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You can't turn off and on the economy like a switch. People need to pay rent and mortgages, or loans will not be repaid. If loans don't get repaid, banks fail

You can't turn off and on the economy like a switch. People need to pay rent and mortgages, or loans will not be repaid. If loans don't get repaid, banks fail. If banks fail, we have another financial crisis. The last one took a decade to recover from and there weren't even that many bad mortgages (as a percent of all mortgages). Businesses right now are eating a bunch of costs. That can't last for very long before they run out of money, fire everyone, and throw in the towel. They will not have savings to restart after the closure.

wegs 7y ago
Sure you can. You stop rent. You stop mortgage interest. You pause mortgage principal. You do that across the board for every rental, contract, and debt obligation in America. In 90 days, it expires, and everything starts back up again. https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3SjhsZ0ztpG5bMzA3WNbVNhU/edit https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs...
- wrkronmiller 7y ago
  And what about international obligations? What about mortgage-backed securities?
  - wegs 7y ago
    International obligations, where governed by US law, get placed on hold too. Ideally, other countries join in the regime. If not, you're just talking about a much smaller amount of debt (US debt held under foreign jurisdictions). Mortgage-backed securities generate no income for a couple of months.
    - im3w1l 7y ago
      If you stop paying other countries, the goods stop flowing. Or are you going to swing the military dick around to force people to give you stuff for free?
      - op00to 7y ago
        Nope. The world floats on net terms. Companies extend terms frequently. Doing so is not as big of a deal as you are making this out to be.
  - joe_the_user 7y ago
    Pensions and institutions people need to survive get a bailout. Speculators lose their shirts.
    - marcus0x62 7y ago
      What’s the difference between a worthy investor and a speculator? Is it sort of like the difference between a church and a cult?
      - Red_Leaves_Flyy 7y ago
        Net worth?
      - throwaway3563 7y ago
        Holding duration.
- humanrebar 7y ago
  And how do people who make incomes on collecting on obligations (landlords, pensioners, etc.) buy new things, like food and medicine?
  - wegs 7y ago
    That's where you need much smaller bailouts and stimuli. Agriculture is less than 1% of the GDP. The currently-discussed bailout is big enough to feed all of America for years. And it's actually not a bad idea to nationalize food distribution -- supermarkets are where the virus spreads. Many countries have switched to safe deliveries of food. And conversely, the current bailout, as proposed, doesn't come anywhere close to stopping mortgage defaults, layoffs, and the slew of other issues. Now, this plan basically means you don't buy new things (cars, laptops) for 3 months, but I think that's okay. But yes, it only covers 95% of the problem. Companies might need help with, for example, restarting production lines, maintenance costs, supply chain delays, or other issues. All that is pocket change compared to what we're looking at spending right now.
    - 6510 7y ago
      But the commies have been telling us that for years and we didn't listen. Why would we listen now? I'm joking, well put, thanks.
  - novok 7y ago
    They get a bailout.
  - ForHackernews 7y ago
    Maybe landlords will need to get a real job. I hear Amazon is hiring warehouse staff.
    - samsonradu 7y ago
      Joke aside, you’re spot on in that the economy can only bear a certain level of rent-seeking. That level is going down now, which might also be seen as a return to normal. Pumping money in ETFs and real estate (aka passive income) can’t enrich everybody, productive output is required.
- candybar 7y ago
  This simply doesn't work at all. First, the situation is not that dire to start with, most people and businesses can meet their obligations. We don't have anything remotely close to a financial crisis. It makes no sense to effectively turn the entire economy into a command economy and effectively declare a default to save what appears to be a fairly small part of the economy that will have trouble. You can have targeted intervention and get most of the benefit without dragging the rest of the economy into this. Second, you can't just remove credit from the system. Credit is fundamental to nearly all transactions at scale - transactions in the real world aren't atomic, which means businesses are always dealing with receivables and payables, not to mention lines of credit that are designed to help businesses manage them. There are tons of offsetting contracts, whether in terms of derivatives or insurance, and no one is going to be able to figure out which side of each contract is covered and which isn't and how to price anything given the uncertainty. Do health insurance companies have to pay hospitals? Do car insurance companies have to pay? These are all payments. Nothing happens in an economy without a payment. Do you have to pay insurance premiums? The effective result of this would be all financial markets not functioning and nearly all real markets too, since they are tied to the financial markets for pricing, settlement and credit. It would be like the global financial crisis but a substantially worse version where every company becomes the Lehman Brothers. You'd have to basically nationalize everything across the entire world and run a command economy because the markets simply won't function at all even on a purely basic level.
  - ianleeclark 7y ago
    > First, the situation is not that dire to start with, most people and businesses can meet their obligations. 76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused. > the markets simply won't function at all even on a purely basic level Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
    - 7y ago
- imtringued 7y ago
  retail (paused) -> land lord (paused) -> bank (paused) -> everyone else -> retail Do you see the problem? You forgot to pause "everyone else". You'll have to add millions of special case laws to pause everything. That guy with his gym membership who can't use it? Pause it! ISP subscription? Pause it! Mom's knitting club membership fee? Pause it! ... million pauses later you're done. It's like having 1 million bolts each with a different size. You'll need a different wrench for each bolt. Why not just standardize on a single screw head? Sure screws aren't exactly bolts but anyone who wants a screw can get it. If you're handing out bolts and wrenches then you're picking winners. This is known as a bailout for special interests by only pausing certain hand picked industries. Meanwhile, a loan works for anyone who wants one. It still means that the economic machine is empty but at least it keeps running and doesn't need to be restarted from scratch.
joe_the_user 7y ago
You can't turn off and on the economy like a switch. Actually, you can. Money transactions can be suspended and goods can be distributed directly. If banks fail, we have another financial crisis. The last one took a decade to recover from. Not even, what we're looking at is the dead Frankenstein construction created to avoid dealing excess speculation of last time. The economy has been artificially supported by QE since 2008 (sure, it stopped periodically but everyone knew it could start up again, stocks values were completely absurd. Half of what happened just now was that fantasy falling rather than the cost of Covids.
- kyleee 7y ago
  "Actually, you can. Money transactions can be suspended and goods can be distributed directly." Do you mind expounding a bit on this claim? What does it mean to suspend all money transactions and who will distribute the goods?
- im3w1l 7y ago
  If it goes on for any length of time there will be an explosion in organized crime as people seek out the black market. This is how you get a failed state.
  - landryraccoon 7y ago
    Normally yes, but criminals are just as vulnerable to viral infection as anyone else. The basic question needs to be answered - is this virus bad enough to shut down an economy? If the answer is yes, then renaming the economy from "state sanctioned" to "black market" does nothing - the black market is just as crushed by the pandemic as any other. What people are arguing for when they argue for a shutdown is that the economy is going to be wrecked no matter what if the pandemic is allowed to rage unchecked. That being the case, there is no tradeoff - shut down the economy to save lives and wreck the economy, or continue with business as usual AND wreck the economy AND have many more lives lost.
    - suryherhhd 7y ago
lifeformed 7y ago
Why do banks fail if loan payments are paused?
- krustyburger 7y ago
  Depending on the degree to which they are leveraged, they are counting on loan payments to be able to meet the withdrawal demands of their deposit accounts.
  - limomium 7y ago
    Not sure about US, but in EU citizen accounts are insured up to EUR 100k. So it doesn't matter if banks fail.
    - imtringued 7y ago
      I feel you don't understand the magnitude of the problem. Yes, your money will be fine but will your insurance claim be processed before you have to pay rent? A bank is like a multiplayer game company. Once the company shuts down, the servers are gone as well. If you can't access your bank account then you lost access to the money until it will be restored by the government. This is why we have bank runs at all. People cash out so they have a buffer until their claim is processed, not because they won't get their money bank.
unethical_ban 7y ago
Maybe we should learn how to, because this may not be the last pandemic we face. Retailers and citizens can't pay rent. Landlords only need that money (per se) because they owe money to banks via mortgage, or the government via taxes. So government should order the banks to halt collections on real estate, and government should halt collections of property taxes. Banks might go under? Have the fed print them money. Governments can't afford it? Have the government print money. Inflation due to increased monetary supply? That's where my idea ends. Perhaps instead of the printed money being a gift, perhaps it is a zero percent long term loan. Landlords need the money to live? Give its employees the same cushioning we should be giving all citizens through the pandemic. edit - I am absolutely going to ask people who downvote to give a reason.

wegs 7y ago

Sure you can. You stop rent. You stop mortgage interest. You pause mortgage principal. You do that across the board for every rental, contract, and debt obligation in America. In 90 days, it expires, and everything starts back up again. https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3SjhsZ0ztpG5bMzA3WNbVNhU/edit https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs...

wrkronmiller 7y ago
And what about international obligations? What about mortgage-backed securities?
- wegs 7y ago
  International obligations, where governed by US law, get placed on hold too. Ideally, other countries join in the regime. If not, you're just talking about a much smaller amount of debt (US debt held under foreign jurisdictions). Mortgage-backed securities generate no income for a couple of months.
  - im3w1l 7y ago
    If you stop paying other countries, the goods stop flowing. Or are you going to swing the military dick around to force people to give you stuff for free?
    - op00to 7y ago
      Nope. The world floats on net terms. Companies extend terms frequently. Doing so is not as big of a deal as you are making this out to be.
- joe_the_user 7y ago
  Pensions and institutions people need to survive get a bailout. Speculators lose their shirts.
  - marcus0x62 7y ago
    What’s the difference between a worthy investor and a speculator? Is it sort of like the difference between a church and a cult?
    - Red_Leaves_Flyy 7y ago
      Net worth?
    - throwaway3563 7y ago
      Holding duration.
humanrebar 7y ago
And how do people who make incomes on collecting on obligations (landlords, pensioners, etc.) buy new things, like food and medicine?
- wegs 7y ago
  That's where you need much smaller bailouts and stimuli. Agriculture is less than 1% of the GDP. The currently-discussed bailout is big enough to feed all of America for years. And it's actually not a bad idea to nationalize food distribution -- supermarkets are where the virus spreads. Many countries have switched to safe deliveries of food. And conversely, the current bailout, as proposed, doesn't come anywhere close to stopping mortgage defaults, layoffs, and the slew of other issues. Now, this plan basically means you don't buy new things (cars, laptops) for 3 months, but I think that's okay. But yes, it only covers 95% of the problem. Companies might need help with, for example, restarting production lines, maintenance costs, supply chain delays, or other issues. All that is pocket change compared to what we're looking at spending right now.
  - 6510 7y ago
    But the commies have been telling us that for years and we didn't listen. Why would we listen now? I'm joking, well put, thanks.
- novok 7y ago
  They get a bailout.
- ForHackernews 7y ago
  Maybe landlords will need to get a real job. I hear Amazon is hiring warehouse staff.
  - samsonradu 7y ago
    Joke aside, you’re spot on in that the economy can only bear a certain level of rent-seeking. That level is going down now, which might also be seen as a return to normal. Pumping money in ETFs and real estate (aka passive income) can’t enrich everybody, productive output is required.
candybar 7y ago
This simply doesn't work at all. First, the situation is not that dire to start with, most people and businesses can meet their obligations. We don't have anything remotely close to a financial crisis. It makes no sense to effectively turn the entire economy into a command economy and effectively declare a default to save what appears to be a fairly small part of the economy that will have trouble. You can have targeted intervention and get most of the benefit without dragging the rest of the economy into this. Second, you can't just remove credit from the system. Credit is fundamental to nearly all transactions at scale - transactions in the real world aren't atomic, which means businesses are always dealing with receivables and payables, not to mention lines of credit that are designed to help businesses manage them. There are tons of offsetting contracts, whether in terms of derivatives or insurance, and no one is going to be able to figure out which side of each contract is covered and which isn't and how to price anything given the uncertainty. Do health insurance companies have to pay hospitals? Do car insurance companies have to pay? These are all payments. Nothing happens in an economy without a payment. Do you have to pay insurance premiums? The effective result of this would be all financial markets not functioning and nearly all real markets too, since they are tied to the financial markets for pricing, settlement and credit. It would be like the global financial crisis but a substantially worse version where every company becomes the Lehman Brothers. You'd have to basically nationalize everything across the entire world and run a command economy because the markets simply won't function at all even on a purely basic level.
- ianleeclark 7y ago
  > First, the situation is not that dire to start with, most people and businesses can meet their obligations. 76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused. > the markets simply won't function at all even on a purely basic level Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
  - 7y ago
imtringued 7y ago
retail (paused) -> land lord (paused) -> bank (paused) -> everyone else -> retail Do you see the problem? You forgot to pause "everyone else". You'll have to add millions of special case laws to pause everything. That guy with his gym membership who can't use it? Pause it! ISP subscription? Pause it! Mom's knitting club membership fee? Pause it! ... million pauses later you're done. It's like having 1 million bolts each with a different size. You'll need a different wrench for each bolt. Why not just standardize on a single screw head? Sure screws aren't exactly bolts but anyone who wants a screw can get it. If you're handing out bolts and wrenches then you're picking winners. This is known as a bailout for special interests by only pausing certain hand picked industries. Meanwhile, a loan works for anyone who wants one. It still means that the economic machine is empty but at least it keeps running and doesn't need to be restarted from scratch.

joe_the_user 7y ago

You can't turn off and on the economy like a switch. Actually, you can. Money transactions can be suspended and goods can be distributed directly. If banks fail, we have another financial crisis. The last one took a decade to recover from. Not even, what we're looking at is the dead Frankenstein construction created to avoid dealing excess speculation of last time. The economy has been artificially supported by QE since 2008 (sure, it stopped periodically but everyone knew it could start up again, stocks values were completely absurd. Half of what happened just now was that fantasy falling rather than the cost of Covids.

kyleee 7y ago
"Actually, you can. Money transactions can be suspended and goods can be distributed directly." Do you mind expounding a bit on this claim? What does it mean to suspend all money transactions and who will distribute the goods?
im3w1l 7y ago
If it goes on for any length of time there will be an explosion in organized crime as people seek out the black market. This is how you get a failed state.
- landryraccoon 7y ago
  Normally yes, but criminals are just as vulnerable to viral infection as anyone else. The basic question needs to be answered - is this virus bad enough to shut down an economy? If the answer is yes, then renaming the economy from "state sanctioned" to "black market" does nothing - the black market is just as crushed by the pandemic as any other. What people are arguing for when they argue for a shutdown is that the economy is going to be wrecked no matter what if the pandemic is allowed to rage unchecked. That being the case, there is no tradeoff - shut down the economy to save lives and wreck the economy, or continue with business as usual AND wreck the economy AND have many more lives lost.
  - suryherhhd 7y ago

lifeformed 7y ago

Why do banks fail if loan payments are paused?

krustyburger 7y ago
Depending on the degree to which they are leveraged, they are counting on loan payments to be able to meet the withdrawal demands of their deposit accounts.
- limomium 7y ago
  Not sure about US, but in EU citizen accounts are insured up to EUR 100k. So it doesn't matter if banks fail.
  - imtringued 7y ago
    I feel you don't understand the magnitude of the problem. Yes, your money will be fine but will your insurance claim be processed before you have to pay rent? A bank is like a multiplayer game company. Once the company shuts down, the servers are gone as well. If you can't access your bank account then you lost access to the money until it will be restored by the government. This is why we have bank runs at all. People cash out so they have a buffer until their claim is processed, not because they won't get their money bank.

unethical_ban 7y ago

Maybe we should learn how to, because this may not be the last pandemic we face. Retailers and citizens can't pay rent. Landlords only need that money (per se) because they owe money to banks via mortgage, or the government via taxes. So government should order the banks to halt collections on real estate, and government should halt collections of property taxes. Banks might go under? Have the fed print them money. Governments can't afford it? Have the government print money. Inflation due to increased monetary supply? That's where my idea ends. Perhaps instead of the printed money being a gift, perhaps it is a zero percent long term loan. Landlords need the money to live? Give its employees the same cushioning we should be giving all citizens through the pandemic. edit - I am absolutely going to ask people who downvote to give a reason.