Coronavirus bailouts: governments and central banks can’t keep throwing money at the problem
- The largesse keeping the world from a depression is also saddling governments with growing debt and limiting the space for stimulus in case of a second Covid-19 wave
- The focus must also be on getting the pandemic under control and everyone back to work
A comfort in these dark days of pandemic and recession has been the presence of governments and central banks with apparently bottomless purses.
We used to believe that governments had two revenue sources: taxes plus borrowings. And that central banks did not simply go on printing money. By some strange alchemy, however, debt concerns have become a thing of the past.
Governments can continue handing out trillions of dollars in aid to businesses and households while central banks prop up an increasingly shaky-looking financial system.
The figures are almost unbelievable. As IMF chief economist Rita Gopinath said, “We are now projecting deeper recession in 2020 and a slower recovery in 2021. Global growth is projected to decline by 4.9 per cent in 2020 [vs 3 per cent forecast in April] followed by partial recovery … in 2021.”