Countries are spending trillions to save the economy from the coronavirus crisis. Can the world afford it?

[Anonymous]

Can the world afford this avalanche of new borrowing? For now, the answer is yes. So long as interest rates remain low and economies return to something approaching normality within a few months, developed countries should find the additional burden to be tolerable. Most will remain considerably less indebted than Japan, which for years has sustained stratospheric levels of public borrowing, with government debt well in excess of 200 per cent of GDP.



One big uncertainty hovers over these calculations, however: What happens if the world does not return to normalcy within, say, six months? If so, governments will find themselves writing enormous cheques every month to sustain comatose economies. If that happens, all bets are off.



Lockdowns and quarantines needed to fight the virus have already sent unemployment soaring. In Canada, more than two million Canadians filed for unemployment benefits in the last half of March. Meanwhile, in the United States, almost 10 million people have filed for benefits over the past two weeks.



The pain is not going to let up. If private-sector forecasters are right, economic output in the second quarter will shrivel at a 15-per-cent to 35-per-cent annualized rate in Canada and the United States. This would be a far deeper downturn than anything that occurred during the financial crisis.

https://www.theglobeandmail.com/business/article-can-the-world-afford-the-cost-of-fighting-covid-19/">https://www.theglobeandmail.com/busines ... -covid-19/">https://www.theglobeandmail.com/business/article-can-the-world-afford-the-cost-of-fighting-covid-19/



I do think this spending, which is not stimulus, but survival spending is absolutely necessary. If we can borrow at .7% and grow the economy 2.7%, it's worth it. But, if growth does not return within three quarters, we are in trouble. And we will be forced to make some tough choices.

[Vancouver]

The United States is $24 trillion in debt. How can they still afford?

[Anonymous]

The United States is $24 trillion in debt. How can they still afford?

US federal public debt to GDP ratio pre pandemic was lower than Japan, Canada, the UK, France and Italy.

https://en.wikipedia.org/wiki/List_of_countries_by_public_debt">https://en.wikipedia.org/wiki/List_of_c ... ublic_debt">https://en.wikipedia.org/wiki/List_of_countries_by_public_debt



All those countries will see their debt levels soar. If businesses do not come back soon, we will be forced to make tough decisions and accept lower living standards. The bunch sooner we return to fully opening the lower our odds of turning the G7 into a bunch of Greeces.

[Anonymous]

The United States is $24 trillion in debt. How can they still afford?

It was 23 trillion and yes they can afford it as long as the economy grows faster than the interest rate. Now though, all these countries will be forced to print money and that will lead to hyperinflation.

[Berry Sweet]

Where's  the money coming from?

[Anonymous]

Where's  the money coming from?

Ultimately, your daughter will pay for all this borrowed money.

[caskur]

I wonder why they're not just going to print money they don't actually have like they normally do?

[Anonymous]

Can the world afford this avalanche of new borrowing? For now, the answer is yes. So long as interest rates remain low and economies return to something approaching normality within a few months, developed countries should find the additional burden to be tolerable. Most will remain considerably less indebted than Japan, which for years has sustained stratospheric levels of public borrowing, with government debt well in excess of 200 per cent of GDP.



One big uncertainty hovers over these calculations, however: What happens if the world does not return to normalcy within, say, six months? If so, governments will find themselves writing enormous cheques every month to sustain comatose economies. If that happens, all bets are off.



Lockdowns and quarantines needed to fight the virus have already sent unemployment soaring. In Canada, more than two million Canadians filed for unemployment benefits in the last half of March. Meanwhile, in the United States, almost 10 million people have filed for benefits over the past two weeks.



The pain is not going to let up. If private-sector forecasters are right, economic output in the second quarter will shrivel at a 15-per-cent to 35-per-cent annualized rate in Canada and the United States. This would be a far deeper downturn than anything that occurred during the financial crisis.

https://www.theglobeandmail.com/business/article-can-the-world-afford-the-cost-of-fighting-covid-19/">https://www.theglobeandmail.com/busines ... -covid-19/">https://www.theglobeandmail.com/business/article-can-the-world-afford-the-cost-of-fighting-covid-19/



I do think this spending, which is not stimulus, but survival spending is absolutely necessary. If we can borrow at .7% and grow the economy 2.7%, it's worth it. But, if growth does not return within three quarters, we are in trouble. And we will be forced to make some tough choices.

We may regret total economic lockdowns.

[Anonymous]

I wonder why they're not just going to print money they don't actually have like they normally do?

If a government prints money faster than the growth of real output it reduces the value of money and this causes inflation. Governments often resort to printing money when they cannot finance their borrowing by selling bonds. This hyperinflation can be extremely damaging to an economy. It reduces buying power, and lowers living standards.

[caskur]

They do it all the time.



In the near future, people will be trading things other than money... ie, a laundry basket will be worth more than dollars or coins.

[Berry Sweet]

Where's  the money coming from?

Ultimately, your daughter will pay for all this borrowed money.

That's what I said.



But who are they borrowing from?

[Zetsu]

Where's  the money coming from?

Usually government bonds lent by their own ppl, accounts payable, taxes hikes, and printing as the last resort.

[Anonymous]

Where's  the money coming from?

Ultimately, your daughter will pay for all this borrowed money.

That's what I said.



But who are they borrowing from?

Rather than borrowing from banks, the government typically borrows from the 'market' – primarily pension funds and insurance companies. These companies lend money to the government by buying the bonds that the government issues for this purpose.

[Berry Sweet]

That's a lot of fuckin money.

[Anonymous]

That's a lot of fuckin money.

I think the Seoul brother said Canada was going to run a deficit equivalent to thirty five per cent of our annual GDP. Maybe I got the figure wrong, but it was ridiculously high.