CORONAVIRUS ECONOMIC REALITY
The Coronavirus is contagious with a 2% mortality rate and is likely to infect millions of people. A solid well tended immune system, hydration, vitamins, and mineral replacement, will protect most of the afflicted from serious consequences – all available without undue stress in most economically advanced countries with solid safety nets. Sadly, there are few economically advanced countries with solid safety nets and the safety nets are under attack by most authoritarian regimes. The virus will not simply disappear as had been declared by science-denying politicians.
WHAT DOES THAT MEAN FOR THE WORLD ECONOMY, GROWTH, EMPLOYMENT, CONSUMER SPENDING, ASSET VALUES, FINANCIAL INSTITUTIONS, AND INCOME EQUALITY. ACTUALLY, IT BODES POORLY FOR ALL OF THAT AND MORE?
Why? For the first time since the great crash of 1929 the precedent and subsequent depression, we are confronted with an economic crisis not restricted to simple lapses in the financial system, banks, stock markets, investors, various derivatives etc. We are confronted with the economic reality of a crisis affecting all walks of life, business, political strife at a time when financial systems are in bubble mode on all fronts – quite fragile, most other sectors of the economy maintaining a fragile façade of greatness, while the underlying foundations have been eroding.
The shock to the system is unlikely to be warded off by monetary manipulation as the issues are not as simple as past economic shocks. Fiscal stimulation – a long term solution to bad economic times went out with the post Reagan rejection of the economic theories of John Maynard Keynes substituted by Reaganomics, a never-succeeding philosophy of making the rich richer and the world will grow successfully “And shall be forever.” It is those misguided economic missionaries for the top 1% who have sufficiently rattled the system so as to exacerbate potential economic crisis. There is little understanding by this group as to how the general economy interplays with the financial economy. We call that “main street” but it is quite more. It is the entire population, all business, large and small, and all asset classes. The virtual halt, long-term halt of goods, services, and people circulating through the world, as was the case in the 1930’s, bides poorly for international economic success. Only fiscal spending measures and war elevated the U.S economy after ten years of devastating economic consequences. We hope the next regimes will be more sympathetic to fiscal cures and less prone to war.
Of course the first cracks in the economy are signaled by the financial markets and institutions. We are entering into this crisis in a deeply flawed and fragile financial condition. The manipulated bubble has covered fundamental basic weakness in the financial world. Derivatives positions out of control at multiples of 2007 – 2008 levels, banks unable to maintain sufficient liquidity and unwilling to lend to each other, interest rates lower than indicated for bubble control, investors and hedge funds overly leveraged so as not to miss the bubble ride, junk bonds that are quite beyond the term junk both in quality of the underlying business and the lack of covenants, stock prices supported by the “plunge protection plan” using taxpayer funds to enhance share prices – a political ploy.
The banking system out of control by virtue of its new surrogate (borrowers) hedge funds who don’t hedge but supply leverage the upside. Junk of all kinds, once again, being packaged and reclassified as quality. The usual excesses and foolishness unmasked by the virus risk to worldwide business.
The virus has already paralyzed the supply of products and product imports worldwide. It has paralyzed the consumer, both for durables and non-durables. Profits of most businesses are endangered. Workers are being laid off. The negative business cycle has begun.
Hard asset values – all real estate, minerals, art, have already gone illiquid – always the first step towards substantial price declines. Some sellers are wisely taking discounts to achieve liquidity. Smart buyers are wisely either holding back or looking at value with care. All of these assets are selling at discounts (when selling) to the pre coronavirus levels. Look to further discounts and illiquid markets.
Short term there are no magic fixes. Medium and longer term we need leadership who will be bold in economic thinking – fiscal spending wealth and income revaluation to reduce inequality, a view towards using the occasion to spend and fund environmental and other issues deadly to the majority of the world population. More Reaganomics will exacerbate and perpetuate the plunging economy. A wake up call is in order.
During this time of Coronavirus testing and medical attention must be made available to all without cost. To date, the administration has prohibited local testing without pre approval of the Pence group and has not supplied authorized test kits to the states. Criminal behavior equal to jailing children without proper care and medication on the Mexican border. Sad state of leadership, a crisis!