"By the end of this year households will have up to €15bn extra in their bank accounts"

Brendan Burgess

Brendan Burgess

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www.irishtimes.com

What will people do with their lockdown savings?

By the end of this year households will have up to €15bn extra in their bank accounts
www.irishtimes.com www.irishtimes.com

One of the unique outcomes of the collapse in [broken link removed] due to the lockdown is the impact on [broken link removed]. Unlike the economic slump of 2008-2011, when the 15 per cent fall in consumption matched the fall in household disposable income, this time round the drop in spending will go well beyond any reduction in incomes.

This is despite incomes being better protected than a decade ago. In our earlier economic crash, households cut spending because their incomes fell. At the moment, spending is down not only because some incomes have taken a hit, but also because most shops and the hospitality industry remain closed.
 
Brendan Burgess said:
www.irishtimes.com

What will people do with their lockdown savings?

By the end of this year households will have up to €15bn extra in their bank accounts
www.irishtimes.com www.irishtimes.com

One of the unique outcomes of the collapse in [broken link removed] due to the lockdown is the impact on [broken link removed]. Unlike the economic slump of 2008-2011, when the 15 per cent fall in consumption matched the fall in household disposable income, this time round the drop in spending will go well beyond any reduction in incomes.

This is despite incomes being better protected than a decade ago. In our earlier economic crash, households cut spending because their incomes fell. At the moment, spending is down not only because some incomes have taken a hit, but also because most shops and the hospitality industry remain closed.
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Absolutely. This is what Colm McCarthy refers to as a supply side slump. There is plenty of disposable income but nowhere to spend it. So talk of fiscal stimulus to revive the economy when the lockdown is eased is misplaced IMHO.

I have suggested elsewhere the concept of a Covid tax to suck up that enforced savings.
In very simplistic terms one can envisage a situation where we look back and say that a large section of the workforce were denied their natural income because people were not able to spend their money. So the State filled the gap by subsidies (quite rightly). But these subsidies should be paid for as far as possible by taxing the money that we would have normally spent but instead saved up. The possibility of spending these enforced savings in the binge of the century to celebrate our freedom from lockdown should be stymied forthwith.

The net financial result at the end of it all, if a Covid tax was imposed, could be that the State and the population have broadly the same balance sheets as before the lockdown. The one off 10% slump in GDP can then be put down to 3 months or so of spending austerity when none of us were able to eat, drink and be merry. But we would have got over our austerity, unlike the financial crisis where we had it ahead of us.
 
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Duke of Marmalade said:
Absolutely. This is what Colm McCarthy refers to as a supply side slump. There is plenty of disposable income but nowhere to spend it. So talk of fiscal stimulus to revive the economy when the lockdown is eased is misplaced IMHO.

I have suggested elsewhere the concept of a Covid tax to suck up that enforced savings.
In very simplistic terms one can envisage a situation where we look back and say that a large section of the workforce were denied their natural income because people were not able to spend their money. So the State filled the gap by subsidies (quite rightly). But these subsidies should be paid for as far as possible by taxing the money that we would have normally spent but instead saved up. The possibility of spending these enforced savings in the binge of the century to celebrate our freedom from lockdown should be stymied forthwith.

The net financial result at the end of it all, if a Covid tax was imposed, could be that the State and the population have broadly the same balance sheets as before the lockdown. The one off 10% slump in GDP can then be put down to 3 months or so of spending austerity when none of us were able to eat, drink and be merry. But we would have got over our austerity, unlike the financial crisis where we had it ahead of us.
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Hmmm, I think the odds of a tax on savings under the cloud of Covid are remote in the extreme, the Government, if there was one, would be permanently holed below the water with a decision like that. The comparison of helicopter money in one state versus additional short terms taxes in another would go nowhere. Even the most mild mannered PAYE worker couldn't get behind that I think.
 
Megafan said:
Hmmm, I think the odds of a tax on savings under the cloud of Covid are remote in the extreme, the Government, if there was one, would be permanently holed below the water with a decision like that. The comparison of helicopter money in one state versus additional short terms taxes in another would go nowhere. Even the most mild mannered PAYE worker couldn't get behind that I think.
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I fear you are right. And yet helicopter money seems so not the correct response. It is not a demand side problem.
 
Brendan Burgess said:
Are you sure?

David McWilliams say it's the only solution.

Why Central Bank must give everyone free money right now | David McWilliams

www.davidmcwilliams.ie
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Boss I am just recovering from a very bruising emotional experience with a bitcoin cultist and you throw David McWilliams at me - that is sadistic. :mad:
I won't go on about DMcW, how his answer to negative equity was to cancel everybody's mortgage debt, or that we should leave the euro...stop, stop.

David thinks outside the box McWilliams said:
You might think this goes against all the basic laws of economics. This is because the basic laws of economics are wrong.
...
It is a stubborn idea that has nothing to do with monetary economics and can be traced to accountancy, not economics. Accountants, God bless them, are governed by double entry book-keeping, whereby every credit needs to have a corresponding debit in order to make the books balance.
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McWilliams thrives on this sort of populist debunking of conventional thinking. I realise that some jurisdictions are experimenting with helicopter money and so this time he has something to support his contrarian populism, that is dangerous.

But the argument that McWilliams puts doesn't cut it for me. Yes people are hoarding. But it is not panic hoarding. That is precisely the point made in the article you link to in OP. People will have "hoarded" €15bn by the time this lockdown winds down. Not because they are panicking but because they have nothing to spend it on. But once the retail outlets and hospitality sector opens up McWilliams tells us the panic will have taken grip, people will continue to hoard their money. Why would they hoard? So as to have it ready for the next lockdown? And the solution to solve this panic which is causing people to hold on to their windfall hoard of €15bn is to give them more money :rolleyes: (Actually maybe that explains why Hong Kong tried this trick, the populace hadn't had time to hoard enough money from their lockdown.)

There is no doubt that when the lockdown eases the problem will shift from a supply side one to the demand side. It will change from "not allowed to go to the pub" to "afraid to go to the pub". That will not be because of panic hoarding or lack of money in people's pockets. It will be the new normal that society and the economy will have to adjust to. None of the old fiscal or monetary remedies to traditional slumps would seem to be up to the job.

I'll drop the idea of a Covid tax. Seems to make sense to me but as Megafan points out it hasn't a snowball's chance in a contest with helicopter money.
 
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McWilliams seems to just go for the most off-the-wall, back of an envelope theory he can think up of every other week. I listened to his most recent podcast and he is truly wandering into the realms of fantasy. It's like his book Renaissance Nation - he convinced himself that all of our economic progress stemmed from giving the Catholic Church the two fingers and put together a few hundred pages of unreadable waffle linking major Irish economic developments with bizarre anecdotes from recent referendums. It is truly baffling that he seems to get such a free ride from the media - it must be his affable nature. All his podcasts seem to just be streams of consciousness brewing from whatever thought popped into his head whilst having his breakfast. He's after losing the run of himself altogether.
 
I have a long list of "cancel mortgage debt" rabbits out of McWilliams' hat. He is a good self publicist and has milked very successfully how after about 8 years his prediction of a house price slump eventually materialised.
What really threw me was when Trinity gave him a professorship. But when I read of just how commercial these outfits have become, I think I understand. McWilliams is marketable.
 
Duke of Marmalade said:
Boss I am just recovering from a very bruising emotional experience with a bitcoin cultist and you throw David McWilliams at me - that is sadistic. :mad:
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Hi Duke

It was a joke. ( He is a joke) I forgot to put in the smiley.

These figures really show how off the wall the idea is.

I am sure that they will lap it up at Kilkenomics

Brendan
 
This is fairly unique situation. I dont think looking at normal solutions is going to work but I can see it from both sides. Of course, when the economy opens up again, there will be huge economic growth from pent up demand and there will probably be ridiculous levels of inflation in some sectors but it will be temporary. Taxing the money doesn't really make sense to me. People have been taxed. If they decide to introduce a covid tax, I think we will just see that extra money poured into the black hole of social housing and health. I dont think it will be used to improve the balance sheet of the Country. I think that the debt that Countries like Italy and Spain and even us have had to take on will need to dealt with at a European level.

Likewise I dont see the need to helicopter money into the economy if they can open up the economy quickly and get people back to work. However, the longer this goes on and if people are scared to go places and spend their money, then it is a different conversation. I have developed what I like to call the Penny's test to judge economic recovery. If on the first day, that Penny's opens, the queue is over 10 miles long then we will be fine. Anything shorter and I think we are in trouble!
 
Brendan Burgess said:
Hi Duke

It was a joke. ( He is a joke) I forgot to put in the smiley.

These figures really show how off the wall the idea is.

I am sure that they will lap it up at Kilkenomics

Brendan
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Oh, I knew it was a joke. But maybe a smiley would clarify it for folk who have not seen your televised bout with the genius. ;)
 
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