A Warning From the Great Depression

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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

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The Only Way to Avoid Depression?

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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

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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.

South Africa economy silence contrasts with drastic virus steps

South Africa’s government won praise for taking swift action to contain the coronavirus outbreak. It’s said little on how it plans to protect the economy. With just 61 infections on March 15, President Cyril Ramaphosa imposed travel bans, instructed schools to close and outlawed large gatherings. He followed up with restrictions on restaurants and effectively closed bars, beating many worse-afflicted countries to the move. The central bank cut interest rates by the most in more than a decade at its scheduled policy meeting and boosted liquidity in local markets.

Stunned world grapples with ‘once-in-100-year’ coronavirus battle

Hundreds of millions of people worldwide were adjusting on Wednesday to once-in-a-generation measures to battle the coronavirus crisis that is not only killing the old and vulnerable but also threatening prolonged economic misery. The fast-spreading disease that jumped from animals to humans in China has now infected about 200,000 people and caused nearly 8,500 deaths in 164 nations, triggering emergency lockdowns and injections of cash unseen since World War Two.

IMF chief says coronavirus erases hopes for stronger growth in 2020

The global spread of the novel coronavirus has crushed hopes for stronger growth this year and will hold 2020 global output gains to their slowest pace since the 2008/9 financial crisis, International Monetary Fund (IMF) MD Kristalina Georgieva said on Wednesday. The IMF now expects 2020 world growth to be below the 2.9% rate for 2019, and revised forecasts will be issued in the coming weeks, Georgieva told a news briefing. Trade wars pushed global growth last year to the lowest rate since a 0.7% contraction in 2009.

Virus pushes the global economy closer to a contraction

Global economic growth will sink to levels not seen in over a decade as the coronavirus outbreak hammers demand and supply, challenging central banks and governments to respond to a fast-changing situation, according to the OECD. As central banks around the world try to calm a market panic, the Paris-based group also warned of possible global contraction this quarter. It cut its full-year growth to just 2.4% from 2.9%, which would be the weakest since 2009.

Coronavirus Slams Chinese Economy

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How bad is the coronavirus pandemic in China? It’s worse than the Chinese government knows and worse than the world believes.

Here are the official statistics on the coronavirus (technically COVID-19) as of today: There are 75,685 confirmed infections worldwide, with 98% of that total in China alone. Of those cases, 82.5% are in the single province of Hubei, mostly centered in the city of Wuhan, with 11 million residents.

Of the over 75,000 worldwide cases, there have been 2,236 deaths; that’s a mortality rate of roughly 2.5%. If a 2.5% mortality rate sounds low, it’s not. That’s roughly comparable to the Spanish flu pandemic of 1919–20 that killed 50 million people by some estimates.

IMG 1

Coronavirus has reached pandemic proportions in China. Over 60 million people are locked down, which means they cannot leave their homes except once every three days to buy groceries. Streets are empty, stores are closed, trains and planes are not operating. The Chinese economy is slowly grinding to a halt.

While the disease has been predominately centered in China, and Wuhan in particular, there have been significant outbreaks in Singapore (58 cases), Hong Kong (56 cases), Thailand (33 cases) and Japan (29 cases including one fatality). Approximately 218 cases have been identified among those trapped on cruise ships where all passengers are under quarantine. Fifteen cases have been identified in the United States.

These statistics barely scratch the surface of what is happening with coronavirus in China. There is good reason to believe that the actual incidence of the virus may be five–10 times the official numbers.

Tencent (a popular internet search and social media platform in China) reported on Feb. 1, 2020, that actual infections were 154,000 and deaths from the disease were 24,589. (A screenshot of the Tencent release is shown below; source: Taiwan News).

The infection figure was approximately 10 times what the official figure was on the same date.

The death toll was more than 300 times the official figure. Applying this death toll to total infections gives a fatality rate of 16%, which is over seven times the official fatality rate.

IMG 2

There is no reason for a high-profile platform such as Tencent either to fabricate data or incite panic. It is reasonable to conclude that these figures are close to actual data. The Tencent posting was suppressed by the Chinese government within minutes of what may have been an accidental release of accurate data.

The preeminent U.K. medical journal The Lancet also published an article on Jan. 31, 2020, using hard data (city populations, incidence of travel, estimated transmissibility, etc.) and a reliable SEIR model (susceptible, exposed, infected, resistant).

That article estimated total infections of 75,815 in Wuhan as of Jan. 25. That figure is 17 times the official figure of 4,400 available on Jan. 27. The multiple of the estimate by The Lancet to the official figure is roughly in line with the multiple of the Tencent release to official data five days later.

Using either The Lancet or Tencent as a baseline suggests that the official infection and death rates are grossly understated.

Anecdotal evidence is consistent with the view that official data are materially understated.

Many bodies have been picked up off the streets and sent for cremation without blood samples or autopsies. It is highly likely that these victims died from coronavirus but are not included in official counts because no tests were performed.

Authorities are running out of body bags and refrigerated trucks, so bodies are simply being wrapped in plastic sheets and hauled away in ordinary vans.

A shortage of face masks, latex gloves and testing kits has also emerged. This means that doctors and medical personnel are highly susceptible to infection. It also means that patients who complain of fever and difficulty breathing are sent away because officials have no way to test them for coronavirus.

These developments simultaneously inflate the number of infected and deflate the official count.

The story gets worse. Wuhan, the city that is ground zero for coronavirus infections, is also the location of the sole bioweapons laboratory for the Chinese military and Chinese Communist Party.

One of the scientists at the laboratory is Zhengli Shi, a virologist. Shi formerly worked at a laboratory at the University of North Carolina, where he engineered a hypervirulent bat-based coronavirus that bears a striking resemblance to the COVID-19 coronavirus, including gene sequences not found in nature.

These linkages at least suggest that the outbreak of the coronavirus in Wuhan may be linked to an accidental release of the virus from the biological weapons laboratory located there.

If this thesis is correct, the coronavirus may be difficult to contain with vaccines or drug therapies since it would have been engineered to be highly resistant to such treatments.

What impact will the coronavirus pandemic have on the Chinese economy and global supply chains, especially in the technology sector?

Right now my models are telling me that the impact of coronavirus on the Chinese economy is orders of magnitude greater than most analysts estimate. In fact, the Chinese economy, second largest in the world, may be grinding to a halt.

The following excerpt from an article by Ambrose Evans-Pritchard in The Telegraph on Feb. 12, 2020, tells the tale:

Property sales in 30 big cities released every day… have collapsed to zero and have yet to show a flicker of life.

Property is a slow-burn issue compared to ruptured manufacturing supply chains, but by March it will start to bite for developers with dollar debts on Hong Kong’s funding market. Companies deemed “stressed” (borrowing costs above 15%) have to repay $2.1 billion of offshore dollar notes next month. Standard & Poor’s says they rely on a constant flow of sales to cover past debts.

Some 25 provinces and municipalities were supposed to go back to work this week but this clashed head on with virus control measures. Companies may not reopen plants unless they can track the exact movements and medical data of each worker and comply with a 14-day quarantine period where necessary (we now learn the incubation may in fact be 24 days). Officials dare not be lenient after Xi Jinping’s latest tirade.

The Guangzhou authorities have ordered plants to remain closed until early March in large parts of the city with warnings of ferocious penalties. Apple supplier Foxconn has yet to restart its core iPhone plants in Zhengzhou and Shenzhen. Just 10% of its workers have turned up. Caixin reports that Foxconn may wait until March before restarting.

Meanwhile the near complete shutdown of Shanghai’s manufacturing hub in Songjiang belied early claims that 70% of plants were going back to work.

This article contains valuable vignettes of what is happening in China, but they barely scratch the surface. An even bigger story is the extent to which the disruption in China from coronavirus is not only slowing the Chinese economy but is also disrupting global supply chains and slowing output around the world.

IMG 3

This chart prepared by the Johns Hopkins University based on official data provided by China and other nations shows the total number of confirmed cases of coronavirus infection as of Feb. 14, 2020 (orange line). Wall Street was encouraged by a prior update that showed 44,700 confirmed cases. Then cases increased by over 15,000 in a single update. The resulting near-vertical slope of the graph blew up Wall Street wishful thinking and triggered a downdraft in stock markets worldwide. As of Feb. 15, confirmed cases had increased to 64,447. The pandemic is far from under control and spreading quickly.

Production shutdowns in China are reducing exports of high-tech inputs from South Korea, Japan and Germany. Likewise, the extreme reductions in exports from China (due to plant closures) are hurting sales by European and U.S. distributors and retail outlets.

Independent of production and sales bottlenecks, there are massive transportation bottlenecks as vessels and crews are quarantined or refuse to enter Chinese ports at all.

The tech sector may be the hardest hit of all. In addition to coronavirus disruption, the U.S. Department of Justice last week indicted China’s largest telecommunications device and network provider, Huawei, on racketeering charges.

The Pentagon also reversed a prior determination and agreed that the Commerce Department can put Huawei on an export control list, which prohibits sales of processors and other high-tech components to Huawei by U.S. firms.

These measures are certain to invite retaliation by China against U.S. firms in the tech supply chain.

This story isn’t going away anytime soon.

Regards,

Jim Rickards
for The Daily Reckoning

The post Coronavirus Slams Chinese Economy appeared first on Daily Reckoning.

Seifsa, Minerals Council react positively to SoNA commitments

The mining and metals and engineering sectors have mostly welcomed President Cyril Ramaphosa’s plans around energy and infrastructure, following his State of the Nation Address (SoNA) on Thursday night. The Minerals Council South Africa said in a statement that it was encouraged by the President’s commitment to rapidly and significantly increasing electricity generation capacity outside of State-owned power utility Eskom.