This week’s standard refrain was one of pessimism. The quick return to economic health mantra that was popular not long ago has disappeared faster than you can say lickety-split. But there was one notable outlier this week. In fact, one leading economist stepped forward with assurances that renewed prosperity lays just ahead.
On Wednesday, Nobel prize economist Paul Krugman looked up from his liquidity trap graphs long enough to tell Noah Smith at Bloomberg that the 1979-82 economic slump “would suggest fast recovery once the virus is contained. I don’t see the case for a multiyear depression.”
This sounds great and all. A fast recovery would end a lot of financial pain and suffering. Still, we seem to think the damage that’s been done by the government lockdown will have long-term consequences.
The glorious ascent of the concave parabola of government spending and debt won’t go away. The budget deficit has grown by leaps and bounds – nearly $3 trillion – over the last four months. The national debt – currently over $25.6 trillion – has overtaken the economy.
What’s more, the deficit spending’s being financed by Fed credit that’s created out of thin air. Again, there will be lasting consequences for this type of depravity.
Presently, the economy and financial system is in grave trouble. This is not a cyclical depression, despite what Krugman says. This is a full societal breakdown. And the authorities can’t stop it.
Not since Nero clipped coins in 64 A.D. and fiddled as Rome burned has there been such an intolerable collection of lowlifes in imperial office. No plans are off limit: Mass surveillance. Permanent wars. Market intervention. Trade wars. Greater government control. You name it.
Yet these tired solutions are the source of the problems…
Solutions and Fixes
The authorities may not be able to stop the depression. But they can try; it’s in their interest to do so. Their efforts, however, will serve to make a greater mess of things.
You see, the economy can and will recover from the mounting depression. Though it may take a decade or more to do so. Moreover, the intensity and duration of the depression is dependent on the level of government mismanagement. Thus far, the mismanagement has been remarkable.
The lockdown may have helped flatten the curve. But what did it really solve? The virus is still on the loose. People are still getting infected. Yet, thanks to the lockdown, the economy has also been destroyed.
From one solution precipitated a new problem. And the fix to that problem caused another problem. And on and on…
Economists at the University of Chicago estimate that more than two-thirds of the workers on unemployment insurance are making more in jobless benefits than they did at work. Some are even hauling in two to three times as much.
Weekly unemployment payments of $600 granted by CARES Act have been a great boon for many unemployed workers. These weekly payments also provide a government incentive not to work. This, in effect, delays economic recovery.
The government’s solution to the consequences of the government’s lockdown has become part of the problem. But not to worry. The government stands ready with a new solution to fix the problem of its making.
Take Senator Rob Portman, for instance. He’s proposing a $450 weekly ‘return-to-work bonus.’ The purpose of the proposal is to incentivize people to return to work by giving them free money. Larry Kudlow thinks Portman has a good idea. According to Kudlow, this is something the White House is “looking at very carefully.”
What else are the White House and the central planners looking at? What other messes will their solutions make? Several come to mind…
This is a Full Societal Breakdown
Unlike the Great Depression, where there were mass bank failures and a collapse in the money supply, the Fed is engaging in mass money printing. The Fed’s balance sheet was at $4 trillion when Fed Chair Jay Powell rung in the New Year. Now it’s over $7 trillion…and is headed to $10 trillion by the end of the year.
These dollar debasement policies produce an endless assortment of economic distortions. As money loses value, there can be a wide range of outcomes. Prices change and fluctuate in strange and unpredictable ways depending on people’s mass psychology.
Will financial assets inflate like they did following the 2008-09 bailouts? Or, because free money is being delivered to the people, will consumer prices inflate? Will all the free money produce an economic boom? Or will the economy stall as inflation rises in a stagflationary quagmire?
The fact that this is all happening in an election year ups the ante. As the campaign trail heats up, followed by debates, advertisements, and party conventions, proposed solutions to the economic problem will range from the extreme to the absurd. You won’t hear mention of freedom, liberty, honest money, and small government…unless you go here.
But it will be quite a delight to observe, if only the outcomes weren’t so destructive. Here’s a preview of what’s to come…
Two hominids, panting at the watering hole, calling each other names, tweeting insults, squawking and shrieking over who gets to divvy up and dole out the peanuts. One wants to transfer wealth from the rich via payments to the poor. The other wants to rebuild the nation’s crumbly airports and bridges using money from somewhere.
Yet the people, following several months of lockdown, don’t want to hear it. As the weather heats up, and the economy cools down, tensions will combust. Riots in Minnesota have flared up riots in Los Angeles. But you ain’t seen nothing yet…
This is a full societal breakdown. Racial injustice may be today’s rage. But there’s plenty of other injustices for people to go mad over. By the dogdays of August, no doubt, when the weekly $600 unemployment checks program has expired, riots will come to a Target near you.
After that, things will really get ugly.
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As always, your financial analysis is akin to brain candy for the economic junky. Factual and entertaining. Thank you.
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It is hard to be critical without sounding like a gloom and doom-er but there are other considerations that may have a devastating impact on the world. First, “multiculturalism” is a young experiment. The liberal idea that we are all equal (by any measure) is novel and absurd on the face of it. There have always been cosmopolitan centers in the world but people didn’t abandon their cultures and everybody knew where they stood. Things that are not true will eventually become obvious and people and cultures are not equal, despite our best efforts to make it so. So the question becomes what happens when people go tribal. In the case of Rome, it was a 1000 years of the dark ages.
Secondly, “democracy” and “multiculturalism” are antithetical to groups larger than a show of hands. Vote seeking creates bribery and stimies any needed reforms for the good of all. What we see in 2020 is the perfect storm.
And thirdly, a Ponzi scheme is a Ponzi scheme is a Ponzi scheme. Our current global financial system is a tower of Babel. It will collapse from its own weight and design and its occupants (those who survive) will scatter. Tweeking the mortar mix isn’t going to hack it any longer. Even the ancients knew that you must control debt either by outlawing it or setting a reset date for lenders to calculate by.
It’s true that you can’t do much to protect yourself if this is the case, but social, political and financial collapse in America, Europe and Asia could take us to a very dark place.
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As another author stated, the entire society has been anesthetized.
When this wears out, reality will be replaced for the brazened bots.
The Maoisota, AG Keith Ellison, a supporter of the anarchist movement,
has taken control of the trial of the MPD Four. Is he interested in justice
or one that fails just shortly before the general elections.
Soros, has evilly moved to install attorney generals and prosecutors
nationwide to influence governmental policy.
I suspect same or similar events reoccurring in the fall. Hopefully, I
shall be wong.