In last week’s close, the stock market and commodity prices were able to recover as the US government released upbeat economic data. However, the recovery was not enough to compensate for the amount of losses accumulated over the week.
It is an underlying worry now that the 2008 Global Financial Crisis is about to repeat itself. The signals leading to the possibility are here. Policy supports, which are expected to respond to the recent financial turmoil, are still lacking. The options during the financial crisis of 2008 are greater than the available policy options today. Governments are suffering big budget losses and interest rates remain at zero.
Financial systems may not be as firm as they are supposed to be in times like this, but it is safe to say that they are more robust than ever. The financial rift is still somehow under control. However, the lapses that gave rise to the 2008 Global Financial Crisis were easier to distinguish in retrospect as well. It is feared that the same is true for today’s disturbing economic situation. The alarming condition can still continue to get worse as investors and consumers cautiously cut back on spending. What then can we make of these uncontested financial system deficiencies?
With the inadequate policy options, the hindrances to efficient redresses are more political in nature than economic. Truth be told: we can save the global economy from totally crashing if policymakers can act on the pressing slowdowns effectively and immediately.
The US and the eurozone can opt for fiscal stimulus, often known as helicopter money, again since this might reduce financial burdens, thus supporting economic growth and recouping. Once the economy grows faster than the rise of debt, we can minimize at a large rate the ratio of debt to output.
Helicopter money is foreseen as the most viable solution we can choose for now. It involves the central banks increasing demand by openly creating purchasing power as they can slash down taxes, calming the people. This government intervention will pull demand to greater heights and stimulate inflation as well. As a result, consumers will be directed to spend. There is no question in the efficacy of policymakers interfering as they enforce fiscal stimulus. The current trend is already worse than it seems and further delays in easing the failing global economy will most likely lead to a sequel of the Global Financial Crisis of 2008. As far as deflation is a concern, helicopter money is a guaranteed antidote to the sickening economic condition.