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Two Surefire Ways to Stimulate the post-COVID Economy

by John Brian Shannon

Eliminating the VAT until December 31 would stimulate the UK economy so much that by 2021 the economic hit from COVID-19 would be completely reversed.

Prior to July 08, 2020 the VAT in the United Kingdom was 20% on most items. However, the government sought to stimulate spending in the tourism sector by lowering their VAT to 15% on most items and admissions. Which was a bit underwhelming. To say the least.

Guidance on the temporary reduced rate of VAT for hospitality, holiday accommodation and attractions (GOV.UK)

I understand that the present UK government is Conservative-led and that caution rules their thinking, but a 5% cut to the VAT is nothing. They might as well not bother as it’s likely to have little effect.

Yes, they’re concerned about driving up the deficit in a (perhaps) uncertain economy. But let’s not feed that uncertainty by underwhelming the credit rating agencies!

Uncertain times call for CERTAINTY, not TINKERING with the economy.


Even Canada, a Country of 38-Million People Saw Fit to Run a $256 Billion Deficit to Assist Canadians

By contrast, the UK government which leads a country of 67-million people has cringed at running a deficit of £361.5 billion. That’s too little, too late, I’m afraid.

UK public borrowing to exceed £350bn with Sunak stimulus plan (FT.com)

To run with Canada and other Western nations in the post-COVID economic recovery period, the UK must do better than that!

Basic arithmetic will tell you that to meet Canada’s level of committent to its citizens, the UK with 67-million people would need to spend £451 billion in 2020.

That’s real money, delivered into the hands of Britons and British businesses to be spent in the UK economy to restart the UK economy.

Really, at this point, there’s nothing more important than restarting the UK economy; Debt-to-GDP and the present deficit are unimportant next to restarting the economy.

Rishi Sunak — nice person that he is — has listened to too many Conservative MP’s and not enough to economists, citizens, and the UK business community.

Normally, it would be a fine thing that a Chancellor of the Exchequer would pay such close attention to MP’s, as it signifies that the Chancellor is a good listener, but now is not the time to listen to overly-cautious (non-economist) Parliamentarians… now is the time to act boldly!


Regular Readers Know I Complain about Deficit Spending

But I only complain because, historically speaking (some) governments were just too lazy to oversee every pound spent in the economy and thereby engaged in deficit spending even when the economy was rocketing along with a high annual growth rate. And folks, there’s no excuse for that. It’s lazy bookkeeping and governments should be tossed from power whenever they fall below that level of fiscal responsibility.

The reason we need to be prudent with our spending during the boom times is so that we have some economic room to manoeuvre when things hit the fan, as they invariably do from time to time. Such as during Coronavirus, such as during the US subprime mortgage crisis, during times of high unemployment, or times of labour strife. And that’s the whole point of this blog post.

Governments need to be fiscally responsible during the boom times so there’s money to deal with things like Coronavirus.

Former Chancellor George Osborne was exceptionally prudent during a time of crisis (and unfairly) wasn’t able to retain his position long enough to enjoy the good times when they returned. He surely would’ve made the best of it — but was on the wrong side of Brexit — very unfortunately for him, and for the UK.

And unfortunately for Rishi Sunak — who is an easy person to like — he’s trying to please Conservative party stalwarts instead of trying to goose the economy to the same level as the UK’s competitor nations. And while we all like Rishi, that doesn’t work for him.

Please, Mr. Chancellor, put the UK’s stimulus spending to the same per capita footing as other Western economies to allow the UK to rocket out of the economic doldrums like an F-35 taking off from the deck of the HMS Prince of Wales… So important!


The Easiest Way to Stimulate the Economy…

Is by ‘topping-up’ the income of every adult British citizen in the UK to £1250 per month via a reverse income tax — thereby instantly replacing every other (overlapping and prohibitively expensive to administer) anti-poverty programme that poverty-stricken people receive assistance from in the UK, and that ‘top-up’ should also include any senior citizen who lives under the official poverty line in the UK.

For those earning over (approx) £20,000/yr. those people wouldn’t receive money from such a programme.

But for those living under the official poverty line amount, their income should be topped-up to £1250 per month in one payment from HMRC. And every pound sterling of that money will be spent in the local economy allowing that person to live and be ready to work when the economy improves, meaning 100% of that stimulus money will be spent in the economy.

Which is quite unlike when the government hands billions to corporations, where 50% of that stimulus goes straight to shareholders, many of whom may not live in the UK, spend money in the UK, nor retire in the UK. Therefore, half of any (corporate) stimulus money the government hands to corporations flies out of the UK never to be seen again. And that should be illegal. Certainly, if taxpayers knew the extent of this since 1950 there’d be a civil war.

The Coronavirus Economy NEEDS a Guaranteed Basic Income NOW! (LetterToBritain.com)

But my plea to the UK’s excellent Chancellor isn’t about plugging that particular loophole (yet) it’s about spending another £100 billion in the economy to better compete with other economies so the UK doesn’t get left behind in 2021 — and putting real money in the hands of Britons who will spend 100% of that money in local UK economies, instead of the government helping to make foreign shareholder returns more generous.

With the greatest respect, Mr. Sunak, it’s over to you!

Why Global Markets Will Recover from Coronavirus Sooner, Rather Than Later

by John Brian Shannon

Every previous depression, recession, or one day sell-off has been caused by things like over-valued stocks, improper economic or financial policy, weak banking regulations, or some other economic, financial, or legal reason — therefore, those financial crashes were caused by an organization, a regulator, or a person, doing the wrong thing.

Consequently, the corrective action and the time lag involved to get the market up to where it once was, involved many months, or even years of tough slogging.

But in this case, nobody did anything wrong; There was no over-valuation, no wrong-headed government policy or weak banking regulatory environment, nor were there illegal actions by individuals behind the cause of this particular market adjustment. No matter the numbers… there’s only one reason for this massive and unprecedented market value writedown, and that is fear.

Fear of investors losing the value of their stocks (due to the Coronavirus scare) is the only thing that’s caused this financial meltdown — therefore, once that fear subsides at approximately the same speed as the Coronavirus subsides, the market should then respond very strongly and March 2020 will eventually register as a tiny blip on the year, and my guess is that the Dow Jones Industrial Average will return to 29,000 points or more by the end of 2020.

As no systemic economic, financial sector or banking regulatory problems are to blame for this particular crisis, global stock markets should rebound as soon as the Coronavirus has run its course.


Waiting for the Markets to Open on Monday With All the Money You Pulled Out of the Markets Before They Lost Value During the Coronavirus Scare? Nice!

Well, aren’t you sitting pretty! 😉

If you pulled all your money out two weeks ago, or even as late as week ago, you now have a pool of money that you’ve already made profit on, ready to reinvest in the market just at the time stocks are priced at fire-sale prices!

Oh, yes. Oh, yes, Oh, yes! You are a lucky investor indeed.

And I suspect that there are millions of such investors around the world at this time and I fully expect that once the Coronavirus has run its course through the population, investor confidence will return like a hurricane on steroids.

Think of all that investment hitting the markets over the next few weeks. ‘It’s a beautiful thing!’ as Donald Trump would say.


‘Buy Low, Sell High’

If I’m right (and we’ll soon see) it will demonstrate the perfect example of the ‘Buy Low & Sell High’ strategy that’s been making individual investors and institutional investors wealthy since there were rocks.

If you did wisely ‘cash out’ your stocks over the past two weeks, you can now buy even more of your favourite stocks at their new, low price due to the Coronavirus market event and watch them return to February’s highs and more in the coming months and years.

If millions of investors do this as I fully expect they will; March and April of this year should barely register as a blip on the financial calendar in only a few short months, and investors will reap significant rewards over the coming months and years. And, good on you for being such prudent investors!

Until then, wash your hands often, maintain proper social distancing of about six feet, and don’t go on a cruise ship if you’re aged or infirm. Other than that, happy days for investors will soon return!