You are Not Alone. Understanding Crisis Economics
We are in economic free fall. We need to ensure we land together, otherwise we will make it worse than it has to be.
There are many people in lockdown who are terrified for their future and the future of their families. They have taken a huge sudden hit. They are reeling. They have lost their jobs, their businesses, their livelihoods. They are worried about paying their mortgages, their business debts, and the basic bills. It is very scarey and frightening. But none of us are alone. We can get through this together if we understand some basic facts about our economy and what is happening.
It's huge and very fast. But we can survive it together.
If you have lost your income you cannot service your debts. This is a simple truth.
This requires a debt holiday for those who have taken the big hit. Some banks still seem in denial about this. They are playing hardball. They are making the situation and stress much worse. The Reserve bank can, and is providing the necessary money credits to the banks to allow them to do this. They can create as much of these credits ( money) as they want. If the banks play hardball by NOT passing this holiday to those in need we all lose, including them. Their collateral will collapse as house prices implode. They can't let that happen. There is no other option regarding the debts of those who have taken the hit. The Reserve bank knows this. The banks must wisen up otherwise they are compounding the stress.
Those who have taken the hit must also be assured they can pay for their basic needs during this crisis. Our current benefit system is too slow and cumbersome to meet the huge immediate need. We need a simple code red living allowance for individuals and families who have taken the hit. It needs to be rolled out very quickly. People need to be getting the credits in their bank accounts to meet their basics. This is the primary role of money in this situation.
This is unlikely to create inflation because so many jobs and incomes have been wiped out. The amount of money and credit in our system is shrinking very quickly.
During lockdown the spending opportunities are also very limited. It's about ensuring everyone has the basics.
Most importantly, we need to realise we can meet our basic needs as a country. We live in a lucky country in this extreme time. We produce Flour, meat, chicken, eggs. Fresh and frozen fruit and Veges, milk, loo paper, butter, cheese. Bread, wine, beer, electricity, natural gas. The list goes on.
New Zealand is a food basket. We just need to ensure everyone has access to their basic needs during this crisis. We can do this.
You and your family will not starve. You will not be turfed out on the street during this crisis and aftermath. We will get through this. We are in this together. You are not alone.
Peter Lyons (M.Comm) is a regular columnist for the Otago Daily Times, teaches scholarship-level Economics and has authored several New Zealand economic texts. His inspiration often comes after a dram of whiskey. Just one mind you. So if you're ever stuck in a room full of economists, grab the seat next to him. For a conversation peppered with wit, wisdom and weirdness.
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