Jobs retention schemes, money for businesses and VAT moratoriums among a whole raft of initiatives are being played out. There is confusion, anxiety and of course job losses. One just needs to look at Cineworld to see how life has changed and our consumption patterns have been altered. For many of us, how we chose to live, spend, exist and thrive has probably changed forever. But, while the maelstrom of support packages filters down, intended to attempt to make us feel good, the real trouble lies ahead.
Recession is looming large in Scotland, the UK and Europe. This coming recession will be like nothing many of us have ever experienced before. It will be brutal and swift. It will take no prisoners and businesses will feel the sharp end of a jagged stick as it penetrates and embeds itself in communities and cities. To be frank, it was edging closer pre the pandemic, but Covid-19 has been the catalyst for truly ramping up the severity of its outcomes. And many factors are coming into play.
The Bank of England and the Federal Reserve in the USA have held interest rates at near zero for a decade. Many commentators suggest that the 2009 financial crisis was in fact the beginning of the end of the monetary system that is known to many as “fiat”.
Banks needed bailed out, with toxic debt on their books from all across the globe. By the way, ever wonder where all that toxic stuff went? Me too… The credit crunch was sharp and painful. So the central banks did what they know best and reduced interest rates.
Mark Carney, Bank of England Governor from 2013-2020, never raised interest rates once. What does that actually tell us? Well, he simply could not, despite all the forward guidance and “hopium”. The economy was quite literally on its knees and needed stimulus to keep it going. Using a medical analogy, it was on life support in the critical illness ward, on 24-hour watch.
But while the doctors and nurses gave their all, the patient was not responding and always needed full-time care. This is the economy we have had over the past decade. It is broken and central banks have nothing left apart from borrowing to inject more debt.
A consequence of all of this is that the momentum of money has slowed down. What this means is that while we were out spending, deals were being done, businesses were investing and shoppers were filling malls, cash was circulating. VAT receipts were spinning away nicely.
Banks were lending money on cars, luxury items and of course mortgages. But that has now come to a grinding halt. Hence VAT free meal deals from Sunak and stamp duty holidays on property purchases. But it is nowhere near enough to kick-start money momentum again.
You see, we are now holding as much cash as we can, while not spending anywhere near like we did as lockdowns, the fear of the virus and mixed messaging from politicians overwhelm us. So the momentum of money is freezing up and this does not help the chancellor in his quest to pump-prime the economy. So, it’s a downward spiral, unless more drastic action is taken. And the next president of the United States may just cross the rubicon.
Watch out for the 2021 universal basic income two gig that will give all Americans $2,500 a month for a full year. But with one caveat attached. The cash must be spent within the year to get the momentum of money up to speed again. It cannot be taken out as cash, but must be used digitally to spend and buy goods and services.
But, would the Scotland and the UK be this bold? Could we actually see the Bank of England offer £2,500 a month to everyone with a social security number? A one year bonus that must be spent to boost our economy and smash the opportunity for a deep-rooted recession to ruin people’s lives.
We keep being told we are living in unprecedented times. Perhaps our leaders need to shift the needle to create momentum that could last. After all, the whole monetary system is a big experiment – right?
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