Former Bank of England Governor, Mervyn King, believes what happens next will depend on people’s behavior. The ongoing Covid-19 crisis has brought forth uncertain, volatile times. The Dow soared more than 10% – its biggest single-day gain since 1933. For a market that is falling faster than it did during the 1929 crash, it was a matter of time before a rebound. The Dow recorded its best day since 1933, rising a ridiculous 11.82% Tuesday. Still, with unlimited bad economic news expected over the coming weeks and months, it will be challenging to keep the market rising and stable.
2020 Covid-19 Market Crisis Worse than 2008
Mervyn King believes policymakers are faced with a much more difficult environment than 2008. He outlines what central bankers must do now:
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“One is, immediately, to deal with the cash flow problems that result from people’s cash takings disappearing overnight.”
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“…the second measure is to assure people that there will be compensation from the government, to compensate businesses both large and small and the self-employed.”
And that,
“It is vital that governments put that in place, in principle, as soon as possible.”
He continues,
“Otherwise, what you will find is massive layoffs, falls in spending, which will exacerbate the problem that we face now.”
Mervyn King Explains Why Central Banks Must Act
King talks about the behavior of central banks and why government support is so crucial today. Finally, King talks about the long-term impacts of the steps the Fed and other central banks are taking.
“Unless we put these measures in place now, then I think we may have a sharply reduced business sector to support the long-run growth of the economy.”
With the number of Covid-19 cases accelerating, it is hard to imagine the markets putting together any kind of sustained rally. Even with the Federal Reserve and other central banks promising to do whatever it takes, the economy is in for a bumpy road.
