive sector.
The epidemic has exacerbated the need for monetary stimulus, and with further rate cuts, central banks with negative rates have responded by buying a large number of bonds and other assets to support their economies. U.S. The Federal Reserve and the Bank of England, which have long resisted negative interest rates, are now under tremendous pressure in Europe and Japan to follow the prescribed course.
Bank England f England flirt with staying negative for some time. On Thursday, policymakers gave banks a further six months to prepare for negative rates, when they said they should not be seen as inevitable. In the end, the biggest output draw of centuries could push UK rates into negative territory, leaving the US Federal Reserve as the only major central bank not to sink.
The epidemic is also dragging the government into spending to the limits of the world. According to Capital Economics, the combined financial response is 12% of global GDP, compared to 2% of global GDP after the 2008 financial crisis. Stimulus spending helped push the U.S. deficit to 3. 3.1 trillion in fiscal year 2020, and the country’s debt to 21 21 trillion – the largest share of the economy since World War II, emerging from World War II.
There are a number of reasons why most economists aren’t too concerned about deficits right now. The first is that government spending is needed to stem the tide of recession. The second is that lower interest rates mean it is cheaper for governments to borrow to get funding for stimulus measures.
Neil Shearing, group chief economist at Capital Economics, said deficits become a problem when it comes to consistently high spending or low tax revenues when it stays elevated. Once the epidemic is eradicated, the economy will recover relatively quickly. Looking further, lower interest rates will help keep public debt out of control.
“This is not to say that some countries will not need to go into financial retirement after the epidemic has passed. But most governments, especially central banks, can stand behind their bond markets, have time to assess the scale of losses. Decide on feedback, ”Shearing said.
But there are still dangers. Large numbers of stimulus from governments have obscured some of the economic shocks caused by the epidemic, especially in Europe, where job aid programs have kept businesses afloat and employed workers. It is likely that when the health crisis eases and support is withdrawn, unemployment and bankruptcy will increase dramatically.
“If there is a really large-scale, long-term loss to the productive potential of the economy, which will affect your ability to raise tax revenue in the future and your chance of running a large deficit now will clearly reduce the more permanent losses,” he said. David Miles, Professor of Financial Economics at the Imperial College Business School.
In the face of mass unemployment and business failures, most governments have put aside concerns about the current deficit. The same is true of monetary policy concerns, suggesting that ultra-low interest rates are here to stay for the foreseeable future.
“A world in which unemployment is rising at a significant level, perhaps one in which inflationary pressures do not increase much, and a world in which central banks will not rush into rising interest rates.” Miles, who was a member of the Monetary Policy Committee at the Bank of England from 2009 to 2015.
One problem: lowering interest rates will limit the ability of central banks to respond to the impending crisis, just as the global financial crisis and the eurozone debt story have kept rates low compared to epidemics. But central bankers will have to face the current crisis before they can recreate a return to more traditional policy.
Miles said, “If you think you can cut your nose even though you have a face, let us raise the interest rate to 3% so that in the future when conditions get worse, we can reduce it to zero.” .
“You’re going to get into the next problem now, if such a thing happens with limited ammunition towards monetary policy, but that doesn’t mean there’s an easy answer to this.”
The man who jokes can shake the economy
Marty Walsh probably doesn’t seem to be canceling the gig economy. He spent years advocating construction workers and spending less time on the complexities of on-demand work in billion-dollar tech companies.
Millions of Americans have lost their jobs as the health crisis has created an economic crisis. And many turned to working with companies like Uber, InstaCart and Dordesh as a back stop for their livelihoods.
At the same time, these companies are pushing to defend the disputed business model, in which one considers their workers as independent contractors instead of the employee who is entitled to traditional benefits and protection such as workers’ compensation, unemployment insurance, family leave. Sick leave, or the right to consolidate.
“Right now we’re at a crossroads,” said Shannon Lis-Riordan, a Boston-based labor attorney who has been challenging Uber and Lift over worker classification for seven years through various lawsuits. “Marty Walsh’s biggest impact on labor in this country could be after Francis Perkins if he goes ahead with the challenge,” she said, referring to Franklin D., who was the chief architect behind the new deal. Said referring to Roosevelt’s Labor Secretary.
Now the next
Friday: UK GDP; Market holiday in China, South Korea, Singapore
Correction: An earlier version of this story misrepresented America’s debt. That’s 21 21 trillion.
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