In a world that was already awash with debt before the Covid-19 pandemic, it appears debt remains the one tool for keeping the global economy alive until the pandemic ends.

The good news is that the pandemic may well be over by December 2021. A vaccine is expected to be approved and widely distributed next year. There is also the development of swift testing using a basic saliva test that offers immediate results.

Both of these — vaccine and swift test — will see the world return to an economic normal by early 2022.

But the vaccine must be safe. Globally, pharmaceutical companies are in a rush to develop and market any approved vaccine in 2021.

Internationally, lockdowns to prevent the spread of Covid have placed much of the global economy on life support. The Caribbean and the Virgin Islands are not alone in their economic struggle. And catastrophic job losses from the shuttering of businesses are a worldwide phenomenon.


‘Route to normalcy’

Consequently, the one route back to normalcy is government investment and public borrowing to keep economies on life support.

Countries with multitrillion-dollar gross domestic products are able to borrow cash cheaply, especially in a post-2008 deflationary environment.

The United States, for example, has borrowed more than $3 trillion from investors through quantitative easing. This has kept the US economy from total collapse.

The same is true for much of Europe, where huge government borrowing is keeping people and businesses from poverty and bankruptcy.

The current economic solution to forestall widespread economic collapse is governments insuring their countries against the huge costs of the pandemic through public spending and stimulus packages.

Thankfully, the world is faced with super low interest rates and deflation.

The preceding means governments can borrow cheaply and sustainably, even without limit. The reason is that interest rates over past decades have been on a declining trend. Then after the 2008 recession, the deflationary environment has persisted. Consequently, borrowing costs are low everywhere.



Governments around the world can sustain much greater debt levels in a world of cheap debt.

Inflation, then, is not a worry. In past years flooding the markets with cash led to inflation, which was a turnoff for savers and led to boom-and-bust cycles.

However, when there is low inflation, investors are happy buying government debt, even though that debt earns a low rate of interest.

The fact is that in the age of Covid, the one route to a sustainable economy — in the short, medium and long term and even in the midst of economic disaster — is government borrowing and huge public spending.

Thankfully, in an environment of low inflation, borrowing trillions of dollars from investors to inject into the world economy remains sustainable, even desirable.

The one caveat is that this debt will have to be repaid in the coming years. And a global debt overhang lasting well into the 2030s will have consequences yet unknown to even the most brilliant economists.


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