Musings Report 2020-10 3-7-20 Extremes Will Get More Extreme
You are receiving this email because you are one of the 800+ subscribers/major contributors to www.oftwominds.com.
For those who are new to the Musings reports: they're a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Thank You, Contributors!
Welcome new (or returning) patrons / subscribers James S., Paul C. and Clifton C.--thank you very much!
Extremes Will Get More Extreme
Long before China finally informed the world about the Covid-19 epidemic on January 23, 2020, I'd reckoned "this era (of relative stability) will draw to a close in 2020 and a new era of destabilization and uncertainty will begin." (Musings Report #1, January 4, 2020: Instability Rising: Why 2020 Will Be Different)
The foundation of my analysis was simple: the policies of the past 12 years were so extreme that beneath the surface stability, they were creating fragility, brittleness and vulnerabilities that were not readily visible.
As I put it in Musings #1: "The problem is that these policies create distortions that cannot be fixed with more of what caused the distortions in the first place: more extreme monetary and fiscal stimulus."
Since these are the only tools in the toolbox, these extremes will only get more extreme. Whatever new tools are added will also be extreme.
Since the Fed cut its Fed Funds Rate by a half-percent and the market crashed anyway, we can expect a cut to zero or lower: the extreme monetary policy will get more extreme.
The Fed may well start buying stock indices as well as bonds, and even more likely, corporate bonds and loans, as no rational buyer will touch this corporate debt as profits slide into losses and zombie corporations find lenders no longer want to take the risk of rolling their mountains of debt into new loans.
The Fed will become not just the "lender of last resort" but the "buyer of last resort."
It wouldn't surprise me in the least if the Fed's balance sheet doubled from $4.2 trillion today to $8+ trillion by summer as it feels forced to buy stocks, bonds and corporate debt to keep these financial bubbles from popping.
Quarantines that may appear extreme now will likely get even more extreme, along the lines of what authorities are imposing in China:
Only one pass to go outside is issued to each household, everyone leaving home is required to wear a mask, and trips outside are only allowed for re-supply of essentials.
This extreme of "social distancing" is the only way to stop the spread of the virus. The only other option is everyone wearing full hazmat gear, and most people wouldn't be able to maintain the 100% attention to detail required for that to work. Getting to 80% gets you nothing.
New extremes of fiscal stimulus and control of private enterprises are increasingly likely as small businesses fold and laid-off workers find unemployment isn't enough to keep them afloat financially.
Hong Kong already gave every permanent resident 10,000 HK dollars, about $1,200 USD, to boost its economy. Other nations are likely to follow this policy as spending and earnings dry up.
We can also anticipate new extremes in immigration control, as well as novel extremes few currently anticipate, such as military-type triage to decide who gets the few available intensive care beds once the wards are full. Younger people with kids might be given higher priority than the extremely elderly (85+) for example.
Should inflation soar as supply chain disruptions cause domino-like cascades of shortages, governments might turn to wage-price controls, a standard policy tool last seen in the inflationary 1970s.
Chinese authorities are demanding that private-sector employers continue paying their employees, and it's conceivable that governments might impose restrictions on the private sector to lessen the burden on financially squeezed households: maybe landlords would be required to "rebate" a percentage of rent paid, or an "emergency tax" would be imposed on businesses and landlords to fund "free money" distributions to households.
The Covid-19 pandemic is a mortal threat not just to tens of millions of people but to the entire financial system that rests on a crumbling, brittle, fragile foundation of extreme asymmetry, debt and leverage. We can anticipate even more extreme policies as central banks and governments attempt to save this rickety system from complete collapse.
Eventually, these policies will unleash an extreme inflation, threatening the major currencies with irretrievable losses of purchasing power. That will usher in the final stage of extremes leading not to restoration of past stability but to the terminal erosion of "money" (currency).
Highlights of the Blog
The Gathering Storm: Could Covid-19 Overwhelm Us in the Months Ahead? 3/5/20
Could China's Overlapping Crises Spiral Out of Control? 3/4/20
Did Covid-19 Just Pop All the Global Financial Bubbles? 3/3/20
The Limits of Force: A Bayonet in the Back Will Not Restore China's Economy 3/2/20
Best Thing That Happened To Me This Week
Finished the preparation needed to maintain "social distancing" for the next 3 months; no need to leave our property and we've prepared as best as we can for prevention and home care.
From Left Field
Macau Regulators Tell Casinos Layoffs Are Not an Option (via Adam T.)
Serfs of Academe -- the exploited ronin of academia...
A tour guide in Japan tested positive for the coronavirus for a 2nd time, less than a month after recovering
A Big Coronavirus Mystery: Where Are The Children?
My COVID-19 Story. Brooklyn.
Viral Alarm: When Fury Overcomes Fear (via Simon H.)
PLANET PLASTIC: How Big Oil and Big Soda kept a global environmental calamity a secret for decades
How Art Arrived at Jackson Pollock (6 min. video) (via GFB)
Coronavirus, synchronous failure and the global phase-shift
How To Avoid Getting Infected By The Coronavirus (35 minute video)
10 times worse than flu? nCov can be 10 times deadlier than nCov
Study of 72,000 COVID-19 patients finds 2.3% death rate -- the latest WHO estimate is 3.4%, so 2.3% is likely the lower boundary.... recall the death rate of conventional flu is 0.1%
"True love is like ghosts, which everybody talks about and few have seen." François de La Rochefoucauld
Thanks for reading--
charles |
|
