The virus has catalysed more, perhaps, than it has caused. Established trends in geopolitics, economics, financial markets, public policy, and social structure have accelerated as the disorder removes the brakes from those changes – like shaking the ketchup bottle to make gravity work faster.
This is a multi-phase reaction. Some things move faster than others: information moves the fastest, then people and politics, then structures and systems. Well, we made quick progress. Within just a few weeks, the tone of the global economic and policy response was cemented, leaving only the denouement to play out. Now that the most stringent lockdowns have been lifted, they are unlikely to make a comeback, and we show why in the first section below. So, what’s left? More dollars, more debt, and more policy mutations – three global trends that got a turbo kick in 2020. In the second section below, we examine the emergence of fiscal-monetary coordination (modern monetary theory [MMT] and the ‘Fed put’). In the third and final section, we review the global dollar.
Lockdowns: Past – and Future?
The equity market has focused more on the strength and duration of lockdowns than the COVID outbreak itself. Of course, the outbreak affects the scale of the lockdown, but it’s the lockdown and restriction of people’s activities that impact the economy (Charts 1 and 2).
The recent growth in COVID-19 cases in the US begs the question, will new blanket, open ended lockdowns appear again? However, the odds are ‘no’ for three reasons: the virus has become less lethal, there is ample spare healthcare capacity, and the long-term epidemiological benefits of lockdowns are unclear while their economic costs are prohibitive.
1) COVID-19 is becoming less deadly.
There is still much debate globally about the disease’s lethality; but, in the US, symptom severity and case fatality rates (CFR) are clearly falling. In recent weeks, CFR have stabilized in a 1 to 1.5% range. With the CDC estimating that actual cases could be 10 times as high as confirmed cases, this could bring the Infection Fatality Rate (IFR) to a 10 to 15 bp range, that of the common cold.
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