- C utting interest rates and increasing money supply will do little to combat coronavirus’ economic fallout, former Treasury Secretary Larry Summers argued in a Washington Post column.
- Monetary policy “is not likely to be very effective” and “could create problems down the road,” he said.
- Cheaper loans might fail to boost growth if workers are staying home and consumers are avoiding public spaces, and the Federal Reserve has limited scope to act, Summers warned.
- Governments should make credit easily available, reduce tariffs, ramp up healthcare spending, and push multinationals such as the World Bank to help poorer countries, he said.
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Slashing interest rates and boosting money supply won’t do much to combat the economic impacts of coronavirus, former Treasury Secretary Larry Summers warned in a Washington Post column this week.
Monetary policy “is not likely to be very effective in a crisis of this kind,” cautioned the Harvard University economist and former World Bank chief economist, and “could create problems down the road.”
Coronavirus – which causes a flu-like disease called COVID-19 – has infected more than 95,000 people, killed nearly 3,300, and spread to upwards of 80 countries. It has disrupted international supply chains, eroded consumer demand, and interfered with businesses around the world. As a result, it threatens to halve global economic growth this year.
If growth slows because people can’t work and consumers are avoiding public spaces, cheaper loans may not help much, Summers said. He added that the Federal Reserve has little scope to reduce rates more as they’re already close to 1%, and world markets would be rattled if further cuts fail to juice the economy.
Summers outlined four policies that might be more effective:
- Central banks should put money aside to ensure key sectors of the economy have ready access to credit. “Steadily available credit is much more important than lower-priced credit.”
- The US should lower tariffs and encourage other countries to follow suit, as cutting the cost of trade would help to offset the coronavirus-driven slowdown. “This is a moment for less – not more – interference with trade flows.”
- Governments should ramp up their spending and invest in ventilators, video-conferencing equipment, and distance-education tools. They should also plow money into researching therapies and producing medicines and protective products as there’s “far more risk” of spending too little than too much.
- US officials should pressure the World Bank, International Monetary Fund, and other multinational organisations to support affected nations, as their failure to help the world’s poorest countries would be “scandalous.” The IMF earmarked $US50 billion on Wednesday to help developing countries navigate the crisis.
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