May the source be with you, but remember the KISS principle ;-) Skepticism and critical thinking is not panacea, but can help to understand the world better
Financial skeptic
The more things change in the USA casino capitalism the more they stay the same
Cruise to Frugality Island for stock holding 401K Lemmings
Neoliberal economics (aka casino
capitalism) function from one crash to another. Risk is
pervasively underpriced under neoliberal system, resulting in bubbles small and large which hit the
economy periodically. The problem are not strictly economical or political. They are ideological. Like
a country which adopted a certain religion follows a certain path, The USA behaviour after adoption
of neoliberalism somewhat correlate with the behaviour of alcoholic who decided to booze himself to
death. The difference is that debt is used instead of booze.
Hypertrophied role of financial sector under neoliberalism introduces strong positive feedback look
into the economic system making the whole system unstable. Any attempts to put some sand into the wheels
in the form of increasing transaction costs or jailing some overzealous bankers or hedge fund managers
are blocked by political power of financial oligarchy, which is the actual ruling class under neoliberalism
for ordinary investor (who are dragged into stock market
by his/her 401K) this in for a very bumpy ride. I managed to observe just two two financial crashed
under liberalism (in 2000 and 2008) out of probably four (Savings
and loan crisis was probably the first neoliberal crisis). The next crash is given, taking into
account that hypertrophied role of financial sector did not changes neither after dot-com crisis of
200-2002 not after 2008 crisis (it is unclear when and if it ended; in any case it was long getting
the name of "Great Recession").
Timing of the next crisis is anybody's guess but it might well be closer then we assume. As Mark
Twain aptly observed: "A thing long expected takes the form of the unexpected when at last it comes"
;-):
This morning that meant a stream of thoughts triggered by Paul Krugman’s most
recent op-ed, particularly this:
Most of all, the vast riches being earned — or maybe that should be “earned” —
in our bloated financial industry undermined our sense of reality
and degraded our judgment.
Think of the way almost everyone important missed the warning signs of an impending crisis.
How was that possible? How, for example, could Alan Greenspan have declared, just a few years
ago, that “the financial system as a whole has become more resilient” — thanks to derivatives,
no less? The answer, I believe, is that there’s an innate tendency
on the part of even the elite to idolize men who are making a lot of money, and assume that they
know what they’re doing.
As most 401K investors are brainwashing into being "over bullish", this page is strongly bearish
in "perma-bear" fashion in order to serve as an antidote to "Barrons" style cheerleading. Funny, but
this page is accessed mostly during periods of economic uncertainty. At least this was the case during
the last two financial crisis(2000 and 2008). No so much during good times: the number of visits drops
to below 1K a month.
It was clear that 2017 stock market run was detached from fundamentals. Mostly speculative run. And the current stock market
decline could well happen three months aerler or three month later but it was in the cards. It is difficult to estimate the power of
inertia in such speculative runs. Also layoffs and decline of the standard liming of workers and lower middle class still can
continue to improve the balance sheet until "Yellow Vests" moment stops them.
Jobs created now are mostly "inferior" low paid or temp/contractor jobs and the numbers just mask the cruel reality of the USA
job market.
Which in reality is dismal, especially for young and old workers. several more or less paid specialties disappeared in 2018 due
to automation (cash office worker is one). automatic cashier is supermarkets are also now more visible. So spontaneous cases
of vandalism, killings of coworkers and other form of "action of desperation" (as well as the rate of death from opioids -- which is
yet another form of the same) would not be too surprising in such an atmosphere. Even with the power of the current national
security state. Trump is playing with fire trying to cut on food stamps and implementing some other action in this program of
"national neoliberalism" which is in internal policy is almost undistinguishable from neofascism. He risk facing "Macron
situation" sooner or later.
In any case at some point Minsky moment should arrive for the stock market. I am not sure that the current decline is that start
of such an event. It might be postponed further down the line for a year or two. But it will eventually come. We can
only guess what form it might take, but with the current Apple troubles and valuations of tech sector I think it might take the form
of something similar to dot-com bubble deflation No.2
I do not see Amazon, Google, Facebook and Microsoft and other tech high flyers completely immune to the stock crash of 50%
magnitude or more. For example, Google is overly dependent on advertising revenue which can grow only by strangulating small sites
owners which use it as the advertizing platform (which it successfully implements fro several years now). But at some point owners
might revolt and start dropping it for Microsoft or other platform. Facebook might face a backlash, if people understand that
selling data about them in the part of the business model, not an aberration.
One of the most unexplainable things that happened in 2018 was dramatic fall of oil prices in the Q4. This was quite surprising
(and destructive) after the period of little or no capital investment in the new fields for three years or so. Shale oil
production increases in the USA are only possible if junk bonds can be produced along with it. Junks bonds that will never be paid.
With the current debt load and prices below $50 most of the USA shale oil companies are zombies. Most if not all of thenm are losing
money. Only return of ~$70 oil prices can save them, if anything at all. WSJ touched this topic recently.
So this surprising fall of oil prices (from around $70 to around $43 WTI) looks connected to the speculations in the "paper oil"
market.
Financialization allows for oil price to be completely detached from fundamentals for a year or even two (Saudis need over $80 I
think to balance the budget, I think; this represents "fair price" as they are one of the three largest producers).
But you will never know this unless there are shortages at gas stations. The difference is covered by inflated statistics from
IEA and similar agencies as well as "paper oil" -- future contracts which are settled in dollars.
This is the reality of "casino capitalism" ( aka neoliberalism ) with its rampant and destructive financialization.
"... The findings paint a grim picture of the devastating and lasting impact recession has on corporate performance. To be sure, a shocking seventeen percent of the companies failed, were acquired or decided to go private. ..."
"... Meanwhile, three years after the recession forty percent of the companies hadn't recovered to precession sales and profit levels. And, approximately 80% of public companies had not rebounded to their pre-recession growth rates in sales and profits a full three years after the recession. ..."
"... Almost all business people agree that the current crisis marks an inflection point. The business world has changed and firms need to remake (i.e., downsize) their organizations to fit in the new normal. Companies will operate with a smaller footprint, but more debt. ..."
Submitted by Joe
Carson , former chief economist at Allianz
The Fed's debt-bridge policy is designed to improve the flow of credit to businesses to
avoid a devastating credit crunch. Never before has one of the monetary policy solutions to
combat recession been to extend credit to struggling, profit losing businesses.
There is no precedent for record business borrowing during a recession. The scale of
business failures during and after the economy exits recession will far exceed that of the
Great Financial Recession.
The Fed's Debt-Bridge Policy
The traditional way for monetary policy to build a bridge from recession to recovery is
through the lowering of official interest rates. In time, the reduction of interest rates
triggers a refinancing cycle, lowering interest costs, and improving liquidity positions. The
"reliquification" process enables firms (and individuals) to exit recession with stronger
liquidity and lower debt burdens.
With official interest rates relatively low the "reliquification" process was not a viable
policy option to combat the abrupt contraction in the economy. So policymakers were forced to
support the flow of credit to the economy by purchasing securities and provide direct financing
to sectors where it is not otherwise available or too costly.
So instead of contracting, which is the typical pattern during the recession, the flow of
private credit has exploded to the upside. Since the start of 2020, commercial and industrial
loans have increased over $750 billion to a record $3.1 trillion. That increase nearly matches
the cumulative increase in corporate bank borrowing of the past 6 years.
At the same time, US corporations have tapped the capital markets for hundreds of billions
of new debt. Through early May corporations have issued nearly $300 billion in new debt, twice
as much as the comparable period one year ago.
An addition of $1 trillion of new liabilities over a few months is a big number in the best
of times. Yet, record corporate borrowing during bad times increases the risk of business
failures and defaults. Here's why.
A Harvard Business study released in 2010 analyzed corporate performance during three global
recessions from 1980 to 2000. Sales and profit performance of 4700 public companies were
analyzed three years before and three years after the recession.
The findings paint a grim picture of the devastating and lasting impact recession has on
corporate performance. To be sure, a shocking seventeen percent of the companies failed, were
acquired or decided to go private.
Meanwhile, three years after the recession forty percent of the companies hadn't recovered
to precession sales and profit levels. And, approximately 80% of public companies had not
rebounded to their pre-recession growth rates in sales and profits a full three years after the
recession.
Almost all business people agree that the current crisis marks an inflection point. The
business world has changed and firms need to remake (i.e., downsize) their organizations to fit
in the new normal. Companies will operate with a smaller footprint, but more debt.
There is no precedent for record corporate borrowing during a recession. As a result,
investors need to brace for an economy unlikely to resemble the one before, with an uneven and
slow growth, and record corporate failures.
"... The coronavirus crisis has thrown the global economy into cardiac arrest, and now you are acutely aware of the very markets that you had previously just assumed would function as normal. The first indication was the precipitous drop in the stock market that took place in late February. Then, as the United States began to enter quarantine, the labor market collapsed and hundreds of millions of people were suddenly out of work. Shortages in a few key commodities -- masks, ventilators, toilet paper -- began to appear. ..."
How will the coronavirus transform the relationship between state and market? A look at oil,
food, and finance.
You pay little attention to the systems of your body --
circulatory, digestive, pulmonary -- unless something goes wrong.
These automatic systems ordinarily go about their business, like unseen clockwork, while you
think about a vexing problem at work, drink your morning cup of coffee, walk up and down
stairs, and head out to your car to begin your morning commute. If you had to focus your
attention on breathing, pushing blood through your veins, and metabolizing food, you'd have no
time or energy to do anything else. The body abhors the micromanaging of the mind.
The same applies to the world's markets. They whir away in the background of your life,
providing loans to your business, coffee beans to your nearby supermarket, labor to build your
house, gas to fill your car. You take all of these markets for granted. All you have to concern
yourself with is earning enough money to gain access to these goods and services. That's what
it means to live in a modern economy. The days of hunting and gathering, of complete
self-sufficiency, are long past.
And then, in a series of sickening shifts, the markets go haywire. As with a heart attack,
you no longer can take the optimal performance of these systems for granted.
The coronavirus crisis has thrown the global economy into cardiac arrest, and now you
are acutely aware of the very markets that you had previously just assumed would function as
normal. The first indication was the precipitous drop in the stock market that took place in
late February. Then, as the United States began to enter quarantine, the labor market collapsed
and hundreds of millions of people were suddenly out of work. Shortages in a few key
commodities -- masks, ventilators, toilet paper -- began to appear.
It is one of the central tenets of laissez-faire capitalism that markets behave like
automatic systems, that an "invisible hand" regulates supply and demand. Market fundamentalists
believe that the less the government interferes with these automatic systems, the better. They
argue, to the contrary, that markets should increasingly take over government functions: a
privatized post office, for instance, or Social Security accounts subjected to the stock
market.
Market fundamentalists are like Christian Scientists. They refuse government intervention
just as the faithful reject medical intervention. Much like God's grace, the invisible hand
operates independent of human plan.
Then something happens, like a pandemic, which tests this faith. States around the world are
now spending trillions of dollars to intervene in the economy: to bail out banks, save
businesses, help out the unemployed. Countries are imposing export controls on key commodities.
As in wartime, governments are directing manufacturers to produce critical goods to fill an
unexpected demand for greater supply.
These are emergency interventions. The market fundamentalist looks forward to the day when
stay-at-home restrictions are lifted, people go back to work, the stock market barrels back
into bull mode, and the invisible hand, with perhaps a few Band-aids across the knuckles,
returns to its job.
But some pandemics fundamentally alter the economy. In such emergencies, people realize that
an economy is constructed and thus can be reconstructed. Are we now at just such a moment in
world history? Will the coronavirus permanently transform the relationship between the state
and the market?
Let's take a look at three key markets -- oil, food, and finance -- to measure the impact of
the pandemic and the prospects for transformation.
Oil
Shutterstock
In 2007, Ecuadorian President Rafael Correa
offered to forgo digging for oil beneath the Yasuni national park in exchange for $3.6
billion from the international community. No one took him up on the offer.
When the U.S. price of oil went below zero last week, I immediately thought of Correa's
offer. The mainstream scoffed at the Ecuadorian leader back in 2007. How on earth could you
possibly propose to keep oil under the earth? The world economy runs on fossil fuels. You might
as well ask your kid to keep her Halloween candy uneaten in the back of the cupboard.
Today, however, the world is glutted with oil. The global recession has radically reduced
the need for oil and gas.
In the United States, transportation absorbs
nearly 70 percent of oil consumption. With airplanes grounded, fewer trains and busses in
operation, and highways uncongested, the demand for oil has dropped precipitously. Businesses,
too, are using less energy. It's not just oil. Companies devoted to pumping natural gas out of
shale deposits are filing for bankruptcy as their market value drops precipitously: the price
of a share of fracking giant Whiting Petroleum fell from $150 a couple years ago to 67
cents on March 31.
It's gotten to the point that you almost can't give away the stuff.
After all, if you somehow found yourself with a bunch of barrels of oil, where would you
store it? Oil-storage tanks in the United State are near capacity. "Oil supertankers are
looking like petroleum paparazzi, crowding the Los Angeles shoreline, either as floating
storage or waiting on some kind of turn in sentiment," Brian Sullivan
writes at CNBC . "With prices higher in coming months, for now it pays to sit on oil and
hope to sell it for more money down the pipeline."
Oil-producing nations, after years of boosting their supplies, finally agreed in mid-April
to cut production
by 10 percent -- about 10 million gallons a day. In other words, they are deciding to leave
oil in the ground. Now, however, it doesn't even qualify as a half-measure, since demand has
dropped by 35 percent. The oil producers are awaiting the end of recession, when the
quarantined go back to work, and everyone jumps on their transport of choice to make up for
lost travel. They are awaiting a return to normal.
But the market for fossil fuels is not normal. The notion that the invisible hand will steer
economies in a sustainable direction is hogwash. We are long past the moment when we should
have paid Correa and everyone else to leave the oil and gas in the ground and move toward a
world powered entirely by clean energy. The market treats the environment either as a commodity
like any other or as an "externality" that doesn't factor into the final price of goods and
services. That is so nineteenth century.
Climate change demands an intervention into the energy markets with restrictions on
production, subsidies for clean energies like solar, and government purchases of electric cars.
Returning to "normal" after the pandemic is not a viable option.
Food
Shutterstock
Like the oil exporters, food producers in the United States are restricting production as
well.
In Delaware and Maryland, chicken producers are euthanizing
two million chickens because the processing plants don't have enough workers. Sickness and
death in these facilities, which has caused closures that are disrupting the supply chain, has
prompted Trump to classify
such plants as "critical infrastructure" that needs to remain open. Meanwhile, thousands of
acres of fruits and vegetables
are rotting in the fields in Florida because of the suspension of bulk food sales to
schools, theme parks, and restaurants. The shortage of pickers -- often migrant laborers whose
mobility has been restricted -- is complicating harvests.
Unlike oil, however, the overall demand for food remains high. The grocery business
is
booming . Food banks are
overwhelmed by a surge unlike any in recent decades. The U.S. Department of Agriculture
ordinarily could swoop in and buy up surplus production -- as it did for soybean growers during
the trade war with China -- for use in food banks and other distribution programs. But as with
so many other government agencies in the Trump era, the USDA has been slow
to act , despite repeated pleas from growers and governors.
The pandemic is highlighting all the problems that have long plagued the food supply. First,
there is the mismatch between supply and demand. Around
820 million people globally didn't have enough to eat in 2018, a figure that had been
rising for three years in a row, and contrasts with another rising number: the 672 million
obese people in the world. In the United States, fully 40 percent of food goes to waste every year.
So, obviously the invisible hand does a pretty poor job of achieving market equilibrium.
Second, despite a growing movement to eat locally and seasonally, the food system still eats
up a huge amount of energy. The problem lies not so much with bananas arriving by cargo ship,
which is relatively efficient, but with perishable items delivered by plane . And it's what we eat,
rather than where the products come from, that matters most. "Regardless of whether you compare
the footprint of foods in terms of their weight (e.g. one kilogram of cheese versus one
kilogram of peas); protein content; or calories, the overall conclusion is the same,"
writes
Hannah Ritchie. "Plant-based foods tend to have a lower carbon footprint than meat and dairy.
In many cases a much smaller footprint."
Third, because of economies of scale and abysmal labor practices, food in the industrialized
world is too often grown by agribusiness, processed by transnational corporations, and picked
or handled by workers who don't even make close to a living wage.
Returning to this kind of food system after the pandemic fades would be truly unappetizing.
The livable wage campaign must spread to the countryside, meat substitutes must get an
additional lift through government and institutional purchases, and innovative programs like
the Too Good to Go app in Europe -- which sells extra restaurant and supermarket food at a
discount -- must be brought to the United States to cut down on food waste and get meals to
those in need.
Finance
Shutterstock
The financial crisis of 2008-2009 exposed the fragility and fundamental inequality of the
global financial system. But all along the invisible hand has been pickpocketing poor Peter to
pay prosperous Paul. Bankers, stockbrokers, and financial gurus have constructed a casino-like
system that occasionally doles out a few pennies to the people playing the slots even as it
enriches the house -- the top 1-2 percent -- at every turn.
The most outrageous part of this scheme is that the financial crisis demonstrated just how
bad the financiers were at their own game. Not only did they not go to prison for illegal
activities, they were with a few exceptions not even punished economically for their market
failures. They were either too big, too rich, or too powerful for the government to allow them
to fail.
In The New Yorker , Nick Paumgarten quotes
a prominent investment banker at a bond fund:
"In the financial crisis, we won the war but lost the peace." Instead of investing in
infrastructure, education, and job retraining, we emphasized, via a central-bank policy of
quantitative easing (what some people call printing money), the value of risk assets, like
stocks. "We collectively fell in love with finance," he said.
After the last financial crisis, the wealthy, who are heavily invested in the stock market,
did quite well, while everyone else took a hit.
Explains Colin Schultz in Smithsonian magazine: "While families hovering around the
average net worth lost 36 percent over the past decade -- dropping from $87,992 in 2003 to
$56,335 in 2013 -- people in the top 95th percentile actually gained 14 percent in the same
tumultuous period -- going from $740,700 in 2003 to $834,100 in 2013."
The Trump administration is clearly in love with finance. Even before the pandemic hit,
Trump's tax reform provided the top six U.S. banks with $32
billion in savings . That's more than what the 2008 bank bailout provided (and remember,
banks mostly paid back those earlier loans). The stock market also benefited from
an unprecedented upswing in stock buybacks -- $2 trillion combined in 2018 and 2019 -- that
enriched shareholders at the expense of workers.
The $2 trillion in initial stimulus funds that the U.S. government is providing this time
around has gone to individuals (those Trump-signed checks in the mail), small businesses
(except when it went to big businesses), hospitals, and unemployed workers. There's also money
for farmers, schools, food stamps, and (alas) the Pentagon. Future rounds of stimulus spending
might include infrastructure, more aid to states and localities, and funds for smaller
banks.
There's not much enthusiasm, at least publicly, to bail out Wall Street. Stock buybacks were
explicitly excluded from the stimulus package. Meanwhile, the stock market has begun to climb
out of the basement in the last couple weeks, largely on the strength of the news of all this
new money being pumped into the economy.
But just as the tax bill was a covert giveaway to financial institutions, so have been
several of the administration's pandemic responses. Quantitative easing, by which the Federal
Reserve buys bonds and mortgage-backed securities, has increased the amount of liquidity
available to financial institutions.
In the latest effort, the Fed announced that it will buy $500 billion in corporate bonds,
but without
any of the strings attached to other assistance such as limits on stock buybacks or
executive compensation. The banks are even nickel and diming people by seizing
stimulus check deposits to cover overdrawn accounts.
Out of a total pie of around $6 trillion in potential stimulus spending, banks and major
corporations are well-placed to grab the lion's share.
Writes Nomi Prins at TomDispatch:
In the end, according to the president, that could mean $4.5 trillion in support for
big banks and corporate entities versus something like $1.4 trillion for regular Americans,
small businesses, hospitals, and local and state governments. That 3.5 to 1 ratio signals
that, as in 2008, the Treasury and the Fed are focused on big banks and large corporations,
not everyday Americans.
Invisible hand? Hardly. That's the very visible hand of government tilting the financial
markets even more in favor of the rich. As for the invisible enrichment that goes on beneath
the surface, otherwise known as corruption, the Trump administration has
gutted the oversight mechanisms that could bring those abuses to light.
It's time to end America's love affair with finance. That means, in the short term, higher
taxes on the very rich,
limitations on CEO pay built into all bailouts, and reviving all the reasonable proposals
for reforming the financial sector that were either left out of or didn't get full implemented
in the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in the wake of the last
financial crisis.
Post-Pandemic Economics
Shutterstock
The Black Death depopulated Europe, killing as much as 60
percent of the population in the middle of the fourteenth century. Feudalism depended on
lots of peasants working the land to support the one percent of that era. By carrying off so
many of these workers, the Black Death made a major contribution to eroding the foundations of
the dominant economic system of the time.
The coronavirus will not kill anywhere near as many people as the Black Death did. But it
may well contribute to exposing the failures of "free markets" and the scandal of governments
intervening in the economy on behalf of this era's one percent. The pandemic is already, thanks
to huge stimulus packages, undermining the "small government" canard. A state apparatus
deliberately hobbled by the Trump administration -- after earlier "reforms" by both parties --
did a piss-poor job of dealing with this crisis. That doesn't bode well for dealing with the
even larger challenge of climate change.
The short-term fixes described above in the oil, food, and finance sectors are necessary but
insufficient. They shift the balance more toward the government and away from the "free"
market. They're not unlike the New Deal: reforming capitalism to save capitalism. But this
pandemic is pointing to an even more fundamental transformation, to a new definition of
economics.
The tweaking of markets to achieve optimal performance is much like the rejiggering of
earth-centric models of the universe that took place in the Middle Ages. These models became
more and more complex to account for new astronomical discoveries. Then along came Copernicus
with a heliocentric model that accounted for all the new data. It took some time, however, for
the old model to lose favor, despite its obvious failures.
The global economy remains market-centered, even though the evidence has been mounting that
these markets are failing us and the planet. Tweaking this model isn't good enough. We need a
new Copernicus who will provide a new theory that fits our unfolding reality, a new
environment-centered economics that can maximize not profit but the well-being of living
things. John Feffer is the director of Foreign Policy In Focus.
So not only ambulance service was destroyed by private equity, they now added other specialties. I wonder is those criminals who
insert unnecessary stents in patients are connected to private equity.
Images removed
Notable quotes:
"... "You can't serve two masters. You can't serve patients and investors" ..."
"... Morganroth's defense of pandemic Botox might seem odd, but it made perfect sense within the logic of the U.S. health-care system, which has seen Wall Street investors invade its every corner, engineering medical practices and hospitals to maximize profits as if they were little different from grocery stores. At the center of this story are private equity firms, which saw the explosive growth of health-care spending and have been buying up physician staffing companies, surgery centers, and everything else in sight. ..."
"... But some doctors say that the private equity playbook, which involves buying companies, drastically cutting costs, and then selling for a profit -- the goal is generally to make an annualized return of 20% to 30% within three to five years -- creates problems that are unique to health care. "I know private equity does this in other industries, but in medicine you're dealing with people's health and their lives," says Michael Rains, a doctor who worked at U.S. Dermatology Partners , a big private equity-backed chain. "You can't serve two masters. You can't serve patients and investors." ..."
"... Yet over the past decade, lawyers devised a structure that allows investors to buy a medical practice without technically owning it: the MSO, or management service organization. Today, when an investment firm buys a doctor's office, what it's actually buying are the office's "nonclinical" assets. In theory, physicians control all medical decisions and agree to pay a management fee to a newly created company, which handles administrative tasks such as billing and marketing. ..."
"... Businessweek ..."
"... When individual doctors sell, they generally receive $2 million to $7 million each, with 30% to 40% of that paid in equity in the group. After the acquisition, doctors get a lower salary and are asked to help recruit other doctors to sell their practices or to join as employees. ..."
"... Patients, for the most part, are in the dark. Unlike when your mortgage changes hands, you usually aren't notified when a big investment firm buys your doctor. Sometimes the sign on the door bearing the physician's name stays put, and subtle changes in operations or unfamiliar fees may be the only clues that anything has happened. ..."
"... At Advanced Dermatology & Cosmetic Surgery , the largest private equity-backed group in the field, with more than 150 locations across the U.S., that sense of discomfort came shortly after Audax Group bought a controlling stake in what was then a much smaller chain in 2011. The new management team introduced a scorecard that rewarded offices with cash if they met daily and monthly financial goals, according to a lawsuit filed in 2013 against the company by one of its dermatologists. The doctor alleged that the bonus program encouraged staff to do as many procedures as possible, rather than strictly addressing patients' medical needs. ..."
"... Most dermatologists use outside labs and pathologists, but private equity-owned groups buy up existing labs and hire their own pathologists. Then doctors are encouraged to refer patients within the group and send biopsy slides to the company-owned labs, keeping the entire chain of revenue in-house. ..."
"... Now comes the cost-cutting. This is supposed to be the hallmark of private equity, and, done right, it can work to the benefit of doctors and patients. But there are pitfalls unique to medicine, where aggressive cuts can lead to problems, some of them merely inconvenient and some potentially dangerous. ..."
"... A doctor at Advanced Dermatology says that waiting for corporate approvals means his office is routinely left without enough gauze, antiseptic solution, and toilet paper. Even before the great toilet paper shortage of 2020, he would travel with a few rolls in the trunk of his car, to spare patients when an office inevitably ran out. The company declined to comment. ..."
"... One paradox of the Covid-19 pandemic has been that even as the virus has focused the entire country on health care, it's been a financial disaster for the industry. And so, while emergency room doctors and nurses care for the sick -- comforting those who would otherwise die alone, and in some cases dying themselves -- private equity-backed staffing companies and hospitals have been cutting pay for ER doctors. These hospitals, like the big medical practices, make a large portion of their money from elective procedures and have been forced into wrenching compromises. ..."
"... For investors with capital, on the other hand, the economic fallout from the virus is a huge opportunity. Stay-at-home orders have left small practices more financially strained than they've ever been. That will likely accelerate sales to private equity firms, according to Marc Cabrera, an investment banker focused on health-care deals at Oppenheimer & Co. Independent doctors or groups that previously rebuffed offers from deep-pocketed backers "will reconsider their options," he says. ..."
"... Many doctors may ultimately come to regret cashing out, but it's hard to get out once you're in. As part of an acquisition, the private equity groups typically require doctors to sign yearslong contracts, with noncompete clauses that prevent them from working in the surrounding area. ..."
Not long after Gavin Newsom, the governor of California, ordered the state's 40 million residents to stay home to stop the spread
of the new coronavirus, Dr. Greg Morganroth called his team of doctors and said their dermatology group was staying open.
Morganroth is chief executive officer of the California Skin Institute
, which he founded in 2007 as a single office in Mountain View. He's since expanded to more than 40 locations using a financing
strategy that's become exceedingly common in American health care: private equity. In this case, he took out a loan from
Goldman Sachs Group Inc. that could eventually convert to an
equity stake. CSI is now the largest dermatology chain in California.
But the Covid-19 pandemic
put Morganroth in a precarious position. Most medical procedures were characterized as
nonessential by government officials and practitioners. Doctors were closing offices, and patients were staying away to limit
their potential exposure to the virus.
CSI took a different approach. Morganroth explained his thinking on April 2 in a Zoom call with more than 170 dermatologists from
around the country organized by the Cosmetic Surgery Forum, an industry conference. Contrary to what they might have heard, Morganroth
told them, they should consider staying open during the pandemic. "Many of us are over-interpreting guidelines," he said.
For a moment there was an awkward silence. Doctors had thought they were signing up for advice on how to apply for
government money that would help them meet payroll while they were shut down; they hadn't expected to be told not to shut down
at all. Morganroth continued: "We are going to be in a two-year war, and we need to make strategic plans for our businesses that
enable us to survive and to rebound."
Back at CSI, the company's front-office staff was working the phones, calling patients in some of the worst-hit areas and reminding
them to show up for their appointments, even for cosmetic procedures such as Botox injections to treat wrinkles. During the videoconference,
Morganroth argued that offering Botox in a pandemic wasn't so different from a grocery store allowing customers to buy candy alongside
staples.
"If I had a food supply company and had to stay open, and I had meat, bread, and milk, would I stop making lime and strawberry
licorice?" Morganroth asked. "I would make everything and go forward."
From a public-health point of view, some of the doctors believed, this was questionable. Common reasons for visiting a dermatologist's
office -- skin screenings, mole removals, acne consultations -- aren't particularly time sensitive. Serious matters, such as suspected
cancers and dangerous rashes, can be handled, at least initially, with
telemedicine consultations . Then doctors can weigh the risks for their patients and determine who needs to come in. In a statement,
CSI says that it followed local and state laws for staying open, while providing "necessary care" for patients, and that it had not
required doctors to come to work.
"You can't serve two masters. You can't serve patients and investors"
Morganroth's defense of pandemic Botox might seem odd, but it made perfect sense within the logic of the U.S. health-care system,
which has seen Wall Street investors invade its every corner, engineering medical practices and hospitals to maximize profits as
if they were little different from grocery stores. At the center of this story are private equity firms, which saw the explosive
growth of health-care spending and have been buying up physician staffing companies, surgery centers, and everything else in sight.
Over the past five years, the firms have invested more than $10 billion in medical practices, with a special focus on dermatology,
which is seen as a hot industry because of the aging population. Baby boomers suffer from high rates of two potentially lucrative
conditions: skin cancer and vanity. Some estimates suggest that private equity already owns more than 10% of the U.S dermatology
market. And firms have started to expand into other specialties, including women's health, urology, and gastroenterology.
There's nothing inherently wrong with any of this. But some doctors say that the private equity playbook, which involves
buying companies, drastically cutting costs, and then selling for a profit -- the goal is generally to make an annualized return
of 20% to 30% within three to five years -- creates problems that are unique to health care. "I know private equity does this in
other industries, but in medicine you're dealing with people's health and their lives," says Michael Rains, a doctor who worked
at
U.S. Dermatology Partners , a big private equity-backed
chain. "You can't serve two masters. You can't serve patients and investors."
Investment firms, and the practices they fund, say these concerns are overblown. They point out that they're giving doctors a
financial shelter from the rapidly changing medical environment, a particularly attractive prospect now, and that money from private
equity firms has expanded care to more patients. But they've also made it next to impossible to track the industry's impact or reach.
Firms rarely announce their investments and routinely subject doctors to nondisclosure agreements that make it difficult for them
to speak publicly. Bloomberg Businessweek spoke to dozens of doctors at 10 large private equity-backed dermatology groups.
Those interviews, along with information obtained from other employees, investors, lawyers, court filings, and company records, reveal
how the firms operate, and why they sometimes fail patients.
The process is never exactly the same, but there are familiar patterns, which tend to play out in five steps.
Step 1: Marriage
The strange thing about private equity money in medicine is that for-profit investors have long been prevented from buying doctor's
offices. Corporate ownership goes against a doctrine set by the American Medical
Association , the main trade group for doctors in the U.S., and is prohibited by law in many states, including Texas and New
Jersey. For most of the past 100 years, if you wanted to make money on a medical practice, you needed to have a medical license.
Yet over the past decade, lawyers devised a structure that allows investors to buy a medical practice without technically owning
it: the MSO, or management service organization. Today, when an investment firm buys a doctor's office, what it's actually buying
are the office's "nonclinical" assets. In theory, physicians control all medical decisions and agree to pay a management fee to a
newly created company, which handles administrative tasks such as billing and marketing.
In practice, though, investors expect some influence over medical decision-making, which, after all, is connected to profits.
"When we partner with you, it's a marriage," said Matt Jameson, a managing director at BlueMountain Capital, a $17 billion firm that
recently invested in a women's health company, while speaking at a conference in New York in September. "We have to believe it. You
have to believe it. It's not going to be something where clinical is completely not touched." (When contacted by Businessweek
, Jameson asked to clarify his comments. "Doctors and other qualified healthcare professionals at the providers we've invested
in make medical decisions," he said in a statement.)
The typical buyout starts with the acquisition of a big, popular practice, often with multiple doctors and several locations,
for as much as $100 million. (Investors typically pay between 9 and 12 times annual profit.) This practice functions as an anchor,
like a name-brand department store at a shopping mall, attracting patients and doctors to the new group as it expands. Then comes
the roll-up: The private equity firm purchases smaller offices and solo practices, giving the group a regional presence.
As part of the new structure, investors deal with paperwork and save money by buying medical supplies in bulk. Crucially they
also negotiate higher insurance reimbursement rates. One dermatologist who sold her practice to the California Skin Institute says
she was surprised to find out the bigger group's payouts from insurers were $25 to $125 more per visit.
When individual doctors sell, they generally receive $2 million to $7 million each, with 30% to 40% of that paid in equity in
the group. After the acquisition, doctors get a lower salary and are asked to help recruit other doctors to sell their practices
or to join as employees.
At first, doctors are generally thrilled by all of this. They have financial security and can focus on treating patients without
the stress of running a business. Patients, for the most part, are in the dark. Unlike when your mortgage changes hands, you usually
aren't notified when a big investment firm buys your doctor. Sometimes the sign on the door bearing the physician's name stays put,
and subtle changes in operations or unfamiliar fees may be the only clues that anything has happened.
Step 2: Growth
The promise of more patients is a big draw for doctors. By sharing marketing costs and adding locations, the new companies can
advertise more and attract customers. Private equity-owned practices have been diligent users of social media, announcing newly added
doctors and posting coupons on Twitter and Instagram. But these practices can be aggressive in ways that make some doctors uncomfortable.
At Advanced Dermatology & Cosmetic Surgery , the largest
private equity-backed group in the field, with more than 150 locations across the U.S., that sense of discomfort came shortly after
Audax Group bought a controlling stake in what was then a
much smaller chain in 2011. The new management team introduced a scorecard that rewarded offices with cash if they met daily and
monthly financial goals, according to a lawsuit filed in 2013 against the company by one of its dermatologists. The doctor alleged
that the bonus program encouraged staff to do as many procedures as possible, rather than strictly addressing patients' medical needs.
In some of the company's Florida offices, the doctor alleged, medical assistants responded to the bonus structure by ticking extra
boxes on exam reports, stating that doctors checked many more areas of the body than they actually had. That led to higher patient
bills, defrauding the government under its Medicare program, according to the lawsuit. The federal government declined to join the
case, and it was dismissed about a year after it was filed. Advanced and Audax declined to comment.
One-Stop Skin Care
By buying up labs and adding specialists, private equity-owned dermatology groups get paid at every step of a patient's treatment.
Data: Estimated Medicare reimbursement rates for the Miami area, Sensus Healthcare sales presentation
Private equity-backed practices also try to increase revenue by adding more-lucrative procedures, according to doctors interviewed
by Businessweek . In dermatology, this means more cosmetics, laser treatments, radiation, and especially Mohs surgeries
-- a specialized skin cancer procedure that removes growths from delicate areas like the face and neck one layer at a time, to limit
scarring. The surgery involves expensive equipment and specialized doctors, so some large medical groups keep costs down by assembling
traveling Mohs teams, who fly in from other states. Others create mobile labs in vans that set up in clinics' parking lots.
Most dermatologists use outside labs and pathologists, but private equity-owned groups buy up existing labs and hire their own
pathologists. Then doctors are encouraged to refer patients within the group and send biopsy slides to the company-owned labs, keeping
the entire chain of revenue in-house. This takes advantage of a regulatory quirk that has made dermatology, and a handful of other
specialties, attractive to private equity. Under the 1989 Stark Law, doctors aren't allowed to make patient referrals for their own
financial gain. An exception was made for some fields because it's more convenient for patients, explains Dr. Sailesh Konda, a Mohs
surgeon and professor at the University of Florida. "But that can be abused."
Step 3: Synergy
Now comes the cost-cutting. This is supposed to be the hallmark of private equity, and, done right, it can work to the benefit
of doctors and patients. But there are pitfalls unique to medicine, where aggressive cuts can lead to problems, some of them merely
inconvenient and some potentially dangerous.
A doctor at Advanced Dermatology says that waiting for corporate approvals means his office is routinely left without enough gauze,
antiseptic solution, and toilet paper. Even before the great
toilet paper shortage of 2020, he would travel with a few rolls in the trunk of his car, to spare patients when an office inevitably
ran out. The company declined to comment.
At the country's second-biggest skin-care group, U.S. Dermatology
Partners , a former doctor says a regional manager switched to a cheaper brand of needles and sutures without consulting the
medical staff. The quality was so poor, she says, they would often break off in her patients' bodies. Mortified, she'd have to dig
them out and start over. She complained to managers but couldn't get better supplies, she says. Paul Singh, U.S. Dermatology's CEO,
says the company uses a "reputable, global vendor for medical supplies." "While our group may have standardized purchasing processes,
individual providers have the autonomy to procure specific supplies that they need for a particular patient situation or patient
population," he says in a statement.
Doctors who join a private equity-backed group generally sign contracts that state they'll never have to compromise their medical
judgment, but some say that management began to intervene there, too. Dermatologists at most of the companies say they were pushed
to see as many as twice the number of patients a day, which made them feel rushed and unable to provide the same quality of care.
Others were forced to discuss their cases with managers or medical directors, who asked the doctors to explain why they weren't sending
more patients for surgery. Multiple practices also encouraged doctors to send home Mohs surgery patients with open wounds and have
them come back the next day for stitches -- or to have a different doctor do the closure the same day -- because that would allow
the practice to collect more from insurers.
That's if doctors are performing the procedures at all. At Advanced Dermatology, several doctors say they were asked to claim
that physician assistants, or PAs, were under their supervision when they weren't seeing patients in the same building, or even the
same town. Because PAs are paid less than dermatologists, this allowed the company to keep costs low while growing the business.
In a statement, Eric Hunt, Advanced's general counsel and chief compliance officer says that having PAs on staff enables the company
to "provide access to quality dermatological care to more patients."
Step 4. Rolling Up the Roll-Up
Advanced Dermatology was sold in 2016 by Audax to Harvest
Partners LP , following a pattern that's typical in the industry. At some point, after costs have been cut and profits maximized,
most private equity-owned medical groups will be sold, often to another private equity firm, which will then try to somehow make
the company even more profitable.
Having reduced most of the obvious costs, Advanced Dermatology began skimping on more important supplies, including Hylenex, according
to doctors and other employees. The drug is an expensive reversal agent used when cosmetic fillers, which are supposed to make skin
look plumper, go wrong. Not having enough is dangerous: Patients who get an injection that inadvertently blocks a blood vessel can
be left with dead sections of skin or even go blind if they don't get enough Hylenex in a matter of hours. The company says that
it stocks Hylenex in every office that performs cosmetic procedures, and that it "has no records of any provider being denied an
order for this medication."
Advanced Dermatology also started giving even more authority to PAs, according to doctors and staff. Without enough oversight
some were missing deadly skin cancers, they say. Others were doing too many biopsies and cutting out much larger areas of skin than
necessary, leaving patients with big scars. Doctors who complained about the bad behavior say they saw PAs moved to other locations
rather than fired or given more supervision. Hunt, the company's lawyer, says that all PAs get six months of training and are supervised
by experienced doctors.
The staff coined a new medical diagnosis, "pre- pre- pre-cancer"
Advanced Dermatology also put more pressure on doctors to send biopsies to in-house labs. The move made sense financially, but
some of the doctors didn't trust the lab. One of its two pathologists in Delray Beach, Fla., Steven Glanz, had a history of misdiagnosing
benign tumors, which led patients to undergo surgeries that were later found to be unnecessary, according to doctors who worked with
him. Dermatologists who warned that Glanz was a danger to patients say that their complaints to Dr. Matt Leavitt, the group's founder
and CEO, were ignored. More procedures, doctors knew, brought in more money.
Glanz, who had been with the practice since its early days, was known to read slides under a microscope with a pistol on his desk.
After he was arrested with a handgun, a folding knife, and a vial of methamphetamine crystals, he was fired and Florida's state medical
board fined him $10,000, requiring him to complete a five-hour course on ethics before he could resume practicing. But his former
colleagues were unsettled; they knew Glanz's signature was on years of reports that determined treatment for patients. Some slides
were reevaluated, and pathologists noticed mistakes. Managers told some doctors and their staff that patients, even those who'd been
misdiagnosed and had unnecessary procedures, were not to be told. Glanz pleaded guilty to stalking and a firearms violation and was
sentenced to probation. When a reporter called his office and identified herself, the receptionist hung up. Further attempts to reach
Glanz were unsuccessful. Advanced's Hunt says that he was "formally released from employment three years ago," but did not comment
further.
Of course, some doctors pushed ethical boundaries long before private equity came into the picture. But critics of the industry,
including doctors and investors, say management teams put in place by private equity firms tend to look the other way as long as
a medical practice is profitable. Of the dermatologists with the highest biopsy rates in the country (between 4 and 11 per patient,
per year), almost 25% were affiliated with private equity-backed groups, according to Dr. Joseph Francis, a Mohs surgeon and data
researcher at the University of Florida.
Medical providers may have also been blurring ethical lines at U.S. Dermatology Partners, which was until recently on its second
private equity owner, Abry Partners LLC . At four of the
company's offices in Texas, a doctor and his PAs were doing more biopsies than necessary, according to employees. These employees
say the staff routinely called patients with benign lichenoid keratosis, small brownish blotches that usually go away on their own,
and told them the growths should be removed. Under instruction from the doctor, the staff coined a new medical diagnosis, "pre- pre-
pre-cancer," and then talked patients into coming in for removal, employees say. Singh, the U.S. Dermatology CEO, says that the company
trusts doctors to make the right decisions and that it monitors them through routine audits.
Step 5: Sell-Off
In some cases the cost-cutting either becomes impossible or leads to compromises in care too obvious to ignore. In 2016 a
DermOne LLC office in Irving, Texas, had been using a faulty
autoclave machine to sterilize surgical equipment -- the state and county health departments identified 137 patients that needed
to get tested for blood-borne diseases such as HIV and hepatitis. By 2018, DermOne's backer, Westwind Investors, wanted out.
Westwind had been one of the earliest firms to build a big dermatology business -- with practices in five states -- but others
had grown larger. After the debacle in Irving, the Nevada-based firm sold DermOne's medical records and patient lists, as well as
some of its offices, to other groups. It dissolved the remaining offices, leaving some patients abruptly without care. Westwind did
not respond to repeated requests for comment. Two other private equity-backed groups, TruDerm and Select Dermatology LLC, have also
gone out of business in the past two years.
The surviving chains have been saddled with large piles of debt they're now struggling to repay. In January, U.S. Dermatology
Partners defaulted on a $377 million loan, meaning the private equity backer, Abry Partners, had to hand over the keys to its lenders,
Golub Capital ,
Carlyle Group , and
Ares Management , which will now oversee a chain with almost
100 locations, receiving 1 million visits from patients a year. Abry did not respond to requests for comment .
For the medical groups that make it, the game plan is to eventually sell to the largest players, such as
KKR ,
Blackstone Group , and
Apollo Global Management . Pioneering investors, including Audax,
are now buying practices in other fields -- a concerning development to critics who note that the areas that are currently attracting
investment, such as urology, generally involve more invasive procedures. Should doctors performing vasectomies be thinking about
the dollar-rate returns for KKR -- or any private investor?
"It's ultimately going to backfire," says Dr. Jane Grant-Kels, a veteran dermatologist and professor at the University of Connecticut
School of Medicine. "There's a limit to how much money you can make when you're sticking knives into human skin for profit."
One paradox of the Covid-19 pandemic has been that even as the virus has focused the entire country on health care, it's been
a financial disaster for the industry. And so, while emergency room doctors and nurses care for the sick -- comforting those who
would otherwise die alone, and in some cases
dying themselves
-- private equity-backed staffing companies and hospitals have been
cutting pay for ER doctors. These hospitals, like the big medical practices, make a large portion of their money from elective
procedures and have been forced into wrenching compromises.
For investors with capital, on the other hand, the economic fallout from the virus is a huge opportunity. Stay-at-home orders
have left small practices more financially strained than they've ever been. That will likely accelerate sales to private equity firms,
according to Marc Cabrera, an investment banker focused on health-care deals at Oppenheimer & Co. Independent doctors or groups that
previously rebuffed offers from deep-pocketed backers "will reconsider their options," he says.
Many doctors may ultimately come to regret cashing out, but it's hard to get out once you're in. As part of an acquisition, the
private equity groups typically require doctors to sign yearslong contracts, with noncompete clauses that prevent them from working
in the surrounding area.
As governors throughout the nation ease restrictions on businesses, Advanced Dermatology is opening its most profitable offices
first. The company received an undisclosed sum under the Cares Act, as part of the government relief package intended for health-care
workers. Hunt, Advanced's chief compliance officer, told employees in an email earlier this month that the money would be used for
protective gear, such as masks, and to replace "millions of dollars" in lost revenue.
The group had closed most of its offices since the stay-at-home orders were issued in March, cutting pay for doctors and furloughing
staff. With cities and states beginning to consider reopening, doctors and PAs say they've been told they should be prepared for
a full schedule. Hunt says the company is following the appropriate safety measures, but employees fear it will be nearly impossible
to keep patients apart in waiting rooms. Opening in a reduced capacity, they understand, is not an option.
Now we are coming to the new Digital Revolution, with workers being replaced by smart
computers and an AI future. Millions of office workers already function as a human interface to
the computer. You may have noticed this as you talk with them: they are trained to avoid making
decisions; they say sentences that were scripted for them, and the decisions are made by the
computer that was programmed to do their master's will. As lockdown had forced millions to
communicate with computers directly, a lot of workers became superfluous.
The process of shedding millions of workers in the existing economic system is likely to be
painful for the unemployed. The virus-blamed lockdown and digital control allows the owners of
the digital companies to carry out the revolution with minimal risks for them. What would need
an army and police involvement against riotous unemployed workers, can be achieved with greater
ease under threat of the pandemic. The economy will be modernized and made more efficient.
Alas, for us this script presages the fate of highly qualified weavers in 18 th
century England, even if we shall avoid the total AI takeover Terminator-style.
Probably the scariest piece of news is not about the numbers of "infected". It is a
meaningless word, for there are persistent carriers who do not succumb to disease; the vast
majority of the "infected" are asymptomatic, meaning they aren't sick and aren't infectious;
the number of "infected" is in direct proportion to the number of tests; the tests are dubious
at best, and none is verified by the methods accepted in pre-corona medicine, while the
methodology approved and enforced by the WHO can't be described as scientific. It is not about
deaths, for we do not experience more deaths than in 2018. Moreover, in many countries, notably
in France and in Norway there are 30% fewer deaths in certain weeks of April and May in this
year than in the last year.
The scariest piece of news is that Zoom is worth more than the seven
biggest airlines . These airlines with their accumulated labour (millions of working hours,
hundreds of thousands of employees, highly trained pilots, masses of sophisticated equipment)
just can't be worth as much as a job done in a month by a few programmers and which can be done
anew in a month. Money and stock market prices are useful tools if they measure human efforts;
they do not that anymore. What began with bankers earning more money in a day than a hundred
qualified workers and engineers in their lifetime, ended with the hi-tech lords earning more
than a million workers in their lifetime. It means that Money had banked on the Digital
Economy, a Union made in Hell, while the real economy came up for grabs. Money decided that we
won't fly anymore. They, the new masters, will fly in their private jets; the era of mass
access is over. You will get satisfied with Zoom and PornHub, instead of the real
thing.
Added to this the negative oil future price and the emission centres issuing more and more
money, trying to smother the fire with gasoline, and you will get a picture of the coming
world. There is probably no place for you and me in this world.
Is the great AI update of technology an objective need, and will it eventually bring good
for mankind? Perhaps. But it does not mean the process should be drafted by Money and the
Digital Economy, explained by MSM, justified by bio-horrors and carried on at public expense.
It has to be done differently if we want to preserve the achievements of the long (1945-2020)
peace stretch.
Trump is mostly concerned with giving handouts to the MIC because he thinks "the economy" is
based on jobs in the MIC since that is what they tell him is where US manufacturing is now
based.
Posted by: Kali | May 23 2020 18:16 utc | 2
To a degree, it is true. However, the problem with MIC as an economic stimulant is rather
pitiful multiplier effect. For starters, the costs are hopelessly bloated. Under rather
watchful Putin, Russia does its piece of arms race at a very small fraction of American
costs. By the same token, pro-economy effects of arms spending in USA are seriously diluted
-- the spending is surely there, but the extend of activity is debatable For example, in
aerospace, there is a big potential for civilian applications of technologies developed for
the military. Scant evidence in Boeing that should be a prime beneficiary. The fabled toilet
seat (that cost many thousands of dollars) similarly failed to find civilian applications.
Civilians inclined to overpriced toilets, like Mr. Trump himself, rely on low-tech methods
like gold-plating.
A wider problem is shared by entire GOP: aversion to any government programs, and least of
all industry promoting programs, that could benefit ordinary citizens. This is the exclusive
domain of the free market! Once you refuse to consider that, only MIC remains, plus some
boondogles like interstate highways. Heaven forfend to improve public transit or to repair
almost-proverbial crumbling dams and bridges.
We have to ask cui bono - who benefits from a new nuclear arms race? General Electric,
Boeing, Honeywell International, Lockheed Martin, Northrop Grumman et al. No one else really.
Since these corporations also own the Congress and have zillions to fund Trump's re-election,
they will probably get the go-ahead to spend the rest of the world into oblivion.
Apart from the obvious fact that the MIC is the only viable engine of propulsion of the
American "real economy" (a.k.a. "manufacturing"), there's the more macabre fact that, if we
take Trump's administration first military papers into consideration, it seems there's a
growing coterie inside the Pentagon and the WH that firmly believes MAD can be broken
vis-a-vis China.
Hence the "Prompt Global Strike" doctrine (which is taking form with the commission of the
new B-21 "Raider" strategic bomber, won by Northrop Grumman), the rise of the concept of
"tactical nukes" (hence the extinction of the START, and the Incirlik Base imbroglio post
failed coup against Erdogan) and, most importantly, the new doctrine of "bringing manufacture
back".
The USA is suffering from a structural valorization problem. The only way out is finding
new vital space through which it can initiate a new cycle of valorization. The only
significant vital space to be carved out in the 21st Century is China, with its 600
million-sized middle class (the world's largest middle class, therefore the world's largest
potential consumer market). It won two decades with the opening of the ex-Soviet vital space,
but it was depleted in the 2000s, finally exploding in 2006-2008.
How many decades does the Americans think they can earn by a hypothetical unilateral
destruction of China?
Having a treaty that limits power (in this case nuclear) on the same level for the US and any
other country is simply totally against the ideology of US Superority/Exeptionalism.
That seems to be the driving (psychological and ideological) factor behind this charade.
And like this sick ideology always ends: It too will backfire.
@gepay: another problem is people that disagree with Bernhard on COVID, but then use this
disagreement to not read his artciles anymore.
So many people only want to read what they want to hear, and run away at the first real
different view.
The narcissism, that our neoliberal societies inducded in its people the last decade shows..
And seeing both sides and everything in between is not possible anymore for a majority it
seems.
And living in a bubble is so comforting and easy in todays world. On MSM and on Alt Media
alike.
"...that may well fit Trump's plans of pushing all arms control regimes into oblivion."
It's not just arms control regimes, as the WHO business showed. This is the Roy Cohn agenda
showing up again- the old GOP objection to the UN and all other international organisations.
It is pure ideology-the US has gained immensely from dominating the organisations of which it
is a part, leaving them makes no sense at all.
As to 'spending China to oblivion". This only works when every Pentagon dollar spent
forces China or Russia to spend a dollar themselves. In such a contest the richest country
wins. But that only works in the context of pre-nuclear warfare. With the nuclear deterrent
it becomes possible to opt out of all the money wasting nonsense represented by the Pentagon
budget, sit back and say, as the Chinese diplomat evidently did, "Just try it."
Which adds up to the conclusion that it is wholly irrational of the United States to denounce
treaties designed to reduce the likelihood of nuclear weapons being used: it is to the
advantage of Washington that other powers, potential rivals, are forced to build up
conventional forces because they are bound by treaty not to rely on nuclear weapons.
So, again: pure ideology designed for domestic consumption and advanced by the most
reactionary elements in American society- the Jesse Helms good ol' boys who make the neo-cons
look almost human.
He likes economic war (against everybody), they want actual war. Laguerre | May 23 2020 20:17
utc
Trump has a primitive mercantile mind. There is nothing inherently wrong about
mercantilism, but a primitive version of anything tends to be mediocre at best. Thus he loves
war that give profit, like Yemen where natives are bombed with expensive products made in USA
(and unfortunately, also UK, France etc., but the bulk goes to USA). Then he loves wars the
he thinks will give profit, like "keeping oil fields in Syria". Some people told him that oil
fields are profitable (although they can go bankrupt just like casinos).
Privately, I think that Trump wanted to make a war with Iran, but the generals explained
him what kind of disaster that would be.
One difference is that Democrats are aligned with uber Zionist of slightly less rabid
variety than Republicans. A bit like black bears vs grizzlies. Unfortunately, like in the
animal kingdom, when the push comes to shove, black bears defer to grizzlies, so on the side
of Palestinians etc. there is no difference.
Billingslea's "spending ... into oblivion" statement reflects the belief, still widespread
among US neocon political / military elites, that the Soviet Union was brought down and
destroyed by its attempts to keep up with US military spending throughout the 1980s. This
alone tells us how steeped in past fantasy the entire US political and military establishment
must be. Compared to Rip van Winkle, these people are comatose.
Spending the enemy into oblivion may be "tried and true" practice but only when the enemy
is much poorer than yourself in arms production and in one type of weapons manufacture. That
certainly does not apply to either Russia or China these days. Both nations think more
strategically and do not waste precious resources in parading and projecting military power
abroad, or rely almost exclusively on old, decaying technologies and a narrow mindset
obsessed with always being top dog in everything.
The most important aspects of economic life can proceed with only those
modifications.
Tourism is some 10% of world GDP. It's going to take a massive hit, lockdown or no
lockdown. Air travel took a massive hit before the lockdown, empty planes were flying often.
While the official lockdowns undoubtedly led to a contraction in economic activity, a huge
portion (probably most) of the economic damage would be incurred anyway. For example I will
personally not be eating out in the foreseeable future (a vaccine would change that), and I
did so at least every other month. It's not very frequent, but I visited relatively expensive
restaurants, so my reduced consumption probably disproportionately hits the higher end jobs
in the sector. I know people who used to eat out more frequently (and in expensive
restaurants), who are now staying home. Lazy people who had a gym membership to soothe their
conscience will now feel less guilty if they just cancel it.
Some people believe that if we just restrict or basically shut down huge sectors of the
economy, then the rest can still carry on as if nothing happened. That's just wrong. People
who work in restaurants or gyms are now going to reduce their own consumption, for example
they won't be buying new cars any time soon. This in turn reduces consumption by people
employed (or previously employed) in those sectors.
So unfortunately no, I don't think the rest of the economy could carry on like before.
@Anatoly Karlin The
lockdown actions in the US were, by my estimation, about 6 weeks too late. 6 weeks earlier
and maybe actions could have been phased in (monitor results) and not blanket panic. Even in
that time frame we had serious suspicion of asymptomatic spread. We could have started masks
for everyone, restricting air travel and cruises, isolated nursing home and started shutting
down schools. Yes, I know children don't get the large complications however, it beggars
belief that stuffed in schools then going home; kids would not be vectors.
In any case the US economy was primed to collapse anyway. Losing the China supply chain
was significant and would have happened even if no virus was found in the US.
P.S. I think it's going to get worse; (I'm surprised it already hasn't) but I think
unemployment is going to be bankrupting states.
From comments: "
neoliberalism to be a techno-economic order of control, requiring a state apparatus to enforce
wholly artificial directives. Also, the work of recent critics of data markets such as Shoshana
Zuboff has shown capitalism to be evolving into a totalitarian system of control through
cybernetic data aggregation."
"... By rolling back the state, neoliberalism was supposed to have allowed autonomy and
creativity to flourish. Instead, it has delivered a semi-privatised authoritarianism more
oppressive than the system it replaced. ..."
"... Workers find themselves enmeshed in a Kafkaesque bureaucracy , centrally controlled and
micromanaged. Organisations that depend on a cooperative ethic – such as schools and
hospitals – are stripped down, hectored and forced to conform to suffocating diktats. The
introduction of private capital into public services – that would herald a glorious new age
of choice and openness – is brutally enforced. The doctrine promises diversity and freedom
but demands conformity and silence. ..."
"... Their problem is that neoliberal theology, as well as seeking to roll back the state,
insists that collective bargaining and other forms of worker power be eliminated (in the name of
freedom, of course). So the marketisation and semi-privatisation of public services became not so
much a means of pursuing efficiency as an instrument of control. ..."
"... Public-service workers are now subjected to a panoptical regime of monitoring and
assessment, using the benchmarks von Mises rightly warned were inapplicable and absurd. The
bureaucratic quantification of public administration goes far beyond an attempt at discerning
efficacy. It has become an end in itself. ..."
Notable quotes:
"... By rolling back the state, neoliberalism was supposed to have allowed autonomy and creativity to flourish. Instead, it has delivered a semi-privatised authoritarianism more oppressive than the system it replaced. ..."
"... Workers find themselves enmeshed in a Kafkaesque bureaucracy , centrally controlled and micromanaged. Organisations that depend on a cooperative ethic – such as schools and hospitals – are stripped down, hectored and forced to conform to suffocating diktats. The introduction of private capital into public services – that would herald a glorious new age of choice and openness – is brutally enforced. The doctrine promises diversity and freedom but demands conformity and silence. ..."
"... Their problem is that neoliberal theology, as well as seeking to roll back the state, insists that collective bargaining and other forms of worker power be eliminated (in the name of freedom, of course). So the marketisation and semi-privatisation of public services became not so much a means of pursuing efficiency as an instrument of control. ..."
"... Public-service workers are now subjected to a panoptical regime of monitoring and assessment, using the benchmarks von Mises rightly warned were inapplicable and absurd. The bureaucratic quantification of public administration goes far beyond an attempt at discerning efficacy. It has become an end in itself. ..."
"... The other point to be made is that the return of fundamentalist nationalism is arguably a radicalized form of neoliberalism. ..."
"... Therefore, neoliberal hegemony can only be perpetuated with authoritarian, nationalist ideologies and an order of market feudalism. In other words, neoliberalism's authoritarian orientations, previously effaced beneath discourses of egalitarian free-enterprise, become overt. ..."
"... The market is no longer an enabler of private enterprise, but something more like a medieval religion, conferring ultimate authority on a demagogue. Individual entrepreneurs collectivise into a 'people' serving a market which has become synonymous with nationhood. ..."
Thousands of people march through London to protest against underfunding and privatisation
of the NHS. Photograph: Wiktor Szymanowicz/Barcroft Images M y life was saved last year by the
Churchill Hospital in Oxford, through a skilful procedure
to remove a cancer from my body . Now I will need another operation, to remove my jaw from
the floor. I've just learned what was happening at the hospital while I was being treated. On
the surface, it ran smoothly. Underneath, unknown to me, was fury and tumult. Many of the staff
had objected to a decision by the National Health Service
to privatise the hospital's cancer scanning . They complained that the scanners the private
company was offering were less sensitive than the hospital's own machines. Privatisation, they
said, would put patients at risk. In response,
as the Guardian revealed last week , NHS England threatened to sue the hospital for libel
if its staff continued to criticise the decision.
The dominant system of political thought in this country, which produced both the creeping
privatisation of public health services and this astonishing attempt to stifle free speech,
promised to save us from dehumanising bureaucracy. By rolling back the state, neoliberalism
was supposed to have allowed autonomy and creativity to flourish. Instead, it has delivered a
semi-privatised authoritarianism more oppressive than the system it replaced.
Workers find themselves enmeshed in a
Kafkaesque bureaucracy , centrally controlled and micromanaged. Organisations that depend
on a cooperative ethic – such as schools and hospitals – are stripped down,
hectored and forced to conform to suffocating diktats. The introduction of private capital into
public services – that would herald a glorious new age of choice and openness – is
brutally enforced. The doctrine promises diversity and freedom but demands conformity and
silence.
Much of the theory behind these transformations arises from the work of Ludwig von Mises. In
his book Bureaucracy , published in 1944, he
argued that there could be no accommodation between capitalism and socialism. The creation of
the National Health Service in the UK, the New Deal in the US and other experiments in social
democracy would lead inexorably to the bureaucratic totalitarianism of the Soviet Union and
Nazi Germany.
He recognised that some state bureaucracy was inevitable; there were certain functions that
could not be discharged without it. But unless the role of the state is minimised –
confined to defence, security, taxation, customs and not much else – workers would be
reduced to cogs "in a vast bureaucratic machine", deprived of initiative and free will.
By contrast, those who labour within an "unhampered capitalist system" are "free men", whose
liberty is guaranteed by "an economic democracy in which every penny gives a right to vote". He
forgot to add that some people, in his capitalist utopia, have more votes than others. And
those votes become a source of power.
His ideas, alongside the writings of
Friedrich Hayek , Milton Friedman and other neoliberal thinkers, have been applied in this
country by Margaret Thatcher, David Cameron, Theresa May and, to an alarming extent, Tony
Blair. All of those have attempted to privatise or marketise public services in the name of
freedom and efficiency, but they keep hitting the same snag: democracy. People want essential
services to remain public, and they are right to do so.
If you hand public services to private companies, either you create a private monopoly,
which can use its dominance to extract wealth and shape the system to serve its own needs
– or you introduce competition, creating an incoherent, fragmented service characterised
by the institutional failure you can see every day on our railways. We're not idiots, even if
we are treated as such. We know what the profit motive does to public services.
So successive governments decided that if they could not privatise our core services
outright, they would subject them to "market discipline". Von Mises repeatedly warned against
this approach. "No reform could transform a public office into a sort of private enterprise,"
he cautioned. The value of public administration "cannot be expressed in terms of money".
"Government efficiency and industrial efficiency are entirely different things."
"Intellectual work cannot be measured and valued by mechanical devices." "You cannot
'measure' a doctor according to the time he employs in examining one case." They ignored his
warnings.
Their problem is that neoliberal theology, as well as seeking to roll back the state,
insists that collective bargaining and other forms of worker power be eliminated (in the name
of freedom, of course). So the marketisation and semi-privatisation of public services became
not so much a means of pursuing efficiency as an instrument of control.
Public-service workers are now subjected to a panoptical regime of monitoring and
assessment, using the benchmarks von Mises rightly warned were inapplicable and absurd. The
bureaucratic quantification of public administration goes far beyond an attempt at discerning
efficacy. It has become an end in itself.
Its perversities afflict all public services. Schools teach to the test , depriving
children of a rounded and useful education. Hospitals manipulate waiting times, shuffling
patients from one list to another. Police forces ignore some crimes, reclassify others, and
persuade suspects to admit to extra offences to improve their statistics . Universities urge their
researchers to
write quick and superficial papers , instead of deep monographs, to maximise their scores
under the research excellence framework.
As a result, public services become highly inefficient for an obvious reason: the
destruction of staff morale. Skilled people, including surgeons whose training costs hundreds
of thousands of pounds, resign or retire early because of the stress and misery the system
causes. The leakage of talent is a far greater waste than any inefficiencies this quantomania
claims to address.
New extremes in the surveillance and control of workers are not, of course, confined to the
public sector. Amazon has patented
a wristband that can track workers' movements and detect the slightest deviation from
protocol. Technologies are used to monitor peoples' keystrokes, language, moods and tone of
voice. Some companies have begun to experiment with the
micro-chipping of their staff . As the philosopher Byung-Chul
Han points out , neoliberal work practices, epitomised by the gig economy, that
reclassifies workers as independent contractors, internalise exploitation. "Everyone is a
self-exploiting worker in their own enterprise."
The freedom we were promised turns out to be
freedom for capital , gained at the expense of human liberty. The system neoliberalism has
created is a bureaucracy that tends towards absolutism, produced in the public services by
managers mimicking corporate executives, imposing inappropriate and self-defeating efficiency
measures, and in the private sector by subjection to faceless technologies that can brook no
argument or complaint.
Attempts to resist are met by ever more extreme methods, such as the threatened lawsuit at
the Churchill Hospital. Such instruments of control crush autonomy and creativity. It is true
that the Soviet bureaucracy von Mises rightly denounced reduced its workers to subjugated
drones. But the system his disciples have created is heading the same way.
The other point to be made is that the return of fundamentalist nationalism is arguably a
radicalized form of neoliberalism. If 'free markets' of enterprising individuals have
been tested to destruction, then capitalism is unable to articulate an ideology with which to
legitimise itself.
Therefore, neoliberal hegemony can only be perpetuated with authoritarian, nationalist
ideologies and an order of market feudalism. In other words, neoliberalism's authoritarian
orientations, previously effaced beneath discourses of egalitarian free-enterprise, become
overt.
The market is no longer an enabler of private enterprise, but something more like a
medieval religion, conferring ultimate authority on a demagogue. Individual entrepreneurs
collectivise into a 'people' serving a market which has become synonymous with
nationhood.
A corporate state emerges, free of the regulatory fetters of democracy. The final
restriction on the market - democracy itself - is removed. There then is no separate market
and state, just a totalitarian market state.
This is the best piece of writing on neoliberalism I have ever seen. Look, 'what is in
general good and probably most importantly what is in the future good'. Why are we
collectively not viewing everything that way? Surely those thoughts should drive us all?
Pinkie123: So good to read your understandings of neoliberalism. The political project is the
imposition of the all seeing all knowing 'market' on all aspects of human life. This version
of the market is an 'information processor'. Speaking of the different idea of the
laissez-faire version of market/non market areas and the function of the night watchman state
are you aware there are different neoliberalisms? The EU for example runs on the version
called 'ordoliberalism'. I understand that this still sees some areas of society as separate
from 'the market'?
ADamnSmith: Philip Mirowski has discussed this 'under the radar' aspect of neoliberalism. How
to impose 'the market' on human affairs - best not to be to explicit about what you are
doing. Only recently has some knowledge about the actual neoliberal project been appearing.
Most people think of neoliberalism as 'making the rich richer' - just a ramped up version of
capitalism. That's how the left has thought of it and they have been ineffective in stopping
its implementation.
Finally. A writer who can talk about neoliberalism as NOT being a retro version of classical
laissez faire liberalism. It is about imposing "The Market" as the sole arbiter of Truth on
us all.
Only the 'Market' knows what is true in life - no need for 'democracy' or 'education'.
Neoliberals believe - unlike classical liberals with their view of people as rational
individuals acting in their own self-interest - people are inherently 'unreliable', stupid.
Only entrepreneurs - those close to the market - can know 'the truth' about anything. To
succeed we all need to take our cues in life from what the market tells us. Neoliberalism is
not about a 'small state'. The state is repurposed to impose the 'all knowing' market on
everyone and everything. That is neoliberalism's political project. It is ultimately not
about 'economics'.
The left have been entirely wrong to believe that neoliberalism is a mobilisation of
anarchic, 'free' markets. It never was so. Only a few more acute thinkers on the left
(Jacques Ranciere, Foucault, Deleuze and, more recently, Mark Fisher, Wendy Brown, Will
Davies and David Graeber) have understood neoliberalism to be a techno-economic order of
control, requiring a state apparatus to enforce wholly artificial directives. Also, the work
of recent critics of data markets such as Shoshana Zuboff has shown capitalism to be evolving
into a totalitarian system of control through cybernetic data aggregation.
Only in theory is neoliberalism a form of laissez-faire. Neoliberalism is not a case of the
state saying, as it were: 'OK everyone, we'll impose some very broad legal parameters, so
we'll make sure the police will turn up if someone breaks into your house; but otherwise
we'll hang back and let you do what you want'. Hayek is perfectly clear that a strong state
is required to force people to act according to market logic. If left to their own devices,
they might collectivise, think up dangerous utopian ideologies, and the next thing you know
there would be socialism. This the paradox of neoliberalism as an intellectual critique of
government: a socialist state can only be prohibited with an equally strong state. That is,
neoliberals are not opposed to a state as such, but to a specifically centrally-planned state
based on principles of social justice - a state which, to Hayek's mind, could only end in t
totalitarianism. Because concepts of social justice are expressed in language, neoliberals
are suspicious of linguistic concepts, regarding them as politically dangerous. Their
preference has always been for numbers. Hence, market bureaucracy aims for the quantification
of all values - translating the entirety of social reality into metrics, data, objectively
measurable price signals. Numbers are safe. The laws of numbers never change. Numbers do not
lead to revolutions. Hence, all the audit, performance review and tick-boxing that has been
enforced into public institutions serves to render them forever subservient to numerical
(market) logic. However, because social institutions are not measurable, attempts to make
them so become increasingly mystical and absurd. Administrators manage data that has no
relation to reality. Quantitatively unmeasurable things - like happiness or success - are
measured, with absurd results.
It should be understood (and I speak above all as a critic of neoliberalism) that
neoliberal ideology is not merely a system of class power, but an entire metaphysic, a way of
understanding the world that has an emotional hold over people. For any ideology to
universalize itself, it must be based on some very powerful ideas. Hayek and Von Mises were
Jewish fugitives of Nazism, living through the worst horrors of twentieth-century
totalitarianism. There are passages of Hayek's that describe a world operating according to
the rules of a benign abstract system that make it sound rather lovely. To understand
neoliberalism, we must see that it has an appeal.
However, there is no perfect order of price signals. People do not simply act according to
economic self-interest. Therefore, neoliberalism is a utopian political project like any
other, requiring the brute power of the state to enforce ideological tenets. With tragic
irony, the neoliberal order eventually becomes not dissimilar to the totalitarian regimes
that Hayek railed against.
Nationalised rail in the UK was under-funded and 'set up to fail' in its latter phase to make
privatisation seem like an attractive prospect. I have travelled by train under both
nationalisation and privatisation and the latter has been an unmitigated disaster in my
experience. Under privatisation, public services are run for the benefit of shareholders and
CEO's, rather than customers and citizens and under the opaque shroud of undemocratic
'commercial confidentiality'.
What has been very noticeable about the development of bureaucracy in the public and private
spheres over the last 40 years (since Thatcher govt of 79) has been the way systems are
designed now to place responsibility and culpability on the workers delivering the services -
Teachers, Nurses, social workers, etc. While those making the policies, passing the laws,
overseeing the regulations- viz. the people 'at the top', now no longer take the rap when
something goes wrong- they may be the Captain of their particular ship, but the
responsibility now rests with the man sweeping the decks. Instead they are covered by tying
up in knots those teachers etc. having to fill in endless check lists and reports, which have
as much use as clicking 'yes' one has understood those long legal terms provided by software
companies.... yet are legally binding. So how the hell do we get out of this mess? By us as
individuals uniting through unions or whatever and saying NO. No to your dumb educational
directives, No to your cruel welfare policies, No to your stupid NHS mismanagement.... there
would be a lot of No's but eventually we could say collectively 'Yes I did the right thing'.
'The left wing dialogue about neoliberalism used to be that it was the Wild West and that
anything goes. Now apparently it's a machine of mass control.'
It is the Wild West and anything goes for the corporate entities, and a machine of control
of the masses. Hence the wish of neoliberals to remove legislation that protects workers and
consumers.
"... Meanwhile - as Public Services are devalued and denuded in this system the private sector becomes increasingly wealthy at the top while its workers become poorer and less powerful at the bottom ..."
"... Education is a prime example of where neoliberalism has had a negative effect. ..."
It's the same in education. Academies are unaccountable bureaucracies with very expensive
layers of management while teachers are being laid off in some of the most deprived areas of
the country, exemplified by this story from Sheffield
Only the greedy, selfish, well off, egotistical and share holders believe that Public
Services should, could and would benefit from privatisation and deregulation.
Education and
Health for example are (in theory) a universal right in the UK. As numbers in the population
rise and demographics change so do costs ie delivery of the service becomes more expensive.As
market force logic is introduced it also becomes less responsive - hence people not able to
get the right drugs and treatment and challenging and challenged young people being denied an
education that is vital for them in increasing numbers.
Meanwhile - as Public Services are
devalued and denuded in this system the private sector becomes increasingly wealthy at the
top while its workers become poorer and less powerful at the bottom.
With the introduction of
Tory austerity which punishes the latter to the benefit of the former there is no surprise
that this system does not work and has provided a platform for the unscrupulous greedy and
corrupt to exploit Brexit and produce conditions which will take 'Neiliberalism' to where
logic suggests it would always go - with the powerful rich protected minority exerting their
power over an increasingly poor and powerless majority.
Education is a prime example of where neoliberalism has had a negative effect. It worked well
when labour was pumping billions into it and they invested in early intervention schemes such
as sure start and nursery expansion. Unfortunately under the tories we have had those
progressive policies scaled right back. Children with SEND and/or in care are commodities
bought and sold by local authorities. I've been working in a PRU which is a private company
and it does good things, but I can't help but think if that was in the public sector that it
would be in a purpose built building rather than some scruffy office with no playground. The
facilities aren't what you would expect in this day in age. If we had a proper functioning
government with a plan then what happens with vulnerable children would be properly organised
rather than a reactive shit show.
COVID Kills Hospitality Industry, Crushes NYC Hotels, Triggers CMBS Implosion by
Tyler Durden Fri,
05/22/2020 - 09:15 The global hospitality industry is facing one of the worst crashes in
history, and New York City, the epicenter of COVID-19 in the US, has seen its tourism industry
decimated. With no rebound in sight, the second great depression for commercial real estate is
ahead and could lead to a massive default wave of shopping malls and luxury hotels.
Judging by the
ongoing collapse in commercial real estate, as we recently noted , CMBX 6, which track 25
commercial-mortgage-backed securities with high exposure to 2012 shopping mall loans, has
tumbled during lockdowns, resulting in a handsome payout for the likes of Carl Icahn, McNamara
and others who were short the tranche.
Last week we said, "keep a close eye on CMBX 9" with its "outlier exposure to hotels which
have quickly emerged as the most impacted sector from the pandemic, this may well be the next
big short."
The various CMBX series are shown in the chart below, with CMBX 9 most notable for its 17%
exposure to hotels.
While the broader market has rebounded, CMBX 9 has experienced a swan dive.
Several key observations in the Manhattan hotel industry have been seen this month, suggest
the tide is turning for the industry. Let's start with the newest piece of information is that
The Times Square Edition, a newly constructed multi-million dollar hotel located in Midtown
Manhattan, is set to pull the plug on operations by late summer.
Marriott International Inc. operates the hotel under the Edition brand, says it "has
provided advance notice to employees, government officials and union officials" that all
operations on the property will grind to a halt on August 13.
This suggests Marriot doesn't see a V-shaped recovery in the tourism industry this year.
Maybe Marriot is taking advice from Scott Minerd, the CIO of Guggenheim Investments, who
recently said a
recovery in the economy could take upwards of "four years ."
Bloomberg reviewed new documents in the ongoing foreclosure proceeding show Marriot
informed owner Maefield Development in March that "a cash shortfall due to the outbreak could
put the developer in default on its contract with the lodging giant."
Moody's Investors Service valued the mixed-use property at more than $2.4 billion in 2018 --
considering the economic crash and commercial real estate implosion, the value of the property
is likely much lower.
Even when New York City reopens, hotels in Manhattan generally rely on international travel
and large conferences, which are several things that may not return to 2019 activity trends for
several years. This has made it challenging for hotel operators to cover debt payments and
labor costs, suggesting defaults and closures could be dead ahead.
Jonathan Falik, CEO at JF Capital Advisors, recently told Bloomberg that too many rooms are
empty in the city and warns not all hotels will survive.
Last week, Sunstone Hotel Investors Inc. wrote down its Hilton Times Square hotel to less
than its $77 million mortgage. Sunstone is currently in discussions with lenders to either
restructure or handover the property.
Data firm Trepp said $1 billion dollars in late payments were seen in CMBSs used to finance
New York hotels. The second great depression in commercial real estate has arrived, many
shopping malls and hotels may not survive.
"... This whole crisis is all about recapitalization or restructuring the debt. The Fed is bailing out the creditors (Big Surprise!) and forcing corporate America through bankruptcy. ..."
We understood ourselves as the means that make the rich richer.
Then came the latest wisdom: "Money makes money." They have come to believe their own
lies, and those lies are being subsidised by our taxes. The moment when "everything" will
belong to One Account seems to be upon us. I expect foreclosures and bankruptcies amongst the
non-investing classes. All shortfalls to be augmented by tax money. Next, we await Zion
unveiling our new King. Once again, not one atom of deviation from the plan as laid out in
the Protocols. it is of utter importance that we do not turn upon another. In that sense, I
suggest more of Unz's readers start looking at Black people as possible comrades in this
engagement, we are confronted by a common enemy, the one that taught us the "value" of racism
in the first place. They have divided us, now they will conquer.
Or we can just stand together. If we refuse to fight, it will be us against Bill Gates'
robots, and his microcephalic pilots are still too young to be drafted. This is, however, our
last chance, I be thinking.
Been wondering some years now, why 'retailing' is such a popular investment, when nobody has
no money left to buy stuff with. Now we know.
Gilad, these are some thoughts I jotted down a few weeks ago.
This whole crisis is all about recapitalization or restructuring the debt. The Fed is
bailing out the creditors (Big Surprise!) and forcing corporate America through bankruptcy.
The Virus is being used as a pretext for forcing the economy into a kind of controlled
depression (demolition) and debt restructuring. The Virus and China are being used as the
fall guys for the collapse. In 2008-09 the Banks and WS were bailed out and not forced into
bankruptcy. The Fed then reinflated and drove up asset prices along with more than doubling
the debt from levels that were already overextended. In The Great Restructuring that's taking
place now, the Money Boys are basically transferring the income and assets of Main Street to
the Creditors as they deflate the debt and bail themselves out. The whole scam could more
accurately be called "The Great Heist" or the Money Power's perverted or mammonic version of
a Debt Jubilee.
President Donald Trump told Republican senators during a private lunch Tuesday that he is willing to let expanded unemployment
benefits expire at the end of July, a decision that would
massively slash the incomes of tens of millions
of people who have lost their jobs due to the Covid-19 crisis.
The Washington Post
reported Tuesday that the president "privately expressed opposition to extending a weekly $600 boost in unemployment insurance
for laid-off workers affected by the coronavirus pandemic, according to three officials familiar with his remarks."
House Democrats passed legislation last week that would extend the beefed-up unemployment benefits through January of 2021 as
experts and government officials -- including Federal Reserve chair Jerome Powell --
warn the
U.S. unemployment rate could soon reach 25%. The unemployment insurance boost under the CARES Act is set to expire on July 31, even
as many
people have yet to receive their first check.
"With nearly 1 in 5 Americans out of work, Donald Trump's plan is to cut off the boost to unemployment benefits and shower his
wealthy buddies with more tax cuts," Sen. Ron Wyden (D-Ore.), one of the architects of the unemployment insurance expansion,
toldHuffPost . "This is the worst economic crisis in 100 years and Donald Trump is doubling down on Herbert Hoover's economic
playbook and pushing workers to risk their health for his political benefit."
Sen. Lindsey Graham (R-S.C.) -- who
declared earlier this month that Congress will only extend the boosted unemployment insurance "over our dead bodies" -- said
after the private lunch that Trump believes the benefits are "hurting the economic recovery." Graham was one of several Republican
senators who
opposed the initial expansion of unemployment benefits as too generous.
An
analysis
released last week by the Hamilton Project, an initiative of the Brookings Institution, found that expanded unemployment benefits
offset "roughly half of lost wages and salaries in April." Unemployment insurance has "been essential to families, and is vital for
keeping the economy from cratering further," the authors of the analysis noted.
Ernie Tedeschi, a former Treasury Department economist,
estimated that "come July 31, if the emergency
UI top-up isn't extended, unemployed workers will effectively get a pay cut of 50-75% overnight."
"It's increasingly looking like there won't be enough labor demand to hire them all back at that point," Tedeschi tweeted.
The latest Labor Department statistics showed that
more than 36 million
people in the U.S. have filed jobless claims since mid-March as mass layoffs continue in the absence of government action to
keep workers on company payrolls. Despite the grim numbers, the Post 's Jeff Stein reported Tuesday that the White House
is "
predicting a swift economic recovery " as it resists additional efforts to provide relief to frontline workers and the unemployed.
On top of rejecting an extension of enhanced unemployment insurance, Trump last month
publicly voiced opposition to another round of direct stimulus payments, instead advocating a cut to the tax that funds Social
Security and Medicare.
Initially, we were told that the coronavirus lockdowns would just "temporarily" disrupt the
U.S. economy, but now it is becoming clear that a lot of the damage will be permanent.
We are starting to see businesses go belly up all over the country, and this includes some
of the most iconic names in the retail world. When J.C. Penney announced that it would be
declaring bankruptcy and closing
hundreds of stores , I warned that would just be
the tip of the iceberg , and that has definitely turned out to be the case. In fact, on
Wednesday many analysts were absolutely shocked when news broke that Victoria's Secret
has decided to shut down about 250 stores
Victoria's Secret plans to permanently close approximately 250 stores in the U.S. and
Canada in 2020, its parent company L Brands announced Wednesday.
L Brands also plans to permanently close 50 Bath & Body Works stores in the U.S. and
one in Canada, according to information the company posted online as part of its quarterly
earnings.
If this pandemic had passed quickly, perhaps those stores wouldn't have needed to be shut
down. But at this point it has become obvious that this virus is going to be with us for a long
time to come. In fact, the WHO just announced that on a global basis we just witnessed the
largest number of newly confirmed cases on a single day so far.
Pier 1 Imports, which previously said it would close half of its fleet of stores, now
plans to close all of its locations.
The retailer, based in Fort Worth, Texas, announced in a news release Tuesday that it was
seeking bankruptcy court approval to begin an "orderly wind-down" when stores are able to
reopen "following the government-mandated closures during the COVID-19 pandemic."
I was never a huge fan of Pier 1 Imports, but my wife liked to visit and see what they had,
but now we will never be able to do that again.
Something about that really saddens me.
Of course it isn't just retailers that are collapsing. Car rental giant Hertz
"is on the verge of bankrutpcy" , and things are not looking good at all
Hertz is on the verge of bankruptcy. At the end of April, it disclosed it had missed a
large amount of lease payments on its rental cars. Since then, it has entered into
forbearance and waiver agreements with these lenders that give it until May 22 to come up
with the money and a plan. Its cars, now parked at various parking lots around the country,
are collateral for this debt.
Some of you old timers might remember the old Hertz commercials featuring O.J. Simpson . Those were much
simpler times, and to be honest I really miss them.
Unfortunately, times have really changed, and I seriously doubt that Hertz will be able to
survive much longer in this very harsh economic environment.
Needless to say, a lot of businesses are going to die in the weeks and months ahead of us.
As I discussed
the other day , it is now being projected that approximately one out of every four
restaurants in the United States will be closing down permanently.
Can you imagine what this is going to look like?
We are going to have abandoned buildings all over the place, and this will especially be
true in our more impoverished communities.
The only chance we have of pulling out of this economic death spiral is if there is a full
scale return to normal economic activity all across America, but that isn't going to happen any
time soon.
Fear of COVID-19 is going to paralyze small and big businesses alike for the foreseeable
future, and every new outbreak is going to spark more overreactions.
Just days after reopening its American assembly plants, Ford temporarily shut down two
separate factories because employees tested positive for Covid-19.
One plant in Chicago that builds the Ford Explorer, the Lincoln Aviator and the Ford
Interceptor police car stopped operations Tuesday afternoon after two employees tested
positive for Covid-19. Then, Ford's plant in Dearborn Michigan that makes its bestselling
F-150 pickup, shut down Wednesday.
If we keep shutting things down every time someone gets sick, our economic problems are just
going to get worse and worse.
A new study suggests the number of Americans who will die after contracting the novel
coronavirus is likely to more than triple by the end of the year, even if current social
distancing habits continue for months on end.
The study, conducted by the Comparative Health Outcomes, Policy and Economics Institute at
the University of Washington's School of Pharmacy, found that 1.3 percent of those who show
symptoms of COVID-19 die, an infection fatality rate that is 13 times higher than a bad
influenza season.
Of course it certainly doesn't help that we continue to allow people from other countries
where COVID-19 is raging to fly into the U.S.
without any special screening whatsoever
A glamorous Russian blogger says she has proved that the US is open for foreign tourism
again, despite the pandemic, according to video obtained by DailyMail.com .
Sofia Semyonova, 33, a fitness model, told how she traveled on a crammed Aeroflot flight
with 500-plus passengers with 'no social distancing' from Moscow to New York City.
She used her B2 tourist visa to enter America from Russia's coronavirus epicentre 'in 30
seconds without any extra questions'.
I don't know how this could possibly be happening, but apparently it is.
Eventually, COVID-19 will literally be just about everywhere, and almost everyone in the
entire country will be exposed to it.
And fear of this virus will paralyze our economy for the foreseeable future.
So the truth is that the "for lease" and "space available" signs that you are now seeing are
just the start.
A lot more are coming, and it is going to be a very dark chapter for our nation.
According to the CDC's long established mortality models, 687,000 Americans were supposed to
die during the 12 weeks between February 1 and April 18.
But only 666,000 actually complied. So the Grim Reaper was deprived of his seasonally
adjusted mortality quota, even as 21,000 families were spared, at least temporarily, of the
loss and grief which accompanies the passing of a loved one.
Either way, how in the hell does that square with Lockdown Nation -- an unprecedented
government ordered economic heart attack purportedly designed to prevent a Black Plague of
illness and death?
To be sure, a better than garden variety recession was already due after a record 129- month
long business expansion. But it was the sudden, virulent eruption of the Covid Death Hysteria
in the halls of government that turned a scheduled business cycle contraction into a monumental
catastrophe.
"... 1978 was the last year real wages showed significant growth in real terms in the USA. After that, came the great stagnation of the neoliberal era (1978-2008), 30 consecutive years of frozen earns for the American working classes. This era is not marked by a slow down in consumption, though. On the contrary: consumption continued to rise, but, this time, it was mainly debt-fueled. Americans wages stagnated, but they didn't want to give up their hyperconsumption privileges, so they contracted debt after debt. ..."
"... As the timeline shows, it is a myth neoliberalism begun in the USA only with Reagan's election in 1980. Most neoliberal reforms begun during Jimmy Carter's second half of his lonely term (1978-1980). It was Jimmy Carter, for example, who hired (nominated) Paul Volcker to the Fed. Other essential Acts that paved the way to neoliberalism were also passed during Jimmy Carter's later part of the reign. ..."
"... I heard some politician suggest that while many of the jobs will never come back that people can learn to code. We need drug testing for our politicians. I 'code' and I'm wetting my pants. It's not because I think that it's so easy I an be easily replaced but but we still need demand. If everyone is losing their jobs ... terrifies me. ..."
If it were true why would they need to repeat it again and again? The American Dream died
in 1969 - the last year of the post-war miracle in the USA. For the following five years, the
country continued to flourish, but at a clear slower pace. With the oil crisis of 1974-5, the
American Dream definitely died, albeit some indicators (e.g. real wages) still showed some
improvements.
1978 was the last year real wages showed significant growth in real terms in the USA.
After that, came the great stagnation of the neoliberal era (1978-2008), 30 consecutive years
of frozen earns for the American working classes. This era is not marked by a slow down in
consumption, though. On the contrary: consumption continued to rise, but, this time, it was
mainly debt-fueled. Americans wages stagnated, but they didn't want to give up their
hyperconsumption privileges, so they contracted debt after debt.
As the timeline shows, it is a myth neoliberalism begun in the USA only with Reagan's
election in 1980. Most neoliberal reforms begun during Jimmy Carter's second half of his
lonely term (1978-1980). It was Jimmy Carter, for example, who hired (nominated) Paul Volcker
to the Fed. Other essential Acts that paved the way to neoliberalism were also passed during
Jimmy Carter's later part of the reign.
Not only does the headline "The American Dream is Alive and Well" need to be repeated ad
nauseam but also the narrative it promotes, of the immigrant family that succeeds through
sheer hard work and dedication and nothing else - no help from government subsidies or
relatives already in the country, no dependence on bank loans that help start a business or
put teenagers through college, no discrimination whatsoever - has to be hammered constantly
over and over, even when everyone can see that the story template no longer has any legs if
it ever had any.
For all the sophisticated techniques and tools of propaganda that the likes of Edward
Bernays and his followers in the PR industry bequeathed to the US, the elites and their mass
media lackeys can't even get the repetition to look and sound more than banal and
one-dimensional.
Jen @6: "For all the sophisticated techniques and tools of propaganda that the likes of
Edward Bernays and his followers in the PR industry bequeathed to the US, the elites and
their mass media lackeys can't even get the repetition to look and sound more than banal and
one-dimensional."
Nice observation that incompetence is pervasive even among the empire's most important
servants. It must be asked, though, if better talent is really necessary? The propaganda and
brainwashing may be ham fisted and blunt as a hammer, but it does seem to work
nonetheless.
Anyway, the more sophisticated brainwashing is not in the infotainment field but rather in
the supposedly pure entertainment domain. Redneck dynasties built upon the monster
retail bonanza from selling duck lures, for example. Those implant "The American
Dream" directly into the subconscious without the need for awkward capitalist ideological
exposition, bypassing any potential bullshit filters that the typical media consumers might
possess.
I wonder what America would have become if sociopaths like Allen Dulles hadn't relocated to
Nazi braintrust after WWII. maybe it was inevitable that we would become the 4th reich.
David Talbot's book The Devil's Chessboard should be required reading for all
Americans.
Jen @6: "For all the sophisticated techniques and tools of propaganda that the likes of
Edward Bernays and his followers in the PR industry bequeathed to the US, the elites and
their mass media lackeys can't even get the repetition to look and sound more than banal and
one-dimensional."
Nice observation that incompetence is pervasive even among the empire's most important
servants. It must be asked, though, if better talent is really necessary? The propaganda and
brainwashing may be ham fisted and blunt as a hammer, but it does seem to work
nonetheless.
Anyway, the more sophisticated brainwashing is not in the infotainment field but rather in
the supposedly pure entertainment domain. Redneck dynasties built upon the monster
retail bonanza from selling duck lures, for example. Those implant "The American
Dream" directly into the subconscious without the need for awkward capitalist ideological
exposition, bypassing any potential bullshit filters that the typical media consumers might
possess.
We all know these main stream media outlets do little more than pump out propaganda to the
ignorant masses who need someone to tell them what they want to hear.
Wow, those guys were phoning it in. 1. Their dreamland pieces were identical to the ones
in 2015, 2. the bottom 20% who they claim either don't have it so bad or can easily improve
their lot, have been gutted like a fish and left out to dry. Did people write these opinion
pieces or robots, robots could easily replace their jobs, pity their jobs won't be automated
but I really don't see why they couldn't be. Actually Neocons could be replaced by
automatons.
I heard some politician suggest that while many of the jobs will never come back that
people can learn to code. We need drug testing for our politicians. I 'code' and I'm wetting
my pants. It's not because I think that it's so easy I an be easily replaced but but we still
need demand. If everyone is losing their jobs ... terrifies me.
As an aside that is nonetheless relevant, dealing as it does with issues of the
responsibility that banks have for the mess in this world, I recommend watching the TV
series, "Devils", described here on Wikipedia:
London, 2011. The Italian Massimo Ruggero is the head of trading at the banking giant
American New York - London Bank (NYL). While the financial crisis is raging across Europe,
Massimo is making hundreds of millions thanks to speculation. His mentor is Dominic Morgan,
the American CEO of NYL and the closest thing to a father Massimo has ever had. He fully
supports it, the talented trader seems to be the first choice in the run for vice-CEO. But
when Massimo is unwillingly involved in a scandal that sees his ex-wife implicated as an
escort, Dominic denies him the promotion, instead choosing the old school banker Edward
Stuart.
Massimo is amazed: his father turns his back on him. Convinced that he has been set up,
Massimo is determined to bring out the truth, but when Edward suddenly dies, Massimo
realizes that something bigger is at stake. With the help of his team and a group of
hackers, Massimo will discover the plot hidden behind apparently unrelated events such as
the Strauss-Kahn scandal, the war in Libya and the PIIGS crisis. Finding himself in front
of the Devils who pull the ropes of the world, Massimo will have to choose whether to fight
them or join them.
The series is well-written and well-acted. If you have access to it (I get it off the
Internet, but it does not appear to be available in the US market yet), it's well worth
watching. It is in some ways better than "Deep State", the spy series that was on a season or
two ago. It has already been renewed for a second season.
I suggest you read this
Atlantic article , "We Are Living in a Failed State: The coronavirus didn't break
America. It revealed what was already broken."
And either before or during, take a gander at this Real GDP
graph that still understates the genuine amount of GDP shrinkage since parasitic
financial "gains" are added to GDP instead of subtracted as a cost to the real economy.
Essentially since GHW Bush's recession, the real economy of the Outlaw US Empire's shrunk
about 1.5% annually or @45% overall with the vast majority of economic gains accruing to the
top 10%. That grim reality is the #1 reason why Trump won in 2016, and why he stands a very
good chance of losing in 2020--"It's the economy, stupid."
President Trump said Wednesday the coronavirus
crisis is worse than the 9/11 terrorist attacks, and Americans won't allow it to go on any
longer.
"I don't think people will stand for it," Mr. Trump told reporters in the Oval
Office. "The country won't stand for it. It's not sustainable."
He said the pandemic "is worse than Pearl Harbor."
...Asked about soaring unemployment being a potential liability for him in an election year,
the president replied, "Nobody's blaming me for that. I built the greatest economy and I'm
going to rebuild it again. This was an artificially induced unemployment."
US Coronavirus "Bailout" Scam Is $6 Trillion Giveaway to Wall Street Michael Hudson April 21, 2020 6,800 Words
73 Comments Reply
Facing the Covid-19 pandemic, the US Congress rammed through the CARES Act -- which
economist Michael Hudson explains is not a "bailout" but a massive, $6 trillion giveaway to
Wall Street, banks, large corporations, and stockholders.
Max Blumenthal and Ben Norton discuss the enormous financial scam with Hudson, who reveals
how the economy actually works, with the Federal Reserve printing money so rich elites don't
lose their investments.
MICHAEL HUDSON: Just think of when, in the debates with Bernie Sanders during the spring,
Biden and Klobuchar kept saying, 'What we're paying for Medicare-for-All will be $1 trillion
over 10 years.' Well, here the Fed can create $1.5 trillion in one week just to buy stocks.
Why is it okay for the Fed to create $1.5 trillion to buy stocks to prevent rich people from
losing on their stocks, when it's not okay to print only $1 trillion to pay for free Medicare
for the entire population? This is crazy!
The idea is that only the rich should be allowed to print money for themselves, but the
government should not be allowed to print money for any public purpose, any social purpose --
not for medicine, not for schools, not for personal budgets, not for full employment -- but
only to give to the 1 percent.
People hesitate to think that. They think, 'It can't possibly be this bad.' But for those of
us who have worked on Wall Street, for 60 years in my case, that's what the numbers show.
But you don't have the media talking about actual numbers. They talk about just words, and
they use euphemisms. It's a kind of Orwellian vocabulary, describing an inside-out world.
(Intro – 1:58)
BEN NORTON: The world is suffering right now from one of the worst economic crises in modern
history. Definitely the worst crisis since the 2008 financial crash. And many economics experts
are saying that we're living through the worst recession actually since the Great Depression of
1929.
Well joining us to discuss this today, we have one of the best contemporary economists, who
is really well prepared to explain what has been going on in this global recession during the
coronavirus pandemic. And specifically today we're gonna talk about the $6 trillion bailout
package that the US Congress has passed.
The Trump administration is basically taking Obama's corporate bailout on steroids, and
injecting trillions of dollars into the corporate sector. And today to discuss what exactly the
coronavirus bailout means, we are joined by the economist Michael Hudson.
He is the author of many books. And in the second part of this episode we're gonna talk
about his book Super Imperialism: The Economic Strategy of American Empire . So that'll
be much more in the vein of kind of traditional Moderate Rebels episodes, where we talk about
imperialism, US foreign policy, and all of that.
Michael Hudson is also a former Wall Street financial analyst, so he's very well prepared to
talk about the financial thievery that goes on on Wall Street. And he is a distinguished
research professor of economics at the University of Missouri, Kansas City.
So Michael, let's just get started here. Can you respond to this global depression that
we're living through right now amid the Covid-19 pandemic? And what do you think about this new
bailout that was passed?
(3:50)
MICHAEL HUDSON: Well the word bailout, as you just pointed out, really was used by Obama and
only applies to the banks. The word coronavirus is just put in as an advertising slogan.
Banks and corporations, airlines, have a whole wish list that they had their lawyers and
lobbyists prepare for just such an opportunity. And when the opportunity comes up -- whether
it's 9/11 with the Patriot Act, or whether it's today's coronavirus -- they just pasted the
word coronavirus onto an act, which should be called a giveaway to the big banking sector.
Let's talk about who's not bailed out. Who's not bailed out are the small business owners,
the restaurants, the companies that you walk down the street in New York or other cities, and
they're all shuttered with closed signs. Their rent is accumulating, month after month.
Restaurants, gyms and stores are small-markup businesses, small-margin businesses, where,
once you have no sales for maybe three months and rent accruing for three months, they're not
going to have enough money to earn the profits to pay the rents that have mounted up for the
last three months.
The other people that are not being bailed out are the workers -- especially the people they
call the prime necessary workers, which is their euphemism for minimum-wage workers without any
job security. There have been huge layoffs of minimum-wage labor, manual labor, all sorts of
labor.
They're not getting income, but their rents are accruing. And their utility bills are
accruing. Their student loans are accruing. And their credit card debts are mounting up at
interest and penalty rates, which are even larger than the interest rates. So all of these
debts are accruing.
The real explosion is going to come in three months, when all of a sudden, this money falls
due. The governor of New York has said, "Well we have a moratorium on actually evicting people
for three months." So there are restaurants and other people, individuals, wage-earners, who
are going to be able to live in their apartments and not be evicted. But at the end of three
months, that's when the eviction notices are going to come. And people are going to decide, is
it worth it?
Well, especially restaurants are going to decide. And they're going to say, "There is no way
that we can make the money to pay, because we haven't had the income to pay." They're going to
go out of business. They're not going to be helped.
The similar type of giveaway occurred after 9/11. I had a house for 20 years in Tribeca, one
block from the World Trade Center. The money was given by the government to the landlords but
not to the small businesses that rented there -- the Xerox shops and the other things. The
landlords took all of the ostensible rent loss for themselves, and still tried to charge rent
to the xerox shops, the food shops, and ended up collecting twice, and driving them out.
So you're having the pretense of a bailout, but the bailout really is an Obama-style
bailout. It goes to the banks; it goes to those companies that have drawn up wish lists by
their lobbyists, such as the airlines, Boeing and the large banks.
The banks and the real estate interests are going to be the biggest gainers. They have
changed the real estate law so that the real estate owners, for a generation, will be income
tax free. They are allowed to charge depreciation, and have other fast write-offs to pretend
that their real estate is losing value, regardless of whether it's going up and up in
value.
Donald Trump says that he loves depreciation, because he can claim that he's losing money,
and gets a tax write-off, even while his property prices go up.
So there's a lot of small print. The devil is in the small print of the giveaway. And then
President Trump has his own half-a-trillion-dollar slush fund that he says he doesn't have to
inform a Congress or be subject to any Freedom of Information law. He gets to give to his
backers in the Republican States.
And states and municipalities are left broke. Imagine New York City and other states. Most
states and cities, have balanced budget constitutional restrictions. That means they're not
allowed to run a deficit.
Now if these states and cities have to pay unemployment insurance, and have to pay carrying
charges on the schools and public services, but are not getting the sales taxes, not getting
the income taxes, from the restaurants and all the businesses that are closed, or from the
workers that are laid off, they're going to be left with a huge deficit.
Nothing is done about that. There has been no attempt to save them. So three months from
now, you're going to have broke states, broke municipalities, labor that cannot, whose savings
was wiped out.
As I'm sure you've reported on your show, the Federal Reserve says that half of Americans do
not have $400 for emergency saving. Well now they're going to be running up thousands of
dollars of rent and monthly bills.
So the disaster is about to hit. They will not be bailed out. But no major investor, really
will lose. You've seen last week, the stock market made the largest jump since the depression
-- the largest jump in in 90 years. And that's because Trump says, "The economy is the stock
market, and the stock market is the One Percent."
So from the very beginning, his point of reference for the market and for the economy is the
One Percent. The 99 Percent are simply overhead. Industry is an overhead. Agriculture is an
overhead. And labor is an overhead, to what really is a financialized economy that is writing
the whole bailout.
It's not a bailout -- it's a huge giveaway that makes them richer than they ever were
before.
(10:48)
BEN NORTON: Yeah and Michael, related to that -- you mentioned that fine print is important.
But I also have a kind of bigger question. And I don't really know where exactly these numbers
come from.
Officially the bailout is $2 trillion. Many media outlets reported it as effectively $4
trillion. But actually, according to Larry Kudlow -- who is the director of the US National
Economic Council, he's the Trump administration's kind of chief economist -- Larry Kudlow is
now saying that it's actually $6 trillion in total, which is a quarter of all of US GDP.
And that includes $4 trillion in lending power for the Federal Reserve, as well as $2
trillion in the aid package.
So there is discussion of this aid package, but actually the aid package of $2 trillion is
actually half the size of the $4 trillion that is given to the Federal Reserve.
What exactly is that $4 trillion that the Federal Reserve has? Is this some kind of slush
fund, or how does it work?
(11:52)
MICHAEL HUDSON: No, the Federal Reserve was given special powers to create 10 times as many
loans or swaps as others. The Federal Reserve represents the commercial banks and commercial
investors.
Now here's the problem: a lot of companies were issuing junk bonds. They were going way down
in price, especially junk bonds for the fracking industry. The Federal Reserve says, "We're
going to be backed up by the Treasury. We can just create -- as you know, Modern Monetary
Theory -- we can just create money on a computer, and swap. So we will, say, 'Give us your
poor.' It's like the Statue of Liberty: 'Give us your poor, your oppressed,' or Aladdin's old
lamps for new: Give us your junk bonds, and we will give you a bona fide Federal Reserve
deposit."
So the Federal Reserve has been pumping trillions and trillions of dollars into the stock
market. That's what's been pushing up the stock market, the Federal Reserve. The bailout has
gone to the stock market. As if the stock market got coronavirus! Stocks don't get coronavirus!
They don't get sick on the virus! And yet it's the stock market that's going up through the
Federal Reserve.
There's also another $2 trillion dollars, $2 to $4 trillion that the US government has, over
and above the $2 trillion that's going to the people. So most of the calculations that have
been published cite it as a $10 trillion bailout. Of which the newspapers, to avoid
embarrassing Mr. Trump, only refer to the money given to the the wage earners. And they're sort
of embarrassed that the vast majority are given to the financial sector that doesn't need a
bailout, but that doesn't want to lose a single penny from the virus.
So when you see the stock market recovered almost to what it was before the virus, while the
economy is going down, you realize, wait a minute they're saving the 1 percent, or the 10
percent of the population that own 85 percent of the stocks and bonds. They're saving the
banks. They're not saving the people, and they're not saving the economy; they're not saving
industry; and they're not saving small businesses.
So it's an amazing hypocrisy that the mainstream press is not discussing, which is why your
show is so important.
(14:29)
MAX BLUMENTHAL: Yeah and here in Washington, DC, we got I think $500 million from the, I
guess what you accurately describe as the stock market bailout. And that's a lot less than a
number of red states that are less populous than Washington, DC got. So there's a massive
shafting here.
And then the city has only been able to provide for certain parts of the economy.
Undocumented immigrants, who do a lot of work here, got nothing from the city. Vendors, which
are a big part of the informal economy in DC, even though they have to be regulated, got
nothing.
And then you mention all of these sectors of the economy -- young people, college-educated
young people who are deep in debt, and therefore less inclined to spend -- are getting shafted
here.
So you have called for a solution -- well I guess, knowing so many of those people, they
contribute so little to the economy because they can't; they're just putting all their money
into debt. So you have called for a debt jubilee.
You say that debts that can't be paid won't be, and this is the best way out.
Maybe you can explain to our viewers and listeners what that is and why it would be the best
remedy?
(15:42)
MICHAEL HUDSON: Well here's what happens if you don't write down the debts that are just
going to accrue in the next three months: If you don't say, "The rents will not have to be
paid, and workers will not have to pay the debts that mount up," if you leave those debts on
the books, and you make the workers liable to keep paying the student debts, and the other
debts, and the mortgage debts, and the rents, then they're not going to have any money left to
buy goods and services.
When it's all over, they're going to get their paychecks, and off the top is going to be the
wage withholding, and the tax withholding, and the Medicare, and if they don't want to get
kicked out of their houses, they're going to have to pay all of this money that's accrued while
they're not making an income.
So you're going to have a shrinkage of the economy, a vast shrinkage. How can they afford to
buy anything but the most basic necessities, the cheapest food, the necessary transport?
Obviously they're not going to buy the kinds of goods and services that are supposed to be part
of the circular flow.
Economics textbooks say employers pay the workers so the workers can have enough money to
buy what they produce. But the workers don't spend their income only on what they produce. They
spend most of their income on rent, on debt service, on taxes, on finance, insurance, and real
estate. And this is the only part of the economy that is being enabled to survive.
So how can you have the superstructure of rents and debts, of insurance charges, on an
economy that doesn't have the income to buy goods and services? And if they can't buy goods and
services, you're going to have the stores closing down, because people can't afford to buy what
the stores are selling.
You're going to have a whole wave of closures. And you're going to go down the streets, and
certainly in cities like New York, or where I live in Queens, just outside of Manhattan, where
block after block, they're going to be "For rent" signs. It's going to be empty.
And the only way to avoid that is for a debt write-down.
Now you've had this occurring for 5,000 years. I'll give you an example that may be easy to
understand.
In Babylonia, we have the Laws of Hammurabi, in 1800 BC. One of the laws says that when you
would buy beer or other things, they would write it on a tab in the bar, in the ale house, and
all the debts were owed when the harvest was in. You'd pay the debt seasonally.
Well Hammurabi said, if there's a drought, or if there's a flood, then you don't have to pay
the debts. Most debts were owed to the palace, and others.
The implied policy is that, "The reason we're doing this is, if we don't do that, then
you're going to have these debtors become debt servants, bond servants to the creditors;
they're going to owe their labor to the creditors; they're going to lose their land to the
creditors; and they won't be able to work on public infrastructure projects; they won't work
for Babylonia; they won't serve in the army, and we can be invaded; and they won't be able to
use their crops as taxes, because they'll owe the crops as debts. So we're going to write it
down."
So the whole idea for thousands of years, of every Near Eastern ruler starting his reign by
writing down the debts, was to begin everything in balance.
Because they realized, just mathematically, debts grow at compound interest. You've seen the
coronavirus increase at an exponential rate. That's how debts accumulate interest, at an
exponential rate.
But the economy grows in an S-curve, and then it tapers off. The American economy, the GDP
since the Obama bailouts of 2008, the entire growth of the GDP has only accrued to 5 percent of
the population. 95 percent of the GDP. But the population for 95 percent, the industry and
agriculture, that's actually gone down.
So we're already in a 12-year depression, the Obama depression, that they like to call a
recession, because most of the media are Democratic Party people.
But you're going to have this recession turn into a genuine depression, and it will continue
until the public debt, that is state and local debts, are written down; the mortgage debts
written down; and the personal debts written down, starting with the student loans, the most
obviously unpayable debt.
And the choice is, do you want to depression, or do you want the banks to be able to collect
all the economic surplus for themselves? Well Donald Trump, supported unanimously by the
Democratic Congress, says, "We want to protect the banks, not the population, not the economy.
Let the economy shrink, as long as our constituents, the donor class, are able to avoid making
a loss. Let's make the loss borne by the 99 percent, not our donor class."
(21:17)
BEN NORTON: Yeah, and Michael, you mentioned something, getting back to the Federal Reserve
and understanding how this whole system works. I mean frankly it seems to me to kind of be a
house of cards.
But you mentioned this idea of Modern Monetary Theory and just kind of creating money out of
nothing. Can you talk more about that? You know this is a term that's become more prominent,
especially on the left: MMT, modern monetary theory.
There are socialists who argue in support of MMT and then there are others who are kind of
skeptical of the whole notion that you can just print all this money to fund these social
programs that you want to create, and that it won't create inflation.
But at the same time, you and other people point out that that's exactly how the economy
already works. Where for instance, you want to fund a war, there's never -- you know frequently
when someone on the left asks for universal health care or free public education, members not
only of the Republican Party but many neoliberal Democrats often say, "Well yeah, where are you
gonna get the money from?" And the response of some of the MMT supporters is, "Well we just
fund the program, and we just create the money because we control the creation of the
dollar."
And we see that same attitude used actually by the Federal Reserve right now, but to bail
out Wall Street. "Yeah we're just gonna print" -- they printed $1.5 trillion, and then just
gave it, they just injected it right into Wall Street.
So does that not create inflation, or what exactly is happening economically there? I mean
to me, it seems like a scam; it seems like totally a scam.
(22:59)
MICHAEL HUDSON: Since 2008, you have had the greatest inflation of money in history. And you
have also had the greatest inflation in history, but it's entirely asset price inflation.
You're absolutely right: the money has gone into the stock market and the bond market, to
support bond prices, meaning you've had the biggest bond boom in history. You've had a huge
stock market boom. But consumer prices have gone down. So here you have an enormous amount of
money creation, and consumer prices and real wages have been drifting down.
So they are really two economies. The question is, are you going to create money for public
purposes by spending it into the economy, on industry, agriculture, and the goods and service
production and consumption economy Or, are you going to put it into the financial economy?
Well the whole way of our banking system is that banks create credit. If you go into a bank
and you take out a loan, you say, I'm gonna borrow $5,000 for something. The banker doesn't go
and say, let me see if we have any money to loan you; he says, okay I will write a loan on my
computer. I will credit your deposit with $5,000, and you will sign this IOU, and we have an
asset. And the asset is $5000, on which we're going to charge interest on what we pay you.
So it's just done by computer, on a balance sheet. And as long as money is created on a
computer, the only cost is the electricity used to make that debt record.
Now the banks, when they make loans, 80 percent are against real estate. So they say, in
case you can't pay, you're pledging your real estate – the home you're buying, or the
commercial building you're buying, as collateral. So we'll lend you up to 80 percent, maybe 100
percent, of the value of what you're buying, and that's the collateral we have.
So they lend against collateral. Well, if you lend the money against collateral to buy a
building, or to buy stocks and bonds, which are the other collateral, then obviously this money
you're creating to buy houses, or commercial real estate, or stocks and bonds are going to bid
the price up.
Banks don't give loans for people who say, I want to go shopping and buy more goods because
I need the money. That may be a little bit, that's what credit cards are for, but that's a
small portion of the overall money supply. So banks don't make loans to buy goods and services;
they make loans to buy assets that obviously inflate the price of assets.
And the more money that you pay for houses that are rising in price, or medical insurance,
or stocks and bonds, to make a retirement income for your pension fund; the more money you pay
for houses that are inflating in price because of bank credit, the less money you have to buy
goods and services.
So actually, the more money they create, the more consumer prices for goods and services
fall. It's the exact opposite of the usual theory.
On my website I have many articles about that, and I have something today in
Counterpunch on that. It's on how the economy works the opposite of the way the textbook
says.
Now unfortunately the left-wing doesn't really study finance and money much. The discussion
of finance and money has been monopolized by the right-wing, so left-wingers think, they don't
realize that they're picking up a kind of junk theory of monetary relations and debt relations
that's all picked up from the right-wing of the political spectrum.
It's a kind of parallel universe. That's not how the economy really works, but in a way that
sort of is easy to understand. And it's very easy to make an erroneous, oversimplified view of
the world easy to understand.
And when it's repeated again and again and again, in the media, the New York Times and
MSNBC, people really think that, well, maybe that's how the world works -- more money is going
to push up prices, so we better not push for it, we better go along with trickle-down
theory.
And most of the left believes in trickle-down theory. The Democratic Party leadership is
absolutely convinced, if you just give enough money to the top 1 percent, or 5 percent, or Wall
Street, it'll all trickle down.
(27:49)
BEN NORTON: Well of course the Democratic Party is not the left.
MICHAEL HUDSON: That's right, but it pretends to be. And it has crowded out the left. You
can see in the recent election primaries that its job is to protect the Republican Party from
any critique by the left, interjecting itself in between the Republican Party and any possible
reform movement.
BEN NORTON: Exactly.
(28:20)
MAX BLUMENTHAL: Well they stood up really strongly against the bailout -- I mean what was
it, 96 to nothing? And in the voice vote, I was listening to the voice vote last night in the
House; I didn't hear AOC's voice against it.
MICHAEL HUDSON: They did a voice so that everybody could say, "Oh it wasn't me!"
MAX BLUMENTHAL: No, no! So you mentioned that foreclosure king Steve Mnnuchin gets like a
$500 billion slush fund. I haven't heard much discussion about that. What will he do with this
sort of opaque slush fund, and how will this -- I mean it's a leading question, but how will
this kind of reinforce or consolidate inequality for the next generation?
(29:10)
MICHAEL HUDSON: Well gee, I hope he gives some of it to Kamala Harris, who was the attorney
general who let him do all of this, and who thoroughly backed him and led the foreclosure, was
the iron fist behind his foreclosure program. So I'm sure he'll press for Kamala to be the vice
president on the ticket.
The Democrats have a problem. How can they guarantee that they have their candidate win?
Their candidate is Donald Trump. How can they make sure that they have such a weak candidate
that he's sure to lose to Donald Trump? And the choice is, we'll get a vice president that's so
unpopular that they're sure to lose.
Now it's a race between Kamala Harris and the Minnesota lady.
MAX BLUMENTHAL: Klobuchar? The one who throws staplers at her staff. She seems very
charming.
MICHAEL HUDSON: Uh, I don't know about that. But my wife can't even look at her on
television. But I think that the pretense is that she'll help get Minnesota, as if Minnesotans,
where I'm from, are so dumb just to vote for somebody from there. But by getting Minnesota,
they'll lose the whole rest of the country.
So I think she'll be the vice president, because that guarantees a Trump victory. And that
will enable the Democrats to say, here -- they'll have the president they want, that is for
their donor class, but they can say, "That's not us; that's the Republicans." So that's the
Democratic strategy.
MAX BLUMENTHAL: Right, then they can raise loads of money for the "Resistance," and all of
the outside think tanks. And that was the old Republican, William F. Buckley strategy, is we're
better throwing rocks outside the building and raising a ton of money for the National Review
than actually having to govern. And that seems like the Democratic strategy.
But I guess I was asking about how you see the economy transforming, because the Obama
bailout sort of transformed it or consolidated the gig economy, where everyone has to work
three to five jobs, and what was supposed to be a highly educated middle class is deeply in
debt.
Where do you see it after this next tranche of stock market bailouts?
(31:29)
MICHAEL HUDSON: Ok, let's look at three months from now. Smaller companies are going to be
squeezed, because all of their expenses are going to go up. Small companies have had to run up
debts, and they have all sorts of other problems, and their earnings, their prospective
profits, are not going to look that good. Because there's not going to be a market for the
things that they sell, because of the debt deflation that I talked about.
So what's going to happen? You're going to have a bonanza for private equity capital. The
liquid, the 1 percent that have access to bank credit and have their own equity capital are
going to come in and pick up a lot of real estate that's going to be defaulted on -- just like
they did after Obama evicted his constituency, the mob with pitchforks, and evicted them.
Blackstone will pick up more real estate. Big companies are going to pick up small
companies. You're going to emerge with a highly monopolized economy, much more centralized.
The important thing to realize about free-market economics and libertarianism, is
libertarians advocate central planning, The Chicago School of monetarists advocate central
planning; the free marketers want central planning. But the banks are to be the planners, not
the government. They want to exclude the government from planning, except to the extent that
they can take over the government, as Trump has done, and plan all of the income to be
transferred to themselves from the rest of the economy.
So we're going to have a much more centrally planned by a coalition of monopolies and the
government. In the 1930s, that was called fascism.
MAX BLUMENTHAL: It's what we call a "public-private partnership" or something.
MICHAEL HUDSON: Right.
MAX BLUMENTHAL: Just really quickly, and maybe we can kind of transition after this, but you
mentioned Blackstone. I think this is one of the key components of the bailout. They own so
much stake in so many of the companies getting bailed out. Can you just describe their role and
what they are?
(33:38)
MICHAEL HUDSON: It's appropriate that they were put in charge of bailout. So if they're the
largest company buying up defaulted real estate and buying, picking up the weak -- it's called
moving assets from the weak hands to the strong -- then they might as well be put in charge,
because they're going to be the company doing all the grabbing. So of course they're in charge
of it.
It's called grabitization. That was the Russian word for privatization in the 1990s. So
grabitization is I think a better word than public-private partnership. It's not really a
partner; it's sort of a one-way partnership; there's one subsidiary partner. It's really
financialization and grabitization.
MAX BLUMENTHAL: Right, just the looting of state assets.
BEN NORTON: Going back one step here, Michael, you were talking about the way that people
should think about how the economy actually works. And I mentioned MMT. Can you kind of just
walk through that again? Because you were talking about how actually, when the Fed creates -- I
mean really to me, as someone, I'm definitely not an economics expert, I just don't understand
really how this whole process works, because to me it just seems simply like, they're literally
just creating money and just giving it to banks, and corporate elites, and rich people.
I mean maybe that's what it is. But I don't understand, this is like the biggest scheme I
can imagine, where the Federal Reserve is creating all of this money, printing -- they're
physically printing money is my understanding. And then they're just giving it to these banks,
to bondholders. And then, but you said that what does is, instead of actually creating
inflation, all that does is, if I understood correctly, it boosts the value of assets like real
estate, while at the same time deflating wages and commodity prices.
So if that's the case, then how should people who are advocating for socialized programs
like Medicare for All, free public education, and maternity leave, and childcare, and all of
these programs that the Bernie Sanders campaign and movement have been advocating for, how
should we talk about the way to pay for all of those programs, if the reality of the economy is
that the Fed is printing trillions of dollars, and then just giving that cash to banks?
(36:11)
MICHAEL HUDSON: Well I think the reason you're having trouble understanding MMT is because
what you described is what's happening, but you think, "But that's unfair!" And there's a
tendency to think, if it's unfair --
MAX BLUMENTHAL: It's not just unfair. It's the biggest scheme I can imagine. There's no
other word other than just a con scheme.
MICHAEL HUDSON: Yes, and the brain recoils from thinking, "Can the government really be
doing that to us?" Well, yes it can.
And just think of when, in the debates with Bernie Sanders during the spring, Biden, and
Klobuchar keep saying, 'What we're paying for Medicare-for-All will be $1 trillion over 10
years.' Well here the Fed can create $1.5 trillion in one week just to buy stocks.
Why is it okay for the Fed to create $1.5 trillion to buy stocks to prevent rich people from
losing on their stocks, when it's not okay to print only $1 trillion to pay for free Medicare
for the entire population? This is crazy!
The idea that only the rich should be allowed to print money for themselves, but the
government should not be allowed to print money for any public purpose, any social purpose --
not for medicine, not for schools, not for personal budgets, not for full employment -- but
only to give to the 1 percent.
People hesitate to think that. They think, 'It can't possibly be this bad.' But for those of
us who have worked on Wall Street, for 60 years in my case, that's what the numbers show.
But you don't have the media talking about actual numbers. They talk about just words, and
they use euphemisms. It's a kind of Orwellian vocabulary, describing an inside-out world that
they're talking about.
They will buy stock; they'll say we're going to buy a million shares of Boeing; they'll just
write a check, and the check will be from the Federal Reserve, and Boeing will get the money.
The Federal Reserve can create a deposit, just like a banker will write you a loan when you go
in and borrow. It's done on a computer – without levying taxes. The Fed can do the same
thing.
Stephanie Kelton, my department chairman for many years at the University of Missouri at
Kansas City, describes this. The University of Missouri's website, New Economic Perspectives
has a description of it. So if people want to google either her, UMKC, or what I've written, or
Randall Wray at the Levy Institute, you'll get walked through.
If you're not already thinking in terms of balance sheets, which most people don't, you have
to sort of just read it again and again, and then all of a sudden, "Ah, now I get. It's a
ripoff! It's created out of nothing. Now I get it."
BEN NORTON: It's just a house of cards. To me it proves the kind -- there used to be this
kind of very blunt orthodox Marxist view that the economy strictly follows politics, and it
seems to me this is a case where the economy is just created by politics.
MICHAEL HUDSON: That's true, and that's not an un-Marxist position. Marx did distinguish
between oligarchies and democracies, and finance capitalist economies and industrial capitalist
economies.
MAX BLUMENTHAL: Right. And the $17 billion for "urgent national security measures" was
straight into the pockets of Boeing, which had its 737 maxes falling out of the sky, and had
been clamoring for this bailout for a long time.
I mean you saw 3M, the maker of these masks which are suddenly unavailable, gained a total
exemption from lawsuits, if the masks that it mass-produced now somehow failed.
So all of these things stuffed into the bailout were what industry and finance had been
clamoring for for years. And they finally had the opportunity to do it.
(Outro – 40:38)
BEN NORTON: All right, we're gonna take a pause there. That was the end of part one of our
interview here with the economist Michael Hudson. He is a Wall Street financial analyst, a
distinguished research professor of economics at the University of Missouri Kansas City, and of
course the author of many books on economics.
You can find some of his work at michael-hudson.com . We will link to that in the show notes. He
has interviews with transcripts and articles.
You can also find some of his economics work and the work of some of his like-minded
colleagues at the economics department at the University of Missouri Kansas City website. I
will link to that as well in the show notes. You can find the show notes at moderaterebels.com .
In part two of this episode, we're going to continue our discussion of the house of cards
that is the international financial system, the economic system. And in the second part we're
going to talk about his book "Super Imperialism: The Economic Strategy of American Empire."
This is an incredible book. You know here at Moderate Rebels, Max and I frequently talk
about the political and military side of imperialism. Michael Hudson just spells out, in
easy-to-understand terms, how imperialism works at an economic level, how the US government and
the Treasury, through the backing of military force, force countries around the world to buy US
bonds, Treasury bonds, and how there's basically just a con scheme where countries pay for
their own US military occupation through buying US Treasury bonds.
Michael Hudson explains that all in really simple terms. And we also talk about the rise of
China, and how China does pose a so-called threat, in scare quotes, to not the American people
but rather to the hegemony of the US financial system -- and the main financial instruments,
the weapons that the US uses to maintain that hegemony, the International Monetary Fund, the
IMF, and the World Bank.
And Hudson describes how, in his terms, the IMF, and the World Bank, specifically, are some
of the most evil institutions that are really maintaining the American dictatorial,
authoritarian chokehold on the global financial system.
If you want to support this program, Moderate Rebels, and the kind of independent interviews
we do like this, giving a platform to some of these voices who you're never going to hear in
mainstream corporate media, you can go to Patreon.com/ModerateRebels . Please consider supporting
us. And definitely join us in part. See you soon.
Oh and seems increasingly evident that the response to the virus was planned and exaggerated
in effort to distract from imminent financial collapse and provide cover for yet again
another bank and government bailout. While the people cower in their hovels the bankers are
popping champagne poolside on private refuges.
This effect is most notable in US maybe the erstwhile sole remaining "solvent" western
nation - only because they own the printer for worlds currency.
By Peter Dorman, professor of economics at The Evergreen State College. Originally
published at Econospeak
Donald Trump, cheering on
his "warriors" who demand that states lift their lockdown and distancing orders (where they
have them), would have you believe this is about bringing the economy back to life so ordinary
people can get their jobs and normal lives back. Elitist
liberals who work from home and have country estates to retreat to don't care, but "real"
people do.
The reality is different. The shuttering of stores, restaurants, hotels and workplaces
didn't begin with government orders and won't end with them. If the rate of new infection
and death is too high, a lot of people won't go along. Not everyone, but enough to make a huge
economic difference. Ask any small business owner what it would mean for demand to drop by
25-50%. Lifting government orders won't magically restore the economic conditions of
mid-winter. So what's it about? Even as it makes a big PR show of supporting state by state
"liberation" in America, the Trump administration is
advising state governments on how to remove workers from unemployment insurance once orders
are lifted. Without government directives, employers can demand workers show up, and if they
refuse they no longer qualify. And why might workers refuse? Perhaps because their workplaces
are still unsafe and they have vulnerable family members they want to keep from getting
infected? Not good enough -- once the state has been "liberated".
How should we respond to this travesty? First, of course, by telling the truth that an
anti-worker, anti-human campaign is being conducted under the guise of defending workers. If
the Democrats weren't themselves such a tool of business interests we might hear that narrative
from them, but the rest of us are free to speak out and should start doing it, loudly, wherever
we can.
Second, one of the laws of the land is the Occupational Safety and Health Act of 1970, which
gives workers the right to
refuse imminently hazardous work. This hasn't been used very often, nor is there much case
law around it, but the current pandemic is a good reason to pull it out of storage.
If there are public interest law firms looking for something useful to do during distancing,
they could advertise their willingness to defend workers who need to stay home until work is
safe -- while still getting their paycheck. If employers thought the choice was between public
support for workers sitting out the pandemic or their support for them we might hear less about
"liberation".
They want to throw people off of unemployment while using the virus threat to stop any
serious protests against that. It is literally biological warfare against working people.
Same class war as before, but now with CBW.
Taught it for years. This is the biggest net and is the # 1 Cited Violation for 1910/1926
and MSHA–ever.
OSHA 654 5(a)1 The General Duty Clause.
OSHA Laws & Regulations OSH Act of 1970
OSH Act of 1970
Table of Contents
General Duty Clause
Complete OSH Act Version ("All-in-One")
SEC.
5.
Duties
(a)
Each employer --
(1)
29 USC 654
shall furnish to each of his employees employment and a place of employment which are free
from recognized hazards that are causing or are likely to cause death or serious physical
harm to his employees;
(2)
shall comply with occupational safety and health standards promulgated under this Act.
(b)
Each employee shall comply with occupational safety and health standards and all rules,
regulations, and orders issued pursuant to this Act which are applicable to his own actions
and conduct.
Quick Take –Two way street.
Employers mus t mitigate hazards. Employees must comply with mitigation.
No Employer Mitigation=Breaking the Law=No Employee requirement to work in Unsafe
Conditions.
"Lifting all boats" was always a lie. It was simply a way to sell trickle down by claiming
that the objectively observable inequality it produced would somehow help everyone,
eventually, sort of. There was not and has never been a plan by the Conservative Movement to
lift all boats. Only a plan to feign interest in doing so.
I agree with most of your comment except the "smarter" part.
They don't seem smart to me, they openly plunder and loot and spit in the populace's
faces. They don't even pretend to believe in or work for a "common good" anymore, really.
That is the story of the 21st Century in the US, starting with Baby Bush II. (Okay, I get
that the Obama crew seemed "smart" or sophisticated to the PMC and comfortable liberals, but
how smart were they if they led to the open Kleptocratic Disruption of Trumpism and the God
Emperor?)
What the Elites have that the proles don't is in-group solidarity. (And a captured Media
establishment.) They protect their own, while the hoi polloi fight one another for
scraps.
What is the death rate among the working age population?
Seem like a tough hill to die on given the curve has flattened, hospitals are not
overflowing, and the economy is teetering on the edge of depression.
No one has a vaccine, this isn't going away any time soon. It's time to focus on
protecting the most vulnerable instead of pretending this effects everyone equally.
Allow states to cut benefits? Come on, UI benefits are taxed for pete's sake. 'Available
to work' basically means you have start at 8am the next day which is doesn't align with any
reality of hiring except in low end service sector jobs.
The other really significant thing is that 're-opening' doesn't necessarily mean returning
to business. For example, Musk insists on re-opening Tesla the assumption being that sales
are there to be had if they re-open. But if not no sales, no need for employees back down the
drain we go.
Same for restaurants. retail, hotels, transit and white collar jobs – attorneys,
architects, CPAs
The poorest and the most desperate actually. Some people still have not received any money
from the state or federal governments. The quarantine started about two months ago. So no
job, no income, no money, and no joke. No matter how shrewd or smart you are sometimes you
are not making the decisions. Reality makes them for you.
Well till the markets crashes again and they need to save the assets of the
wealthiest.
I just got a text from a buddy who is an electrician. His company just told him they are
not expecting to take any major work till second quarter of next year. They will only be
taking emergency calls. This is in Chicago.
Granted, it's a union site, but one point that they make is how union saturation raises
the wages for all workers within a given region.
In Appalachia, I was offered $15hr. to work as an electrician. In Chicagoland, starting
wages were close to or more than double that. Guess where I went in order to establish a
salary history? And no, the cost of living is really not too different between those two
places, but opportunities sure were.
(moderators: in response to an "Eat the Rich!" comment, I posted a link with recipes: I
apologize for this. Admittedly, it was in poor taste.)
It's not a popular position to point out that a particular financial risk is overblown. But
when everyone in Corporate America and investor-land is in "Where's my bailout?" mode, the
usual motivations are reversed. Normally, "Nothing to see here, move along" is the default
position when the great unwashed public worries about too much leverage, opacity, and tricky
practices. But when central banks are doling out trillions, sounding alarms, whether warranted
or not, is the way to get someone else to eat the risks you took for fun and profit. And as
we'll demonstrate, the Financial Times looks to have become an unwitting tool of CLO
(collateralized loan obligation) investors who haven't yet gotten their Fed handout.
The article in question is headlined: CLOs: ground zero for the
next stage of the financial crisis? The headline and the breathless tone set the reader up
for the idea that these complex structures will blow up the financial system, just the way
their cousins, collateralized debt obligations, did in the financial crisis.
But as we'll explain, the absolute size of the CLO market, and banks' not-much exposure to
the risky parts of it, means that absent fraud (or a systemically important bank and wobbly
bank having gotten high and binged, and the pink paper and others would likey have gotten wind
of that by now), there's no risk to the banking system. And in the hoary old days of the crisis
just past and its predecessors, that was the justification for throwing official money in big
volumes to clean up bad lending decisions: that as much as it would seem proper to let
incompetent institutions go tits up, letting banks fail tends to engulf even healthy banks,
since no one can tell from the outside very well how solvent a particular institution is, and
hurts innocents like depositors (even with deposit insurance, it is pretty much impossible for
a business of any size not to have way above the guaranteed amount in its accounts regularly,
if nothing else when it issues payroll).
So what the Financial Times piece is effectively getting worked out about is that some
investors will lose money. Newflash! Investing involves risk! Who'd have thunk it!
In other words, this Financial Times piece is implicitly selling the idea that the
consequences of some deep pockets taking hits is just oh-too-dangerous. This is Greenspan put
thinking on steroids. And sadly, it seems to be treated as a reasonable line of thinking.
Wealth must be spared. The hell with those who live from labor income.
What CLOs Are and Why Comparisons to CDOs Are Spurious
By way of background, a pet peeve of ours is that the financial crisis is widely depicted as
a housing crisis when it was in fact a derivatives crisis. If we had merely had subprime and
Alt-A loans go bust, the result would have been on the order of the S&L crisis plus maybe
another 50%. Bad but nothing like the seize up of the global financial markets that took place
in September 2008.
As we explained long-form in ECONNED, collateralized debt obligations consisting
substantially of the risky tranches of subprime mortgage bonds (the BBB and BBB- layers)
dressed up the part of of subprime securitizations that no one wanted to buy. The top tranches
of those CDOs, comprising 60+% of par value, were rated AAA.
But even that wasn't sufficient to blow up the global financial system. Demand by subprime
shorts and banks seeking protection for the loans they were advancing to the likes of subprime
lenders like New Century and IndyMac led to the use of substantially synthetic (made mainly of
credit default swaps rather than tranches of actual bonds with actual mortgage loans behind
them) as a way to generate artificially cheap insurance on the riskiest rated layer of subprime
debt. Those derivate exposure have been estimated at 4-6X the real economy exposures. The
reason the financial system blew up is that the side bets were a significant multiple of real
economy activity, and the parties on the wrong side of those wagers were systemically
important, highly leveraged players like AIG, the monolines, Eurobanks, Citigroup, and
Merrill.
It is also important to remember the base line. Banks have repeatedly managed to blow
themselves up in entirely conventional ways, with good old fashioned loans. Remember the Latin
American debt crisis? The commodities bust of the early 1990s, which crated energy and real
estate lenders in the oil patch? The afore-mentioned S&L crisis? The not as well publicized
LBO loan crisis of the late 1980s and early 1990s? Oh, and how about one of the mothers of bad
lending, the Japanese commercial (and to a lesser degree residential) real estate bubble and
bust?
Now let's look at CLOs. They are intrinsically less risky than asset-backed-securities CDOs,
which the press took to calling just "CDOs".
Those CDOs were resecuritizations. They were created from the riskiest parts of mortgage
securitizations made of risky loans, as in subprime or Alt-As. Those tranches usually
represented only 3% of the entire deal. They'd be worth 100% if the losses on the subprime RMBS
was 8% or less, and totally wiped out if the losses were higher than 11%. Since subprime losses
averaged more like 40%, nearly all these CDOs were complete wipeouts.
By contrast CLOs are made from risky corporate loans, so-called "leveraged loans" typically
made when a private equity firm is buying a portfolio company. So they are more analogous to a
subprime RMBS (residential mortgage backed securitization) in terms of the risk level of the
assets. 1 Note that even with the high level of subprime losses, AAA
tranches of RMBS lost only 0.42% on average .
Even though there was a tidal wave of risky "leveraged loans" to fund deals at sky-high
prices right before the last crisis, and a lot of them wound up in CLOs, while their value
traded down afterwards there were no losses. Admittedly, the Fed dropping interest rates and
manipulating long-term rates lower allowed many of the pre-crisis loans to be refied at lower
rates. But the Fed didn't engage in measure intended to rescue corporate borrowers; they were
just lucky beneficiaries.
Nevertheless, CLO structures have been made more conservative since the last crisis.
See here for geeky details .
But with the bottom dropping out of the entire economy, a lot of former sure-looking bets
won't work out so well.
But should we even care about CLOs? First, the market isn't all that large. S&P in early
2020 pegged it at $675 billion. By contrast, the subprime market, depending on whether or not
you included Alt-As, was estimated back in the day at $1.3 trillion to a bit over $2 trillion.
And US GDP was $14.5 trillion in 2007 versus $21 trillion in 2019. Using Pimco's forecast of 5%
contraction for the full year, you still get roughly $20 trillion, showing that the relative
importance of subprime lending has fallen even further. And that's before you factor in the way
that credit default swaps greatly magnified the real economy exposures and concentrated them at
systemically important, fragile players.
This chart from Guggenheim Investors is a little dated, since it shows a smaller CLO market
size but it gives a good idea of who buys what:
The key bit: what do banks own? They are the ones that have to be saved even when they do
really dumb things; the other players are supposed to be savvy investors who can take
losses.
You can see that banks are the big owners of the AAA tranches, which have shown over time to
have enough loss protection that you'll get all your money. And they are listed third as owners
of other investment grade tranches, which means they are less important players than insurers
and money managers.
CLO holdings at U.S. banks increased by roughly 12% in 2019, to $99.5 billion, with a
number of banks growing their CLO securities exposure by double-digit rates, according to
year-end filings with the Federal Reserve .
What is perhaps most striking about the results is the high degree of concentration of CLO
debt inside the three banking entities, relative to the rest of the banking sector. At $80.2
billion, the three largest holders make up nearly 81% of all U.S. bank CLO holdings.
However, the size of CLO holdings as a percentage of the top-three banks' investment
portfolios is relatively small. For JPMorgan Chase, Wells Fargo, and Citigroup, CLOs as a
percentage of total securities on book are 7.5%, 6.9%, and 6.0%, according to Y-9C data.
Now, at just under $100 billion, total U.S. bank exposure represents roughly 15% of the
$675 billion CLO market. Assuming that U.S. CLO AAA supply is around $400 billion and that
most of U.S. bank CLO holdings are AAA, then U.S. banks can be said to hold roughly 25% of
all AAA supply, according to researchers from Wells Fargo.
Japanese banks can also be expected to hold near the same amount, or around 25% of the
total AAA supply of U.S. CLOs, according to Wells Fargo.
So who is at risk? Apparently the equity tranche, the bottom 8.5% in the chart above:
Waterfall of payments in CLOs, via Morgan Stanley, which estimates that 85% of outstanding
CLOs in the U.S. may fail their junior over-collateralization (OC) tests as leveraged loans
default. pic.twitter.com/cx2GFlAXL5
To translate: securitizations have risk buffers in the form of overcollateralization and
excess spread. "Overcollateralization" results from the fact that the loans in a securitization
have a higher principal amount that than the total par amount of all the tranches. Say $100 of
loans have $103 of loans. The $3 is the overcollateralization and the CLO documents describe
who gets how much benefit from it. 2
What the tweet is saying is that the losses on the loans look like they'll get to be high
enough that the equity layer in some (many? most?) CLOs will stop getting interest payments.
But again, why should we care? If all the equity tranches stop paying out, that was shy of $60
billion in par value. And it's not a total bust since they got payments in full before their
investment crapped out. And the owners are primarily hedge funds. This is just not worth
getting lathered up about, particularly in comparison to all the other exploding
loss-bombs.
Likely Reason for the Financial Times' Hyperventilating
Despite being a "Long Read," meaning it presents itself as having more reporting behind it
than a typical story, it's remarkable to see the Financial Times duck the real story, private
equity leverage, which predictably leads lots of lenders holding the bag at the end of every
financial cycle.
And the article also sidesteps another key question: did CLOs make the situation worse than
the old-fasioned approach of syndicating leveraged loans (which foreign banks took down in size
in the first LBO wave in the 1980s)? Quite honestly, I suspect you can argue it both ways. On
the one hand, unless the benefit of CLO risk slicing and dicing went entirely to the sponsors
and packagers (possible), investors presumably were willing to accept lower interest rates to
get more finely tuned risk exposures. That would somewhat lower the cost of private equity
lending, but it's not clear that this made anything more than a marginal difference.
3
On the other, CLOs per the discussion above really did move a lot of the risky exposures out
of the hands of usually self-destructive banks and over to investors who bill themselves as
sophisticated and able to take risk.
The Financial Times account does provide market size (using JP Morgan data, which gives a
slightly higher level that S&P did), albeit a bit of the way into the piece, but no
distribution of exposures by rating or who the various investors are. And before the authors
get to that, they hand wring over a debt restructuring of medical staffing company Envision
Health. As vlade pointed out by e-mail:
The headline is fearmongering and a lot of comments lapped it up.
Thinking about it, the picking of the health company and saying how it's going to suffer
is also there, implying "if you don't bail out the debt, look at how bad things will
happen."
Vlade is not exaggerating. The article waves the "saving us from coronavirus" flag:
In the midst of a global pandemic, emergency rooms across the US have fallen strangely
quiet as patients with other illnesses have stayed away for fear of contracting Covid-19. As
a result, one of the surprising corporate casualties of the coronavirus crisis could be some
of the companies that provide staff for hospitals.
Envision, one of the largest medical staffing companies, completed a restructuring of its
roughly $7bn of debt this month as it moved to stave off bankruptcy.
US readers of this site know better than to see Envision as a good actor. As we've written
several times, based on the gumshoe work of private equity expert Eileen Appelbaum, KKR-owned
Envision and Blackstone's Team Health have been lead players in the "surprise billing" and
other price gouging schemes. The fact that Congress and some states have been working on
legislation to end surprise billing is why Envision's bonds are in trouble. And that reaction
also shows how important the fleecing is to the company's bottom line.
In fact, one has to wonder if the Envision staffing cuts mentioned later in the piece are a
shot across legislators' bows: "Nice ERs you have. Shame if something were to happen to
them."
This chart also serves to exaggerate how bad things are:
The viewer's eye naturally goes to the top line, for the BB tranches the yields have risen
the most. Those BB instruments are a mere 3-4% of the total value of the CLO market!
They are rounding error. By contrast, the AAA tranches are yielding pretty much what they did
in later 2019. Yes, they aren't trading the same as other AAA instruments, but seasoned
structured credit investors ought to know that these AAA creations can and often do trade down
in crises, unlike Treasuries and government guaranteed credits.
Moreover, eyeballing the charts, yields have improved since mid-late April, meaning
investors are less edgy, when even then, Reuters reported that new CLO deals were getting done
on reasonable terms.
From an April 22 story :
There has been US $39.4bn of US CLOs arranged this year through April 19, inline with the
US$38.7bn sold during the same period last year, according to the data from LPC, a unit of
Refinitiv. A record US$128.1bn of US CLOs was arranged in 2018.
US CLO issuance this year has been challenged as spreads on Triple A tranches, the largest
and most senior piece of the funds, have continued to widen, hitting an average of 136.2bp in
March, slightly tighter than the more than two-year wide of 138bp in February, according to
the data. The wide spreads can cut into returns paid to equity holders, who are paid last
after all other debtholders receive their distributions, and may cut into overall
issuance.
"Spread levels on US CLOs still look relatively attractive compared to other securitized
products and corporates," Collin Chan, a CLO strategist at Bank of America Merrill Lynch,
said in an email
"Although the arbitrage for new-issue deals has compressed, (CLOs) are still getting done
because equity investors still find the levels acceptable," Chan said. "Insofar that we do
not see significant spread tightening in the loan market while CLO spreads stay wide,
dealflow could certainly continue."
Now as the Financial Times article points out, some CLOs are more wobbly:
More than 100 CLOs were failing at least one trigger brought on by escalating triple C
loans, according to April data compiled by Barclays, with 40 failing tests for their triple B
rated tranche or higher -- debt that is regarded as investment grade. Twelve have also failed
tests up to the double-A rated tranche, according to BofA.
It's hard to know how significant this is without having dollar values. The Financial Times
also warns that one-third of the BBB tranches are on review for a downgrade, but again, I find
it hard to be sympathetic. If you bought BBB paper, you knew there was decent risk it would
decay into junk. However some of these bonds are held by life insurers, who are restricted in
how much they hold in non-rated/non-investment grade assets. They usually max out that bucket
with real estate. So if their BBBs get downgraded, they'd probably have to sell.
So why all this unseemly whining? The most obvious explanation is that the Fed isn't doing
much for CLOs. One has to wonder if money men have been playing up how bad things supposedly
are to get more rescue money.
From the Wall Street Journal on April 22 :
The Federal Reserve will lend $2.3 trillion to support the economy The Fed excluded some
securities tied to corporate loans and commercial real estate that were among the newest,
fastest-growing segments of the bond markets
The [$100 billion] TALF program won't include the vast majority of a popular structured
security known as a collateralized loan obligation, which is made up of corporate debt
generally used to finance buyouts. The program does include so-called static CLOs which don't
allow for reinvestment of loan proceeds, but those account for only a small share of the
market. The vast majority of CLOs allow such reinvestment and aren't included.
The central bank threw some small additional bones to the CLO market earlier this week, but
still left most CLOs ineligible.
From Bloomberg :
The Federal Reserve revised its Term Asset-Backed Securities Loan Facility to allow CLOs
that hold a broader range of leveraged loans to be used as collateral.
The Fed will now accept new AAA CLOs with leveraged loans, including refinanced loans,
that priced as far back as January 2019, according to a statement Tuesday on the central
bank's website. Previously, eligible collateralized loan obligations could only hold
newly-originated loans .
Yet the changes will only go so far, market watchers say. The terms still require eligible
CLOs be static vehicles wherein managers can't actively trade the loans underpinning the
deals, a structure that makes up only a small portion of the market.
It is really a shame to see what has happened to the Financial Times. It was the only major
media outlet before the crisis where quite a few writers, particularly Gillian Tett but also
John Authers, Martin Wolf, and John Dizard, saw that risk was being underprices across all
credit markets and sent clear warnings that things could end very badly, when the US financial
press was uniformly in la-la land.
Since the crisis, the paper has gone firmly neoliberal, and perhaps due to the lack of time
to do reporting on top of being now the US editor, Tett veers from doing extremely insightful
pieces reminiscent of her glory days as capital markets reporter, to doing far too many
articles that have all the hallmarks of her having spent too much time with people talking
their book. Similarly, this CLO article does show the authors did a lot of legwork, yet somehow
missed or chose not to address the most important questions.
_____
1 And remember, at least so far, we don't have evidence of widespread lending
fraud, a big feature of the subprime mania. However, a key difference is that with
mortgage-backed securities, the mortgages are transferred through several intermediaries to a
trust and they stay there. Certificates are then sold that represent the rights to interest and
principal payments made to that trust. With CLOs and CDOs, they can be "static" meaning the
loans (or RMBS tranches) are set at the get-go and don't change, or "active," meaning a manager
can trade assets in and out from time to time, subject to overall restrictions. Most CLOs are
active.
2 I haven't seen any actual CLO documents, so some of my interpretations from
CDOs and RMBs may be a bit wide of the mark. RMBS had distinct waterfalls for principal and
interest payments. This chart covers only interest payments. It doesn't mention that the deals
almost certainly had "excess spread", meaning that loans that paid, say, an average of 7.5%
across the CLO would have total interest payments of only 7.2% across all CLO tranches. This
chart presupposes that the excess spread is already gone and required interest payments are at
risk, so the equity tranche takes the hit first.
The article does have good detail on this issue. Basically, downgrades of loans are
producing breaches of collateral quality tests, and that looks set to cut interest payments to
the equity layer:
Typically, CLOs are permitted under their own rules to hold up to 7.5 per cent of their
assets in triple C rated debt. If they stay within this threshold then managers of the CLOs
can treat the loans they own as if they are worth 100 cents on the dollar.
This is because when a CLO is created, the underlying portfolio of loans is larger than
managers need to pay off debt investors. This is known as over-collateralisation. So long as
the number of loans that are near to defaulting remains below the 7.5 per cent threshold, the
portfolio is treated as though there will be enough money left at the end to pay
investors.
However, if a CLO exceeds its triple C bucket, as many now have, then the lowest priced
loans above the threshold are required to be valued at a market price. In a crisis, with loan
prices having fallen sharply, this lowers the overall value of the portfolio of loans
reported by the CLO. That in turn can impact how investors are paid.
If the value of excess collateral slips by more than a few percentage points, managers
typically first cut off 50 per cent of any interest payments on the underlying loans that
would have gone to equity holders and use it to buy more loans, with the aim of increasing
the value of the portfolio and correcting the breach.
If the value of the underlying loans falls further, then all money is cut off to equity
investors. That money is used not only to pay interest to debt investors but to start paying
back the principal of the debt, beginning with the triple A rated bonds.
3 Even if private equity firms could achieve somewhat higher leverage levels,
that's not a big bennie. Private equity has for many years been sitting on tons of "dry
powder," meaning uncalled capital. So their equity isn't a scarce commodity. Thus the gain is a
marginal decrease in interest charges. Helpful but hard to see as significant.
The article is actually fascinating case of journalism.
It's obvious it's a reasonably well researched and all, but the main conclusions (CLOs
will kill us all, and securitised products per se are nuke equivalents) it draws (which are
actually not spelled out in the article as explicitly as in the headline) are just
nothingburgers when it could have been a great article on the PE leverage and how it makes
the current economic crisis worse.
One has to wonder whether the authors are dumb (unlikely, as the article has a lot of
detail), naive, or actively shilling for the investors (remember, FT is now owned by Nikkei,
and largest CLO holder is a Japanese bank) or some combination.
I know some of the FT's journalists. From conversations with them over the past dozen
years, your final phrase is spot on.
Shilling is probably the main cause. Why? Some of the younger journalists see colleagues
like Martin Wolf, Gillian Tett and Rana Foroohar on the celebrity circuit, appearing on talk
shows and at Davos and getting commissions from publishers. They wish to join these circles,
but financial institutions and other investors are gatekeepers, so they must cooperate.
If they can't join that celebrity circuit, they can advise governments and lecture at
Harvard like Camilla Cavendish, who never stops bragging about being responsible for the UK's
sugar tax and wagging her upper middle class finger at us plebs, or they can head public
affairs at big corporations or act as public relations advisers to oligarchs.
There are two classes of journalists at the FT. It does feel class based. There are the
reporters on the daily output, e.g. the banking team, and the weekly shills like Simon Kuper,
Robert Shrimsley and Jim Pickard.
Editorial control is more tightly exercised by Nikkei as time goes on.
Do you remember the FT's expose of the Presidents' Club a few years ago? That gathering
had been going on for thirty years and was an open secret. In order to show its right on
credentials and target a new readership, the FT deployed a dozen plus hacks, well, hackettes,
to infiltrate the gathering.
I'd add another class to the FT journous – FT Alphaville. For me, FTA is the only
part of FT worth reading. Paradoxically, it's the only one that's free.
As a regular reader of FT Alphaville and a subscriber to FT itself, I have to agree with
Ives' and vlade's observations on what once was a reasonable mainstream paper. They have
drunk the kool-aid.
But don't give up totally on the comments, there're plenty of ankle biters out there.
So I will put my quibbling hat on, and I should prophylactic-ally note I pretty much agree
with everything you wrote subject to a couple of caveats.
I wrote something up as a consultancy exercise on this early last year, which is why I am
under the misapprehension that I know a little about it. Also I know Mr. Rosner has been all
over this subject for a year, at least! Indeed definitely longer. Indeed Mr. Rosner has been
warning about the risks associated with this, and the BDC-type lending for quite some time!
But that is his "victory lap" to take.
1) BoE estimated global leveraged loan market as being around $3.2bn. They would have
agreed with Guggenheim about around 45%-50% of that market being CLOs. So its probably a
bigger market than S&P estimated. I think the BIS suggested $2.4bn for LL and once again
about 50% of that being CLOs. I suspect S&P were looking at only North America. But I
would still have guessed that $600bn number is too small. Europe?
2) Lobbying for free money! Yup, thats exactly why you hire financial PRs. If everyone
else is getting bailed out then, the Fin PRs need to show they are doing something. Call
Tracey Alloway! I am told the trade groups in DC are lobbying like crazy on behalf of the
shadow banks too! MBS REITS etc.
3) Totally agree re private equity being behind the push to rescue these guys. Personally,
I think they do have a nasty problem. The underlying leveraged loans need to eventually be
refinanced. If you deplete the pool of equity in the deals you will struggle to find more.
The CLOs will enter run-off mode and will not participate in new financings. That will happen
around 7.5% CCC content. The PE guys desperate need the CLOs to remain alive. In this kind of
structured credit, a shortage of any type of credit, either equity, mezz or one of the higher
credit tranches will kill new or rollover deals. So if you want to prevent a cascading series
of defaults resulting in pretty much ALL CLOs going into runoff mode, then you need the Fed
to step in.
4) Vlade is right. Japan in the form of Norinchukin or Japan Post own about 10% of all the
AAA tranches. The FSA did a review and suggested they lighten up a while back. Last time i
looked they had been doing so the glacial way, by allowing maturities to slowly reduce their
position.
It looks a lot like a death spiral too me.
All that said, I have a very tiny violin in my hands. While I dont blame our PE overlords
for trying to steal more money from the tax payers, I dont know why the tax payer should play
ball. Apologies for the inevitable typos and forgive if I have misunderstood or misreported
myself.
I think the whole CLO market is around 1trln (give or take a few hundred bln). So still a
small fraction of say junk bonds market, or even RMBS market.
The important thing is as Yves notes, in 2008 the RMBS market was overlaid by massive
derivative positions. I'm not aware of the CLO derivative market being there much. I know
that 15 years ago you had a lot of synthetic CLOs, but those went out of favour as the CDS
market liquidity (and especially CDS on leveraged loans) evaporated. They did start coming
back a bit, not still nowhwere near the glory days of 2005-6.
Anything with a substantial leverage will kill the financial system. Conversely, only a
few things that are not levered will.
My worry on EU banks are actually covered bonds. If the EU RE market tanks, it would kill
covered bond markets where they often require 80 or better LTV in the pool. And covered bonds
are a crucial funding vehicle for a lot of EU banks, so the states would have to step in (if
they were allowed to).
Working for two of the scummiest originators, I know well about the two Japanese banks you
name. For some reason, they allow another Japanese securities house to advise them into this
abyss.
Because interest rates should be indicative of risk – at least I think that is how
it used to work – then no bail for investors as all risk can have loss and total loss
at that.
The reason the last crisis was so bad in 2008 was, in my opinion and for the reason as
follows –
All business, all consumers, all people need certain basics to survive – Food –
Water -Shelter and Land upon which to do all the above.
-- -- So with all the lending – as much as possible then and today with PE and
leverage; risk be damned as they knew bailouts would be used in that great con and it's new
version of the old today- -- Its only outcome was to raise the cost of housing – rent
(land), business overhead, farm land prices thus products therefrom and everything produced
on the planet (people playing the real estate game and realtors and all associated, wrongly
believed they were gaining wealth but – it was zero gain because if you wanted to
continue living you had to pay the higher costs wrought by the great con game – this
con perpetrated by financial puffers and criminals – aided by many of the rest of us
who were conned into thinking this great inflation of assets was and is the only way –
the brave, heroic, patriotic – survival of the fittest, smartest, hard earned way to
get ahead – and be damned those who didn't jump on board the great gravy train robbery
–
Of course, as this is all now the norm, and all made proper by great grants made to the
institutions of higher learning (to make sure the proper economic and finance learning is
taught) and larger grants made to the institutions of government (to make sure the proper
economic and financial governing is practiced) so the rest of can be assured that the
criminals the corruption and fraud is protected by law and the aristocracy is free to do as
they wish – as of course is their inherited right.
So the planet burns and a virus is showing us how the (current false definition) Free
Market has – and continues to screw the vast majority of the planet out of the
planet.
I hope that more people really start to examine and propose alternatives to the current
FIRE sector Free Market which is and continues to be the true and only impediment to solving
the worlds problems IE sixth extinction event and global geochemical disaster (global warming
is one).
I propose taxing the crap out of rentier activities and financial predation – Tax
the crap out of those things known to cause asset price inflation and are destructive to the
planet and raise the cost of living.
The Free Market needs to mean Free From Rentier, Preditory, and Unnecessary overhead
tolls.
Currently the negative is taxed lightly and the positive is burdened –
Switch the burdens around and the easy money would be made by doing the right thing –
it would make earning money through financial predation much more difficult.
Anyway – some random thought to chew on –
And yes – should investors ever take losses on money lent on interest? – sure
they should – why I thought that is why interest was charged – shows ya how
little I know.
And if investors take losses based on False Warranties and Representations made by the
financial engineers – well let them engineers make it up to the investors –
instead of what happened in 2008 when Obama (I voted for him which makes me a sucker) saved
em from pitchforks.
Hi all, this one is right in my wheelhouse as I spent 10+ years working for one of the big
CLO Trustees.
Yves' take is generally correct. What I find most comforting is that there was never a
return of structures that incorporated a ton of CDS contracts. In fact, I haven't seen any
kind of return of CDS contracts at all. Good riddance! Those things were poison!
Lehman did a ton of those pre-crisis and when they went bust, they left a big legal and
financial mess as the deals couldn't function without Lehman in the middle of them. They had
way too many conflicting roles. I suspect a lot of them were created for Lehman to lay off
risk onto their wealth management customers and other marks.
CDSese trade, especially the indices and names that are in the indices, but those
generally tend to have a fairly liquid underlying bond market. And the overall CDS market is
fraction of what it used to be.
Fortunately though the more idiotic CDSes (like the LCDS – CDS on leveraged loans)
are gone, and as you say, the synthetic CLOs too..
Thank you for these details. A little surprising. And as if I didn't already hate PE
enough. One of the surprising things is that the Fed did actually show some restraint. I hope
it holds. I think we need to emancipate PE from the Market altogether.
Economics, the time line:
Classical economics – observations and deductions from the world of small state,
unregulated capitalism around them
Neoclassical economics – Where did that come from?
Keynesian economics – observations, deductions and fixes for the problems of
neoclassical economics
Neoclassical economics – Why is that back again?
We thought small state, unregulated capitalism was something that it wasn't as our ideas
came from neoclassical economics, which has little connection with classical economics.
On bringing it back again, we had lost everything that had been learned in the 1930s, by
which time it had already demonstrated its flaws.
The Mont Pelerin society developed the parallel universe of neoliberalism from neoclassical
economics.
FDR saved capitalism from itself with the New Deal.
Many right wingers weren't happy about this at all and longed for the good old days when they
had the economic freedom to make lots of money and bring capitalism to its knees.
Of course, they didn't take any responsibility for the problems they had caused and they
plotted to get back to the way things had been before.
In the 1980s they succeeded, but all the old problems would re-emerge.
As a CEO, I can use the company's money to do share buybacks, boost the share price, cash
in my share options and get my bonus.
Share buybacks were found to be a cause of the 1929 crash and made illegal in the 1930s.
What lifted US stocks to 1929 levels in 1929?
Margin lending and share buybacks.
What lifted US stocks to 1929 levels in 2019?
Margin lending and share buybacks.
A former US congressman has been looking at the data. https://www.youtube.com/watch?v=7zu3SgXx3q4
At the end of the 1920s, the US was a ponzi scheme of over-inflated asset prices.
The use of neoclassical economics and the belief in free markets, made them think that
over-inflated asset prices represented real wealth accumulation.
1929 – Wakey, wakey time
Let's have another go.
Oh blimey, it's still the same.
Why did it cause the US financial system to collapse?
Bankers get to create money out of nothing, through bank loans, and get to charge interest on
it.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
What could possibly go wrong?
Bankers do need to ensure the vast majority of that money gets paid back, and this is where
they keep falling flat on their faces.
Banking requires prudent lending.
If someone can't repay a loan, they need to repossess that asset and sell it to recoup that
money. If they use bank loans to inflate asset prices they get into a world of trouble when
those asset prices collapse.
As the real estate and stock market collapsed the banks became insolvent as their assets
didn't cover their liabilities.
They could no longer repossess and sell those assets to cover the outstanding loans and they
do need to get most of the money they lend out back again to balance their books.
The banks become insolvent and collapsed, along with the US economy.
When banks have been lending to inflate asset prices the financial system is in a
precarious state and can easily collapse. "It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of
$1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the
Presidents Bankers, Nomi Prins.
When this little lot lost almost all its value overnight, the Western banking system became
insolvent.
Western taxpayers had to recapitalise the banks and make up for all the loses the bankers had
made on bad loans they had made to inflate asset prices.
Free market thinking split into two separate paths in the 1930s.
We took the wrong path.
In the 1930s, Hayek was as the London School of Economics trying to put a new slant on old
ideas, while the Americans were working out what had gone wrong in the 1920s.
The University of Chicago had worked out what had gone wrong with free market thinking
before, but we followed Hayek who hadn't.
In the 1930s, the University of Chicago realised it was the bank's ability to create money
that had upset their free market theories.
The Chicago Plan was named after its strongest proponent, Henry Simons, from the University
of Chicago.
He wanted free markets in every other area, but Government created money.
To get meaningful price signals from the markets they had to take away the bank's ability to
create money.
Henry Simons was a founder member of the Chicago School of Economics and he had worked out
what was wrong with his beliefs in free markets in the 1930s.
Banks can inflate asset prices with the money they create from bank loans.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to
create money. "Simons envisioned banks that would have a choice of two types of holdings: long-term
bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw
this as beneficial in that its ultimate consequences would be the prevention of
"bank-financed inflation of securities and real estate" through the leveraged creation of
secondary forms of money." https://www.newworldencyclopedia.org/entry/Henry_Calvert_Simons
Real estate lending was actually the biggest problem lending category leading to 1929.
Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from
2001 – 2007 and went back to look at the data before 1929.
Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability
to create money. "Stocks have reached what looks like a permanently high plateau." Irving Fisher
1929.
This 1920's neoclassical economist that believed in free markets knew this was a stable
equilibrium. He became a laughing stock, but worked out where he had gone wrong.
Banks can inflate asset prices with the money they create from bank loans, and he knew his
belief in free markets was dependent on the Chicago Plan, as he had worked out the cause of
his earlier mistake.
Margin lending had inflated the US stock market to ridiculous levels.
" . they plotted to get back to the way things had been before."
I've got a good idea, you'll like this.
You can attract modern liberals to dodgy, old, 1920's neoclassical economics if you bolt on
identity politics.
Inequality exists on two axes:
Y-axis – top to bottom
X-axis – Across genders, races, etc ..
The traditional Left work on the Y-axis and would be a problem as you want to increase Y-axis
inequality.
The Liberal Left will work on the X-axis.
You can increase Y-axis inequality while the Liberal left are busy on the X-axis.
The 1930's solution of the Chicago Plan was one way of keeping bank credit out of the
markets.
There are other ways.
You could use the corset controls the UK used before 1980.
This kept bank credit away from financial speculation and debt grew with GDP.
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
Before 1980 – banks lending into the right places that result in GDP growth (business
and industry, creating new products and services in the economy)
Debt grows with GDP
After 1980 – banks lending into the wrong places that don't result in GDP growth (real
estate and financial speculation)
Debt rises faster than GDP
OR ..
Richard Werner worked out what went wrong in Japan.
The BoJ used to use window/credit guidance to steer bank credit away from financial
speculation and towards business and industry.
This was the basis for all the Asian Tiger economies, until they discovered financial
liberalisation and the Asian Crisis followed shortly after that.
OR ..
Germany uses small non-profit banks that are very local to communities and businesses.
There is no gain from financial speculation and they are closely tied to the people they
serve.
Awesome piece, Yves! Remember your outstanding work from 10 years go) Couple of
questions:
1. Dont you think the derivatives will be a problem again? This time due to corporate credit
risk and FX moves? CDS exposure to GM, GE, Ford is many times their cash debt and should they
go down (even if the Fed holds bonds) the CDS losses could be in many trillions if we account
for all possible corporate defaults. Also, FX derivatives notional is orders of magnitude
larger than credit one and large swings in euro/dollar etc could also kill a lot of
players.
2. Isn't PE in trouble? Some of them are clearly OK but is it really true that all of PE
players are sitting on mountains of cash? I am far from this market, could anybody opine on
which PE firms could be hurt?)) TIA!))
apenultimate
on Thu, 05/14/2020 - 9:50am The past week's unemployment claims came out today, and add
another 2.98 million to the pile. This brings total unemployment claims for the past 8 weeks
(two months or so) to 36.5 million.
Determining unemployment percentages depends on what data you use. The Bureau of Labor
Statistics (BLS) shows the employment numbers for the United States in August 2019 as ~157
million ( https://www.bls.gov/cps/cpsaat08.htm ). Admittedly,
that's not March 2020 statistics, but employment numbers would not change all that much in half
of a year.
The St. Louis Federal Reserve has a different set of statistics that show 205.5 million
Americans employed in March 2020 ( https://fred.stlouisfed.org/series/LFWA64TTUSM647S
). (They show the August 2019 period with employment at 206 million.)
Why the huge difference? I have no idea. But going forward, I'll use both to determine
unemployment numbers. Remember that in early March 2020, unemployment was already around
3%.
Using the BLS statistics, we get an unemployment rate of 23.16% for the past 8 weeks. Add on
the previous 3% of people unemployed, and you reach 26.16% unemployment.
Using the St. Louis Fed statistics, we get an unemployment rate of 17.76% for the past 8
weeks. Add on the previous 3% of people unemployed, and you reach 20.76% unemployment.
The peak rate of unemployment during The Great Depression was 24.9%. The peak rate of
unemployment during the the Great Recession in 2008 was 10%.
According to BLS statistics, we are already greater than Great Depression unemployment
numbers.
According to the St. Louis Fed, we are already more than double Great Recession numbers and
only about 4 percentage points away from Great Depression peaks.
The Labor Department last week reported April unemployment for the United states at 14.7%,
but this according to their own admission was undercounting the real rates. Be careful of any
numbers coming out of the mainstream media or government sources.
Some jobs will definitely come back, but many will not. For example, JC Penny's reported
that they are permanently closing 200 of their 850 nationwide stores. Those jobs will not be
coming back. There are weekly reports of many cafes, restaurants, and small businesses
shuttering their doors for good. Those jobs will not be coming back.
Even for the companies that do not shut down, it may be a long haul before economic activity
has picked up enough to bring workers back. In most cases, it will not be a quick recovery.
Hang on for a very rough ride. 2 users have voted.
• Headline April 2020 Unemployment Really Was Around 20%, Not 15%
• Bureau of Labor Statistics Disclosed Erroneous Unemployment Surveying for a Second
Month
• About 7.5 Million People in the April Household Survey Were Misclassified as Employed
Instead of Unemployed, per the BLS
• Headline April U.3 Unemployment at 14.7%, Should Have Been 19.5%
• The BLS Had Disclosed the Same Surveying Error Last Month; Where Headline March 2020 U.3
Was 4.4%, It Should Have Been 5.3%
• Per the BLS, Headline Data Will Not Be Corrected: "To maintain data integrity, no ad hoc
actions are taken to reclassify survey responses."
• Nonetheless, Headline April Unemployment Soared to Historic Highs from March: U.3 from
4.4% to 14.7%, U.6 from 8.7% to 22.8% and ShadowStats from 22.9% to 35.4%
• More Realistic, Those Same Unemployment Numbers, Corrected: U.3 from 5.3 % to 19.5%, U.6
from 9.6% to 27.7% and ShadowStats from 23.7% to 39.6%
• April 2020 Payrolls Collapsed by an Unprecedented 20.5 Million Jobs
• Annual Growth in April 2020 Money Supply Measures Soared to Historic Highs
• U.S. Economic Activity Has Collapsed to Great Depression Levels, with the Federal
Reserve Creating Unlimited Money
stated in the very beginning of this video, that of people who were employed in February of
this year, nearly 40% of those earning $40,000 or less have become unemployed. This is an
unprecedented human tragedy that Congress in all their bailouts now totalling about $8 Trillion
have seen fit to throw a one time pittance of $1,200. With mountains of cash going to
corporations and lobbyists, Congress insultingly gave real suffering Americans a few pennies
and in effect told them that their lives do not matter to Washington DC.
I am still highlighting these because of their leading nature for the economy overall. These
were uniformly very negative:
the average manufacturing workweek fell -2.1 hours from 40.4 to 38.3 hours. This is one
of the 10 components of the LEI and will be a big negative.
Manufacturing jobs fell by 1.3 million. Manufacturing has lost 1.364 million jobs in the
past 2 months.
construction jobs fell by -975,000. In the past 2 months 1.08 million construction jobs
have been lost.
Residential construction jobs, which are even more leading, declined by -117,600. In the
past two months together there have been -119,200 lost jobs.
temporary jobs declined by -842,000.
the number of people unemployed for 5 weeks or less rose by 14.3 million.
Professional and business employment fell by -2.128 million, or -10.0% for the
month.
Amateur Socialist , May 9, 2020 8:43 am
This disaster is only getting started. Uncertainty regarding employment stability is
hitting health care workers. In the middle of a worldwide pandemic. People with relatively
secure jobs are wondering about their families and loved ones needing additional support.
Which will continue to limit discretionary spending and on it goes.
"Debts which cannot be repaid will not be repaid" as Michael Hudson has been warning for
decades. The thing about capitalism is that it works fine as a theory but it's just not
practical in the real world. The one that includes humans who are not economists.
the virus results to the population pale in comparison to the economic/social aspects.
We now know far more about Covid19 – the Lockdown should end
Gottlieb pointed to a study, which
has not yet been peer-reviewed, that examined outbreaks in 320 Chinese cities outside Hubei
province, where the coronavirus is believed to have originated, between Jan. 4 and Feb. 11 and
found only one outbreak that occurred outdoors.
But we digress: Blankfein actually made some good points about the situation facing the
American economy during one of his longest and most casual interviews since leaving Goldman
more than a year ago. The notion - pushed by CNN, MSNBC, etc - that President Trump is picking
'saving the economy' over 'saving lives' isn't really accurate, Blankfein explained, because -
and he's parroting an argument made by
an actual real-life ER doctor here - leaving the economy and more importantly the
health-care system closed for months risks serious repercussions for the public health.
"It's really health vs health, because poverty, GDP is really a health issue," Blankfein
said.
When I was in Sweden last summer, I was perplexed how unhealthy many Swedes look. The picture
in Denmark was completely different. Curiously, the Covid-19 incidence rates in Denmark, Norway
and Sweden mostly mirror my (superficial and subjective) impression of the health of the citizens
of these countries. Lots of obesity in Sweden, lots of cyclists in Denmark.
here are the numbers of deaths " due" to corona in Switzerland .
00 -19 years old 0 death
20 -29 years old 1 death
30 -39 years old 4 deaths
40 -49 years old 2 deaths
50 -59 years old 23 deaths
60 -69 years old 84 deaths
70 -79 years old 243 deaths
80+ years old 776 deaths
Total for that country 1133
"Lifting all boats" was always a lie. It was simply a way to sell trickle down by claiming
that the objectively observable inequality it produced would somehow help everyone,
eventually, sort of. There was not and has never been a plan by the Conservative Movement to
lift all boats. Only a plan to feign interest in doing so.
I see the current situation more like the sinking of the Titanic (whether caused by the
virus or shady financial dealing, it doesn't matter). The rich passengers get the lifeboats
and the rest of the passengers get the ice water. A few survived in the water, so it's time
to look to the future. Crony capitalism in a nutshell.
"... It should be obvious that if leverage is used to fund the purchase of financial assets those assets will inflate in price greatly. If the leverage is not used for financial assets and is used instead for funding new production then financial assets stay in proportion to GDP. That is of course currently the fundamental weakness in western economies. ..."
When augmented with leverage, the exponential dynamic inherent in debt guarantees that
financial value runs away far ahead of any amount of GDP implied.
_________________________________________________
You changed the subject slightly.
It should be obvious that if leverage is used to fund the purchase of financial assets
those assets will inflate in price greatly. If the leverage is not used for financial assets
and is used instead for funding new production then financial assets stay in proportion to
GDP.
That is of course currently the fundamental weakness in western economies.
So when firms issue bonds and use the money to buy back their own stock then stocks become
over-inflated while obviously production stagnates. That practice used to be illegal and will
likely become illegal again when the recent damage this practice is eventually realized.
You are correct that the boom and bust cycles that are the direct consequence of the
instability that results from the mismatch of financial assets to productive assets is the
mechanism, for those who can take advantage of it, to transfer wealth from others to
themselves.
But just like a virus if the parasites become too lethal to the host the parasites will die
also.
The International Labour Organization (ILO) has warned that
around half of the world's workforce, or 1.6 billion workers, are at imminent risk of losing
their livelihood because of the economic impact of the coronavirus pandemic. In its latest
report, the UN agency stated that those hardest hit by the financial effects of the Covid-19
outbreak have been 'informal economy' workers, including the self-employed and those on a
short-term contract.
"The first month of the crisis is estimated to have resulted in a drop of 60 percent in
the income of informal workers globally," the ILO said of the economic damage already
caused by the pandemic.
The deepening crisis in many parts of the world has left more than 436 million businesses
facing financial hardship and possible closure, the ILO stated, which will inevitably hurt
workers. The report listed the worst-hit sectors as manufacturing, accommodation and food
services, wholesale and retail trade, and real estate.
"For millions of workers, no income means no food, no security and no future," ILO
Director-General Guy Ryder said of the stark impact of an economic dip.
He added that, according to ILO data, there is expected to be a "massive" rise in
poverty levels worldwide, unless governments recognize the need to reconstruct their economies
around better working practices and "not a return to the pre-pandemic world of precarious
work for the majority."
Since the novel coronavirus emerged in China late last year, over 3.1 million cases have
been confirmed around the world, and more than 216,000 people have died. Drastic lockdowns to
limit its spread have taken a dire toll on the global economy, prompting market turmoil and
numerous projections of the heavy recession to strike this year.
Coronavirus To Decimate Colleges and Universities Posted on
May 12, 2020 by Yves Smith "Decimate" might be too
charitable a forecast for American higher educational institutions, since the word originated
with the Roman army practice of killing one man in ten. Coronavirus is hitting pretty much all
of the bad aspects of their business models at once.
Let's list them:
Dependence on/preference for foreign students, often not for their accomplishments but for
their ability to pay full and even premium fees . Chinese students accounted for one-third of
the total. Their enrollment was already falling as of 2019.
Universities in English-speaking countries, especially Britain, Australia and the United
States, have grown increasingly dependent on tuition from Chinese students, a business model
that the virus could dismantle.
With qualifying exams postponed, travel bans spreading and anger rising among Chinese
students and parents at the West's permissive attitude toward public health, enrollment could
plummet in the coming years, experts said, potentially leaving countries with multibillion-
dollar holes in their universities' budgets.
Foreign students were dismayed by the way US schools shut down abruptly and gave little to
no help in helping get them back home.
Skyrocketing prices leading more students to question college or emphasize "practical"
degrees . As with mortgages, access to debt has led to higher prices. And with student debt
terms so draconian, more and more students are trading down: going to cheaper schools or
focusing on programs that teach harder skills that hopefully translate into market value.
Bloated adminispheres and gold plated facilities . MBA parasites have colonized
universities, with the justification often that they increase fundraising. For what purpose? To
pay themselves better, and to create naming opportunities for donors with new buildings, and to
justify high charges via plush dormitories. Apparently swanky gyms are common.
All those expensive buildings have become an albatross.
Now consider the impact of coronavirus.
Litigation over terminating on-campus instruction . This is probably the least of their
worries. Plaintiffs are seeking refunds for the degradation of the educational product. The
schools argue quite explicitly that they are not in the business of educating but of conferring
credentials, and it is they alone that determine what is adequate for them to hand out a
degree. There is precedent supporting the universities' arguments, albeit with less bad facts
than these.
Low likelihood of resuming classes on campus this fall . My colleagues with contacts among
university administrators say no one has any idea how to make dorms safe if coronavirus is
still on the loose. This has many negative implications.
Why should students and/or their parents be willing to pay full prices for a degraded
product? They won't get interaction with instructors. For science and engineering classes, they
won't get lab work. They won't get to make connections and meet potential mates. They won't get
tips from other students on career and summer job strategies. They won't get to participate in
extracurricular activities, which is a low-stakes way to learn to work with other people. They
won't learn how to grow up in a somewhat protected environment.
There is the very real possibility that employers will downgrade the value of degrees
conferred during the plague years.
It's hard to see how colleges and universities escape cutting tuition, save perhaps the most
elite. I can't see any schools besides the most elite can maintain their charges without seeing
a big falloff in enrollment. And with them administering classes remotely, the cost of delivery
has fallen. And that's before seeing students postponing or abandoning degrees due to the
horrible state of the economy.
And what happens to university budgets due to the loss of room and board income?
Schools already looking at probable downgrades . Standard & Poors is already put a long
list of higher educational institutions on its negative watch list. Bear in mind that S&P
and Moody's tend not to downgrade before Mr. Market already has the bond trading at a lower
rating level.
From an April 30 Ratings Action :
The public and private colleges and universities affected by these actions include
primarily those with lower ratings ('BBB' rating category and below), but also those entities
that, in our opinion, have less holistic flexibility (from both a market position and
financial standpoint) at their current rating level
While S&P Global Ratings' outlook on the U.S. not-for-profit higher education sector
has been negative for three consecutive years now, we believe that the COVID-19 pandemic and
related economic and financial impacts exacerbate pressures already facing colleges and
universities. The financial impact on institutions from the loss of auxiliary revenue from
housing and dining fees, and parking fees; as well as revenues from athletics, theater, and
other events, is material for many. For schools with health care systems, lost revenue from
cancelled elective surgical procedures could also be significant. The recently passed CARES
Act will provide some budgetary relief to higher education institutions; however, despite
this aid, we expect to see stressed operating budgets, the scope of which will ultimately be
determined by the magnitude of lost revenues, the duration of the pandemic, fall 2020 mode of
instruction, and ultimate enrollment figures.
Colleges and universities have reacted rapidly to the challenges presented by the
pandemic. They have moved classes online to adhere to social-distancing rules, adjusted
admission policies to accommodate disruptions to high school exams, and suspended academic
conferences and travel. At the same time, many have implemented material expense cuts,
including deferring capital expenditures, and imposing furloughs and layoffs, in some cases,
with plans to continue to ramp up cost containment under various fall scenarios. Many
colleges and universities have disclosed estimates of 2020 budget shortfalls, despite the
inclusion of CARES stimulus funds. We expect that the colleges and universities we rate will
face an unprecedented level of operating stress and tightened liquidity, which will worsen
the longer and deeper the pandemic lasts.
It is also not clear how much more help the Federal government will be willing to provide.
Even though Congresscritters will be under pressure to help institutions in their district, the
flip side is the Republicans know well that higher educational institutions are a Democratic
party province, so they won't be high on their list of rescue priorities.\\
This section seems very much behind the curve, as if S&P talks to too many Wall Street
types who are betting on a V shaped recovery:
Many of the colleges and universities that we rate have some headroom to absorb the
impacts associated with COVID-19 at their current credit ratings, as they have built up
reserves over recent years, hold solid balance sheets, and have relatively low debt levels.
However, colleges and universities will face increased downward pressure on their current
ratings depending on the extent to which economic disruptions associated with COVID-19
persist. If global travel restrictions are prolonged, or the imminent recession diminishes
foreign students' financial means, then some could opt to study or work in their home
countries instead. In our opinion, a fall 2020 with significantly fewer international
students, as well as lower domestic enrollments overall, will cause serious operational
pressures. At the same time, most U.S. colleges and universities depend on endowments and
fundraising for a significant portion of revenues, and declining investment performance and
endowment market values along with weaker fundraising results could negatively affect credit
metrics during the outlook period.
I strongly suggest you look at the list. You'll see many familiar names. In particular, the
ones at the very bottom group, which already had a negative outlook before coronavirus, are the
most downgrade exposed. Interestingly, Northwestern, which went to the "hedge fund with a
university attached" model early and has an AAA rating, is in that cohort. Did they have an
even bigger than typical blow up in their portfolio?
Needless to say, this isn't cheery reading. While the universities set themselves for a big
fall, a lot of people who had nothing to do with the bad policies will get hurt.
As an aside, this is another reason why the 'we should relax lockdown as soon as possible'
crowd are so very misguided. The education business, along with so many others, gears up
after the August holidays right across the northern hemisphere. For many countries, there is
a good chance of suppressing the virus between now and the summer so that there can be at
least some sort of normalcy restored from August onwards. At the very least, this gives a
chance of a normal academic year for students. But this is only a possibility if infection
rates can be brought down to a 'track and trace' level over the summer. Failing to do this by
September will be devastating for all education providers. The UK third level sector, already
hit by Brexit, will be similarly wiped out if the virus is visibly not under control by
then.
Although they are unprofitable for almost all schools, I'm not sure that the impact from
cancelling the season is as clear cut, especially for the large D-I programs. Many of the
costs like million-dollar coaches, hundred million-dollar stadiums are fixed. Scholarships
will likely continue as well. Schools can probably cut costs of the lower paid employees
without contracts, like assistant coaches and trainers, but I don't think those are the
biggest drivers of costs.
Gameday revenues are almost certainly cashflow positive for the schools (ushers and
cleaners aren't paid very much); without them the football teams will be even bigger money
losers for the school. The schools might even get fees from their broadcast partners, as is
the case with many professional teams.
What happens with all these high-cost games like football and basketball if they cannot
get crowds to watch them? Do these crowds off-set much of the costs of staging these games? I
suppose that the institutes would be loath to drop them as they are such a "status" program
to have but I fail to understand how a coach in such a place is entitled to a multi-million
dollar salary as that money has to come from somewhere.
Most of their money is made through TV broadcasting rights, not in game ticket sales.
People will still watch them. Arguably even more people will watch them, although I don't
think that matters because the deals are already locked in with the various networks.
TV is the king but game day revenues are not insignificant for most of the big programs
that count on 70,000+ spectators times 7-8 home games a year.
Also agree with Another Scott that big-time college football especially has a lot of fixed
costs that will not go away if the season is cancelled. On the other hand, once you get
outside the big D1 programs, I do think cancelling football would be net cash flow
positive.
Comments like, "Football programs lose money" are so poorly thoughtout I just cant believe
they are posted here.
Honestly. . .
Huge amounts of dollars go through those programs and the benefit of that circulating
money to sooo many people and companies is enormous. There are many people who want to see
those programs continue.
If a Florida school thinks the price tag is too high, it is the begining of a series of
price negotiations. . . thats it. Come on!
first, your "quoted" material wasn't a quote in this write up or comments, so you can take
the quotes off. Second, look at the link Yves posted to see how football is a money pit for
many D1 schools. Third, I think I understand what you're trying to say that there's tons of
money flowing in and around college football, but the gist is that we're talking about the
impact to and financial ratings of colleges and universities and not the impact to the Purple
Porpoise in Gainesville, FL or similar establishments.
You make it sound like it doesn't matter if they lose money, because with all that money
sloshing around there then it's a net positive. The only problem is those universities aren't
there to slosh money around in their football programs, they are there so our society can be
an educated one. And when instead people start to think that the money sloshing around is
more important (as in all areas of human life) the part that was point of the whole endeavor
(as in, the education at the university) comes to look more like a cost. And what costs is
what is cut. And what is cut is degraded, given a higher price, and otherwise forced to
submit to those market forces that looks so good (well, at least when you have dollar signs
tattooed on your eyes).
The point is, whether football programs lose money or make lots of money slosh around,
this model is exactly the thing that is destroying our society, and exactly what needs to be
dismantled. So comments like "Football programs lose money" are exactly why people come
around here in the first place, and it seems you must be confused if you "can't believe they
are posted here."
AS A PSU grad and active alumnus I can attest that Penn State uses its massive football
revenues to fund ALL other of the school's sports programs. Though not part of the topic
being discussed, football Game day revenues also basically fund theTown of State College's
Downtown businesses FOR THE YEAR. And the full fare Chinese student contingent absolutely
'makes' the bottom line there. Those of us involved in alumni activities and meet with Board
members and others often are VERY worried .
If one reads the article, the key part of the statement about "most football programs lose
money" is that it's referring to FCS (Football Championship Series) schools which are the
"lower tier" Division 1 schools. Not Big10, SEC, etc. I don't think there's much in the way
of TV revenue for FCS either, except when they get a cut of the deal when playing a major
team (once or maybe twice a year).
My cousin attends Union and decided she'll take a leave of absence in the fall if they are
still remote.
Northeastern in Boston has stated they'll be back in the fall. I believe they are deeply
dependent on tuition revenue and have massive debts due to a campus expansion that must have
been costly due to Boston real estate prices.
In the UK, Queen Mary, Manchester (labouring under at least a billion pound debt for a
state of the art campus by the canals) and (private) Buckingham are teetering. Oxford is also
experiencing some discomfort.
I made this post unduly US focused due to having the S&P analysis, so thanks for
additional input on the UK. The New York Times article above made it clear that UK unis were
even more dependent than American ones on Chinese students paying hefty fees.
Thanks for that article. I've also heard that rumour about Queen Mary, is there any public
information about them?
I wonder how many other UK universities will announce redundancies in the coming months.
Would be interesting to know numbers of current vs. normal (last year) applications from Asia
for the coming year.
Yes, Edinburgh's situation is well known. Other prominent Scottish universities are in
similar positions, having gone all-in on rich international students to subsidise their "free
tuition for Scottish students" model. They're all very exposed now.
In England, I've heard of a number of institutions this week setting up voluntary
severance and redundancy schemes, with rather alarming stated goals for how many staff they
want to shed. Big, prestigious universities, too -- again, it's that reliance on
international students. The word I'm hearing repeatedly is "bloodbath."
Interesting NYT article about Bath. We live on campus (our house is a former uni property)
of another southwestern University, famous in no particular order for its campus being a
botanic garden, its current vice chancellor being about to retire after 20 years of
market-leading pay and it having closed its chemistry department, among others, 20 years ago
to make savings to pay for other priorities.
Again in no particular order, we gave remarked in the last few months:
– just how many east Asian students and junior faculty the place has attracted. We have
Japanese student lodgers!
– just how many purpose built student factory farms are being built in the city and,
more financially perilously, on the campus (building a massive student dorm extension campus
on farmland that was prime city centre green space and materially upgrading facilities at
other student blocks) and how distorted the local housing market is
– just how long the grass is getting since lockdown. There's little infection risk on a
single seater ride-on mower – the groundstaff, botanic garden not withstanding, have
been furloughed / laid off to save money. One vice chancellor's salary could pay for them
all. Austerity for thee, public subsidy for me.
– just how tone deaf the University is to assert its campus is now closed to the
public, when public roads run through it and it is used as a cycling and pedestrian right of
way to cross the northern half of the city. The buildings are closed and the students are in
their hutches. There is no danger of infection from people taking a walk from their confines
.
There is a big reckoning coming, with these bullying institutions suddenly acknowledging
their public and local obligations in return for a bailout.
Ps: I don't think the reaction of bath students to avoid sharing an elevator with a
Chinese student was racist. Just prudent. On a risk adjusted basis, a Chinese ethnicity
student is most likely a Chinese expat and if returning from Christmas or CNY to campus
represented a higher risk than a non-Chinese. I was very wary on my weekly commute in January
from London, of the Chinese students with big suitcases tagged Heathrow who were all getting
off at my stop . Tables have turned now, of course!
> They won't get to make connections and meet potential mates.
: Sherri Tepper: See. The word Festival. In the Onomasticon it carries the meaning
'opportunity for reproduction.' We talk of School House, but the book says, 'Protection of
Genetic Potential.' We say True Game. The book says 'Population control.'
The university of my town had moved from offering professions to Learning How To Learn in
the last couple decades. Along with that was the gilting, providing a shared cultural
experience, more in line with Tepper's definitions than educational outcomes. The incoming
cash provided support for community culture as well, restaurants, arts, weird shops. The
fallout for our cosmopolitan lifestyle in a small city is unfathomable.
Deeper even still, in the middle of the last century, educator Frank Templeton wrote from
the perspective that every citizen was like a brick, in the structure called a nation, and
schools made for strong bricks.
The harsh partial truth is that primary and secondary schools were hollowed out as daycare
centers to increase the labor pool. And many parents who were willing to pay to get the older
kids out of the house are now forced with a calculation: what's the roi on the
educational/professional dimension, and what's the roi on the social/Tepper dimension? If
both are low, why pay in this time of great uncertainty?
Chinese student applications are well down this year–this from direct knowledge at
one school and anecdotal at a few more. Companies that operate in China to connect students
to US institutions are laying off. And if numbers at any given school don't absolutely crater
(50%+), know that the discounting will have had to have been ramped up to make that possible.
Obviously there are health and safety concerns, but there is also a nasty political climate
with racist/xenophobic stuff coming from the Republicans that has been in some cases matched
by e.g. Biden campaign or NYT and that might clear the way for disastrous bans on
student/post-grad visas, if not increased violence.
University of Illinois "flagship" was prescient to purchase insurance from Lloyds Of
London for fortuitous Chinese student reduction risk. International students pay top dollar
rate. All good, their insurance broker should be commended!
Yesterday, Northwestern announced they are laying off ~250 personnel and cutting
administrative salaries 10 – 20% (so it must be serious). So much for the "safety" of a
higher education job.
On a tangential tack, locally, a slight majority of voters in our city passed a school
levy to firm-up/construct school dist. infrastructure – elementary/middle-school ..
with the future goal of a new shiny high school to replace the old/failing one. In the recent
years past, the school board and their boosters would put forth levies that amounted to Taj
Maschool 'wish-lists' .. which the community rightfully voted down. Same for the towns within
close proximity. So, the result of said measure .. even though it is lower that the previous
ones, is the rise, by hundreds of $$ annually (a bond floated, to be pay off in X years ..
only to have new one's brought forth after), to every property owner to achieve these goals
.. dollars that many would find a true burden Before the pandemic will be hit even harder
going forward. We are not what one would call a rich community .. unless one only considers
the movers/shakers/boosters. We rely less and less on timber exports – happening in
spades now! – with incoming revenue predicated on the vaunted idea of 'Tourism'.
'Sigh'
I see a failure of those same movers/shakers/boosters to consider that the whole college
track gristmill is the wrong approach .. bring back hands-on vocational training instruction
that was nixed years ago, having left it to the local college to do, with the added $-stream
THAT entails .. and put much less emphasis on 'college for college sake' There are a plethora
of skills that young folk are not being taught, that they will need for their very survival,
in a conflicted and low resource world! Imo, the Federal Dept. Of Ed needs to be abolished,
thus putting a end to it's often onerous 4 to 8 year changing 'mandates', and allow state and
local communities to come up with their own models of instruction. Sure, some will no doubt
fail, but I believe many others would in fact, thrive. There should of course be iron-clad
restrictions on just who has sway on funding and 'pull' (no hedgefunds/private equity/
scoundrels, rakes, and thieves !) Leave to the locals to hash out!
A little over a century ago, we had that kind of evironment, where children actually learned
of the world, whilst also becomeing proficient in the basics .. as well as taking on truly
practical skillsets .. from often small school settings – just look at an any exam
test-sheet from back then to get an idea of how badly we've handled things since. This
pandemic has brought to light our learned follies for sure.
Very true. I read that in EvanstonNow. Also saw a story from about a month ago about the
Wildcats 2020 prospects which IIRC previewed the 2020 schedule. So I guess college football
will go on even as colleges are decimated by the coronavirus. Priorities, indeed.
I looked this up. It does not appear to be as dire as you describe it. The staff members
are being temporarily furloughed, not laid off. And it is "university leaders" and deans that
are taking pay cuts. That is not administrative salaries generally. I am not saying it won't
get worse, just that it is not quite so terrible yet.
"University leadership said approximately 250 staff members will be temporarily
furloughed, the university will suspend 5% automatic and 5% match contributions to staff
retirement plans, and university leaders will take a 20% pay cut.
NU deans will also take a 10% pay cut reduction."
MBA parasites have colonized universities, with the justification often that they
increase fundraising. For what purpose? To pay themselves better, and to create naming
opportunities for donors with new buildings, and to justify high charges via plush
dormitories. Apparently swanky gyms are common.
I wish it were unique to the Anglosphere. Even here in Sweden one of the technical
universities in my city is in the midst of a big economic crisis. My friends who work there
as researchers attribute it to obscene administrative bloat that they've seen growing rampant
in the past decade. This is also after the implementation of big tuition fees for non-EU
students in 2011 (there were no tuition fees before that) which dramatically lowered the
quality of international applicants.
Athletic budgets (public institutions) in context: https://sports.usatoday.com/ncaa/finances/
The far right column is the key: percent of athletic budget that is "allocated," which means
the part of the budget that comes directly out of the hide of the institution and its
students. About two dozen of the usual suspects make a "profit." My alma mater is way
profitable but still takes several million from captives in "student fees." Private
institutions in the black would include Notre Dame, Stanford, USC, and probably Duke
(basketball, which disappeared this spring). Note what the athletic budget does to schools
like UCONN, Rutgers, and UMASS, not to mention the smaller state schools. Something's gotta
give. It won't be the athletic departments.
When I bring up these data with academic colleagues, especially from smaller institutions
that have reestablished football as the prime money pit over the past 25 years, all I ever
get is the bovine stare of disbelief.
To be fair, what this analysis doesn't take into account is how many students are going to
the school (or how much more they are paying) who would not have gone if there were no sports
teams
I know thats a dumb reason to choose a college, but remember these are 18 year olds making
a decision. I suspect many more than you would assume include going to a "winner" and
additional social tailgating events as part of their criteria
Additionally, I think there is a mentality, or pride, that you too can be like Duke in
basketball or Notre Dame in football. But, first you have to commit to winning, or invest
early.
Yes, this is the "intangibles, school spirit" argument, a perennial favorite of presidents
and athletic directors and boards of trustees. It may be somewhat valid at the larger schools
of the Power Five conferences (SEC; Big-10, where they apparently can't count to 14; ACC;
Pac-12; Big-12, actually 10) but absolutely nowhere else except Notre Dame. And even in these
conferences, the financial drain on some schools is huge. Way past time to realize the sunk
costs associated with college sports are simply lost. Georgia Tech and Berkeley need big time
college sports (i.e., football)? Really? Georgia Southern and Illinois State? Connecticut and
Rutgers? Robert Maynard Hutchins to the white courtesy phone, please. Yes, I am unreasonable,
but these are unreasonable times.
And except for a brief renascence under Lou Holtz, Notre Dame football hasn't been much
since Ara Parseghian retired and the Boys from Chicago are still and forever nonplussed about
that.
And there is the small irony of educational institutions promoting a sport that can cause
serious head and bodily injury (American football).
Maybe some football programs do eventually pay for themselves via alumni contributions,
but one wonders if there is a herd mentality in colleges NEEDING to have a football team.
I know of one University of Calif campus (UC Santa Barbara) that dropped its football team
in the late 1960's, weakly woke it up in 1987 and then dropped it again in 1992.
"1985 a student referendum approved funding for a Division III, non-scholarship team. The
team began play in 1987,.. with a 33-15 record from 1987 to 1991. However, in 1992 the NCAA
decided to forbid schools playing in Division I in other sports from maintaining a lower
level football program, and UCSB dropped the sport again."
Maybe other schools can learn from UCSB's experience?
My high school buddy played on the last 1960's football team at UCSB. As a student there,
many of us were too busy protesting the war and burning the IV bank than attending football
games.
I looked at the ncaa/finances link and saw the "allocated" section.
I find that focusing on the allocated % is misleading as a school with an athletic budget
of only $100 that is not covered by gate receipts would show as %100 allocated.
This could be put in more perspective if the allocated dollar amount is divided by the
number of students.
For example, the University of California, Davis shows up at a high 81.90% allocated with
the allocated amount of $30,680,083.
UC Davis shows as having a student population of 35,186 per Google.
Per student, this is about $872 per student per year.
While Connecticut shows up at a seemingly better 49.23% allocation, but spreading the
shortfall over the 32183 student body size of Connecticut gives a cost of $1213 per student
per year.
One can wonder why the document did not give the per student cost and instead published a
%allocation figure.
These are historic times and one of the biggest sacrifices this generation of college
students will have to make is sitting through Zoom classes.
Let's keep this in perspective. Missing college because you've been drafted to fight in a
war across the Pacific is not the same as delaying your college education because you can't
get drunk with your frat. In the coming years employers will look much favorably on students
that stuck to their 4 year plan regardless of the troubles they were (or thought they were)
facing.
The Chronicle is tracking individual colleges' plans. Currently the vast majority say they
are planning for an in-person fall semester. This database is not behind a paywall Here's
a List of Colleges' Plans for Reopening in the Fall We'll see when August rolls
around.
At my university, the Registrar calculated that our campus has only ONE room large enough
to seat more than 50 students maintaining 6 feet of separation.
The rule of thumb is that covid capacity is 25-30% of normal capacity, so most classes
will need to be capped at 20 students or fewer. Probably better for education, but very much
not compatible with business as usual.
I don't see any way we reopen in any way approaching normal.
My university is probably going to be requiring us to teach half of the students in a
class in the classroom, then half of the students in the class online, alternating which
group is taught in a classroom and online throughout the semester. Unless this doesn't work,
in which case we might go all online, or all in person. What is being suggested–I kid
you not–is that we design each of our courses for the Fall to be taught in any one of
three, or more, ways. We're also taking pay cuts and losing the university's contribution to
our 403b plans. Good news though, we're still going through with our application to the NCAA
for division 1 status!!
The rot at the top of the university structure runs deep, I am afraid.
P.S. And, of course, our annual evaluations–usually the basis for a raise of between
1-1.5%–will continue, even though we're all taking pay cuts. Lol
Thank you for this, Yves. The problem is much bigger – and with more ramifications
– than most people realise, even in the education world itself .
The Guardian article linked to by CS talks about some of the immediate financial problems
this year. IN addition, huge numbers of students are going to consider putting off going to
University, even in their own country, let alone abroad, because they can't be sure that the
classes will start on time, or even at all. There's an increasing tendency, especially in
Europe, for Universities to have highly complex exchange agreements with each other,
especially at Master's level: I've taught classes with fifteen nationalities, the majority on
exchange from elsewhere. At the best of times that's a logistic nightmare, and requires
complex software to juggle. It's worse because the tendency over recent decades has been to
replace traditional degrees with a few options, by Starbucks-style hand-made degrees
assembled from bits and pieces. This works, as long as all the students who have signed up to
come can and do arrive. Otherwise, it can mean empty classrooms or teachers with one student.
Chaos is the kindest word one can use to describe what might happen in September. Courses
will have to be cancelled and lecturers' contracts torn up. It's also going to make it
permanently much more problematic to run courses on the expectation that you can attract
foreign students and send your own abroad. I'm not sure, for example that I would now sign up
for a four-year degree in (let's say) Japanese or Latin American Studies including a year
abroad that might not materialise. Language degrees, indeed, are likely to be among the first
casualties: it's almost impossible for one person to teach, say, Japanese grammar on
line.
I've taught courses using Zoom, and to be honest it's better than nothing but not a lot
better. It only works if everybody is approximately on the same timezone, and even then, once
you get above twenty students you can't actually see all of them on the screen and you have
no idea who's listening and who's doing their Facebook page. The students get no interaction
with you, and if you are using Powerpoint or similar they may hardly see your face the whole
time. It's not clear that students in future years will sign up for courses where face to
face teaching could be suspended at any moment because the virus comes back. Remember that
the virus is now pretty much everywhere and could reappear pretty much everywhere over the
next few years. When you add to that that, even today, students expect to "go to" University
rather than have it come to them, and to at least start to mature and find their feet, you
have to wonder how attractive University is going to seem, especially given the frightening
costs involved.
The situation is no better in Europe. In France, governments over the last decade have
made a huge push to attract foreign students, not just at Universities, but at the elite
Grandes Écoles like Sciences Po in Paris, where a third of the student body is from
abroad and many courses are taught in English. (You can study for some degrees in France
without speaking the language). Not many people will pay for the privilege of hearing French
teachers teaching in English while cooped up in their parents' home in a country a long way
away. For some institutions this is going to be catastrophic.
I have to say, though, as somebody who's been involved with Universities most of my life,
that this isn't all bad. In the UK, for example, there are simply too many degree courses,
and people who aren't really up to it are paying lots of money they can't afford for courses
they don't need and won't use. This could be the start of a sanity check. It's interesting
that the two universities mentioned in the Guardian article, including that of the author,
didn't used to be universities at all. They were both Polytechnics, specialising in
vocational teaching, magically transformed into universities about 25 years ago by giving
them a new name. This has led to too many graduates chasing university jobs, and too many,
frankly, sub-standard courses. There'll be some winnowing out. Partly for bad reasons –
you can't put engineering courses entirely on line – and partly for good ones: do I
really need that Master's degree in Intersectional Theory?
Thanks for the insight, David. As someone who did a Masters in one of the former Poly's
(in Oxford) back in the 1990's I was astonished at the commercialisation and pressure on
teachers in comparison to what I'd experienced doing under and post grad study in
pre-crapified (if very under-resourced) Irish Universities in the 1980's. Even then, the
pressure the junior lecturers were put under seemed extreme. I'm told by lecturer friends
that its gotten much worse over the years. And don't get them started on the standard of some
of the fee paying students .
I hope you are wrong, btw, about Japanese grammar, as I've just started online classes in
precisely that topic!
Sorry, badly expressed.You can indeed study languages online – in fact I've
done so, including Japanese as it happens. What I was suggesting is that actually
teaching languages at degree level entirely on line, and especially when you've got
three writing systems to worry about, or when you have tonal systems, or non-standard sounds
to memorise and practice, is going to be a hell of a problem. I think there's a substantial
difference between studying a language online to use it, and studying it to degree level,
which at least in theory qualifies you to teach it.
In fact, I was just thinking of that yesterday, when watching an online conversation
between two YouTuber Japanese teachers who were discussing the different ways of approaching
the language. It seems to me to be a golden age for language learning, there are so many
great resources available cheap or almost free online (I'm still picking and choosing which
method works best for me and which ones are worth supporting), but at the same time, I was
wondering if this is positive or negative for the old fashioned academic method.
Newton spent two years on the farm during the plague years and invented the calculus and
some ground breaking physics. Not to be too optimistic but perhaps there are some young folks
who can profit from a bit of time alone to think and tinker.
Thanks, David. Lots to unpack there. Much appreciated. And my two cents is that out of
this historic pandemic, maybe our great established universities and colleges will drive
online huckster "universities" out of business.
In a general view from the cheap seats, the real bottleneck here is the elite's usage of
"degrees" as gateway metrics for employment decision making. Thus, the above mentioned
transformation of "Trades Schools" into "Universities." I personally have encountered
marginally competent managers who owe their positions to their credentials, and not any
displayed skills. I have also encountered grossly incompetent managers who are not replaced
by upper management because said upper management will not consider slotting "up from the
ranks" workers into positions that they are manifestly qualified for by virtue of hands on
working experience, but lacked credentials.
This also highlights the mingling of both "Higher Education" programs with "Trade School"
ones. As a rule of thumb, when one tries to be all things to all people, one ends up being
nothing to anyone.
One to keep an eye on is the University of Austrian Economics
Chicago.
Under its current president, they have been spending like crazy, are heavily tuition
dependent,
and (like Northwestern) have a large medical center which will have taken a massive hit
from the pause on elective surgeries.
While the University of Chicago has about the same amount of debt as Yale University in
New Haven, Connecticut, its $6.7 billion endowment is a third the size of the Ivy League
school's $20.8 billion. Chicago's debt as a percentage of its endowment is 54 percent,
compared with 17 percent for Yale.
Harvard, based in Cambridge, Massachusetts, and Stanford University, near Palo Alto,
California, have the most notes and bonds among the 20 richest schools. Yet as a percentage
of their endowments, the obligations represent about 17 percent and 26 percent,
respectively.
It would be a damn shame if the home of expansionary austerity were to end up in the
financial ICU,
on the receiving end of Dr. Market's shock therapy.
"The schools argue quite explicitly that they are not in the business of educating but of
conferring credentials, and it is they alone that determine what is adequate for them to hand
out a degree. There is precedent supporting the universities' arguments."
"What is adequate",
didn't arise as a product of public debate (as it should have in a democracy),
but as a distillation of private discussion. Their ideas contradict the original American
charter
veneer (of/by/for) but that doesn't disturb them. After all, they are on a mission.
A "doctrine of faith" was/is their cognitive source
Dewey's Pedagogic Creed statement of 1897:
"Every teacher should realize he is a social servant set apart for the maintenance of the
proper
social order and the securing of the right social growth. In this way the teacher is always
the
prophet of the true God and the usherer in of the true kingdom of heaven."
Not to worry, if credentialism doesn't fly your kite, we have salvation by consumption,
or
redemption via electoral saviors
Student jobs are probably some of the first to go, definitely anybody with a job on campus
is probably now out of work. My brother lives in a small college town and he says it's a
ghost town. Their economy depends on students spending their loan/mom/dad's money.
If I were a student, I would be seriously thinking twice about taking a semester off,
moving back with my parents and waiting for things to shake out. Who wants to do zoom
classes? No way would I have been disciplined enough to self study at that age (or even
now).
College is still in session in a lot of places. It would be interesting to know how many
students have already disappeared.
My local California community college transitioned to online classes mid- Spring semester.
Most of the foreign students (Chinese, Scandinavian, European, etc.) returned home pronto.
Registration for Fall 2020 classes (likely to again be online) is way down.
Colleges are huge economic drivers in most towns. It sustains high rental income for
landlords, lots of late's for Starbuck's, and retail stores soak up mucho dinero from them.
Fortunately the wild and crazy driving antics around campus have abated.
It would really be a shame if colleges and universities were forced to cut some of their
bloated administrations in order to make up for the shortfall How would we ever get along
without the people who go to meetings all day?
+1. CU Boulder just built a massive building which they call the Center for Academic
Excellence. I thought the university was already such a center, but apparently not.
What goes on in the Center for Academic Excellence? Is any teaching done there? No. It's
extra office space for the administrators/mbas.
I remember a faculty member (an Australian, naturally) at my home institution commenting
on our recently established Center for Excellence in Something-or-Other: Why don't they just
go ahead and call it the Center for Mediocrity in Something-or-Other ? That one stuck with me
during my subsequent peregrinations. I have been fortunate to avoid such centers during my
career.
Well, no luck so far after the first round of furloughs. Some of the admin had their pay
reduced (don't worry they'll still make well into six figures next year), but they all still
have jobs.
I am in Mass., retired and teach part time at two local colleges, one private and one a
community college. The private college has already cut some classes for the fall semester,
which they are trying to find a way to hold on-campus this fall. They are hoping to reinstate
some of these canceled classes if enrollments of incoming freshmen increase in the next
several weeks. As for the community college, it is conceivable -but who knows?-enrollments
will increase due to the low cost option it presents compared to private colleges and
universities -and even to public universities.
Academic museum directors know their fortunes are tied to those of their parent
institutions.
Some worry about the possibility that collections could be raided to raise funds.
Rather than worrying about this possibility, shouldn't they be embracing the
disruption?
Campus art museums can be at the innovative cutting edge of modern higher ed finance.
For $35 million, shouldn't a job creator on the Board of Trustees get more than his name
(and it's usually a he) over the entrance to another cookie-cutter new dorm?
I'll take the small Turner for the master bath, the Modigliani for the dining room,
and a really big Rothko for the wine cellar.
I am at a University and I can speak to the fact that it is shaping up to be complicated.
Some institutions are clearly more leveraged than others but there has been another factor
which is the increasing focus of institutions on branding. Some of the bigger names e.g. MIT
and even some "state" schools such as Berkeley have long since shifted from serving their
communities to being international brands. The others like mine have attracted large foreign
populations which supplement some programs notably in STEM fields but also maintain mostly
local students.
As a side note the risk for the non-US students is partially travel though Trump's
behavior has already turned some off. It is also their own domestic economies. Despite the
happy talk China's economy is taking a big hit from this and will continue to do so. Going
abroad requires someone at home having the money to send you. That is less of a thing.
Going forward one route is already being shopped around in the groupthink of record
(NYMag) The Coming
Disruption Scott Galloway predicts a handful of elite cyborg universities will soon
monopolize higher education. . The model here is neoliberal education on steroids or
"MIT+Google" basically take the existing brands serve them up to 10,000 students and have the
major brands survive by eating the weak. This of course completely sheds the idea of
education or college as a public institution and doubles down on the credentialing concept
with the assumption that students will prefer Amazon-approved educational materials delivered
in the comfort of their home over learning from a live instructor.
Call it disaster education.
The idea is clearly an update of the "Moocs will kill education" argument and is being
trotted out as "inevitable" by someone with extensive silicon valley connections who clearly
believes that he will be one of the survivors. Interestingly there is no notion that this
education will be better for anyone (except the smaller slice of winners) only that it will
allow the already wealthy to survive. For all that the interviewee makes two points that are
salient:
Let's look at Apple. It does something like $250 billion a year in revenue. Apple has to
convince its stockholders that its stock price will double in five years, otherwise its
stockholders will go buy Salesforce or Zoom or some other stock. Apple doesn't need to
double revenue to double its stock price, but it needs to increase it by 60 or 80 percent.
That means, in the next five years, Apple probably needs to increase its revenue base by
$150 billion. To do this, you have to go big-game hunting. You can't feed a city raising
squirrels. People ask if big tech wants to get into education and health care, and I say
no, they have to get into education and health care. They have no choice. (emphasis
mine)
So even the proponents are clear that this kind of eat-the-system approach is all about
stock boosting.
That's the unfortunate part. When the government isn't able to bail out America,
billionaires step in. But it always comes at a price. Those people become largely
untouchable, and they can't be removed from office. Right now, we're in a situation where
it's no longer NASA putting us on Mars or the CDC testing us for antibodies. It's Elon Musk
and Jeff Bezos. Basically, thanks to billionaires, you're going to pay the lowest tax
rates.
And again it all comes back to tax rates, although so far as I can tell it is not my rates
that keep getting lowered. Whether the economy is working for everyone? Who cares.
That said there is of course another alternative which is to treat education as a service
again and to fund the government again so that we can actually build the nation not in a few
power centers but everywhere. This would be driven by the recognition that the students
taking MIT+Google online gain no real benefit if they continue to live in a community with no
jobs and that such an eat the young approach will only speed the slow death of the states.
But that is not Wall Street's concern.
Rebuilding communities would mean making sustained community investments and paring down
our obsession with branded elites in favor of local institutions. But doing that requires
governing for Americans not Wall St.
My uni's admin sent out an email saying something along the lines of "our uni isn't a
'place', it's an intellectual endeavor that continues even when we're apart. We're a global
enterprise that can be joined and participated in from anywhere." They're trying to convince
parents and students that remote online learning has the same value as in-person classes, lab
work, and faculty mentoring. (Not to mention the 'college experience' and meeting people in
your age group who you may meet again in your career.)
I'm afraid the uni's sales pitch is running into strong headwinds. Parents have no
interest in paying full, high dollar tuition for half a college experience. Students have no
interest in paying full, high dollar tuition for online only classes.
adding: a few years ago, the admin went all in on a public-private debt financed
real estate development campus buildings scheme that has left it in a world
of financial hurt, even with full enrollment and high tuition. For some reason the endowment
(huge) is never touched as a funding source for dire times. Nor are the sports programs'
funding. odd.
Higher education in the US is not necessarily a Democrat environment. The professoriat may
be liberal, but the regents and administration can be extremely right wing – as is the
case of the University of Colorado, where I taught.
The President of Northwestern, Morty Schapiro, was the President of my undergrad alma
mater (Williams College) back in the early 2000s. I personally tousled with him, made fun of
him on the dais as Class Commencement Speaker at graduation, called him names in the school
paper -- because then, I saw, though I may not have had a fully adult consideration of it,
that he was a tool for The Money Power. Outright contempt for the scholarship kids who
couldn't get donations.
Scuttlebut from Professors, with whom I was close, both in the humanities and stories I
heard from my friends in the Sciences, was that while "Morty" (as he demanded to be jocularly
known) led a building wave that tore down much of a quaint semi-rustic campus and put the
endowment funds in the hands of banksters, which came a'cropper in 2008 when he had
providentially moved on to better and brighter opportunities . at Northwestern!
It seems he did much the same there.
On a tangential note, I was a grad student during the Great Financial Crisis of '08, and
in the State of Michigan, which was among the worst hit (poor Michigan, so far from God, so
close to the United States .), the differences that a hit to endowment reserves entailed were
immediately and viscerally felt. A good example: food. Before the Crisis, we'd be treated to
sumptuous, delicious spreads, Indian, Middle Eastern, quiches and cakes, you name it. After
the crisis -- if there was anything beyond coffee and rolls, you might be lucky to grab some
pizza or fruit. It was night and day. And that was at a relatively rich institution.
As someone who teaches at a community college that was holding on by the skin of its teeth
beforehand, I am not optimistic as to its long-term viability.
If your family still has the money for this sort of thing, and there is a college that is
very hard to get into that you would like to attend – in one manner or another –
this would be a good year to apply. There will be less competition for admission.
Maybe the pandemic will bring a partial reprieve to small local rural colleges. People
with money may decide to send their children to someplace like St. Olaf (if they live in that
state). It is easier to arrange physical distancing when you have lots of open space –
rather than eg. at NYU or Columbia. And if the kids have to come home in a hurry, they will
still be in-state. And they won't be bringing back big city exposure.
St. Olaf is a very good small private college in Minnesota. Much respect to them. This
doesn't diminish the sudden new larger requirements for the larger world, as is. imo.
"... Hospital chains in USA are in the hands of private equity as are Care Homes and whole swathes of infrastructure. Where PE does not hold the equity, management has simply leveraged to the hilt as at Boeing. Using Debt to fund Share Buybacks is the biggest waste of capital and puts business in run-off like a Mutual Fund. In the time Covid-19 has been in the Media most Western governments could have set up a Manufacturing Facility to produce PPE to any specified design. It is not like starting a space program. ..."
"... The truth is that Politics is full of lawyers - nice schools, nice universities, nice offices with the highest-tech product being a PC and a Webcam. In the days when military service was combat related rather than pen pushing and degree chasing, and people actually knew how trucking functioned and machines ran in factories - it was evident how the command system worked from desk to shop-floor. ..."
"... Today it is all Windbaggery. Failure is too well rewarded and Success easily wiped from the Doers by the Talkers. ..."
"... They wondered if Wuhan was China's "Chernobyl Moment"...- in fact it is the Chernobyl for The Western Societal Model. After all, Wall Street should be able to fix this situation - Masters of The Universe - they are where the Physics grads go to program trading systems - that is where the talented are sucked into the Brave New World. Why hasn't Wall Street solved it. What has Jamie Dimon done - he is always ready with comments ..."
I tend to ignore academic articles contrasting 21st Century pandemics with those in
predominantly agrarian economies centuries ago. They are interesting in their own right but
not prescriptive in any way unless you are obsessed with Labour Theory of Value and Ricardian
Rent Theory.
That the global economy is in deep trouble was evident in 2019 and it is now enduring a
step-change down into the abyss. The frantic 2008 policy of propping up Asset (Debt) prices
with easy liquidity through Bank Money now meets the reality that Main Street is being
poleaxed even more than hitherto.
Hospital chains in USA are in the hands of private equity as are Care Homes and whole
swathes of infrastructure. Where PE does not hold the equity, management has simply leveraged
to the hilt as at Boeing. Using Debt to fund Share Buybacks is the biggest waste of capital
and puts business in run-off like a Mutual Fund. In the time Covid-19 has been in the Media
most Western governments could have set up a Manufacturing Facility to produce PPE to any
specified design. It is not like starting a space program.
The truth is that Politics is full of lawyers - nice schools, nice universities, nice
offices with the highest-tech product being a PC and a Webcam. In the days when military
service was combat related rather than pen pushing and degree chasing, and people actually
knew how trucking functioned and machines ran in factories - it was evident how the command
system worked from desk to shop-floor.
Today it is all Windbaggery. Failure is too well rewarded and Success easily wiped
from the Doers by the Talkers.
They wondered if Wuhan was China's "Chernobyl Moment"...- in fact it is the Chernobyl
for The Western Societal Model. After all, Wall Street should be able to fix this situation -
Masters of The Universe - they are where the Physics grads go to program trading systems -
that is where the talented are sucked into the Brave New World. Why hasn't Wall Street solved
it. What has Jamie Dimon done - he is always ready with comments
Time to Re-Engineer these Societies towards Substance and away from Speculation
"... Polls of life satisfaction taken since the outbreak began have reflected a rapid erosion as 33 million Americans have joined the unemployment rolls over the last months. NY Gov Andrew Cuomo said during a recent daily briefing that NY is seeing a spike in drug and alcohol abuse as people sit around all day with nothing to do and nowhere to go. ..."
"... But of course the tremendous levels of financial uncertainty coupled with the unique characteristics of this crisis make it pretty much impossible to model - any research is really an educated guess, at best. ..."
"... "Unemployment is going to have a very important impact on deaths of despair." ..."
"... His proposed strategies including investing more resources in helping unemployed people find meaningful work, and/or training the armies of contact tracers that de Blasio has now promised to hire to spot people at risk of self-harm. ..."
Doctors ,
scientists policymakers and even 'non-experts' posting on social media have argued that
shuttering the health-care system to all non-emergency care risks sparking other public health
crises from a spike in heart attacks and advanced cancer diagnoses, to so-called "deaths of
despair."
In some
areas, a spike in suicides has already been recorded since the start of the outbreak. And
now, a newly published paper released Friday has attempted to quantify deaths that might occur
because of the mental-health ramifications of widespread economic chaos caused by the crisis.
The research - which hasn't yet been peer-reviewed - found the isolation, grief and economic
hardship related to COVID-19 are conspiring to supercharge America's already-burgeoning
mental-health crisis, likely setting the stage for tens of thousands of suicides down the
line.
Specifically, the researchers tabulated that as many as 75k additional "deaths of despair"
could be caused by the outbreak and the economy-crushing measures implemented to stop the
spreads. "Deaths of despair" typically refer to suicides and substance-abuse-related deaths,
according to
Bloomberg .
The research was carried out by the Well Being Trust and researchers affiliated with the
American Academy of Family Physicians. One of the report's authors said he hopes the research
is eventually proven to be incorrect.
"I hope in 10 years people look back and say, 'Wow, they way overestimated it,'" said John
Westfall, director of the Robert Graham Center for Policy Studies in Family Medicine and
Primary Care, who co-wrote the report.
But the sizable spike in suicides, overdoses etc since the last major crisis (the financial
crisis) is reason to be concerned.
Even as the American economy rebounded after the last recession, suicides and overdoses cut
into Americans' life expectancy. Mental health experts worry that the economic uncertainty and
social isolation of the pandemic will make things worse at a time when the health care system
is already overwhelmed. The suicide rate in the US has already been rising for two decades, and
in 2018 hit its highest level since 1941, Bloomberg reported, citing a piece published by JAMA
Psychiatry (a prestigious medical journal) back in April.
"There's a paradox," said Jeffrey Reynolds, president of a Long Island-based nonprofit
social services agency, the Family and Children's Association. " Social isolation protects us
from a contagious, life-threatening virus, but at the same time it puts people at risk for
things that are the biggest killers in the United States: suicide, overdose and diseases
related to alcohol abuse."
Polls of life satisfaction taken since the outbreak began have reflected a rapid erosion as
33 million Americans have joined the unemployment rolls over the last months. NY Gov Andrew
Cuomo said during a recent daily briefing that NY is seeing a spike in drug and alcohol abuse
as people sit around all day with nothing to do and nowhere to go.
"One of the main things people should take away from this paper is that employment
matters," said Benjamin Miller, chief strategy officer at the Well Being Trust and a clinical
psychologist who worked on the paper. "It matters for our economic livelihood, and for our
mental and emotional health."
But of course the tremendous levels of financial uncertainty coupled with the unique
characteristics of this crisis make it pretty much impossible to model - any research is really
an educated guess, at best.
Still, the researchers believe it's a useful warning, and something important for policy
makers to keep in mind.
"It's useful to have a wake-up call," said Ken Duckworth, chief medical officer at the
National Alliance on Mental Illness. "Unemployment is going to have a very important impact
on deaths of despair."
Benjamin Miller, chief strategy officer at the Well Being Trust and a clinical psychologist
who worked on the paper, proposed several solutions that could be enacted to, uh, depress the
number of suicides.
His proposed strategies including investing more resources in helping unemployed people find
meaningful work, and/or training the armies of contact tracers that de Blasio has now promised
to hire to spot people at risk of self-harm.
Here Is The Real April Jobs Report: 42 Million Unemployed, by Tyler Durden Sun, 05/10/2020 - 15:30
Friday's job report - according to which a record 20.5 million jobs were lost in April, some
10x more than the depths of the Great Depression, resulting in a 14.7% unemployment rate - was
ugly enough as is, the NYT summarizing the catastrophic nature of the economic collapse with
the following creative front page.
The truth, unfortunately is even uglier.
While it is true that what the BLS reported that the April unemployment rate (UR) was less
than expected (14.7% versus consensus of 16.0%) and the drop in payroll employment of 20.5
million was also less than the 22.0 million expected, Standard Chartered bank has calculated
that adjustments to the headline unemployment rate push the effective number of unemployed to
42 million and the effective UR rate to 25.5%, higher even than the U-6 underemployment rate of
22.8%. Worse, if one treats underemployed in line with the U-6 methodology, the true April
unemployment number would rise to an mindblowing 27.5%.
How does one get these numbers? As the bank's chief FX strategist Steve Englander explains,
start with the 23.1 million unemployed as published by BLS. To this add 8.1mn people who have
dropped out of the labor force since February (previously the labor force had been growing
steadily, so these are likely unemployed).
Add back 7.5MM workers classified as 'employed but not at work for other reasons' –
BLS states that these workers are likely misclassified as employed, when they are in fact
unemployed. Involuntary part-time work for economic reasons has gone up by 6.6MM and we treat
these as half-unemployed (i.e., a contribution of 3.3MM).
This totals almost 42 Million effectively unemployed. Keep the civilian labor force
denominator at February's 164.5 million, which results in a 25.5% estimate for effective
unemployment, and if Englander treated involuntary part-time workers as completely unemployed,
the resulting unemployment rate would be at 27.5%.
Commenting on the April BLS report, Englander writes that "bad data for the mid-March to
April period is largely anticipated by investors; these data were neither good nor bad enough
to force investors to adjust expectations." He also expects the May labor data to show
deterioration at a slower pace, but think that investors are looking at the balance between
initial and continuing claims to assess the pace at which reopening would lead to better
labor-market outcomes.
And while a slowdown in the collapse is to be expected - after all, there are only so many
workers that can be fired - don't expect it any time soon. As we first noted on Friday, White
House economic adviser Kevin Hassett - who said
two weeks ago that Q2 GDP would be the biggest negative number since the great depression -
has set the groundwork for an even scariee number next month as the statistics catch up to the
reality, warning that unemployment could hit 20% in May, up from 14.7% in April, or rather down
from the real 27.5% unemployment rate.
" I think just looking at the flow of initial claims, it looks like we're probably going to
get close to 20 percent in the next report ," Hassett told CNN 's "State of the Union" on
Sunday, refusing to admit that the actual number when one eliminates the BLS fudges is already
far higher.
He added that the rate will depend on whether the virus "has really abated" and if economies
are "really going again."
"I would guess middle of summer is when we're going to start to go into the transition
phase," said Hassett, adding that he hopes the third and fourth quarters will bring "very
strong" growth.
"Just looking at the flow of initial claims that it looks like we're probably going to get
close to 20% in the next report," senior White House economic adviser Kevin Hassett says
about US unemployment. #CNNSOTU
pic.twitter.com/bTN85AJaMD
Looking ahead at the May data, Englander is similarly gloomy and warns that initial claims
have totaled 7 million since the April survey week and there is no sign that continuing claims
are turning down due to rehiring or reopening, adding that "at this point it does not look like
May employment data will show improvement or even stability. "
The incoming data look consistent with the baseline UR breaching 20% in May , especially
if the responses on "employed but not at work for other reasons" change.
In summary, the Trump admin is hoping that within a few months the bottom will be in for the
economy, it is also hoping that the official government reports eventually catch down to
reality, and that at some point the two series - the actual economy and how the government
actually represents it - will converge. The question is when, and just how massive the
discrepancy between truth and the "official data" will grow until that happens.
"This [real workers going back to work for their bosses' profits] must happen now, or we
are all doomed."
I really laughed at that.
What is doomed is the American empire. It will take a few years for that doom to play out,
but history books will likely put the date for the demise of the empire back in March.
The burger-flipping servant economy isn't coming back, and it will be decades before
America can rebuild a significant manufacturing economy. Get used to this "Greater
Depression" because it will be with us a while, particularly after the next couple waves
of the covid hit.
Hint: If you don't have a big 75" wall screen TV yet and want one, you might want to make
that investment before the "decoupling" goes any further. They will cost a year or two
salary afterwards.
Even some of the most ardent supporters of the fraud that is Keynesian economics now admit
the entire modern economic system is on the verge of collapse for one main reason: the marginal
utility of debt is collapsing, with ever more debt required to generate an increase in
underlying GDP.
And tied to that, is another reason why any day now the current system may be the last: the
marginal utility of every new QE is now declining to the point where soon virtually none of the
money created by the Fed out of thin air will enter the economy and instead will be stuck in
capital markets, resulting in hyperinflation for asset prices even as the broader economy
collapses. Or, as BMO's Daniel Krieter writes, "QE has fed through to the real economy in a
slower manner than previous QE campaigns" and for each dollar the Fed's balance sheet has
grown, M1 money supply has increased about $0.32, compared to $0.96 and $0.74 in QE1 and QE2.
"The expansionary policy thus far has mostly resulted in increased asset prices", BMO writes
concluding what had been obvious to us and our readers since 2009. Only now we are ten years
closer to what is the inevitable endgame, one where the Fed has no impact on M1, which will
also be known as the "game over" phase.
But let's back up.
Traditionally, as BMO explains, we analyze the business cycle from a classical economic
perspective where monetary authorities are more passive and "the invisible hand" guides
economies (this used to be the case before the Fed went all Politburo on the USSA and decided
to nationalize capital markets, crushing any "signal" the bond market may have; the final step
will be the launch of Yield Curve Control which will be game over for the market). In this
context, we look at interest rates, which can theoretically be defined as the rate that makes
the consumer indifferent between consumption today and consumption tomorrow. R* is the
(unknowable) natural rate of interest that supports full employment and stable interest rates.
In theory, if r<r*, then consumption today is preferable and the economy is expanding. If
r>r*, consumption saving is preferable and the economy is contracting.
In an expansionary phase, prices and consumption are increasing. Because prices and
investment opportunities are high, demand for money among consumers/businesses is high, and
interest rates (r) increase alongside borrowing . When r rises to the rate of r*, consumption
slows, earnings fall, and a recession ensues. R* falls as uncertainty and risk aversion grow.
This is a "business cycle" recession (and as long as the Fed is around, we will never have one
of those again as the Fed has now also killed the business cycle... just as the USSR tried to
do).
However, a recession can also be caused by some external shock to the economy that produced
further declines in r*. This is because r* is reactive to uncertainty with a strong negative
correlation. The greater the uncertainty, the lower r* falls.
In recession, r falls as consumption remains low as long as it is greater than r*. Defaults
accelerate the drop in r. With the passage of time, r* rises slowly as the uncertainty/risk
aversion surrounding the shock and/or end of business cycle fades. However the longer firms go
without earnings due to low consumption, the more defaults are realized and the more r drops.
At some point, the combination of falling r and rising r* results in r <= r*. Once this
happens, consumption/ investment picks up and the economy enters recovery.
In addition to accelerating declines in r, defaults experienced during recession also lower
the cost of labor and capital goods as the resources of failed companies are returned to the
economy. In addition, barriers to entry in certain industries fall as "old guard" firms go out
of business. Thus, as the economy enters recovery, this combination of cheaper labor/capital
goods and lower barriers to entry leads to strong business investment and increases growth
potential during the ensuing expansion.
This is how the world works in theory. Unfortunately, since 1913, theory has not worked due
to the intervention of the Fed. So now let's look at how all this works in reality, and
introduce an active central bank with a wider range of monetary policy tools at its
disposal.
As the economy cools, the central bank lowers r in an attempt to spur consumption by forcing
r<r*. Consumption increases in response, and recession/defaults are avoided. But business
resources aren't returned to the economy. Recovery will be less robust due to fewer relative
attractive investment opportunities. As Krieter argues, this was the experience of 2001.
Now in 2008, a shock in the form of subprime mortgages hits the economy and uncertainty
skyrockets. R* moves into negative territory as shown in a recent San Francisco Fed study. The
Fed moves rates lower, but is constrained by the zero bound. In order to further "lower r", the
Fed embarks on asset purchases during QE and is successful in spurring consumption, as
evidenced by the strong correlation between increases in excess reserves and increases in M1.
M1 is the most basic measure of money supply and includes essentially only cash and
checking/demand bank accounts.
The theory is that for a good or service to be consumed, it must be paid for out of M1.
Therefore, the increase in M1
following QE is a measure of the degree to which QE results in actual consumption.
Note "lower r" in quotation marks in the previous bullet because r is at the zero bound and
cannot (at least in the United States) be lowered further. Therefore QE increases money supply
which is meant to spur consumption, which is the same desired effect of lower interest rates.
In a sense, money supply increases are synthetic interest rate decreases (and synthetic capital
market increases) .
The combination of QE-driven consumption (r falling) and fading uncertainty after a trillion
dollar fiscal stimulus package (r* rising) ultimately pulls the economy out of recession.
However, the pace of response in 08/09 was slower. QE was not announced until late November
2008, after large defaults were already experienced. Fiscal stimulus in the form of the ARRA
package didn't arrive until February 2009 with an additional lag in implementation that
featured incremental defaults. In the end, almost a trillion dollars' worth of debt was
affected by default in 2008/09, but QE certainly prevented actual defaults from being likely
exponentially greater. BMO notes however that defaults avoided were once again economic
resources that were not returned to the economy and barriers to entry that are not lowered.
This argues that attractive investment opportunities following the financial crisis were not as
abundant as the depth of recession would suggest.
As a result, the recovery was slow, ultimately prompting the Fed to embark on additional
rounds of quantitative easing in an attempt to spur increased consumption.
Which brings us to the seeds of the Fed's own demise: the problem is that QE appears to be
experiencing diminishing returns, as evidenced by a falling correlation between excess reserves
and M1 in successive episodes of QE following the financial crisis. As QE leads to a direct
increase in bank reserves, only a fraction is translated into money supply growth, and thus
potentially consumption and investment. QE1 was highly effective and an important factor behind
pulling the economy out of recession. QE2 had a marginally lower, but still high, follow
through of .735 indicating that on average, $0.74 of each dollar of QE translated to increased
money supply. We observe elevated inflation and personal consumption rates during the period of
QE2 as evidence of its effectiveness. However, during Q3, the correlation fell to just $0.28
and resulted in very little inflation of GDP growth. Through this lens, the impact of QE on the
real economy has diminished over time.
How does BMO explain the diminishing impact of QE?
Diminishing marginal utility of consumption: QE (and monetary policy) is often referred
to as "borrowing from the future". However, there is only a limited amount of future
consumption that can be pulled into the current period via monetary policy. This could apply
to consumption of durable goods: as rates have been relatively low for a long period of time,
demand for credit no longer increases at the same rate with incrementally lower interest
rates. At some point, consumption does not bring sufficient to utility no matter how long
prices or interest rates are.
Wealth disparity: Wealth disparity exacerbates the impact of diminishing marginal utility
of consumption. For reasons discussed in further detail below, QE tends to inflate the price
of financial assets, making those who own the assets more wealthy. A large percentage of QE
money ends up in the hands of the wealthy, whose consumption patterns are unlikely to change
in response to a near term increase in wealth.
Inflation expectations: Finally, the crux of monetary policy plays on expectations.
Inflation is self reinforcing as demonstrated by a very high correlation between inflation
and inflation expectations. Around the introduction of QE, there was an expectation that it
could spawn runaway inflation. Having been through multiple rounds of QE without a large
increase in inflation, people have likely generally come to understand that QE is not likely
to result inflation, therefore there is marginally less impetus to consume now.
Following five years of no QE in the United States, it appears the utility of current QE has
increased modestly in comparison to QE3. However, the follow through to consumption still
remains well below levels experienced between Q1 and Q2. It is likely then that current QE is
unlikely spurring much consumption as r isn't influenced lower (via money supply increase) as
much as in the past and likely remains well above r*.
Worse, as we
discussed last week , one can argue that r* is likely lower now than potentially any point
in history, and according to Deutsche Bank it is at an all time low of -1%.
Not only is uncertainty extremely high, but the impact of COVID-19 arguably directly lowers
r*. Recall r can be defined as the rate of interest that makes consumption today indifferent to
consumption in the future. In all economic models, r is assumed to be positive. But when people
are afraid to their leave their house for fear of infection, future consumption actually is
more attractive than current consumption. So r* is arguably negative for fundamental reasons
for the first time. Greatly heightened uncertainty only pushes it even further negative.
When money supply goes up, but consumption fails to be generated (because r remains well
above r*), then savings rates mathematically increase. Therefore, the prices of financial
assets increase generally.
During times of risk aversion, bond prices increase first, but supply of safe assets is
limited, especially as the Fed buys a substantial portion of the Treasury market. Investors are
therefore pushed into riskier assets. But as long as r remains below r*, the more savings go
up, the greater the mechanical move in financial asset prices relative to real economic
activity.
This, according to BMO, is what's driving the paradoxical relationship between bond and
equity prices in recent weeks, and explains why stocks are performing so well despite the
outlook for the greater economy. Money supply that doesn't translate into consumption must
result in higher financial asset prices until defaults result in wealth destruction. What does
this mean for the recovery? The central bank is displaying reduced capacity to further generate
real economic activity as a result of accommodative policy over the past twenty years. This
means that recovery is unlikely until r* increases significantly , which only happens alongside
fading virus uncertainty. This will take a long time.
During that time, one of two things will happen. Either the government will continue to
assist companies in avoiding
bankruptcy, or it will not. If it does, confidence (and r*) will likely return relatively more
quickly at a huge cost to the government. However, there will not be a large return of economic
resources at the end of this recession and the ensuing recovery will be disappointing given the
degree of economic pain currently being felt.
If it does not, defaults could potentially reach historic proportions, and the recession
will be long and painful. However, using the "ripping the bandaid" analogy, this scenario would
result in likely the largest return of economic resources in the history of the country and
lead to a very powerful economic expansion in the wake of the current recession.
Ultimately, the truth likely lies in the middle. The government will continue to provide
relief, though not likely in scale large enough to save all businesses. Defaults and downgrades
will be staggering, but this will increase the capacity of growth in the ensuing economic
recovery.
What does this mean for risk assets? It means that risk assets are being technically
supported by stimulus measures so far, particularly QE that is no longer as effective as it
was. However, a large wave of defaults is unavoidable without an unlikely near-term (and
complete) solution to COVID-19. Heavy defaults, the kinds described in " Biblical"
Wave Of Bankruptcies Is About To Flood The US , will likely bring about another wave of
risk asset price weakness as wealth is destroyed and technical upward pressure on financial
asset prices and a higher percentage of savings demand is met with safe haven assets (Figure
3).
This also explains why the Fed was compelled to enter the bond market, as absent a direct
intervention in the secondary market, bond prices would crater and trigger a self-fulfilling
doom-loop, where lower bond prices lead to higher defaults, lead to even lower prices and so
on. For now, the Fed has managed to delay this process but there is only so much Powell can do
to offset the collapse in fundamentals which will lead to continued ratings erosion, and the
eventual defaults of countless companies, many of which the Fed will be directly invested in.
At that point, the Fed's action in the "market" will become the topic of non-stop Congressional
hearings, and will culminate with doubts emerging about the viability of the dollar as a
reserve currency.
Until this trigger level is reached, however, QE will continues to pose a technical
tailwind, influencing financial asset prices higher. This can be sustained until default rates
increase, which is likely not until June or later as government stimulus money starts to run
dry, and which point assets will likely take another nosedive lower, just as reports of a
second coronavirus pandemic result in (most Democratic) states shuttering again ahead of the
presidential election.
What happens then? Risk assets will continue to slide into the election and into 2021, at
which point as Nordea showed last week, we will hit a point where the lagged effect of the
flood central bank liquidity will finally hit into the S&P500, and result in one final
explosion in risk assets, sending stocks over 40% higher...
... although not of a benign nature but more of what one would expect to see in the Caracas
or Weimar stock market.
Before the April jobs report release, Heidi Shierholz of the Economic Policy Institute
(EPI) warned on Twitter that Friday would be "the most cataclysmic #JobsDay of all of our lives" and shared a chart
showing how recent unemployment claims contrast with the past 80 years, before detailing
current conditions in a 22-tweet thread.
BRACE YOURSELF for the most cataclysmic #JobsDay of
all of our lives. This chart has monthly job changes over the past 80 years. We lost more
than 20 million jobs in April. There has never been anything like this. 1/ pic.twitter.com/eODWpeAb4X
While the 14.7% figure for April is significantly higher than February (3.5%) and
March (4.4%), it fails to capture the full scope of how U.S. workers have been impacted by
temporary business closures and hours reductions that have resulted from the ongoing global
health crisis. The report says 5.1 million Americans had hours cut in April.
Shierholz, senior economist and director of policy at EPI, explained that "only about
two-thirds of coronavirus-related job losses are showing up as unemployed -- the rest are
showing up as having dropped out of the labor force. If all coronavirus-related job losses
had shown up as unemployed, the unemployment rate would now be around 19.0%, not 14.7%."
"Further, about 7.5 million workers are likely being misclassified as 'employed, not at
work' instead of 'temporarily unemployed,'" she continued. "If they were classified correctly
AND all coronavirus-related job losses had shown up as unemployed, the unemployment rate
would be around 23.6%."
She also highlighted EPI's
estimate from April 30 that because of recent job losses, about 12.7 million Americans
have lost their employer-based health insurance -- which EPI researchers called a "
terrifying " indictment of the country's private, for-profit healthcare system,
particularly in the midst of a pandemic.
Former JPMorgan Economist: We Are Heading Towards A Weimar Republic Inflation Setup
by Tyler Durden Sat,
05/09/2020 - 21:30 Submitted by a former JPMorgan economist who wishes to remain anonymous
The everything bubble
Readers will have anticipated the bursting of the bubble that has been re-inflating ever
since 2009. Ultra-loose monetary policy, coupled with deflationary pressures from increased
aggregate supply and investors chasing yield at ever higher risk, meant that almost all asset
classes had reached all time highs just before entering the current bear market.
That there is a bubble, a massive one, is unquestionable. Readers will further have
anticipated that it didn't have to be a global pandemic to burst this bubble. This bubble was
practically looking for a prick - any prick - to burst it. Whether it was a credit event,
liquidity shortages that led to bankruptcies, a terrorist attack, a natural disaster or a bat:
markets had reached a level of fragility where they could not cope with the materialising of
such a tail risk event.
Too much had fueled this fragility: out-of-touch credit ratings, leveraged balance sheets,
stock buybacks, expansionary monetary policy and as a result: out-of-control credit and
debt.
Expect companies in energy to go bust first. Then retail and hospitality. At some stage
their bankruptcies will push creditors into a corner where such lenders will either have to be
bailed out or they will drop like flies (Lehman style). Already banks have slowed their credit
lines to corporates, like in 2008/2009, anticipating that some of their debtors will fail to
repay.
Sure, with more QE flooding the markets a complete wipe-out may be averted, as there is no
political appetite for mass insolvencies (especially in an election year in the US).
The bubble has reached a level where systemically relevant banks will be facing their Lehman
moment sooner rather than later. Lawmakers will not allow such systemically relevant lenders to
go under, as this would practically imply all lights to go out. So the real question at hand
is: at what cost?
At what cost to prevent the Deutsche Banks of this world from going bankrupt?
At what cost to keep the unemployed at bay, because for sure: no job, no income and no
prospects are a recipe for turmoil and civil unrest.
At what cost to counter big institutional sellers exiting the markets who want cash?
At what cost running the biggest budget deficit and current account deficit (in the
US)?
At what cost managing the havoc from Covid-19?
At what cost QE forever?
At what cost etc.
Crossing the Rubicon
On April 27, 2020 CNBC ran a story on "Why the coronavirus crisis may prompt central bankers
to scrap inflation targeting".
If central banks indeed abandon or modify inflation targeting we will certainly be crossing
the Rubicon. Admittedly, there is no other way in answering the above questions.
Policymakers continue to be behind the curve and obviously failed to learn from 2008/2009.
Their last resort is printing money and creating more debt. If central banks have no or a
soft-washed inflation mandate we are heading towards a Weimar Republic style inflation
setup.
With global output staying the same or declining, aggregate demand declining significantly
and the quantity of money in circulation multiplying (by means of handouts or universal basic
incomes), asset prices across asset classes being propped up by central banks, it becomes just
a matter of time until inflation goes from 'subdued' to 'out of hand'.
Asset allocation in this new set up
With central banks either purchasing corporate bonds or accepting them as collateral, it may
be soon until their mandate is being changed to facilitate the buying of equities, too. As
other commentators already noted: we may have abandoned free markets and now head to a
centrally planned set up.
The recent pick-up from the March 2020 lows in stock markets will be short lived. Nothing
has fundamentally improved, other than emergency liquidity provisions by central banks. Expect
a new selloff by year end - re-testing the lows of March - because perfidiously the Fed does
not yet own enough corporate debt/equity to control asset prices!
Central banks will be printing fiat money on a unprecedented scale. With potentially
negative interest rates even in the US, a slowing of global trade and thus reduced supply, the
risk of a surprise inflation increases markedly. If and when this feeds through, asset
allocation becomes key.
Look for uncorrelated asset classes or inflation resistant assets. There is a chance central
banks will own a good part of cross-sector corporate debt/equity when the dust settles and
inflation starts to go through the roof.
The Fed is just following the Congressional mandate of supporting the people who fund our
political system.
It should be clear that the stock market doesn't care about Main Street when you see it
still going up with massive levels of unemployment.
MMT states that the Fed can create these funds that are handed out to business by the
trillions but that is not what MMT 'policy' would want.
Most MMT people are actually against handouts to people in the form of a basic guaranteed
income.
A major cornerstone of MMT policy though is a Job Guarantee. In times like these they
would very much like to see employment supported by these government funds. Not only the
basic job pool of a minimum wage job but also supporting more highly paid skilled employment
such as supervising infrastructure projects etc.
MMT is more concerned with resources than money per se. It doesn't help to have money if
people aren't making stuff, providing food and services etc.
With the
worst jobs report in history under our belt, which saw a record 20.5 million jobs lost in
April, and the stated unemployment rate at 14.7%, some cities have been hit worse than others
by the economic fallout from the pandemic.
To wit, after steadily increasing 2-3% every week for the past two months, the unemployment
rate in San Diego county is at an all-time high of just under 27% - exceeding the previous
record from 1933 set during the Great Depression, according to a report by the San Diego
Association of Governments (SANDAG).
Just a day after
announcing that about 33.5 million Americans have filed jobless claims since mid-March as
the coronavirus pandemic has caused lockdowns worldwide, the U.S. Department of Labor on
Friday revealed
the nation's official unemployment rate hit 14.7% last month -- its highest level since the Great
Depression.
Before the April jobs report release, Heidi Shierholz of the Economic Policy Institute
(EPI) warned on Twitter that Friday would be "the most cataclysmic #JobsDay of all of our lives" and shared a chart
showing how recent unemployment claims contrast with the past 80 years, before detailing
current conditions in a 22-tweet thread.
BRACE YOURSELF for the most cataclysmic #JobsDay of
all of our lives. This chart has monthly job changes over the past 80 years. We lost more
than 20 million jobs in April. There has never been anything like this. 1/ pic.twitter.com/eODWpeAb4X
While the 14.7% figure for April is significantly higher than February (3.5%) and
March (4.4%), it fails to capture the full scope of how U.S. workers have been impacted by
temporary business closures and hours reductions that have resulted from the ongoing global
health crisis. The report says 5.1 million Americans had hours cut in April.
Shierholz, senior economist and director of policy at EPI, explained that "only about
two-thirds of coronavirus-related job losses are showing up as unemployed -- the rest are
showing up as having dropped out of the labor force. If all coronavirus-related job losses
had shown up as unemployed, the unemployment rate would now be around 19.0%, not 14.7%."
"Further, about 7.5 million workers are likely being misclassified as 'employed, not at
work' instead of 'temporarily unemployed,'" she continued. "If they were classified correctly
AND all coronavirus-related job losses had shown up as unemployed, the unemployment rate
would be around 23.6%."
She also highlighted EPI's
estimate from April 30 that because of recent job losses, about 12.7 million Americans
have lost their employer-based health insurance -- which EPI researchers called a "
terrifying " indictment of the country's private, for-profit healthcare system,
particularly in the midst of a pandemic.
By
Richard D. Wolff,
Professor of Economics Emeritus, University of Massachusetts,
Amherst, and Visiting Professor in the Graduate Program in International Affairs of the New School
University, NYC. Wolff's weekly show, Economic Update, is syndicated on over 100 radio stations and goes
to 55 million TV receivers via Free Speech TV and his two recent books with Democracy at Work are
Understanding Marxism and Understanding Socialism both available at
democracyatwork.info
.
We are entering an even Greater Depression than the 1930s, with hundreds of millions thrown out of work
across the world. Capitalism is a broken, unstable system that is beyond repair – but there are
alternatives.
Ninety-one years after the start of the Great Depression (capitalism's worst downturn until now), we are
entering an even Greater Depression. The 1930s were so awful that leaders of capitalist economies ever
since have said they had learned how to avoid any future depressions. All promised to take the steps
needed to avoid them. Those promises have all been broken. Capitalism remains intrinsically unstable.
Read more
Richard D. Wolff: Viruses like Covid-19 are a part of
nature we must accept. But Capitalism-2020 must be destroyed
That instability is revealed in its recurring cycles, recessions, downturns, depressions, crashes,
etc. They have plagued capitalism wherever it has settled in as the prevailing economic system. Now that
the whole world's prevailing economic system is capitalism, we suffer
global
instability. To date, capitalist instability has resisted every effort (monetary and fiscal policies,
Keynesian economics, privatization, deregulation, etc.) to overcome or stop it. And now it is here yet
again.
Across the world, hundreds of millions of workers are unemployed. The tools, equipment, and raw
materials in their factories, offices and stores sit idle, gathering dust and rust. The goods and
services they might have produced do not now emerge to help us through these awful times. Perishable
plants and animals that cannot now be processed are destroyed even as scarcities multiply.
Workers lose their jobs if and when employers – mostly private capitalists – fire them. Employers hire
workers when workers add more value to what the employer sells than the value of those workers' wages.
Hiring then adds to profits. Employers fire workers when they add less than the value of the wages paid
to them. Firing then reduces losses. Employers protect and reproduce their enterprises by maximizing
profits and minimizing losses.
Profit, not the full employment of workers nor of means of production, is "the bottom line" of
capitalists, and thus of capitalism. That is how the system works. Capitalists are rewarded when their
profits are high and punished when they are not.
No-one wants unemployment. Workers want their jobs back; employers want the workers back producing
profitable output; governments want the tax revenues that depend on workers and capitalist employers
actively collaborating to produce.
Yet the capitalist system has regularly produced economic downturns everywhere for three centuries –
on average, every four to seven years. We have had three crashes so far this century: 'dot.com' in 2000,
'sub-prime mortgage' in 2008, and now 'corona' in 2020. That averages out at one crash just under every
seven years – capitalism's 'norm'. Capitalists do not want unemployment, but they regularly generate it.
It is a basic contradiction of their system.
Today's massive US capitalist crisis – over 30 million unemployed and counting, a quarter of the
workforce – shows dramatically that maximizing profit is not maximizing society's well-being. First and
foremost, consider that the unemployed millions continue much of their consumption while ceasing much of
their production. A portion of the wealth produced by those still employed must be
redistributed
to sustain the unemployed. Society thus suffers the usually intense struggles
over the shares of profits versus wages that will be redistributed to the unemployed. These struggles,
both public – over tax structures, for example – and private – for instance, over household budgets – can
be profoundly destabilizing for societies.
Redistribution struggles could be alleviated if, for example, public employment replaced private
unemployment. If the state became the employer of last resort, those fired by private employers could
immediately be rehired by the state to do useful social work.
Then any government paying unemployment benefits would instead pay wages, obtain in return real goods
and services, and distribute them to the public. The 1930s New Deal did exactly that for millions fired
by private employers in the US. A similar alternative (not part of the New Deal) would be to organize the
unemployed into worker co-ops performing socially useful work under contract with the government.
This last alternative is the best, because it would develop a new worker co-op sector of the US
economy. That would provide the US public with direct experience in comparing the capitalist with the
worker co-op sector in terms of working conditions, product quality and price, civic responsibility, etc.
On that concrete, empirical basis, societies could offer people a real, democratic choice as to what
mix of capitalist and worker co-op sectors of the economy they prefer.
The statements, views and opinions expressed in this column are solely
those of the author and do not necessarily represent those of RT.
Even in blissful 'pre rona' December the Fed's repo market had been sounding the alarms that
a serious bubble recession was coming. Nothing apparently was fixed from the last wall street
megadooshbaggery meltdown. See:
This means that even those who built up real estate equity will have a difficult time
short term liquifying that equity, which means that Chase, Wells Fargo, et al have a lot of
pessimism about the US real estate market, the thing they have made so much money on last few
years, and which they were supposed to have fixed.
well pilgrims ;) not only is the economy enduring sudden searing pandemic pain, it is also
feeling the beginning of a big bubble popping recession, which everybody in the financial
world was already freaking about well before the rona arrived. Perhaps endless Fed QE can
prop up equities markets through November, perhaps, but then it's all bets off into 2021 as
numerous wall street debts scams will have to be deleveraged.
The problem here is that there is no countervailing force. Marxist idea that proletariat is
such a force proved to be yet another utopia.
Notable quotes:
"... istory's main engine of economic exploitation – the banking, creditor and financial systems' ever-increasing extraction of value through interest payments. The rentier class and FIRE sector – Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part of a productive economy. Yet for centuries, these sectors were recognized as being parasitic. ..."
"... The essence of a parasite is not only to drain the host's nourishment, but to dull the host's brain so that it does not recognize that the parasite is there. ..."
Jim Vrettos : Welcome once again to the Radical Imagination. I'm your host, Jim
Vrettos. I'm a sociologist whose taught at John Jay College of Criminal Justice and Yeshiva
University here in New York.
Our guest today on the Radical Imagination is Michael Hudson. He was on our March 8th show.
We had such an overwhelmingly positive response to that show that we've asked him to return
today, and he's been gracious enough to accept.
Unlike most economists, he's been a fierce champion and advocate for the economic rights of
the poor, workers, disenfranchised and the vulnerable around the world through his scholarship
and lifelong activism. His unique economic analysis has explored h istory's main engine of
economic exploitation – the banking, creditor and financial systems' ever-increasing
extraction of value through interest payments. The rentier class and FIRE sector –
Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part
of a productive economy. Yet for centuries, these sectors were recognized as being
parasitic.
Now with the United States losing some 10 million jobs in just the past two weeks and the
world awash in debt, the total world gross domestic product is $90 trillion. The public and
private debt is a mind-boggling $260 trillion. The pandemic has given this parasitic sector yet
another, even more vicious opportunity to exploit and devour humanity.
As our guest puts it, the recently passed Trump "Bank and Landlord Relief" bill, mistakenly
named the Coronavirus bill, starts by providing banks with an even larger giveaway of wealth
than they received from Obama in 2008. Helping the banks, financial and real estate sectors in
a so-called free market system is conflated with helping the industrial economy and general
living standards for most Americans. The essence of a parasite is not only to drain the
host's nourishment, but to dull the host's brain so that it does not recognize that the
parasite is there.
"... the nations CEO's become sort of one big club, and the top of the club is the head parasites pulling the strings on the stock market (outfits like Goldman Sachs). ..."
"... NO ONE wants to cross the head parasites, the corrupt political class turns to them as their economic brain trust, and the propaganda class (MSM) spin narratives that comport to the corrupt political class' interests and the corrupt status quo. ..."
As our guest puts it, the recently passed Trump "Bank and Landlord Relief" bill,
mistakenly named the Coronavirus bill, starts by providing banks with an even larger giveaway
of wealth than they received from Obama in 2008. Helping the banks, financial and real estate
sectors in a so-called free market system is conflated with helping the industrial economy
and general living standards for most Americans. The essence of a parasite is not only to
drain the host's nourishment, but to dull the host's brain so that it does not recognize that
the parasite is there.
One of the ways it does this is to entice most of the biggest companies onto the stock
markets, which in turn subordinates them to the financial sector -- more specifically, the
investment bankers. And then the nations CEO's become sort of one big club, and the top of
the club is the head parasites pulling the strings on the stock market (outfits like Goldman
Sachs).
NO ONE wants to cross the head parasites, the corrupt political class turns to them as
their economic brain trust, and the propaganda class (MSM) spin narratives that comport to the
corrupt political class' interests and the corrupt status quo.
This is why [neo]liberalism and neoconservatism are the two sides of the one political coin
that Americans are allowed to choose. Lean left? You'll get a liberal who mostly uses identity
politics to divide and rule. Lean right? You'll get a neocon who mostly uses foreign affairs to
divide and rule. But increasingly, the two cross-over, hence you'll see liberals harping 24/7
about Russiagate and neocons harping 24/7 about Iran, Islam and now China.
None of this is to say that Russia, China and Iran aren't competitors, because they are. But
the liberal and neocon fanatics turn them into existential, kill or be killed
competitors...
Looks like wishful thinking. Neoliberalism despite its trend for redistribution wealth up
probably will survive this crisis. One strong argument here is that the return to the New Deal
capitalism is not impossible as a weak alliance of management and trade union that existed after
WWII was dissolved long ago.
So there is not countervailing force for the dominance of financial capital. It captured that
state and MIC is just an extension of Wall Street -- it racketeers. The same is true about
intelligence agencies, which also are pretty closely connected with Wall Street, especially
CIA.
And so here we are at a fraught moment in the convergent crises of corona virus and the
foundering economic system that it infected, with all its frightful pre-existing conditions. Of
course, it isn't capitalism , so-called, that is failing, but the perversions of capitalism,
starting with the appendage of the troublesome term: ism . It isn't a religion, or even a
pseudo-religion like Zoroastrianism or communism. It's simply the management system for surplus
wealth. In a hyper-complex society, the management of wealth naturally grows hyper-complex,
too, with lavish opportunities and temptations for chicanery, cheating, fraud, and swindling
(the perversions of capital). It's in the interest of the managers to cloak all that
hyper-complex perversity in opaque language, to make it seem okay.
How many ordinary Americans have a clue what all the Municipal Liquidity Facilities, Primary
Dealer Credit Facilities, Primary and Secondary Market Corporate Credit Facilities, Money
Market Mutual Fund Liquidity Facilities, Main Street New Loan Facilities and Expanded Loan
Facilities, Commercial Paper Funding Facilities currency swap lines, the TALFs TARPs, PPPs,
SPVs represent - besides the movement, by keystrokes, of "money" from one netherworld to
another (both conveniently located on Wall Street), usually to the loss of non-elite citizens
generally and to their offspring's offspring's offspring?
Real capital is grounded in the production of real things of real value, of course, and when
it's detached from all that, it's no longer real capital. Money represents capital, and when
the capital isn't real, the money represents nothing!
... ... ...
All this because we just can't face the task of reorganizing our national home economics to
suit new circumstances. So, nature will do it for us. Nature will furnish us with a marvelously
efficient black hole where we can conveniently stash our fake money so that we'll never have to
see it again.
Nature will bust up our giant institutions, our giant corporations, our giant networks of
financial obligations. And after a period of confusion and social disorder, some clever humans
will aggregate into smaller networks and re-organize their activities on a smaller scale that
actually supports truthful relationships between the production of things deemed to hold value
and money that represents those things.
The beauty of springtime is sublime and, as Edmund Burke noted, that very beauty provokes
our thoughts of pain and terror.
xxx 46 minutes ago
I'm not seeing it. The Federal Gub'mint will hand out free Netflix vouchers, along with
SNAP cards, and more than half of Americans will wallow in that like pigs in ****.
Unfortunately, there are just too many that want everything handed to them, and are "OK" with
living in a tiny shithole apartment and eating take-out the rest of their lives. Still
waiting for the "Revolution" that will never happen. They can just print money to infinity,
apparently. And it never inflates, or deflates.
xxx 39 minutes ago
The fed doesn't print money it creates currency ie bondage and they've created trillions
as of late and they're going to create many more trillions. Deflation followed by
hyperinflation, famine and a civil war that will make the last civil war look like child's
play in comparison.
xxx 31 minutes ago
Yes, but one would think that would have happened by this time already. After the last
printing frenzy, I was reading for years how "The End is near", "Hyperinflation",
"Deflation"...hell, Stockman wrote an article a week for like 8 years about that. And it
STILL hasn't happened. Why??? It's like fundamentals don't matter...economics doesn't
matter...so when DOES it matter? How many more trillions from now does it start to
matter?
xxx 12 minutes ago
I agree it's been quite a while since the fed killed the economy and debased the dollar
and I'm surprised the thieving bastards have kept this **** show going so long. But they
can't do it forever and the day of reckoning is coming.
xxx 17 minutes ago
They can only do it as long as the $ has reserve currency status. Once it loses that, all
hell breaks loose.
xxx 6 minutes ago
Reserve currency status will be lost and Amerikans will know true poverty. Not the poverty
we have today with obese useless people on welfare but real grinding poverty with famine. And
all fiat currencies will go to zero in this depression.
Before the coronavirus caused governments to impose lockdowns, whole economies, markets and
even currencies were already on course to be destroyed by a vicious downturn in bank lending at
a time of contracting trade and record debt. The additional strains from the virus have
intensified the crisis further and quickened the pace of all aspects of monetary
destruction.
The coronavirus has permitted America and other Western nations to adopt a war footing by
restricting personal freedom in the interest of the state. As tensions against China rise and
the global economic crisis escalates, these freedoms will be not be returned, being deemed to
be against national interest.
This is an election year for America and the political system is already ramping up blame
for the virus and her economic misfortunes against China. We are entering dangerous territory
when politics mobilises hate against a supposed enemy by using propaganda tactics which are
designed to stir up xenophobic anger.
How China responds will be crucial. Its leadership can defuse the situation with a few
simple changes to its foreign policy, isolating America from her allies in the process. But
does a highly bureaucratic communist leadership have the imagination to do so?
Introduction
One thing is for sure: the world will be different when it emerges from the coronavirus
crisis. Doubtless, on pain of likely death those over seventy years of age must remain
prisoners in their own homes while the younger generations are tasked with the return to
normality. All this is meant to be under government guidance of course. Over the coming months
governments intend to save swathes of business sectors, such as banking, energy production,
utilities and the rest, first by lending the money to pay the bills, and then by rescuing the
failures, taking them into public ownership in many cases.
That is what the post-coronavirus environment can be expected to look like, if, as
governments hope, the recovery is V-shaped. If not, then greater interventions will be visited
on the population to protect it from itself.
While not necessarily intentioned, there has been and will continue to be a dramatic
transfer of freedom from individuals to the state, which the state is always reluctant to let
go when the crisis passes. The evocation of a war against the virus is to facilitate the
transfer of peoples' freedom to the state, because that is what is required to fight a war. But
when it's over, the bureaucrats' instincts are never to return freedoms.
In the vast majority of cases, win or lose, following a war it is usual for a nation to
retain the measures adopted, dropping none of them. It might be called a transitional economy,
kept in place with all the war-time restrictions until an exit path, inevitably to greater
socialism, can be devised. And for America there is a war still to be fought against China for
global domination, justifying yet more control.
Nanny meets fascist socialism
Welcome to the new post-coronavirus intensified socialism. As individuals we have given the
state enormous power over our lives, which will almost certainly be consolidated. The direction
of travel is clear. Not only can big brother censor us, but it can now track our movements more
effectively than the old KGB. If you leave your home, leave your smartphone behind. Wear a
wide-brimmed hat and change your gait, avoiding the cameras. Your money in the bank, or more
correctly in your about-to-be-nationalised bank's money credited to your account, can only be
disposed of for state-regulated products by means of traceable transactions instead of
old-fashioned cash.
Instead of the soviet, we have the nanny state. Nanny knows best. This is the real world of
the 2020s. It is unnatural and will therefore eventually fail. In previous articles I have
written about one aspect of its failure, and that is the impending collapse of unbacked state
currencies. I have pointed out that central banks, and especially the Fed responsible for the
world's reserve currency, are embarking on an exercise in inflation designed, above all, to
uphold the state by maintaining the values of its debt and therefore all other financial
assets. If they fail, and they will because the task is too great, the currencies will fail as
well, and remarkably quickly. Until then, free markets are a primal threat to the system and
must not prevail.
Doubtless, deep state operatives everywhere believe that the threats from their own people
can be contained. Taking that for granted, they are now moving on to contain threats from other
states that don't conform to the West's democratic model. There is now much more propaganda
coming out of America and the UK about the evil Chinese than the evil Chinese are disseminating
about America and Britain.
The story being managed is of a devious state, somehow stealing our souls by selling us
their technology. Mobile 5G puts China into our homes and controls our internet of everything.
It will allow the Chinese to control us . What is not explained is why it is in China's
interest to abuse its customers in this way. What is not explained is why we, as individuals,
will be better off not having Chinese goods and technology. And when Britain's GCHQ
intelligence and security division took Hua Wei's equipment apart, they couldn't find any
evidence of Chinese state spyware anyway.
The irony in all this is that our democratic model, the nanny state, is cover for the same
internal policies as those deployed by the Chinese, admittedly less vicious; but that is
changing. Rather than communist-socialist, both Chinese communism and Western democracies are,
properly defined, fascist-socialist. With communism, the state owns your cow and tells you what
to do with it. With fascism, you own the cow and the state tells you what to do with it. In
these simplistic, but not inaccurate terms, our governments increasingly follow the fascist
creed adopted by the Chinese Communist Party after Mao's death. Give it time and the intense
Chinese-style suppression of free speech could become the defining feature of nanny's
management style as well.
Here we must note a fundamental truth. Socialists of either extreme do not see free markets
as a rival, because they believe they are useful for progressing socialism towards desired
ends. The true rival to your socialism is someone else's socialism. Newly energised Western
state socialism is to be pitted against Chinese state socialism. The World is about to get more
dangerous.
US is upping the propaganda stakes
Last week, US Secretary of State Mike Pompeo said China caused an enormous amount of pain
and will pay a price for what they did with the coronavirus pandemic. On Tuesday, President
Trump threatened to seek reparations from China for infecting Americans. This follows a 57-page
memorandum, entitled Main Messages dated April 17, briefing Republican senators, which was
headed by the following bullet points:
China caused this pandemic by covering it up, lying, and hoarding the world's supply of
medical equipment.
China is an adversary that has stolen millions of American jobs, sent fentanyl to the
United States, and they send religious minorities to concentration camps.
My opponent is soft on China, fails to stand up to the Chinese Communist Party, and can't
be trusted to take them on.
I will stand up to China, bring our manufacturing jobs back home, and push for sanctions
on China for its role in spreading this pandemic.
Clearly, the propaganda war being waged by America against China is undergoing a new lease
of life. And it's not just America: anti-Chinese belligerence is being ramped up through other
national intelligence agencies. Even senior MPs in the UK's Conservative Party and "useful
idiots" in the media are now spouting renewed anti-Chinese propaganda.
On one level, American propaganda can be taken as a defense of President Trump, on the
simplistic basis of finding someone else to blame for his administration's increasingly
desperate economic plight. But the danger is that the White House train has left the station in
the direction of policy escalation with no means of stopping. In this election year someone
must be blamed. To improve his ratings and following an established political tradition of
diverting attention from the domestic scene, Trump must blame foreigners and China is the
easiest target. We are rapidly moving in the direction of unintended consequences.
Meanwhile, we have to hope that President Xi does not take the American bait and escalate
tensions from his side. Xi's equanimity has set the pattern so far. He has made mistakes, and
will almost certainly continue to do so, but his Sun Tzu strategy is making it difficult for
the Americans: "If [the enemy] is in superior strength, evade him".
Of one thing we can be reasonably certain, and that is in a new attack the Trump
administration will escalate trade protectionism against China. It is a policy which will
backfire on America. Assuming no change in the American people's savings habits, the budget
deficit leads almost directly to a trade deficit, the twin deficit syndrome. The trade deficit
is not caused by unfair foreign competition, but as a simple matter of national accounting it
is linked to inflationary funding of government spending. The temporary offset with respect to
the inflationary effect on prices is the expansion of foreign production which ends up as
imports at less inflated prices. Meanwhile, the US's budget deficit is now set to grow
substantially from its trillion-dollar baseline and in the light of recent economic
developments it could easily more than double.
If the trade deficit is to be contained, then measures must be introduced to prevent import
substitution. This is in accordance with enhanced nationalism, typified by Trump's Make America
Great Again slogan. Therefore, the likelihood of America extending trade protectionism beyond
China as the economic crisis progresses is greater than it may currently appear.
Without lower prices for imported goods and consumption generally restricted to domestic
production, inevitably prices for everything will rise at a faster pace. Therefore, at a time
when food prices will almost certainly be rising sharply and causing political difficulties for
Trump, price inflation for all aspects of consumer spending will be getting beyond the managed
control of government statisticians.
Domestically, the combination of an escalating budget deficit and rising consumer prices
will lead to higher interest rates and therefore increased US Treasury borrowing costs. The Fed
will then be unable to control financial asset prices, the dollar will slide, and it could turn
out to be electoral suicide. Trump may not realise it but in this election year he is
conflating two opposing objectives: a geopolitical one against China to improve his political
ratings and an economic one which can be expected to destroy them.
In the past, politicians in this position have responded by clamping down even further on
free markets and personal freedom, evoking Hayek's prophecy of the call for stronger leadership
in his The Road to Serfdom . And with respect to foreign policy, imperialistic motivation
intensifies, which we are already seeing.
Meanwhile, we must hope President Xi stays calm in the face of American self-harm.
"In a Pandemic, the Mob Is the Ultimate Enforcer" [John Authers,
Bloomberg ].
The business perspective: "what really matters to the world's financial movers and shakers
is the great mob of voters out there in the real world, and how they might respond to whatever
measures they take to deal with the pandemic and the economic crisis that has come in its wake.
That, in turn, might owe a lot to the Don
The optics are not good when headlines reveal that scarcely impoverished institutions such
as Harvard University and the Los Angeles Lakers have received public handouts while small
businesses have been unable to get their hands on any money before it runs out.
After the mistakes made in the wake of the last financial crisis, Powell rightly grasps that
it is very important to get it right this time -- or face what might be a dangerous populist
backlash. Or, in our Sopranos analogy, the Mob."
Yesterday when I linked to the event at Lansing, Michigan, I commented that those there
had no idea what they were doing as they were protesting the wrong thing at the wrong
place. Instead, they ought to be occupying the US Treasury building in DC and the NY Fed
Bank in NYC to stop the fraudulent dissemination of $$Trillions to Wall Street criminals
masked as bankers, hedge fund mangers and the like as those locations are where the MAJOR
crimes are occurring as I type this comment. Their behavior casts them as ignorant and
perhaps worse as they're being led into an assault on their own interests while doing
nothing to genuinely defend their wellbeing and that of their kin and progeny. Such
stupidity's been ongoing since 1980-81 when it arose during Reagan's campaign and
continued afterward. That it's being directed/channeled is clear, just as who was
financing the Tea Party rubes was clear--It's the same criminals doing the looting in DC
and NYC.
Given the state of politics within the Outlaw US Empire, such behavior is
unfortunately normal to a certain degree. If it was a gang of Occupy Wall Street
Protesters, the reaction by the forces of coercion would've been vastly different and
very violent. Such is the state of Machiavellianism within as it's worked for many
decades dividing and ruling. With such impediments, attaining the mass solidarity
required to affect the Sea-change required is made extremely difficult, which is why you
observe that nothing's been done for the masses while many things have been done to
further their exploitation.
Both companies on Friday outlined deep cuts in investments in the Permian shale basin, the
top U.S. oilfield where growth in recent years made America the world's top oil producer
and a net exporter for the first time in decades. They each announced global shut-ins of up
to 400,000 barrels per day (bpd) this quarter due to lockdowns to fight the coronavirus
pandemic.
Exxon and Chevron have been rapidly sidelining Permian drilling equipment since the market
started crashing in March. U.S. crude prices have plunged nearly 70% this year, and traded
in negative territory on April 20 for the first time ever.[;]
Sitting inside the credit-resolution group, where Wells Fargo handles struggling
borrowers, the team includes many bankers who previously worked with the same oil and gas
producers in its investment bank.
They work alongside bankruptcy specialists who have been reassigned to focus exclusively
on energy to help Wells Fargo wade through the expected flood of restructurings.
"It's a bloodbath," said one person with knowledge of the bank's oil and gas portfolio,
who was not authorized to speak publicly.[.]
Wells Fargo and JPMorgan Chase & Co (JPM.N) are considered to be the two largest
lenders to U.S. energy companies. Citigroup Inc (C.N) had the largest energy loan book of
any U.S. bank at the end of 2019 because of its international business.[.]
As of the end of March, Wells Fargo had $14.3 billion of oil and gas loans outstanding,
according to filings.[.]
Calling Mr. Powell on the red phone please. The president is on Twitter. The CODE:
Print.
The Feds, in panic mode to stave off the Depression, are unaware they have launched the
Great Reset that will include Healthcare as a priority and not an afterthought as the corona
crisis revealed.
Debt jubilee is on the menu as QE to Infinity for bailing the banks and billionaires takes
us to a very bad ending. Implosion of derivatives will be the tsunami. Derivatives as per
BIS: $640 Trillion, Global debt: $265 Trillion.
The second financial collapse began September 2019. Most were forecasting 2nd Quarter 2020
contraction would mirror 1930s. Few expected 1st Quarter2020 to be there.
A review of the DJ charts displays similarities 2008 and 2020. Two rhymes. In fact DJ 2020
chart mirrors its 2008 chart without adjustments . And again, its the banks; not a care for
mainstreet.
Roughly 41% of working-age adults say their families have experienced a job loss, a
decrease in work hours or other employment-related declines in income in recent weeks,
according to a new analysis by the Urban Institute.
Underscoring the jump in financial distress around the country: More than 4 in 10 of
Americans whose work was affected by the pandemic said they weren't able to pay the rent,
mortgage or utility bills; skipped medical care; or were at risk of going hungry.
31% of survey respondents reported their families cut spending on food.
28% were forced to use savings or take on credit card debt to pay their bills.
69% of those whose family incomes were below the poverty level were unable to pay for their
housing, were food insecure or were unable to seek needed medical care.
Thank you for an excellent article on what is happening. My only criticism is that it appears
that these things "just happen". With your insight and erudition, could you please address
"why" the situation has arisen. What could be the motivation behind actions and policies
which so clearly will destroy not only the 99% but also the basic wealth of the1%?
This is not something new, but a recurrent theme in world affairs.
" Behind all the
governments and the armies there was a big subterranean movement going on, engineered by very
dangerous people." "Since I entered politics, I have chiefly had men's views confided to me
privately. Some of the biggest men in the United States, in the field of commerce and
manufacture, are afraid of something. They know that there is a power somewhere so organised,
so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak
above their breath when they speak in condemnation of it."
-- Woodrow Wilson, 28th President of the United States (1856-1924) "So you see, my dear
Coningsby, that the world is governed by very different personages from what is imagined by
those who are not behind the scenes." -- Benjamin Disraeli, British Prime Minister
(1804-1881) President Franklin Delano Roosevelt wrote in November 1933 to Col. Edward House:
"The real truth of the matter is, as you and I know, that a financial element in the larger
centers has owned the government since the days of Andrew Jackson."
It is undeniable that China has made impressive achievements since the Maosits revolution to
date. BUT lets be realistic pre1973 China still a Nation with markedly 3th world living
standards, even today with a soft racist inuendos , people speak about the Chinese must adopt
better hygiene standards personally and privately.
Before 1973 China had mainly 3th world status, eversince Nixon (or Kissinger?) opened
China US Corporate Capitalists inundated Chinas economic landscape, in other words the real,
KEY bases for Chinas economic success remain USA Corporations majority perhaps more than 70%
of their industrial output, although China has wisely constraint, restrain the USA/World
FINANCIAL cartels..(Soros speclation against te yuan, ans Soros Opensociety inflkuence in
HongKong)
Can China remain stable internally with a growing well travel educated savvy middle
class, and a POOR lower working class with meager salaries, slave like labor conditions, and
oppressive political controls, that's a recipe for a social cauldron..
Will the Chinese proletariat demand more "democracy" western/eastern oriented
reforms??..
... ... ...
China has become GREAT because the USA decided to become poor a Spartan, byzantinne,
militaristic, mercenary rogue nation at service of the Globaloists ELITES which do not care
about that cosmological romantic lyrical notion of America.
"... First of all, because Stoics believe that our true good resides in our own character and actions, they would frequently remind themselves to distinguish between what's "up to us" and what isn't. Modern Stoics tend to call this "the dichotomy of control" and many people find this distinction alone helpful in alleviating stress. What happens to me is never directly under my control, never completely ..."
"... Marcus likes to ask himself, "What virtue has nature given me to deal with this situation?" That naturally leads to the question: "How do other people cope with similar challenges?" Stoics reflect on character strengths such as wisdom, patience and self-discipline, which potentially make them more resilient in the face of adversity. They try to exemplify these virtues and bring them to bear on the challenges they face in daily life, during a crisis like the pandemic. They learn from how other people cope. Even historical figures or fictional characters can serve as role models. ..."
"... fear does us more harm than the things of which we're afraid. ..."
"... Finally, during a pandemic, you may have to confront the risk, the possibility, of your own death. Since the day you were born, that's always been on the cards. Most of us find it easier to bury our heads in the sand. Avoidance is the No1 most popular coping strategy in the world. We live in denial of the self-evident fact that we all die eventually. ..."
"... "All that comes to pass", he tells himself, even illness and death, should be as "familiar as the rose in spring and the fruit in autumn". Marcus Aurelius, through decades of training in Stoicism, in other words, had taught himself to face death with the steady calm of someone who has done so countless times already in the past. ..."
T he Roman emperor Marcus Aurelius Antoninus was the last famous
Stoic philosopher of antiquity. During the last 14 years of his life he faced one of the worst
plagues in European history. The Antonine Plague, named after him, was probably caused by a
strain of the smallpox virus. It's estimated to have killed up to 5 million people, possibly
including Marcus himself.
="rich-link__link u-faux-block-link__overlay" aria-label="'What it means to be an American':
Abraham Lincoln and a nation divided"
href="https://www.theguardian.com/books/2020/apr/11/abraham-lincoln-verge-book-ted-widmer-interview">
From AD166 to around AD180, repeated outbreaks occurred throughout the known world. Roman
historians describe the legions being devastated, and entire towns and villages being
depopulated and going to ruin. Rome itself was particularly badly affected, carts leaving the
city each day piled high with dead bodies.
In the middle of this plague, Marcus wrote a book, known as The Meditations, which records
the moral and psychological advice he gave himself at this time. He frequently applies Stoic
philosophy to the challenges of coping with pain, illness, anxiety and loss. It's no stretch of
the imagination to view The Meditations as a manual for developing precisely the mental
resilience skills required to cope with a pandemic.
First of all, because Stoics believe that our true good resides in our own character and
actions, they would frequently remind themselves to distinguish between what's "up to us" and
what isn't. Modern Stoics tend to call this "the dichotomy of control" and many people find
this distinction alone helpful in alleviating stress. What happens to me is never directly
under my control, never completely up to me, but my own thoughts and actions are
– at least the voluntary ones. The pandemic isn't really under my control but
the way I behave in response to it is.
Much, if not all, of our thinking is also up to us. Hence, "It's not events that upset us
but rather our opinions about them." More specifically, our judgment that something is really
bad, awful or even catastrophic, causes our distress.
This is one of the basic psychological principles of Stoicism. It's also the basic
premise of modern cognitive behavioral therapy (CBT), the leading evidence-based form of
psychotherapy. The pioneers of CBT, Albert Ellis and Aaron T Beck, both describe Stoicism as
the philosophical inspiration for their approach. It's not the virus that makes us afraid but
rather our opinions about it. Nor is it the inconsiderate actions of others, those ignoring
social distancing recommendations, that make us angry so much as our opinions about them.
Many people are struck, on reading The Meditations, by the fact that it opens with a chapter
in which Marcus lists the qualities he most admires in other individuals, about 17 friends,
members of his family and teachers. This is an extended example of one of the central practices
of Stoicism.
Marcus likes to ask himself, "What virtue has nature given me to deal with this
situation?" That naturally leads to the question: "How do other people cope with similar
challenges?" Stoics reflect on character strengths such as wisdom, patience and
self-discipline, which potentially make them more resilient in the face of adversity. They try
to exemplify these virtues and bring them to bear on the challenges they face in daily life,
during a crisis like the pandemic. They learn from how other people cope. Even historical
figures or fictional characters can serve as role models.
With all of this in mind, it's easier to understand another common slogan of Stoicism:
fear does us more harm than the things of which we're afraid. This applies to
unhealthy emotions in general, which the Stoics term "passions" – from pathos ,
the source of our word "pathological". It's true, first of all, in a superficial sense. Even if
you have a 99% chance, or more, of surviving the pandemic, worry and anxiety may be ruining
your life and driving you crazy. In extreme cases some people may even take their own
lives.
In that respect, it's easy to see how fear can do us more harm than the things of which
we're afraid because it can impinge on our physical health and quality of life. However, this
saying also has a deeper meaning for Stoics. The virus can only harm your body – the
worst it can do is kill you. However, fear penetrates into the moral core of our being. It can
destroy your humanity if you let it. For the Stoics that's a fate worse than death.
Finally, during a pandemic, you may have to confront the risk, the possibility, of your
own death. Since the day you were born, that's always been on the cards. Most of us find it
easier to bury our heads in the sand. Avoidance is the No1 most popular coping strategy in the
world. We live in denial of the self-evident fact that we all die eventually. The
Stoics believed that when we're confronted with our own mortality, and grasp its implications,
that can change our perspective on life quite dramatically. Any one of us could die at any
moment. Life doesn't go on forever.
We're told this was what Marcus was thinking about on his deathbed. According to one
historian, his circle of friends were distraught. Marcus calmly asked why they were weeping for
him when, in fact, they should accept both sickness and death as inevitable, part of nature and
the common lot of mankind. He returns to this theme many times throughout The Meditations.
"All that comes to pass", he tells himself, even illness and death, should be as
"familiar as the rose in spring and the fruit in autumn". Marcus Aurelius, through decades of
training in Stoicism, in other words, had taught himself to face death with the steady calm of
someone who has done so countless times already in the past.
Donald Robertson is cognitive behavioural therapist and the author of several books on
philosophy and psychotherapy, including Stoicism and the Art of Happiness and How to Think Like
a Roman Emperor: The Stoic Philosophy of Marcus Aurelius
Indeed, the unfolding collapse now underway shouldn't be called either a recession or a
depression. These terms denote the macroeconomic contraction triggered by bursting credit or
other financial bubbles and they usually take many months to reach full intensity.
But this one literally arrived at warp speed and with orders of magnitude greater
contractionary force than normal business cycle downturns. It is therefore sui generis ;
it stemmed from panicked officialdom who ordered households and businesses alike to abruptly
"cease and desist" from their daily economic activity upon penalty of fine, jail and public
opprobrium.
The good folks at Moody's Analytics captured the breathtaking speed of the resulting plunge
in the chart below in which they tracked the number of U.S. counties falling under lockdown
orders (blue bars) with an estimate of the cumulative loss in daily GDP (ascending red
line).
Whether this is accurate to the percentage point is immaterial and will be adjudicated after
several years of jobs and GDP data revisions. But what can't be gainsaid is that in the short
span between March 16 and April 6th depicted in the graphic -- something like one-third of US
GDP ceased to happen.
When in the modern day world of nearly unfathomably complex economic linkages, incredibly
long supply chains and interactive feed-back loops you have one-third of economic activity go
dark in just 21 days, the damage is likely to be enormous, even if the interruption is
comparatively short-lived.
But in the present instance the US economy was so fragile and deeply impaired owing to
30-years of debt, speculation and malinvestment-fueled false prosperity that it resembled an
economic hemophiliac stumbling into a knife fight. The bleeding will be profuse and
long-lasting because the American body economic had no defenses.
We shall lay out chapter and verse on the cash flow vulnerability of the preponderant share
of US households and businesses in subsequent installments. But sometimes a picture is truly
worth a thousand words and this– cars lined-up at a San Diego food bank -- is one of
them.
Ordinary urban poor folk don't line up at the soup kitchen in their late vintage autos and
SUVs. This is the hand-to-mouth economy lined up for food in cars that will soon be nabbed by
the repo man.
So the question recurs. Why did Lockdown Nation strike the everyday American economy out of
the blue and who is responsible?
That is to say, Lockdown Nation itself is the product of a contagion of public policy
Hysteria, so who is Patient Zero?
We think there is little doubt that it is the Donald himself, as we chronicle below. It is
only his overweening, pugnacious, polarizing political persona that could have transformed a
moderate public health threat into a politicized death struggle that is literally suffocating
the American economy and the social life which depends upon it.
But for want of doubt let us remind that there was never any case for Lockdown Nation -- not
on March 16 when the Trump White House issued its stay-at-home guidelines nor subsequently --
based on the pubic health impact of the coronavirus.
That's because Covid-19 would be considered a despicable bully if it were an animate being.
It overwhelmingly brings serious illness and death upon the old, frail and already
disease-ridden, not the general population.
Even many of the rare deaths among younger people appear to be attributable to an unusual
genetic condition which causes the number one killer of the coronavirus -- the human immune
system -- to launch an unhinged counterattack called a "cytokine storm" that ends up maiming or
killing the patient, not the virus (fortunately, there are immune system suppressants that can
treat these if caught early enough).
Thus, as of April 25 when the CDC had scored 40,072 "confirmed or presumed" Covid19 deaths,
the breakdown by age was unassailably dispositive:
· Age 0-14: 5 deaths among 60.9 million or a mortality rate of 0.008 per 100,000;
· Age 15-34: 354 deaths among 88.7 million or a mortality rate of 0.39 per 100,000;
· Age 35-64: 7,907 deaths among 125.8 million or a mortality rate of 6.3 per
100,000;
· Age 65-84: 19,840 deaths among 45.9 million or a mortality rate of 43.2 per
100,000;
· Age 85 and older: 11,966 deaths among 6.54 million or a mortality rate of 182.9 per
100,000.
So the average mortality rate for the entire US population as of April 25, which was 12.2
deaths per 100,000, is completely meaningless from the perspective of remedial public health
policy. It is a reminder of the old adage that you can drown in a river with an average depth
of 3 feet if you end up in a deep, vicious eddy pool.
Likewise, you don't rationally shut down schools when the mortality rate for kids is a
rounding error; and keeping the kids out of school does nothing for their grandparents and
great-grandparents if they are self-isolated anyway, as the should be, when their mortality
risk is 22,800 times higher!
Indeed, among the cohorts of the working age population age 35-64, there is absolutely no
basis in the mortality rates for shutting down places of work. The normal, total mortality rate
for this 126 million-strong core of the work force, in fact, is nearly 500 per 100,000
annually.
So the Covid death count to date amounts to just 1.3% of the normal mortality rate. What
posse of fools advised the Donald, therefore, to monkey-hammer the working economy on account
of that?
Moreover, our eddy pool analogy could not be more spot on. A new analysis of elderly New
York hospital patients who died WITH Covid-19 showed that 94% suffered from at least one
life-threatening morbidity such as hypertension or respiratory illnesses, and 88% had at least
two.
That is to say, based one age alone, the Covid is a perfect case of the Pareto 20/80 rule.
In this case, the 65 years and older population (52.4 million) accounts for 16% of the US total
population (327.2 million) but 79% of the WITH Covid-19 deaths.
But when you overlay, the comorbidity incidence among those 16%, the real highly vulnerable
population turns out to be 5% or less.
So the fact that we got to Lockdown Nation with lightening speed given these facts is surely
a case of President Truman's famous sign on his Oval Office desk that read, "the buck stops
here".
The truth is, the Donald is lazy, weak, indecisive, notoriously ill-informed and an
atrocious chooser of advisors, and it is exactly those attributes that lead to the March 16
stay-at-home guidelines from the Oval Office.
Had the Donald not foolishly embraced the misbegotten project of the Infectious Disease
Lobby to stop the spread of the coronavirus through the US population cold, which is
self-evidently impossible with a ultra-contagious airborne virus, the Dem mayors and governors
would not have had the political hall pass to instantly pile on the lockdown wagon.
Ironically, the Dems were desperately searching for a way to discredit the Donald's phony
Greatest Economy Ever boast, and the Donald handed them what amounts to an economic bunker
buster bomb on a platter.
Indeed, choosing bad advisors and listening to them is the Donald signature failing. After
all, if the gravamen of your foreign policy is America First and you appoint as your top
national security advisor the most unhinged apostle of Empire First on the entire planet, John
Bolton, you are either stupid as hell or semi-comatose.
So the Donald is, in fact, the Patient Zero who spread the virus of Lockdown Nation because
he was either too lazy or too dumb ask the obvious question, as we will amplify in Part 2.
But in the meanwhile, WSJ columnist Holman Jenkins got it right:
We started off sensibly. 'This is not something [American families] generally need to worry
about,' said CDC's Dr. Nancy Messonnier in mid-January. 'It's a very, very low risk to the
United States,' said Dr. Anthony Fauci a week later.
Bill de Blasio, mayor of New York, urged residents to go about their business normally as
recently as March 11.
But then on March 16, the Donald entered the White House briefing room and
announced a sweeping plan to slow the spread of the coronavirus.
And it was based on the extremely bad advice of Dr. Fauci and the Scarf Lady (Deborah Birx),
both lifetime government bureaucrats who had absolutely no concept of the economic Mayhem that
Lockdown Nation would instantly foster.
So Patient Zero thereafter droned on night after night during this reality TV show in the
stupid belief that the US economy was so strong that it could handle a 15-day Spring
Vacation.
Never was a US President more misguided:
Stay home for 15 days, he told Americans. Avoid groups of more than 10 people. 'If everyone
makes this change, or these critical changes, and sacrifices now, we will rally together as
one nation and we will defeat the virus,' he said.
On Sunday, the night before Day 15, Trump told the country to stick with the plan for
another month, until April 30.
'The better you do, the faster this whole nightmare will end,' Trump said.
'We're getting rid of the virus,' he said. 'That's what we're doing. That's the best thing
we can do. By the way, for the markets. For everything. It's very simple. It's a very simple
solution. We want to get rid of it.'
Indeed, the Donald got so bamboozled in part because of his own massively
exaggerated view of his role. He came to view the absolutely catastrophic stay-at-home
guidelines as merely another case of closing things down which aren't his to close–like
the border with Mexico.
Trump described the decision to issue the guidelines as 'one of the most difficult decisions
I've ever made' and said he was skeptical when his medical experts came to him with the plan.
'I wasn't happy about it,' he said on Fox News last week. 'They came in -- experts -- and
they said, "We are going to have to close the country." I said, "We have never closed the
country before. This has never happened before." I said, "Are you serious about this?"
But without hardly a further moment of reflection, he promptly declared himself a
War President, and we were off the races to Lockdown Nation.
But on this matter, the great Randolph Bourne was more than clairvoyant fully one century
ago:
The moment war is declared, however, the mass of the people, through some spiritual alchemy,
become convinced that they have willed and executed the deed themselves.
They then, with the exception of a few malcontents, proceed to allow themselves to be
regimented, coerced, deranged in all the environments of their lives, and turned into a solid
manufactory of destruction toward whatever other people may have, in the appointed scheme of
things, come within the range of the Government's disapprobation.
The citizen throws off his contempt and indifference to Government, identifies himself
with its purposes, revives all his military memories and symbols, and the State once more
walks, an august presence, through the imaginations of men.
Even as Americans struggle to deal with a deadly and seemingly unprecedented pandemic, it
isn't too soon to wonder how the present crisis will shape our collective understanding about
the dangers that we face, and the best means for addressing them.
One thing, however, is obvious: the military and other tools of force and coercion that are
generally useful against traditional threats -- from invading foreign armies to swarms of
killer drones -- are essentially irrelevant against killer bugs. Indeed, as the plight of
the aircraft carrier USS Theodore Roosevelt reminds us , military personnel might be more
vulnerable to infectious diseases than the general population.
... ... ...
Military-centric solutions, however, may be upended by COVID-19. Americans no longer feel
safe, even in their own homes. The threat posed by an invisible silent killer is even more
ominous than that of terrorists who were also mostly invisible ( or perhaps
non-existent ). In a time when the United States' physical security can no longer be taken
for granted, will Americans be as tolerant of a national security strategy aimed at protecting
others from invasion or coercion? And will they be willing to pay for a military geared to
fighting foreign enemies abroad, especially when more urgent threats are already here?
Opportunity costs
The need to balance between foreign and domestic priorities is ever-present. In his "
Chance for
Peace " speech of April 1953, President Dwight Eisenhower famously spelled out the
tradeoffs.
"Every gun that is made, every warship launched, every rocket fired signifies, in the
final sense," he said then, "a theft from those who hunger and are not fed, those who are cold
and are not clothed."
He observed that a bomber cost the equivalent of 30 schools, "two fine, fully equipped
hospitals" or "50 miles of concrete highway."
Teachers would later point to that speech, invoking Eisenhower's name to justify cuts in
military spending to obtain increases for education. Others wished for the day when schools
would have all that they needed, while the Air Force would have to hold a bake sale to buy a
bomber. Doctors and nurses are now broaching similar issues with respect to intensive care
units and personal protective equipment.
To critics, such calls were always silly and short-sighted. The United States could have it
all, they told us. Good schools, good healthcare and a military capable of fighting many
battles simultaneously, including on behalf of others.
Zero-sum thinking, and fiscal conservativism generally, they said, unnecessarily forced the
United States to fight its adversaries with one arm tied behind its back. By unleashing
America's growth potential, fueled by government spending -- including spending on the military
-- we would create an economy that could pay for both guns and butter.
Those claims persist. When the United States was waging wars in Iraq and Afghanistan, plus
hunting al-Qaida on at least four continents, defense spending advocates dismissed calls to
actually pay for such wars with higher taxes or major cuts in popular social programs.
Even after the 2008 financial crisis, they dismissed talk of offsets or spending caps as
reckless and unnecessary.
Plus, advocates for higher defense spending are always quick to add, don't forget about the
spin offs -- from the microwave to the Internet to GPS. Government investment into basic
research for the military made possible a range of consumer goods that wouldn't exist in the
absence of such activity.
To be sure, some military spending might be relevant in the current crisis. The lab at Fort
Detrick, in Frederick, Maryland – -- officially the U.S. Army Medical Research Institute
of Infectious Diseases -- is now
on the frontline of the search for a vaccine against COVID-19 .
The facility represents a tiny fraction of the entire Army budget, however, and has often
been a tempting target for those seeking funds for other more urgent priorities. Earlier this
year, the Trump administration proposed to cut $104 million from the lab's budget. Now, they're
looking to boost funding for the institute and other labs by $900 million. Is this an
early indication that our priorities have actually changed?
In the post COVID-19 era, who will call for cutting the budget of an agency that might have
stopped the outbreak in 2020? Who will argue that hospital beds or N-95 masks aren't needed,
but that the cost of maintaining U.S. troops in Europe is an expense that we simply must bear?
Who will say that more F-35s are vitally important for our security, but we don't need to
research how to defeat an invisible killer?
We may get a sense soon. A poll taken just before the current crisis found a healthy
plurality of Americans believing that U.S. military
spending was about right . But in the just-passed $2.2 trillion aid package, the Pentagon
came away with about $10 billion -- a mere 0.5 percent of the total, and a far cry from the
roughly 55 percent of discretionary spending that it receives in a typical year.
All of the above
Pentagon spending advocates are likely to argue that we cannot prioritize. To take our eyes
off foreign threats while addressing the one here among us, they will say, would expose the
entire planet to extreme peril.
Ever since the dawning of the nuclear age, we envisioned this grave danger as a
life-extinguishing mushroom cloud -- actually many mushroom clouds. In the last few weeks,
we've seen glimpses of a different danger; patients gasping for air as a microbe attacks their
lungs, and left in hallways, or in the streets, because there aren't enough ICU hospital beds
or ventilators. Can we care for all of these people, while also spending hundreds of billions
of dollars on a military that operates mostly far from our own shores?
The tradeoffs are rarely so stark. Soldiers and Marines proved commendably flexible after
9/11. Ships and planes can be moved. But the military instrument that was useful for dealing
with petty tyrants from Saddam Hussein to Muammar Gaddafi, and was even suitable for use
against terror group leaders, seems uniquely unsuited for defeating microscopic
pathogens.
Nevertheless, the safe bet is that inertia will prevail. Strategists and policymakers will
push to retain the fight-forward approach for most traditional threats, and then layer the
additional expenses required to deal with infectious diseases on top of all the rest.
But while the coronavirus won't change everything, it will change many things. The
response to it has already put enormous strain on the U.S. economy. Sen. Chris Murphy (D-Conn.)
called on U.S. policymakers to begin preparing now for the next pandemic. It seems
inevitable that measures taken to avoid a repeat of the current crisis will impose costs, much
as the post-9/11 response did for nearly every person and industry.
COVID-19's more lasting effects, however, could be seen in whether, and how, we restructure
our government, and what it means for civil liberties. A U.S. government strong enough to
mobilize all of society's resources against all threats would compel us to depart from our
founding traditions, and would ultimately threaten Americans' freedom and prosperity. We might
be getting a glimpse of that today, with stay-at-home orders, compulsory business closures, and
yet another massive increase in debt-funded government spending.
Sensing the danger of overreaction to crises, President Eisenhower sought "balance in and
among national programs," as he explained in his farewell address , "between
the private and the public economy" and "between action of the moment and the national welfare
of the future."
Finding that balance post-COVID-19 will require us to revisit all of the things that we say
we need to do to keep us safe. And it should entail finally shifting resources away from the
military, and dropping a militarized approach to global problems, in favor of the many other
instruments of American power and influence.
Some will know who Hyman Minsky was, some won't. Hudson gives him the primary credit for
providing the foundation for Modern Monetary Theory, and he gets praise from Keen, Wolfe and
many others too. On the occasion of his 100th birthday, here's a
long essay that seeks the following:
"But the question still stands: Was Minsky in fact a communist? Of course not. But, a
century after his birth, it is useful to clarify often neglected aspects of his intellectual
biography."
Since Minsky's referenced so often by Hudson particularly, I think this piece will be
helpful for those of us following the serious economic issues now in play. I'd reserve an
hour for a critical read.
"Around 2008, we lost 8.7 million jobs and the whole thing. Right now, we're losing that
many jobs about every 10 days," Hassett said. "And so the economic lift for policymakers
is an extraordinary one."
NEW: White House senior adviser Kevin Hassett tells @gstephanopoulos that the
economic outlook is a "really grave situation.""We're going to be looking at an unemployment
rate that approaches rates that I think we saw during the Great Depression." https://t.co/vM8WcrQKg0
pic.twitter.com/ds7QtseNqe
Unemployment peaked during the Great Depression in 1933 when rates hit 25 percent. They have
only topped 10 percent twice since then, once in 1982 and again in 2009.
Over 26 million Americans have filed for unemployment benefits during the Covid-19 pandemic,
and it will likely top 27 million very soon once what could be millions of backlogged claims
can be processed. The Congressional budget office forecasts the unemployment rate rising from 3.8
percent to 14 percent in the second quarter of 2020 and then 16 percent in quarter three and
finally making its way down to 10.1 percent by the end of 2021.
karlof1 @ 100, thank you. Both your links were well worth reading, especially as no
interrupting ads or distracting obstructions made it possible to do so. I'll just highly
recommend the Crooke article for its historical references and suggestion of hopeful outcome.
I was much reminded of the Oedipus cycle which focuses on plague in Thebes as the pivotal
point of ultimate pressure - that last grain of sand, so to speak. History doesn't repeat,
fortunately, but it does rhyme! And knowledge is indeed power.
Thanks for your replies! There're plenty of happenings, writings and videos to keep a
person very busy if that's the desire--those expressing boredom are actually confessing
laziness. As April concludes, we'll soon be treated to the latest economic stats. Here's part
of what the owner of Shadowstats had to say today:
"PENDING PANDEMIC AND OIL-PRICE IMPACT: Initial Contraction in First-Quarter 2020 GDP
Likely Will Be Deeper Than the 3.5% (-3.5%) Consensus / ShadowStats Forecasts an Annualized
1q2020 GDP Drop of 7.1% (-7.1%), Deepest Since Great Recession Depths; Second-Quarter GDP
Likely the Deepest Drop Since the Great Depression, If Not Worse / Headline April 2020
Unemployment Should Soar to About 21%, Worst Since Great Depression."
A U6 unemployment of 21% would send actual unemployment as tracked by Shadowstats to close
to 40% and overall GDP shrinkage may go beyond 10% annualized. Real per capita GDP may fall
below that of 1970, which will cause a fiscal crisis in every state as they fall way short of
projected revenues. There's already a caustic debate happening between states and the
Treasury and State Departments about bailing them out instead of the Money Power. Talk of
Secession and Nullification are becoming louder rekindling arguments never really solved from
the 1820s&30s. Try as they might, Trump and Pompeo's campaign to blame it all on China
will fail as the economic problems have remained since 2008-9, statistical trickery
notwithstanding. One thing's already certain: This election year will be like no other.
Going back to our thesis that "
The Market Is Now Just 5 Stocks ", Kostin next notes that because many of the recent
outperformers had also been market leaders prior to the coronacrisis, their recent gains have
led to a surge in already- elevated market concentration.
While coming into 2020, the five largest S&P 500 stocks accounted for 18% of index
market cap, matching the share at the peak of the Tech Bubble in March 2000, since then, those
stocks (MSFT, AAPL, AMZN, GOOGL, FB) have risen to account for 20% of market cap, representing
the highest concentration on record.
Which brings us to Goldman's ominous warning #1 : "We
opined in January that the earnings power and valuations of the top five stocks suggested they
could avoid the fate of the top stocks in 2000. However, the further market concentration
rises, the harder it will be for the S&P 500 index to keep rising without more broad-based
participation . " In other words, if the dispersion continues to soar, and if the entire upside
in the S&P500 is thanks to just five stocks, not even Goldman can see a happy ending.
If that wasn't enough, Goldman also has an ominous warning #2 , namely that sharp declines
in market breadth in the past, of the kind we see now, have often signaled large market
drawdowns. For example, in addition to the Tech Bubble, breadth narrowed ahead of the
recessions in 1990 and 2008 and the economic slowdowns of 2011 and 2016. This is also observed
empirically, as historically sharply narrowing breadth has signaled below-average 1-, 3-, and
6-month S&P 500 returns as well as larger-than-average prospective drawdowns.
That said, Goldman refuses to put a timeline to its dour outlook, and notes that periods of
narrow market breadth can last for extended periods. Since 1980, the breadth measure charted in
Exhibit 2 has indicated 14 episodes of breadth narrowing more than one standard deviation, as
it does today. The median episode persisted for three months, with the longest lasting 27
months from 1998-2000.
However, eventually, "narrow market breadth is always resolved the same way. Often, narrow
rallies lead to large drawdowns as the handful of market leaders ultimately fail to generate
enough fundamental earnings strength to justify elevated valuations and investor crowding. In
these cases, the market leaders "catch down" to weaker peers." This is the scenario laid out by
Nomura last
week in our post " Spectacular Momentum Crash" Imminent As Record Human Hedge Fund Selling
Meets Furious Robot CTAs Buying ." In other cases, an improving economic outlook and
strengthening investor sentiment help laggards "catch up" to the market leaders, which also
results in a violent drawdown as the leaders get repriced sharply lower .
The bottom line, however, is that in both cases, "on a relative basis the outperformance of
market leaders eventually gives way to underperformance."
What does this mean in practical terms? As Goldman concludes, since 1980, its long/short
Momentum factor has generated a median unconditional 12-month return of +400 bp "but a 12-month
return of -300 bp following periods of narrow market breadth like today." In short, while it
may not necessarily be "spectacular", Goldman agrees with Nomura that a momentum crash is dead
ahead. And with that pessimistic view, Goldman - which just two weeks ago called the "bottom"
in the S&P500, has
joined Morgan Stanley's "notorious bear-turned-bull" Michael Wilson in warning that stocks
are now overbought and that a "correction will begin soon."
This is a time to be "extremely careful," Icahn said in an interview Friday on Bloomberg
Television.
The 84-year-old's reasoning is simple - and terrifying for the average commission-raker and
asset-gatherer - having traded through every stock-market crash since the Great Depression, the
future is just too unpredictable for the S&P 500 to be trading at almost 20 times next 12m
earnings estimates ...
"You cannot really justify that multiple," Icahn said.
Colleges across the country are trying to figure out whether they can reopen campus this
fall. Right now, it's a 50/50 shot. No one knows, and with a
second coronavirus wave looming later this year, face-to-face classes might not be seen
until early 2021.
Ted Mitchell, president of the American Council on Education, said reopening colleges could
be a drawn-out process and lead to a 15% decline in students, resulting in billions of dollars
lost for schools.
"The math is not pretty," Robert Kelchen, a student at Seton Hall University in New Jersey,
told
NPR News . "Colleges are stressed both on the revenue side and on the expenditure
side."
The transition to virtual classes has been epic. Schools in nearly every state have moved
courses online in just weeks, triggering lawsuits filed by some students that claim refunds for
tuition, fees, and room and board must be seen.
Dominique Baker, a professor of education policy at Southern Methodist University in Dallas,
warned that every college would feel financial stress related to coronavirus lockdowns.
NPR estimates that virus lockdowns are leading to significant losses for some
universities:
"The University of Michigan estimates it may lose up to $1 billion by the end of the year.
For the University of Kentucky, it's $70 million. Hundreds of schools -- including some with
endowments of more than a billion dollars, like Duke University, Virginia Tech and Brown --
have announced hiring freezes. Other institutions have cut pay and have laid off staff and
contractors. In Vermont, state officials have floated potential college shutdowns."
Baker said the lockdowns would affect colleges in disproportionate ways. "For some colleges,
this is an existential threat that means they'll have to close," she said, while others have
the financial support to weather the virus storm.
The higher education community received a bailout via the CARES Act. Congress allocated
around $14 billion to colleges and universities affected by the shutdowns, though the American
Council on Education said it was not enough and is calling for $46 billion more.
Campus Reform
identified the top ten schools receiving the most bailout money, courtesy of the American
taxpayer:
Arizona State University- $63.5 million
Pennsylvania State University- $54.9 million
Rutgers University- $54.1 million
University of Central Florida- $51 million
Miami Dade College- $49 million
Georgia State University- $45.2 million
California State University-Northridge- $44.6 million
The Ohio State University- $42.8 million
California State University- Long Beach- $41.7 million
California State University- Fullerton- $41 million
Kelchen described a situation that happened over a decade ago when the economy crashed in
2008, and state budgets were not able to fund schools. With a
depression unfolding , it appears funding for higher education will come into question once
more.
And to make matters worse, nationwide enrollment in higher education has plunged 11% in the
last eight years as millennials figure out they don't need to rack up tens of thousands of
dollars in debt before entering the labor force.
Nicholas Christakis, a sociologist and physician at Yale University, said colleges are not
returning to normal this fall.
"This idea -- that we can somehow just get back to normal and go back to school in the
fall, because we always have, it's not reasonable, actually. I think we're going to have to
figure out other ways of doing this," said Christakis.
Bryan Alexander, an educational futurist at Georgetown University, said the pandemic is
going to reshape everything we know about college.
"There are many ways a reconstructed fall might look, including the option of continuing
everything online, though many colleges that teach in-person still think of that as a last
resort. They cite online learning growing pains and an ambivalent faculty. Plus there's some
fear that students and their families won't be willing to pay as much for an online offering.
Among the ideas being floated for tweaking the in-person model is changing the traditional
academic calendar. Instead of starting in August or September, school might open in October
or even January. Instead of 16-week semesters, colleges could shift to quarter systems or
even shorter, four-week courses to allow flexibility," said NPR.
Some have floated the idea of trying smaller classes and hosting larger ones online. Kim
Weeden, a sociologist at Cornell, along with colleague Benjamin Cornwell, said large lecture
classes should be eliminated.
"Just eliminating those 100-person or more classes didn't seem to reduce the small-world
nature of the network all that much," Weeden said. Their research -- which was published
recently in a white paper, but not peer reviewed -- was only looking at classes and didn't
factor in dorm life or campus events such as social gatherings and athletics.
"There's just so much uncertainty," said Weeden. "You know, a big piece of this, of
course, is whether there is going to be [coronavirus] testing available and what those tests
can and cannot tell us. And you know, everybody wants to know the answer to that
question."
The million-dollar question is if college classes will return to normal by fall. And the
answer is likely no, while many schools will push for virtual classes, extended lockdowns, and
a second coronavirus wave could lead to the implosion of higher education.
As I've written in the past few weeks, the number of initial jobless claims correlates
roughly with the number of net new jobs added or subtracted in any given month. Normally
there is too much noise for it to be of much value, but with the huge spike in the past
month, the signal will come through much more strongly.
@anon Lets add to the bigger picture. With regards to Israel: Exceptions don't make the
rule.
_______
The forces that off-shored the jobs, to then make wage arbitrage and become masters of the
universe, are the very same ones that are now demonizing China.
They are "international" in outlook, and the only national country that matters to them is
Israel.
In general, it is a "class" of people -sometimes called "Davos Man" who goes by other
names, such as globo-homo, ZOG (zionist world government), Ne0-Con, Neo-Liberal.
Globo-Homo couldn't resist the wage arbitrage that China represented after the Berlin Wall
fell in 1990. Clinton gave China effective MFN status in 1993. Wall Street begins Green Mail
Coercion Techniques against American industry to then off-shore jobs.
China also runs a simultaneous gambit against the U.S. by buying up TBills instead of
goods from U.S. main-street. This then insures that U.S. dollar is propped up against the
Yuan e.g. currency manipulation. The China/Wall Street Gambit is in full swing, and
globo-homo is happy.
Globo-Homo doesn't care about the destruction of American Mainstreet, because only prices
matter, and they are getting rich. China becomes the workshop for the world.
There are still elements within Globo-Homo that like their easy money derived from
ownership of transplanted industry.
If you look at today's propaganda emission center for China psy-ops you will see that it
is another mouthpiece and organ of the "international." They are festooned with neo-liberals
and ne0-cons.
Why the sudden shift, where China is the golden goose, to becoming the enemy?
Summary: There are two main enemies against American Mainstreet Labor. There is the
internal and international enemy of globo homo centered in Wall Street and London, and there
are elements within China that used Mercantile techniques to continue imbalanced trade and
theft of American patrimony and industry.
Globo homo has new marching orders, as they have belatedly realized that they got played.
The jig is up, you cannot operate the usury mechanism, do speculation, and RIG THE WORLD,
forever.
The U.S. military security state has communicated clearly, they don't like their
"international" supply chains and loss of U.S. domestic manufacturing. Globo Homo has long
used the US. military as a Golem which protected movement of ships from China's east
coast.
Atlantacist Method: Raw materials come into China by Ship, and finished Goods leave by
ship. Globo Homo ownership class takes the increment of production and wage arbitrage as
gains. Wall Street/London is a hero, main street is a zero.
A quick study of history shows that when exploiting elites are doing great, they all
faithfully support each other, but when things start to go south, they immediately turn on each
other. The best recent example of this phenomenon is the schism in the US ruling elites who,
since the election of Trump, have immediately turned on each other and are now viciously
fighting like "spiders in a can" (to use a Russian expression). In fact, this is so true that
it can even be used as a very reliable diagnostic tool: when your enemies are all united, then
they are probably confident in their victory, but as soon as they turn on each other, you
*know* that things are looking very bad for your opponents. Likewise, we now see how southern
Europeans are getting really angry with their northern "EU allies" (
Macron seems to be falling in line behind Trump even if he uses a more careful and
diplomatic language). Finally, the way the US CIA has one foreign policy, the Pentagon another
and Foggy Bottom one of its own (even if limited to sanctions and finger-pointing) tells you
pretty much all you need to know to see how deep the systemic crisis of the Empire has
become.
This cannot be overemphasized: "Last, but most certainly not least, the Europeans will find
out (and some already have), that the US literally does not give a damn about not only
regular Europeans, but even about the European ruling classes."
That has been the defining pattern of WASP culture since its formation (or completion with
the rise of Anglo-Saxon Puritanism). But it is more generally a hallmark of Germanic
pagans/warlords. It is about endless rapine with honor given to those who help those above
them secure more spoils. There is zero concern for the working man (whether he tends cattle
to feed the rich or rows the viking boats), and the honor for others in the chain of command
lasts only as long as they profit those above them.
The chief Elites of the Anglo-Zionist Empire are, obviously, all tied directly to the US.
The Brit Elites have the honorary position of being the second most prestigious. Every other
nation's Elites are on rather thin ice. The second that French Elite stop pimping for Uncle
Sam is the second that the Elites of the Anglo-Zionist Empire see them as trash that must be
removed.
The naive backers of the EU still assume that that alliance is what saves them from the US
inflicting direct overlordship. They are damned fools, because the EU acts in concert with
the Anglo-Zionist Empire on all major matters that, ultimately, will make all of Western
Europe a playpen for the Anglo-Zionist Elites.
And for our VDARE crowd – that is the reality of the spread of English language and
of WASP run empire. When it moves from a small local church and community, WASP culture must
be perpetually imperialistic and philoSemitic. It must destroy non-WASP European cultures,
forcing their leaders to bow and assimilate to WASP hegemony.
MMT is brilliant and it's really embarrassing that it took The Deadliest Pandemic™ for
some folks to come round to it. We all collectively print an extra bit of money - and give it
to each other!
There are historic examples documented of successful applications of the concept, look no
further than to the earnest witness of Baron Munchausen pulling himself out of a swamp by his
own hair. https://en.wikipedia.org/wiki/Baron_Munchausen
Hudson also has another video posted to
his site , "An interview on the Radical Imagination: Imagining How Financial Parasites
and Debt Bondage Are Destroying Us," which is based on his book Killing the Host .
It's a recent video interview that's @50 minutes long prefaced by the Occupy Wall Street
Anthem and introduction.
One aspect of MMT that must be made clear is it advocates the use of public banking or the
Treasury to pump capital in the form of money into the productive economy , not the
parasitic economy the Fed supports--the difference is huge and vital. For MMT to succeed
within the Outlaw US Empire, the Fed must be liquidated. For more, please read the essay I
linked to @35.
Musburger @ 3 : "What do you folks think about MMT?"
Re-inflation of a depressed economy can be achieved by government spending into:
public investment
employment
income transfers
income support
labour
tangible capital
infrastructure.
This is "good" MMT.
"Bad" MMT, or fake MMT, is government spending into WallStreet, handouts to:
the banks
large corporations
speculators
bondholders.
The March 2020 CAREs Act is bad MMT as was the 2008 bailout. This one is same as that one
but "on steroids."
Both bailouts further empower(ed):
rentiers (the landlord class),
monopolies,
the financial creditor class
and cast most of the rest of the US population into reduced circumstances, poverty and/or
debt servitude. They burden the working economy with overhead and debt that cannot be paid.
Bad MMT.
While the MMT school has a healthy diversity within it, USG applications have flipped the
theory on its head, says Hudson. See below for link.
(Remember Cheney's, "We are all Keynesians now"? )
Worse, Bad MMT does more than simply bailout the top 1%. It also increases the parasitic
power of financialization on the real economy. As we have repeatedly seen, now most
dramatically, the financial sector is incapable of planning for anything other than its own
fictional valorization.
Libertarians' freedom from government dogma excoriates against centralized planning and
yet, ironically, the end result of their "government is bad" path forced upon us in USA led
directly to central 'planning' by default -- by parasitic-on-the real-economy privatized
finance sector, a form of fascism not democracy or liberty.
USA'ns public health crisis occurs as states, which are required by law to not run
deficits, face huge costs that will force more austerity on their populations. More callous,
they are forced to compete against each other as they purchase essential equipment and
technology (from for-profit privateers) to deal with the highly infectious novel virus, and
the fed indemnifies the privateer mask makers!!!
What is the root of inequality today? Debt and the monopolization of real estate.
What are solutions?
Wipe out and roll back debt overhead on production and consumption.
This is "good" MMT.
Bad MMT furthers the debt burden on society, concentrates monopolization and cements in
central planning by parasitic private finance sector.
If ever there was a time, it's now. Oil has bottomed out. They can top off the national
reserves on the cheap and profit when their war sends prices up again. Maybe it's why The
Orange Goober has ordered the Navy to "shoot down" any Iranian boats that
harass/approach/rudely gesture at US ships.
Ritter's article worries me. There is now a sales argument for war: "don't worry about oil
prices going sky high, Iran can't use that weapon against us now!".
You over excitable little Iran war-monkeys really should take time out of your busy
war-monkey daily-schedules to learn something about the topography of Iran and it's defensive
and offensive military capabilities.
It would certainly save everyone else from having to listen to you being wrong yet
again.
You're on the right track. There's a huge supply glut as all forms of storage are mostly
filled as proven by the negative WTI pricing. Global demand is still being destroyed. War in
the Persian Gulf region will further destroy demand; and since very little oil's being
shipped from there, the supply glut won't be used up anytime soon--certainly not quickly
enough to see a sharp rebound in oil price. The crucial point is domestic US refineries have
cut back their runs as their margins are even thinner than before, plus demand destruction is
still occurring, thus the domestic storage glut. The wife and I jested last night if we only
had a rail spur we could order up a couple of tank cars full of unleaded at the current very
distressed price and be set for a longtime.
As The
Saker notes in his latest , Trump must make the voting public look everywhere except at
him and Congress, the bellowing at Iran being part of that entire theatre. Yes, a mistake
could have very negative consequences for the USN and all US assets in the region as well as
Occupied Palestine--the overall underlying dynamic hasn't changed since Trump broke the Iran
Nuclear Treaty. Too add further insult to Trump and Pompeo, Iran's doing a
much better job at containing COVID-19 than the Outlaw US Empire :
"The US pandemic death toll is this week heading above 50,000 compared with Iran's figure
of 5,300. Considering the respective population numbers of 330 and 80 million that suggests
Iran is doing a much better job at containing the virus. On a per-capita basis, according to
publicly available data, Iran's mortality rate is less than half that of the US.
"This is while the US has sanctioned Iran to the hilt. American sanctions – arguably
illegal under international law – have hit Iran's ability to import medical supplies to
cope with COVID-19 and other fatal diseases, yet Iran through its own resources is evidently
managing the crisis much better than the US."
As with the Tar Baby, the more wrestling the Outlaw US Empire does the weaker it gets.
They can't invade. That's your own moronic straw-man. And yes, it would further cut supply
and prices would go up. The current bottom is due to overproduction but so long as
civilization cranks along the oil gets used eventually.
South Korea's GDP fell 1.4% (non annualized). That emergencial swap deal by the Fed saved
the day, but it can't last forever. The BoK is optimistic, and still thinks the South Korean
GDP will end 2020 growing. Blind hope.
Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan
account owner must withdraw annually starting with the year that he or she reaches 72 (70
½ if you reach 70 ½ before January 1, 2020), if later, the year in which he or
she retires. However, if the retirement plan account is an IRA or the account owner is a 5%
owner of the business sponsoring the retirement plan, the RMDs must begin once the account
holder is age 72 (70 ½ if you reach 70 ½ before January 1, 2020), regardless of
whether he or she is retired.
Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs,
are responsible for taking the correct amount of RMDs on time every year from their accounts,
and they face stiff penalties for failure to take RMDs.
When a retirement plan account owner or IRA owner, who dies before January 1, 2020, dies
before RMDs have begun, generally, the entire amount of the owner's benefit must be distributed
to the beneficiary who is an individual either (1) within 5 years of the owner's death, or (2)
over the life of the beneficiary starting no later than one year following the owner's death.
For defined contribution plan participants, or Individual Retirement Account owners, who die
after December 31, 2019, (with a delayed effective date for certain collectively bargained
plans), the SECURE Act requires the entire balance of the participant's account be distributed
within ten years. There is an exception for a surviving spouse, a child who has not reached the
age of majority, a disabled or chronically ill person or a person not more than ten years
younger than the employee or IRA account owner. The new 10-year rule applies regardless of
whether the participant dies before, on, or after, the required beginning date, now age 72.
The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply
to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to
Roth IRAs while the owner is alive.
You must take your first required minimum distribution for the year in which you turn age 72
(70 ½ if you reach 70 ½ before January 1, 2020). However, the first payment can
be delayed until April 1 of 2020 if you turn 70½ in 2019. If you reach 70½ in
2020, you have to take your first RMD by April 1 of the year after you reach the age of 72. For
all subsequent years, including the year in which you were paid the first RMD by April 1, you
must take the RMD by December 31 of the year.
A different deadline may apply to RMDs from pre-1987 contributions to a 403(b) plan (see FAQ
5 below).
Return
to List of FAQsHow is the amount of the required minimum distribution
calculated?
Generally, a RMD is calculated for each account by dividing the prior December 31 balance of
that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in
Publication 590-B ,
Distributions from Individual Retirement Arrangements (IRAs) . Choose the life expectancy
table to use based on your situation.
Joint and
Last Survivor Table - use this if the sole beneficiary of the account is your spouse and
your spouse is more than 10 years younger than you
Uniform
Lifetime Table - use this if your spouse is not your sole beneficiary or your spouse is
not more than 10 years younger
It goes without saying that the consequences to workers are damaging to catastrophic.
Normally, being unemployed for more than six months is a near-insurmountable barrier to getting
hired again. Perhaps coronavirus will create a better new normal on this front, of companies
taking a more understanding view of crisis-induced resume gaps.
By Cheryl Carleton,
Assistant Professor of Economics, Villanova University. Originally published at The
Conversation
The labor market is changing rapidly with the onset of the coronavirus pandemic.
When
the economy starts to open up again, employers will need to consider rehiring or replacing
workers, or hiring workers with a different mix of skills. The cost of replacing an employee is
high for employers, and being out of work is harmful for workers, who may be replaced with
artificial intelligence or contractors and risk losing their skills.
There is no denying that the U.S. was experiencing a tight
labor market and a low rate of unemployment before the coronavirus pandemic took hold. For
some fields, particularly health care and services deemed essential by local governments, the
labor market continues to be tight.
A sudden massive loss of demand for their goods and services is forcing companies to make
quick decisions, and some employers may underestimate the cost to replace good employees.
Knowing these costs may encourage them to keep more of their workers on the payroll.
Where Are the Costs?
There are costs involved in losing a worker and replacing them, such as completing paperwork
when they leave, advertising the open position, reviewing resumes, interviewing candidates and
training the new worker.
Once a new worker is hired, others must also spend time training them, and it will take some
time for the new worker to achieve the same level of productivity as the worker who left.
Another cost is the loss in social capital . Social capital is
the relationships between individuals at work that take time to build and add to the
productivity of the firm.
The Center for American Progress drilled in deeper. They found the costs of replacing
workers who earn less than US$30,000 per year to be 16% of annual salary, or $3,200 for an
individual earning $20,000 per year.
For those earning $30,000 to $50,000 per year, it is estimated to cost about 20% of annual
salary, or $8,000 for an individual earning $40,000. For highly educated executive positions,
replacement costs are estimated to be 213% of annual salary – $213,000 for a CEO earning
$100,000 per year.
The much
higher cost for replacing CEOs is partly due to the fact that they require higher levels of
education, greater training, and firms may lose clients and institutional knowledge with such
turnovers.
Employee Alternatives
This high cost of losing and replacing workers has important implications for organizations,
consumers and workers, especially now with
an estimated 15 million unemployed .
For those workers where the costs to replace them are high, firms will try to accommodate
them. Strategies may include maintaining pay, increasing benefits and retraining. These actions
are also costly, so firms will
weigh them against the cost of simply
hiring new workers .
This means businesses face high costs to replace workers in the future, and high costs to
retain current workers, leading to higher costs for consumers who buy the firms' goods and
services.
While the above consequences might sound great for workers that organizations choose to
keep, these are not the only ways in which firms can respond.
The high cost of replacing workers, along with the increased uncertainty about the economy
may cause businesses to use
more automation and robots . Though such switches may entail a significant upfront cost,
once they are made the firms then have more control over their production processes.
Another alternative for firms is to hire fewer permanent employees and turn instead
to contract workers . With
contract workers, employers are not responsible for benefits, and they can more simply increase
or decrease the number of workers as needed.
While this may increase employment for some workers, it will decrease it for others and it
has serious implications for the availability of health and pension benefits as well as
unemployment benefits, as the current crisis has revealed.
Businesses might also consider limiting the scope of what some workers do to limit the cost
of replacing them. If the scope of a worker's job is limited, then fewer areas will be impacted
by the individual leaving, and the costs to train a replacement will be lower. For workers,
however, it means fewer opportunities to gain experience.
For example, instead of training workers on several or all parts of the production process,
the business may limit them to one specific aspect. It will then be less costly for the firm to
replace them and the worker will have less experience to add to their resume. This also means
less bargaining power for employees.
Some Win, But Others Lose
The high cost of losing and then hiring new workers along with increased restrictions on
hiring nonresidents might mean higher wages and increased benefits for some workers.
However, the high degree of uncertainty in the current labor market, along with the
potential increase in contract
workers and
automation means that some workers will not realize these potential gains, and all of us as
consumers will most likely end up paying higher prices for the goods and services we buy.
The coronavirus pandemic has upended the global economic system, and just as importantly,
cast out 40 years of neoliberal orthodoxy that dominated the industrialized world.
Forget about the "
new world order ." Offshoring and global supply chains are out; regional and local
production is in. Market fundamentalism is passé; regulation is the norm. Public health
is now more valuable than just-in-time supply systems. Stockpiling and industrial capacity
suddenly make more sense, which may have future implications in
the recently revived antitrust debate in the U.S.
Biodata will drive the next phase of social management and surveillance, with near-term
consequences for the way countries handle immigration and customs. Health care and education
will become digitally integrated the way newspapers and television were 10 years ago. Health
care itself will increasingly be seen as a necessary public good, rather than a private right,
until now in the U.S. predicated on age, employment or income levels. Each of these will
produce political tensions within their constituencies and in the society generally as they
adapt to the new normal.
This political sea change doesn't represent a sudden conversion to full-on socialism, but
simply a case of minimizing our future risks of infection by providing full-on universal
coverage. Beyond that, as Professor Michael Sandel
has argued , one has to query the "moral logic" of providing "coronavirus treatment for the
uninsured," while leaving "health coverage in ordinary times to the market" (especially when
our concept of what constitutes "ordinary times" has been upended).
Internationally, there will be many positive and substantial international shifts to address
overdue global public health needs and accords on mitigating climate change. And it is finally
dawning on Western-allied economic planners that the military price tag that made so-called
cheap oil and cheap labor possible is vastly higher than investment in advanced research and
next-generation manufacturing.
This also means that the old North (developed world) versus South (emerging world) division
that
long preoccupied scholars and policymakers in the post–World War II period will
become increasingly stark again, particularly for those emerging economies that have hitherto
attracted investment largely on the grounds of being repositories of low-cost labor. They will
now find themselves picking sides as they seek assistance in an increasingly divided and
multipolar world.
The fault lines of the next economic era have already begun to surface, creating friction
with the previous international structure of banking and finance, trade and industry. There is
a force beyond elites and critical industries driving this: The proletariat has literally
become the "precariat."
In the U.S. and Europe, the staggering number of service economy workers are going to be
quickly politicized by the shortfalls: People have seen a collapse in income, and big failures
in education, and health care. Union-busting, pension fleecing, and austerity budgets and new
technologies that concentrate wealth away from labor have created a circumstance where
ownership and profit models must be revisited to sustain stability. The needs are too acute to
be distracted by the lies of Trump, or the inadequate responses in other parts of the
industrialized world. The current crisis will likely prompt geopolitical and economic shifts
and dislocations we haven't seen since World War II.
Death of Chimerica, the Rise of New
Production Blocs
One of the biggest casualties of the current order is the breakdown of "
Chimerica ," the decades-old nexus between the U.S. and Chinese economies, along with other
leading countries' partnerships with Chinese manufacturing. While the geopolitics of blame for
the origins of coronavirus continue to shake out, the process that saw a decrease in exports
from China to the U.S. from
$816 billion in 2018 to $757 billion in 2019 will accelerate and intensify over the next
decade.
While a decoupling is unlikely to lead to armed conflict, a Cold War style of competition
could emerge as a new global fault line. Much as the Cold War did not preclude some degree of
collaboration between the U.S. and the former Soviet Union, so too today there may still be
areas of cooperation between Washington and Beijing from climate to public health, advanced
research to weapons proliferation.
Nor does this shift necessarily spell the sudden collapse of Chinese power or influence --
it has a colossal and still-growing domestic market and is on the international leaderboard for
a wide range of advanced indicators. But its status as the world's most desirable offshore
manufacturing hub is a thing of the past, along with the economic stability that steady inflows
of foreign capital brought with it. It does show a susceptibility to domestic stress, with the
Hong Kong protests last year providing a hint of what is in store as the party leadership can't
pivot to new realities that include slower economic growth and declining foreign
investment.
As investment flows turn inward back to industrialized countries, there will likely be
corresponding diminution of the global labor arbitrage emanating from the emerging world. In
general, that's a negative for the global South, but potentially a positive factor for workers
elsewhere, whose wages and living standards have stagnated for decades as they lost jobs to
competing overseas low-cost manufacturing centers (the increase in inequality
is principally a product of 40 years of sustained attacks on unions). The jobs won't be the
same, but to be sure, manufacturing incomes exceed those of the service industry.
As each country adopts a "
sauve-qui-peut " mentality, businesses and investors are drawing the necessary conclusions.
Coronavirus has been a wake-up call, as countries trying to import medical goods from existing
global supply chains face a
shortage of air and ocean freight options to ship goods back to home markets. Already, the
Japanese government has announced its plans "to spend over $2 billion to help its country's
firms move production out of China,"
according to the Spectator Index . The
EU leadership is publicly indicating a policy of subsidy and state investment in companies
to prevent Chinese buyouts or undercutting prices.
Two billion dollars is small potatoes compared to what is likely to be spent by the U.S. and
other countries going forward. And it can't simply be done via research and development tax
credits. The state can and must drive this redomiciling process in other ways: via
local content requirements (LCRs) , tariffs, quotas and/or government procurement local
sourcing requirements. And with a $750-billion-plus budget, the U.S. military will likely play
a role here, as it
ponders disruptions from overseas supply sources .
Of course, if the U.S. does this, other parts of the world -- China, the EU, Japan -- will
likely do the same, which will accelerate the regionalization trends in trade. This may mean
that some U.S. firms will have to operate in foreign markets through local subsidiaries with
local content preferences and local workforces (that is how it worked in the 1920s -- Ford UK
was a mostly local British company, different from the U.S. Ford Motor Company, but with shared
profits).
An examination of U.S. planning for the post-1945 world reveals the emphasis was on free
trade in raw materials mostly, not finished goods. (The U.S. only adopted one-way "free trade"
with its Asian and European allies later as a Cold War measure to accelerate their development
and keep them in the American orbit.)
Domestically within the U.S., as
Dalia Marin writes , the coming declines in interest rates will accelerate "robot adoption"
by 75.7 percent, with concentration "in the sectors that are most exposed to global value
chains. In Germany, that means autos and transport equipment, electronics, and textiles --
industries that import around 12 percent of their inputs from low-wage countries. Globally, the
industries where the most reshoring activity is taking place are chemicals, metal products, and
electrical products and electronics."
As the coronavirus pandemic is illustrating, a viable industrial ecosystem cannot work
effectively if it is dispersed to too many geographic extremities or there are insufficient
redundancies built into the transportation of goods back into the home market (rail, highway,
etc.). Proximity has become a significant competitive advantage for manufacturers, and a
strategic advantage for governments. But the U.S. government must play an expanded role in the
planning process. The U.S. is still a leader in many high-tech areas, but is suffering the
consequences of a generation-long effort to undermine the government's natural role as an
economic planner.
In the form of the regionalized blocs that are being sketched, in the Americas, Mexico is
likely to be one of the leading recipients of American foreign direct investment (FDI). It
already has a
$17 billion medical device industry and is sure to absorb much more capacity from China.
This has
already started to happen as a result of the U.S.–Mexico–Canada Agreement (USMCA,
or new NAFTA) . Furthermore, the
Washington Post reports that "[a]s demand soars for medical devices and personal protective
equipment in the fight against the coronavirus, the United States has turned to the phalanx of
factories south of the border that are now the outfitters of many U.S. hospitals." This is in
addition to the
thousands of assembly plants already in place in Mexico since the establishment of NAFTA.
Indeed, if the jobs that had moved to China move to Mexico, Central America, and South America,
this likely addresses many long-standing social tensions in regard to immigration management,
currency imbalances and corresponding black market industries (ironically, it also likely means
the end of Trump's wall, as the industrial ecosystem of the Americas becomes more cohesive and
widespread).
Big Business Is Good Business
But this will also have significant impacts closer to home: Much as Franklin Delano
Roosevelt ultimately
prioritized domestic ramp-ups in wartime production over trust-busting , so too national
champions are likely to feature more prominently today, as domestic scale and balance sheet
strength are given precedence to accommodate the drive to revive employment quickly,
and work collaboratively to halt the spread of the coronavirus . The scale of companies
will not be regarded as a political problem if they can both deliver for consumers and show the
capacity of following political direction for what the public's needs are. Tech companies like
Apple and Google are stepping up to fill the void left by
massive federal government dysfunction . The "
break up Big Tech " voices are nowhere to be heard at the moment.
We still need a more robust form of regulation for these corporate behemoths, but via a
system of regulation that is "function-centric," rather than size-centric. As co-author
Marshall Auerback
has written before , this kind of regulation "restricts the range of corporate activities
(e.g., structural separation so as to prevent companies like Amazon and Google from owning both
the platform as well as participating as a seller on that platform), or the prices such
companies can charge (as regulators often do for utilities or railways). These considerations
would be 'size neutral': they would apply independently of corporate size per se."
Capitalism has always had its plutocrats, but scaling back America's overly financialized
model (by preventing stock buybacks, to cite one example) would represent a useful reform and
prevent a lot of economic waste. Instead of going to enrich executives and shareholders beyond
the dreams of
Croesus , that measure might help to ensure that the profits of these companies will be
directed to the workers' wages (which also means supporting increased unionization), or plowed
back into investment (e.g., increased robotics).
Biodata, Privacy, and an End to Pandemic
Profiteering
And there are fault lines in the business world. The pharmaceutical and medical research
industries face immense pressure from other businesses to end the pandemic so they can get back
to profitability. That means temporarily setting aside profits and pooling intellectual
property to encourage collaborative efforts on the part of biotech and pharmaceutical companies
to find proper treatments for COVID-19, and make them freely available, especially if
governments were to waive antitrust scrutiny in exchange for all of the data Big Pharma
companies collectively hold. As
the Guardian reports , "[t]here is a precedent. Last June, 10 of the world's largest
pharmaceutical companies -- including Johnson & Johnson, AstraZeneca and GlaxoSmithKline --
announced they would pool data for an AI-based search for new antibiotics, which are
urgently needed as antibiotic-resistant bacteria have proliferated across the world,
threatening the growth of untreatable disease."
Privacy advocates are already expressing concerns about a growing and overweening medical
surveillance state. These surveillance concerns lack historical context: From the 19th century
on, serious health problems were met by hardline government policies to reduce them. Policies
ranging from quarantine to vaccine were not always mandatory, but there was an understanding
that personal concessions had to be made to manage a huge population and an advanced society;
the Constitution was not a suicide pact. We can further alleviate those concerns today by
ensuring that the information uncovered does not become a precondition or additional cost of
receiving insurance coverage. In light of coronavirus, cost savings of incorporating biodata
into immigration and customs are a no-brainer for governments, and are certain to cause
friction with individuals who may not want to give blood or saliva to get a visa or work
permit, and agribusiness leaders who know that safety measures cut into profitability. But the
scales have tipped in the other direction.
North Versus South
What about the other countries in the developing world that don't have close geographic
proximity to a home market, or abundant supplies of key commodities required for 21st-century
manufacturing needs, or even a well-developed manufacturing base (in other words, the countries
that have hitherto been large recipients of investment solely on the grounds of cheap labor)?
Many of them have faced immediate pressure with the collapse in global trade, unprecedented
capital flight that is sure to grow as the coronavirus spreads, all the while coping with
COVID-19 with highly inadequate health systems.
In the meantime,
the multi-trillion-dollar market for emerging market debt , both sovereign bonds and
commercial paper, has collapsed. Many of these countries, via their state pension funds and
sovereign wealth funds, have become the ultimate endpoint for many of the newer asset-backed
securities that finally revived years after the 2008 financial crisis. This has become the
potential new stress point in the $52 trillion "
shadow banking " market. The U.S. Federal Reserve has sought to ease the funding stresses
of much of the developing economies by offering central bank swap lines. It has also broadened
prime dealer collateral acceptance rules, and set up commercial paper swap facilities, all of
which have eased short-term funding pressures in these economies that have incurred substantial
dollar liabilities.
As the emerging world central banks then start to lend on those lines to their own banks, it
should start to alleviate the shortage of dollars in the offshore dollar funding markets. We
are starting to see some easing of stresses,
notably in Indonesia -- because it's an exporter of resources more than a cheap labor price
economy.
But whereas in previous emerging markets crises, China was able to buttress these economies
via initiatives such as the "
Belt and Road Initiative ," Beijing itself is likely to be buffeted by the twin shocks of
declining global trade and a reversal of foreign direct investment, which declined 8.6 percent
in the first
two months of this year .
Longer-term, many other countries face comparable challenges to China: Capital controls,
collapsing domestic currencies, and widespread debt defaults are likely to become the norm.
That's already
happened to serial defaulter Argentina again . South Africa has been
downgraded to junk status . Turkey remains vulnerable. The so-called "BRICS" economies --
Brazil, Russia, India, China and South Africa -- are all sinking like bricks. The problem is
exacerbated by the fact that coronavirus and likely future pandemics will create additional
stresses on developing economies that depend on their labor price advantage in the
international marketplace to survive.
By contrast, countries like South Korea and Taiwan have had a "good crisis." Both have
vibrant manufacturing sectors and created successful multiparty democracies.
Foreign investment in South Korea continued to grow in the first quarter of this year, as
it rapidly moved to contain the spread of COVID-19 through an extensive testing regime (while
keeping its economy open). Similarly in Taiwan, by activating a national emergency response
system launched in 2004 (following the SARS virus), that country has mounted
a thoroughly competent coronavirus intervention of unprecedented effectiveness . The
results speak for themselves: as of April 15, in
South Korea, a mere 225 deaths , while in
Taiwan, an astonishingly low total of six deaths in a country of 24 million people -- this
despite far more exposure to infected Chinese visitors than Italy, Spain or the U.S.
Of course, the very success of Taiwan's response revives another potential fault line,
namely the tension underlying the
"One China" policy. Before COVID-19, it is noteworthy that the WHO "even refused to
publicly report Taiwan's cases of SARS until public pressure prompted numbers to be published
under the label of 'Taiwan, province of China,'"
according to Dr. Anish Koka . At the very least, Taiwan's divergent approach and success at
fighting the pandemic will bolster its pro-independence factions.
The question of foreign nations upholding Taiwan's sovereignty with regard to China is
increasingly thorny, given Beijing's growing military capacities. This will present an ongoing
diplomatic challenge to Western parties who seek to increase engagement with Taipei without
heightening tensions in the region.
A Recalculation of 'Economic Value'
We have outlined many fault lines likely to be exposed or exacerbated as a consequence of
COVID-19. Happily, there is one fault line likely to be slammed shut: namely, the false
dichotomy that has long existed between economic growth and environmentalism. The
Global Assessment from the Intergovernmental Science-Policy Platform on Biodiversity and
Ecosystem Services reports that "land degradation has reduced the productivity of 23
percent of the global land surface, up to US$577 billion in annual global crops are at risk
from pollinator loss and 100-300 million people are at increased risk of floods and hurricanes
because of loss of coastal habitats and protection." Likewise, the study cites the fact that as
of 2015, 33 percent of marine fish stocks "were being harvested at unsustainable levels," and
notes the rise of plastic pollution (which "has
increased tenfold since 1980 "), both of which play a key role in degrading ecosystems in a
manner that ultimately destroys economic growth.
Finally, repeated pandemics over the past few decades have shown these are not blips, but
recurrent features of today's world. Hence, there is an increasing public appetite for
regulation to deal with this ongoing problem. Some industries, such as agribusinesses, won't
like this, but the concerns are well-founded. According to
expert Josh Balk , 75 percent of new diseases start in domestic and wild-caught animals,
and 2.2 million people die each year from illnesses transferred from animals. The majority of
these are transferred from poorly regulated factory farm chickens, cows and pigs; still, the "
wet markets" of Asia and Africa, and the trade in potential "
transfer species ," such as pangolins, a major driver of the
$19 billion-a-year global trade in illegal wildlife, must also be addressed. Beijing has
suggested it will
ban trade in illegal wildlife and seek tighter regulation of the wet markets . The latter
in particular may be easier said than done, according to
Dr. Zhenzhong Si , a research associate at Canada's University of Waterloo who specializes
in Chinese food security, sustainability, and rural development. Dr. Si
argued that "[b]anning wet markets is not only going to be impossible, but will also be
destructive for urban food security in China as they play such a pivotal role in ensuring urban
residents' access to affordable and healthy food."
To be fair, this isn't the first time that the sacred tenets of the global economic
framework have dealt with a crisis that seemed to usher in a new era. The same thing happened
in the aftermath of the financial crisis of 2008. But that was largely seen as a financial
crisis, a product of faulty global financial plumbing that nobody truly understood, as opposed
to a widespread social collapse closely approximating the conditions of the Great Depression as
we have today.
Not only has the current lockdown put the entire global economy into deep freeze, but it
also came amidst a backdrop of widespread political and social upheaval, and a faux recovery
whose fruits were largely restricted to the top tier. A collateralized debt obligation is not
intuitively easy to grasp. By contrast, being forced to stay at home, deprived of vital income
and isolated from loved ones, while health care workers perish from overwork and lack of
protective gear, is a different order of magnitude.
Even as we re-integrate, it is hard to envisage a return to the "old normal." Trade patterns
will change. Self-sufficiency and geographic proximity will be prioritized over global
integration. There will be new winners and losers, but it is worth noting that the model of
capitalism we are describing -- one that does not feature obscenely overcompensated CEO pay
co-existing with serf labor and the widespread offshoring of manufacturing -- has existed in
different forms in the U.S. from 1945 into the 1980s, and still exists in parts of Europe
(Germany) and East Asia (Japan, South Korea, Taiwan) to this day.
Our everyday lives will be impacted as selective quarantines and some forms of social
distancing become the new normal (much as they were when we dealt with tuberculosis epidemics).
All of this has implications for a multitude of industries: restaurants, leisure, travel,
tourism, sporting events, entertainment, and media, as well as our evolving definition of
"essential" industries. Even our concept of personal privacy will likely have to be amended,
especially in regard to medical matters. Concerns about medical surveillance -- stigma (STDs,
alcoholism, mental illness) and denial of insurance -- can be alleviated if everyone is
guaranteed treatment regardless of ability to pay, which will mean greater government intrusion
into the lives of citizens and activities of businesses as the public sector seeks to socialize
costs.
Taken in aggregate, we are about to experience the most profound social, economic and
political changes since World War II.
"... The banks would be squeezed, but Trump says that although we can't save the people, we can save the banks. The Federal Reserve has enough money to keep all the banks afloat, even if they're not getting the mortgage payments, even if they're not able to collect on their loans ..."
"... The political consequences will be huge. A wide public demand for more social policies will come into conflict with a recalcitrant oligarchy. Can that conflict be solved within the current U.S. system? ..."
True, the USD is (and will) only get stronger as it is the universal fiat currency - but
that's only true for the USD as a financial asset.
The USA will never suffer from high inflation, but printing money indefinitely has concrete
consequences even for them: the USD will still get weaker in purchase power, thanks to the
Triffin Paradox ,
and it will still result in an equivalent in deindustrialization (as the fiat currencies of the
rest of the world get even weaker vis-a-vis the USD).
Eternal and infinite printing of USD is not unconsequential to the USA. Very far from
it.
During the last four weeks 22 million workers in the U.S. filed for unemployment
insurance. Some 10 to 15 million additional workers were not eligible but also lost their
jobs.
Ross: Ultimately, where does this end? Because if in 12 weeks time, people can't
afford to enter into the social norms, enter into the economy, live, put bread on the
table, where does that logically finish?
Michael Hudson: With the American economy looking pretty much like Greece. It'll
be austerity. There will be people who don't have jobs. They are going to be evicted from
their apartments. They will have run through their savings. They will not be able to pay
their credit card debt and other debts so arrears are going to rise.
The banks would be squeezed, but Trump says that although we can't save the people,
we can save the banks. The Federal Reserve has enough money to keep all the banks afloat,
even if they're not getting the mortgage payments, even if they're not able to collect on
their loans . The banks can now make up for the money they're not getting by having a
huge new market: lending money to private capital and to the large companies to buy out
these small businesses that are going under. It's a bonanza.
"U.S. stocks are pricing in a V-shaped economic recovery even more keenly than elsewhere in
the world, so are vulnerable in the case that exits from lockdowns globally and in the U.S.
prove more complicated," said Edmund Shing, head of global equity derivative strategy at
BNP Paribas SA.
The crisis will not be over before the fat lady sings. That lady has not even entered the
house. A recovery will not be V-shaped. The economy will not spring back into action as soon
as the lockdowns are over. It will be a long slog. The U.S. economy always depends on
consumer resilience. But with more than 30 million people out of jobs there will be a huge
fall of demand compared to before the pandemic.
It is also likely that there will be more than one wave of the pandemic. During summer the
case numbers will probably recede but they are likely to go up again during the fall. In
between the pandemic will slowly burn through more of the population but mostly out of view
because of
many asymptomatic cases . When it comes back it will be in a different way. During the
first wave the infections started first in place A then in place B then place C all depending
on traffic and contact pattern. But the second wave will likely come, as it did during the
Spanish flu, as one big wall that will hit all places at the same time. That will make it
more difficult to allocate resources.
Pandemics are, as Nassim Taleb and other have
pointed out , fat tail
events where normal statistics no longer
apply . They are not symmetric Gaussian distributions curves where the way down from high
case numbers has a similar shape as the way up had. The way down is actually much longer and
more of a very slow decline which might even include additional eruptions.
To expect a V-shaped return to a normal economy under these circumstance is foolish.
The political consequences will be huge. A wide public demand for more social policies
will come into conflict with a recalcitrant oligarchy. Can that conflict be solved within the
current U.S. system?
There are a few signs for hope. The first two vaccines developed in China are now in their
first phase of human testing and more are coming. Some of them may actually work. A mass
producible effective vaccine would mean that the fat lady has started to sing.
There is also the curiosity that most children not only do not fall ill with the covid-19
disease but do not get infected at all. Further research into the phenomenon could point to a
protection mechanism that might be exploitable for the protecting grown ups.
On the sad side the Economist has started to systematically cover 'excess death'
from the pandemic and finds that all official death
numbers are serious undercounts.
Posted by b on April 16, 2020 at 17:49 UTC | Permalink
Seems like the alternatives are a muddled rearrangement similar to the post-Soviet space
with consequent criminality and social collapse or a Bonapartist administrative adventure if
the US military doesn't resist demands for it to arbitrate the conflict between public and
oligarchs.
Treasury Sec Mnuchin said, in early March, that the economy is fundamentally sound.
He was wrong.
The US and other advanced economies (like Germany and Japan) were seriously slowing
down.
Yes, stock markets were high, inflation was low, housing was strong and unemployment was
low.
But rates of corporate profit were sinking, corporate debt was at record levels, real
business investment was negligible, wages were up but still at ridiculously low historical
levels, and inequality kept growing. World trade had also slowed considerably. Trump's tax
cuts for the rich were merely pocketed or used for stock buybacks. Low interest rates kept
things afloat, and the Fed had already reversed course on monetary tightening.
The US was on the verge of a recession, and the pandemic was merely an extreme
trigger.
Marxist economic theory says that a crisis is resolved when enough dead capital is purged,
labor devalued, and profit rates restored.
That will mean a further concentration of capital at the top, and further immisseration of
the working class.
The US state is so captured by capital that it won't manage the crisis equitably.
The pool of social misery will be a source of fascist and revolutionary socialist
politics.
This will create more instability.
Lastly, we can't ignore the working out of capitalist contradictions through
inter-imperialist rivalries.
In our era, that means rivalries between the US, Russia and China, with Germany and Japan
included in a second tier.
Expect Trump to escalate the trade war, further restrict exports to China, block Chinese
corporate requirements, and threathen China's debt holdings as some form of "reparations."
Expect military saber rattling to increase around Taiwan in addition to shows of strength
from Guam (B52 flights).
In other words, recall Bukharin's warning that trade wars are only "partial sorties." In
the end, they will be solved by "real force...the force of arms."
What we are witnessing is an unprecedented concentration of all contradictions of global
capitalism and imperialism.
As usual, I'll point readers to Shadowstats for its most recent reporting. An example:
"Week-Ended April 11th New Unemployment Claims Continued to Surge, Consistent With April
2020 U.3 Unemployment of Over 22%, Versus 4.4% in March (April 16th, Department of Labor -
DOL)."
Note those are the doctored Department of Labor stats, not those displayed by Shadowstats,
whose current graph doesn't yet include the latest figures. It reported unemployment at 22.9%
as of 3 April; so, we should expect real unemployment to be over 40% when its next graphic's
published.
I must emphasize the importance of following what's being reported by Max and Stacy on the
Keiser Report
and suggest starting with the March 26 episode or earlier if possible. The meat of the
program's delivered in the first 13-15 minute segment, the second half being an interview
with Max and that show's guest, most of which I skip when watching with the wife; the
program's synopses usually provide the guest's name. So, those 10 shows listed at the link
would take @150 minutes to watch--a very short amount of time given the amount of information
supplied.
The Hudson transcript b cites at the top comes from this
Renegade Inc program where he's teamed with Socialist Economist Richard Wolff that
I've linked to in several comments. It's under 30 minutes, too, and another excellent
investment of your time. Wolff has two new items at his website , his recent RT op/ed blasting Capitalism and the
video of his recent Crosstalk appearance. I also suggest following economist
Steven Keen's Twitter from
where you can get to his Patreon page and such for even more info.
Yes, it's close to a fulltime job just to keep abreast with current events let alone dig
into the past, which is why news media is so important as is their failure. Most people are
now at home and have the time to become informed. Let's all continue trying to help them and
ourselves.
The global elites have no one to blame but themselves for the economic catastrophe that is
currently unfolding as a result of the corona virus pandemic. There will also be no where to
hide and probably no where to stash their ill gotten wealth. After decades of advocating and
practicing discredited economic policies that can be best described as warmed-over late 19th
and early 20th century economics, (aka: austerity) the chickens, so to speak, are coming home
to roost. The same will apply to the political hacks, grafters and corporate greed heads who
also made this economic disaster possible. What the end result will be however, is unknown.
The future can go in many ways. But as the late Robert Heilbroner wrote in his book "The
Worldly Philosophers" some 70 years ago: "Economics is the only science that puts men on the
barricades."
During the last four weeks 22 million workers in the U.S. filed for unemployment insurance.
Some 10 to 15 million additional workers were not eligible but also lost their jobs.
Ross: Ultimately, where does this end? Because if in 12 weeks time, people can't afford to
enter into the social norms, enter into the economy, live, put bread on the table, where does
that logically finish?
Michael Hudson: With the American economy looking pretty much like Greece. It'll be
austerity. There will be people who don't have jobs. They are going to be evicted from their
apartments. They will have run through their savings. They will not be able to pay their
credit card debt and other debts so arrears are going to rise. The banks would be squeezed,
but Trump says that although we can't save the people, we can save the banks. The Federal
Reserve has enough money to keep all the banks afloat, even if they're not getting the
mortgage payments, even if they're not able to collect on their loans. The banks can now make
up for the money they're not getting by having a huge new market: lending money to private
capital and to the large companies to buy out these small businesses that are going under.
It's a bonanza.
"U.S. stocks are pricing in a V-shaped economic recovery even more keenly than elsewhere in
the world, so are vulnerable in the case that exits from lockdowns globally and in the U.S.
prove more complicated," said Edmund Shing, head of global equity derivative strategy at BNP
Paribas SA.
The crisis will not be over before the fat lady sings. That lady has not even entered the
house. A recovery will not be V-shaped. The economy will not spring back into action as soon as
the lockdowns are over. It will be a long slog. The U.S. economy always depends on consumer
resilience. But with more than 30 million people out of jobs there will be a huge fall of
demand compared to before the pandemic.
It is also likely that there will be more than one wave of the pandemic. During summer the
case numbers will probably recede but they are likely to go up again during the fall. In
between the pandemic will slowly burn through more of the population but mostly out of view
because of
many asymptomatic cases . When it comes back it will be in a different way. During the
first wave the infections started first in place A then in place B then place C all depending
on traffic and contact pattern. But the second wave will likely come, as it did during the
Spanish flu, as one big wall that will hit all places at the same time. That will make it more
difficult to allocate resources.
Pandemics are, as Nassim Taleb and other have
pointed out , fat tail
events where normal statistics no longer apply
. They are not symmetric Gaussian distributions curves where the way down from high case
numbers has a similar shape as the way up had. The way down is actually much longer and more of
a very slow decline which might even include additional eruptions.
To expect a V-shaped return to a normal economy under these circumstance is foolish.
The political consequences will be huge. A wide public demand for more social policies will
come into conflict with a recalcitrant oligarchy. Can that conflict be solved within the
current U.S. system?
There are a few signs for hope. The first two vaccines developed in China are now in their
first phase of human testing and more are coming. Some of them may actually work. A mass
producible effective vaccine would mean that the fat lady has started to sing.
There is also the curiosity that most children not only do not fall ill with the covid-19
disease but do not get infected at all. Further research into the phenomenon could point to a
protection mechanism that might be exploitable for the protecting grown ups.
On the sad side the Economist has started to systematically cover 'excess death' from
the pandemic and finds that all official death
numbers are serious undercounts.
Posted by b on April 16, 2020 at 17:49 UTC | Permalink
During the last four weeks 22 million workers in the U.S. filed for unemployment
insurance. Some 10 to 15 million additional workers were not eligible but also lost their
jobs.
Ross: Ultimately, where does this end? Because if in 12 weeks time, people can't afford to
enter into the social norms, enter into the economy, live, put bread on the table, where
does that logically finish?
Michael Hudson: With the American economy looking pretty much like Greece. It'll be
austerity. There will be people who don't have jobs. They are going to be evicted from
their apartments. They will have run through their savings. They will not be able to pay
their credit card debt and other debts so arrears are going to rise. The banks would be
squeezed, but Trump says that although we can't save the people, we can save the banks. The
Federal Reserve has enough money to keep all the banks afloat, even if they're not getting
the mortgage payments, even if they're not able to collect on their loans. The banks can
now make up for the money they're not getting by having a huge new market: lending money to
private capital and to the large companies to buy out these small businesses that are going
under. It's a bonanza.
"U.S. stocks are pricing in a V-shaped economic recovery even more keenly than elsewhere in
the world, so are vulnerable in the case that exits from lockdowns globally and in the U.S.
prove more complicated," said Edmund Shing, head of global equity derivative strategy at
BNP Paribas SA.
The crisis will not be over before the fat lady sings. That lady has not even entered the
house. A recovery will not be V-shaped. The economy will not spring back into action as soon
as the lockdowns are over. It will be a long slog. The U.S. economy always depends on
consumer resilience. But with more than 30 million people out of jobs there will be a huge
fall of demand compared to before the pandemic.
It is also likely that there will be more than one wave of the pandemic. During summer the
case numbers will probably recede but they are likely to go up again during the fall. In
between the pandemic will slowly burn through more of the population but mostly out of view
because of
many asymptomatic cases . When it comes back it will be in a different way. During the
first wave the infections started first in place A then in place B then place C all depending
on traffic and contact pattern. But the second wave will likely come, as it did during the
Spanish flu, as one big wall that will hit all places at the same time. That will make it
more difficult to allocate resources.
Pandemics are, as Nassim Taleb and other have
pointed out , fat tail
events where normal statistics no longer
apply . They are not symmetric Gaussian distributions curves where the way down from high
case numbers has a similar shape as the way up had. The way down is actually much longer and
more of a very slow decline which might even include additional eruptions.
To expect a V-shaped return to a normal economy under these circumstance is foolish.
The political consequences will be huge. A wide public demand for more social policies
will come into conflict with a recalcitrant oligarchy. Can that conflict be solved within the
current U.S. system?
There are a few signs for hope. The first two vaccines developed in China are now in their
first phase of human testing and more are coming. Some of them may actually work. A mass
producible effective vaccine would mean that the fat lady has started to sing.
There is also the curiosity that most children not only do not fall ill with the covid-19
disease but do not get infected at all. Further research into the phenomenon could point to a
protection mechanism that might be exploitable for the protecting grown ups.
On the sad side the Economist has started to systematically cover 'excess death'
from the pandemic and finds that all official death
numbers are serious undercounts.
Posted by b on April 16, 2020 at 17:49 UTC | Permalink
Seems like the alternatives are a muddled rearrangement similar to the post-Soviet space with
consequent criminality and social collapse or a Bonapartist administrative adventure if the
US military doesn't resist demands for it to arbitrate the conflict between public and
oligarchs.
It is good to see an article focusing on the effects on the economy and how that effects
people, because that is the real disaster from the actions of the governments.
Also good to see a reference to the Spanish flu, where 50-100 million people died world
wide. Today the number is 143 thousand, a number 3 orders of magnitudes smaller.
Canada has got UBI up and running already. Spain too https://www.citynews1130.com/2020/04/15/feds-expand-emergency-benefit-program/
Are you a grocery or delivery worker?
"As part of expanded relief measures, Trudeau said the federal government was working with
provinces to top up the pay of essential workers who earn less than $2,500 a month."
Those 1200 check that came in, my granda did not get one because my mom claims her as a
dependent, also my 20 year old cousin didnt get his because his mom claim him depended on her
taxes. Any excuse they can find to not give you that check they will find it, but mega corps
can get trillions no problem
Treasury Sec Mnuchin said, in early March, that the economy is fundamentally sound.
He was wrong.
The US and other advanced economies (like Germany and Japan) were seriously slowing
down.
Yes, stock markets were high, inflation was low, housing was strong and unemployment was
low.
But rates of corporate profit were sinking, corporate debt was at record levels, real
business investment was negligible, wages were up but still at ridiculously low historical
levels, and inequality kept growing. World trade had also slowed considerably. Trump's tax
cuts for the rich were merely pocketed or used for stock buybacks. Low interest rates kept
things afloat, and the Fed had already reversed course on monetary tightening.
The US was on the verge of a recession, and the pandemic was merely an extreme
trigger.
Marxist economic theory says that a crisis is resolved when enough dead capital is purged,
labor devalued, and profit rates restored.
That will mean a further concentration of capital at the top, and further immisseration of
the working class.
The US state is so captured by capital that it won't manage the crisis equitably.
The pool of social misery will be a source of fascist and revolutionary socialist
politics.
This will create more instability.
Lastly, we can't ignore the working out of capitalist contradictions through
inter-imperialist rivalries.
In our era, that means rivalries between the US, Russia and China, with Germany and Japan
included in a second tier.
Expect Trump to escalate the trade war, further restrict exports to China, block Chinese
corporate requirements, and threathen China's debt holdings as some form of "reparations."
Expect military saber rattling to increase around Taiwan in addition to shows of strength
from Guam (B52 flights).
In other words, recall Bukharin's warning that trade wars are only "partial sorties." In
the end, they will be solved by "real force...the force of arms."
What we are witnessing is an unprecedented concentration of all contradictions of global
capitalism and imperialism.
I refuse to look at this situation as anything more than an opportunity for the wide change
for the West that many here have advocated over the years.
There will always be the temptation to ask for mercy during this time and a return to
NWO-globalist-consumer-driven Nightmare where populations outright ignore the horrible
behavior around the globe that the elite spread and make victim-countries endure.
What y'all have been railing against for years is the terrible grip of the globalists and
the absolute hilarious excuse for global government in the U.N. and similar supranational
entities.
Why then, would you ask for relief, when what we will see in the next few years is the
truth stripped bare and their narrative fall away? In order for this to happen, the U.S. and
the West need to suffer. I don't see what is so hard to take from this notion.
Those who genuinely care for their neighbor will again rise to the front with the chance
to reaffirm what humanity needs to do to live in balance.
Of course people will die. But life is not worth living in darkness.
As usual, I'll point readers to Shadowstats for its most recent reporting. An example:
"Week-Ended April 11th New Unemployment Claims Continued to Surge, Consistent With April
2020 U.3 Unemployment of Over 22%, Versus 4.4% in March (April 16th, Department of Labor -
DOL)."
Note those are the doctored Department of Labor stats, not those displayed by Shadowstats,
whose current graph doesn't yet include the latest figures. It reported unemployment at 22.9%
as of 3 April; so, we should expect real unemployment to be over 40% when its next graphic's
published.
I must emphasize the importance of following what's being reported by Max and Stacy on the
Keiser Report
and suggest starting with the March 26 episode or earlier if possible. The meat of the
program's delivered in the first 13-15 minute segment, the second half being an interview
with Max and that show's guest, most of which I skip when watching with the wife; the
program's synopses usually provide the guest's name. So, those 10 shows listed at the link
would take @150 minutes to watch--a very short amount of time given the amount of information
supplied.
The Hudson transcript b cites at the top comes from this
Renegade Inc program where he's teamed with Socialist Economist Richard Wolff that
I've linked to in several comments. It's under 30 minutes, too, and another excellent
investment of your time. Wolff has two new items at his website , his recent RT op/ed blasting Capitalism and the
video of his recent Crosstalk appearance. I also suggest following economist
Steven Keen's Twitter from
where you can get to his Patreon page and such for even more info.
Yes, it's close to a fulltime job just to keep abreast with current events let alone dig
into the past, which is why news media is so important as is their failure. Most people are
now at home and have the time to become informed. Let's all continue trying to help them and
ourselves.
The global elites have no one to blame but themselves for the economic catastrophe that is
currently unfolding as a result of the corona virus pandemic. There will also be no where to
hide and probably no where to stash their ill gotten wealth. After decades of advocating and
practicing discredited economic policies that can be best described as warmed-over late 19th
and early 20th century economics, (aka: austerity) the chickens, so to speak, are coming home
to roost. The same will apply to the political hacks, grafters and corporate greed heads who
also made this economic disaster possible. What the end result will be however, is unknown.
The future can go in many ways. But as the late Robert Heilbroner wrote in his book "The
Worldly Philosophers" some 70 years ago: "Economics is the only science that puts men on the
barricades."
Of course people will die. But life is not worth living in darkness.
Stacy invokes Dicken's Tale of Two Cities in
this
Keiser Report episode that speaks to your above quote. The main point is things
will worsen much more before any improvement occurs. Stacy being an optimist sees something
better emerging from the wreckage, while Max remains cynical--mirroring the feelings of many
here. IMO, invoking Dickens was masterful. We should be as lucky as the French to emerge at
the end of the Napoleonic Era with a Republic; but, even that will take prodigious effort and
struggle.
You'll recall that Fed policy always consists of
the same three mistakes 1) Keeping interest rates too low for too long, resulting in too
much debt; 2) Raising interest rates to try to gently deflate the debt bubble; and 3) Cutting
rates in a panic when stocks fall and the economy goes into recession.
Well, here comes the Big Bang: Mistake #4 – rarely seen, but always
regretted.
Mistake #4 is what the feds do when their backs are to the wall when they've run out of
Mistakes 1 through 3.
It's a typical political trade-off. The future is sacrificed for the present. And the
welfare of the public is tossed aside to buy money, power, and influence for the
elite.
Every debt expansion ends in a debt contraction. Stocks crash. Jobs are lost. The
economy goes into reverse, correcting the mistakes of the previous boom.
Investors see their money entombed. Householders await foreclosures. The authorities
scream: Apocalypse Now!
I have few to add to Posted by: Prof K | Apr 16 2020 18:57 utc | 8.
Only like to complement his comment on two very important aspects to pay attention to from
now on:
1) This pandemic is different from 2008 for the fact that, while 2008 was a general crisis
of capitalism that was triggered from the American financial system, the COVID-19 crisis is a
general crisis of capitalism that was triggered from the "real economy", i.e. the producitive
process of capital. This makes the COVID-19 crisis a much more formidable obstacle to
capitalist reproduction than the 2008 Wall Street/European Union meltdown. And it's important
to highlight 2008 also wasn't really V-shaped: it evolved into a depression after the 2010
euphoria.
2) It's very unlikely the USA will collapse in a single historical event. As a
capitalist nation, the USA is much more decentralized, fragmented and anarchic (in production
and distribution of the wealth it produces and consumes) than the USSR. The USSR was a
centrally planned economy: when Gorbachev committed the mistake of demoralizing and
destroying the CPSU, he automatically destroyed the USSR. That will not be the case of
the USA: the fall of Washington D.C. - or even Wall Street - would not be the immediate end
of the USA. The most likely scenario for an end of the USA would be for a gradual and
constant degeneration of its social structure, with or without balkanization (probably with).
This balkanization would be very violent, because local capitalists would assemble private
armies and fight against each other for supremacy and the reunification of the USA (a la
Roman Empire). It would be a Mad Max cum Yugoslavia scenario. The problem with this
is: who would be in control of the American nuclear arsenal? Will the USAAF be capable of
stopping with the balkanization process and thus keep the country united? Will the USA
anihilate the rest of the world before it would disappear, in an act of nihilism? A lot of
known unknowns - let alone unknown unknowns.
"Dollar Demisers" will be disappointed, but then since tmany of tgem claim to know a lot of
theory but seem to have absolutely zero actual experience of the practice, disappointment is
something they should by used to by now.
It's not just the "petro-Dollar" you should be looking at, it's the "Debt-Dollar"
"Last November, in a then-boring but now-prescient 10-part series (I socialistically
re-interpreted ex-Wall Streeter Nomi Prins' book Collusion, which chronologically detailed
the QE-spreading collusion between G20 central banks since 2008), I wrote the following in
Part 3: QE paid for a foreign buying spree: developing countries hurt the most:
"Yet by
flooding the world with trillions of dollars via QE the US was able to, paradoxically,
maintain dollar dependence despite their crimes. The US dollar share of global reserves today
is 62%, almost exactly what it was in 2008. Combined with the other source of the crisis
– the euro – the two combine for 82% of global reserves. By comparison, the yuan
– which so many predict is about to dethrone the dollar – is at below 2%; I
wouldn't hold my breath."
But corona is different, right? Two percent and 62% will suddenly change places,
right?
No, more QE is more of the same thing, and this is a "thing" which has worked exactly as
designed; it is also a "thing" which is never broached in the Mainstream Media: "A way to
create debt traps which increase Western control over their neo-imperial subjects.
Neoliberal-capitalism financial policies must be viewed as a neo-imperial tool, of
course."
People are acting as if Western neoliberalism hasn't worked, LOL? It has worked
spectacularly well but only for their 1% and not for "the nation", exactly as designed.
Many fine semi-dissident commentators apparently do not follow high finance, nor can they
interpret their actions, even though high finance is the West's vanguard party (thus the
theme of my recent series – "bankocracy"); they often incorrectly focus on an
easier-to-grasp storyline of nationalist competition, which (like racism, sexism or
tribalism) simply cannot ultimately take precedence over class warfare.
I'm not being dogmatic – this simply provides the fullest explanation of economic
events. Reject what socialists could call the "conspiracy" of the 1% via class warfare? Then
you likely move on to absurd, unprovable "conspiracy theories" involving secret cults,
elaborate handshakes, ritual sacrifice, etc.
This is the bottom line which (whom I will call) "dollar-demisers" simply do not
understand: For better or for worse (certainly worse), the US and their greenback are still
the gold standard when it comes to 1%er perceptions of a safe harbour in a crisis.
This will hold true in 2020 just as it did in 2008.
Many semi-dissident analysts unwittingly take a rather Trotskyist view that capitalism
will eventually implode under the weight of its own contradictions. It won't – some
rats always find a way to survive a sinking ship, eh? Thus, open socialist combat is the only
way to defeat modern Western capitalism, and also to satisfyingly explain what is going on in
the Western Great Recession/Depression 2.
So maybe the yuan will become the dominant currency but not in two months, nor two years
– maybe two decades? That's a big "maybe". In my lifetime, I think.
Until then, please believe me: Western globalisation/neoliberalism has a LOT of ammo,
clout, clients, banks, real money, real gold, fake money and paper gold to keep their mighty
dollar on top. Socialism teaches us: it is NOT just Americans who will deploy these
weapons."
The recovery will NOT be, but Trump will distract all Americans by screaming against China
and how China is responsible for everything. Expect Americans to fall in line and the anti
Russia hysteria to now turn into super anti China hysteria. Expect attacks against Asians in
USA
And all because the Chinese were greedy bastards eager to make money and they quickly forgot
history and how the Ango Saxon treated them just merely 150 years ago.
As somebody who grew up in Communist Eastern Europe it the 70s, I vividly remember how we
were warned how the Americans will try to hurt us by spreading bio weapons. This was grilled
into us over and over. The Communists knew. China better gt prepared, the West will try to
rip them a brand new assholes. And they got nobody to blame but themselves!
30 million jobless claims is no big deal to the federal government or Wall Street.
Average income in the United States is $63,000.
+30 million new joblessness.
30 million X 63,000 = $1.89 trillion dollars
Let's round that up to $2 trillion dollars.
We already had $2 trillion+ Overnight REPO Operations since last September...for the banks
hoarding money.
We already had $2 trillion+ QE4 or whatever number it is in December or January.
The CARES Act is priced in at just over $2.4 trillion and probably more like $4.5-to-6
trillion dollars.
Face it because with that scale the Federal Government could have sent $60,000 to $100,000
to every household, prisoner and homeless person in America and I guarantee the economy would
still be humming. And most importantly, the rich people never would have been seen a decline
in their net worth because working people pay their bills on time
/div> "..Until then, please believe me: Western globalisation/neoliberalism
has a LOT of ammo, clout, clients, banks, real money, real gold, fake money and paper gold to
keep their mighty dollar on top. Socialism teaches us: it is NOT just Americans who will deploy
these weapons."
Realist@19
I won't believe you because you are wrong.
But I do recognise the depth of the sincerity behind your trust in the imperialists. It is
clear from all that you post that you cannot conceive of a future in the US is not hegemonic
and its oligarchy omnipotent. It is not surprising that you consider history, even pandemic
diseases, to be nothing less than the unfolding of the Imperial ruling class's Wish Lists.
"..Until then, please believe me: Western globalisation/neoliberalism has a LOT of ammo,
clout, clients, banks, real money, real gold, fake money and paper gold to keep their mighty
dollar on top. Socialism teaches us: it is NOT just Americans who will deploy these
weapons."
Realist@19
I won't believe you because you are wrong.
But I do recognise the depth of the sincerity behind your trust in the imperialists. It is
clear from all that you post that you cannot conceive of a future in the US is not hegemonic
and its oligarchy omnipotent. It is not surprising that you consider history, even pandemic
diseases, to be nothing less than the unfolding of the Imperial ruling class's Wish Lists.
The USA consists of states that are already asserting quite a few powers and prerogatives
in this situation. Some of them have set themselves against the fed. govt. and the states'
citizens are following their governors, not Trump. (Certainly the presidential election is
looking more and more like a sideshow of some kind.) I think all American states have a
strong state identity; in addition many have a strong regional identity (I can't speak for
other parts of the country, but this is the case in New England; [not surprising, as this is
the best part of the country (;-)]. Actually, being a small, somewhat isolated with small
states and high education levels is a lot better than being stuck in a "region" that is
surrounded by other US states, e.g., Tennessee has borders with I think eight states; the
whole NE region borders just one US state, New York).
I think there is a good chance that balkanization could be a gradual process whereby
states and regions see the emergence of politicians able to deal with the health and economic
challenges statewide and regionwide, create and protect local prerogatives and populations,
and are willing to stand up to DC. We have a tradition of states' rights, and this may come
to be interpreted in ndw ways. I think this is already happening, de facto.
US states already have their own administrative structures and full repertoire of
departments --- health, education, conservation, transportation, housing, revenue, etc.
I can imagine more clashes between states and DC than between states.
(Bloomberg) -- Legendary short-seller Jim Chanos said he's troubled that private equity is
seeking financial aid from the federal government due to the economic impact of the coronavirus
epidemic.
"'I'm a little bemused, puzzled and somewhat outraged, I guess, that private equity would be
pushing to the front of the line to try to get taxpayer assistance," he said in an interview
Thursday on Bloomberg Television.
The Federal Reserve's move Thursday to throw a lifeline to small and mid-sized businesses
and fund the purchases of some types of high-yield bonds has has been seen by some market
participants as helping the private equity firms who owns some of these companies. Those firms
earlier this week were dealt a setback in their attempt to gain access to billions of dollars
of loans that the U.S. government is doling out to help businesses hit hard by the pandemic,
Bloomberg reported.
Chanos said a look at the year-end letters for the four biggest publicly-traded private
equity firms showed they had more than $300 billion in dry powder to put to use.
"I think private equity is possibly at a crossroads similar to where hedge funds were post
the global financial crisis," said Chanos, who runs hedge fund Kynikos Associates. "People are
going to start to judge the high fees and the illiquidity and think: 'Am I really getting the
return commensurate for the risk?"
For more articles like this, please visit us at bloomberg.com
Has anyone seen what is happening to US finances? US Federal Budget $5,571 billion. Budget
Deficit $2,130 billion.
Trump is borrowing 38 cents for every dollar he spends. This will get substantially worse
with the CV.
This is the prime mover for most of Trump's behaviour. Trying to solve his intractable
economic and financial problems at the expense of other countries. Sometimes this is outright
looting.
Finding assorted specious pretexts to steal the assets of foreign countries, Venezuela,
Iraq, Iran, anyone who has anything worth stealing.
The virus may be the next excuse to seize Chinese assets. People like Rubio and Cruz are
demanding that Chinese holdings of Treasury Bills be declared null and void, and $4 trillion
of Chinese assets confiscated. They may try to seize Saudi assets in a similar fashion, using
9/11 as a pretext.
Otherwise Trump is quite open about running a global protection racket. "They gotta pay
us! They gotta pay us!! They gotta pay us for their protection!!", croaking like a cheap
Mafia hood.
He demands that other countries buy their weapons, energy and agricultural products from
the US at inflated prices and give preferential access to their raw materials and
markets.
This is the rationale for the trade wars and sanctions, nou just against countries like
China and Iran, but even the most obsequious satellites, Canada, Mexico, Germany, the EU,
Japan and S, Korea.
This crude looting and extortion is extremely unlikely to be successful, even in the short
term.
It is said that one of the reasons the Roman Empire collapsed is simply that they ran out
of people to rob and enslave.
Trump's America is rapidly reaching that point.
All financial assistance for the average man is being offered on the basis of massive future
debt. Everything handed to us now will eventually need to be paid back, and if the sums become
high enough, and I believe they already have, that debt will remain for our children and
grandchildren.
The system is coming to the rescue of itself, even enriching itself, while posturing as
saving us. Post-coronavirus, we will once more emerge into the sunshine land of mass migration,
low wages, cheap foreign labor, and the meaningless gluttony of consumerism, only this time our
taxes will be higher, our children will be poorer, and our governments, staffed with hostile
elites, will have more powers of surveillance and coercion than at any time in history.
It is here, I think, in the dismal aftermath rather than in the eye of the coronavirus
storm, that resource competition will intensify. I hesitate to offer such a theory, for fear
that it might be construed as yet another instance of kicking the can of revolution down the
road, making of it an event of religious expectation always on the horizon but never coming to
fruition.
And yet I can't escape the feeling that no matter what rule changes are brought into the
game, when we once more emerge from our homes to resume play there will be less to lose and we
will be against an opponent that, if not staggered, will be weakened by having had to redraw
its game plan during half-time.
" Forget the politicians. The politicians are put there to give you the idea you have
freedom of choice. You don't. You have no choice. You have owners. They own you. They own
everything . They own all the important land, they own and control the corporations
that've long since bought and paid for, the senate, the congress, the state houses, the city
halls, they got the judges in their back pocket, and they own all the big media companies so
they control just about all of the news and the information you get to hear. They got you by
the balls. They spend billions of dollars every year lobbying to get what they want. Well, we
know what they want. They want more for themselves and less for everybody else. But I'll tell
you what they don't want. They don't want a population of citizens capable of critical
thinking. They don't want well informed, well educated people capable of critical thinking.
They're not interested in that. That doesn't help them." ― George Carlin
"Americans need to use this time at home to call their Senators and Reps in Congress
and demand the separation of federally-insured, deposit-taking banks from the casinos on Wall
Street. We're talking about nothing less than the survival of this country and how the next
generation is going to view the character and courage of our generation."
"... The B&M Gates Foundation was likely originally set up with some good intentions (to combat malaria and other Third World diseases), but probably mainly as a legal vehicle to shield some of his mega-wealth. ..."
I tend to dismiss ALL of Bill Gates' recent pandemic related public actions, statements (eg.:
TED talks, Event 201 pro/con buzz, funding Covid vacccine factories (sheesh! There's been ~17
years of coronavirus vaccine r&d failures since cov-SARS popped up 2003 and cov-MERV in
2013) as just more PSYOPS distraction foisted upon the public by the "Intelligence
Community", for their own purposes.
The B&M Gates Foundation was likely originally set up with some good intentions (to
combat malaria and other Third World diseases), but probably mainly as a legal vehicle to
shield some of his mega-wealth.
But then, after Gates got snared, perhaps in
2011? at one or more of the Intel community's "Epstein pedo-trap" blackmail factories, he
became their bitch-tool for evermore.
That's just how they (whoever kept Epstein and his operations protected) roll.
And now Gates is their captive asset, and everything he says or does is according to the
Invisible Hand's plans.
The financial elites are pushing a narrative that asset prices, sales and profits
will all return to January 2020 levels as soon as the Covid-19 pandemic fades. Get real,
baby. Nothing is going back to January 2020 levels. Rather than the "V-shaped
recovery" expected by Goldman Sachs et al., the crash in asset prices will eventually
gather momentum.
Why? It's simple: for 20 years we've over-invested in speculative bubbles and
squandered borrowed money on consumption and under-invested in productivity-increasing
assets. To understand why the market value of assets will relentlessly reprice
lower--a process sure to be interrupted with manic rallies and false dawns of hope
that a return to speculative good times is just around the corner--let's start with the
basics: the only sustainable way to increase broad-based wealth is to boost
productivity across the entire economy.
That means producing more goods and services with less capital, less labor and fewer
inputs such as energy.
Rather than boost productivity, we've lowered productivity via mal-investment and
by propping up unproductive sectors with immense sums of borrowed money --money that
accrues interest.
The poster child for this dynamic is higher education : rather than being
pushed to innovate as costs skyrocketed, the higher education cartel passed its
inefficiencies and bloated cost structure onto students, who have paid for the bloat with
$1. 6 trillion in student loans few can afford. (See chart below.)
As for Corporate America squandering
$4.5 trillion on stock buybacks (Wolf Richter)-- the effective gains on
productivity from this stupendous sum is not just zero--it's negative, as the resulting
speculative bubble suckered in institutions and individuals who'd been stripped of safe
returns by the Federal Reserve's low-interest-rates-forever policy.
What could that $4.5 trillion have purchased in terms of increasing the
productivity of the entire economy? Considerably more than the zero productivity
generated by stock buybacks.
The net result of uneven gains in productivity and the asymmetric distribution of
whatever gains have been made is stagnant wages for the bottom 90% and rising costs for
everyone. Those of us who are self-employed or owners of small businesses know that
healthcare insurance costs have been ratcheting higher by 10% or more annually for
years.
Whatever gains in health that have been purchased with the additional trillions of
dollars poured into the healthcare cartels have been offset with declining life spans,
soaring addictions to opioids and numerous broad-based declines in overall health.
The widespread addiction to smartphones and social media have deranged and
distracted millions, crushing productivity while greatly increasing loneliness,
insecurity and a host of social ills.
Two dynamics define the economy in the 21st century:
1. We have substituted debt-driven speculation for productive
investment
2. We have substituted debt for earnings
This is why the repricing of speculative-bubble assets can't be stopped:debt-driven speculation is not a sustainable substitute for investing in
increasing productivity, and debt-fueled consumption masquerading as "investment" is not
a sustainable substitute for limiting consumption to what we earn and save.
All bubbles pop, period. Once Corporate America's credit lines are pulled and
its revenues and profits plummet, the financial manipulation of stock buybacks will
end. That spells the end of the 12-year bull market in stocks.
As the tide of speculative mania ebbs and confidence wanes, the world's housing
bubbles will all pop, and the $1.4 million bungalows will drift back down to their Bubble
#1 highs around $400,000, and perhaps even drop from there.
As for collectibles and other play-things of the super-wealthy: the bids will soon
vanish and yachts will be set adrift to avoid paying the dock fees.
Back in December, when the world was still confused about what
exactly happened before (and after) the September repocalypse - which has since exploded
thousand-fold resulting in the Fed now doing daily $1 T rillion repo operations - we said that
in addition to the implicit bailout of JPM (which we
described here first , and subsequently
others ), by restarting its repo operations the Fed was also bailing out dozens of hedge
funds engaging in highly levered trades involving a relative value compression trade in the
Treasury cash/swap basis ... almost identical to what LTCM was doing ahead of its 1998 bailout,
which is also why we titled the article "
The Fed Was Suddenly Facing Multiple LTCMs ."
In a nutshell, the article explained why and how the return of the Fed's repo ops was
nothing more than the Fed preemptively bailing out all those hedge funds that would have
imploded had basis trades gone haywire. Below is a key excerpt from that post:
One increasingly popular hedge fund strategy involves buying US Treasuries while selling
equivalent derivatives contracts, such as interest rate futures, and pocketing the arb, or
difference in price between the two. While on its own this trade is not very profitable,
given the close relationship in price between the two sides of the trade. But as LTCM knows
too well, that's what leverage is for. Lots and lots and lots of leverage.
We also said that "hedge funds such as Millennium, Citadel and Point 72 are not only active
in the repo market, they are also the most heavily leveraged multi-strat funds in the world,
taking something like $20-$30 billion in net AUM and levering it up to $200 billion. They
achieve said leverage using repo."
Needless to say, as always when this website presents something the mainstream press hasn't
even considered, our explanation of what really happen ahead and during the September
repocalypse was met with the traditional mockery and derision by the financial
"intelligentsia."
Until today, three months later, when
Bloomberg finally confirmed everything we said.
In an article discussing how and why the Fed unleashed its March 12 repo bazooka,
Bloomberg writes that "when coronavirus panic kicked off unprecedented turmoil in
Treasuries last week, hedge fund leverage was lurking" and goes on to "explain" something we
said back in December :
The [hedge funds] use borrowed money from the repurchase market for the popular basis
trade, which exploits price differences between cash Treasuries and futures. Though
individual firms' borrowing is a closely guarded metric, people familiar with the
transactions said some of them levered up as much as 50 times their own wagers. Leveraged
funds' exposure to the basis strategy could be as much as $650 billion, JPMorgan Chase &
Co. strategists said.
Does that sound like "the Fed suddenly facing multiple LTCMs"? Because to us it sure does.
And more importantly, what happened in the days ahead of last week's credit market debacle is
precisely what happened ahead of the September repo snafu, only with exponentially more
destructive power.
The catalyst for last week's re-repocalypse was the historic surge in Treasurys that saw the
10Y drop as low as 0.31%, and the 30Y drop below 1%. As investors scrambled into Treasurys,
"hedge funds got hammered" again, and the result was "a difficulty in completing trades" which
as Bloomberg correctly writes "was a contributing factor to the Federal Reserve's decision to
pledge $5 trillion to keep markets running smoothly."
High leverage amplifies profits and losses and can be responsible for forced liquidations
-- and market fluctuations. This week, a sell-off in Treasury futures tied to margin calls
pushed outstanding contracts to their lowest level since 2018. Many firms also get funding
from money markets, whose problems have prompted the Fed to provide emergency funding
And there it is - just as we said, the Fed's first priority in the bailout waterfall, long
before consumers and businesses were even considered, was the sanctity and stability of those
multibillion hedge funds that suddenly faced a spectacular implosion... just like in the case
of the original LTCM. Only it's even more poetic, because whereas with LTCM - which blew up
when an economic black swan (the Russian default and the Asian crisis of 1997) blew out the
LTCM basis trades, forcing the first Fed bailout in the modern era, what happened last week may
have been the very last bailout cascade in Fed history, only this time it will involve
everything, not just one solitary hedge fund run by idiot Nobel-prize winners.
"Too big to fail is back, and this time it's not the banks, it's levered financial
institutions," said Mark Yusko, the chief executive officer of Morgan Creek Capital. Yusko -
who apparently forget to the original Fed bailout was not of a bank but of a levered financial
institution (LTCM) said he supported the Fed's stepping in, but added that hedge fund firms
have gotten too big by borrowing too much. "It's a bailout," Yusko said,
repeating what we said in December.
And whereas Bloomberg failed to connect the dots last year, this time around it actually did
some original reporting and found some of the smaller funds that would have been devastated had
the Fed not stepped in with its trillion-dollar a day repos:
ExodusPoint Capital Management lost 4% this month through March 13, on pace for its worst
month ever, according to people familiar with the situation. It was unclear how much the
basis trade contributed to the loss.
An LMR Partners' fund fell 12.5% in the first two weeks of this month and spurred the
firm to raise new capital.
Capula Investment Management's Global Relative Value Fund dropped 5.2%, people said, and
Field Street Capital Management's fixed-income relative-value flagship fund, in which the
basis trade is substantial, sank 14.5% and had to reduce the size of its positions.
That said, that's just three macro hedge funds out of a universe of hundreds, and what is
important, is that the trade was so ubiquitous (thanks to those hedge fund idea dinners) that
everyone was doing it.
"We've had 10 years of a perfect paradise and so people have been picking up pennies
thinking there's no risk in holding strategies like the basis trade," said Kathryn Kaminski,
chief research strategist and portfolio manager at AlphaSimplex Group. "A lot of the
strategies, like the basis, that hedge funds tend to use don't work when markets aren't stable.
You'll see more of these types of blowouts."
Curiously, and contrary to totally unfounded recent rumors, some of the far bigger firms
fared better: as Bloomberg notes, the market unwind had a relatively small impact on
multi-strategy funds Citadel and Millennium Management, although as we reported yesterday
Millennium is closing several "trading pods" after weathering a modest 2.7% drop this month
through March 12, and was down 1.9% for the year. In light of the S&P's 30% drop, that may
seem like a stunning performance, but somehow Izzy Englander always manages to pull out a rabit
out of hat (someone may want to check into what the HFT guys on the 6th floor of 666 Fifth are
doing for the answer to that).
But whereas the mega-levered Millennium and Citadel, whose in house risk-management lackeys
are truly draconian in their position limits, managed to avert a debacle by unwinding the
positions quickly after sustaining small losses - courtesy of the Fed's massively expanded
$500BN repos - others were not so lucky, and many other firms focuses on the basis trade
suffered far steeper losses.
One among them was BlueCrest Capital Management, whose trader Raymond Wang was fired on
March 9, the day after that historic Sunday night when the 30Y traded bidless for hours as the
S&P crashed limit down, because he couldn't find a buyer for the investment firm's losing
positions in the basis trade. Other firms, who had less leverage on, survived until that
Thursday when the Fed launched the repo bazooka, allowing all those who had the basis trade on
to quietly exit stage left, bailed out by a deceiving Fed that told the world its mission was
to rescue main street when in reality it was just making sure the billionaires had someone to
dump their money-losing positions to.
"enlightened capitalists -- Bill Gates" People who say that just don't know this guy's
history. His "foundation" is simply a stock laundering mechanism. It was cited years ago by
the government for putting out so little of its funds that it barely qualified under US law.
It's a scam. You take the billions of dollars worth of stock you can't sell in large
quantities to convert to cash due to laws about that and you "donate" it to a foundation -
run by your father. Then the foundation sells the stock and uses it to buy control of
companies you want to invest in.
Posted by: gm | Apr 5 2020 17:35 utc | 29 The B&M Gates Foundation was likely originally
set up with some good intentions (to combat malaria and other Third World diseases), but
probably mainly as a legal vehicle to shield some of his mega-wealth.
Exactly. I read about that years ago as I indicated in my above post.
"But then, after Gates got snared, perhaps in 201? at one or more of the Intel community's
"Epstein pedo-trap" blackmail factories, he became their bitch-tool for evermore."
I don't know that Gates is a pedo. I don't think he needs to be to explain his behavior.
He's simply *always* been known as a greedy S.O.B. who spent his time in college taking money
from his friends in poker games. His father is a big time lawyer, so you can imagine where he
got his greed genes.
Not that greed per se bothers me - but I dislike greedy people who also produce crap
products like Windows.
In a recent candid interview, Bill Gates outlined that, despite the comparatively small
threat of Coronavirus, he and his colleagues "don't want a lot of recovered people" who have
acquired natural immunity. They instead are hoping we become reliant on vaccines and
anti-viral medication.
Shockingly, Gates also suggests people be made to have a digital ID showing their
vaccination status, and that people without this "digital immunity proof" would not be
allowed to travel. Such an approach would mean very big money for vaccine producers.
Despite what the stock market would have you believe, the United States is sinking further
into a depression. And the unemployed are now resorting to putting their rent on credit
cards.
It's a temporarily solution that may help tenants get through a month or two, but it's
ultimately driving an already broke consumer deeper into debt that will cripple them in the
long term. About 84% of tenants in the U.S. have paid full or partial rent through April 12,
the
WSJ reports , a number that has risen significantly since the first week of April.
But credit cards as a form of payment are also rising by 13%, compared to the first three
months of the year. The number of tenants paying with a credit card is up 30% when compared to
the same period in March.
While sometimes tenants pay rent with credit cards to boost their credit score or earn
rewards, this is increasingly looking like a desperation scenario, where credit cards could be
the last fallback before tenants start filing for bankruptcy and wind up out on the street.
In general, electronic payments have risen since the start of the pandemic. Building owners
will sometimes accept credit cards through apartment management software or third party apps.
Even with interest rates near 0%, the average interest rate on a credit card is still in the
double digits. It's even higher for those taking cash advances.
While some landlords and creditors have said they would make provisions for those who have
lost their jobs, the credit bureaus will be far more unforgiving. They will be offering no
special treatment, according to the WSJ, because a revision to the CARE act that would have
prevented them from reporting negative information due to the pandemic was left out at the last
minute.
Some landlords have offered to absorb the transaction costs related to using credit cards.
"Once we saw where things were going with this pandemic, a lot of our rules just kind of went
out the window," one landlord said.
But if unemployment doesn't start to arrive by the time many of these tenants have to pay
May rent, they could be faced with far more dire consequences.
Bruce McClary, spokesman for the National Foundation for Credit Counseling, said: "Your rent
payment isn't the only thing you owe, and chances are you have other financial commitments
you're having to keep on track as well."
Over 22 million people have applied for unemployment over the past fourweeks.
Let me cut through all this speculative noise with Occam's Razor.
The virus is natural. The CCP elites are using it in exactly the same way the USG and EU
elites are. Both financial systems and economies were clearly crashing beginning in early
September. Now the elites get to blame all the troubles on a virus (which isn't actually
killing anyone in interesting numbers). Absent the WuFlu they'd all risk getting strung up
pretty soon. Now instead of being called out for the decade+ of ineptitude that lead to a
collapsing global bubble economy, they get to be praised as heroes that saved everyone from
dying.
Now that I've cleared up all that nonsense about a bioweapon and grand scheme to kneecap
China, I have to say that the "China inevitably taking over" narrative is rather ridiculous,
flu or not. Japan re-ascendant and taking back Manchokou is more believable.
As the USA washes its hands of these messes overseas and pulls back homeward, China is in
the worst position.
All its neighbors hate it and will check it.
China has been the #1 beneficiary of Pax Americana this century. Well, Americans are
rapidly losing interest in that project.
Gates reiterates the dire consequences for the global economy later in the interview.
"We need a clear message about that," Gates said starting at 26:52 .
"It is really tragic that the economic effects of this are very dramatic. I mean, nothing
like this has ever happened to the economy in our lifetimes. But bringing the economy back and
doing [sic] money, that's more of a reversible thing than bringing people back to life. So
we're going to take the pain in the economic dimension, huge pain, in order to minimize the
pain in disease and death dimension."
However, this goes directly against the imperative to balance the benefits and costs of the
screening, testing and treatment measures for each ailment – as successfully promulgated
for years by, for example, the Choosing Wisely
campaign – to provide the maximum benefit to individual patients and society as a
whole.
Even more importantly, as noted in an
April 1 article in OffGuardian , there may be dramatically more deaths from the economic
breakdown than from COVID-19 itself.
Invisible Man ,
Some things I'd love to see a journalist bluntly ask Mr. Gates in the near future:
"Why are you, Mr. Gates, with no formal training in medicine or biology, no special
knowledge of virology or epidemiology, suddenly the foremost expert on Covid in the world?
What makes you the decider of policy? Is it just that we live in a world dominated by the
golden rule, where he who has the gold makes the rules?"
"Why do you ignore the statistical evidence that Covid19 has yet to impact Europe's
overall mortality rate?"
"Why do you wilfully ignore the two dozen or so experts who have come forward to
vehemently criticize and refute the narrative being pushed that we're in the midst of a
deadly pandemic? Their assertions are consistent with the statistical evidence. Yours are
not."
It's not even spring yet, and we already know it takes a virus to mercilessly shatter the
Goddess of the Market. Last Friday, Goldman Sachs told no fewer than 1,500 corporations that
there was no systemic risk. That was false.
New York banking sources told me the truth: systemic risk became way more severe in 2020
than in 1979, 1987 or 2008 because of the hugely heightened danger that the $1.5 quadrillion
derivative market would collapse.
As the sources put it, history had never before seen anything like the Fed's intervention
via its little understood elimination of commercial bank reserve requirements, unleashing a
potential unlimited expansion of credit to prevent a derivative implosion stemming from a total
commodity and stock market collapse of all stocks around the world.
Those bankers thought it would work, but as we know by now all the sound and fury signified
nothing. The ghost of a derivative implosion – in this case not caused by the previous
possibility, the shutting down of the Strait of Hormuz – remains.
We are still barely starting to understand the consequences of Covid-19 for the future of
neoliberal turbo-capitalism. What's certain is that the whole global economy has been hit by an
insidious, literally invisible circuit breaker. This may be just a "coincidence." Or this may
be, as some are boldly
arguing , part of a possible, massive psy-op creating the perfect geopolitlcal and social
engineering environment for full-spectrum dominance.
About the narrative that the pandemic is hyped to cover for robbery, that could be, if we
assume that the Lords of Capital are really stupid.
Well, OK, they are really stupid, but one would think they are in a position to realize
that they are just printing money and giving it to themselves. It is only among the simple
plebes (that's us) that a quantity of dollars has meaning. For the Lords of Capital it is all
about percentage of market share controlled. Playing this game will inflate away some of the
value of cash wealth we plebes have and put it in the capitalists' pockets, but not so huge
an amount that it looks like. More critically, this is cranking up the pressure in the debt
bubble while giving other countries more reason to unload their dollar reserves. I cannot see
how that will turn out well for the empire's capitalist elites.
Posted by: William Gruff | Apr 3 2020 19:09 utc | 335
These "Lords of Capital" have offloaded most of their bad debts onto the Fed, which means
onto the taxpayer. In turn, they've fully loaded their coffers with cash so that once
mortgages begin going into default they'll be well-positioned to be buying. And they'll be
the only ones with the "capital" to purchase these assets, including all of the businesses
both large and small which will go bankrupt during this contrived pandemic.
What if these "Lords of Capital" have decided that they already have enough wealth and now
they want to create a permanent class of serfs who can never own, must always rent, can never
retire, and who get no health care. What if we've got a dystopian future in store for us that
even George Orwell couldn't have imagined?
This is a heist, and money isn't the only thing that's being stolen. Power, control,
freedom, and futures are also being stolen right now while we debate IFC versus CFR and
collectively wonder if we're actually seeing an increase in deaths or an increase in deaths
attributed to "coronavirus".
If the presumption is correct and comes to pass, which, I believe, is in the making, the
game's a different one.
It is not about cash positions but about hard assets. Wealth is always only relative, if I
have 1000$ you've got 10000$, then you'll be 10x 'richer' than I, no matter what. In a
depression scenario with massive devaluation of assets like housing, with or without
inflation, many households, small businesses, farmers ... will fail to meet their financial
obligations. Then the funny money they've given to themselves will come in very very handy.
They're going to buy up pretty much everything, leaving the plebs with one option:
serfdom.
NEW YORK (Reuters) - U.S. borrowers seeking a reprieve from mortgage, auto or credit card
payments because of coronavirus hardships are not getting the help they expected from big
banks that promised assistance in recent weeks.
JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Wells Fargo & Co
(WFC.N) and Citigroup Inc (C.N) are among lenders that announced programs to help customers
whose income has suddenly dropped because of illness, layoffs or government-imposed
business closures stemming from the pandemic.
But fine print can prevent customers from getting assistance, borrowers and bank sources
said.
For instance, lenders offering 90-day forbearance on mortgage payments are limited in
how they can structure help for customers whose loans are owned by investors.
Mortgage-bond holders are still requiring monthly payments even if borrowers do not pay.
Banks have been willing to foot the bill for a few months, but will ultimately need
cooperation from investors.
Some customers are finding they are expected to write a big check as soon as the grace
period ends, rather than having missed payments tacked onto the end of the loan.[.]
Thousands of U.S. banks, including some of the country's largest lenders, have said they
may not participate in the federal government's small-business rescue program due to
concerns about taking on too much legal and financial risk, five people with direct
knowledge of industry discussions told Reuters.[.]
The small business owner has a mandatory "to Close order" - no cash flow and is expected
to (a) take on additional loans to stay afloat and (b) sign a document attesting to their
eligibility and other requirements, thereby relieving the industry of responsibility for
potential misconduct.
Anyone thinking the U.S. will have a quick recovery is delusional.
"👉Some say reaction to CV is worse than CV (Bc Econ damage)
"I get it, but remember, CV didn't force: 👇
"1. Mkt cap/gdp 150%+
"2. Corp debt all time high
"3. Consumer debt all time high
"4. Dependency on ZIRP/QE
"5. No savings
"6. Econ built on debt+asset bubbles
I posted earlier of USJ indefinite detention application UK is already rolling out a
version. How many coincidences does one need to validate a conspiracy - opps coincidence
theory?
Global depression? China appears to be getting back to work, Russia appears to be acting
normally, Japan appears to have streets full of shoppers, unlike here in my area. A couple of
months of reduced economic activity is going to freeze up the system?
The West appears to be falling apart. Much of this is from the massive market of counter
party risk and derivatives. Hedge funds were caught on the wrong side of the trade margined
up to the hilt. All cash was in the market. Now there is a "dollar shortage" as everyone
moves back to cash and is hoarding it.
In reality the market was falling apart before this happened. Behind the scenes and the
FED was pumping liquidity into the market prior to November 2019. Capitalism was leveraged to
the hilt and in no position to withstand a short term shock. They will get to socialize their
risk.
I feel for the small business owners who have their lives in a business. They are hurting.
Screw the hedge funds, let them die. Make the companies sell their stock back into the market
or use it as collateral for a loan from the lender of last resort if needed.
Things will get back to normal and the games will go on as the system's survival depends
on the rigged game.
Max Keiser: Workers who are getting sub living wages, in meatpacking or in delivery
services or gig economy, are now in a position to raise their wages. Are workers at a point
where they can start to bring back organized labour and bring back the power of collective
bargaining or are they going to blow it
Michael Hudson: They're certainly motivated to, simply over the issue of workplace safety
and the protection against the virus and the fact that they're being laid off at will by the
employers with really no backup. So you would think that the the whole health plan, the
points raised by Bernie Sanders, are certainly going to catalyze this and if they don't
organize it means that they're just going to surrender quietly and make the economy end up
looking like Greece. Where everybody gets poorer and poorer, they get unhappy, they commit
suicide or they emigrate, and their lifespans shorten. That's really the alternative.
Imagine what's going to happen in three months when all of a sudden, they haven't been
employed, all of the rent has been in abeyance is going to fall due. And the restaurants and
small businesses they work for can't afford to open because they can't afford to pay the
rent, which is their largest expense, for the last three months while they've been shut down
There's going to be a wholesale unemployment, homelessness will increase - if this doesn't
trigger people acting in their self-interest I don't think anything will.
What Trump ought to do is not just fire Powell, but every other Fed board member, disband the
Fed completely, and return its duties to the Treasury from where they were pirated in 1913,
which is one of the main sources of our current globalized problem--the privatization of
Central Banks.
That would be the financial equivalent of jailing the main heroin supplier of urban
ghettos and rolling up the entire racket. And there're plenty of prescriptions available as
what to do next. Again, this discussion
with Hudson and Ellen Brown has several which build on those Hudson makes in
this video interview I've linked before.
Again as b shows, it's the political protectors of the Creditors who won't allow any
change to occur. Recall the book touting Clinton's 1992 campaign-- Mandate for Change
--and Obama's mantra--Change you can Believe in. That the NY Times and Senator Cotton were
appalled is close to a Sea Change in sentiment. Most troublesome is the prognosis that this
won't just dieoff come the warm heat of summer. Chinese researchers have shown the virus can
survive a longtime at bodyheat temps:
"The length of time it lasts on the surface depends on factors such as temperature and the
type of surface, for example at around 37C (98F), it can survive for two to three days on
glass, fabric, metal, plastic or paper."
It's entirely possible that the elderly population will need to adopt a continual defense
mode of behavior when out in areas of high public concentrations & transit until a
confidence in resistance is attained or a vaccine becomes available.
One thing ought to becoming very clear to people everywhere: The people who got us into
this mess are not at all qualified to get us out--they either need to be jailed or
retired.
The so-called 'new global economy' (NGE) that has been been so loudly touted for the last 40
some years by some academics, economists, Wall Street con artists and other such riff-raff,
appears to be crumbling faster by each passing day because of the coronavirus pandemic.
These so-called very serious know-it-alls have shown themselves to be nothing more than a
bunch of 21st century snake oil salesmen, offering up what can be best described as warmed
over late 19th - early 20th century economics.
Lord John Maynard Keynes has been vindicated! However do not expect any of these to
publicly or privately admit they sold a load of manure to a gullible public. No siree!
The NGE is their cherished baby and they will follow the first rule of arrogant and stupid
management: Never admit you are wrong!
It's easy for the rich and the upper middle class to preach for the laissez-faire route: they
can stay in their second houses in isolation without losing a penny.
But they lose money if production stops (because mass quarantine has the same practical
effect of a general strike) - that's why they want the wheel to keep spinning.
But here's a surprise: poor people want to surivive too. So pardon the USD 80 billion loss
at Wall Street, I want to enhance my chances of survival.
Here's a look at some of the hardest hit sectors in the S&P 500, and how far they've
fallen in the past 30 days.
ENERGY (-47%)
The S&P energy sector has plunged more 47% in the past month. The price of oil continues
a steady decline toward $30 per barrel. Saudi Arabia on Wednesday directed its oil company
Aramco to increase its maximum production capacity as it squared off with Russia, even as
airlines cut flights, shippers dial back deliveries of goods and people are being told to stay
home. In its monthly report Wednesday, OPEC revised down its projections for global oil demand
growth this year, while raising projections for supply. That is a recipe for plunging energy
prices and layoffs in the oil patch. Shares in Exxon are down about 38% in the past 30 days.
Already, energy giants like Exxon and Occidental Petroleum have cut spending. The latter cut
its dividend by 86% Tuesday to save cash.
FINANCE AND BANKING (-33%)
Banks have been punished by falling interest rates. Interest payments on loans are a major
source of revenue. The Fed last week lowered its main borrowing rate by half a point to combat
the economic drag from the outbreak. Analysts suspect another cut may be coming soon. But there
is also the anticipation of slowing global economic growth, which was already underway before
the pandemic hit. That would mean slowing business, and fewer fees, for banks that employ
millions of people. On Thursday, the U.S. Federal Reserve injected $500 billion into short-term
lending markets to address disruptions in the Treasury market. It is also broadening its
ongoing purchases of Treasurys to include longer-term bonds. The action, being led by the New
York Fed, is intended to keep credit markets functioning and ensure that banks can continue to
provide loans to businesses and other borrowers across the economy.
INDUSTRY AND MANUFACTURING (-32%)
Manufacturers are also taking a hit as businesses pull back on orders for goods due to the
impact of the spreading coronavirus. Companies like Ingersoll Rand, which makes a wide range of
industrial products including many used by the oil and gas industry, has seen its shares lose a
third of their value in the past 30 days. Major manufactures like Caterpillar and Deere and
just beginning to stabilize from a trade war between the world's two largest economies, China
and the United States. Caterpillar on Thursday reported broad declines in retail sales for the
three-month rolling period ending in February, with worldwide sales slumping 11% following a 7%
decline from January.
DISCRETIONARY SPENDING (-27%)
The broad sector that covers everything from the sale of a Big Mac, a Barbie doll, Gap jeans
or a Disneyland vacation -- is taking a beating as people cancel trips, avoid the mall or shut
in. Airlines and cruise ships have been the most notable losers amid government travel bans,
infections on cruise ships and a sudden aversion to boarding a commercial aircraft. Shares in
airlines are down more than 40% in the past month and cruise ships stocks, which are grouped
with resorts and hotels, are down about 50%. Princess Cruises, which had one of its ships
quarantined off the coast of Japan last month, said Thursday that it would suspend global
operations through early May. Starbucks stores in the U.S. and Canada may become drive-thru
only while others could limit the number of people allowed inside, the company said Thursday.
Shares in the coffee chain plunged 7% Thursday to a 52-week low and are down almost 30% in the
past month. And more bad news for anyone thinking they would self-quarantine on the couch and
watch their favorite team: the NHL is following the NBA's lead and suspending its season amid
the coronavirus outbreak. Major League Baseball is delaying the start of its season by at least
two weeks. And the NCAA canceled the men's and women's Division I basketball tournaments. And
hold off on that Disneyland vacation: Disneyland Resort said it will close Disneyland Park and
Disney California Adventure Park through the end of the month, though there have been no
reported cases of the new virus. The announcement doesn't affect Disney World in Florida.
TECHNOLOGY (-26%)
Technology companies have not been immune to the Wall Street coronavirus sell-off during the
past 30 days. China manufactures a wide range of parts for U.S. tech companies, and when the
country shut down most of its factories last month, it disrupted the supply chain and left
companies without products to ship. Additionally, companies from every sector are likely
trimming non-essential spending until the pandemic passes. That means fewer tech upgrades or
overhauls, and individuals may pull back on spending as well for everything from iPhones to
Xboxes. Alphabet, which owns Google, has lost about one-quarter of its value in the past month.
Chipmaker Dell has seen its stock fall about 37% during the same stretch.
Apparently the West will now end up with both a much lower stock market and a large covid 19
crisis. At some levels the government is taking this very seriously, at others not so much.
People have to listen and become informed and the corporate media appears to be holding back
and not helping.
I am not so sure that Trump derangement syndrome is not playing out in the media coverage.
How does one stop a habit of three years of derangement in an instant? So much BS has been
spun off over the last three years I suspect that it is carrying over into this crisis.
There are a myriad of local, state, and federal bureaucracies assigned to the task and it
is impossible to create a perfect symphony of action across all levels.
The spread across the world seems to have come from tourists from China visiting various
countries. Now that the eyes are on the Western countries no one is reporting on business in
China; are the factories coming back online?
Wall Street blames the coronavirus for the current crash for the same
reason the Democratic Party blames Russia for losing in 2016: to avoid responsibility.
A month ago I
said :
"the stock market is massively overvalued . Right now
the stock market is a bubble in search of a pin."
"... The budget deficit is simply a ruse to make you believe that government funding is limited when in reality they create money on demand with a few keystrokes. ..."
"... Thus there is always money for corporate welfare, the military, tax relief and benefits for the oligarchy but never money for health care, education, infrastructure, etc. ..."
In the broadest sense the US deficit is a measure of how much money the govt has created (not entirely accurate as the creation
of money - really debt - has been largely outsourced to private banks). If the national debt was 'paid off' It would suck all
the money out of society and the economy would collapse.
The Fed doesn't need taxes as revenue as it just creates whatever money it needs. The budget deficit is simply a ruse to
make you believe that government funding is limited when in reality they create money on demand with a few keystrokes.
Thus there is always money for corporate welfare, the military, tax relief and benefits for the oligarchy but never money
for health care, education, infrastructure, etc. The deficit is 1/2 of a balance sheet, the deficit on the govt side is balanced
by a surplus (money in circulation) in the economy. Note that states are revenue constrained and depend on taxes and federal outlays
to operate as they cannot create their own money on demand.
But what about inflation? Too much money in circulation lowers its value. Taxes are the real federal economic regulatory mechanism.
When there is inflation, higher taxes directly remove money from circulation. The disinformation campaign is that interest rates
control inflation, which has a) repeatedly been demonstrated false and b) is simply another system of rewards for the banking
cartel.
The best metaphor is a sink. The faucet is the creation of money, the basin is the economy, and the drain is taxes. When the
sink starts to overflow (inflation) the solution is to open up the drain (raise taxes).
Note also that this is for a sovereign economy, one that is controlled by the government. The EU has effectively destroyed
all the sovereign economies in Europe with its central bank. Thus Greece, Italy, Spain, etc. have no control of their own economies
and as such are unable to economically regulate themselves and subject to foreign predatory forces.
" i listened to about 3 mins of some bill gates ted talkish thing, wondering, will these dim
bulbs ever assume responsibility for anything?
all the msm talking heads have been revealed for what they are: state propagandists. not
one krugmanian friedmanite will ever say, "I didn't see this coming and I pimped myself out
for the last 40 years selling snake oil and getting nobel prizes for it and have revealed
myself to be unqualified to turn on a light switch no matter how much money I have made and
recognition I have received. Clearly I know nothing". why would anyone listen to an msm
personality that's been sold to them as some kind of "expert"?
"... To make this process more equitable, why not permanently place those equities into a sovereign wealth fund, and use the annual dividend flow to improve programs that benefit the broader populace, like social security and M4A ? Other countries , like Norway , have such funds and use them in this way. Heck , so does Alaska , for that matter. ..."
So, now the FED is considering purchasing equities , so as to defend the portfolio values
of the already-wealthy , who own most of that equity. This will likely be a regular practice
in every crisis going forward ( see Japan ) , and we know that we are now a distinctly
crisis-prone country , and can expect at least one crisis per decade , and probably more.
To make this process more equitable, why not permanently place those equities into a
sovereign wealth fund, and use the annual dividend flow to improve programs that benefit the
broader populace, like social security and M4A ? Other countries , like Norway , have such
funds and use them in this way. Heck , so does Alaska , for that matter.
Why don't we do it ? Most of you already know why. If you don't , just watch some old
George Carlin clips on Youtube.
I agree Marko. Thank you for your thoughtful comment. I believe what you are proposing, or
something like it, has to be done for systemically important entities, such as banks,
telecoms, health, insurance, and national defense providers that own the largest share of
their markets. We must do as you say, if we are not to be held hostage to the absentee
landlords who currently own our nation for their sole benefit.
Dfnslblty , April 7, 2020 at 13:56
Socialization via nationalization is your excellent proposal.
Privatization in public areas – education, banking, medicine, oil and water- has robbed
Citizens and destroyed the environment.
We can elect officials to bring equality to governance, or we can continue to live as
serfs.
"... There is no reason why the collapse of the system should lead to something worse. Indeed it is hard to conceive of any worse system that could possibly survive. ..."
"... a collapse in global trade unlike anything we've seen since the 1930s. ..."
"... The Fed is already set to monetize double the total U.S. Treasury debt issuance. The global task would overwhelm it – in an avalanche of money-printing. ..."
"... "Does Mnuchin then, believe his and Trump's narrative, that the virus will soon pass, and the economy will rapidly bounce-back? If so, and it turns out that the virus does not rapidly disappear, then Mnuchin's stance portends a coming, tragic débacle. ..."
Alistair Crooke at Strategic Culture is worth looking at today.
He's predicting the collapse of the US dollar and the international trading system.
A New World Order indeed. But also a tabula rasa.
There is no reason why the collapse of the system should lead to something worse. Indeed
it is hard to conceive of any worse system that could possibly survive.
Instead of howling calamity and predicting a reality that is likely to be no worse than
that already in operation for the bulk of the world's population -- does anyone think that the
people scrabbling every hour to stay alive in the world's slums, care or ought to care
whether our internet traffic is pouring into a imperial database? Does anyone doubt that it
has been for years?
Instead of arguing how many corona virus corpses can be attributed to obesity and sugary
diets we could be discussing the possibilities that Disaster Socialism opens up.
After all the rational response to calamities and collapses is always socialist in the
sense that communities come together, help one another and rebuild themselves. If the world
trade system does collapse there will be an immediate necessity for rationing, social
distribution and the development-Cuban style- of food production. Tools will have to be
appropriated, land too and labour organised.
The whole substructure of capitalism-private property and commodity production- will have
to be pushed aside like rubble in an earthquake.
The current basis of petrochemical agriculture will have to be abandoned- and three cheers
for that!- and organic, labour intensive horticultural techniques used in their place.
There will be, at one and the same time, mass unemployment and an urgent need for
labour.
Out of such crises a new world can be born. There is no reason why it should be one
designed by the enemies of life who controlled the one currently failing.
Crooke explains what is about to happen
"...the crucial point is made by Professor Rogoff: "We're looking at a commodity-price
collapse – and a collapse in global trade unlike anything we've seen since the 1930s.
An avalanche of government-debt crises is sure to follow, he said, and "the system just can't
handle this many defaults and restructurings – at the same time".
"This simply is beyond the U.S. Fed, or the U.S. Treasury's capacities, by a long shot.
The Fed is already set to monetize double the total U.S. Treasury debt issuance. The global
task would overwhelm it – in an avalanche of money-printing.
"Does Mnuchin then, believe his and Trump's narrative, that the virus will soon pass, and
the economy will rapidly bounce-back? If so, and it turns out that the virus does not rapidly
disappear, then Mnuchin's stance portends a coming, tragic débacle. And with further
massive money issuance, a collapse in confidence in the dollar. (President Putin would have
been proved right, but he will not welcome, assuredly, being proved right in such a
destructive manner)..."
Sick. Unconscionable. There is a shortage of lamp posts and piano wire.
[.]in a press conference late on Thursday, Steven Mnuchin said that he will double the
interest rate on the SBA loan from 0.50% to 1.00% in order to appease banks seeking higher
interest rates to participate in the Treasury's bailout program and lend money to the same
taxpayers who bailed them out 12 years ago.
These are same banks, mind you, that just sold all $1.6 trillion in securities to the
Fed to expand their balance sheets capacity in the past three weeks, and which also just
benefited from the Fed's decision to remove Treasurys and deposits from the Fed's SLR test,
freeing up another $1.6 trillion in liquidity.
And yet, despite all this, these banks - which include JPMorgan Chase, Bank of America,
Wells Fargo Citigroup, Truist Bank and PNC - which were bailed out in 2008 and again bailed
out 3 weeks ago with the Fed's various alphabet soup programs, couldn't agree to give Main
Street a helping hand, and instead of offering loans at a modest 0.5%, demanded no less
than 1%, which is 75-100 bps above where they can borrow cash from the Fed. Because
charging America's middle class an 19.95% credit card APR is not enough, and anything less
than 1.0% on a loan that is explicitly backstopped by the Treasury would be
uneconomical.[.]
My harping question: Why would a small business owner, forced to close, and without a
cashflow take on more debt?
"... The old financial capitalism of always, refurbished by the new decrees on pandemic, whose hedge funds, already present in the Mediterranean countries applying usury interests to basic needs ( and rights ) of the population, like homes market, will fall like vulture on the so longed health and pension systems of now re-indebted countries who already were doing well before the pandemic started ( and even better than their Calvinist prepotent disloyal "partners" of the north, as the graphic on the situation of main banks in the EU i posted in the week review thread so clearly show ). ..."
Simply, some countries, in the twilight of their most profiteering industries and from
which they are known ( namely cars, aircrafts, fracking oil, and so on...), and the inability
of easily continue plundering developing countries without entering expensive and unending
wars, have thought of reconverting their "productive" fabric and thus keep profiting from
medical and pharma industries ( and for this they needed to create a new strong market
before...)
The old financial capitalism of always, refurbished by the new decrees on pandemic, whose
hedge funds, already present in the Mediterranean countries applying usury interests to basic
needs ( and rights ) of the population, like homes market, will fall like vulture on the so
longed health and pension systems of now re-indebted countries who already were doing well
before the pandemic started ( and even better than their Calvinist prepotent disloyal
"partners" of the north, as the graphic on the situation of main banks in the EU i posted in
the week review thread so clearly show ).
"... There has been a huge amount of planning for a pandemic. It seems likely that that planning has also included how a pandemic can be gamed to benefit TPTB. We are seeing plenty of CYA propaganda that excuses government failures and attempt to minimize the virus threat. But IMO they know that they're doing. ..."
"... Trump team failed to follow NSC's pandemic playbook ..."
"... In a subsequent section, the playbook details steps to take if there's evidence that the virus is spreading among humans, which the World Health Organization concluded by Jan. 22, or the U.S. government declared a public health emergency, which HHS Secretary Alex Azar did on Jan. 31. ..."
"... Under that timeline, the federal government by late January should have been taking a lead role in "coordination of workforce protection activities including [personal protective equipment] determination, procurement and deployment." Those efforts are only now getting underway, health workers and doctors say. ..."
"... The problem is that the measures that needed to be taken directly contradicted the capitalist insistence on immediate profits: building reserve capacity into the health system (or rather refraining from the temptation to slim down the system to the very minimum needed capacity) was just something that capitalist regimes, desperate to cut taxes and otherwise distribute public funds to the wealthy, could not bring themselves to do. ..."
"... A case in point-to which I gave a link to in the paywalled Toronto Star on an earlier thread -- was the revelation that, after the Sars outbreak the Province of Ontario, following the advice of a Judicial enquiry, stockpiled respirators and masks against just such an emergency as we face today. 55 million masks, in fact, were purchased and, after 2017, destroyed or sold. ..."
I see no evidence of an owngoal. I see an engineered recession depression. I see enforcement
of lockdown. I see laws banning large gatherings. I see complete inability of any section of
the population to physically protest without incurring the full wrath of law enforcement and
many of their fellow citizens. Hardly a word of protest has been uttered regarding the transfer
of massive debt liabilities onto the taxpayer
One problem with your hypothesis is that 2+ years ago, Greenspan came out and admitted to
the fact of an unsustainable, massive bubble in the Bond Market. I linked to this Keiser Report that noted his
admission/confession , plus there are a great many other reports and essays relating to the
falsity of the economic figures and what they're attempting to conceal. Furthermore as behavior
by TrumpCo, particularly Pompeo's, shows, they were ecstatic in January at China's declaration
of the COVID-19 attack and initially ignored what China said it would do in response--shutdown.
Indeed, it took about 6 weeks for the reality of what China said to reach the tiny brains of
TrumpCo and elsewhere within the West's financial matrix. As I wrote, it didn't matter if the
event was natural or premeditated; what mattered was the very unanticipated Chinese and then
South Korean responses--they weren't gamed whatsoever as proven by TrumpCo's response. It's as
plain as day.
Deflating the Wall Street Bubble, a 'bailout' for Boeing, and accelerating 'decoupling'
provide powerful reasons for creating or gaming the Covid-19 crisis.
The Western response has been slow and ineffective. The reason for this is largely
neoliberal-thinking that puts capital before people. Essentially, the response has been
gamed. Yet people are still reluctant to blame authorities.
TPTB allowed the virus to spread so that China could be blamed and Boeing and Wall
Street could be bailed out. But apparently that wasn't enough. 'Spring Break' celebrations
in USA were allowed to continue. Was that just an innocent failure? Did they really not
understand that the virus could be spread widely via such a large-scale event?
Go-along to get along is still the order of the day for elites and Stockholm
Syndrome is still strong in the middle-class. Until there is outrage and
accountability, the gaming will continue.
Every delay, every failure means more virus infection.. more deaths.. more economic
damage - and justifies more stringent measures later.
'Herd immunity' and happy talk of vaccine development justify delays and a lax response.
Most consider a virus to be 12 months or more away. Long before a virus we may see severe
economic and social dislocations and possible imposition of martial law in parts of the
West.
<> <> <> <> <>
There has been a huge amount of planning for a pandemic. It seems likely that that
planning has also included how a pandemic can be gamed to benefit TPTB. We are seeing
plenty of CYA propaganda that excuses government failures and attempt to minimize the virus
threat. But IMO they know that they're doing.
"The U.S. government will use all powers at its disposal to prevent, slow or
mitigate the spread of an emerging infectious disease threat," according to the
playbook's built-in "assumptions" about fighting future threats. "The American public
will look to the U.S. government for action when multi-state or other significant events
occur."
. . .
Trump has claimed that his administration could not have foreseen the coronavirus
pandemic, which has spread to all 50 states and more than 180 nations, sickening more
than 460,000 people around the world. "Nobody ever expected a thing like this," Trump
said in a Fox News interview on Tuesday.
. . .
In a subsequent section, the playbook details steps to take if there's evidence
that the virus is spreading among humans, which the World Health Organization concluded
by Jan. 22, or the U.S. government declared a public health emergency, which HHS
Secretary Alex Azar did on Jan. 31.
Under that timeline, the federal government by late January should have been
taking a lead role in "coordination of workforce protection activities including
[personal protective equipment] determination, procurement and deployment." Those efforts
are only now getting underway, health workers and doctors say.
"There has been a huge amount of planning for a pandemic.." Jackrabbit@19
There has been a lot of planning for a pandemic. That there would be one was never in
doubt. It was regarded as being inevitable.
The problem is that the measures that needed to be taken directly contradicted the
capitalist insistence on immediate profits: building reserve capacity into the health
system (or rather refraining from the temptation to slim down the system to the very
minimum needed capacity) was just something that capitalist regimes, desperate to cut taxes
and otherwise distribute public funds to the wealthy, could not bring themselves to
do.
A case in point-to which I gave a link to in the paywalled Toronto Star on an
earlier thread -- was the revelation that, after the Sars outbreak the Province of Ontario,
following the advice of a Judicial enquiry, stockpiled respirators and masks against just
such an emergency as we face today. 55 million masks, in fact, were purchased and, after
2017, destroyed or sold.
"..It seems likely that that planning has also included how a pandemic can be gamed
to benefit TPTB. We are seeing plenty of CYA propaganda that excuses government failures
and attempt to minimize the virus threat. But IMO they know that they're doing."
If by 'planning' you are referring to brainstorming by businesses, individuals and
political interest groups you are right. But it doesn't mean much: it is of the nature of
this society that there is a never ending fountain of ideas on how to make money out of
disasters of every kind. In that respect the virus is simply another Bear market.
Those who infer, from the fact that capitalists and political opportunists never miss an
opportunity to turn a profit, that the pandemic was deliberately shaped in order to impose
an authoritarian order beg the question as to why the ruling class would want to do so.
Looking back on the 1930s it would be interesting to see how many people put forward the
theory that the Wall St Crash was deliberately engineered in order to: (fill in this space
according to taste.)
That is how many people apart from the Nazis who "knew" that the Jews were behind it and
used it for their own nefarious purposes.
(For those with limited understanding of the language by "knew" I mean 'insisted without
evidence'.
Only complete idiots believe that The Crash was deliberately brought about. Just as
today only fascists and idiots believe that the pandemic was planned and implemented in
order to advance the agendas of TPTB.
Only complete idiots believe that The Crash was deliberately brought about. Just as today
only fascists and idiots believe that the pandemic was planned and implemented in order to
advance the agendas of TPTB.
Posted by: bevin | Mar 29 2020 21:05 utc | 59
Keep in mind, as you read the words of this idiot, that he spent months (if not years)
polluting the comment threads on this very website, screaming words and phrases like
"racist" and "useless conspiracist" at anyone correctly claiming that ISIS was a
US/Anglo-Zio proxy.
The man is an idiot, his ability to correctly analyse events in realtime is completely
non-existant
Adding all that to the fact that coronavirus genome
variations in Iran and Italy were sequenced and it was revealed they do not belong to the
variety that infected Wuhan, Chinese media are now openly asking questions and drawing a
connection with the shutting down in August last year of the "unsafe" military bioweapon
lab at Fort Detrick, the Military Games, and the Wuhan epidemic. Some of these questions
had been asked -- with no response -- inside the U.S. itself.
Extra questions linger about the opaque Event 201 in New York on October 18, 2019: a
rehearsal for a worldwide pandemic caused by a deadly virus -- which happened to be
coronavirus. This magnificent coincidence happened one month before the outbreak in
Wuhan.
Event 201 was sponsored by Bill & Melinda Gates Foundation, the World Economic Forum
(WEF), the CIA, Bloomberg, John Hopkins Foundation and the UN. The World Military Games
opened in Wuhan on the exact same day.
Irrespective of its origin, which is still not conclusively established, as much as
Trump tweets about the "Chinese virus," COVID-19 already poses immensely serious questions
about biopolitics (where's Foucault when we need him?) and bio-terror.
The working hypothesis of coronavirus as a very powerful but not Armageddon-provoking
bio-weapon unveils it as a perfect vehicle for widespread social control -- on a global
scale.
I cannot speak for bevin, but I think that claiming that the pandemic -not
necessarily the original outbreak in China but the spreading of the virus to the US and
northern Europe- is part of the empire's plan does not make sense. Perhaps that is what
bevin is saying.
I don't know if virus is bioengineered (by US), time will tell. What I do believe that
there is very strong evidence virus originated in US in fall last year and they decided to
throw it at China using those military games to ruin it.
But US's glorious plan completely backfired, oh the horror, who could foresee that.
Except that literally every US plan, proxy, tool etc. in recent history backfired.
"What they needed was some method of absolving themselves of all blame." --Realist
@83
Could be, but if so it is still a massively incompetent own-goal. "They" may be
dodging personal blame, but "they" are shifting that blame to the very economic
paradigm that "they" depend upon for their power in society.
I don't think that will work out quite the way "they" hope, if indeed this is all
their plan.
But US's glorious plan completely backfired, oh the horror, who could foresee that.
Posted by: Abe | Mar 29 2020 23:46 utc | 87
What's your proof it backfired?
If the target was not limited, not local but global, then how has it "backfired"
A virus with a 4 to 14 day incubation period before infection became detectable, during
which the host would spread it liberally, was hardly, if engineered, intended to be
confined locally
Could be, but if so it is still a massively incompetent own-goal. "They" may be dodging
personal blame, but "they" are shifting that blame to the very economic paradigm that
"they" depend upon for their power in society.
I don't think that will work out quite the way "they" hope, if indeed this is all their
plan.
"... Bear in mind yet again that the TOTAL death count from two months of this virus in US still hasn't reached ONE DAY of deaths from ordinary flu. In fact the public health folks have been doing most things right in most places. The outbreak started in Seattle, which has been in rebellion against normal public health measures (border controls, vaccines) for a long time. ..."
Bear in mind yet again that the TOTAL death count from two months of this virus in US still
hasn't reached ONE DAY of deaths from ordinary flu. In fact the public health folks have been
doing most things right in most places. The outbreak started in Seattle, which has been in
rebellion against normal public health measures (border controls, vaccines) for a long time.
Last year, the CDC reports 45 million cases of Influenza in America (14% of population), with
21 million hospital visits, 810,000 hospitalizations, and 61,000 deaths. If America reaches
10,000 deaths with this virus, given the constant media exposure and policy driven towards
fear; the entire nation will go into dischord. Go outside, breath fresh air, smile, soak up
the sunlight, laugh, and exercise.
"... its all looking more and more like disaster capitalism in its purest, blood-stained form, a massive smash and grab raid on ordinary people... ..."
To me the coronavirus numbers increasingly DON'T justify the economically suicidal lock downs
- its all looking more and more like disaster capitalism in its purest, blood-stained form, a
massive smash and grab raid on ordinary people...
"... Kostin forecasts 2020 S&P 500 earnings will decline by 5 percent to $157 due to "supply-chain disruption, weak US and global consumption, and lower oil prices and interest rates." He thinks earnings will collapse in the second and third quarters before rebounding in the fourth quarter and for the full year. ..."
The COVID-19 outbreak has disrupted supply chains, eroded demand, curbed travel and prompted
employee furloughs, all resulting in a hit to corporate earnings.
Kostin forecasts 2020 S&P 500 earnings will decline by 5 percent to $157 due to
"supply-chain disruption, weak US and global consumption, and lower oil prices and interest
rates." He thinks earnings will collapse in the second and third quarters before rebounding in
the fourth quarter and for the full year.
His preferred valuation approach is to compare the S&P 500's earnings yield with the
yield on the 10-year note. Assuming an earnings yield of 7.2 percent and a 10-year yield of 0.5
percent, equating to a yield gap of 665 basis points, Kostin's base case is for the S&P 500
to bottom at 2,450.
However, in the event that the gap widens to 770 basis points, as it did during the global
financial crisis, the S&P 500 would fall to about 2,000, he said.
"... The US airline industry has spent a decade shoving itself into harm's way by strip-mining their balance sheets to fund share buybacks and goose top executive stock options. ..."
"... For crying out loud – the reckless irresponsibility of it is mind-boggling. That's because for decades upon decades this has been a highly cyclical industry – vulnerable to global dislocations caused by recessions, storms, wars, terror and more. Accordingly, airline companies absolutely need deep equity balance sheets and ample standby liquidity, even at the expense of short-term earnings. ..."
"... Needless to say, the Big Four US airlines – Delta, United, American, and Southwest – were having none of financial rationality, prudence and common sense. ..."
"... If the Big Four Airlines can't raise enough cash in the high cost long term debt markets or by issuing highly dilutive preferred stock or equity, there is only one solution – and that is chapter 11. Holy moly, that's why we have this legal protection procedure. ..."
"... Of course, the airlines are only the poster boy for this long overdue moment of truth. The problem is universal ..."
The nerve of it is a wonder to behold. The US airline industry has spent a decade shoving
itself into harm's way by strip-mining their balance sheets to fund share buybacks and goose
top executive stock options.
For crying out loud – the reckless irresponsibility of it is mind-boggling. That's
because for decades upon decades this has been a highly cyclical industry – vulnerable to
global dislocations caused by recessions, storms, wars, terror and more. Accordingly, airline
companies absolutely need deep equity balance sheets and ample standby liquidity, even at the
expense of short-term earnings.
Needless to say, the Big Four US airlines – Delta, United, American, and Southwest
– were having none of financial rationality, prudence and common sense. As Wolf Richter
properly pointed out:
"These stocks are now getting crushed because they may run out of cash in a few months,
yet they would be the primary recipients of that $50 billion bailout, well, after they
wasted, blew, and incinerated willfully and recklessly together $43.7 billion in cash on
share buybacks since 2012 for the sole purpose of enriching the very shareholders that will
now be bailed out by the taxpayer ."
We say nothing doing!
If the Big Four Airlines can't raise enough cash in the high cost long term debt markets or
by issuing highly dilutive preferred stock or equity, there is only one solution – and
that is chapter 11. Holy moly, that's why we have this legal protection procedure.
The airlines will have precious little business for the duration of the great COVID spring
break anyway. So let the court-appointed trustees operate with the same skeleton crews that the
airlines will be running even if they get the bailout. The level of customer service and
employment will be essentially the same in either case.
More importantly, let the gamblers and so-called investors who piled into these stocks get
their just deserts. That is, a 100% loss on their gambling stakes because that's all it ever
was when the Big Four's combined market cap hit $130 billion compared to just $43 billion
now.
Even more importantly, let these bankrupt shareholders file class action suits against the
idiots and clowns in the C-suites and on the boards of directors who made such foolish
decisions in the first place. Hopefully, these cats would be legally stalked and harassed to
the ends of the earth as an object lesson in the personal cost of imperiling corporate balance
sheets to feather their own stock options nest.
Of course, the airlines are only the poster boy for this long overdue moment of truth. The
problem is universal because today's rotten regime of Keynesian central banking has caused the
entire financial system and main street economy to become riddled with rank speculation and
reckless disregard for financial discipline and prudence.
And the crime starts right in the Eccles Building where over the last several decades an
inbred posse of PhDs and Washington apparatchiks have taken it upon themselves to destroy
honest price discovery in the money and capital markets in the name of levitating financial
asset prices and thereby fostering more growth, jobs, incomes and spending than the main street
economy would allegedly produce on its own.
Self-evidently, main street didn't need no stinkin' help from a wanna be 12-member monetary
politburo. They have created serial bubbles that have gotten more inflated with each cycle,
leaving the main street economy exposed to increasingly brutal episodes of correction when the
proverbial Black Swan, or Black Bat, as the case may be, makes its grim appearance.
Still, the very idea that agents of the state could have enough information and wisdom to
best the work of millions of traders, investors, speculators and dealers was ridiculous from
the start; and the further idea that financial assets prices falsified by the FOMC to the
second decimal point could cause main street to produce more output, jobs, efficiency and real
living standard gains than would be the case under market determined financial asset prices was
even more ludicrous.
Self-evidently, the only thing Keynesian central bankers have accomplished has been to fuel
egregious speculations in the canyons of Wall Street; drain main street businesses of real
productive investment; and leave businesses and households living hand-to-mouth and therefore
vulnerable to even short-run interruptions of cash flow.
So we will say it again: Hand-to-mouth economics is not the natural modality on the free
market; it is a malignant product of bad money and the debt-fueled speculative manias that are
the consequence of Keynesian central banking.
Left to their own devices on the free market, households save and provide for rainy days,
regardless of income level or social status.
Likewise, in a world not poisoned by cheap debt and falsified costs of capital, businesses
nurture their balance sheets and provide for cash flow interruptions either by buying insurance
or setting aside liquid reserves and equity capital based shock absorbers.
That's the real message of this – the second great financial heart attack of the last
decade. But rather than allowing the rot to be purged, the central bankers are now out pouring
kerosene on the fires.
That is, insisting upon even greater central bank intrusion in the financial markets and
even more egregious falsification of the prices of money, debt and every manner of risk assets.
In effect, they are advocating the complete euthanasia of market prices in the financial system
in favor of their own administered price folly.
At some point the very chutzpah of it gets downright maddening. We are referring to this
morning's missive in the FT from the Boobsie Twins, Ben Bernanke, and Janet Yellen, who were
major architects of the disaster now underway.
Yet they now want the Fed to have expanded powers to buy corporate debt and who knows what
else:
The Fed could ask Congress for the authority to buy limited amounts of investment-grade
corporate debt . Most central banks already have this power, and the European Central Bank
and the Bank of England regularly use it. The Fed's intervention could help restart that part
of the corporate debt market, which is under significant stress. Such a programme would have
to be carefully calibrated to minimise the credit risk taken by the Fed while still providing
needed liquidity to an essential market.
The bolded part is a risible lie. There is absolutely nothing wrong with the corporate debt
market that even a modicum of honest interest rates could not handle.
That's evident from the price chart of the largest corporate bond ETF shown below. It is
trading no lower than in previous risk-off periods including November-December 2018, January
2016, late 2013 and during the US debt ceiling crisis of August 2011.
Yes, it has plunged from the absurd levels reached during the stock markets blow-off top a
few weeks ago.
But so what? At the February extreme, the implied yield on corporate debt was hardly 2.6% ,
and even after the price plunge of recent days the implied yield is just 3.7% .
So what in the world are the Boobsie Twins talking about? Do they really think we are stupid
enough to believe that a 3.7% investment grade yield is an end of the world crisis that
requires the Fed to put its Big Fat Thumb on this sector of the rates market, too, after it has
already reduced sovereign debt to yield-free status?
Indeed, when you look at the real corporate debt yield after inflation it is downright
minuscule at 1.35% . So these Keynesian morons want the Fed to buy massive amounts of
investment grade corporate debt with fiat credits snatched from thin air because they think,
apparently, that the US economy will collapse at a real yield to just 1.35% after the current
running level of inflation.
So what we have here is a far more insidious reality. Namely, the reaction function of
Keynesian central bankers past and present has degenerated into an Atlas Syndrome.
These cats think they have the entire $85 trillion world economy on their shoulders and that
any time there is an abrupt re-pricing of the hideous financial bubbles they have inflated,
they propose to throw financial sanity to the winds lest the whole financial system and economy
splatter against the wall.
It won't, of course, because re-pricing of financial assets back to quasi-sane levels is
actually what is desperately needed to stop the violent boom and bust cycles that have been
gaining momentum under their tutelage for three decades now.
Stated differently, if Keynesian central banks fear a 3.7% investment grade bond yield, what
they actually fear is the price mechanism itself.
That's the heart of the matter: All of the emergency facilities and new legislative
authority proposals emanating from the central bankers and their Wall Street acolytes and
shills are designed to eviscerate and override the price mechanism in the financial
markets.
The very absurdity and danger of that idea, however, is dramatized in spades by the
juxtaposition of what happened yesterday. Presumably, the Boobsie Twins were emailing their
draft FT op ed back and forth during market daylight hours.
Alas, the corporate bond market was so badly "broken" as they penned up their SOS proposal
that, well, the largest amount of corporate debt deals of the year was brought to market!
That's right. About $28 billion of new deals were priced yesterday, of which $10 billion
were was 20+ years.
Duh. If that's "broken", we truly do not understand what financial planet these Keynesian
central bankers actually inhabit.
On the other hand, we know full well where drastic and sustained repression of bond yields
have already led.
To wit, to a massive scramble for yield among money managers, which in turn has fueled the
outbreak of epic-scale financial engineering in the C-suites. That's because they could sell
ultra-cheap debt for any cockamamie purpose that pleased Wall Street, including idiotic
empire-building through M&A and the depletion of corporate cash reserves and debt capacity
in order to fund massive stock buybacks and other balance sheet impairments.
Indeed, from the point of view of the central banker Atlas Syndrome, financial price
repression is the gift that keeps on giving. Having dissipated their balance sheet liquidity on
financial engineering, corporations now allegedly are facing a liquidity squeeze owing to the
COVID-19 supply-side shocks.
So without missing a beat, the Fed was out with a resurrection of the emergency commercial
paper funding facility that was used during the 2008 crisis to rescue con men like General
Electric's Jeff Immelt, who had loaded his $600 billion balance sheet with upwards of $200
million of cheap commercial paper.
As explained below, that particular facility ended up so malodorous even in the eyes of the
fools who populate Capitol Hill that they forbade the Fed from using it in the future without
the permission of the Secretary of the Treasury.
Little did they anticipate, of course, that during the next financial meltdown the office
would be occupied by the greatest flunky to ever hold the post, and that his real job as the
Donald's campaign finance chairman would be to tap the public till for whatever it would take
to insure his re-election.
So now that Secy Mnuchin has green-flagged this abomination, just recall briefly what
happened last time around.
Back then the alleged titan of corporate America didn't cotton to the idea of paying 5% or
7% or even 10% to rollover his short-term funding, least the hit to earnings would have
monkey-hammered his 2008 bonus and the value of his massive stock options.
So Immelt went running to his Goldman Sachs benefactor, Hank Paulson, who soon persuaded
Bernanke to open up a window at the Fed under its emergency section 13-3 authority.
That action guaranteed virtually unlimited commercial paper funding at the Fed window's
ultra-cheap rates so as not to disturb the year end bonuses of Immelt or hundreds of other CEOs
who had put their companies in harm's way be over-reliance on cheap short-term funding.
As it happened, the commercial paper bailout didn't help GE anyway, as perhaps indicated by
the shrinkage of its market cap from $500 billion at the peak to $55 billion a present.
But more importantly, there was absolutely no shortage of cash available to GE when Immelt
pulled his crony capitalist raid 12 years ago. What it needed to do was fill the approximate
$30 billion hole in its balance sheet by raising long-term debt, preferred stock or even common
stock.
Yet, the mere statement of the obvious underscores the entire scam behind the Fed's
intrusions into the money and capital markets with these so-called emergency facilities. To
wit, they have nothing to do with insuring the companies have the cash to meet their payrolls
or pay other bills as is so mendaciously claimed by Wall Street and the Eccles Building.
No, it's about keeping the cost of capital ultra low and minimizing the hit to earnings that
might result from tapping higher cost capital markets, which are still wide-open at a higher
yield per yesterday's massive pricing of new corporate debt issues.
In more unvarnished terms, the only real function of this massive new commercial paper
facility, which the Fed has stood up practically overnight, is protection of corporate
earnings, CEO bonuses and stock options and the remaining winnings of Wall Street gamblers.
The chart below highlights the massive lie behind this new facility. The ostensible reason
was that commercial paper yields spiked in the last few days from practically nothing to hardly
much more.
In the case of AA rated three-month nonfinancial commercial paper, the yield rose from 0.86%
on March 10 to 1.80% Friday afternoon.
But so f*cking what!
Back on February 27 when the stock market was just off its all-time highs, and when Powell
was claiming the US economy was in a "good place "and the Donald was ballyhooing the Greatest
Economy Ever the yield on this prime 90 day paper was actually higher at 1.56% !
Richard D. Wolff: Viruses like Covid-19 are a part of nature we must accept. But Capitalism-2020 must be destroyed
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