This is a precursor to the upcoming publication on COVID-19 which is far more educative and comprehensive.
In the recent COVID-19 briefing, WHO collaborated with FIFA for “Pass the message to kick out coronavirus” campaign to stem the flow of COVID-19 through five key steps. Social distancing, regular hand washing along with coughing etiquette and not touching face are repeatedly reinforced through various media channels. Taking proper precaution especially staying at hone if feeling unwell is something everyone globally must adhere too. The meeting had the ever adorable and The middle Road’s key enabler Lionel Messi appear virtually to share a message of solidarity though FIFA’s $10M giving to fight the pandemic falls well short of largesse required from a sporting body of FIFA’s stature. Twenty-eight players appeared in the video campaign including Michael Owen, Sunil Chhetri, Gianluigi Buffon, Xavi Hernández, Philipp Lahm, Han Duan to name a few.
The message on the spread of COVID-19 spread is alarming. Refer to the graph on days the virus spread to 3,00,000 in incremental steps of 1,00,000. WHO claims the virus has spread to all the countries. The role of civic societies in fighting COVID-19 is going to be the most decisive factor if we are going to effectively tide over the emerging crisis. The global markets have tumbled but been every erratic due to increasing uncertainty over the devastation caused by the virus. There is no consensus emerging in the US for the $2T stimulus package as Republicans are favoring the rich rather than push the stimulus for the working class and low income Americans. Democrats are right in their approach since American already has more debt which is more than 100% of GDP and needs to be judicious in its approach. However, the signs on both the Global and the US economy look ominous. St. Louis Fed President James Bullard predicted that the US employment rate could hit 30% in the coming months with GDP falling 50%. This is unprecedented and economists have already started to talk about the infamous 1929 depression as an aftermath of the pandemic. New York is fast becoming the epicenter of the COVID-19 not only in the US with more than 15,000 cases but also the world. New York is the ultimate symbol of triumph of human civilization and a marvel of colossal proportions.
# Policy Measures & Updates
New York must be protected at all costs through a quarantine with no movement both within and outside the city unless all of the people are confirmed free of COVID-19. This will stop both export and import of COVID-19 with a strict check of those entering the magnificent city. All the measures are for a short time so more effective and efficient medical systems are invented to measure incidences of COVID-19 immediately. Social i.e. physical distancing is only a short-term measure but one that has proved to be decisive in getting more time and effort to fight the virus. Italy yesterday registered less cases as compared to previous rise in cases but the death toll is immense and deeply tragic. Spain is another country with an exponential rise in both confirmed cases of COVID-19 and deaths and needs timely international aid. Hugely populated countries like India have to rely on civic societies to play their part along with the private sector.
WHO acknowledges India’s epic fight in eradicating Polio and Smallpox. It’s time for the private sector and civic societies to step up the effort exponentially to fight the pandemic.
# Fiscal and Monetary Stimulus
IMF has already signaled this crisis is going to be worse than the 2008 credit crisis while European Union suspended debt rules to enable borrowing by member states to keep their economies kicking. Major investment banks have already even guidance of a recession this year although not agreeing on the eventual figures. Recession is two quarters of downward GDP growth within a year although it might not be consecutive quarters. Quantitative Easing QE i.e. buying of government bonds to enable liquidity in the markets usually done when interest rates are near zero.
QE is a monetary tool to prop up demand within the economy through boosting lending through purchases of government securities although this tool will have limited effect in promoting economic stability as when compared to Credit Crisis. COVID-19 has disrupted the markets through both supply and demand shocks causing economic fluctuations. The supply shock has shifted the supply curve upwards while shifting the demand curve downwards. This implies the price levels are going to rise with a drastic fall in productivity. Its double trouble. Remember, the US China trade war had already increased prices of goods especially in the US shifting the supply curve upwards. Look forward to understand more in the upcoming publication on the pandemic.
Globally central banks are bringing down the rates with a few entering the QE mode. Interest rates are the key benchmark rates for determining lending rates within an economy to enable increase in consumption and flow of credit to households and businesses to drive economy.
ECB (European Central Banks) announced a €750B bond-buying program to fight the pandemic taking the overall figure to €1.1T. ECB does not have a lot of maneuverability since this brings the total amount through QE to ~9% of EU GDP figures. Australia entered the QE program for the first time with Japan renewing government bond purchases. The fiscal package itself globally will be more than $3T. Fiscal measures include direct cash to low income population, tax rebates etc. measures which do not affect the interest rates within an economy but rather dealing with tax revues of the government. As a thumb rule, monetary stimulus is administered by the respective central banks while fiscal measures by the respective governments. FED is going ahead with unlimited QE. The FED will be buying $300B of debt in corporate bonds, wide range of municipal securities and securities with underlying auto and real estate loans. Buying securities in the municipal bond market is an excellent move in the $3.9T market since it facilitates states to finance their budget to fight the pandemic. China lowered the one year medium term lending rates by 10 basis points.
To contain the aftereffects of the pandemic measured and well directed fiscal stimulus (targeted towards low-income, daily wage earners, free medical care related to COVID-19 to name a few) along with an active civic participation and public private partnership model will play a monumental role. Selected monetary policies especially lending to small businesses, buying mortgages in the municipal market are well thought and excellent policy initiatives and serves to bridge the uncertain time at present.
Stay tuned for the upcoming feature.