The Great Myth of “Small Government”

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“At this point,” says a New York Times editorial column, “even many Republicans acknowledge that the era of small government is over.”

We have no doubt they do. But how can an era end… if it never began?

No Republican in current practice has lived one day in an era of small government.

To visit one he must first climb into a time contraption…

He must then dial the knobs past the Great Recession, past the Patriot Act and the war on terrorism, past the ballooning deficits of the 1980s, past the guns and butter of the 1960s, past the New Deal, past WWI… to perhaps 1900.

A True Era of Small Government

In 1900 total government spending came in under 3% of the gross domestic product.

Government’s reach was so short… it scarcely brushed the individual citizen.

This state of near-nirvana existed for the following 17 years. Then Mr. Wilson ordered the doughboys across the ocean… and into the trenches.

In 1917 government spending — again, as a percentage of GDP — vaulted near 20%.

But the boys were home before long. The cannons were spiked, the fleets mothballed, the swords beaten into plowshares.

America could return to its central business — business. The pendulum never swung completely back to pre-war levels. But in fairness, it did swing back. By 1929 the percentage of government spending to GDP was back under 4%.

Even in the spending-delirious Depression that followed, it never exceeded 11%.

No Turning Back

By the end of the Second World War that figure scaled 45% — the arsenal of democracy was not cheap.

The hot war ended, mercifully. But a Cold War began. And the New Deal was now riveted onto American life. There was no prying it away.

Small government was well and truly dead.

The Great Society swung by later to shovel additional soil upon its grave.

No recent era of small government therefore exists. As well talk of the recent era of Model Ts, of telegraphs — or of honest money.

Government spending as a percentage of GDP has averaged roughly 20% since 1980. That is, it has averaged WWI levels.

The figure has run higher at times. It has run lower at times. But 20% is about par.

Now mix in state and local government spending. You will find that total government spending presently nears 40% of GDP.

But even these figures may soon appear quaint…

A $4.2 Trillion Deficit This Year

GDP is currently contracting at a savage clip — as government spending is expanding at an equally savage clip.

The natural consequence is a vastly higher percentage of spending to GDP.

The Congressional Budget Office projects this year’s federal deficit will come in at $3.7 trillion… vastly eclipsing its pre-pandemic $1 trillion projection.

But Manhattan Institute senior fellow Brian Riedl estimates the true figure at $4.2 trillion:

My models estimate that the 2020 federal budget deficit — just the deficit — will top $4.2 trillion…

CBO projects that the first four coronavirus response bills will add $2.2 trillion to this year’s deficit. The remaining portion of the deficit consists of the economic and technical effects of the economic shutdown — the nonlegislative costs such as fewer workers paying taxes and more people signing up for unemployment and Medicaid benefits. This analysis assumes approximately $1 trillion in these costs (bringing the total deficit to approximately $4.2 trillion)…

A $4.2 trillion deficit would represent nearly 20% of the United States economy — a genuine enormity:

The $4.2 trillion budget deficit would represent 19% of the economy — the largest share in American history, outside the peak of World War II, and double the 2009 level during the Great Recession.

The way ahead promises little salvation, argues Mr. Riedl:

Even if the economy recovers quickly after reopening, the projected budget deficit will still approach $2.2 trillion next year and never again fall below $1.3 trillion. Combined with the mounting costs of Social Security and Medicare, the deficit will rise to $2.6 trillion by 2030 and continue growing thereafter.

Over the full decade, the coronavirus recession is projected to add nearly $8 trillion to the national debt, pushing the debt held by the public to $41 trillion within a decade, or 128% of the economy. This would exceed the national debt at the height of World War II. Although that war ended before the debt could rise further, the expanding Social Security and Medicare shortfalls will keep the current debt increasing.

The Purpose of Republicans

The old Republicans existed for one purpose: to trim both taxes and spending.

They guarded the Treasury reasonably well. And you could trust them with the nation’s purse.

But these Republicans are no more.

They stranded their posts years ago, opened the purse… and got elected.

They no longer worked to limit spending but to channel it their way, to butter their own constituencies.

They sat at the feet of Mr. Arthur Laffer, with his famous curve. Thus they discovered they could spend like Democrats — while taxing like Republicans.

They labeled the dour old fiscal religion “root-canal economics.”

Deficits do not matter was the new catechism.

Only a handful of old-style Republicans hold out today. But their own party regards them as nuisances.

They are akin to policemen raiding a brothel — and resented for much the same reason.

Yet our sympathies are somewhat with the brothel, with the sinners…

“Small Government” Is Boring

The term “small government” is as hollow as a jug. How does one even define it in the 21st century?

Perhaps small government can be likened to Supreme Court Justice Potter Stewart’s definition of pornography — you know it when you see it.

We do not see it. Do you?

Besides, it is a dreadful marketing slogan. You would not want to sell “small government” for a living.

It is duller than the dullest dishwater… and less inspiring than an Alan Greenspan lecture.

Moreover, “small government” is a defensive doctrine. It hunkers in. But no static defense can forever hold against the relentless assaults of “progress.”

Who Marches to “Small Government?”

There were two great orators of antiquity. The Roman Cicero was one, the Greek Demosthenes the other.

“What a great speech,” said the people when Cicero talked. But what did the people say when Demosthenes spoke?

“Let us march.”

Very few march for small government. They may applaud it, politely. They may nod their heads dutifully.

But few will march.

Many will — however — march for “Health Care for All!” or “Save the Planet!” or “Equality Now!”

These are cries that awaken the blood. They pluck up the adrenaline. They rally us to the colors… and inspire us to enlist.

They inspire us to march.

We may march ultimately off a cliff if present trends do not reverse. We are not confident they will.

We are hopeful — but not confident. Yet of this we are confident:

“Small government” is nowhere in America’s future…


Brian Maher
Managing editor, The Daily Reckoning

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This “Cure” for the Economy Could Kill It

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The economy remains under lockdown, although some states are beginning to relax restrictions. As with so many other aspects of American life, there’s been a red state/blue state divide.

Red states are generally more willing to reopen their economies, while harder-hit coastal blue states are generally more reluctant to open theirs.

Regardless, the economic consequences of the lockdown have been devastating, and we’ll be feeling their effects for a very long time. We’ll also be feeling the effects of the massive monetary and fiscal responses to the crisis for a long time.

There are so many government “stimulus” programs underway to deal with the New Depression it’s hard to keep track.

The Federal Reserve has at least 10 asset purchase programs going including purchases of corporate debt, Treasury debt, municipal bonds, commercial paper, mortgages and more.

Many of these are being done in a “special-purpose vehicle” using $425 billion given to the Fed by the Treasury as a kind of Fed bailout. (Of course, the Treasury money comes from the taxpayers, so you’re paying for all of this.)

Regardless of the legal structure, the Fed is on its way to printing $5 trillion of new money on top of the $5 trillion it has already printed to keep the lights turned on at the banks.

On the fiscal side, Congress has authorized $2.2 trillion of new spending on top of the baseline $1 trillion deficit for fiscal year 2020, and just authorized another $600 billion last week.

A new bill for $1.5 trillion of added spending is now being debated. Added together, that’s $5 trillion of deficit spending for this year, and possibly more next year.

Meanwhile, stimulus supporters hope that the checks Americans are getting from the government will give the economy a boost by way of increased consumer spending.

But a recent survey showed that 38% of recipients saved the money and 26% paid off debt. So the stimulus really isn’t stimulating. It’s main effect is to increase the deficit and the national debt.

But don’t worry, say the supporters of Modern Monetary Theory (MMT). We know how to stimulate the economy and who cares about the debt? It hasn’t been a problem yet and we can expand it a lot more.

Until a few months ago, MMT was a quirky idea known to very few and understood by even fewer.

It actually wasn’t modern (the idea has been around for over 100 years) and it wasn’t much of a theory because there was no way to test it in a controlled environment.

The basic idea is that the U.S. government could merge the balance sheets of the Treasury and the Federal Reserve and treat them as if they were a consolidated entity. (That’s not legally true, but never mind.)

The Treasury could spend as much money as it wanted on anything it wanted. MMT asks, if the Treasury doesn’t spend money, how are people supposed to earn any?

Ideas like hard work, innovation and entrepreneurship don’t enter the discussion. In MMT, all wealth comes from the government and the more they spend, the richer we get.

The Treasury finances this spending by issuing bonds. That’s where the Fed comes in.

If the private sector won’t buy the bonds or wants too high an interest rate, the Fed can just crank up the printing press, buy the bonds with money created from thin air, stick the bonds on its balance sheet and wait.

So the Fed can just give the Treasury an unlimited line of credit to spend as much as it wants.

When the bonds come due in 10 or 30 years, the Treasury can repeat the process and use new printed money to pay off the old printed money.

It all sounds nice in theory, but it’s an invitation to disaster.

If inflation breaks out, it will be too late to get it under control. You can’t just flip a switch. Inflation is like a tiger. Once it gets out of its cage, it’s very difficult to get it back in.

If confidence in the dollar is lost (something the Fed and Treasury can’t control), hyperinflation could wreck the economy. That could lead to social unrest, riots and looting, especially if the wealth disparities created by the Fed’s support of the stock market continue to grow.

Would there be any winners if MMT ran off the rails? There would be one big winner – gold.


Jim Rickards
for The Daily Reckoning

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This Isn’t Just Another Crash

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Like addicts who cannot control their cravings, financial analysts cannot stop themselves from seeking some analog situation in the past which will clarify the swirling chaos in their crystal balls.

So we’ve been swamped with charts overlaying recent stock market action over 1929, 1987,2000 and 2008 — though the closest analogy is actually the Oil Shock of 1973, an exogenous shock to a weakening, fragile economy.

But the reality is there is no analogous situation in the past to the present, and so all the predictions based on past performance will be misleading. The chartists and analysts claim that all markets act on the same patterns, which are reflections of human nature, and so seeking correlations of volatility and valuation that “worked” in the past will work in 2020.

Does anyone really believe the correlations of the past decade or two are high-probability predictors of the future as the entire brittle construct of fictional capital and extremes of globalization and financialization all unravel at once?

Here are a few of the many consequential differences between all previous recessions and the current situation:

1. Households have never been so dependent on debt as a substitute for stagnating wages.

2. Real earnings (adjusted for inflation) have never been so stagnant for the bottom 90% for so long.

3. Corporations have never been so dependent on debt (selling bonds or taking on loans) to fund money-losing operations (see Netflix) or stock buybacks designed to saddle the company with debt service expenses to enrich insiders.

4. The stock market has never been so dependent on what amounts to fraud — stock buybacks — to push valuations higher.

5. The economy has never been so dependent on absurdly overvalued stock valuations to prop up pension funds and the spending of the top 10% who own 85% of all stocks, i.e. “the wealth effect.”

6. The economy and the stock market have never been so dependent on central bank free money for financiers and corporations, money creation for the few at the expense of the many, what amounts to an embezzlement scheme.

7. Federal statistics have never been so gamed, rigged or distorted to support a neo-feudal agenda of claiming a level of wide-spread prosperity that is entirely fictitious.

8. Major sectors of the economy have never been such rackets, i.e. cartels and quasi-monopolies that use obscure pricing and manipulation of government mandates to maximize profits while the quality and quantity of the goods and services they produce declines.

9. The economy has never been in such thrall to sociopaths who have mastered the exploitation of the letter of the law while completely overturning the spirit of the law.

10. Households and companies have never been so dependent on “free money” gained from asset appreciation based on speculation, not an actual increase in productivity or value.

11. The ascendancy of self-interest as the one organizing directive in politics and finance has never been so complete, and the resulting moral rot never more pervasive.

12. The dependence on fictitious capital masquerading as “wealth” has never been greater.

13. The dependence on simulacra, simulations and false fronts to hide the decay of trust, credibility, transparency and accountability has never been so pervasive and complete.

14. The corrupt linkage of political power, media ownership, “national security” agencies and corporate power has never been so widely accepted as “normal” and “unavoidable.”

15. Primary institutions such as higher education, healthcare and national defense have never been so dysfunctional, ineffective, sclerotic, resistant to reform or costly.

16. The economy has never been so dependent on constant central bank manipulation of the stock and housing markets.

17. The economy has never been so fragile or brittle, and so dependent on convenient fictions to stave off a crash in asset valuations.

18. Never before in U.S. history have the most valuable corporations all been engaged in selling goods and services that actively reduce productivity and human happiness.

This is only a selection of a much longer list, but you get the idea. Basing one’s decisions on analogs from the past is entering a fool’s paradise of folly.

While the stock market euphorically front-runs the Fed and a V-shaped recovery, the reality is the crash has only just begun. To understand why, look at income and debt. Income, earned and unearned, is in free-fall, while debt — which must be serviced by income — is exploding higher.

Bailouts are not a permanent substitute for income. In the short-term, bailouts are a necessary substitute for lost income. But longer term, subsidizing income with borrowed money weakens the currency and the economy, as productivity stagnates.

As for servicing debt — the unemployed working class is getting an extra $600 a week not out of kindness but to make sure these households can continue to service their debts: auto and truck loans, student loans, credit cards, etc. Absent a federal bailout, millions of unemployed would cease making loan payments, creating a financial crisis for lenders.

Investment income is also crashing as companies slash dividends and stock market gains dry up. Oil exporters are facing a $1.2 trillion cut in annual income, and institutional property owners are facing steep declines as tenants stop paying rent and structural declines in employment will pressure rents lower in housing and commercial properties.

As the housing market implodes, capital gains from flipping houses will also collapse. As Corporate America realizes it no longer needs vast office spaces for its (reduced) workforce as millions are working from home, the demand for commercial properties will fall off a cliff, and the rental income generated by commercial property will also fall off a cliff.

Even if interest rates fall to zero, the interest paid by borrowers will not be zero. But even if borrowers get very low rates, they still have to make the monthly principal payments, which can each run into the hundreds of dollars. Lowering interest rates doesn’t reduce the principal payments or reduce the interest due to zero.

Indeed, the student loan and credit card rackets are experts at sucking borrowers dry with late fees and much higher rates than initially advertised.

Capital isn’t flowing into productive investments; it’s front-running the Federal Reserve’s free money for financiers in grossly overvalued stocks and seeking “dead money” safe havens.

The money that’s being sent to unemployed workers is borrowed, and small businesses are being offered loans, much of which will be forgiven if the funds are used to pay wages. In other words, all of these trillions of dollars being substituted for earned income are borrowed.

And with capital going to grossly overvalued Big Tech stocks and “dead money” safe havens, there are no capital flows which will support a return to commerce and productivity that will pay wages or generate investment income (unearned income).

Bulls can argue that “this time it’s different,” that debt doesn’t matter and earnings don’t matter, but where is the history to support their claim that capital flowing into overvalued stocks is going to generate earned income that can service the exploding debt load?

The crash has only just begun. Everything, including a rational, connected-to-reality, effective financial system, is on back-order and unlikely to ship any time soon.


Charles Hugh Smith
for The Daily Reckoning

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Bailouts Can’t Save This Fragile System

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It’s obvious the global economy is painfully fragile. What is less obvious is the bailouts intended to “save” the fragile economy actually increase its fragility, setting up an inevitable collapse of the entire precarious system.

Systems that are highly centralized, i.e., dependent on a handful of nodes that are each points of failure — are intrinsically fragile and prone to collapse.

Put another way, systems in which all the critical nodes are tightly bound are prone to domino-like cascades of failure as any one point of failure quickly disrupts every other critical node that is bound to it.

Ours is an economy in which capital, wealth, power and control are concentrated in a few nodes of the network we call “the economy.”

A handful of corporations own the vast majority of the media; a handful of banks control most of the lending and capital; a handful of hospital chains, pharmaceutical companies and insurers control health care; and so on.

Control of digital technologies is even more concentrated, in virtual monopolies: Google for search and YouTube for video. Facebook/Instagram and Twitter for social media. Microsoft and Apple for operating systems and services.

The vast majority of participants in the economy are tightly bound to these concentrated nodes of capital and power, and these top-down, hierarchical dependencies generate fragility.

When unexpectedly severe volatility occurs, the disruption of a few nodes brings down the entire system. Thus the disruption of the subprime mortgage subsystem — a relatively small part of the total mortgage market and a tiny slice of the global financial system — nearly brought down the entire global financial system in 2008 because it is a tightly bound system of centralized concentrations of capital, power and control.

Currently, we’re seeing the fragility of a meat production system that has concentrated ownership and production of meatpacking into a relatively few nodes on which the entire food supply chain is totally dependent.

And so what’s the status quo “fix” when this intrinsically fragile system comes apart?

Increase its fragility by bailing out the most tightly bound, dominant nodes. This is what the monopoly on creating currency, the Federal Reserve, is doing on a vast scale.

Rather than reducing the fragility of the system, the Federal Reserve is increasing the fragility, guaranteeing a collapse of not just the financial system but the currency as well.

To better understand systemic fragility, we turn to Nassim Taleb’s description of antifragile systems:

Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder and stressors and love adventure, risk and uncertainty. Yet in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes, the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance… even our own existence as a species on this planet.

And we can almost always detect antifragility (and fragility) using a simple test of asymmetry: Anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.

We have been fragilizing the economy, our health, political life, education, almost everything… by suppressing randomness and volatility. Much of our modern, structured, world has been harming us with top-down policies and contraptions… which do precisely this: an insult to the antifragility of systems. This is the tragedy of modernity: As with neurotically overprotective parents, those trying to help are often hurting us the most.

Given the unattainability of perfect robustness, we need a mechanism by which the system regenerates itself continuously by using, rather than suffering from, random events, unpredictable shocks, stressors and volatility.

Does our financial system advance via unexpected shocks, extreme volatility, unknown unknowns and ceaseless variability? You’re joking, right?

The smallest perturbation in any node brings the system to the edge of collapse. Exhibit No. 1 is last fall’s crisis in the obscure financial node known as the repo market.

This relatively modest part of the financial system almost triggered a stock market crash, so the Fed immediately printed hundreds of billions of dollars to bail out every single player in the repo market — all behind the scenes, of course, lest the extreme fragility of the entire overleveraged, speculative contraption become visible.

Making an incredibly fragile system more fragile via bailing out every node of concentrated capital, power and control guarantees the entire rotten structure will collapse.

Risk cannot be made to disappear; it can only be shifted. By bailing out the sources of systemic fragility with trillions of dollars, the Fed has shifted the risk to the entire financial system and the nation’s currency.

Simply put: The only possible output of Fed bailouts is the complete collapse of the entire financial system, including the currency the Fed is creating with such abandon.

Below, I show you why the current collapse can’t be compared to any other, and why the collapse has only begun. Read on.


for The Daily Reckoning

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“The Only Thing to Fear Is Deficit Fear Itself”

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Dr. Paul Krugman — a man of knowledge — is talking again. The Nobel laureate informs us:

“The only fiscal thing to fear is deficit fear itself.”

Do you fear the latest cyclone of deficit spending will rip a swath through the Treasury?

This year’s budget deficit will likely near $4 trillion, after all — the largest in history.

Goldman Sachs estimates a $6 trillion combined deficit over the next two years alone.

Meantime, the Committee for a Responsible Federal Budget (do not laugh!) projects publicly held debt will eclipse its post-WWII record by 2023.

Let us assume these projections alarm you. And why should they not?

But Dr. Krugman would set you down as a sort of ox… an imbecile… some poor undersoul who is deaf to the music of the spheres.

The celestial bells are audible only to those — like him — with a nuanced and penetrating grasp of economics.

And these bells chime an ode to deficits.

So What if Debt Soars to 108% of GDP?

Reports the good professor, heaven’s tunes jingling in his ears:

It’s true that we’re headed for some eye-popping numbers. Last week the Congressional Budget Office released preliminary economic and budget projections for the next two years, which were both shocking and unsurprising…

In particular, the budget office expects the COVID-19 crisis to drive the unemployment rate to 16% in a few months, which might even be on the low side.

Soaring unemployment will cause federal revenues to plunge and also lead to a surge in spending on safety-net programs like unemployment insurance, Medicaid and food stamps. Add in the large relief packages Congress has passed and the budget office projects a deficit that will temporarily rise to levels we haven’t seen since World War II, and it expects federal debt to rise to 108% from 79% of GDP, which sounds scary.

Yes, it “sounds scary.” But of course it is not scary — to those who understand:

But the government will be able to borrow that money at incredibly low interest rates. In fact, real interest rates — rates on government bonds protected against inflation — are negative. So the burden of the additional debt as measured by the rise in federal interest payments will be negligible. And no, we don’t have to worry about paying off the debt; we never will, and that’s OK.

Borrowing costs are incredibly low, it is true. But if the price of hemlock were incredibly low… should you lay in?

“The Dose Makes the Poison”

The question is not entirely fair, of course. Debt is not lethal in itself.

“The dose makes the poison,” as argued Swiss Renaissance physician Paracelsus.

You may liken debt to alcohol…

In light doses drink lightens the heart. It flushes the cheeks. It unties the tongue… like the initial glass of bubbly at a wedding.

It is a fabulous facilitator of fun and frolick.

A second glass goes immediately down the gullet. But this second glass soon becomes the fourth glass, becomes the eighth glass, becomes the 10th glass — or 13th.

The dose makes the poison.

And so with debt. In the proper doses it is a pleasant stimulant, a spirit-lifter, a social lubricant.

But when abused… debt no longer stimulates, but inhibits. It no longer lifts, but drags. It no longer lubricates, but parches.

It poisons.

A Rascal With an Unquenchable Thirst for Rum and a Running Tab

Fifty years ago, $1 of debt may have yielded an additional dollar of economic growth, real or otherwise. Perhaps even more.

That is of course because the national debt burden was vastly lighter. The gold standard enforced a general fiscal sobriety, feeble though it was in its dying days.

Until 1971 the federal government might crave a tumbler of debt. But the barkeep could demand gold in return — payable on the nail.

But then the gold window came slamming down. And Uncle Samuel could raid the shelves without fear for his gold. The entire bar was thrown open to him — on credit.

Extend a running tab to a rascal with an unquenchable thirst for rum… and here you have the results:


More Liquor, Less Joy

By now the hopeless sot has acquired such a tolerance for drink… he requires ever increasing helpings to obtain a boost.

Each dollar borrowed since 2008 has yielded under $1 of growth. It is perhaps 40 cents, by some estimates we have encountered.

More liquor, that is. But less joy.

And now this tosspot is ordering doubles and triples, sinking them faster than the barman can pour them out…

Crisis spending may add $2 trillion to this year’s deficit alone. The nation’s debt already rises above $24.8 trillion — a $5.3 trillion ballooning in only four years.

The ladies and gentlemen who run the National Debt Clock project it will read $41.7 trillion four years from today.

It is a mere projection, of course, a gazing into crystal. But we wager high it rings in nearer to $41.7 trillion than $30 trillion.

At what point will the world abandon confidence in the dollar?

The question is more easily asked than answered. But it is a question best left unanswered… if you live and die by the dollar.

“The Wicked Borroweth, and Payeth Not Again”

Yet Dr. Krugman is ruffled neither by deficits nor the national debt. Again, he writes:

The government will be able to borrow that money at incredibly low interest rates. In fact, real interest rates — rates on government bonds protected against inflation — are negative. So the burden of the additional debt as measured by the rise in federal interest payments will be negligible. And no, we don’t have to worry about paying off the debt; we never will, and that’s OK.

Is it “OK”? Reads Psalm 37:21: “The wicked borroweth, and payeth not again.”

But we will overlook Dr. Krugman’s wicked counsel. Instead we ask:

Is borrowing at extremely low rates truly a warrant to plunge deeper into debt?

It is true, again, the government can presently borrow at these rates. But this is likewise true:

The sheer accumulation of debt can wash out the lower rates. That is, interest payments on the debt increase nonetheless.

Low Interest Rates, Ballooning Debt Payments

Writing in November 2017 is Michael Kosares, founder of USAGOLD:

As interest rates have declined over the last several years, the interest paid by the federal government has increased markedly due to the rapid growth in size of the accumulated debt…

In 2008 when the national debt stood at $10 trillion, the federal government paid $336 billion in interest. For a measuring stick, the 10-year Treasury bill drew an average interest rate at the time of around 3.66%.

In 2012 when the debt crossed the $16 trillion threshold, the interest payment was almost $456 billion. The 10-year Treasury bill drew an average interest rate of 1.80%.

In 2016 with the national debt approaching the $20 trillion mark, the interest payment was $497 billion. The 10-year Treasury bill drew an average interest rate of 1.84%. It is difficult to overlook the fact that 2016’s interest payment was an all-time record at the second-lowest rate [in 46 years].

Today the 10-year Treasury note yields a vanishing 0.61%. Total debt is nonetheless $5.3 trillion higher than in 2016. And it is piling high.

What if rates increase as the bond market recoils in horror at the prospect of a $41 trillion national debt?

Interest payments could wash over the entire budget.

A Grim Forecast

Debt service is already rising faster than any other federal shell-out.

Prior to this crisis the Congressional Budget Office already projected debt service would scale $915 billion by 2028 — nearly 25% of the entire budget.

The Lord only knows the ultimate figure. But it will likely be far higher absent a drastic reversal of economic fortune.

How will the government afford to pay for anything else?

We foresee little reason to expect a change. Yet we cling to hope, as a drowning man clings to a life ring — or as a drunkard clings to his bottle.

The nation’s debt is not a crisis because “we owe it to ourselves,” argue the spenders.

But one scalawag takes them at their word. “Note to self,” he writes:

“Pay up.”


Brian Maher
Managing editor, The Daily Reckoning

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True Courage

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Under half of all working-age Americans will collect a wage next month.

This we learn from Mr. James Knightley, ING chief international economist.

A portion of them have received — or will receive — $1,200 from the United States Treasury.

But $1,200 does not extend very far. And our men inform us that only 15% of federal assistance is emptying into pockets of “everyday” Americans.

The remaining 85% charts a course for Wall Street… and large business.

Perhaps the percentages should run the other way.

The Value of Bankruptcy

A string of corporate bankruptcies would teach a lesson. A severe lesson it would teach — but a crucial lesson.

That assuming excessive debt is reckless, for example. That it pays to take the long view.

That is, stock buybacks to lift the short-term stock price may not represent the most prudent use of capital.

And that keeping a “rainy day” fund is sound business. It represents the purchase of an umbrella against the inevitable squall.

A rescue — the second in under 12 years — informs them they do not require the umbrella.

The Federal Reserve will simply hand them one when the water starts down.

Thus it powerfully discourages thrift, prudence… and forbearance.

But comes the objection:

“The present crisis is unlike 2008 when banks brought trouble upon themselves. Wall Street did not cause the pandemic. A string of bankruptcies would only punish the innocent.”

Just so. But the future is always full of rainstorms.

The Rain Will Come Eventually

The sky overhead may be bright and cloudless today. But a responsible business always keeps a weather eye upon the horizon. It knows the clouds will come across one day. It does not know if they will blow in from east, west, south or north.

But it knows it must ready for eventual rain — from whichever direction — and however distant.

Wall Street instead basked in perpetual sun for one entire decade, believing the Federal Reserve would push away the clouds forever.

Or — if the rains did come — that it would bring everyone in under cover.

Their assumptions have proven correct. And what conclusions can they draw?

That the Federal Reserve — and the United States government — will have the same umbrellas ready for the next downpour.

Why then should they purchase their own? And so the evil cycle perpetrates.

A Steep Price to Pay

The rescues may keep the stock market and the corporations going. But they come at a mighty price…

The financial system will sag and groan under even heavier loads of debt.

They nearly ensure that no meaningful recovery is in prospect. That is because the claims of the past and the present will prove too great.

Corporations must funnel future earnings off into the service of existing debt. They cannot invest in the future… because they will be paying too dearly for the past.

As a vessel overloaded with cargo cannot make much headway… neither can an economy overloaded with unproductive debt.

Might it be best to heave much of the deadweight over the side?

A rash of bankruptcies would clear out a pile of unproductive debt. It would restructure remaining debts.

The economy would then sit higher in the water. And maybe it could begin to rebuild its steam. It could go somewhere.

But that is not the option the monetary and fiscal authorities selected. And so they tossed aside a spectacular opportunity.

“Governments and Central Banks Have Missed a Great Opportunity for a Reset”

Mr. Guy Haselmann formerly directed global macro strategy at Scotiabank. Says he:

“Governments and central banks have missed a great opportunity for a reset.” More:

Financial markets play an important role in the economic growth of a country. They act as intermediary between lenders and borrowers providing for the efficient deployment of capitala critical role for businesses, employment and economic expansion. It’s supposed to be a place where supply and demand factors combine to determine equilibrium prices. Unfortunately, trouble arises when government institutions like the Federal Reserve manipulate and distort this process…

The recent bailout(s) has turned this… on its head. Those who were willing to accept higher market risk have already been rewarded for many years through higher returns. The bailout rewards the risk-seekers a second time and socializes their losses… Losses should be borne by the risk-taker and not be distributed or financed by the taxpayer. After all, it was the risk-taker’s decision to assume the risk in the first place…

And what about our preferred option of Chapter 11 bankruptcy?

Would it be better to allow bankruptcy that wipes out equity and debtholders? After all, companies often continue to function with employees keeping their jobs, and with new management operating from a stronger position. Allowing bankruptcies would help refocus investors on the true meaning of risk and encourage stronger corporate management in the future.

What is more, when the laggards go under the water, resources are then channeled into more productive lines:

New beneficial technologies would come along improving productivity that eventually wipes out the profits of the “old.” Necessity is a great motivation for innovation, so bad and insolvent companies should go under. When they do, labor and capital are redirected to more productive sources and away from “zombie companies.” Entrepreneurial innovation then operates at its fullest, making higher standards of living possible.

Alas, the authorities have chosen more of the same — only more so. No previous bailout comes within miles and miles of the rescue presently unfolding.

Thus there will be no reset. Nor can you expect a reset come the next calamity… whenever it may be.

We have already traveled too far in this direction.

True Courage

Mr. Bernanke could have allowed the system to reset nearly 12 years ago. He congratulates himself for finding the courage to act.

But he would have required far greater courage not to act. It was not in him.

Interest rates would have gone soaring. Marginal businesses dependent on low interest rates and cheap credit would have gone to the bottom.

The agony of bankruptcy would have been acute. But the agony of bankruptcy would have likely been brief.

A new, sturdier economy could have risen upon stronger anchorings. And business could have clawed its way back up.

Soaked by the recent crisis, it would have been sure to purchase the umbrella. After all, hard experience would have taught it that the Federal Reserve would not offer one.

And corporations may have stored in adequate cash reserves to see them through the present rainfall.

Instead the taxpayer must keep them dry.

Meantime, the stock market may not have boomed the past 11 years. But it likely would not have bubbled either. It could have found its own way… at its own pace.

In brief, a far saner system could have emerged from the previous crisis. But Mr. Bernanke lacked the courage to sit upon his hands.

And it is not in Mr. Powell…


Brian Maher
Managing editor, The Daily Reckoning

The post True Courage appeared first on Daily Reckoning.

War on Cash Kicking Into Overdrive

This post War on Cash Kicking Into Overdrive appeared first on Daily Reckoning.

In the depths of the 2008–09 financial crisis, Obama’s first chief of staff, Rahm Emanuel, remarked that one should never let a good crisis go to waste. You probably recall him saying that.

He was referring to the fact that crises may be temporary but hidden agendas are permanent.

The global elites and deep state actors always have a laundry list of programs and regulations they can’t wait to put into practice. They know that most of these are deeply unpopular and they could never get away with putting them into practice during ordinary times.

Yet when a crisis hits, citizens are desperate for fast action and quick solutions. The elites bring forward their rescue packages but then use these as Trojan horses to sneak their wish list inside.

The War on Cash Is Decades Old

The USA Patriot Act that passed after 9/11 is a good example. Some counterterrorist measures were needed, of course. But the Treasury had a long-standing wish list involving reporting cash transactions and limiting citizens’ ability to get cash.

They plugged that wish list into the Patriot Act and we’ve been living with the results ever since, even though 9/11 is long in the past.

Obviously, the effort to eliminate cash is hardly new. It has been going on for many years and in many forms.

The U.S. discontinued the use of large-denomination bills in the late 1960s. Until 1969, $500, $1,000, $5,000 and even $10,000 bills were issued, even though they were printed decades earlier.

Today the largest bill is a $100 bill, but it has lost 80% of its purchasing power since 1968, so it’s really just a $20 bill from those days. Europe has ended the 500-euro note and today the largest note in euros is 200 euros.

Ignore the Official Reasons

Harvard professor Ken Rogoff has a book called The Curse of Cash, which calls for the complete elimination of cash. Many Bitcoin groupies say the same thing. Central banks and the IMF are all working on new digital currencies today.

The reasons for this are said to include attacks on tax evasion, terrorism and criminal activity. There’s some truth to these claims. Cash is anonymous, so it can’t be tracked.

But the real reason is because the elimination of cash would allow elites to impose negative interest rates, account freezes and confiscation.

They can’t do that as long as you can go to your bank and withdraw your cash. That’s the key.

In other words, it’s much easier for them to control your money if they first herd you into a digital cattle pen. That’s their true objective and all the other reasons are just a smokescreen.

And now, predictably, the latest attack on cash comes courtesy of the COVID-19 pandemic.

Crisis Meets Opportunity

This crisis is even larger and scarier than the 2008 crisis, which gives elites even more opportunity to ram their agendas through without serious opposition. They don’t intend to let it go to waste.

Sure enough, government agents and tech vendors are now claiming that cash is “dangerous” because it could contain traces of the coronavirus.

While that’s not impossible, it’s highly unlikely and no more likely than getting the virus from 100 other sources including package deliveries and shopping carts.

Should we ban cardboard boxes and shopping carts too?

If you’re really concerned about getting coronavirus from cash, it’s simple to wear sanitary gloves during any transactions (I do). Then put the cash to one side. The virus cannot live more than 10 hours or so on an inorganic surface. After a while, your cash is safe.

But if you get scared into giving up cash because of COVID-19, then don’t complain when you find that your financial freedom is also gone when the world moves to 100% digital money.

Because that’s the endgame here.

How to Protect Your Wealth

The time to protect yourself is now. The best way is to keep a portion of your wealth outside of the banking system.

I strongly recommend that you own physical gold (and silver). I recommend you allocate 10% of your investable assets to gold. If you really wanted to be aggressive, maybe 20%. But no more.

Just make sure you don’t store it in a bank, because it would be subject to confiscation. That defeats the whole purpose of having this sort of protection in the first place.

One Small Positive

As bad as the COVID-19 crisis is, and it is that bad, there’s one small positive to come out of it: It’s finally snapped investors out of their complacency regarding gold.

I recommended gold at $1,100 per ounce, $1,200 per ounce, $1,300 per ounce, $1,400 per ounce, $1,500 per ounce and so on… you get the picture.

But few people cared. They just yawned. Now that gold is $1,750 per ounce (up 75% since 2015), everyone wants gold!

There’s only one problem. You may not be able to get any.

That’s also something I predicted. I said years ago that when you most want your gold, you won’t be able to get it because everyone will want it at the same time and the dealers will be back-ordered and the mints and refiners will shut down.

Now it appears that’s exactly what’s happening.

The U.S. Mint at West Point is closing. That mint produces 1-ounce American Gold Eagle coins, so this will add to the shortage of Gold Eagles. The Royal Canadian Mint also closed for coin production temporarily a few weeks ago.

Gold refiners in Switzerland are either closed or are operating on reduced hours. Gold logistics firms like Brink’s are also cutting back hours and reducing distribution of gold bullion.

You Still Have a Chance

It’s still possible to find some gold bars or coins from dealers who have inventory, but delays are long and commissions are high. The scarcity factor will only get worse as gold prices continue their rally in this third great bull market in history that began in 2015.

Gold is difficult to get now but not impossible. If you don’t have yours yet, don’t wait any longer.

If you have to pay a bit of a premium for physical gold over the officially listed gold price, don’t worry about that. It means nothing in the long run.

I see gold going to at least $10,000 an ounce ultimately, so paying a little more right now is not an issue. It’s just an indication of the skyrocketing demand for physical gold right now.

When the next panic hits, and it will hit, there won’t be any gold available at any price.


Jim Rickards
for The Daily Reckoning

The post War on Cash Kicking Into Overdrive appeared first on Daily Reckoning.

Government Won’t Solve This Crisis

This post Government Won’t Solve This Crisis appeared first on Daily Reckoning.

I’m not a medical expert. But having watched scores of experts’ YouTube videos and blog posts on the COVID-19 crisis, I feel ready to draw some important conclusions.

I believe the truth on the coronavirus will become obvious fairly soon. That is, the crisis of the epidemic will be over, and it will become merely our chronic political crisis. It will become a crisis of narrative rather than a crisis of knowledge.

The Experts Weigh in

The two experts I have found most knowledgeable and convincing are William “Matt” Briggs, who earned a PhD in statistics from Cornell and taught there, and Rockefeller University and German epidemiologist Knut Wittkowski.

These are two voices in the wilderness shouting against the prevailing wisdom.

I drew ten conclusions. Since I am neither statistician nor epidemiologist nor professor nor politician, I can oversimplify their arguments without violating any academic or professional norms. Here they are:

    1. COVID–19 is basically another respiratory virus like many others. Yes, it can be fatal to the elderly and those with serious health risks. No doubt. But fearsome death rates are largely a function of testing biased toward acute cases. The tests are flawed by false positives and false negatives. Asymptomatic spread is speculative in the absence of antibody surveys that measure immunity.
    2. All respiratory viruses end through herd immunity, whether through direct exposure or artificial vaccination.
    3. Social distancing, closed schools, and obsessive masking prolong the epidemic and ensure a second peak comparable to the first. By flattening the curve, they widen it and thus render it more menacing to more people.
    4. The more that young people get exposed, the better. They are the vessel of herd immunity. Closing schools delays the immunity and tends to expose vulnerably old and frail grandparents in the home.
    5. By delaying herd immunity and assuring secondary peaks in the fall, school closings and other lockdowns will increase the number of deaths among the population of vulnerable and old people.
    6. As Briggs writes: “The H1N1 virus responsible for many deaths is still with us. The 2020 data from the Center for Disease Control (CDC) affirms, “Nationally, influenza A(H1N1) pdm09 viruses are now the most commonly reported influenza viruses this season.”
    7. Given the ease with which coronavirus spreads, it’s reasonable to suppose variants of COVID–19, like common colds and other respiratory distresses, including deadly pneumonia, will be with us for years to come.
    8. Briggs and Wittkowski agree that most testing is unreliable because of false positives, especially in initial testing. Fewer are misclassifications of deaths due to the bug but there is a tendency to suppose that deaths with the virus are caused by it.
    9. The conclusion, says Briggs, “is that it’s nuts to implement large–scale testing on a population. It will lead to huge numbers of false positives — which will be everywhere painted as true positives — and more panic.”
    10. Although closing down the private economy may seem plausible to physicians and politicians, it is an extreme overreaction to viruses that we will always have with us and provides a dreadful precedent for future crises.

Wrong Predictions

The worst projections turned out to be woefully wrong. We were told hundreds of thousands would die even with lockdowns and radical social distancing measures.

The Italians scared everybody with their haphazard health system and one of the oldest populations on the planet.

The crammed-together New Yorkers in subways and tenements registered a brief blip of extreme cases. Intubations and ventilators turned out not to help (80% died), sowing fear and frustration among medical personnel.

But the latest figures on overall death rates from all causes show no increase at all. Deaths are lower than in 2019, 2018, 2017, and 2015, slightly higher than in 2016.

I won’t make light of anyone’s death from this or any other disease, but deaths have been far below initial projections.

It was these wild projections that prompted the panicked lockdown. But it would have been an outrage even if the assumptions were not wildly wrong.

People Need to Get Outside

Flattening the curve was always a fool’s errand that only widened the damage.

In fact, by impeding herd immunity, particularly among students and other young people, the lockdown has prolonged and exacerbated the medical problem. As Briggs concludes, “People need to get out into virus–killing sunshine and germicidal air.”

This flu like all previous viral flus will give way only to herd immunity, whether through natural propagation of an extremely infectious pathogen, or through the success of one of the hundreds of vaccine projects.

Meanwhile, we all heard from politicians about a so–called “ventilator crisis.”

Governor Andrew Cuomo got $80 million worth of the contraptions and suggested he needed $800 million worth.

“More Money Is Always the Answer”

But that’s how governments think. More money is always the answer. More of the same. But what we need is entrepreneurial thinking.

Economist Gale Pooley of BYU in Honolulu and The Discovery Institute alerts me to the development in India of a new $200 smartphone–based ventilator system that fits in the palm of your hand.

Bypassing healthcare professionals, it uses machine learning to adapt to the rhythms of breathing and to adjust air flow to the lung conditions of patients.

It replaces the $2 million manually managed machines that have been widely deployed (ineffectively) to fight acute cases of lung failure from the coronavirus. According to urgent testimony from the front, these costly ventilators may have actually been killing patients as much as saving them.

Besides, the increasing recognition of herd immunity as the key to overcoming viral epidemics represents a huge advance over closing down businesses, schools, and economies.

We can’t leave the big decisions to government. The real solutions will come from the private sector.

The Private Sector Is the Answer

Wealth is knowledge and growth is learning. Learning accelerates in crises. Creativity always comes as a surprise to us. It is the result of free enterprise, which responds more quickly in the face of urgent needs than government.

Government guarantees tend to thwart the surprises of learning and growth. For example, if the government guarantees $2 million ventilators, there is no push to develop $200 devices like the one I mentioned.

The ventilator makers get rich, but no one else really benefits. It only deters innovation rather than spurs it.

On the optimistic side, the coronavirus crisis can well emerge as a time of new learning and economic growth rather than depression and paralysis.

Nassim Taleb’s theme of “anti–fragility” means crisis does not break free economies. It strengthens them, spurring invention and inspiring entrepreneurs.

The key is to leave open as many paths of learning and entrepreneurship as possible. Shutdowns and closures only inhibit the surprises of creativity and experiment that have saved humanity over the centuries of the capitalist miracle.

It’s possible that the economy, and your investments, will ultimately be enhanced by this crisis if we let the private sector work its magic.


George Gilder
for The Daily Reckoning

The post Government Won’t Solve This Crisis appeared first on Daily Reckoning.

The Fed Is Stealing Our Future

This post The Fed Is Stealing Our Future appeared first on Daily Reckoning.

The pestilence presented the Federal Reserve two options.

The first was to wash out the sins of the past decade. The second was to sin on a vastly mightier scale.

Lance Roberts of Real Investment Advice:

    1. Allow capitalism to take root by allowing corporations to fail and restructure after spending a decade leveraging themselves to [the] hilt, buying back shares and massively increasing the wealth of their executives while compressing the wages of workers. Or…
    2. Bail out the “bad actors” once again to forestall the “clearing process” that would rebalance the economy and allow for higher levels of future organic economic growth.

The Federal Reserve selected option two. That is, it chose sin on a vastly mightier scale.

All the imbalances, all the fraud, all the dishonesty of the past decade it is multiplying — by two, by three, by four, by five.

And so it is condemning the United States economy to a lost decade of stagnation and anemia.

Cutting off the Future

The Federal Reserve is dynamiting the bridges leading from present to future. To future recovery. And future growth.

That is because massive debt drains the future… and leaves it emptied.

Plunging into debt introduces a sort of hand-to-mouth living. It diverts cash flow to the service of existing debt — often unproductive debt.

And so investment in the future goes channeling backward. It is a titanic larceny of the future.

And artificially low interest rates are the stickup gun.

The Chains of Debt

Explains Roberts:

Low to zero interest rates incentivize nonproductive debt. The massive increases in debt, and particularly corporate leverage, actually harm future growth by diverting spending to debt service…

The rise in corporate debt, which in the last decade was used primarily for nonproductive purposes such as stock buybacks and issuing dividends, has contributed to the retardation of economic growth…

The massive debt levels being added to the backs of taxpayers will only ensure lower long-term rates of economic growth.

A debt-based financial system heaves every principle of sound economics out upon its ear.

It is an economics of the hamster wheel — frantic — but stationary.

In back of it all is a vicious hostility to savings…

The Fed’s War on Savings

The Federal Reserve would heat your savings into a potato so hot you cannot hold them for an instant.

You must throw them into profitable investments… which will coax the economic engine to life.

Or you must spend them on goods and services. That will yield the same healthful effect.

This is the royal route to growth — as the theory runs.

Thus the saver is a public menace, a criminal of sorts, a rascal.

Saving is a passable evil in normal times, most economists allow.

But in dark times — as these — saving locks needed capital out of the productive economy.

The central bank must therefore suppress savings to increase spending. And investment.

But there can be no investment without savings, say the old economists… as there can be no flowers without seeds.

Saving Equals Investment

Explained the late economist Murray Rothbard:

Savings and investment are indissolubly linked. It is impossible to encourage one and discourage the other. Aside from bank credit, investments can come from no other source than savings… In order to invest resources in the future, he must first restrict his consumption and save funds. This restricting is his savings, and so saving and investment are always equivalent. The two terms may be used almost interchangeably.

The more accumulated savings in the economy… the more potential investment.

An economy built atop a sturdy foundation of savings is a rugged economy, a durable economy.

It can withstand a blow.

In the past we have cited the example of a frugal farmer to demonstrate the virtue of savings. Today we cite it again…

The Prudent Farmer

This fellow has deferred present gratification. He has conserved a portion of prior harvests… and stored in a full silo of grain.

There this grain sits, seemingly idle. But this silo contains a vast reservoir of capital…

This farmer can sell part of his surplus. With the proceeds he purchases more efficient farm equipment. And so he can increase his yield.

Meantime, his purchase gives employment to producers of farm equipment and those further along the production chain.

Or he can invest in additional land to expand his empire. The added land yields further grain production.

This in turn extends Earth’s bounty in wider and wider circles — and at lower cost.

That is, his capital stock expands and the world benefits. Only his original surplus allows it.

He also retains a prudent portion of his grain against the uncertain future.

There is next year’s crop to consider. If it fails, if the next year is lean, it does not clean him out.

He has plenty laid by. And so his prior willingness to defer immediate gratification may pay a handsome dividend.

He can then proceed to rebuild his capital from a somewhat diminished base. Without that savings base of grain… he is a man undone.

We will call this man Farmer X. Contrast him, once again, with Farmer Y…

The Wastrel Farmer

This man enjoys rather extravagant tastes for a farmer. He squanders his surplus on costly vacations, restaurants, autos, etc.

He likes to parade his wealth before his fellows.

It is true, his luxurious appetites keep local business flush. But his grain silo perpetually runs low.

That is, his capital stock runs perpetually low. That is, he has little savings. That is, he has little to invest.

He deprives the future so that he may gratify the present… and rips food from future mouths.

And should next year’s crop fail, this Farmer Y is in a dreadful way.

Assume next year’s crop does fail.

The surplus grain that could have sustained him he has dissipated. He has no reserves to see him through.

He is hurled into bankruptcy. He must sell his farm at a fire sale.

If only this wastrel had saved.

The Lesson

Multiply this example by millions and it becomes clear:

A healthy economy requires a full silo of grain — of savings, that is.

An empty silo means no investment in the future. And society has nothing stored against future crises… like an imprudent squirrel that has failed to stock acorns against winter.

Henry Hazlitt, from Economics in One Lesson:

The artificial reduction of interest rates discourages normal thrift, saving and investment. It reduces the accumulation of capital. It slows down that increase in productivity, that “economic growth” that “progressives” profess to be so eager to promote.

The Enemies of Savings

The critic of savings will concede that saving may make individual sense.

But if everybody saved, he argues, consumption would wind to a halt.

Government must therefore race in to supply the demand that individual savers will not.

It must be “the spender of last resort.”

But that which applies to the individual applies to society at large, the old economists insist.

Saving Is Actually Spending

When society saves in lean times, it is not eliminating consumption. It is merely delaying it.

The demand that is supposedly lost is not lost at all. It is simply shifted toward the future.

Thus today’s savings are therefore tomorrow’s spending, tomorrow’s consumption.

Or to return to Hazlitt:

“‘Saving,’ in short, in the modern world, is only another form of spending.”

Artificially low interest rates drain the pool of savings… and leaves society poorer.

But the Federal Reserve has made its choice. It will drown us all in debt. And all for a mess of pottage.

Thus we face a future of limited growth… slender prospects… and frustrated ambitions.

But at least Wall Street will prosper…


Brian Maher
Managing editor, The Daily Reckoning

The post The Fed Is Stealing Our Future appeared first on Daily Reckoning.

Are We Wrong About Reopening the Economy?

This post Are We Wrong About Reopening the Economy? appeared first on Daily Reckoning.

Above the initials Scott B. we are dealt with as follows:

Listen, dumb****s! I am a professional on the front lines intubating these patients and years of education to understand this, but I will attempt to relate to the lowest common denominator mentality of this society and the financial segment in particular (notoriously self-involved)… I will make this simple. Have you seen anything cause bodies to be piled into refrigerator trucks or mass graves in your lifetime?!! Quit arguing just what the fucking death rate percentage is! It’s obviously high! Shut the [expletive] up and listen to people who obviously know more than you!

Legions and legions know more about respiratory disease than your humble editor. We know very little.

And no, we have never seen the phenomenon the reader describes.

Yet many vastly credentialed medical authorities believe the fatality rate — assuming a much larger number of possible infections than officially reported — is nonetheless low.

Antibody testing in New York City indicates that 21.2% of its residents have already hosted the virus.

The high recovery rate implies a low mortality rate.

Of course the true figures are uncertain. And testing is not entirely reliable.

The Grisly Human Toll

Regardless, a low mortality rate is thin consolation for the dead who suffered damnably. Victims slowly drown in their own liquids.

It is also thin consolation for the medicos like our reader. They must attend the miserable dying.

And our heart extends to them.

Alas, it appears that many who require ventilation stand condemned.

The numbers from New York reveal that 88% of its ventilated do not survive. The virus has plunged its teeth too deeply.

Are Ventilators the Answer?

Some studies — we of course know nothing of their validity — suggest ventilation may work more harm than good.

The pressure settings may exceed tolerances. Reports one physician:

It’s like using a Ferrari to go to the shop next door you press on the accelerator and you smash the window.

Yet since we are the very soul of fairness… some physicians claim ventilation is crucial under certain conditions.

But it requires a deep and subtle knowledge of the business. Not all physicians are equal to it. Says one pulmonologist:

It’s not just about running out of ventilators, it’s running out of expertise… We intensivists don’t ventilate by protocol. We may choose initial settings, but we adjust those settings. It’s complicated.

No doubt it is.

Meantime, the United States economy continues to wallow in mandated purgatory…

565 Lost Jobs for Every Fatality

The economy has shed 565 jobs for each confirmed COVID-19 fatality.

Thousands and thousands of businesses remain shuttered, dark, lifeless. Many will never get up.

How much longer can this economy exist in the present state… before the social fabric unravels?

Protestors have already taken to the streets. And we are warned of looming food shortages.

A dormant economy cannot be awakened at a stroke. It comes to gradually. It must rub the sand from its eyes. It must stretch its muscles. It must find its legs again.

And this economy will waken to a far different America than it knew before the coma…

The Mass Psychology Has Swung

COVID-19 will be with us for a good stretch.

Absent a proven virus killer, Americans will not likely swarm the restaurants, the pubs, the cinemas, the ballparks, the theme parks, the airports, the hotels.

That is, the mass psychology has swung. And it will not swing easily back.

Some of the mentioned industries peg along on thin profit margins even in flush times. How will they endure the depressed times to come?

Old Daily Reckoning contributor Simon Black examines the Black Plague of 1349 for parallels….

An Ominous Historical Example

Simon says:

When people sensed the worst was over, they slowly came out of their homes.

There was no grand reopening of the economy like some department store suddenly under new management. People remained highly mistrustful of one another, continuing to avoid even the most basic interactions with friends, family and professional colleagues.

Commerce was slow and the economy remained depressed for years.

Did the economy revive at that point?

Just when it seemed that the situation was finally starting to improve, the plague struck again in 1360. And again in 1374.

Medieval Europeans quickly realized that if there was just a single rat left on the planet carrying the disease, then another wave of the pandemic could begin anew.

And that made it next to impossible for anything to return to normal…

Commercial trade dwindled. Italy’s woolen textile industry practically ceased to exist. Many prominent banks in Europe collapsed. And there were even government debt defaults.

Concludes Simon, with a deep gulp:

Right now most people are barricaded in their homes while policymakers wait for this virus to die off.

But that’s not how biology works.

Just like in the 1300s, if there’s even a single carrier of the coronavirus remaining, then the whole thing starts over.

That person transmits the virus to two–three people, those people transmit the virus to two–three other people and the exponential growth curve begins again.

Lockdowns don’t kill off the virus. They just reset the clock.

Of course we cannot pit COVID-19 against the bubonic plague. The plague carried off some 60% of Europe’s population. The current pandemic is a sneeze next to it.

Returning to normal may nonetheless prove exceedingly difficult.

Not a Matter of the Economy vs. Lives

We are accused of placing economy above life, that we have no thought above the dollar.

Yet it is untrue. The choice is false.

The matter before us is not one of dollars versus lives. It is a matter of lives versus lives.

As we have reported repeatedly:

Each 1% increase in the unemployment rate may yield perhaps 30,000 deaths of despair… and from reduced living standards.

Each day, each week, each month the economy sleeps, the steeper the toll.

That is the bitter reality before us.

And what about the non-coronavirus sick?

They may be denied adequate doctoring. That is because the medical system is hurling such immense resources against the virus.

Many may perish from otherwise treatable maladies.

Sweden May Be Nearing “Herd Immunity”

We have held up Sweden as a model. It has maintained a fairly normal economic life throughout the pandemic.

It shielded the aged and vulnerable, while keeping commerce rubbing along.

Sweden reports a marginally higher fatality rate than the United States. But the virus has spread among the young and robust. And they have withstood it.

Thus the nation may attain “herd immunity” within weeks, some claim.

The virus will die in place, unable to spread among a heavily immunized people. And its evil reign will end.

This outcome is not certain. Only time will reveal the wisdom — or its absence — of Sweden’s choice.

Volvo Reopens Its Factories

But so confident is Volvo that it reopened its Swedish auto factories this past Monday. Some 20,000 Swedes thus resumed their livelihoods… and some measure of normalcy.

To whom they will peddle their vehicles, we do not know.

How many Europeans and Americans can presently purchase a new Volvo? Or Hyundai? Or Chevrolet?

And when can they? We have no answer.

“History is a nightmare from which I am trying to wake,” wrote James Joyce.

This virus is a nightmare from which we are trying to wake…


Brian Maher
Managing editor, The Daily Reckoning

The post Are We Wrong About Reopening the Economy? appeared first on Daily Reckoning.