Will Coronavirus Kill the Global Economy?
The globe has essentially shut down. Travel has ceased. Restaurants, cinemas, amusement parks—anywhere people gather in public—are closed. Retail sales are plummeting as no one ventures out.
With no money coming in, firms are at risk of going bust. Millions of people could soon be unemployed.
Into the breach steps government. Every major government has unveiled a massive spending plan. Right now, the United States government is working on a $2 trillion spending package. The United Kingdom has unveiled a $413 billion plan. That’s over 40 percent of typical annual government spending—all poured out on just one crisis.
This response could make a real difference in people’s lives and stop a lot of the immediate economic pain this virus could cause. But it could also fatally damage our economies, preparing the way for a future collapse.
Government, Help Us!
In past crises, people looked to their own resources. It wouldn’t have even occurred to Britons or Americans 100 years ago to expect the government to save them.
But now we’re used to the government taking care of us. They pay us when we’re unemployed, provide our health care, and bail out banks to keep the economy afloat.
In return, we pay heavy taxes. In the United Kingdom, over 40 percent of the national income goes to taxation. In the United States, it’s 30 percent. All that taxation makes it hard to save up for a rainy day—and makes us feel entitled to government handouts when our livelihoods are threatened.
In many cases governments are the ones forcing people to stay home. If the governments are destroying our livelihoods, it seems only fair that they help rebuild them.
The trouble is, our governments—even with their colossal levels of income—cannot afford to provide those handouts.
To survive the 2008 financial crisis, the U.S., UK and many other governments borrowed heavily. Prior to that, America’s national debt was 65 percent of its annual economic output. By 2011, it had jumped to 95 percent as it buoyed its economy by borrowing at the fastest rate since World War ii. Since then, instead of paying the debt off, America has continued to borrow. U.S. debt is now about 105 percent of its gross domestic product.
Harvard economics professors Carmen Reinhart and Kenneth Rogoff have concluded that any debt above 90 percent of annual economic output is dangerous.
The unprecedented response to the 2008 crisis broke more than the budget. It also broke a major taboo. Major government intervention became expected in any economic crisis. Imagine the public outcry if, when the coronavirus crisis hit, the government refused to help: You spent trillions bailing out the banks, what about ordinary Americans? You’ll help rich bankers, but not us?! With its extravagant response in 2008, the government effectively committed itself to similar measures in any subsequent crisis.
And that is exactly what it is doing in response to the coronavirus. America’s $2.2 trillion bailout package will have to be financed by debt; it alone will add another 10.5 percent to the national debt. By the time this ends, the U.S. will have taken a giant leap toward equaling its highest-ever level of debt: 121.7 percent, reached during World War ii.
The U.S. is talking about giving $1,000 a month to every adult. Japan is considering a smaller amount of $100 per citizen.
But borrowing will not be enough to meet these crises. If America borrows too much, creditors could become worried about the government’s ability to repay the debt. That fear could destroy the economy. So the government is looking at another source of income: the printing press.
Printing to the Rescue
The 2008 financial crisis began a great experiment with a new tool for central banks: quantitative easing. With this tool, central banks create money from nothing.
There is, rightly, a huge taboo on governments printing money and spending it. This type of money printing can be catastrophic, leading to hyperinflation that renders a currency basically worthless.
So central banks trod carefully on their quantitative easing experiment. They didn’t hand the newly created money directly to the government; instead, it bought government debt and other assets from banks. And central banks pledged to “wind down” this printing in the future: to sell the government bonds they had bought and then destroy the money they had created.
Twelve years later, it looks like the quantitative easing experiment worked. The extra money kept the financial system going. The central banks bought up government debt and kept interest rates on that debt at record lows, enabling governments to spend record amounts. But most central banks have destroyed only a fraction of the new money they had created. Yet the sky hasn’t fallen in. You don’t have to bring your money in a wheelbarrow to buy a loaf of bread.
So in reaction to the coronavirus, central banks are running the printing presses faster than ever.
The U.S. Federal Reserve announced today unlimited quantitative easing. After the 2008 crisis, the Fed has never done anything like this; instead, it announced quantitative easing within a huge, though specified, limit. The first round, from December 2008 to March 2010, for example, was capped at $1.5 trillion.
Previously the Fed also announced that it would inject $1.5 trillion into the repo market, essentially where banks go to get cash. “It is effectively underwriting U.S. Treasury bonds and ‘printing’ money for direct fiscal measures,” wrote the Telegraph’s Ambrose Evans-Pritchard. The Bank of England also announced $236 billion in quantitative easing.
The central banks may also drop many more of the restrictions that were placed on quantitative easing in 2008. The thinking is: It worked, they got away with it, and so less caution is required this time.
Even right-wing economists are now talking about “helicopter money”—creating money using quantitative easing and more or less raining it down from the sky on ordinary citizens. We created money and gave it to the banks in 2008, the thinking goes, so why not create the money and give it to ordinary people?
“[W]e are certainly going to see some form of ‘helicopter money,’ the mechanism by which the state, via the central bank, simply prints money and hands it out to people,” wrote finance journalist Matthew Lynn in the Spectator.
According to the Telegraph, Neil MacKinnon of vtb Capital said the “next logical step in the chain of unconventional monetary policy is helicopter money, and that is a direct liquidity injection into the heart of the real economy.”
These are just two of a great number of similar statements. Helicopter money used to be a fringe idea, something only crazies or socialists talked about. Now, your freshly printed money may reach you before our next Trumpet issue does.
The response to coronavirus has led even people on the right to embrace socialism. “Boris Must Embrace Socialism Immediately to Save the Liberal Free Market,” blared a headline in the usually right-wing Telegraph. “Coronavirus Panic Buying Is Turning Tories Into Socialists,” declared the Spectator.
On March 20, the British government unveiled a radical new program that turns most Brits into government employees. If people are unable to work due to coronavirus, the government will pay 80 percent of their wages—up to a cap of £2,500 (us$2,900) a month.
In making this commitment, Chancellor of the Exchequer Rishi Sunak admitted that he had no idea what it would cost. “It is the most extensive intervention in the economy ever made by a supposedly free-market government anywhere in the world,” wrote the Spectator. “In effect, we will all soon be working for the government.”
The massive increase in spending globally is pushing all countries in the direction of socialism. Companies of all sizes are banging on the U.S. government’s door asking for a bailout. Government money could soon be flowing into more sectors of the U.S. economy than ever before.
The trouble is, it’s very hard to reverse on the road to socialism. With each new government intervention, voters expect more from their governments the next time. Once they receive handouts, they expect to keep receiving them. Anyone who tries to roll back the clock is taking something of theirs away. And once a government takes power over something, the bureaucracy and politicians are very reluctant to give it back.
“When the UK economy last went onto a war footing in 1939, we didn’t really shake it off until Mrs. Thatcher’s reforms of the 1980s,” wrote the Spectator. “It might take just as long this time. [I]t is a huge gamble—and it will be easier to start this rescue than to stop it.”
Even if we succeed and take a step back from socialism, what happens when the next crisis hits? The 2008 crisis broke taboos, but 2020 has smashed them beyond all repair. Once again, there will be massive borrowing. Once again, the printing presses will be fired up—with even fewer rules than before. How long before government finances, the currency and our whole economic system collapses entirely?
We’re not just on the road to socialism, but to economic ruin.
Preparing for Armageddon
This unprecedented response may stave off an immediate crisis, as it did in 2008, but what next? We never managed to pay off the debt or destroy the newly created money from that crisis. We may stave off the crisis for now, but we are setting ourselves up for catastrophe.
Britain, America and our whole financial system are in a tough position. Refusing to take these kinds of measures would mean a lot of immediate pain for a lot of people. But adopting them simply pushes the pain into the future, and guarantees that when it hits, it will be worse.
The problem isn’t the bailout. This isn’t about one bad decision destroying everything. It’s the whole system. We have built an entire economic system on a foundation of debt. The government manages the economy by encouraging people to borrow. When a crisis hits, it lowers interest rates, so people borrow more and spend more. With little savings, people cannot look after themselves in times of crisis and have to turn to the government. But the government can’t help without borrowing more. It’s a cycle that builds up more and more debt.
In the long run, it is unsustainable. Step by step, choice by choice, we are creating conditions that are guaranteed to produce an unprecedented, world-altering crash.
This is a crash we have warned about for years. Herbert W. Armstrong wrote in 1984 that a banking collapse in the United States would have major consequences abroad, as well as at home. It “could suddenly result in triggering European nations to unite as a new world power, larger than either the Soviet Union or the U.S.,” he wrote (co-worker letter, July 22, 1984).
The book of Revelation prophesies of a sudden revival of a power in Europe that is hostile to the U.S. Revelation 18 describes the vast wealth its merchants acquire as they take over the global trading system. The implosion of America’s financial system could easily usher in this economic revolution.
The Bible also confirms that our financial practices are unstainable. Psalm 37:21 says, “The wicked borrows, and cannot pay back, but the righteous is generous and gives” (Revised Standard Version). Borrowing money like this is “wicked” behavior—and it never ends well.
A New System
The Bible also forecasts a real solution. It’s not just a tweaking of interest rates or a different way of printing money. The smartest men in finance have been unable to devise a working solution within our current system. We need an entirely new system. Soon, God will establish a fair, stable, prosperous financial system on Earth.
Micah 4:4 prophesies of this future: “[T]hey shall sit every man under his vine and under his fig tree; and none shall make them afraid: for the mouth of the Lord of hosts hath spoken it.” There will be universal property ownership—not communism, nor indebted mortgage payers. God talks about the ground producing so many crops they cannot be gathered fast enough (Amos 9:13). Jeremiah 31:12 paints a picture of this prosperity: “Therefore they shall come and sing in the height of Zion, and shall flow together to the goodness of the Lord, for wheat, and for wine, and for oil, and for the young of the flock and of the herd: and their soul shall be as a watered garden; and they shall not sorrow any more at all.”
3 John 2 says, “Beloved, I wish above all things that thou mayest prosper and be in health, even as thy soul prospereth.” God wants the world to have prosperity, and He has a plan to provide it.
The coming financial crisis will help bring us to the point where we are willing to listen to what God says on finance and much more—where we’ll finally be willing to choose the way that leads to prosperity.
Request our free booklet The Wonderful World Tomorrow—What It Will Be Like, by Herbert W. Armstrong. It is filled with scriptures to help you build this hope for a better world on a sure biblical foundation. In a world full of financial miseries and other suffering, this hope is essential for everyone.