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Barclays CEO Jes Staley has compared the pent up demand currently in the global economy to the end of the 1918 flu pandemic and the subsequent “Roaring 20s.”

Speaking on a panel at the World Economic Forum’s virtual Davos Agenda event, Staley laid out the British lender’s expectations for a strong second half of 2021, providing the Covid-19 pandemic can be wrestled into submission by vaccines and containment measures.

The 1918 flu infected around 500 million people in four waves between February 1918 to April 1920, resulting in tens of millions of deaths. What followed was a decade characterized by economic and cultural prosperity in the U.S. and Europe.

“What that led to when it finally got arrested was the Roaring 20s, and there was just this explosion of demand coming out of that,” Staley said Tuesday.

“When we look at the balance sheet of a JPMorgan or a Barclays, there is just enormous stored up purchasing power. Consumers are decreasing their borrowing and increasing their deposits, and small corporates are doing the same thing.”

Jes Staley, chief executive of Barclays Plc.

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However, Staley did also note that both the impact of the pandemic and the stabilizing effects of fiscal and monetary policy, along with hopes of an imminent rebound, were distributed unequally across both the economy and society.

He added that the greatest risk “is not an economic one but a social one” due to people being “left behind,” nodding to widespread civil unrest in the U.S. over the past year.

Be careful what you wish for?

There are a host of parallels between current global conditions and those prior to the Roaring 20s: the end of a pandemic, the proliferation of new technologies, a transport revolution, political polarization, emerging international rivalries and a soaring stock market.

However, HSBC Senior Economic Advisor Stephen King echoed Staley’s concerns, noting that while the Roaring 20s were great for the “real-life Gatsbys” who made their fortunes, actual economic growth in the U.S. economy was distinctly ordinary.

“Many rural citizens were left behind. Meanwhile, an inexperienced Federal Reserve struggled to cope with a combination of low inflation and surging stock prices. When it all came crashing down, depression followed,” King said in a research note Wednesday.

Between 1920 and the Wall Street crash of 1929, real GDP (gross domestic product) per capita rose by 17.7% in the U.S., with only a handful of major economies performing worse, and nor was the period out of the ordinary compared to other nine-year stretches in American history. Meanwhile Western Europe and the Soviet Union saw much more substantial rebounds, having also been hit by hyperinflation and civil war, respectively.

King also highlighted that now, as then, the global economy faces substantial monetary policy conflicts, with zero or negative rates and quantitative easing encouraging a huge flow of liquidity into financial assets even as consumers during lockdowns have been prevented from spending their incomes.

“As lockdowns end and spending increases, the risk of policy error is likely to rise,” he suggested, adding that the surging stock market is likely to offer “cold comfort” to those left behind by the pandemic.

“And just as the Great Depression led many to spurn western democratic values and embrace the apparent attractions of either European-style fascism or Soviet-style Communism (conveniently ignoring Stalin’s abuses) so, today, there’s a risk that western democracies come under increasing pressure from rising inequality, their uneven management of the pandemic and the increasing amount of social media-generated ‘fake news’,” King suggested.

He noted that a post-pandemic recovery could help to justify elevated stock prices and, for now, those owning stocks seem to be emerging as the big winners of Covid-19.

“The Twenties may have roared for some and Spanish flu might have been tamed but the decade ultimately paved the way for unimaginable political, financial and, in Gatsby’s case, personal upheaval,” King said.

“By all means cheer at the resilience of the stock market and the possibility of a post-pandemic economic bounce. But also prepare yourself for the possibility that it all ends in tears.”

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