Paying for Covid Debt in a War Economy

Nothing is free these days. Not covid debt, not Ukraine war debt, not interest on those debts. So, who is going to pay for all these debts? Look at today’s headlines.

26 October 2022 | James Porteous | Clipper Media News

On 4 March 2021 then Chancellor -and now PM of the United Kingdom Rishi Sunak said that it will take “the work of many years, decades and governments” to pay back the money spent on the supporting the economy during the (covid) pandemic.

Those words, and the warning of others, got lost in the tall grass the next day, to the point that, even now, Mr Sunak continues to brag about the money his government and those around the world spend during the height of Covid.

On 25 June 2021 the Express reported that ‘Covid has cost £372 billion and will take TWO DECADES to pay off. ‘Taxpayers will be paying off the Covid debt for at least 20 years as the cost of fighting the pandemic and locking down the country has been exposed.

In an undated item the UN reported that COVID-19 could lead to a lost decade for development. ‘The Financing for Sustainable Development Report 2021 says the global economy has experienced the worst recession in 90 years, with the most vulnerable segments of societies disproportionately affected. An estimated 114 million jobs have been lost, and about 120 million people have been plunged back into extreme poverty.’

‘The economic situation, on the other hand, is unlikely to improve anytime soon. Falling revenues combined with costly pandemic relief measures have increased global debt by $20 trillion since the third quarter of 2019. By the end of 2020, economists expect global debt to reach $277 trillion, or 365% of world GDP.’ (Debt-to-GDP is rising around the world)

So, we can see that by mid-2020 the true debt toll of covid was well-known. Given our ‘new’ way of reporting news, we also know that any and all stories on this topic would have disappeared in the mayhem hole the next day. If the stories made it to the mainstream press at all.

But it is important to reflect on these stories now because today we find ourselves in the middle of another debt crisis on top of the covid debt crisis: The War Debt Economy.

By this I mean we will not be reading any updates any time soon informing taxpayers how much the war will cost their families, the economy, or the future of their children. But there are hints.

‘Ukraine war set to cost British households an extra £1,259 each this year,’ reports the Sun on 8 Mar 2022.

‘Russia’s war on Ukraine will cost $2.8 trillion across the world – and winter energy shortages in Europe could push that figure higher, OECD says. (Yahoo! News)

The Grid site reports that ‘The Ukraine War in data: $349 billion (the low estimate) for rebuilding Ukraine.’ ‘Ukraine sees post-war reconstruction costs nearing $750 billion,’ says Ukraine’s PM. And that does not include the billions of dollars Ukraine is insisting it will need next year, just to keep the war machine afloat.

So in very broad strokes, the cost of just the items mentioned above would include :

Cost of covid debt worldwide: $427.08 billion

Cost the world will pay for Ukraine war: $2.8 trillion

Cost the world will pay for rebuilding Ukraine: $349 billion

The point is that we were told two years ago that someone would have to pay the covid debt.

We are being told today that more money must be spent to fight the Ukraine war.

And we are being told that even more money will have to be spent to rebuild that country along with the war debt that is being placed atop the massive covid debt that will take two decades to pay back.

The point is that taxes on the wealthy will not be used to pay back any of this money.

The profits from big oil will not be used to pay back any of this money.

The money that will be used to pay off these trillions of dollars, and the untold sums used to send military equipment to Ukraine and elsewhere, will be borne by taxpayers around the world.

I know, it sounds like a conspiracy theory, right? Your government would tell you if the so-called ‘cost of living crisis’ or the ‘US sanctions against Russia’ or ‘ soaring fuel costs’ were being used as a means to pay off trillions in covid and war debts.

Oh wait.

James Porteous | Clipper Media News

Paying for coronavirus will have to be like war debt – spread over generations

Anton Muscatelli | 11 June 2020 | The Conversation

The macroeconomic shock to the world economy from the COVID-19 pandemic is arguably unprecedented in modern times. The financial response by governments of the major economies has been substantial.

The Center for Strategic and International Studies estimates that the G20 had deployed US$7 trillion (£6.2 trillion) in direct spending, tax relief and lending by the end of May. That is more than 10% of their combined GDP for 2019, averaging over 12% among the advanced economies. This exceeds the fiscal support measures taken by governments during the great financial crisis of 2007-09, as can be seen in the map below.

Fiscal interventions COVID-19 vs great financial crisis

Debt and more debt

In the UK, the Office for Budget Responsibility (OBR) currently estimates that the total impact on government borrowing will be £132.5 billion in 2020-21. This will widen the deficit to over 15% of GDP, compared to less than 2% in 2018-19.

Even this depends on whether the lockdowns end and economic activity can resume. If not, deficits could exceed those seen in wartime, when they peaked in the regions of 25%-30% of GDP.

Many wonder how the additional debt will be paid for. For the UK, even on the OBR’s most optimistic scenario that economic activity will rapidly recover in the three months following a three-month lockdown, the debt-to-GDP ratio peaks at 110% and returns to 95% in 2021. If the recovery is much slower, most governments will face very high debt-to-GDP ratios indeed.

Like in the great financial crisis, central banks are playing an important role in the market for government debt with major quantitative easing (QE) programmes. QE involves central banks creating new money to buy assets – mostly government debt in the form of sovereign bonds, and sometimes also commercial debt.

On March 19, the Bank of England said it would increase its holdings of UK government bonds (gilts) and certain corporate bonds by £200 billion to £645 billion. The ECB announced a €750 billion (£668 billion) programme around the same time, then expanded it on June 4 to €1.35 trillion. The Fed’s new QE commitment is open-ended, with over US$1.5 trillion of assets purchased since the crisis began.


The Covid-19 Pandemic Has Added $19.5 Trillion to Global Debt (Bloomberg 2021)

By Liz Capo McCormickCraig TorresMathieu Benhamou and Demetrios Pogkas

Published: 27 January 2021 

In the battle against Covid-19, governments around the globe are on the cusp of becoming more indebted than at any point in modern history, surpassing even World War II.

From Germany to Japan, Canada to China, fiscal authorities have spent vast sums protecting their people and defending their economies from the colossal toll of the pandemic.

At the same time corporations, emboldened by unprecedented government support for markets, are selling bonds like never before.

The borrowing binge has come with a hefty price tag—$19.5 trillion last year alone, according to Institute of International Finance estimates. Still, compared to the alternative—a deep and lasting depression—that looks cheap.

In a world where rock-bottom interest rates have kept debt costs manageable, it’s also affordable. But if rates rise faster and higher than expected, the end of the Covid-19 crisis could mark the beginning of a reckoning.



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