HARPER: THINKING ABOUT THE POST-COVID-19 NEW NORMAL

Harp
The almost total shutdown of the U.S. and global economies as the result of the COVID-19 pandemic is unprecedented in modern times.  The consequences for the global economy will be enormous and long-lasting whether the virus apex is reached in 60 days or six months.  Here are some thoughts on what the post-COVID-19 state of the economy will look like.

When parts of the country and eventually all of the United States come out of economic quarantine and attempt to return to "normal," the level of economic devastation, bankruptcy and household impoverishment will be beyond what people now imagine.  To maintain some level of survival, the Federal government through the Treasury Department and the Federal Reserve will have pumped in a minimum of $5-10 trillion, creating the biggest government debt crisis on record.

It has already been suggested that the Federal government will in some way take equity stakes in big companies like airlines, auto manufacturers, defense companies.  In effect, in some fashion, the United States will look a lot more like China, where 80 percent of the economy is state-owned entities (SOEs).  It will take a decade or more for the recovery to reach the point where the Federal government can begin to sell off these equity holdings.  

Can the US manage such a situation?  It will require drawing upon the private sector and entrepreneurial talents of the population to create a viable but totally new structure.

Small and medium size enterprises will suffer greatly, as many will find it impossible to reopen doors after the prolonged shutdown.  This will impact the financial sector in many previously unprecedented ways, as mortgages go unpaid for months, as foreclosures are stopped but owners have no means to pay back rent and mortgage payments.  Local and state governments that rely on tax revenue from these income streams will feel the effects deeply as well.

Talk of a $2 trillion infrastructure investment make sense as a source of jobs and needed economic revival.  The bill of materials for such endeavors will be part of the big challenge.  Where will the steel, the cement, the heavy equipment come from?  

I apologize that these are somewhat random thoughts, but I hope to start a thinking process about a completely new phenomenon that no one has ever been through before in our lifetimes. 

Will the United States resemble Germany at the immediate end of World War II?  Less physical wreckage and rubble, but no real economy standing.  What will be the psychological fallout?  Will part of the new normal be adequate inventory of medical supplies to deal with a future replay of the coronavirus?  Health care is now a primary national security concern and that was not the case just a few months ago.

This entry was posted in Uncategorized. Bookmark the permalink.

42 Responses to HARPER: THINKING ABOUT THE POST-COVID-19 NEW NORMAL

  1. Bill H says:

    “80 percent of the economy is state-owned entities”
    The bailout of General Motors would seem to make that a viable proposition on the face of it, but that might be only a superficial comparison. The equity position that the government was retired at a profit and the corporation regained health because enormous debt was written off. But the Retirement of the government’s equity position and the debt write offs were a good bit less than entirely transparent, so who knows how successful that whole thing actually was?
    In addition, such a thing would require consumer spending to restore production, and an investing base to retire the government’s equity position, and where would funds for either of those vehicles come from? Not, certainly, from a population which has been existing on government handout for an extended period.
    Not that I don’t think you’re right, but the process seems highly obscure at best. If the government starts by the “self licking ice cream cone” principle, in which consumers are buying goods with the money that they make producing those same goods, at what point does that circle start to open up?

  2. BillWade says:

    The big winners so far are Amazon and to a lesser degree Walmart (Walmart is having problems ramping up grocery pick-up orders and don’t yet deliver). If things stay the same the Global Warming/Green New Deal folks will have won, bigly. Greta told us all months ago to stop flying and driving, here we are. Had Hillary Clinton won the last election, I suspect this would be the way forward. One could envision this crisis being tailor made for her.
    Alas, we have President Trump. Something tells me he has far better intel than Fauci and Birx. He’s not going to be humiliated by them on stage, it will be the reverse. The numbers of fatalities will be far less than CDC predictions.
    So, let’s get back to work. Loss of one month’s rent/mortgage payments hurts but it’s not the end of the world.
    USG immediately invests heavily into airlines, hotels, cruise lines, restaurant/food vendors like Sysco, US Foods, auto manufacturers, and any others losing right now – double our money soon enough.
    Rapidly give small business loans to Mom&Pops that have had to shutdown but also encourage new Mom&Pops to open up new small businesses with liberal loans for them as well.
    Tax Amazon at all levels: Federal, State, and local. End their shipping subsidies. Give the Mom&Pops tax/shipping breaks that allow them to compete favorably with Amazon and Walmart.
    Make it possible for 1st time home buyers to get a loan at the lowest rates for 50 years and let them also fold any student loans into that mortgage. If it seems reasonable that they can pay it, give it to them.
    I hope others have some ideas – we need to figure where we’re headed. Thanks

  3. David Habakkuk says:

    Harper,
    One of your best posts, I think.
    It seems to me quite clear that – inevitably – Western societies are being dragged into a situation where they will have to become more ‘socialist’, whether they like it or not.
    Another historical lesson then ‘kicks in’: in general, ‘socialistic’ measures are best managed by intelligent and pragmatic ‘capitalists’: one thinks of the role of Walter Rathenau and Lord Beaverbrook in wartime production in Germany and Britain, in the two world wars.
    The last people one wants attempting to manage them are convinced ‘socialists’, like Bernie Sanders or Jeremy Corbyn.
    Equally, about the last people one wants to see attempting to manage any economy are highly abstract theoretical economists, of the Larry Summers/Ben Bernanke variety.
    A memorable paper, published in 1998 by Janine R. Wedel, who actually does serious ‘social science’, was entitled ‘The Harvard Boys Do Russia.’
    (See https://www.thenation.com/article/archive/harvard-boys-do-russia/ .)
    Perhaps someone should write a paper ‘The Harvard/Chicago/Princeton Boys Do The United States.’

  4. EEngineer says:

    As a student of finance and economics I fear that your outlook is not alarmist but actually understated. Fear is the little mind killer and it spooked the political class into an uncontrolled demolition of the world economy. Only time will tell if it was intentional or the equivalent of the proverbial “monkeys playing with razor blades”.

  5. English Outsider says:

    Time for the Trump 2016 programme? Bring industry back home, ditto the troops, ensure an adequate defence, drain the swamp.
    Tough on the globalist cronies but I wouldn’t cry for them.

  6. Ramon Z says:

    Good article. There is a lot being written about the Virus and not but not a whole lot on where we will be in a year or two. Now is, Christmas 1940, London, War doesn’t seem too bad……

  7. Ramon Z says:

    Sorry 1939.

  8. JoeC100 says:

    Harper – thanks for starting this useful “thinking process”!
    The following come immediately to mind:
    1. The quality of real Infrastructure investments (roads, tunnels, rail, hospitals?, etc.) will depend on how productive these investments are. I was quite familiar with much of the “green” project investments in the post 2008 crisis stimulus bill and a very large fraction was wasted on projects that would quite predictable be failures (battery companies, etc.) or deployed more heavily subsidized technology with no plausible unsubsidized future. And areas like home energy weatherization had high fractions of shoddy work. While any funding creates near-term jobs, productive investment has a much greater impact on the economy. Non-productive investment has been a big problem in China’s economy over the past as ten-fifteen years (“bridges to nowhere”, etc.) greatly increasing national debt without actually growing the productive economy. Unfortunately, I suspect the House will, be pushing every green “fairy tale” into a stimulus bill, so hopefully we will at least get a similar commitment to useful infrastructure investment. The best examples of productive investment I recall from the post 2008 bill were “shovel ready” rail system improvements that many states had previously identified as critical needs and developed engineering plans for, so could move quickly to implementation.
    2. We may see some beneficial business practice shifts driven by COVID. For example a local call center company, Savalinx, just announced they had hired 500 temporary workers to help answer questions, process claims and direct callers to other resources for state unemployment offices that are overwhelmed with calls from people impacted by the COVID-19 pandemic. Of further interest is that the hiring was completed within a two-week span and all new employees were able to pick up equipment and complete remote training sessions for the jobs, which will be done remotely.
    3. While my pre-COVID work has involved occasional video meetings, this has become a “several daily” activity involving many more people and topics than pre-COVID. No question in my mind that many “new” participants are learning that the quality of current video meeting services (we use Bluejeans and Zoom) is much better than they had previously believed and that we may need much less travel looking forward.
    4. Given our clear need to move some manufacturing and other supply chain activities back into the US, this should be yet another productive path – if effective mechanisms to move in this direction can be created.

  9. elaine says:

    About a week ago CNBC had a blurb stating 156 pharmaceuticals are
    impaired in the supply chain. I’ve tried to research this with no
    results.

  10. Terence Gore says:

    Something slightly more immediate. Just ordered first time through Costco for a few items. (delivery has been postponed 4 times already) Online ordering and delivery may radically change as people will be wary of being in a confined space with others. If the change accelerates there may be less need for existing stores and structures. A more of a warehouse type set up with deliveries may be more efficient. I don’t now when the restaurant service industry will open back up. It would ruin your veal cordon bleu in you heard your neighbor sniffling and coughing. Personalized catering for the more expensive meals in your home might be the future.

  11. Personanongrata says:

    HARPER: THINKING ABOUT THE POST-COVID-19 NEW NORMAL
    A second opinion.
    When a patient visits with their doctor and is given a troubling diagnosis their first move is not to blindly follow the prescribed remedy but to seek out a second opinion – which is exactly what should have been done before the US decided to destroy tens (hundreds?) of millions of lives via a near-complete economic shutdown.
    There are dozens of medical professionals with equally impeccable credentials who have called Dr. Fauci’s and Dr. Birx’s (etal) diagnosis and one size fits all prescriptions – based upon inconclusive data – to control contagion of Coronavirus off the mark.
    Italicized/bold text was excerpted from the web site informationclearinghouse a series of interviews titled:
    Perspectives on the Pandemic
    Professor Knut Wittkowski, for twenty years head of The Rockefeller University’s Department of Biostatistics, Epidemiology, and Research Design, says that social distancing and lockdown is the absolutely worst way to deal with an airborne respiratory virus.
    Further, he offers data to show that China and South Korea had already reached their peak number of cases when they instituted their containment measures. In other words, nature had already achieved, or nearly achieved, herd immunity.
    Coronavirus, a fiasco in the making? As the coronavirus pandemic takes hold, we are making decisions without reliable data.
    Dr John P.A. Ioannidis is a professor of medicine and professor of epidemiology and population health, as well as professor by courtesy of biomedical data science at Stanford University School of Medicine, professor by courtesy of statistics at Stanford University School of Humanities and Sciences, and co-director of the Meta-Research Innovation Center at Stanford (METRICS) at Stanford University.
    Questioning Conventional Wisdom in the COVID-19 Crisis, with Dr. Jay Bhattacharya
    Dr. Jay Bhattacharya is a professor of medicine at Stanford University. He is a research associate at the National Bureau of Economic Research and a senior fellow at both the Stanford Institute for Economic Policy Research and the Stanford Freeman Spogli Institute.
    Link to interviews:
    http://www.informationclearinghouse.info/55026.htm
    Italcized/bold text was excerpted from an open letter to German Chancellor Merkle which was authored by Dr. Sucharit Bhakdi, Professor Emeritus of Medical Microbiology:
    As Emeritus of the Johannes-Gutenberg-University in Mainz and longtime director of the Institute for Medical Microbiology, I feel obliged to critically question the far-reaching restrictions on public life that we are currently taking on ourselves in order to reduce the spread of the COVID-19 virus.
    It is expressly not my intention to play down the dangers of the virus or to spread a political message. However, I feel it is my duty to make a scientific contribution to putting the current data and facts into perspective – and, in addition, to ask questions that are in danger of being lost in the heated debate.
    The reason for my concern lies above all in the truly unforeseeable socio-economic consequences of the drastic containment measures which are currently being applied in large parts of Europe and which are also already being practiced on a large scale in Germany.
    Link to letter:
    https://swprs.org/open-letter-from-professor-sucharit-bhakdi-to-german-chancellor-dr-angela-merkel/
    Italicized/bold text was excerpted from a news report fount at The Times of Israel titled:
    Israeli virologist urges world leaders to calm public, slams ‘unnecessary panic’
    Prof. Jihad Bishara, the director of the Infectious Disease Unit at Petah Tikva’s Beilinson Hospital, said that some of the steps being taken in Israel and abroad were very important, but the virus is not airborne, most people who are infected will recover without even knowing they were sick, the at-risk groups are now known, and the global panic is unnecessary and exaggerated.
    “I’ve been in this business for 30 years,” Bishara said in a Channel 12 interview. “I’ve been through MERS, SARS, Ebola, the first Gulf war and the second, and I don’t recall anything like this. There’s unnecessary, exaggerated panic. We have to calm people down.
    Link to news report:
    https://www.timesofisrael.com/israeli-virologist-urges-world-leaders-to-calm-public-slams-unnecessary-panic/
    Italicized/bold text was excerpted from Tech Start Ups an interview with Dr. Shiva Ayyadurai, an MIT scientist with 4 PHD degrees and a researcher on the human immune system titled:
    Coronavirus lies and media fear mongering: MIT Biologist doubles down his attack on “Deep State and FakeScience” slamming Big Pharma, CDC, WHO, China and asking U.S. President to fire Dr. Fauci
    “The current trajectory of Dr. Anthony Fauci’s public ‘health’ policy will result in the short- and long-term destruction of our citizen’s immune health as well as our nation’s economic health – perhaps a conscious and intended goal. Dr. Fauci’s policy, at best, is based on a 1950s outdated ‘one-size-fits-all,’ non-personalized approach to medicine and public health; and, at worst is derived from a ‘fake science’ understanding of the immune system – one, which Dr. Fauci, over five decades has perpetuated, and exploited to build his career.”
    Link:
    https://techstartups.com/2020/04/05/coronavirus-lies-media-fear-mongering-mit-biologist-doubles-attack-deep-state-fakescience-slamming-big-pharma-cdc-china-asking-u-s-president-fire/
    Italicized/bold text was excerpted from a report found at The New England Journal of Medicine (co authored by Dr. Fauci) titled:
    Covid-19 — Navigating the Uncharted
    On the basis of a case definition requiring a diagnosis of pneumonia, the currently reported case fatality rate is approximately 2%.4 In another article in the Journal, Guan et al.5 report mortality of 1.4% among 1099 patients with laboratory-confirmed Covid-19; these patients had a wide spectrum of disease severity. If one assumes that the number of asymptomatic or minimally symptomatic cases is several times as high as the number of reported cases, the case fatality rate may be considerably less than 1%. This suggests that the overall clinical consequences of Covid-19 may ultimately be more akin to those of a severe seasonal influenza (which has a case fatality rate of approximately 0.1%) or a pandemic influenza (similar to those in 1957 and 1968) rather than a disease similar to SARS or MERS, which have had case fatality rates of 9 to 10% and 36%, respectively.2
    Link to report:
    https://www.nejm.org/doi/full/10.1056/NEJMe2002387
    Positing a Coronavirus vaccine will be a panacea which will allow people to get on with their lives as before the fearmongering began is a complete misnomer as even in a good year influenza vaccine effectiveness straddles the averages at 50%.
    Italicized/bold text was excerpted from cdc a report titled:
    Vaccine Effectiveness: How Well Do the Flu Vaccines Work?
    CDC conducts studies each year to determine how well the influenza (flu) vaccine protects against flu illness. While vaccine effectiveness (VE) can vary, recent studies show that flu vaccination reduces the risk of flu illness by between 40% and 60% among the overall population during seasons when most circulating flu viruses are well-matched to the flu vaccine.
    Link to report:
    https://www.cdc.gov/flu/vaccines-work/vaccineeffect.htm
    In short we would be best served with a second opinion from independent medical professions and not wholly beholden to government or it’s benefactors.

  12. nobert M salamon says:

    thanks for a possible prognosis.
    Methinks due to emergency the government should use NSA data to trace all hidden funds and take measures to recover at least the tax-evasion parts thereof with possible fines. Last I heard there are multi trillions in hidden accounts in Delaware, Nevada, Cayman Island and numerous British dependencies.

  13. Jack says:

    Harper,
    In many ways we have a redux of 2008. The Fed and Treasury have determined to bailout speculative capital and big corporations and let small businesses fail and the working poor employed by small business to become even more impoverished.
    Listen to Chamath Palihapitiya, CEO of investment firm Social Capital make the point that bailing out Wall St speculative losses does not do much for the real economy.
    https://twitter.com/cnbc/status/1248323677898366978?s=21
    As fund manager John Hussman notes:

    Part of a clear-eyed and needed interview with @chamath on why using bailout funds to prop up speculative assets and junk – rather than help to individuals – is reckless trickle-down madness.

    As Ben Hunt tweeted today.

    Futures just got a bump on news that Fed will now buy HY corp debt via ETF purchases.
    Nothing matters.

    So the Fed is now going to buy junk bonds, bailing out Wall St speculation in reaching for yield fostered by the Fed’s own policy of artificially suppressing rates. How long before the Fed buys the S&P ETF to follow the BOJ and the SNB? For those opposed to socialism is this effective partial nationalization of publicly traded private enterprises acceptable? Wall St loves this socialism as it allows speculative losses to be socialized while speculative gains are privatized. Of course those with significant financial assets (not the bottom 90%) will like this goosing of their holdings.
    Consider the challenges that Congress will go through to put together a $2 trillion infrastructure spend and compare it to the likely $10 trillion spent by the Fed and Treasury to cover speculative losses on financial assets. It would seem that every crisis is an opportunity for those with the wealth and consequently political power to extract even more at the expense of the working class.
    The elites keep betting, successfully so far, that the majority of the citizens will be satisfied with bread and circuses while their standard of living gets slowly eroded and their despondency drives them to drugs and suicide.

  14. turcopolier says:

    All
    As many of you know I lived in occupied Germany in the immediate post-war period, first in Bremen and then in Frankfurt am Main. For the first year of so of the occupation the emphasis was on punishing Germany and the occupying powers more or less were content to watch them starve or almost starve in a country in which agriculture limped along in the circumstance of the poverty of the farmers themselves. The currency was also worthless until the occupiers created a new currency, the Deutsche Mark. Then Marshall and Clay persuaded Truman to seek to rebuild a new Germany. The Marshall Plan followed and a lot of other programs. I suspect that Harper is far too optimistic about the shambles that would exist in the US following anything more than a very few months of enforced destruction of the economy and virtual house arrest for the people. We would live in a country in which the federal bureaucracy served to rule all in the midst of poverty. There will be no Marshall Plan for us.

  15. turcopolier says:

    jack
    You seem ignorant of the terms of the bail-outs. You missed the part about the small business bailouts? You call things like the airline industry “speculative assets?” you think the US can exist without the airlines. When was the last time you drove coast to coast?

  16. turcopolier says:

    NMS
    Do you think the Canadian government should do the same?

  17. Norbert M Salamon says:

    Colonel
    All western countries which have the problem of tax-evasion, income, wealth etc. hiding should do the same as I proposed for the USA, this definitely includes Canada.

  18. walrus says:

    Thank you for posting this discussion Harper. I am much more optimistic about at least the U.S. and Australian economies. I regard what is happening as creative destruction. There is going to be a lot of pain, much of it self inflicted, but the economy will rise from the ashes, stronger than ever.
    The big “if” in this matter is, as Col. Lang, observed, the role of the so called public service. It is currently a self licking ice cream cone – millions of public servants administering layers of convoluted and pointless laws and regulations. This has to be severely pruned because new business start ups cannot afford the BS about inclusion, diversity, gender equity, sustainability, LBGTQ, glass ceilings, etc., etc. The regulations and the drones who administer them have to go.
    If this does happen, natural human creativity and industry will flourish very quickly, building new businesses out of the rubble. If it does NOT happen, and the elites combine with the public service to maintain their positions, you will be headed for a two tier economy – legal and illegal, and that will destroy society. That would be something like Central America on steroids – gangs, cartels, bribery and corruption, breakdown of law enforcement, etc.
    I need to explain the motivation big corporations have for fearing renewal and clinging to the status quo. It is to do with growth and thus share price. If new businesses spring up, the share of GDP growth of the small business sector will increase faster than the corporations, it will lower their share price. The corporations will NOT want to see any reduction in red tape because it will stimulate the small business sector at their expense.
    I am also discounting robber baron behaviour by the 1%, but that is another subject.
    My opinion is formed by my experience in the great Australian recession circa 1990. As general manager of a manufacturing business, I had to fire 70 staff, renegotiate all our contracts, prune costs and get the company into survival mode. My reward after doing that was to be fired myself as the owners decided to manage the business themselves after I had done the hard and bitter work. I was unemployed for 18 months. I saw a lot of people and businesses go under and watched people pick themselves up and start again.
    I reiterate that right now is the best time to start a new business. Let the old economy go. Did you really believe we could prosper through a service economy composed of dog grooming salons and personal trainers? An economy where prudence and thrift has been punished? An economy that consumes products that can’t be repaired? All produced across the seas? Let it go.
    I do not know what the future holds. Our retirement savings are probably shot. In December we were looking forward to two months of summer in Italy, Sardinia, Sicily, a yacht charter in Croatia and a week in the serene republic. All gone. Do not sell America short. It will bounce back if given the chance.

  19. Fred says:

    Jack,
    Remind me again which execuive order Barack and numerous state governors used to order people not to go to work?
    Norbert,
    You mean the government should spy on its own citizens like Obama spied on the Trump campaign? Did you see the CBS publication of part of the Papadopolus transcript?
    “CBS News has reviewed the raw transcript of the conversation between George Papadopoulos and the confidential source working for the FBI, and has published key excerpts.”
    https://www.scribd.com/document/455641630/Transcript#from_embed

  20. Jack says:

    Sir
    I’m just pointing out the disparity. Comparing the amounts going to the real economy vs the amount going to back financial speculation.
    We have $350 billion for small businesses for 2.5 months of payroll protection. $1,200 one-time payment to individuals. $500 billion in loans and loan guarantees to large corporations. $100 billion in grants to hospitals. Airlines get $29 billion in grants and another $29 billion in loans. State & local government get $150 billion and the Pentagon gets an additional $10 billion.
    Compare to the trillions that the Fed is using to hand out to private equity, hedge funds and other financial speculators.
    We’ll see how long it will take for Congress to put together a $2 trillion infrastructure bill that will help the real economy. In the same time let’s see how big the amount of largesse is showered on financial speculators and foreign banks by the Fed. I’m willing to wager that in a year’s time the amount that was invested in the real economy would be multiples less than what is provided to financial speculators.

  21. turcopolier says:

    jack
    “Compare to the trillions that the Fed is using to hand out to private equity, hedge funds and other financial speculators” What is the evidence for that?

  22. Fred says:

    Col.,
    “We would live in a country in which the federal bureaucracy served to rule all in the midst of poverty. ”
    I agree with you. Michigan’s governor seems determined to ruin the economy of the state with extending the stay at home order and not easing any restrictions anywhere in the state. Good thing they never got anywhere with the high speed rail to Ann Arbor or my state rep, senator, and the county commissioner who was Dingell’s chief of staff might actually have to face some risk, but they are quite happy to lock down the UP and every town in the state though it looks like metropolitean Detroit is the major and almost only hotspot.
    I find it interesting to see the difference in responses and reporting between states. In FL where I also have relatives the case load and death rate is much different than Michigan, even though Florida has 11 million more people and more of them are over 65, but less that 400 have died vs. more than 1,000 in Michigan.
    https://floridahealthcovid19.gov
    Michigan, there’s a whole lot of upper penisula with what looks like little risk; it leads me to believe all the “red state” rural areas are having their economies destroyed by politically driven govornment order. This includes all the community hospitals that have zero revenue becuase they can perform no non-emergency service. This can’t go on much longer.
    https://www.michigan.gov/coronavirus/

  23. blue peacock says:

    Col. Lang,
    Below is a link to the growth in the Fed’s balance sheet over the past few months. You will note that the Fed began expanding its asset purchases by $500 billion in the last quarter of 2019 even before the China virus hit our shores and shutdown our economy. Credit was already leaking and the Fed which has given itself the mandate to backstop financial speculation was already delivering on the Fed put. The China virus has brought out the bazooka adding nearly $2 trillion to their balance sheet just in the last 30 days.
    https://fred.stlouisfed.org/graph/fredgraph.png?g=qGqH
    The Fed has announced several new programs in addition to the repo program it had already initiated last year for liquidity squeezed banks. One is the purchase of investment grade corporate bonds many trading close to junk. The second announced today is the purchase of junk bonds via ETFs. This allows financial investors holding these credit instruments to sell them to the Fed enabling them to essentially not take or reduce their losses. The Fed will now hold credit instruments that could default. The third is to provide dollar liquidity to foreign banks with dollar liabilities through their central banks. Essentially the Fed is now willing to buy assets no matter how dodgy with significant credit risk.
    An example is the shale patch debt. Shale E&P companies raised junk bond financing to explore and produce oil & gas. With the crushing of the oil price, much of that debt got downgraded. Investors holding that debt were sitting on significant losses. The Fed will now buy that debt from investors with an opaque pricing essentially making them whole.
    This is very similar to what they did during the 2008 mortgage credit crisis when they purchased mortgage-backed securities from investors enabling them to get out from their underwater positions. At that time Bernanke said that it was emergency action to prevent the collapse of the financial system and they would reduce their balance sheet by selling all the securities they acquired when the financial system was able to stand up again. Now they’re significantly higher than at the peak of the 2008 crisis.
    Chamath and others like Jack are upset because if the Fed really wanted to help the actual economy they could monetize (print money to buy up) infrastructure bonds issued by the various state, and local municipalities that could run various construction projects. They could also monetize Treasury, state and municipal debt that could be used to pay all those locked down and unable to earn a paycheck. What they’re doing here as they did in 2008 is to backstop speculative losses of the financial sector.
    The other story is that post-2008 it became clear to large speculators that risk taking is rewarded as long as the scale was large enough. The use of debt to buyback stock to the outsized benefit of management was immense in scale. So too was the revived CLO and other structured debt product financings. The impending downgrade of much of this corporate debt to junk meant that all those securities would have to be ejected from the portfolios that could only hold investment grade. Like most pension funds and life insurance portfolios. This was a huge crisis for the massively leveraged funds.
    I work at an investment advisory firm providing services to pension funds and insurance companies. The word on the street is to expect the Fed balance sheet to be expanded by $6-$10 trillion.
    Unfortunately Mom & Pop businesses most hard hit by the shutdown have no ability to get a Wall St bank to underwrite a junk bond offering that could be sold to the Fed.
    Finally, I’d like to leave you with this story. This is why some are getting angry.
    https://prospect.org/economy/hospital-bailouts-begin-for-those-owned-by-private-equity-firms/

  24. Mathias Alexander says:

    I think the key words are ” the corporation regained health because enormous debt was written off”.

  25. Alves says:

    Instead of talking about the post-COVID world, let me point that the crisis is an opportunity for the USA as well.
    It is quite clear by now that China is bullying weaker nations that needs medical equipements and tests (be nice to them or else). It is also doing crazy price gouging (ventilators for 3 times the previous price and without a garanteed delivery, for example). Last but not least, some of the stuff they are selling are sub-quality or just does not work.
    Well, the USA still has its own industrial might and it can win major points and business in the World after getting its house in shape by just not being a greedy and spiteful monsters in the next few months.

  26. Serge says:

    Doctor’s Note: Can coronavirus cause permanent damage?
    https://www.aljazeera.com/indepth/features/doctor-note-coronavirus-permanent-damage-200410112235801.html
    I work for a CRO currently involved in around a dozen clinical trials related to SARS 2 some of them investigating this exact question of permanent damage caused by the disease. We expect a flood of these trials to come in in the next year and beyond. This article talks about lung/kidney damage but I have previously pointed out the potential for cardiac/testicular damage as well. People are focusing too much on the (low) mortality rate, we need to look at the unknown long term effects of this disease. This big unknown makes the herd immunity strategy a big gamble IMO.

  27. Fred says:

    Blue,
    “This is why some are getting angry”
    Tens of millions, probably not including many of the ‘some peope’ your firm advises, are angry because of the destruction being wrought by government mandated shutdowns which are destroying more economic futures than NAFTA, which was supported by the brilliant Robert Reich, founder of The Prospect, source of your article. The words “Certificate of Need” and “Regulation” appear no where in said article. Like Hienz ketchup, regulation is making me wait. Pennsylvania isn’t the only state to forbid all elective health care procedures.
    How is everyone enjoying thier centrally planned single payer health care trial?

  28. JerseyJeffersonian says:

    I don’t think that this is really O/T. California Governor Newsome apparently thinks this is a great time to flirt with secession, according to this Bloomberg editorial:
    https://www.bloomberg.com/opinion/articles/2020-04-09/california-declares-independence-from-trump-s-coronavirus-plans
    Now, the writer of this article is clearly a radical leftist crank (just read it, all of the boxes are checked off), but this seems like a new turn in the coup against Trump. Having signally failed with the succesion of previous attempts, Russiagate, Ukrainegate, Obstructiongate, etc., the plotters are now trying out their hand at Calhoun’s old strategy of State nullification of policies and directives of the Federal government, but juiced by playing to the national political aspirations of the participating Democrat party state governors.
    I view these state governors’ actions as those of classic accelerationists, willing to bring on and/or prolong social and economic crises in order to forward their own agendas. This is, indeed, an interesting point of attack, exploiting the tension between States’ prerogatives vs. those of the Federal government inherent in our federal constitution. To my eye, of course, this is total hypocrisy, as these very same people, if ever they attain control of the Federal government, will not hesitate to deny the right of individual states to question their favored absolute, centralized control over any and all social, economic, and legal policies and practices, and no alternatives will be countenanced in the USA. They do not view the USA, as a union of states, but only as a centralized State, with the individual states being merely historical relics, no longer accorded a role, as the old “laboratories of democracy” theory had it, as entities with SOME value in their continued existence within the Federal structure, but rather as sketchy, tenuous entities whose only future continuation will be as administrative zones fully answerable to the central govwrnment.
    As TTG has been wont to muse, “What are you going to do now, Ranger?”, when confronted with this sort of manuevering?

  29. Jack says:

    Sir,
    This editorial from the WSJ notes that the current Fed policy benefits Wall St more than Main St. Coming from the WSJ who is as Wall St friendly as possible it says something.
    https://www.wsj.com/articles/the-feds-main-street-mistake-11586474912
    More detail on the recent programs announced by the Fed. The scale of the Fed program is best seen in the growth of their balance sheet. When the euphemisms and marketing language gets translated to plain English it basically says that the Fed will grow its balance sheet to purchase assets from Cerberus, KKR, BlackRock, Renaissance, Elliott, et al.
    https://www.cnbc.com/2020/03/23/fed-announces-a-slew-of-new-programs-to-help-markets-including-open-ended-asset-purchases.html

    The Federal Reserve said Monday it will launch a barrage of programs aimed at helping markets function more efficiently amid the coronavirus crisis.
    Among the initiatives is a commitment to continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
    That represents a potentially new chapter in the Fed’s “money printing” as it commits to keep expanding its balance sheet as necessary, rather than a commitment to a set amount.
    The Fed also will be moving for the first time into corporate bonds, purchasing the investment-grade securities in primary and secondary markets and through exchange-traded funds. The move comes in a space that has seen considerable turmoil since the crisis has intensified and market liquidity has been sapped.

  30. turcopolier says:

    jack
    OK. What would be your policy? BTW, my local privately held community bank is going all out on the small business loans.

  31. Jack says:

    Sir
    My suggestion would be to re-direct a large part of the Fed’s balance sheet from Wall St to a) small & community banks for small business working capital financing; b) municipal, transportation and transit systems and federal agencies financing for public works; c) capex financing to manufacturers, utilities and telecommunications to modernize their US based plants and infrastructure and to move their offshore manufacturing plants to the US; d) R&D financing to US-based and owned companies and institutions as long as the development work is done in the US.
    The Fed can then hold some of these assets to perpetuity if it warrants. I believe that sophisticated investors on Wall St should only be bailed out partially and under strict conditions as Walter Bagehot recommended over a century ago – lend freely to solvent enterprises at a discount to good collateral. My contention is swing the pendulum to Main St and away from financial engineering.

  32. Norbert M Salamon says:

    Fred:
    I did not ask for privacy transgression of the US [or world] average citizen.
    I said trace the ILLEGAL OFFSHORE FUNDS, and appropriate what the law calls for. I could not care less whose money is taken, or who owned the funds – they represent individually and as a cohort extremes greed, lack of compassion for their poorer citizens, and total disregard of the tax law applicable to their domicile.
    It is far better IMHO that the state use these funds, rather than continue the rewarding the hedge funds, private equity etc. via large government debt issuance – which is repayable by the deplorables. Things are not so rosy for 80-90% of the population much better to take steps ere the pitchforks[or bullets] come to solve inequality.

  33. Fred says:

    Norbert,
    Do you believe in having trials to prove guilt or just sieze and redistribute away?”
    “Things are not so rosy for 80-90% of the population…” I agree and we need to go back to work sooner rather than later.

  34. blue peacock says:

    Col. Lang
    It would appear the community bank in your neighborhood is fronting the lending to small business as part of the $350 billion appropriated by Congress for small business. I’ve heard from several companies that the smaller banks are being more responsive in processing the paperwork relative to the big banks like Chase, Citi, Bank of America and Wells Fargo. There is a mad scramble to get applications in, as the amount is capped at $350 billion. As of yet I hear the paperwork processing is jammed up because of disagreements between Treasury and SBA.
    Contrast this with the Fed bailout of Wall St which is near $2 trillion already created with just a click on a keyboard with no requirement for the lengthy political battle of a Congressional appropriation. The acquisition of financial assets by the Fed is also opaque preventing any public scrutiny.

  35. turcopolier says:

    blue peacock
    The oldest bank in Virginia, as much a community bank as anything you can find.

  36. J says:

    Senator Dr. Scott Jensen of Minnesota recently exposed how the AMA is encouraging U.S. doctors to over-count coronavirus deaths across the U.S. He showed a 7 page document coaching him as a doctor to fill out death certificates with a COVID-19 diagnosis without a lab test to confirm the patient actually died from the virus, Turns out that the package relief, hospitals are paid more for to attend to this virus. In other words no one is dying of the flu anymore, only COVID-19.
    Numbers justify money, the numbers are being used to keep the flow of money flowing by misrepresenting this as an epidemic. Fraud is being used to justify keeping the economy locked down longer, and the AMA is contributing to the destruction of the nation’s livelihoods. What the AMA is doing is encouraging FRAUD by classifying a death as COVID-19 without testing. It’s actionable FRAUD no different from Medicare Fraud which is a crime.
    For Medicaid and Medicare fraud, federal law establishes
    — a civil statute of limitations of 6 years (42 U.S.C. 1320a-7a(c)(1), and
    — a criminal statute of limitations of 5 years (18 U.S.C. 3282).
    Our nation’s future is being destroyed by the corruption inspired by such actions and programs.
    Across the pond in London a gentlemen took his mother to the hospital and he knew she was near death. Two days later the hospital claimed she had died from the coronavirus. She hadn’t gone in with that. In London it seems that COVID-19 is their medical-community cure. No one in London has died from a heart attack, only COVID-19.
    COVID-19 is turning into massive fraud on a global scale.

  37. Mark Logan says:

    Harper,
    Great points, if this becomes a new normal it means the world as we knew it is in for vast changes. But how likely is is this new normal? I see two things which suggest that unlikely.
    This is a new bug and it will take a bit of time for the docs to catch up. They have been caught with their pants down but for how long? The process takes some time but there’s a fair chance, with a few months to work on it, effective therapeutics to bridge the gap to effective vaccines to be developed. Currently we even lack the ability to even conduct broad testing, and that will all but certainly be on-line soon.
    The current measures are unlikely sustainable for more than a month or two. There will be so many people in deep economic pain demanding an end or heavy enough modification to allow them to get back to work. Anecdotal perhaps, but this week already I have received several letters from suppliers setting resumption of production dates for late this month. They have set course to start treating the mandates of the government as recommendations, and just a few weeks in. The internal pressures of business to get back to business are enormous.
    Most are stating they will re-open with internal disease spreading measures in place to protect their workers. This is wise in several ways. It helps morale of the workers concerned with the disease and provides the foundation of a legal argument against the governmental attempts to force them to shut down again, if they come. I expect this to snowball.

  38. Serge says:

    I posted here yesterday my concerns with the herd immunity strategy(unknown long-term effects of this disease on the human body), here is a paper published yesterday on neurological symptoms of the disease, again appearing in both mild and severe manifestations like the study which looked at reduction of testosterone in affected males:
    >Neurologic Manifestations of Hospitalized Patients With Coronavirus Disease 2019 in Wuhan, China
    https://jamanetwork.com/journals/jamaneurology/fullarticle/2764549
    Excerpts of particular interest:
    >Most neurologic manifestations occurred early in the illness (the median time to hospital admission was 1-2 days). Some patients without typical symptoms (fever, cough, anorexia, and diarrhea) of COVID-19 came to the hospital with only neurologic manifestation as their presenting symptoms.
    >In January 2020,3 ACE2 was identified as the functional receptor for SARS-CoV-2, which is present in multiple human organs, including nervous system and skeletal muscles.11 The expression and distribution of ACE2 remind us that the SARS-CoV-2 may cause some neurologic manifestations through direct or indirect mechanisms. Autopsy results of patients with COVID-19 showed that the brain tissue was hyperemic and edematous and some neurons degenerated.12 Neurologic injury has been confirmed in the infection of other CoVs such as in SARS-CoV and MERS-CoV. The researchers detected SARS-CoV nucleic acid in the cerebrospinal fluid of those patients and also in their brain tissue on autopsy

  39. Fred says:

    Serge,
    You still trust reports out of Wuhan China? “Those with severe infection… may die sooner” I think the medical community has known that for some time. Also the points about the ACE2 receptor.

  40. J says:

    Documentary Explores the Origins of the CCP Virus
    https://www.theepochtimes.com/who-created-the-ccp-virus-documentary-exposes-pandemic-origins_3305798.html
    1st Documentary on the origin of the CCP (Chinese Communist Party) Virus.
    https://www.youtube.com/watch?v=Gdd7dtDaYmM

  41. blue peacock says:

    Jack
    I get that your position is that if the Fed is going to print money anyway at least direct it to the real economy as opposed to Wall St financial speculation.
    Here’s the problem. The Fed has been printing money during every financial “crisis” which typically has been excess financial speculation reaching its apex and then deflating due to its own weight. As Greenspan stated the Ph.Ds at the Fed can’t recognize financial speculation on its way up and can only discern a burst speculative bubble. Since the LTCM “crisis” the Fed prints money to backstop the deflation induced in credit instruments when financial bubbles fail. In the aftermath of the crisis induced by the mortgage credit speculation in 2008, Bernanke stated that “extraordinary monetary policies” were required and that the growth of the Fed’s balance sheet was going to be temporary. As we saw the Fed barely reduced its balance sheet by 10% before Wall St started getting the chills in various corners of the structured credit markets.
    Now with the China virus induced shutdown of the global economy, the Fed and other central banks have used this real economic crisis to print trillions of dollars to once again backstop Wall St speculation. The Fed’s balance sheet is now in vertical takeoff and nearly $1.5 trillion above the highs in the aftermath of the GFC.
    With politicians, the media, the economic & financial punditry and even some elements of the general public now recognizing that the Fed’s printing press is not constrained by the challenges of Congressional appropriations and its asset purchases are opaque, it would seem that the Fed’s money printing would be used to “finance” all sorts of schemes to aid those with the necessary political connections under the cover of a “crisis” du jour.
    In your opinion, what are the long term implications of an unconstrained Fed balance sheet? What happens when the Fed prints “money” to be the buyer of first and last resort of the junkiest credit and there is no limit to the creation of such credit paper? And when the Fed follows the BOJ & SNB to acquire the equity & debt of failing businesses with the worst possible managements intent on self-dealing but who have the scale and connections to be considered “worthy” of rescue?
    I know we are through the looking glass and Pandora’s Box has been opened wide.

  42. J says:

    ROBERT F. KENNEDY JR. EXPOSES BILL GATES’ VACCINE AGENDA IN SCATHING REPORT
    https://www.infowars.com/robert-f-kennedy-jr-exposes-bill-gates-vaccine-agenda-in-scathing-report/

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.