Governments are finally getting the message that they’ll have to run exponentially bigger budget deficits to stay afloat as the coronavirus brings the world economy to a sudden halt.

Capitals from Berlin to Washington and Canberra this week are shaking off fiscal restraint and vowing to fight the virus’s economic fallout with a blitz of spending. With the tally of pledges approaching $2 trillion worldwide and rising almost daily, much of the funding shortfalls will have to be financed with public debt.

President Donald Trump endorsed checks to every U.S. household in a stimulus plan that settled at $1.2 trillion. Australia will also provide handouts, and Japan may too. Having already dropped her loyalty to a balanced budget, German Chancellor Angela Merkel even said she was willing to discuss pooling the euro-area’s borrowing capacity.

For many, the question is what took them so long as the virus’s spread from China looks set to tip the world into its first recession since 2009 and central banks are running low on ammunition.

While there aren’t many silver linings in the world economy right now, one is the fact that even with their jump in the past 24 hours, market borrowing costs across the world are near historic lows, making it easier for most governments to fund a massive stimulus response.

Also supporting the splurge is that it is likely cheaper to act now to keep households, small businesses and industries afloat than not help out and watching the looming recession spiral toward depression.

“In a wartime situation you always borrow like mad,” said Ed Yardeni, president and chief investment strategist of Yardeni Research Inc., who coined the term “bond vigilantes” in the 1980s. “The way we got through World War II, the government borrowed a lot of money and the Federal Reserve agreed to peg interest rates at extremely low levels and in effect, that is what we are seeing now.”

The market capacity to lend will not be limitless. On Tuesday as the scale of U.S. measures was announced, the yield on the 10-year Treasury surged by the most in a day since 1982.

But markets likely won’t have to supply all the additional funds, since central banks like the Federal Reserve are poised to step up their purchases of government debt.

The 10-year U.S. Treasury rate was still just 1.19% at 9:05 a.m. London time, compared with the five-year average of 2.25%. Strategists from Deutsche Bank AG noted in a report Monday that the fiscal stimulus will “lead to a permanent scar on government balance sheets that were already stretched.”

Sharp Recovery
Aside from the interest rate, another reason to borrow now is the likelihood -- based on previous shocks -- that this recession will be sharp but short, meaning government revenues will quickly recover. While Goldman Sachs Group Inc. and Morgan Stanley both declared on Tuesday that a global recession is now underway, their base cases are for a revival in the second half of the year.

Analysis by Jamie Thompson of Oxford Economics Ltd. found that over the past 200 years, short recessions have usually been followed by a strong recovery. While there are risks, he expects global growth will grind to a halt in the second quarter before rebounding to a rapid 5% pace within a year.

The bigger the cushion under a collapsing economy, the less damage to repair afterward.

Olivier Blanchard, the former IMF chief economist, said on Twitter that it’s “no time to be squeamish” about public debt, backing it up with a list of U.S. deficits during World War II that peaked at 26% of economic output in 1943.

Blanchard’s line was echoed in the U.K., where Robert Chote, head of the independent budget watchdog, said it “is no abdication of budget responsibility to be spending what you need to spend to deal with this in the best way -- in some ways it’s like a wartime situation.”

Such calls to fiscal arms would have been surprising just months ago. As of October, the International Monetary Fund estimated that the average budget deficit in advanced economies adjusted for the ebbs and flows of the business cycle had reached 4.5% of gross domestic product, the most since 2012. It calculated that average debt burdens remained above 100% in those same economies.

Now, IMF Managing Director Kristalina Georgieva is among those backing the spending spree, calling this week for a “coordinated and synchronized global fiscal stimulus” akin to that seen during the financial crisis when the Group of 20 spent almost $900 billion in today’s money on stimulus, or 2% of their GDP.

Going Big
Trump seems to be heeding the advice with his call to go big.

Having historically fretted about debt levels, Wall Street investors have turned into a different kind of vigilante -- clamoring for the government to spend more, not less.

Scott Minerd at Guggenheim said Congress would probably need to sign off on a rescue program worth $2 trillion to “salvage viable companies.” According to Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis from 2009 to 2015, the U.S. stimulus may need to be $2.5 trillion.

By contrast, China -- the original epicenter of the virus -- has avoided a debt splurge so far, preferring measured steps like accelerating infrastructure projects. The central bank has incrementally eased policy, and may lower its loan prime rate again on Friday, but there’s been a distinct lack of “shock and awe” style stimulus they rolled out after the 2008 crisis and which is credited with providing a buffer for the global economy.

One further route for fiscal stimulus to take is health spending, according to Yardeni, who says the world needs a “Manhattan Project” -- the code name for the secret U.S. program aimed at developing an atomic bomb -- only this time for spending on ventilators and stockpiles of basic care equipment like clothing and masks.

This article was provided by Bloomberg News.