Mike Hosking: Economy needs confidence to survive Covid-19 crisis

Author
Mike Hosking,
Publish Date
Mon, 18 May 2020, 4:20PM
(Photo / AP)

Mike Hosking: Economy needs confidence to survive Covid-19 crisis

Author
Mike Hosking,
Publish Date
Mon, 18 May 2020, 4:20PM

The number of people on benefits in this country as of this morning are horrific.

Massive increases in the past month, many are young, many have no real experience of ever needing state assistance.

The hope lies in the forecast, as the forecast is joblessness will peak at 9.8 %. What makes you suspicious of that number is it's politically appealing given its below 10. 10 is double digits and psychologically way worse than anything just below it.

So is 9.8 convenient or real? If it’s real, then all of this is not the end of the world. America at 15 plus, heading possibly to 25, is pretty much the end of the world.

And it was their central bank governor who spooked the markets last week by talking openly of their recession lasting longer than we previously might have thought

The problem in that talk is that it destroys pretty much everything the whole bounce back narrative was based on.

This was not the GFC. This was not a series of psychological unknowns like a regular recession. This was a virus and when the virus was sorted we were off and running. Seeing light at the end of the tunnel has been critical right through this scenario

So back to our 9.8. What’s required is confidence. The services sector of our country is worth about two-thirds of our economy. Buying stuff is what produces jobs income savings and growth.

The government can’t do it by themselves, and the great worry is as the wage subsidy artificially shelters peoples jobs, there will come a time – and it needs to be sooner rather than later – when we need to see some rubber hit the road.

Are you open because the government pays for it? Are you trading at a level that pays bills or are you subsidised? And that bit is up to us the consumer.

The fear is people don’t spend, second guess their circumstances and fall into the dangerous mindset that somehow the money from the budget, that $50 billion, is magic tree money and there’s plenty more where that came from.

There isn’t.

We are in debt for years if not decades. We are walking a fine line between this being enough to get us through the dark days and out the other side, or hearing more talk from the Jay Powells of this world who decide this thing is worse and with us longer.

And when the US Federal Reserve heads start to doubt things, given they’re the backstops to all this, that’s when you really know it's hitting the fan.