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The USA is committing economic suicide!

Posted on 7th April 2020

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A friend of mine posted this on Facebook.

It is quite a long read, but worth a look. The earlier parts put the economic stimulus package that the US has put into effect in perspective: what seems like a huge amount of money amounts to a week's lost income, to help families and businesses ride out a lockdown that has already gone on for two weeks, has been extended for another two weeks, and realistically will last several weeks beyond that.

He argues, probably correctly that this lack of support will destroy the US economy, with impacts lasting at least a decade or two.

I do not, however, agree with his later arguments that borrowing money for a larger stimulus package has no real cost, because the money would be borrowed from the borrower, and therefore wouldn't need to be paid back. This is not how things work in national finances.

There are two basic ways for governments to "borrow" money:

  1. They can borrow money by selling government debt (borrowing from individuals, companies, or other governments), or by borrowing money from the IMF or the World Bank. This sort of debt most certainly does need to be paid back.
  2. They can effectively borrow from themselves, by printing money. This has the inevitable result of devaluing their currency: the more money they print, the less value it has. In the long term, this has disastrous consequences on the economy, and on personal and corporate wealth.

This doesn't mean that neither of these measures should be taken, but the idea that they are free and without negative consequences is naive.

The Covid-19 pandemic will have huge and long lasting impacts on us all, and we should be prepared for life to be hard for a very long time. There are no easy solutions, neither medical nor economic.