Hey…This crisis is really getting bad. Did you hear? Exxon and Mobil had to lay off 25 congressmen.
—Popular joke
‘The worst is behind us,’ says an upbeat piece of stock mongering on MarketWatch.
Many investors must think so. The Dow closed up more than 1,600 points yesterday.
The immediate cause of yesterday’s optimism was that, as President Trump put it, we can now see ‘light at the end of the tunnel.’
The flicker he thought he saw was from the taillights of the COVID-19. Cases in New York, it was reported, seemed to be leveling off.
Maybe the enemy is taking the Holland Tunnel out of town. Maybe not.
If the virus is in retreat…it’s because we’ve bombed the hell out of the economy.
People trapped in their homes don’t get the virus…but they don’t get or spend money, either.
But the whole discussion has become so tangled up, it’s probably time to try to unravel it.
What’s the connection between the virus and the economy? If the virus eases up…will the economy ‘take off’? Should stocks go up?
Let’s pull out the threads and have a look.
The four threads
First, let’s yank on the simplest, and shortest, of the threads: the COVID-19 molecule itself.
Is it worse than other seasonal influenzas or other ailments — such as cancer, heart disease, or depression? We don’t know. It depends on what ‘expert’ you listen to.
Second, there is the feds’ reaction to the virus.
In a previous era, they would have let nature take its course. Now, they think they are fighting a ‘war.’
Does that make sense?
Sometimes, of course, when the country faces a mortal enemy, it is worth it. But is it worth it now…when the ‘enemy’ is a virus? Again, it depends on whom you talk to.
Third, there’s the economy’s reaction to the feds’ antivirus initiatives.
By stopping people from getting or spending, the feds are also stopping the economy.
Federal Reserve governor James Bullard warns that unemployment could be higher than during the Great Depression. Is it worth it?
Fourth, there is the feds’ reaction to the economic reaction that their reaction to the virus caused.
Even before the virus appeared, it was unclear what was going on. Some people claimed the economy was in great shape…or ‘in a good place,’ as Fed chief Jerome Powell put it.
And then, when the virus attacked, the president said the stock market was ‘starting to look very good,’ hinting that investors should buy stocks.
And his economic advisor, Larry Kudlow, said the virus was …
Others, including your editor, saw the U.S. markets as a fragile Humpty Dumpty…sitting high up on a shaky wall.
When he fell, we predicted, all the king’s quacks wouldn’t be able to put him back together again.
But now that Humpty Dumpty has slipped…let’s look more closely.
Entitlement to immortality
The COVID-19 thread is dangerous. But it is not likely to be more deadly than other new virus infections…and nothing like the Spanish Flu of 100 years ago.
That one killed 50 million people. This one will probably not even kill 10% of that number.
It is also not likely to be such a big threat for very long. Humans suffer colds, measles, and traffic accidents. We learn to live with them.
Those who say we shouldn’t allow even a single death are just not thinking clearly.
Thirty-seven thousand people die on American highways every year. If we wanted to save them, we would lower the speed limit to 20 m.p.h.
We don’t do that because we’re not damned fools. We accept reasonable risks and go on with life. There’s no entitlement to immortality in the Constitution or in the feds’ virus response.
So, how about the feds’ COVID-19 response? Could they have handled it better? Probably. But governments had to react. And — given the way the press had ginned up mob hysteria — over-reactions were inevitable.
But shouldn’t government policy be guided by science? Yes…and no. Scientists can measure risks, telling us, for example, how many fewer people would die in traffic accidents if we took the speed limit down to 20 m.p.h.
Still, it’s not up to them to tell us if it is ‘worth it.’ Ultimately, the feds have the guns; they’ll make those decisions.
The final thread
Most national and local governments simply adopted measures tried elsewhere — social distancing…face masks…and so forth.
These led to a drastic cutback in wages…sales…profits…tax revenues…and GDP. Those economic losses are real…and mostly permanent.
If a man misses work one day, that day’s production is gone…forever. He may try to make it up on the morrow, but then he has lost whatever he had planned for that day.
A month of idleness equals about 8% of annual GDP. Since real U.S. GDP was growing at only 2% a year…a month of shutdown is an immediate recession. Two months is a depression.
Like it or not, that’s what the feds have wrought. We will be poorer as a result.
In a better world, we would accept it gracefully and get back to work as soon as possible.
But in the world we live in…no matter how big a calamity has befallen us, the feds can make it worse.
We have no real beef with COVID-19. It is what it is. And we have no real beef with the feds’ attempts to deal with the virus. We don’t know that we would have done better.
Where we begin to quake and moan is when we look more closely at this final thread — the feds’ reaction to the damage they have done.
As we will explore tomorrow, the feds’ money-printing is so obviously preposterous…so self-evidently harmful…so childishly stupid, it is leading us to a much bigger disaster.
But at least it’s not boring!
Pelosi, Trump, Kudlow, Schumer, Navarro…It’s like watching a group of chimpanzees at the controls of a nuclear plant.
It’s amusing. But we’re sure it will end badly.
Stay tuned…
Regards,
Bill Bonner