As of 11th May 2020, total confirmed COVID-19 cases globally amount to more than 4 million with 280,000 deaths. The macroeconomic resilience of sovereign states is being tested amidst an unprecedented global economic lockdown. Businesses ranging from large corporations to SMEs were forced into a credit-crunch environment on top of a non-systematic demand crash. Historic economic stimuli in capitalist markets may act as an inflexion point to the debate about government intervention. The Desk’s brief report borrows the rhetoric of this debate and analyses the current fiscal and monetary responses to the COVID-19 pandemic to briefly reveal impacts of the on-going event on the macroeconomy of the U.S.

The dire credit-crunch environment led powerhouse Federal Reserve System (FED) and European Central Bank (ECB) to introduce an extensive list of new lending facilities and asset-purchase programs to pump unprecedented liquidity levels into their troubled economies. The FED announced an unprecedented US$ 1.5 trillion injection to regain normal Treasury purchase patterns as a response to the pandemic’s negative effects on financial markets’ liquidity, in hopes, to avoid mass selling of Treasury bills causing short term rates to increase. Many liquidity facilities mentioned in the brief report include those that are introduced specifically for this pandemic’s economic impact (PMCCF, CMCCF, TALF, PPPLF). The FED will most likely continue to operate ‘unlimited’ liquidity pipelines into the economy to ease the credit environment and encourage financial markets to behave without adverse volatility. The FED’s extensive monetary policies and programs also reveal a potentially new perspective on the pre-existing paradigms in different and opposing macroeconomic schools of thought. One of which is how the United States could exercise its ‘exorbitant privilege’ to increase its influence on global credit markets and subsequently its political power on the globalised world stage. The Desk’s brief report also gives little room for the mentioning of the controversial Modern Monetary Theory (MMT) with a short example of how the U.S.’ ‘exorbitant privilege’ leaves Emerging Markets currencies to a doomloop of money printing and dollar-denominated debt appreciation. For troubled Eurozone economies, the ECB announced on 18th March 2020 their historic €750 billion Pandemic Emergency Purchase Programme (PEPP) as a strong temporary monetary policy tool to provide liquidity for financial markets.

On the other hand, the U.S.’ fiscal pillar have been responding to this economic woe by introducing the US$ 2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act on 19th March 2020. From the brief report, The U.S.’ fiscal CARES Act reveals a certain magnified blow to the U.S. labour force after a short run of historically low unemployment rates, alongside a necessary debate revolving around state aid and welfare for future political checks and balances. On the fiscal side, although ratified EU Treaties oppose state aid in its single-market zone, member states have been implementing their own fiscal stimuli with the approved €37 billion in liquidity backstop coming from the EU Budget. As of 11th May, with the €7.4 billion raised from sovereign state governments around the world, the European Union’s Coronavirus Global Response pledging program aims to ‘ensure the collaborative development and universal deployment of diagnostics, treatments and vaccines against coronavirus’. The report borrows the recent U.S. fiscal and monetary stimuli to point out certain explicit and implicit impacts of the COVID-19 pandemic on primarily the United States. The COVID-19 pandemic is now the modern world’s greatest macroeconomic and multilateralism stress test. It is a stress test to identify social gaps in the United States’ capitalism. It is a stress test to Europe’s ability to provide a safety net equally for all member states in its supranational system. The COVID-19 pandemic is also a stress test to humanity as it reveals the most consequential wakeup call yet, for politicians and citizens alike, about the importance of biodiversity, climate action and solidarity not just in crises but in times of norm.


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