Friday, March 20, 2020

For a Universal Debt and Rental Moratorium

Incomes are collapsing throughout the economy, and both businesses and individuals face a crisis in meeting fixed payments they can’t control.  The most direct step we can take is to temporarily suspend these payment obligations.

Suppose the government were to announce that, starting immediately, all stipulated debt and real estate rental payments were to be suspended for all borrowers and renters.  This moratorium could have an ending date of, say, two months in the future, with the option of extending it if circumstances require.  No interest would accrue to any of these obligations; in effect, we would be stopping the clock on them for a period of time.

Of course, if nothing else were done this would shut down the credit and rental systems completely for the duration of the moratorium, so a stipulation would have to be added that it applies only to debt or rental obligations established at the time of the announcement.  We’d all have to keep two sets of books, one for pre-announcement loans and rentals, the other for post.

International obligations are somewhat more complicated, but the economic heft of the US is great enough that these conditions could probably be imposed unilaterally on foreign counterparties, especially if the logic of this step persuaded other countries to adopt a similar course of action.

A debt moratorium would dampen some channels of financial instability and provide greater security for most participants in the economy.  By itself, however, it would not address the gaping hole in the real economy caused by shutting down whole sectors of goods and services production.  That requires other forms of stimulus.

9 comments: said...

I know some local landlords here (boo! hiss!) whose only (or main) source of income is the rentals from their properties (a couple of these specialize in renting to students, shame on them). Do we do anything to help out those people when they stop receiving those rents? Do we help out the banks who start to hurt when these people stop making their mortgage payments?

This may seem facetious, but indeed this income and payments crisis is affecting the entire economy. Helping out one part of the economy can hurt other parts. said...

BTW, one of these landlords is one of my closest friends, whom I wanted to have lunch with this week before everything closes, which is happening, but he could not do it as he has a cough. Now up to three cases here in Harrisonburg, one of them a JMU student who was recently abroad.

Peter Dorman said...

You're quite right, Barkley. If we had a rental moratorium it would have to be handled the way other forms of income loss are. A landlord in this situation is essentially self-employed and should be included in whatever relief is offered to that population. If the landlord is a commercial operation it's like any other business that is experiencing a temporary cessation of revenues.

Anonymous said...

If we had a rental moratorium it would have to be handled the way other forms of income loss are....

-- Peter Dorman

[ Right and important. ]

Anonymous said...

Regional governors have varied approaches, but in much of China rents and mortgages have been waived as have property taxes.

Anonymous said...

A question that might be addressed, since I never expect compassionate, intelligent resolute leadership from President Trump and since there are examples of working policy to be drawn from internationally, why is there no Democratic voice offering comfort and plans? Can Joe Biden be such a voice? I hope so since I support him, but I am disappointed. Nancy Pelosi has been a sore disappointment. Charles Schumer, no...

Where is leadership, even symbolically at this time?

Anonymous said...

This blog, by the way, is offering ideas and leadership on the fierce dilemma and that is comforting. I am much disappointed in the stark absence of leadership from prominent economists. Please then, do continue and write more because never has that been more necessary.

Write and write, you are needed.

ken melvin said...

I suspect Mitch likes landlords more he does renters; would probably give them the money.

Anonymous said...

What was needed and what we need:

March 21, 2020

UK is closed and government to pay 80% of workers' wages

Britain's Chancellor of the Exchequer Rishi Sunak (L) and Britain's Prime Minister Boris Johnson (R) attend a news conference addressing the government's response to the novel coronavirus inside 10 Downing Street in London, March 17, 2020. /AFP

Prime Minister Boris Johnson effectively closed down the United Kingdom on Friday, ordering pubs, restaurants, theaters, cinemas and gyms to shut their doors in a bid to slow down the accelerating spread of the coronavirus.

Johnson told reporters on Downing Street all leisure centers were being asked to close on Friday night and to stay shut indefinitely. For cafes, bars and restaurants,they can continue to provide takeout services.

"I do accept that what we're doing is extraordinary: We're taking away the ancient, inalienable right of free-born people of the United Kingdom to go to the pub, and I can understand how people feel about that," Johnson said.

"It's a huge wrench to do that, everybody understands that," he said. "It's heartbreaking to think of the businesses that will face difficulties as a result of the measures this country has had to take."

To cushion the economic impact, finance chancellor Rishi Sunak promised the state would pay grants covering up to 80 percent of workers' salary if companies kept them on their payroll, rather than lay them off as the economy crashes.

The extraordinary payments will be worth up to a maximum of 2,500 pounds per month, just above the median income.

"I know that people are worried about losing their jobs, about not being able to pay the rent or mortgage, about not having enough set by for food and bills... to all those at home right now, anxious about the days ahead, I say this: you will not face this alone," Sunak said.

Wages, which relates to gross pay, will be backdated to the start of March and last for three months, but Sunak said he would extend the scheme for longer "if necessary."

Since the outbreak of the coronavirus, the UK government has faced huge pressure to contain the virus, avoid economic collapse and prevent mass unemployment. The wage package will ease the burden on many small businesses in the UK, rolling back criticisms caused by the "lockdown."

Other measures to help the self-employed and others who may be affected include:

* Interest free cash grants to small businesses;

* Value Added Tax(VAT) payments by companies deferred until the end of June;

* Self-assessment income tax payments for July 2020 deferred for six months;

* Nearly one billion pounds for those struggling to pay rent, through increases in housing benefit and Universal Credit....