Governments Risk Igniting a Double Recession from April’s Massive Quantitative Easing
Keywords: Economy, Global Economy, Economic News
Metadescription: Since the Coronavirus outbreak, the governments have borrowed massively to keep their economies afloat until the pandemic is over, but risk igniting a debt crisis that could cause a double recession in the near future.
Summary: While governments are doing their best to enact fiscal policies to protect citizens and their economies, the global debt has risen to its highest record in 50 years and threatens to cause a debt crisis that could cause a new financial crisis.
Twitter: How worried should the world be of future unmanageable debt from current worldwide quantitative easing?
The Coronavirus pandemic’s effect on the global economy has instigated multiple governments around the world to incur the world’s most substantial debts in April, says the Institute of International Finance (IIF).
To curb the spread of the COVID-19, more than 70% of countries have heard to enact strict measures that have devastated individual economies and disrupted businesses and daily lives of billions of citizens.
Economists have clearly stated that the global economic fallout in 2020 will be the worst the world has ever seen since the 1930’s Great Depression. World economic leaders have been forced to resort to extreme stimulus packages in the hope of preventing or delaying a total economic collapse.
The US Federal Reserve – World’s Largest Rescue Package for the World’s Largest Economy
In March 2020, the Federal Reserve launched a $700 Billion Quantitate easing program, with $500 Billion taking form of Treasury’s and $200 Billion in Agency-backed mortgage securities. The
The Fed Stated it “is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.”
Again in April, the Federal Reserve, announced an additional $2.3 trillion in loans to support the US Economy.
According to IIF’s Global Monitor, the issuance of global general debt in bonds and loans in April reached a new record of $2.6 trillion, a $500 Billion more from $2.1 trillion in March. Debt Specialist at IIF Emre Tiftik said that a rise in debt is inevitable at this time.
“This is going to happen- we are in a stressful time so there is no reason to question why they are borrowing.”
Tiftik further stated that the unparalleled global health crisis has pushed governments to enact drastic measures, giving rise to a two months debt issuance figures that are twice as high in the history of global debt. He said that it is scary but “it needs to be done so we are trying to address the liquidity problem.”
IMF Warns About Post-Pandemic Global Debt Crisis
On April 15 2020, the International Monetary Fund published a report that said governments are right to enact fiscal policies to save lives and protect people but they must remember to keep the receipts.
“As the pandemic abates and the economy recovers, in 2021, public debt ratios are expected to stabilize at new-higher-levels. If the adverse scenario in the World Economic Outlook were to materialize, debts levels would even be higher and debt dynamics more unfavorable.”
In the World Economic Outlook report, the IMF projected negative growth in 2020 for all the advanced economies ranging between 4-9%. Economies like China and India will grow by 1-1.2% while other around the world will be hit but not as much as the advanced economies.
Collectively, by April, global debt in fiscal action initiatives had reached $8 trillion to facilitate the Great Lockdown, which has now resulted in the most globally inclusive financial crisis.
Speaking to CBNC, the Chief Economist at Pantheon Macroeconomics, Ian Shepherdson said that there are people opposing the massive QEs into the economy by pointing out the possible dangers of rising global debt. He said that is completely missing the point as public debt is only a second or even a third priority right now.
“The primary objective is to limit or ameliorate the damage, it can’t be prevented that’s for sure, but to try and use fiscal policy to prevent the economy from being a wasteland for when virus is vanquished.”
A Quantitative Tightening Amidst Extensive Easing
The World Bank has also spoken out about the dangers of intensified borrowing by governments which could be a recipe for a fresh global debt crisis. Since the last financial crisis in the in 2008, governments have resorted to the fastest and most broad-based increase in borrowing in the last 50 years.
Analysts have come out to warn Developed economies, of the possibility of a double recession. The Economist Intelligence Unit (EIU) said in March that “debt crises may becoming… Fiscal deficits will rise sharply in the coming years.”
Meanwhile, in other economic news, Bitcoin, the digital wonder currency of the very people likely to be caught in the crosshairs of the debt crisis “in the coming years,” underwent its third tightening, reducing its supply by half.
As a product that arose from the ashes of the 2008 financial crisis, Bitcoin was developed with a message referring to the then crisis, a message that was again repeated , showing the dangers of excessive easing to the economy.