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How a Brexit transition end and covid19 compound

Summary:
Talking to a friend today he pointed out how the pandemic, and a potential disorderly Brexit, compound each other. The way for consumers and firms to get through a threatened interregnum in essential supplies, to ensure continuity of services and, in the case of the consumer, of life itself! is to stockpile. An unusually large surplus of spare parts, inputs, or just food, can tide you over in case the sudden imposition of trade frictions, or panic about them, causes supplies to dry up. However, stockpiling costs money. The opportunity cost is the cost of finance. Although risk free rates are low, the rates already stretched people and firms might cofront are very high, if marginal finance was available at all. So covid19 will make it much harder for them to insure

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Talking to a friend today he pointed out how the pandemic, and a potential disorderly Brexit, compound each other.

The way for consumers and firms to get through a threatened interregnum in essential supplies, to ensure continuity of services and, in the case of the consumer, of life itself! is to stockpile. An unusually large surplus of spare parts, inputs, or just food, can tide you over in case the sudden imposition of trade frictions, or panic about them, causes supplies to dry up.

However, stockpiling costs money. The opportunity cost is the cost of finance. Although risk free rates are low, the rates already stretched people and firms might cofront are very high, if marginal finance was available at all.

So covid19 will make it much harder for them to insure themselves against a no deal end of transition.

The government could address this, at least for firms, by offering new subsidized loans tailored for purpose. I doubt they will, because that would amount to admitting that they were creating a problem that needed to be insured against.

Tony Yates
Economist. Consulting, lecturing, a book. Ex Prof at Bham, Ex BoE staffer. Macro, policy, monetary econ, occasional nonsense.

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