Juliet Samuel:

The problem isn’t a lack of money, it’s that the public don’t know if the pandemic is over or just beginning

That charmer Rishi Sunak – he can smile his game-show smile and flap those meal deals at us all he likes, but Britain, it turns out, is not a cheap date. The Chancellor told us all to go out for dinner and spend. Then the transaction figures came out showing that spending on “Super Saturday”, the day hospitality venues reopened, was still about 50 per cent down on last year. He told us to hire staff, and offered thousands to businesses to avoid lay-offs. Hours later, fresh job cuts at John Lewis brought the total lay-off tab at major British firms to almost 70,000 and counting.

It isn’t working and it isn’t going to work because the problem isn’t a lack of government grants or tax cuts. The problem is that we still don’t know whether the pandemic is nearly over or just beginning. The only thing we know for sure is that our Government still cannot manage it. Mr Sunak is like a slicker who shows up at the economy’s hospital bed with a big fat cheque. “You’ve just won

£350 billion!” he exclaims. “Thank you, sir,” says the patient. “Can the doctor tell me now if I am going to die?”

For consumers to spend and businesses to hire, they need to know that the state can do two things. First, it needs to be able to contain the virus, using a track and trace system, regular community testing, weekly testing of carers and healthcare workers, and quarantine procedures for care homes. Second, it needs to be able to treat a lot of people in case the containment strategy fails, for which it must retain a high capacity in the health system. The political tipping point for a national lockdown is not actually the death rate, but the possibility of hospitals being overwhelmed and turning away patients or letting them die on trolleys in the corridors. Until the country feels fairly confident that this isn’t going to happen and that we won’t need a lockdown to avoid it, the economy cannot recover.

The prospect of fresh lockdowns, national or local, is crippling. Survey data recently cited by Citigroup analysts suggest that eight weeks of lockdown are enough to wipe out the cash reserves of 40 per cent of small businesses in the country. After 12 weeks, 60 per cent run out. This explains why the furlough scheme and its ilk were designed to last for a few months, not for repeated crashes, which were almost inconceivable a few months ago. Even in April, the Government was still hoping this was a six-month crisis and its rescue plans assumed that businesses faced a temporary liquidity problem.

How long does it take to turn a liquidity crunch into a spiralling chain of insolvencies? We are about to find out. The economy will remain depressed until we reach some sort of herd immunity, either from a vaccine or the natural spread of disease, each of which are probably a year away. In the meantime, not knowing whether or when the old foot traffic will return, city centre restaurants, cafés, gyms, salons, tourist attractions and so on cannot invest and must cut to survive for as long as possible. If the shift to working remotely is semi-permanent, many businesses won’t be viable even after the pandemic.

All of this means that the Treasury faces a stark choice. Either it can keep up its liquidity schemes – furlough, loans and grants – for the duration of the pandemic, in the knowledge that vast costs are mounting every month. Or it can accept huge economic damage, thousands of bankruptcies and millions of job losses. My bet is that it will do the former.

The scale of the costs so far are such that they will reshape the global economy. This sky-high public debt will be funded, one way or another, by forcing investors to buy Government bonds in order to keep interest costs in check.

This is one aspect of FDR’S “new deal” that Boris Johnson was not keen to talk about last week. To finance his spending, Roosevelt simply mandated that US Treasuries would effectively pay negative yields. The corollary to this policy was inflation.

For the moment, the world is terrified not by inflation but by the prospect of falling prices, or deflation, due to households sitting at home and not spending. Economists do not know how to reverse deflation, which can spiral into the kind of depression seen in the Thirties, so they find it especially scary. To ward this off, central banks have embarked upon an orgy of money-printing worth about four per cent of global GDP, even more than we saw in 2008.

There is a difference this time, however. The new money created in 2008 never made it into the real economy and instead became stuck on bank balance sheets or drove up asset prices, inflating the wealth of the rich while doing little to help most wage-earners.

A few years after the last crisis, most governments began to cut spending. This time, there will be no such shrinkage. Rather than letting the new cash sit in banks, the Government is effectively spending it by paying people’s wages. The “modern monetary theorists”, as they call themselves in the US, are getting their wish.

For now, consumers are hoarding cash either because they are scared of the virus or cannot find ways to spend. Around them, businesses are slashing costs and going bust. At some point, consumers will come out of their bolt-holes and begin to spend. With fewer firms around to supply their needs and many supply chains retooled away from China, the result is likely to be a steady rise in inflation. This won’t bother governments, so long as it doesn’t rise too high, because the state can forcibly pin down its own debt costs, using capital controls if necessary, and let everyone else hang. This is where fiscal and monetary policy are headed, whatever Mr Sunak says about meal deals.

Suddenly, that slick fellow by the nation’s bedside doesn’t look so friendly after all. It turns out he isn’t the doctor and he isn’t in control of much. All of his options are bad ones. All he can really do is sugar the pill with a cheerful grin and a confident delivery. It’s no wonder he doesn’t want to follow Government advice and wear a mask indoors. How would we know to smile if we couldn’t see his face?

The economy will remain depressed until we reach some sort of herd immunity, either from a vaccine or natural spreading