On the news this morning a commentator was saying that in many shopping malls there is an impasse. Stores who cannot operate (in Melbourne) are refusing to pay rent. The mall owners would ordinarily evict them, but who would take their place? The commentator says that there has to be a loser in this situation, and it remains to be seen who that is.
There is a third component, debt.
Everything runs on debt. The mall will still owe debt from when it was built. I’m quite sure there are no debt-free major shopping malls anywhere.
The retailers are typically part of a chain, and that chain typically grew rapidly by taking on debt.
We are so used to debt that we do not question if we need it, if we should have it.
Imagine COVID-19 happening where the shopping mall and the retailer are both debt free. Stores closing would still be problematic, and employees would still be without work. But debt wouldn’t drive the mall or the retailer to bankruptcy.
There is a solution for crazy times like 2020. The government compels all lenders to freeze debt repayments, and not charge any interest, during the pandemic. All lenders of all types.
Lenders are the only “industry” that can put their business on hold without going bankrupt. Yes, they will have staff without work – that is a universal issue the government must also address.
But lenders, by nature, don’t have debt. And if they are somewhere in a chain of debt, then they aren’t receiving interest but they aren’t paying it either.
So here’s the radical concept. At any time, but generally reserved for recessions, the government can freeze all debts. Any debt that comes from overseas, the lenders need to accept that your country might do that one day, and maybe charge more accordingly.
And unemployed people? In a pandemic or other economic catastrophe, if we already have the UBI in place, that is sufficient for people to survive, unless they pay high rent. So the freeze would cover residential rent as well. Because the landlords do not have to pay off their mortgages during the period, they don’t need the rent.
Would it work? Probably not. This type of government intervention works if it can be proportional, whereas this is more of an all or nothing idea. You can’t have zero repayments in August, then 38% repayments in September, etc.
Also, an unknown is whether lenders accept that it works best for the economy, and therefore them, or if they charge higher rates always to cover the potential for a freeze.
COID-19 was the perfect excuse to try it and see…