MCViewPoint

Opinion from a Libertarian ViewPoint

Posts Tagged ‘V-shaped recovery’

Of Two Minds – What Could Go Wrong? Plenty

Posted by M. C. on October 9, 2020

https://www.oftwominds.com/blogoct20/go-wrong10-20.html

Charles Hugh Smith

Quite a lot of things can go wrong, especially if the mainstream’s rose-tinted sunglasses induce a delusional confidence in fantasy.

The conventional assumptions are remarkably rosy: the “recovery” is V-shaped in all the ways that count (i.e. the top 10% are once again doing well), the Federal Reserve will never let stocks go down or interest rates rise ever again (never never ever!), and the Federal government will borrow and blow endless trillions in stimulus ($2 trillion every six months seems about right, but since there’s no limit, we’ll double it if that’s needed to bail out every zombie corporation, bloated bureaucracy, skim and scam in the land).

what could go wrong? Gordon Long and I considered the question and came up with: quite a lot of things can go wrong, especially if the mainstream’s rose-tinted sunglasses induce a delusional confidence in fantasy.

What Could Go Wrong? (43 min. video)

1. A key part of the happy story is the US dollar (USD) will continue its decline, which is wunnerful for stocks and exporters: dollar down, stocks up, yea!

The official explanation for this free-fall is the USD will weaken as the Fed eases / prints. The mainstream thinking is that Japan and the Euro bloc are farther along in their socialization of debt (i.e. their central banks are monetizing fiscal deficits) and so the US will have to play catch-up, weakening the USD.

What could go wrong?

US-centric analysts forget the USD is the primary reserve currency and due to Triffin’s Paradox, it doesn’t just serve the US economy, it serves the global economy. You will never hear a Fed representative admit this publicly, because the PR / fantasy is that the Fed only cares about the American public (awww, gosh-darn it, aren’t they sweet?) and keeping inflation low and employment high.

In reality, the Fed’s core interests are enriching and protecting private banking globally, and maintaining U.S. global hegemony via a strong dollar. Recall that geopolitically, no empire ever got stronger by weakening its currency.

The Fed never addresses the USD’s global role and so conventional pundits ignore geopolitical forces: capital flows, the global need for dollars to service debt denominated in USD and reserves, etc.

Also recall that China pegs its currency to the US dollar, not the other way around. That alone tells you the role each currency plays in the global economy.

For the USD to weaken, the yen and the euro would need to significantly strengthen. But there’s a problem with this thesis.

Rather than being stronger, Japan and the EU are weaker than the US. Credit impulse is essentially zero in both Japan and the EU, both their banking sectors are insolvent, their economies have been stagnant for years (EU) or decades (Japan) and their demographic declines are accelerating. Both are export-dependent, an Achilles Heel as world trade / globalization enters a secular decline that could easily gather momentum.

The US needs capital flows into the US economy, so negative rates are a non-starter. Non-US borrowers have USD denominated debts of around $3 trillion, so demand for USD is not optional, it is a function of credit, commerce and reserves.

Simply put, the US is not about to sacrifice the euro-dollar / petro-dollar and its commercial hegemony just to satisfy domestic pleading for negative rates. Furthermore, Japan and Europe have proven that negative rates only weaken the private banking sector–the exact opposite of the Fed’s Prime Directive.

If the USD strengthens substantially, which it tends to do in crises, that will be very negative for equities. (No, no, no, the Fed has our backs! The Fed will never let my precious portfolio drop a single dollar!)

So sorry, but the Fed’s Prime Directives are not related to your portfolio at all. The Fed’s PR is all about domestic stocks, implicitly or explicitly, but when push comes to shove, your portfolio will be sacrificed without any hesitation to protect private banking and USD hegemony. The empire eats first, and only the tragically misguided believe US stocks are all that matters to the Fed.

2. The Fed’s easing, QE, etc. will spark a new round of credit expansion.

What could go wrong?

Credit expansion is on life support. There are very few investment opportunities, which is one reason why corporations have poured earnings into stock buybacks. The Fed can’t create low-risk, high-profit investment opportunities, not can it make poor credit risks into good credit risks.

Banks can’t afford to lend to insolvent households, zombie corporations or small businesses. The credit expansion impulse is impaired by the overhang of bad debt, excessive leverage, zombie corporations, etc. and there’s nothing the Fed can do about it. The Fed is pushing on a string.

Furthermore, the Fed is now encountering political resistance to its “enrich the wealthy and bail out zombie corporations” monetary policies. Its room to bail out the super-wealthy is increasingly constrained politically. The Fed is signaling that its focus is shifting from free money for financiers to funneling new money directly to households.

3. The federal government will borrow and spend trillions, sparking renewed growth.

What could go wrong?

As noted, banks cannot lend to poor credit risks, nor can they force those who don’t want to borrow more to take on new loans. Federal spending doesn’t magically create good credit risks or well-collateralized creditors.

Small businesses cannot lower their fixed costs enough to survive, and many of these costs such as taxes and fees will be rising as cash-starved local governments seek more revenues.

The free money will flow not into productive investments but into demand for goods and services which are constrained by declines in trade, high fixed production costs, retirement of key workers, etc.

Inflation will leap, surprising everyone who believed the “low inflation forever” story. As inflation soars, the purchasing power of the federal spending will plummet accordingly.

As UBI, Fed helicopter money, etc. becomes institutionalized, the working poor will exit low-paying, high-stress jobs, creating labor shortages. Small business won’t be able to pay higher wages and survive, and low-margin corporations will be squeezed as well.

There’s much more in our discussion: What Could Go Wrong? (43 min. video)



My new book is available! A Hacker’s Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.



Recent Podcasts:

What Could Go Wrong? (43 minutes, with Gordon Long)

AxisOfEasy Salon #24: It’s Not a Conspiracy. It’s a Culture. (1 hr)


My COVID-19 Pandemic Posts


My recent books:

A Hacker’s Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook coming soon) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).



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Watch “GDP Crash! V-Shaped Recovery or ‘Greater’ Depression? Who’s To Blame?” on YouTube

Posted by M. C. on August 3, 2020

 

 

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Jobless Thursday – LewRockwell

Posted by M. C. on July 25, 2020

That’s right. They are not really even hiding the data, but the business press has been house-trained for so long to report only good news and positive deltas that not one in a thousand reporters has ever even seen Wolf Richter’s charts (which he has been publishing weekly since May) because they obviously repudiate the V-shaped recovery narrative.

So when you look at the total (and correct) unemployment picture, you see that the labor market has been treading water for nine weeks.

https://www.lewrockwell.com/2020/07/david-stockman/jobless-thursday/

By

David Stockman’s Contra Corner

Maybe it is time to don our tinfoil hat. Here’s the flat-out lie the WSJ reported this morning in response to the weekly unemployment claims release. It sure did make you think that the jobs picture is improving by the week:

The number of people receiving benefits through regular state programs, which cover the majority of workers, decreased by 1.1 million to 16.2 million for the week ended July 11. The decline extends the recent trend, with the number receiving benefits the lowest reading since the week ended April 11.

Just to make sure you grasped the good news, the WSJ added this chart for good measure:

Actually, there was no improvement at all this week!

And what remains is the greatest labor market disaster in history. As Wolf Richter observed in his excellent post on the heels of the DOL (Department of Labor) report:

If you read this morning or heard on the radio that 16.2 million people were claiming unemployment insurance – the “continued claims” – and you thought that there were only 16.2 million people who claimed unemployment benefits, you fell victim to lazy misreporting in the media, by reporters or bots that didn’t read the Labor Department’s press release beyond the second paragraph.

Not even close, of course. The true number is 31.8 million, just a tad below the peak two weeks ago, and implying that fully 20% of the US labor force is unemployed.

It’s all in the report, but apparently the Wall Street Journal reporter – we are speaking to you Eric Morath – was either too lazy to read below the second paragraph, or too dimwitted to see that even as the blue bars (state UI beneficiaries) have been falling slightly per the WSJ’s misleading chart above, the red bars (the Federal PUA and PEUC beneficiaries) have been rising rapidly and are still at record levels.

So when you look at the total (and correct) unemployment picture, you see that the labor market has been treading water for nine weeks.

Moreover, when you cross-check these DOL data with its June report on the total civilian labor force, you get an answer that the stock market cheerleaders who claim to be the business press wouldn’t approach by a country mile. To wit, the civilian labor force as of June was 159.9 million and the number of workers currently at home collecting the dole is 31.8 million.

Whether by the old math or the new, that computes to an unemployment rate of 19.9% and it’s a figure that has not been seen since the dark days of the 1930s.

It’s hard to believe, of course, that reporters are this lazy, but you can’t gainsay the obvious. As Wolf Richter further noted,

The issue is that the claims under federal programs are new, established by the CARES Act, and the Labor Department just inserts them further down in the press release, and then it provides a total of state and federal claims further down – the 31.8 million – instead of putting the total in the first line of the first paragraph so that even lazy reporters or lazily programmed bots, who’ve for years reported only the first two paragraphs, can see it.

That’s right. They are not really even hiding the data, but the business press has been house-trained for so long to report only good news and positive deltas that not one in a thousand reporters has ever even seen Wolf Richter’s charts (which he has been publishing weekly since May) because they obviously repudiate the V-shaped recovery narrative.

For want of doubt, however, here is Wolf Richter’s explanation of what’s in the red portion of the bars above. It both underscores the absolute disaster caused by Dr. Fauci’s Lockdown Nation and also explains why Washington politicians are now sweating bullets as they argue over re-upping Everything Bailout 4.0.

Self-evidently, without the $75 billion per month that Uncle Sam is firehosing into the smoldering ruins of the labor market via these special Federal UI programs, there would already be riots in the streets that would make the recent Minneapolis altercations looks like small potatoes:

Unemployment insurance under federal programs.

Pandemic Unemployment Assistance (PUA): 13.18 million continued claims. PUA covers contract workers, the self-employed, and others – the “gig workers”: During the week, 974,999 new claims were added by 48 states.

This means initial claims under state and federal programs combined this week totaled 2.35 million (1.37 million initial state claims plus 974,999 initial PUA claims), a huge number of people newly out of work!

The total number of people claiming benefits under the PUA program declined to 13.18 million, from 14.28 million last week, as more workers that had been receiving PUA benefits were dropped from the rolls, likely because they’d started working again.

Pandemic Emergency Unemployment Compensation (PEUC): 940,113 continued claims, about flat with the prior week. PEUC covers people who don’t qualify for other programs.

These continued claims under the PUA and PEUC programs, plus workers under programs for federal employees and newly discharged veterans, plus workers covered by all remaining programs are represented by the red columns in the first chart above.

So the most generous thing you can say without going full-retard tin foil hat is that the DOL is employing misdirection in order that some impertinent member of the financial press doesn’t shout out loud the obvious. Namely, how do you square the above flat-lined total UI claims of more than 30 million per week since mid-May, with the monthly unemployment data showing a 5.3 million reduction of unemployed workers between April and June.

Better still, if there were really only 17.75 million unemployed workers in all of the USA as of June, who, pray tell, are the additional 14 million Americans that are drawing unemployment checks week after week?

Total US Unemployed Workers Per BLS Monthly Report Read the rest of this entry »

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Want to Kill the Economy Again? Keep Threatening More Lockdowns. | Mises Institute

Posted by M. C. on July 3, 2020

https://mises.org/power-market/want-kill-economy-again-keep-threatening-more-lockdowns

Ryan McMaken

The first time governments imposed business closures in the name of fighting the spread of COVID-19, the job market imploded.

Forty million Americans lost their jobs, and at least 20 million of those are still unemployed. Income in America fell to such low levels that federal tax revenues fell by more than 50 percent year over year in April and remained down more than 25 percent in May. These are losses of historic proportions.

It remains to be seen if the country even began anything that could realistically be called a “recovery” in June. After all, new unemployment claims were still at over a million new applicants according to the most recent data. That’s still off-the-charts bad. Nonetheless, we continue to hear about how, any day now, we’ll see evidence of a “V-shaped recovery” in which jobs and economic growth will come roaring back.

But now we’re already seeing governments—by which I mean a small cadre of governors and unelected bureaucrats who currently rule by decree—announcing another round of business closures and ongoing government regulations that micromanage every aspect of a business’s daily interactions with customers.

This is likely to greatly slow any V-shapred recovery that might have been forming, and it will give businesses reason to further put off plans for implementing efforts at recovering from the economic crash experienced in April and May.

This is due to businesses being physically barred from hiring in many cases, but it’s also due to “regime uncertainty.”

Regime uncertainty is a wealth-killing, job-killing phenomenon in which business and property owners cannot plan for the future because of capricious, unpredictable, and incoherent government interventions.

This has happened a number of times in the past in the United States, an in each case, it prolonged economic depressions.

As shown by economic historian Robert Higgs, regime uncertainty was a significant factor in the long duration of the Great Depression. It again became a factor during the so-called Great Recession, when the US government began implementing a veritable smorgasbord of new regulations and bailouts.

During these periods, there were few limits on government action and the legal environment was prone to be substantially changed on short notice and in a succession of fits and starts.

Not surprisingly, under these conditions, businesses became reluctant to engage in new plans for expansion, employment, or investment.

Now, thanks to the coming “second round” of state lockdowns, businesses are once again in a similar position.

For example, yesterday Colorado governor Jared Polis announced that the governor’s office was once again shutting down bars and nightclubs, after only a few weeks of being allowed to remain open. This comes after a tiny uptick in new cases in the state.

What was the legal process for dictating to these businesses that they must now remain closed? There was none. For all we know, Polis just decided in the shower yesterday morning that it “felt right” to close down bars again. There is no debate, no checks and balances, no period for public comment. We live in a world where a politician can simply decide to shut down businesses whenever the mood strikes him.

Polis certainly isn’t the only politician of this type.

Governors in a number of states have taken similar actions, from California to New York to Texas and Florida. Bars, and other businesses, are again being closed by government edict. Or as in New York, they are not being allowed to open at all.

Some observers might shrug and say “well, it’s only bars and a small minority of businesses. It’s no big deal!” This might be true to some extent were other businesses able to obtain any useful information on the likelihood that they too will be shut down. After all, just because it’s “only” bars being closed now doesn’t mean it won’t be all restaurants, barbershops, and offices later.

And how might businesses get this information for planning purposes? It’s not as if any objective standards or guidance are offered by the secretive junta of bureaucrats that decides a business’s fate.

A business could ask, “At what number of new cases/hospitalizations will you extend new business closures?” But the business is unlikely to receive any answer, because it is clear that governments have established no objective standards of any kind. These government planners apparently decide business closures based on personal whims or on political pressure. What’s worse, these changes can occur without any warning at all. Even after months of talk about plans for dealing with COVID-19, governments have yet to announce or establish any standard at all by which to judge whether business closures or lockdowns are necessary. Exactly how many COVID-19 deaths or hospitalizations are necessary to “trigger business closures”? Virtually no government is willing to say. The only governor who appears to have even suggested an actual numerical standard is Greg Abbott of Texas who claims:

As I said from the start, if the positivity rate rose above 10%, the State of Texas would take further action to mitigate the spread of COVID-19.

But even in this case, government action is vaguely defined only as “further action.” That could mean virtually anything. So business owners are left just guessing what governments might do next without anything we might call “due process” or even a “legislative process.” It’s just a matter of a single man or woman issuing diktats about whether or not a business owner is allowed to use his or her property. Moreover, just because it’s someone else’s business today, doesn’t mean it won’t be your business tomorrow. That’s the nature of regime uncertainty. One round of regulations now doesn’t mean there won’t be something quite different and far worse coming down the line soon.

Under these conditions, there is little reason to assume there will be a V-shaped recovery. After a period of only one month of “reopening,” governments are already enacting new business shutdowns and claiming the authority to engage in these shutdowns indefinitely. It’s as if the system were designed to maximize regime uncertainty and destroy employment and income. For business owners, there’s no end in sight.

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