Government bails them out, but then what?

In New Zealand, I am far from certain that anyone knows what to do when our lockdown ends. The economist thinks that the money supply will fix all things and reserve bank has done what it has not done before: embarked on quantitative easing, Many other governments have done the same and the world will be awash with money. Is this a solution? It is supposed to compensate for the lockdown Two questions: is the lockdown worth it, and is the money supply the answer? To the first question, here the answer appears to be so, if you value lives. After two weeks of lockdown, the number of new cases per day were clearly falling, and by Good Friday the number of new cases had dropped to almost a third of their peak. They continue to drop and the day before this post, there were only 20 new cases. However, if we look at the price, our Treasury Department has predicted the best case is something like 10% unemployment, and if the lockdown lasts significantly longer than the four weeks, unemployment may hit 26%.

To the second question, the jury is out. Around the world, Governments think yes. The US Congress has prepared a gigantic fiscal stimulus of $2 trillion, which is roughly 10% of GDP. Some European countries have made credit guarantees worth as much as 15% of GDP to stop a cascade of defaults. New Zealand is rather fortunate because its national debt was only about 28% of GDP prior to the virus. Some predict the stimulus may reach 22% of GDP, but it has room to move before reaching the heights of some other countries. However, it is far from clear that it will successfully prevent a raft of defaults.

First, defaults always happen. In the OECD about 8% of businesses go bust each year, while 10% of the workforce lose their jobs. Of course, since economies have been expanding there was an equal or greater creation of business and jobs before this virus. That won’t happen post virus. Take restaurants as an example. Restaurants closing down may well re-open under new management, without the old debt, and not so many workers. That may not happen post-virus because people under financial strain or fear that unemployment might be imminent will not eat out, and the tourists, who have to eat out, will not be here. Therein lies the problem. If people fear there will be a slump, there will be; such fear is self-fulfilling. 

There will be changes, and some may be guided by the virus problem. Some businesses will cut costs by specializing in home delivery, and they should be doing that now because first in that performs well probably wins. For manufacturing, the relief of the lockdown may well retain heavy restrictions, such as expecting people to devise a way for working so they remain two meters away from others. That requires significant investment to do this. Will it be worth it? It seriously raises costs, so will people buy the more expensive products? But will this happen? The basic problem for small business is that it is almost a waste of time planning until the government makes its future laws and regulations clear, and once stated, sticks to them. I have run a small business since 1986, and the one thing that has always made things difficult is a change of rules. You get to know how to operate in one set of rules, but when those change the small business has too many things for too few people to do, and a successful small business is light on management. The owner tends to do everything, and I found new regulations to be a complete pest.

Meanwhile, the governments of the world have some interesting choices. Historically, when governments intervene, they seldom let things go back to where they were. If governments get used to regulating, will they let go? If you prefer to leave it to market forces, will that lead to greater wealth for all? As I heard one man say on the radio today, those with money will be looking to buy up assets, i.e. company shares that have become somewhat undervalued. Unfortunately, while that makes some richer, it does nothing for the general public.All of which raises the question, what should they do? That depends on what is required to get out of the slump. The obvious answer is to start additional businesses to replace what has failed, but how do you do that? One of the things that is critically required is money, but while that is necessary, it is not sufficient.  Throwing money at such things is usually a waste. A business needs three basics: technology (more broadly, how to make whatever you are selling), the ability to sell whatever you are making, and management, which is essentially getting the best us of your money, staff, and other assets. Only a very moderate number of people are skilled in even one of those, very few can handle two, and nobody can cover all three well. This is why so many small businesses fail. And that raises the possibility that what governments need to do is to somehow bring the required people together. And that is something with which governments have no experience.

4 thoughts on “Government bails them out, but then what?

  1. The Government Is Essential And Has Always Practiced Governmentalism
    Government Debt, in a sovereign state is just potential tax deferred.

    So far the bailout piled up by Trump amounts to 6.2 TRILLION dollars (a number Europeans can’t understand, let alone approve of: Europeans don’t understand many things these days, for example common sense). This is just phase 3 of the stimulus. Phase 4 is being prepared by Trump, who is ready to roll it out…

    Thus an alarmed billionairess, Nancy Marie Antoinette Pelosi, the third person of the USA, fled Washington for her Napa valley secondary home mansion, to pose in front of her $24,000 refrigerators full of designer ice cream, and lecture us on her Political Correctness… Thus Nancy Antoinette prevented Trump from injecting immediately another 350 billion dollars into small businesses… The preceding 250 billions having run out… Inversion of all values?

    Hearing about the colossal bail-outs, some of the right wing politicians, infeodated to the old global plutocracy, and their media, such as the famed hypocrite, “The Economist” loudly whined: will governments retreat after making so many gifts? Oh no, they lament, they won’t.

    (As a certified masochist, I have been a subscriber of the outrageously partisan tabloids New York Times and The Economist… and their party is global plutocracy… The NYT banned me of their comments for fifteen years…. and The Economist banned comments all together, so they can lie outrageously in peace…). Fact is 97% of US antibiotics are made under the Xi dictatorship, the world Krugman (Nobel from NYT and Princeton) and The Economist brought us.
    These people are not just plutocrats, and plutophiles. They are traitors, like Marie Antoinette.
    They take us for fools (right, there are many fools out there!)
    They take us for a ride.
    They have long got away with murder, literally.

    We saw it before: 1920s plutocrats used to love Hitler (oh, the US plutocrats had extended WWI just before, by going around the British-French blockade of the fascist racist Kaiser dictatorship, using the Netherlands).

    Hitler was propelled not just by German plutocrats (as a cover-up has it), but all sorts of Anglo-Saxon plutocrats, especially the Americans. They, the IBM, GM, Ford, Standard Oil, Browning, Harriman, etc. loved the racist dictator even more after they put him in power. Yes, that part of history has been forgotten. Carefully. Exhaustively.

    Facts such as the following, are not on the radar of academia, let alone the Plebs. A pawn of JP Morgan, the man and his bank (number one in the world at the time!) was the central banker Hjalmar Schacht was organizer of German hyperinflation, promoter of Nazism, and economy minister of Hitler, and one of many connections between German criminal racial fascism and the US elite.

    Want the truth? Famed pseudo-Democrat Obama, another pawn, augmented US inequality (through a multi-trillion dollars Quantitative Easing designed to help foremost plutocrats and their banks). Obama also decreased durably US life expectancy year after year, for the first time in history, through his carefully designed “Obamacare”, which foremost cared to increase further the profits of the health care plutocracy.

    Want the truth? A government is in place, and has organized the economy, and did so more than a century ago (under the racist president Wilson, another Democrat from Princeton who put blacks in cage, literally). The same Deep State which brought us the Kaiser, Hitler and Stalin by pulling their ropes carefully (Lenin himself said it… and he died in 1922…) This plutocratic economy has stealthily ruled the USA, the world’s most powerful and wealthiest country, leader of the world for more than a century. Watch the Harriman brothers, decorated by both Stalin and Hitler, pull the strings of the Democratic Party (their father was the world’s wealthiest railroad magnate, great friend of John Muir… himself a well-married man…)

    Want the truth? How does the plutocratic class does this? It’s simple, we have a baby case: look at what happened to the Roman republic. Thanks to the Roman globalization, Roman plutocrats were able to elude the Roman Absolute Wealth Limit, and their power grew to the stars. Roman plutocrats organized themselves in a party, the “Optimates”, and fought the “Populares”, first by words, and finally with daggers and private armies. They took around 130 years to destroy the Roman Republic, which was partly a Direct Democracy. 130 years of outrageous lies… families such as the gens Julius of Marius and Caesar fought them in vain, until one of their own, Octavian/Caesar/Augustus, resigned himself to join and domesticate what he couldn’t beat…

    The present world governance is completely in the service of the global plutocracy… Interference by the likes of Trump or Boris Johnson (pains me to admit the latter!) threatens that power structure. Hence the rage of the media completely owned by the global hell (Pluto) which powers (kratia) over us…

    Debt, if it goes wrong, can turn into a tax (another thing the “dumb” Europeans affect not to understand, so they tax first, and then chuckle they didn’t have to increase the debt, as if tax was not more of a burden than debt… Hence Europe has progressively impoverished itself, to the satisfaction of global plutocracy. Roman plutocrats were also anxious to weaken italy, lest a revolution put an end to their power…).

    Governmental debt, in a sovereign power, is a matter of choice on the part of the government (the US is not Argentina… not yet…) The USA can afford to go completely governmental in the next six months, as long as the essential economy keeps functioning. Thanks to modern tech, the essential economy is no more than 10% of the economy. The rest can get crumbs, like the pigeons they are.

    Are there precedents of switching brutally from liberal capitalism to governmentalism? Of course. Even Darius, founder of the Achaemenids dynasty, switched quickly from governmentalism to socialism, to capitalism. He needed a poney express, with appropriate roads and relays, to get news from all over his gigantic empire, from Greece to India, Ethiopia to Central Asia within a week… That was not built by entrepreneurs, but under government order… The Athenian adversaries of the Persians also built a gigantic fleet of 220. Warships, cutting the forests of Attica in the process, under an emergency government program.

    To defend freedom, one needs government! In civilization, the freedom of the individual does not extend further than the power of the government, which exists to preserve the cities. Currency is just a convenient way, instituted by the government, to enable transactions. There are other ways which are more fundamental, and the most fundamental of them all is just giving orders to the military. That’s the difference with Argentina: much more military, and fully obedient.

    Money is whatever the government decides it will be. Under the colossal empire of the Franks, those who begged to disagree, were boiled slowly in special cages. They didn’t even have the choice of water, wine or oil, either of these three liquids were used. As a result, the immense Frankish empire didn’t suffer from the hyperinflation the Late Roman empire had experienced… The value of coins was exactly what the government had decided…

    The present US government, even Nancy Antoinette, knows this. That it is the sovereign government which decides the economy, and the currency, and the debt, and the tax. And Europe doesn’t, because it’s halfway to Argentina…

    • Hello Patrice,

      I had no idea the bailout had got up to 6.2 trillion, however, the US is in a better position to do that than most because most international trade is still done in USD and that is unlikely to change in h immediate future. Further, many of your plutocrats secure their wealth in places like the Caymans, hence it sort of disappears, at least for a time.

      I don’t know much about Nancy, but I somewhat curious about the fact that so many in Congress are multimillionaires, which is out of step with their salaries.

      • Yes this is larger than the Marshall plan, and the New Deal, many times over… 30 times over, more exactly… Marshall cost around 120 billions, New Deal 50 billions… Hundreds of billions have already been DISTRIBUTED… Trump called that a “success”.

        Hard to believe Democrats can accuse Trump of anything short of being more communist than Lenin…

        Nancy Antoinette’s fortune is officially in excess of 400 millions, Feinstein well above a billion (she admits only 100 million or so, by disconnecting from her husband for the purpose of this report). She has been the China contact girl for nearly 40 years…

        Hyper wealthy professional “Democrats” is a big problem… “Republicans” less so, because, at least, they don’t lie as much: they like money and power… Whereas Dems claim to care about the Plebs… when all they do is the opposite… Warren Buffet, or the Gates, for example are highly influential in the Dem Party… while being advantaged by Dem policy decisions…

        The Fed decided of a 4 trillion dollars QE. So, for example Gavin (gov CA) made an accord with banks that they will forgo mortgages payments for 4 months. In exchange the banks will get a zero interest loans from FED…

      • I am afraid that even at this distance the Dems argument that they are working for the plebs runs a bit thin. However, the electoral system that makes such huge demands on fund-raising just about forces that to happen. The plebs can’t get any action because they can’t afford to even get to place a piece on the board, so to speak.

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