Economics 101 - During COVID 19

FVP3

Balf wrote: »

Is the ECB allowed to monetise Government debt?

Well yes.

The ECB will resume buying up eurozone government bonds at a rate of €20 billion as from November, “for as long as necessary,” it said. The quantitative easing could encourage those governments to borrow more money to invest in national projects.

https://www.forbes.com/sites/isabeltogoh/2019/09/12/what-to-expect-from-the-european-central-bank-decision/#50d85a173df9

FVP3

SEPT 23 1989 wrote: »

Don't think people will take crippling austerity after this

The keep your mouth shut "you all partied" line cannot be used by governments this time

I really don't know what they will do

Yes, the "you were all greedy" won't work this time.

We all could be out of a job soon enough. I can see a totally different, and worse, world approaching unless we get some new ideas.

Wanderer78

FVP3 wrote: »

Yes, the "you were all greedy" won't work this time.

We all could be out of a job soon enough. I can see a totally different, and worse, world approaching unless we get some new ideas.

'tighten our belts', go fcuk yourselves lads!

Sono Topolino

SEPT 23 1989 wrote: »

Don't think people will take crippling austerity after this

The keep your mouth shut "you all partied" line cannot be used by governments this time

I really don't know what they will do

I find it hard to imagine that there will be austerity in this instance. In order to justify austerity, interest rates on government bonds would have to increase. Government bonds are commonly classed as safe assets, which certain financial institutions have to hold. Therefore the most likely cause of interest rates going up is a perception of increased risk.

This is a global pandemic and all governments that have the capacity are responding in more or less the same way: shutting down entire sectors of the economy and spending more.

Given that the risks are similar for all countries, there would have to be a move against all countries debt. If this happened, central banks would move to purchase the debt, giving some version of Draghi’s “whatever it takes” speech. As all (or most) countries would be engaging in monetary easing, the effect on exchange rates would be minuscule.

Governments cannot go bust unless politicians want them to. You can’t rule out the risk of that, but it’s fairly unlikely. And experts are cool again, so there’s that.

Correction: Government’s who are able to borrow in their own country’s currency. LDC’s who can only borrow in the dollar routinely get screwed.

_Brian

AMG1988 wrote: »

Can someone from an Economic background teach me rule 101;

With the government subsidizing wages, flying planes to China to buy PPE etc.. we will obviously have to repay this in the future through increased taxes, NI..

Why cant the government just write this off?

I apologize in advance for my stupidity..

They borrow the money they spend.
It upsets people we borrow from when we “write it off”
It would lesson our A+ rating and lead to borrowing being more expensive.

Interest rates are so lot at the moment it’s almost free to borrow.