Lots of chatter this morning abt the Treasury’s imminent new scheme for dealing with economic impact of #COVID19. A few thoughts about this from someone who lived and reported through 2008, since that’s the closest analogy to what we have now: a moment of genuine economic panic
Rumour mill thick with measures that cld be in @RishiSunak’s package: more generous statutory sick pay. A @bankofengland backed bond buying programme. More measures to support high street. Tens of billions of pounds - multiples of what was in Budget. This is all v well BUT...
Details right now are much, much less important than gesture. This is a moment of crisis. What households, businesses & investors need to know is not the precise mechanism whereby they will be supported - that can wait some days/weeks. They need to know the intent is there...
In 2008 there were various different ideas for how to support banking systems but the differences mattered far less than one clear statement from everyone: we will NOT let the financial system fail. That message was delivered by world leaders and via G7 communiques
People were left in no doubt that even if it took hundreds of billions of dollars, the financial system would not be allowed to implode. Same thing today: it is still unclear that world leaders realise the SCALE of what it will take to keep the economy afloat over the next year
So the tone from @RishiSunak today is all important. More so than the details. I’m hearing lots of officials at HMT are v nervous about how fast this is all moving. Nervous that they don’t have enough time to get the mechanisms in place to eg. get money to those who need it
They’re nervous too that the econ challenge keeps changing. Consider implications of yday. Keeping an economy on life support for 18 months, as may be necessary under a containment regime, is v diff to assuming everyone gets herd immunity & life returns almost to normal in Jul
Yes, details will be needed. But TODAY gestures are what matter. Until investors see politicians will throw war-equivalent sums at the economy it’s rational for them to keep selling. Until households see govt will ensure loo roll will be on shelves it’s rational to panic buy
If the Chancellor’s package today is another forensic scheme of targeted support - however generous - the chances are it will neither quell these concerns nor will it look very effective next week, if/when the self-fulfilling dynamic in the economy right now takes another spiral
Hopefully the Chancellor won’t need to spend hundreds of billions of pounds on this economy-wide bailout. But it’s becoming quite clear that households/biz/investors need to hear he is WILLING to do so if need be.
Macron’s tone last night quite instructive on this point. Was he really promising a €300bn fiscal stimulus? Not really. But the number and the determination in his voice was what mattered. Investors are hoping for something similar from @RishiSunak today.
That’s a big ask from someone who’s been in the job for only a few weeks. It’s a big ask from an untested PM. But on the bright side we have recent history to call on. If this is anything like 2008 (and by some measures it’s worse), what’s needed is big bazookas, not pea shooters
None of this is to say btw that there aren’t v imp questions abt delivery. Plus big moral hazard questions - u don’t want to support biz that was gonna go bust anyway. But 2008 taught us that fixating on moral hazard is NOT what you do in month one of a full-blown economic panic
Example: pubs/venues unable to claim insurance in face of this crisis
HMT knee-jerk reaction: set up compensation scheme
That’s a pea shooter
Bazooka: pledge to be insurer of last-resort for every venue in the country
Might end up costing less
HMT knee-jerk reaction: set up compensation scheme
That’s a pea shooter
Bazooka: pledge to be insurer of last-resort for every venue in the country
Might end up costing less
For a period in ‘08 nuclear solution was govt nationalising banking system & standing in as lender of last resort
Nuclear solution today: govt becoming customer of last-resort for swathes of economy: airlines, retail, hospitality
Might not come to it, but u see the logic...
Nuclear solution today: govt becoming customer of last-resort for swathes of economy: airlines, retail, hospitality
Might not come to it, but u see the logic...
After all govt’s pandemic response prevents people consuming. Not intervening means much of our consumption-fuelled economy implodes...
For many, esp HMT wonks, solutions like these 👆 are horrifying. Then again idea of nationalising Britain’s biggest bank was horrifying in ‘08
For many, esp HMT wonks, solutions like these 👆 are horrifying. Then again idea of nationalising Britain’s biggest bank was horrifying in ‘08
