savings

Bloomberg: A Polynesian Paradise Sacrificed Its Economy to Stay Virus-Free

https://www.bloomberg.com/news/articles/2020-05-26/polynesian-cook-islands-sacrificed-its-economy-to-end-coronavirus

We know the knee-jerk reactions…

The Right – That horrible government, treading on their people’s liberties, shutting down their economy like that…
The Left – That wonderful government, making the decision for their people because their people wouldn’t have known any better, regardless of economic impact…

We’ll take no particular position on the role of government in this particular case. We simply read this article to mean – the less debt you have, and the more savings you prudently accumulated while times were good, the more flexibility you’ll have to make a choice, either way. And isn’t choice what it’s really all about?

Choice, coconut drinks, and no central bank. Sounds like paradise to me.

“With no central bank of its own, the policy options are limited. A relatively low debt-to-GDP ratio of 21% gives the country room to borrow, Brown says. The government is in talks with the Asian Development Bank and the New Zealand government to provide loans until border restrictions are relaxed and visitors can return.“

“During the recent run of good economic times, Puna’s government had the foresight to bank NZ$56.7 million in an emergency reserve fund to be used during downturns or to recover from cyclones. The funds helped pay for the stimulus measures.“

Or to just cut right to the important parts…

“no central bank of its own”

“relatively low debt-to-GDP ratio”

“foresight to bank NZ$56.7 million in an emergency reserve fund”

To be fair, we do, of course, hope all the individual business owners (including ones like the Napa family and their Kiikii Inn & Suites) in the Cook islands had also been just as prudent with their savings.

“I thought the same thing as everybody else: What are we going to do?” says Napa, 59, recalling the moment he found out there would be no more guests arriving at the motel. “I was just gearing up for busy season.”

Thanks to Emmanuel Samoglou writing for Bloomberg BusinessWeek for chronicling this inadvertent case of prudence being the ticket to paradise – at least in relative terms?

Bloomberg Law: Fed Warns of Significant Hit to Asset Prices If Crisis Grows

https://news.bloomberglaw.com/banking-law/fed-warns-of-significant-hit-to-asset-prices-if-pandemic-grows

When even the Fed is warning of a “significant hit to asset prices”, is that a sign we should be worried? Or are they just warming us up for even more #QE? (in which case, you might want to re-think who should be doing the worrying…)

An excerpt from Bloomberg Law’s coverage of the Fed’s recent statement which, at face value, sounds awfully logical:

“Asset prices remain vulnerable to significant price declines should the pandemic take an unexpected course, the economic fallout prove more adverse, or financial system strains reemerge,” the Fed said in the report. It cited commercial real estate as being particularly susceptible to falling valuations because “prices were high relative to fundamentals before the pandemic,” and there have been severe disruptions in the hospitality and retail industries.

In the old days, “asset prices remain vulnerable to significant price declines” would mean #savers get rewarded (by waiting, prudently, to buy low and re-establish equilibrium in markets at more appropriate valuations) while #debtors take the hit – and perhaps deservedly so, because “prices were high relative to fundamentals before the pandemic”.

In the new (or at least recent) normal, “asset prices remain vulnerable to significant price declines” would simply be cover-speak for ::printing more money to ensure asset prices don’t decline:: which would mean #savers get duped (by waiting, apparently foolishly, for their savings to be devalued) while #debtors get rescued and rewarded for their irresponsible behavior of having driven up prices to be “high relative to fundamentals” in the first place.

What will the very latest version of “normal” turn out to be?

Can someone just tell us what the rules will be once and for all?

Or is it time to walk away and find another game to play altogether?

Tagged : asset inflation / covid19 / debt / debtors / fed / QE / savers / savings

economorals

Tag: savings

Can paradise be found in prudence?

When even the Fed is warning on asset prices (or when the rules just keep on changin’)