BIG SPENDER
Since the 2008 global financial crisis, economists and governments of developed countries have converged on the Keynesian view that the best way to handle a financial crisis is to spend your way out of it. The difference between how the US and Europe emerged from the crisis made it clear: austerity only makes things worse.
The question then becomes where should the money be spent? After the 2008 crash, the Obama administration bailed out big finance, slashed interest rates and embarked on quantitative easing, which was wonderful for investors, who benefited from the longest bull market in US history. But was it beneficial for the man in the street?
The answer appears to be no, or else working and middle-class Americans would not have become so disenchanted in their government that they were seduced by the populist rhetoric of Donald J Trump.
The Covid-19 crisis has been very different, in that it has not seriously undermined the financial system. But it has hit the man in the street much harder: depriving him of business, employment and income on a scale not seen since the Great Depression.
The US government stepped in with massive relief packages, aimed directly at citizens, simply to enable them to survive, month in and month out.
When that relief started drying up at the end of 2020, the question was to what extent it should be extended. After all, even with the advent of vaccines, no one knew (and still doesn’t) how long it would take for the virus to be defeated and life to get back to normal. Even a country as rich as America couldn’t afford to sustain its population indefinitely.
With Biden winning the White House, and Janet Yellen being appointed Treasury Secretary, the answer was decided. Much more spending and QE was needed to see America through the crisis.
Of course, Biden has been good for America and the global economy in numerous other ways, and there has been almost immediate improvement in relations with its traditional allies.
As we read in financial analyst Ryk de Klerk’s insightful article on page 6, the by now cash-strapped South African government may not be able to offer the same sort of relief to its citizens that the US can, but it can take advantage of any international support in the offing.
Positioning South Africa as an investment-friendly destination is a vital step.
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