Urgent Questions

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“Failure to comply with this order will result in a $5,000 fine and up to one year in prison…”

We woke this morning to this menacing threat. It came issuing from the loudspeaker of a prowling police cruiser.

It mandated residents to remain indoors (unless necessary)… else take the consequences described.

“We are all in this together,” the recorded message concluded — exhorting a spirit of solidarity among the homebound, a sense of shared wartime sacrifice.

Together… yet separate, isolated, desolate.

And so it has come to pass…

The land of the free has become the land of the locked down. And the home of the brave is the home of the fearful.

Viewing the slaughter in New York City, the hysteria appears warranted…

Horror in New York

The city has endured some 1,100 fatalities… and underprepared hospitals overflow with COVID-19 cases.

Nurses and doctors are falling in the line of duty, condemned by the very patients they mean to save.

Refrigerator trucks have been repurposed as makeshift morgues.

We are warned additional cities can expect parallel miseries.

The latest figures have United States infections at 206,207. They may run into the many millions eventually.

National fatalities presently exceed 4,000.

The medical men project 100,000–200,000 ultimate fatalities nationwide. And these grim figures assume a very severe and effective “social distancing.”

Deaths could run to the millions without it — again, so we are told.

Yet the questions are so many… and the answers so few.

Questions, Questions, Questions

Will the slightest exposure to the virus afflict you with a life and death battle? Or will only a heavier infestation breach your defenses?

Is the mass production of ventilators the solution? Or is it largely a waste of dear resources?

One New Orleans physician reports that 70–90% of the ventilated succumb to the illness regardless.

How can we even trust the numbers? In the absence of mass testing, how do we know the number of Americans with the virus? And how accurate are the tests?

Our agents report the possibility of substantial false readings in both directions.

But if many more Americans harbor the virus who never displayed symptoms… or only minor symptoms… it implies a drastically lower mortality rate.

Is it wise to switch off the economy for a virus that may murder under 1% of victims?

Off by a Factor of Three… or 300

Dr. John P. A. Ioannidis — professor of medicine and epidemiology at Stanford University — harbors severe doubts about the figures:

The data collected so far on how many people are infected and how the epidemic is evolving are utterly unreliable. Given the limited testing to date, some deaths and probably the vast majority of infections due to SARS-CoV-2 (COVID-19) are being missed. We don’t know if we are failing to capture infections by a factor of three or 300. Three months after the outbreak emerged, most countries, including the U.S., lack the ability to test a large number of people and no countries have reliable data on the prevalence of the virus in a representative random sample of the general population…

An error factor between three and 300 is a handsome range. All then is guesswork:

This evidence fiasco creates tremendous uncertainty about the risk of dying from COVID-19. Reported case fatality rates, like the official 3.4% rate from the World Health Organization, cause horror — and are meaningless. Patients who have been tested for SARS-CoV-2 are disproportionately those with severe symptoms and bad outcomes.

The Case of the Diamond Princess

Dr. Ioannidis cites the case of the cruise ship Diamond Princess:

Projecting the Diamond Princess mortality rate onto the age structure of the U.S. population, the death rate among people infected with COVID-19 would be 0.125%. But since this estimate is based on extremely thin data — there were just seven deaths among the 700 infected passengers and crew — the real death rate could stretch from five times lower (0.025%) to five times higher (0.625%). It is also possible that some of the passengers who were infected might die later, and that tourists may have different frequencies of chronic diseases — a risk factor for worse outcomes with SARS-CoV-2 infection — than the general population. Adding these extra sources of uncertainty, reasonable estimates for the case fatality ratio in the general U.S. population vary from 0.05–1%.

That huge range markedly affects how severe the pandemic is and what should be done. A populationwide case fatality rate of 0.05% is lower than seasonal influenza. If that is the true rate, locking down the world with potentially tremendous social and financial consequences may be totally irrational. It’s like an elephant being attacked by a house cat. Frustrated and trying to avoid the cat, the elephant accidentally jumps off a cliff and dies…

If we assume that case fatality rate among individuals infected by SARS-CoV-2 is 0.3% in the general population — a mid-range guess from my Diamond Princess analysis — and that 1% of the U.S. population gets infected (about 3.3 million people), this would translate to about 10,000 deaths. This sounds like a huge number, but it is buried within the noise of the estimate of deaths from “influenza-like illness.” If we had not known about a new virus out there and had not checked individuals with PCR tests, the number of total deaths due to “influenza-like illness” would not seem unusual this year.

Cruel Statistics

But the doctor is a man of science, and humble. He concedes we simply lack the data to draw full conclusions at this time.

Once again, official United States fatalities presently exceed 4,000. If the foregoing analysis has accuracy, perhaps “only” another 5,500 will succumb.

Each death is a tragedy in miniature, a private holocaust. A human image of almighty God is deleted forever from Earth.

But we necessarily write of abstractions in the case before us — the human forest rather than the individual maple, oak, spruce and birch trees within.

And statistics forces a cruel calculus upon us.

10,000 deaths is not 200,000 deaths. Nor is it 100,000 deaths.

If 200,000 — and then only under harsh and extended lockdown — the closing up of the American economy may well prove warranted.

But if 10,000?

We do not know which it will be. Although at this point 10,000 appears excessively optimistic.

Is the Cure Worse Than the Disease?

Again, we do not turn away from the human misery. But a truly collapsed economy may lead to as many deaths — or possibly more — than the virus itself.

The Federal Reserve projects 47 million Americans may take to the unemployment line by June’s end.

Fortunately, the Federal Reserve is rarely accurate. But what if it is in this instance?

Many industries may never recover from the present cataclysm. And those who labored within them may be permanently turned out.

Millions would be unable to take up employment in new lines.

The nation could be swamped by deaths of despair — by suicides… by the bottle… by drug and opioid abuse.

The coronavirus death count would not include these unseen legions. Yet they would be indirect casualties of the pestilence. And equally dead.

How Much More Can the Economy Take?

Here is a question, raised in the authentic spirit of curiosity:

Might we isolate the most vulnerable among us while the young and strong return to the factory floors, to the eating and drinking houses, to the theaters, to the stores?

Many would doubtless contract the malady. But their symptoms would most likely be mild to moderate. And they would acquire immunity.

The economy could then gutter along at a depressed but functioning level.

But if the present bans run through June — or longer — can it get back up?

Again, we do not pretend to know the solutions. We merely hazard a crude cost-benefit analysis.

Either “Appropriate” or the “Worst Man-made Catastrophe” in History”

We hope today’s extreme privations are warranted. For if not warranted, a mass hysteria is wrecking the economy and the futures of millions.

As a colleague of our co-founder Addison Wiggin writes, perhaps overegging the pudding slightly:

“This is either an appropriate-level response or it’s the worst man-made catastrophe in the history of man.”

Which is it?

Please, give us your take: feedback@dailyreckoning.com

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Urgent Questions appeared first on Daily Reckoning.

A billionaire miner is using China ties to source virus supplies

Australian billionaire Andrew Forrest has spent more than a decade feeding China’s steel-making boom – now he’s leveraging his ties there to source medical supplies for the battle against the coronavirus Down Under. Forrest’s Minderoo Foundation has pledged A$160-million to source equipment from China, including 33 ventilators, more than one-million face masks and hundreds of thousands of gloves, nasal swabs and coveralls. A first aircraft loaded with the products is scheduled to leave Shanghai on Wednesday bound for Perth and the logistics effort is being supported by Fortescue Metals Group, the iron-ore supplier founded by Forrest in 2003, which wins more than 90% of revenue from China and shipped its first cargo in 2008.

Peter Boockvar Insights – Mon 30 Mar, 2020

Optimism with a big dose of realism

This is a post from Peter Boockvar’s site – The Boock Report. Peter does a great job of summarizing his thoughts on the progress of COVID-19 and how we all might start to come out of this.

Click here to visit Peter’s site – The Boock Report.

With the news flow still so difficult both on the health front and in turn for the economy, I still will try to make a point to talk about the optimistic side of where we are with this virus spread. This is not to be a Pollyanna but to be a contrarian with the mood already so dour. The news over the weekend from Abbott Labs that they can test within 15 minutes is considered a “game changer” according to Scott Gottlieb. To highlight the importance, I’ll leave it to the foreign minister of South Korea where we know they’ve been hugely successful on containing the spread. He said last week “Testing is central because that leads to early detection, it minimizes further spread and it quickly treats those found with the virus” and he cited the rampant testing as “the key behind our very low fatality rate as well.” Hopefully too we’ll get some good news in the weeks to come on the therapeutics currently being tested.

This all said, I also want to be VERY realistic about the situation we are in and for the purposes of my daily commentary, what it means for the economy and markets. While I’m hopeful that in May we will be passed the worst of the ‘curve’ and thus can begin the process of resuming our daily lives with big testing numbers a big part of this, it is obvious that until we have a vaccine and/or herd immunity and effective therapeutics, life will still be quite different. Just as we had to adjust after 9/11 in that security at the airports was beefed up, we had to go thru more metal detectors in more locations and even had to show ID to get into most places, things will change again. Restaurants will likely have less tables. Maybe for a time airlines won’t sell middle row seats and we’ll just have window and aisle. Those without the antibodies will be walking around with masks, we won’t be shaking hands, purell will be everywhere, there will be spacing on lines, ZOOM becomes the preferred choice of meeting venue, etc…

What this also means is that we won’t be seeing a V bottom economic recovery (and thus for the markets). It will be gradual as resuming life and our daily routines will be staggered in how it unfolds. There will be set backs but hopefully two steps forward. The restaurant that previously employed 20 people might only hire back 15. That easy flow of credit becomes more demanding. The household that realizes they didn’t save enough for a rainy day going into this, wants to spend less and save more. Corporate America realizes the importance of a strong balance sheet and we can say goodbye to many stock buyback plans, and there will be less hiring and capital spending until those balance sheets are restocked with cash. Going from a world awash in debt with good economic growth to one still awash in debt with much slower growth is a tough transition. That deleveraging is also why monetary policy in terms of trying to stimulate more borrowing, will be highly ineffective.

As for markets, at least for now say goodbye to an earnings multiple of 18-20 times. Say goodbye, as stated, to those debt fueled buyback plans. And with this oncoming downdraft in earnings and likely muted rebound, who knows how long it will take to see those 2019 earnings level again. And I want to repeat again that I expect higher inflation to follow due to the supply shocks that have taken place and that the demand side will come back sooner than supply. And add in all the monetary easing that we can be sure overstays its welcome. This will be a discussion I believe in the fall, an unfortunate environment of stagflation. But, at least that is an analyzable situation for portfolios that we can adjust for unlike now with the virus.

I talked a lot last week about the damage done to the mortgage market with part of that directly due to the Fed’s aggressive buying of MBS and them not realizing the huge negative side effects. Here is an article by Steve Liesman, with some quotes from my friend Barry Habib, which discusses how the industry is pleading with the Fed to dramatically slow the pace of their MBS purchases. https://www.cnbc.com/2020/03/29/mortgage-bankers-warn-fed-purchases-of-mortgages-unbalanced-market-forcing-margin-calls.html

Some March data came out of the Eurozone today. Economic confidence fell to 94.5 from 103.4 and that was actually 3 pts above the estimate though still the weakest since August 2013. While manufacturing was weak again, the main downdrafts came from services, the consumer and retail. We can only assume that this continues to weaken in the next few months until the rate of spread starts to slow. Construction softened too but is now the component with a plus sign in front of it. 

Caterpillar Foundation commits $8.5m to support Covid-19 fight

Caterpillar Foundation, the philanthropic arm of NYSE-listed Caterpillar, on Monday announced an $8.5-million commitment to support global communities, including underserved populations, who are affected by the fast-spreading coronavirus. The foundation's investment will support nonprofit organisations, which are working to help prevent, detect and respond to the pandemic, providing resources to hospitals, medical staff and patients, addressing food insecurity and enabling online STEM and coding education for youth impacted by school closures.

A Warning From the Great Depression

This post A Warning From the Great Depression appeared first on Daily Reckoning.

3.28 million.

That is the total number of unemployment claims Americans filed last week — nearly five times the prior record of 695,000, from October 1982.

“We’ve known this number was coming for a week and a half,” laments Tom Gimbel, who captains a Chicago employment agency, adding:

It doesn’t surprise me at all. When you see a city like Las Vegas get shut down, I don’t know what other options there were than seeing a number like this.

A fellow must take his comforts where he can find them these days. And precious few are on offer.

But if it is consolation you seek, here you have it: Some economists had forecast as many as 7 million claims.

Here is additional cheer, however transient: The stock market had itself another day at the races today.

Stimulus, at Last!

The Dow Jones recaptured another 1,351 points. The S&P gained 154, the Nasdaq 413.

Today’s stock market surge follows last evening’s Senate passage of a $2 trillion relief package. It is the largest ever in United States history. The vote was unanimous.

The bill includes, per CNBC:

One-time direct payments to individuals, stronger unemployment insurance, loans and grants to businesses and more health care resources for hospitals, states and municipalities. It includes requirements that insurance providers cover preventive services for COVID-19.

Qualified individuals will receive cash payments of $1,200. Couples will receive $2,400… with an additional $500 for each child.

A Lobbyist’s Dream

883 pages in length, we can only imagine the skullduggery and chicanery within, the sweet venoms the lobbyists put in.

But who has time to read all 883 pages while American life dangles by a strand? And who can say no?

The legislation next goes to the House of Representatives for the rubber stamp — which it will assuredly receive tomorrow morning when the vote is scheduled.

Then it jumps to the White House for the presidential signature. Mr. Trump has pledged to sign it “immediately.”

Treasury Secretary Mnuchin said today the checks will mail within three weeks.

But as we have questioned previously… what will they accomplish?

Say’s Law

The issue at hand is not one of demand. It is one of supply. And a shuttered-in economy produces little.

Filling an idle man’s pocket with fabricated money does not increase supply. It merely increases the bid for existing supplies.

Let us not forget Say’s law — that supply creates its own demand. “Products are paid for with products,” argued Jean-Batiste Say over two centuries ago.

One man produces bread. Another produces shoes.

The cobbler who requires bread for his dinner appears before the baker. And the baker who must clad his feet appears before the baker.

They may transact in money… but money merely throws an illusory veil across their transactions.

Ultimately the baker purchases his shoes with the bread he has baked. And the cobbler purchases his bread with the shoes he has cobbled.

Concludes Monsieur Say:

Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found that one kind of commodity has been exchanged for another.

The Government Attempts to Outlaw Say’s Law

Assume now a free economy in which supply and demand are allowed their unfettered reign. Assume an economy — that is — that does not presently exist.

You can expect supply and demand to come to terms, to come into rough equilibrium.

If there is less demand, prices will fall to meet it.

But when the government prints money with no production to match it… it attempts to outlaw Say’s law.

Consider the thought experiment of another 18th-century thinker David Hume…

Imagine a benevolent fairy slips money into all the nation’s pockets overnight. And so the money supply doubles at a stroke.

Is this nation doubly rich?

Alas, it is not. The money supply has been doubled, yes. But no additional goods have entered existence.

The new money will simply chase existing goods. We can therefore expect prices to approximately double.

The Real Source of Wealth

Explains the late economist Murray Rothbard:

What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor and capital. Multiplying coin will not whisk these resources into being. We may feel twice as rich for the moment, but clearly all we are doing is diluting the money supply. As the public rushes out to spend its newfound wealth, prices will, very roughly, double — or at least rise until the demand is satisfied, and money no longer bids against itself for the existing goods.

There you have the wisdom of classical economics. But then came the Great Depression, and out it went…

Out from under every rock slithered the cranks, chiselers, dreamers, something-for-nothing and wine-from-water men…

All promising salvation, all offering their quack medicines.

And they all found their way to Washington…

Destroying Food While People Starved

The farmers were in a bad way, they argued. These sad sacks could not fetch enough money for their produce or their livestock. And so they needed a hand up.

A program was therefore required to raise prices. The brain trust then in operation hatched a beautiful scheme. What was it?

To set fire to the crops and murder the livestock.

To be clear, they did not butcher the animals to bring to market — but precisely the opposite — to keep them off the market.

Ponder for one moment the reality of it:

While millions starved, entire crops were set ablaze. And millions of animals went into the ground… rather than growling bellies… all to raise the price of farm products.

What of the impoverished nonfarmers required to pay more for their basic sustenance? How would higher food prices benefit them? Or the overall economy? Might the money people saved on food allow them additional purchases from other industries?

The men with the grand pensees did not say… or did not care for the answers.

The same lunacy was brought to bear on other industries…

A Reign of Terror

Production above mandated levels was not permitted. Nor were prices permitted to fall beneath predetermined levels.

If a man flouted the rules… woe to him.

One man, a New Jersey tailor, was convicted and clapped into prison. What was this hellcat’s “crime”?

He pressed a suit for 35 cents. Law required the job be done for 40 cents.

Meantime, New York’s garment industry endured a mighty terror, explains 1930s journalist John Flynn:

The code-enforcement police roamed through the garment district like storm-troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing a pair of pants at night.

(We acknowledge economist Thomas DiLorenzo for the source material.)

Examples abound. Here is the central lesson:

At a time when lower prices and greater production were most needed… lower prices and greater production were violently suppressed.

This was the economic wisdom of the day. And now in this, our own time of economic crisis…

A fresh roster of cranks, chiselers, dreamers, something-for-nothing and wine-from-water men will afflict us anew.

1930s Redux

They would treat us to another New Deal — green in color — to haul us up.

Modern Monetary Theory is our salvation, they will croon.

Medicare for All will be the promised cure for the next pandemic.

All war with the ancient and iron laws of economics that time has proven valid.

Yet as in the 1930s… a fearful and desperate America may yet embrace them.

Regards

Brian Maher
Managing editor, The Daily Reckoning

The post A Warning From the Great Depression appeared first on Daily Reckoning.

The Only Way to Avoid Depression?

This post The Only Way to Avoid Depression? appeared first on Daily Reckoning.

Hope, it is said, springs eternal.

Today the stock market was up and away on hopeful wings… for it believes “fiscal stimulus” is imminent.

Nancy Pelosi gushed there was “real optimism” about a deal today. Sen. Charles Schumer conferred with Treasury Secretary Steven Mnuchin.

Said the senator:

There are still a few little differences. Neither of us think they are in any way going to get in the way of a final agreement.

At writing, no agreement has been reached.

The Dow Jones nonetheless regained 11.26% today, a full 2,093 points — its finest day since October 2008.

Both S&P and Nasdaq turned in comparable romps.

But when you want it bad, you often get it — bad.

Getting It Bad

We have no doubt the lobbyists have been busy. Crisis is when these swamp inhabitants sniff their chance.

Any legislation will be loaded to the rails with “stimulus” having nothing to do with the economic cataclysm before us.

But it will butter their parsnips.

Most in Congress who vote for the bill will never even read it… precisely as they failed to read the Patriot Act in 2001.

“Never let a good crisis go to waste,” as a certain Obama official said after the next crisis.

Coming home…

Taxpayer money will flow to the same corporations that took on record debts this past decade to conduct stock buybacks and other financial gimmickry.

Might corporations have rebuilt their balance sheets, restocked their acorns for winter, stored in reserves for lean times?

They might have, yes. Alas they did not. The lure of stock market riches tugged too strongly.

But it is laissez-faire in bountiful times — and aidez-nous when events swing against them.

But let it go for now. Consider instead this question:.

What will a deluge of fiscal stimulus accomplish… besides plunging the entire nation deeper into debt?

A Recipe for Inflation

The gears of commerce have wound to a violent and arresting halt.

The nation faces a “supply” shortage, that is — not a “demand” shortage.

It is not possible to purchase goods that do not exist.

And so massively more money will chase fewer goods. That of course writes a recipe for inflation. Potentially even hyperinflation.

Perhaps that is why gold takes impending fiscal stimulus rather differently than the stock market…

Gold went rocketing $92 today. Yes, $92.

We can recall nothing comparable.

And Goldman Sachs hollers it is time to buy this, “the currency of last resort.”

Meantime, our men inform us that acquiring physical gold is nearly impossible.

Jim Rickards warned his readers for years to purchase gold before the crisis came. It would prove impossible to find afterward, he said.

The crisis has come.

Plunging Into Depression

Morgan Stanley and Goldman Sachs estimate second-quarter United States GDP will plummet 30%. And unemployment will run to 13%.

Morgan Stanley economists:

Economic activity has come to a near standstill in March. As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater.

These crackerjacks project a third-quarter recovery springing from the looming stimulus.

But what if social distancing measures remain in place? What if supply chains snap entirely under the load?

What if the dose of economic medicine fails to end the cardiac arrest?

The prospects of depression are suddenly and vividly acute.

Debt Is Already Too High

But before the Great Depression, United States government debt ran to $17 billion. Yes, of course the economy was far smaller.

But the nation’s debt-to-GDP ratio was a mere 16%. Even in 1941 — after all the New Deal borrowing sprees — the ratio stood at a fair 44%.

But today the United States debt exceeds $23 trillion. And its debt-to-GDP ratio already exceeds 105%.

The nation simply lacks the capacity for a debt extravaganza.

The dollar itself might not survive the deluge, all confidence lost.

“The pen shrinks to write, the heart sickens to conceive” the enormity of the coming toothache.

Meantime, the Congressional Budget Office (CBO) had previously projected economic growth to limp along at an average 1.9% per annum through 2029.

Yet that guttering 1.9% did not account for recession — much less depression.

Whence cometh the growth… should the United States economy sink into depression’s black depths?

Is there a way out?

There may be. We have presented the option before…

The Least Bad Option?

You may have laughed it out of court at the time. But laugh no longer, such are the depths of the hells before us.

We refer to a debt jubilee.

That is, the mass forgiveness of debt.

Heave the ledger book into a roaring fire. Run a blue pen over the red ink. Wipe the tablet entirely (or largely) clean.

It may be the best available way up, argues economist Michael Hudson:

Massive social distancing, with its accompanying job losses, stock dives and huge bailouts to corporations, raises the threat of a depression. But it doesn’t have to be this way. History offers us another alternative in such situations: a debt jubilee. This slate-cleaning, balance-restoring step recognizes the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is simply to cancel the bad debts…

The way to restore normalcy today is a debt write-down. The debts in deepest arrears and most likely to default are student debts, medical debts, general consumer debts and purely speculative debts. They block spending on goods and services, shrinking the “real” economy. A debt write-down would be pragmatic, not merely a moral sympathy with the less affluent.

This Hudson fellow has looked into debt jubilees through history.

Why Kings Wiped out Debt

The practice began some 5,000 years distant in ancient Sumer and Babylon… where a newly enthroned king would delete the people’s debts.

Was it because the new king was a swell fellow? Or because he was an ancient Marxist?

No. He cleared the books to preserve his own head. He was alert — keenly — to social stability.

Hudson:

The word Jubilee comes from the Hebrew word for trumpet — yobel. In Mosaic Law, it was blown every 50 years to signal the Year of the Lord, in which personal debts were to be canceled…

Until recently, historians doubted that such a debt jubilee would have been possible in practice or that such proclamations could have been enforced. But Assyriologists have found that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne. Instead of blowing a trumpet, the ruler “raised the sacred torch” to signal the amnesty.

It is now understood that these rulers were not being utopian or idealistic in forgiving debts. The alternative would have been for debtors to fall into bondage. Kingdoms would have lost their labor force, since so many would be working off debts to their creditors. Many debtors would have run away (much as Greeks emigrated en masse after their recent debt crisis) and communities would have been prone to attack from without.

A Fairly Recent Debt Jubilee

But the United States, anno Domini 2020, is not Babylon, 3,000 B.C.

Is there a more contemporary example of a debt jubilee?

Yes, says Hudson. Look to West Germany in 1948:

In fact, it could create what the Germans called an “Economic Miracle” — their own modern debt jubilee in 1948, the currency reform administered by the Allied Powers. When the Deutsche mark was introduced, replacing the Reichsmark, 90% of government and private debt was wiped out. Germany emerged as an almost debt-free economy, with low costs of production that jump-started its modern economy.

Not a Perfect Answer

Is a debt jubilee a vast swindle, a rooking of honest lenders and the absolution of the wicked?

It may well be.

“The wicked borrows and cannot pay back”… as Psalm 37:21 informs us.

Who would loan anyone money at all — knowing one day he may be left holding an empty bag?

And who would lend money to the deadbeat United States government? How would it fund its bread and circuses?

We have no answers.

In short, a debt jubilee would unquestionably produce its own migraines.

But is it worse than the alternative?

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post The Only Way to Avoid Depression? appeared first on Daily Reckoning.

Rickards: It’ll Get Worse it Before It Gets Better

This post Rickards: It’ll Get Worse it Before It Gets Better appeared first on Daily Reckoning.

We’re well into the coronavirus pandemic at this point. As of this writing, there are 360,765 reported infections and 15,491 deaths worldwide.

Over the next few days, you may be certain that those numbers will be significantly higher.

That’s how pandemics work. The cases and fatalities don’t grow in a linear fashion; they grow exponentially.

It’s widely acknowledged that this pandemic will get much worse before it gets better. There’s no doubt about that.

It didn’t take long for the coronavirus crisis to turn into an economic and financial crisis.

The Worst Collapse Since the Great Depression

The U.S. is falling into the worst economic collapse since the Great Depression in 1929. This will be worse than the dot-com collapse of 2000–01 and worse than the Great Recession and global financial crisis of 2008–09.

Don’t be surprised to see second-quarter GDP drop by 10% or more and for the unemployment rate to race past 10% on its way to 15% or higher.

The questions for economists are whether the lost output will be permanent or temporary and whether U.S. growth will return to trend or settle on a new path that is below the pre-virus trend.

Some lost expenditure may just be a timing difference. If I plan to buy a new car this month and decide not to buy it until August, that’s just a timing difference; the sale is not permanently lost.

But if I don’t go out for dinner tonight and then do go out a month from now, I’m not going to order two dinners. The skipped dinner is a permanent loss.

Unfortunately, 70% of the U.S. economy is based on consumption and the majority of that consists of services rather than goods. This suggests that much of the coronavirus impact will consist of permanent losses, not timing differences.

More important is the question of whether growth returns to trend by next year or follows a new lower trend. (Bear in mind that “trend” for the past 11 years has been 2.2% growth compared with average growth in all recoveries since 1980 of 3.2%; any decline in trend growth would be from an already low base.)

This is unknown, but the result will be as much psychological as policy driven.

The Fed’s Bazooka Is Empty

In situations like this, the standard policy response is for the Fed to cut rates, which it has certainly done.

The Fed has also launched massive amounts of quantitative easing.

In addition, they have guaranteed or offered credit facilities to banks, primary dealers, money market funds, the municipal bond market and commercial paper issuers so far.

Now the central bank has taken the unprecedented step of committing to buy as many U.S. government bonds and mortgage-backed securities as needed to keep the market functioning.

The problem is that the Fed’s programs won’t work as a form of stimulus. We’re seeing a supply shock as the economy grinds to a standstill. What’s everyone going to buy with all the money?

Still, they may have done things exactly backward.

Mohamed El-Erian, chief economic adviser at Allianz, says that the Fed should have focused on payment system problems and liquidity first but should not have cut rates.

Interest rates were already quite low. Once the Fed goes to zero as they did, they are incapable of cutting rates further (leaving aside negative rates, which also don’t provide stimulus).

El-Erian argues the Fed should have saved their rate cuts in case they are needed more acutely in the weeks ahead. Too late now. The interest rate bullets were fired. Now the Fed’s bazooka is empty at the worst possible time.

No Stimulus Bill

Meanwhile, Congress is working to pass a “stimulus” bill to fight the economic effects of the coronavirus pandemic.

Negotiations stalled this morning as Democrats want to insert provisions that would give tax credits to the solar and wind industry, give more power to unions and introduce new emissions standards for the airline industry.

“Democrats won’t let us fund hospitals or save small businesses unless they get to dust off the Green New Deal,” said Senate Majority Leader Mitch McConnell.

Once again, I need to emphasize the point: The economic impact of coronavirus could be devastating.

If consumers get used to not spending and decide that increased savings and debt reduction are the best ways to prepare for another virus or natural disaster, then velocity will fall and growth will be weak no matter how much money the Fed prints or the Congress spends.

The bottom line is that these spending bills provide spending but they do not provide stimulus. That’s up to consumers. And right now consumers are hunkered down.

It may be that the last of the big spenders just left town.

Gold Roars $75

Markets were down again today, what a surprise. The Dow lost another 600 points, finishing the day at 18,591.

Meanwhile, gold was up about $75 today. Physical supply is drying up and dealers are running out.

That’s why I’ve been warning my readers for years to get their gold before the crisis hits. Once it does (and it has), you won’t be able to get any.

What about silver?

You Should Get a “Monster Box”

Silver’s dynamics are a little bit different than gold because there are some industrial applications, but there’s no question that it’s a monetary metal.

And I always recommend that people have a “monster box.” A monster box is 500 American Silver Eagles, fine pure silver that comes directly from the Mint. It comes in a green case and is sealed.

The 500 coins at retailer commission will run you about $12,000 right now, but everybody should have one.

You ought to have a monster box of silver because if the power grid goes down, which could happen for a lot of reasons, the ATMs won’t work and neither will credit cards.

But if you walk into a store with five or six silver coins, you’ll be able to get groceries for your family.

Believe me, that’ll be legal tender when the time comes, so I definitely recommend silver.

Regards,

Jim Rickards
for The Daily Reckoning

The post Rickards: It’ll Get Worse it Before It Gets Better appeared first on Daily Reckoning.

A Disease of the Mind

This post A Disease of the Mind appeared first on Daily Reckoning.

What are we afraid of? In recent weeks, I have been travelling around the globe and observing the rapid emptying of airports.

Does this mean that most people are in a panic over a new form of highly infectious flu?

It called to mind my studies long ago with the great economist and game theorist Thomas Schelling, who won the Nobel Prize in economics in 2005 mostly for his theories of “micromotives and macrobehavior.”

His book by that title showed that such phenomena as empty airports or traffic-jammed freeways or even segregated communities could reflect only the slightest changes in mindset.

Even small changes in people’s minds, oriented in the same direction, can effect massive changes in people’s collective behavior.

“Though a society can resist epidemics of physical disease,” as I paraphrase philosopher-psychologist Karl Jung in Wealth & Poverty

“It is defenseless against diseases of the mind. Against ‘psychic epidemics’ our laws and medicines and great factories and fortunes are virtually helpless.”

We’re currently facing a disease of the mind as well as a disease of the body.

Before my weekend break, my publisher interviewed me on the impact of the coronavirus.

Hey, I also have views on Tom Brady, quantum computing, President Trump, artificial intelligence, Bernie Sanders, integrated circuits, Pope Francis, 5G, Ronan Farrow, Wi-Fi 6, Kobe Bryant, the electromagnetic spectrum and Harvey Weinstein, among others.

I also have views on women that are too salacious to divulge at my age.

I share with most other commentators a lack of any relevant expertise or knowledge on the subject of the virus.

I suppose that under duress I could tell you the difference between bacteria and viruses. I am not altogether clear why a virus is harder for the immune system to combat, though I suppose it has something to do with the virus hitchhiking on other cells, using its Trojan horse strategy.

You get the picture, an ignoramus with the usual smattering of conventional knowledge — what the great Spanish philosopher José Ortega y Gasset called a “barbarian of specialization.”

I parlay my knowledge of certain particular fields into opinions on subjects on which I know little.

The barbarians are invading everywhere these days, using their confidence as actors, or microchip experts, or lawyers, or doctors of philosophy, or politicians to express confident opinions on subjects they know nothing about, such as God or CV-19.

I have a brilliant daughter who is a physician at a refugee camp in Thailand and may be in charge of its response. She believes anti-malarial drugs may be effective. I have a son who works for American Airlines and a daughter-in-law who works for JetBlue.

They can comment on the impact on the travel industry. It is understandably dire, but air travel is not going to go away.

I’ve had the flu from time to time and I’ve been to China, Italy and London.

Diamonds Form Under Pressure

What I do know something about is capitalism and markets. The barbarians today seem to believe that a crisis is abnormal in a capitalist economy and requires major government intervention to address.

This is an advantage for all of you who know that capitalism, in Nassim Taleb’s coinage, is “anti-fragile.” It gets stronger under pressure.

A crisis is a buying opportunity. It also is a learning process. Since real economic growth is learning, you can learn as you buy. Crises tend to accelerate long-term growth.

As Andy Kessler observes in The Wall Street Journal, crises like this are also inflection points.

“The current market turmoil tells me a new era is breaking, so question everything. Will cable, energy, mobile and social media ever come back? And if not, what’s next?”

Crises change economic leaders, filter out vulnerable companies, strengthen the survivors and open the way to new industries.

I’m involved with a number of biotech companies started by my young genius pal Matt Scholz.

He has many interesting views on the crisis and one of his companies may have already developed a vaccine. And so have various rivals. But the issue is how quickly vaccines can be produced in volume. I think I heard something like a year.

As an alternative, Matt points to existing anti-malarial drugs, which have been shown to mitigate the effects of the virus:

If I were running the country, I’d squeeze a big pharma and pay them to make tons of this stuff tomorrow. Then I’d start giving it to every geriatric person who can safely take it if they have been anywhere near a SARS-CoV-2-positive person as post-exposure prophylaxis!

After that, I’d start giving it to younger patients who test positive and have worsening symptoms. It’s admittedly a bit of a swing for the fences, but small-molecule drug manufacturing is scalable and cheap — health care providers and critical care infrastructure are neither. Even with a modest effect size, keeping the most vulnerable patients healthy could be life or death for the health care system itself. It would also allow younger people to get back to work without undue risk and give us a shot at preventing an economic catastrophe of epic proportions. We already know these drugs are well-tolerated; we’ve given them to healthy travelers on their way to malaria-endemic regions for decades.

It’s true that we don’t yet have proper large double-blind placebo-controlled trials proving they work for this purpose, but by the time we do, we’ll have lost many thousands of lives and billions of dollars.

That’s the problem not developing solutions but mobilizing to manufacture them in a country that the climate cranks, weather bores and chemophobes have rendered direly hostile to manufacturing and chemical companies.

Also, the problem is the health care burden on infrastructure.

Paraphrasing Anton Waldman, giving numbers to a previous judgment from contrarian John Tamny at Forbes, we’re sacrificing trillions of dollars of wealth and income in order to avoid a few billions of dollars on new hospital facilities.

Wealth is actually knowledge, which is the answer to this crisis. And knowledge can accelerate during a crisis.

Technology, for example, rapidly accelerates during wartime. You might not want to, but just look at the atomic bomb.

This crisis will provide many opportunities to invest in the future. Remember, the Chinese character for crisis supposedly consists of danger and opportunity.

Perhaps the crisis will even lead the world back to sound money…

Today, under our perpetually growing government and bloated system of finance, we couldn’t imagine any economic solution for recovering from WWII other than more money manipulation to make it worse.

In our current economic morass, we appear hapless to recover from a dip in markets at all-time highs.

Under my theory, money is time made tangible. True prices are not the nominal paper printed by central banks but the number of hours it takes to earn the money to buy something.

When the Fed cranks out more money without a commensurate increase in production, it takes more time to buy the same goods.

In my book Life After Google, I show that the gold standard was essentially created by Isaac Newton in the early 18th century when he was master of the mint in Britain and when his alchemy proved that gold was “unhackable” from inferior metals.

It still is. And a return to a gold standard would replace the phony, debt-addicted system that’s currently breaking down before our eyes.

Regards,

George Gilder
for The Daily Reckoning

The post A Disease of the Mind appeared first on Daily Reckoning.

Central banks and governments continue QE programs but that does not cure the virus or fear

Ed Moya joins me for a longer discussion today focused on what central banks and governments are doing to try to stabilize the markets and economy. The overarching issue is that no one knows how long the virus and quarantine will last which makes it impossible to build confidence in investors and the general public.

Click here to visit the OANDA website and keep up to date with what Ed is writing on a daily basis.