Take urgent cash at all costs, but please return it

This is an economic crisis and it’s right that government takes unprecedented steps to compensate employees and the self-employed from huge income hits. But how are we going to pay for these decisions? Eventually taxes will go up, but governments need to raise cash right now as tax revenues fall and spending surges. Luckily, borrowing costs are low, but what happens if financial markets are unable to absorb the huge amounts of extra borrowing?

This is a crucial question with which treasuries around the world, and the IMF, are starting to grapple. The gung-ho among you may like the answer of the economist Jordi Galí, who last week called for central banks to print money for government without it ever being paid back. Our view at the Resolution Foundation is that he is right to examine the case for monetary financing (the Bank of England creating money to directly buy government debt). But we don’t agree that the objective is for it to never be repayable – in fact, we argued last week that it’s crucial to stress that any unavoidable monetary financing would be temporary and that the central bank could sell off government bonds when things calm down. We’ve seen unprecedented steps by government to tackle this crisis, with big price tags attached. Unprecedented measures may be needed to pay for them, but we should plan for that with utmost care.

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