- Hong Kong officials should consider expanding the government’s balance sheet by much more to save the young generation from being lost
The world economy, reeling from the devastating impact of the Covid-19 pandemic, has been given a shot in the arm.
Practically all the major governments are expanding fiscal and monetary policies to protect their economies. The world may already be in a recession, but it is still possible to avoid a depression.
What is less certain is the long-term impact of so many governments taking on so much more public debt. The novel coronavirus may hit the elderly hardest, but the young will have to bear its economic consequences.
In the United States, an unprecedented US$2 trillion stimulus package has been signed into law while the Federal Reserve has promised unlimited quantitative easing to cap borrowing costs. In China, first to recover from the pandemic, its economy is slowly rebooting.
Meanwhile, the European Central Bank (ECB) has expanded a plan to buy Euro750 billion (US$836.3 billion) worth in additional bonds by lifting or easing all constraints that applied to its previous asset-purchase programmes.
In a sign of the times, Germany, the fiscally conservative powerhouse of Europe, has pledged unlimited cash support to domestic businesses.
Unlike the bailouts and stimuli during the last global financial crisis, the new rescue measures aim not to save financial institutions from their own irresponsible behaviour, but the "little guys", firms trying to make payrolls, workers facing job losses, and families who cannot pay rent.
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That is why it has been easier for governments to put together massive financial resources in a short time.
In Hong Kong, in a rare show of unity, lawmakers have voted for a package of sweeping subsidies worth HK$30 billion to help virus-affected industries, low-income individuals and families, students and small to medium-sized firms.
Besides a HK$10,000 handout for all adult residents, subsidies will also go to those who have lost their jobs or been made to take unpaid leave.
As former ECB chief Mario Draghi has observed, governments have no choice but to expand their balance sheets, take on more public debt and help absorb private losses, including cancelling more debt and guaranteeing loans.
What he said is relevant to Hong Kong, which is in the unusual position of having more than HK$1.2 trillion in fiscal reserves. Perhaps we can afford to be more generous, especially with our disaffected youth.
Young people everywhere have had to face two financial calamities: the global financial crisis of 2008-09 and the economic fallout of this pandemic. They have entered poor job markets and lost years in career-building, saving money and amassing wealth, particularly in being able to own a home.
In Hong Kong, such problems are thrown into a toxic mix with anti-China politics. Local officials should consider expanding the government's balance sheet considerably more to save the young generation from being lost.
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