Money for Nothing and Your Debt for Free…

Dear Reader,

The 1918 Spanish flu affected 50% of the world’s population with devastating consequences. Depending on the source, death toll estimates go between 50 and 100 million deaths.

I’ve always been curious about the origins of the name. It’s why I recently looked it up.

As it turns out, the pandemic didn’t get the name because it started in Spain, or any other Spanish speaking country.

In fact, the first recorded case happened quite far away in Kansas, US. The disease moved swiftly in both the US and Europe.

As you may remember, back then the world was close to ending the First World War. While the disease spread quickly across the trenches, affected countries were keen on keeping the outbreak a secret. This was because they didn’t want to show any weakness or bring people’s confidence down before the war ended.

That’s why no one was reporting the spreading disease.

Well, no one except Spain, who remained neutral during the war and had no vested interest in keeping appearances. As Spain was the only one talking about it, it gave the impression the outbreak had started there.

As coronavirus or COVID-19 continues to spread around the world, there are already some drawing parallels to the Spanish flu.

What’s interesting is that the Spanish flu killed mostly 15–44 year olds, even the healthy. Remember, people were in the midst of a war where living conditions weren’t great.

This was most of the working population, and the economic consequences of the Spanish flu resulted in a labour supply shock, something that very likely brought in wage inflation.

What could be the economic consequences of the current outbreak? It’s something I’ve been spending a lot of my time on lately.

I read an interesting article by Kenneth Rogoff on Project Syndicate this week. He thinks that the next crisis could look quite different from 2001 and 2008.

As he wrote:

[U]nlike the two previous global recessions this century, the new coronavirus, COVID-19, implies a supply shock as well as a demand shock. Indeed, one has to go back to the oil-supply shocks of the mid-1970s to find one as large. Yes, fear of contagion will hit demand for airlines and global tourism, and precautionary savings will rise. But when tens of millions of people can’t go to work (either because of a lockdown or out of fear), global value chains break down, borders are blocked, and world trade shrinks because countries distrust of one another’s health statistics, the supply side suffers at least as much.[…]

But policymakers and altogether too many economic commentators fail to grasp how the supply component may make the next global recession unlike the last two. In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp declines in production and widespread bottlenecks. In that case, generalized shortages — something that some countries have not seen since the gas lines of 1970s — could ultimately push inflation up, not down.

Admittedly, the initial conditions for containing generalized inflation today are extraordinarily favorable. But, given that four decades of globalization has almost certainly been the main factor underlying low inflation, a sustained retreat behind national borders, owing to a COVID-19 pandemic (or even lasting fear of pandemic), on top of rising trade frictions, is a recipe for the return of upward price pressures. In this scenario, rising inflation could prop up interest rates and challenge both monetary and fiscal policymakers.

Coronavirus could put the brakes on globalisation

Coronavirus could put the brakes on globalisation, and hit both supply and demand.

On one side it is hitting the supply chain as factories come to a stop. But on the other side, there will be a demand slump as people stay at home, cancel travel plans and put off purchases.

I recently flew back from Spain to Melbourne and there was lots of room to stretch in both flights. Passing through Doha, in Qatar, the airport seemed quieter than usual.

The Fed also succumbed to the panic this week as they moved quickly to cut rates.

Yet this won’t do much to fix the outbreak or a supply disruption. In fact, the Fed recognised as much. As US Fed Chairman Jerome Powell said:

We do recognise a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that. But we do believe that our action will provide a meaningful boost to the economy. More specifically, it will support accommodative financial conditions and avoid a tightening of financial conditions which can weigh on activity and will help boost household and business confidence.

Markets tumbled right after…

But this outbreak is happening at a time when debt is at record highs.

At a time when our global economy isn’t working. In fact, it hasn’t worked since 2008. Developed economies aren’t seeing any growth. Instead they’ve been living off low interest rate fumes that have pushed up stock values and property prices higher.

What’s clear is that this is very likely the start of more extraordinary measures. There may be no limits to keep this going for longer.

As I wrote last week, Hong Kong’s residents are already getting free money. Several countries are already talking about a universal income.

Even a debt jubilee?

I would love to know what you think. You can contact me at or send me a tweet at @SelvaFreigedo.


Selva Freigedo
Editor, The Rum Rebellion

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Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

The Rum Rebellion