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IPFS News Link • Economy - Economics USA

A More Effective Response To The Crisis - Monetary Insanity Is Not The Solution To Monetary Excess

•, by Daniel Lacalle

In the face of an unprecedented crisis, we have to be realistic, responsible and cautious. 

This is a supply shock added to a mandatory shutdown of the economy. As such, a serious response must be supply-side driven. It is ludicrous to try to stimulate demand with printed money and public spending in a forced lockdown where any extra demand will not drive supply up, even may drive it down.

A mandatory shutdown due to a supply shock is not solved with government spending or demand-side measures. Printing money and lowering rates help the already indebted and governments with already historic-low bond yields, deficits are already going to soar due to automatic stabilizers, so governments need to work on three things:

First, make sure that once there is a tested and approved vaccine, the production, distribution, and healthcare networks are going to be adequately prepared to respond to the population requirements.

Second, make sure that businesses don't collapse due to working capital build in a domino of bankruptcies that leads to mass unemployment.

Third, eliminate all unnecessary spending to effectively use all fiscal space to mitigate the crisis effects and allow the economy to breathe and recover.