CORONA: Stimulus won’t work

| March 21, 2020


Dickson Igwe, Senior political contributor

As stated in an earlier article on the Corona Virus Pandemic: Corona is the joker in the pack of the present order: albeit a tragic type joker.

The west for the first time since 1945 is on a war footing.

The UK is expected to plunge into a deep recession in 2020, amidst all of the Brexit Hubris. In fact, Brexit will be a short lived memory, when recession hits, and the UK economy collapses.

And the USA has already started to experience a colossal collapse in businesses and jobs. Bank of America numbers state the USA is already in recession.  

Most global airlines are in deep contraction, and global tourism will lose at the most conservative of estimates, 75 million jobs over the course of the Corona Recession. The USA will be in a steep recession in a matter of two months.

Now, stimulus and quantitative easing have failed to lift markets and consumer confidence in the era of Corona.

Stimulus was the great success story of the Great Recession of 2008.  $1 trillion dollars pumped into US banks to strengthen their balance sheets, and billions of dollars offered to specific businesses, by the Federal Reserve, and the White House, using government backed financial instruments, pulled the world out of the deep swamp, of a long recession.

Stimulus is public spending that lifts consumer demand in an economy. Recessions are mainly driven by Demand shock: a fall in consumer confidence. However the Corona Recession of 2020 will be driven by both demand and supply shocks as both producers and consumers are being hit by the virus driven economic slump. Stimulus is an economic idea of late British Economist John Maynard Keynes.

Stimulus saved the day in 2008, by essentially driving the idea that recapitalizing a global banking system in deep trauma, was the solution to a grave financial crisis. This was a banking system that was sinking rapidly: the result of unsustainable debt – especially mortgage debt- held by its borrowers.

Coronavirus is believed to have come from bat soup. Photo courtesy

And this trillion dollar stimulus was money for banking recapitalization that sustained and delivered from collapse, deeply stressed bank balance sheets. It was cash loaned to failing banks from investors, through the Federal Reserve, and through the creation of bonds and treasury instruments that offered safe, government guaranteed, investments, to investors at a very volatile time in world economic history.

Just as it is today, in 2008, both global finance and global market stocks, stood at the edge of the proverbial abyss.

The 2008 recession was a man-made affair. A vast ocean of personal debt made up mostly of sub-prime mortgage instruments, or risky mortgages, built up to create systemic failure, and deep fractures in the tectonic plates sitting global finance.

A banking and finance collapse, that would have plunged the world into a catastrophic depression, or ten year deep recession, was averted by the swift footwork of President Barack Obama, and his team of economists who adopted stimulus as the panacea to save the day.

Europe’s Central Banks followed suit, and introduced quantitative easing into the financial system. Stimulus from Central Banks in Europe allowed threatened European retail banks to recapitalize, again with investor cash borrowed by Central banks from investors.

Recapitalized European banks were injected with sufficient liquidity from investors. Investors bought Central Bank Bonds and this cash from investors was used to write off the bad debt that threatened economic collapse.

Quantitative easing further allowed for the ability of banks to continue offering credit and loans to consumers and businesses.  Central bank intervention ensured the survival and functioning of the global market economy- worth $87 trillion in 2020- by generating the liquidity and cash flow that serviced trade.

However, the world post the Great Recession of 2008 swiftly abandoned fiscal stimulus and reverted back to a Supply Side Economic type that saw the exponential growth of wealth inequality through Austere Economics and Trickle Down. The businessman was king, and deregulation and public spending cuts saw the destruction of the middle classes and increasing anger and bitterness among the white working classes especially in the USA, UK, and Western Europe.

That working class anger- the result of outsourcing, and the destruction of manufacturing- saw the loss of jobs, the decline of rural towns and communities, and that in turn drove the populism, nationalism, and xenophobia,  that led to the Donald Trump Pitchfork Revolution, Brexit, and the rise of nationalist populism in the west and Europe.

By January 2020, Donald Trump was headed for a second term, as the US economy appeared to be firing on all six cylinders.

The Trump revolution- a heady mix of xenophobia, protectionism, and racism, was fully adopted by a base of white Republican Voters that looked up to Trump in a cult type following that assured the US President of a Second Term.

The Stock Market was in Bull territory and Trump sat in an Oval Office that oversaw the greatest and most enduring rise in the stock market, in modern times.

In the UK, similar dynamics meant the UK leaving Europe, and the election of a Trump Type ‘’ firebrand’’ born in the USA, named Boris Johnson. Both men were hubristic and blow hard types, loved by their disciples and followers. The western world was very much being reshaped by these two men, and the populism they espoused.

But far away in the Chinese city of Wuhan, a number of people were coming down with a strange illness that was characterized by a high fever and dry cough that settled eventually in the lungs, and that killed a number of patients.  This was a sickness driven by a virus termed Corona- COVID19. The belief is that the virus entered the human genome from virus infected bats.

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Category: African Caribbean, Culture & Society

About the Author (Author Profile)

Dickson Igwe is an education official in the Virgin Islands. He is also a national sea safety instructor. He writes a national column across media and has authored a story book on the Caribbean: ‘The Adventures of a West Indian Villager’. Dickson is focused on economics articles, and he believes economics holds the answer to the full economic and social development of the Caribbean. He is of both West African and Caribbean heritage. Dickson is married with one son.

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