There are reasons not to fear fiscal deficits and central bank financing

Government deficits don't equate poor housekeeping. A crisis is a problem for the private sector's ability to pay its bills, not for the public sector.

Published Mon, Jun 29, 2020 · 09:50 PM

Global economy

THE severe economic downturn caused by the Covid-19 pandemic has forced governments worldwide to increase spending as tax revenues simultaneously collapsed. According to the Asian Development Bank (ADB) Covid-19 Policy Database, as at June 15, its 68 members had announced packages that amounted to a total of almost US$23 trillion. About US$3.2 trillion corresponds to the announced packages of its 46 developing members, with 46 per cent of this amount (or US$1.46 trillion) as direct support to income (spending, tax cuts, and so on).

While the increase in government support is welcome and understood as necessary to fill the gap as private economic activity plummets, the accompanying government deficits cause significant discomfort to many. This is interesting because they are two sides of the same coin. You cannot have one without the other. Nevertheless, most think fiscal deficits eventually have consequences such as higher inflation, higher interest rates, reduced funds available to finance private sector investment, and a burden on future generations. A common comparison is to equate government deficits to poor "housekeeping". …