Expect the government to do the worst things possible to the economy as part of its coronavirus response. From Thorsten Polleit at mises.org:
Governments and their central banks have put together mega–bailout packages. In the US, President Donald J. Trump has signed off on a $2 trillion “virus relief package” amounting to around 10 percent of the US gross domestic product. It is meant to provide massive financial support—in the form of loans, tax breaks, and direct payments—to large and small businesses as well as individuals whose revenue and income have been destroyed by the politically dictated “lockdown.”
What is more, the US Federal Reserve (the Fed) has provided a colossal “backstop” to financial markets. It injects ever higher amounts of central bank money into the financial system by buying up all sorts of credit instruments—not only government bonds, but also mortgage debt, corporate bonds, commercial papers, etc. The Fed thereby props up financial asset prices, keeping the cost of credit artificially low and, most importantly, avoids payment defaults on a grand scale.
In fact, the Fed is at the heart of all these rescue measures, for the US administration does not have the money to finance all its promises. The US Treasury will issue new bonds that will be bought by the Fed, which thereby creates new US dollar deposits in the hands of the US government. These are then transferred to the bank accounts of entrepreneurs, consumers, and most of all to government beneficiaries (its employees, service providers, and contractors). As a result, the newly created money shows up in people’s bank accounts, increasing the stock of money in the economy.
