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The Wrongologist

Geopolitics, Power and Political Economy

Can the Economy Endure a Two-Month Shutdown?

The Daily Escape:

Cannon Beach, OR – 2020 photo by franks28

The short answer to the question above is no, not without outright financial support for individuals by the government. That support if it comes, is likely to be too little, too late.

But the Fed tried something. On Sunday, it announced that it slashed its federal funds rate by a full percentage point, to a target range between 0% and 0.25%. In addition, they launched a new Quantitative Easing program for another $700 billion.

Investors threw up all over the Fed’s Sunday moves, because we’re looking at a “demand shock”, the state-enforced loss of consumer sales,something that can’t be stimulated away. The S&P futures immediately plunged 5% to hit its downside limit. That made for an interesting Monday, with the Dow ending down nearly 3,000 points, or another 13%. In the past month, the market has lost nearly a third of its value.

All these efforts to provide stability actually showed the market that our leaders have no idea what they’re doing. It’s the exact opposite of inspiring confidence.

Did the Fed panic? Fed Chair Jay Powell lowered rates right after Trump said he had the authority to remove Powell. That makes it seem, true or not, like the Fed is now in Trump’s pocket. No confidence-builder there.

Looking through a wider lens, Mr. Market has decided that the Fed is pushing on a string. Rates were already so low that there was little gain from the interest rate reduction, and little else that the Fed could do. Mostly, the Fed signaled that it is very frightened about the prospect of a global recession.

In addition, the market understood that the stimulus bill working its way through the House and Senate is inadequate to the task ahead. For one thing, Pelosi’s bill promises paid sick leave, but as written it only covers about 20% of all workers.

Again through that wide-angle lens, the growing COVID-19 business lockdown strategy will have an economic impact similar to a natural disaster, like a hurricane, but played out over a longer time frame. FEMA has found that 40% of businesses close in a natural disaster. And of the businesses that reopen, only 29% survive the after the following two years.

Since our economy is 70% services, many industries facing the lockdown, like tourism, casinos, restaurants, and hotels, will soon be in meltdown mode. The Fed has no answer to a massive drop in consumer spending, only the president and Congress can solve that.

We know that 40% of Americans don’t have enough cash on hand or room on a credit card to handle a $400 emergency. Many service industry workers will be hit with either cutbacks in their hours, or outright job losses. Without financial assistance, we’ll quickly see defaults on rent or mortgages, and delinquencies on credit cards and car payments.

So the Fed creates some more money. But just like in 2008, rather than distributing it to every citizen, they’re giving it to the banks. Somehow, all that money is going to people who already have plenty, while those who need it get nada.

Why is the answer always to give more to the supposed “job creators” when we get basically nothing in return? Why not just send a check to the actual people who need it?

Finally, what will this interest rate cut do for the economy?

  • Are restaurants going to start hiring workers that can’t actually come to work just because loans are cheap?
  • Are workers not collecting a paycheck going to go out and buy a new car/TV/house because interest rates dropped a bit?
  • Are banks going to lend cheap money to airlines, restaurants, and cruise lines when we have no idea how long this will last?

Every company on the planet has simultaneously realized that it is in an existential cash-flow crisis due to COVID-19. The big and smart companies already have drawn down their unused loan facilities to ride through the slowdown.

The slower and the smaller firms are staring at an economic nuclear-winter scenario where their revenue plunges for months, and they can’t pay their staff, or make their fixed payments.

The speed and comprehensiveness of the lockdowns, and their drastic impact make what’s going to happen very clear. Our leaders are in a fog of denial. They don’t see that much of what was the traditional mode of operating our system is crumbling.

During the 2008 financial crisis, we learned that events can move too quickly for anyone to intervene and limit the damage. Our business environment’s drive for highly efficient systems, from just-in-time inventory sourcing to reducing the number of hospital beds per capita, have created fragile systems that are now being stress-tested.

We may be learning, to our collective detriment, that all of these systems along with our leaders, have failed us.

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Monday Wake Up Call – March 9, 2020

The Daily Escape:

Zion NP sunset from Watchman Overlook, UT – 2019 photo by kaushik612

Random thoughts on Monday:

Many of us have a tough time waking up on the first Monday after Daylight Savings Time kicks in. It’s more a case of “spring forward, fall flat”. Isn’t it ridiculous that a period that’s around for only 4.5 months out of 12 months is called “Standard Time“?

Who thinks that a 70-year-old (Trump) going on TV and telling a bunch of other 70-year-olds (Fox News viewers) that the Coronavirus is no big deal because it only kills old people, is a winning message?

Wrongo would like to think Trump can’t bullshit his way through an epidemic (“The tests are perfect!”). But GW Bush managed to bullshit his way through years of war in Iraq, including refusing to let us see lots of American body bags flown back to Dover AFB on TV.

The latest body bags now contain virus victims, and we’re seeing them up close and personal. Maybe that will matter to Americans who still think Trump is doing a helluva job.

You should read this article from The Atlantic on our botched test kits. South Korea has tested 200,000+ people, but The Atlantic could only confirm 1,895 tests in the US.

The region of Lombardy in Italy has enacted a forced quarantine for around 16 million residents. A doctor in Lombardy Italy reports that 9% of cases require hospital admittance. Recall that yesterday, Wrongo said that even a 5% admittance rate would overwhelm America’s ICU bed capacity.

Your virus coping strategy may be different than this one, since you follow the news:

The AP is telling us that the White House overruled the CDC, who wanted to recommend that elderly and physically fragile Americans be advised not to fly on commercial airlines because of the Coronavirus. The administration has since suggested certain people should consider not traveling, but they have stopped short of the stronger guidance sought by the CDC.

We learned that an attendee at last week’s Conservative Political Action Conference (CPAC), which Trump also attended, has tested positive for Coronavirus. Trump and Pence spoke at the gathering, which took place two weeks ago. Secretary of State Pompeo, Health and Human Services Secretary Azar, and newly-appointed White House chief of staff Mark Meadows also attended.

This is hilarious. Will they believe their own stories, or what?

Trump’s plan is simple. Offload the crisis to Pence. Run a bus over him if it goes wrong. Take credit if it goes right. There are no steps after that.

Finally, to banish the grogginess of your first “spring ahead” work day, take a moment and watch this video panorama of the Mars landscape. It was taken between Nov. 24 and Dec. 1, 2019. It’s composed of more than 1,000 images carefully assembled over the ensuing months, and contains nearly 1.8 billion pixels of Martian landscape that look surprisingly sharp and clear:

Think how far we’ve come in our ~200,000 years of Homo sapiens existence: Our ancestors were fascinated by the bright orbs above, and here we are, seeing the geographic features of another planet in mind-boggling detail from our home/office on a magical screen thingy.

We take this all for granted, but we’ve come a very long way in Wrongo’s lifetime. Mars looks so familiar, yet at the same time, so alien. It’s hard to fathom that we’re looking at another planet.

Those who read the Wrongologist in email can view the video here.

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Sunday Cartoon Blogging – January 26, 2020

A few random thoughts on Sunday:

  • Where Wrongo comes from, “take her out” means go on a date, or…something else. It has nothing to do with job termination.
  • The impeachment seems to be helping Trump so far. According to a Washington Post-ABC News poll, Trump’s approval rating has climbed to match the highest of his presidency.
    • Axios reports that Trump’s net approval numbers improved in 31 states between September and December, according to Morning Consult data.
    • They improved by at least 5 points in Iowa, Utah, Maine, Montana and New Mexico.
    • An incumbent president with a growing economy and a low unemployment rate 6-12 months before the election can be tough to beat, even presidents who are bad at their jobs.
    • America twice elected Andrew Jackson. It elected Fillmore, Pierce, and Buchanan to consecutive terms. And we also did the same with Harding and Coolidge.
  • Are you following the Coronavirus outbreak in China? The number of confirmed cases in China stands at around 1,300. The virus has also been reported in Thailand, Vietnam, Singapore, Japan, South Korea, Taiwan, Nepal, Malaysia, France, the US and Australia. The death toll in China from the Coronavirus outbreak jumped on Saturday to 41.
    • We don’t know how deadly the virus is. These outbreaks can range from low-to-highly contagious, and from low-to-highly deadly. There isn’t enough data so far to know where to place this virus on either the contagion, or the deadly axis.
    • An amazing development is the rapid and powerful response by global public health agencies. Modern transportation allows diseases to spread globally. But modern communications and effective government agencies can react as fast.
    • This could radically change the severity of epidemics. Modern communication plus modern technology makes the global response far more effective than in the past.
    • This is a bit of evidence that, in some ways, countries are working together to build a better world.
    • From Fabius Maximus:

“Extreme libertarians tell us that governments can’t do anything right, and that we should “starve the beast.” Conservatives also hate the UN. Here we see an example of strong government agencies – national and international – providing a vital service.”

On to cartoons. On Saturday, the GOP began their defense of Trump:

Some say the Senate could be doing something else:

The GOP’s impeachment strategy moves on:

Trump and Mitch both want America to eat mystery meat:

Country before Party: such a quaint idea:

Some kids can’t wait for recess:

 

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