Minimizing and Balancing Two Disasters of Global Pandemic and Financial Depression

The latest U.S. and European data proves the world is in its steepest freefall ever—and the old economic and political playbooks don’t apply.

This global economic collapse is not the result of a financial crisis. It is not even the direct result of the pandemic. The collapse is the result of a deliberate policy choice, which is itself a radical novelty. It is easier, it turns out, to stop an economy than it is to stimulate it.

The most urgent task is to prevent the slowdown from turning into an immense financial crisis while preventing a 1918 flu pandemic scale medical disaster.

The shutdowns has been counterbalancing with massive stimulus has so far prevented an immediate global financial meltdown.

* Seventy-three percent of American households report having suffered a loss of income in March. For many, that loss is catastrophic, tipping them into acute need, default, and bankruptcy.
* Delinquencies on consumer debt will no surge, leading to sustained damage to the financial system.
* Discretionary expenditure will be deferred.
* Petrol consumption in Europe has fallen by 88 percent.
* The market for automobiles is stone dead.

SOURCES – Foreign Policy article
Written By Brian Wang, Nextbigfuture.com

30 thoughts on “Minimizing and Balancing Two Disasters of Global Pandemic and Financial Depression”

  1. Does everyone understand that money isn’t real? It is just a mechanism to account for the transfer of products and services. All that the mechanism requires is that most people accept it. Which means that money doesn’t even need a physical form. It can just be electronic transactions, which is what most of our money is today.

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  2. Corporations are supposed to be paying out profits as dividends; The stockholders are the *owners* of the corporation, after all, it’s their profits!

    The buy backs are more problematic: With CEOs and upper management being rewarded with stock and on the basis of stock prices, when they pump the stock price, they’re directly laundering money into their own pockets, and transfering ownership of the corporation to themselves.

    That’s the big story of corporations over the last 50 years: Absentee stock owners, (Thanks to most ownership being through funds, not directly.) has enabled management to operate corporations for their own benefit, and screw fiduciary responsibilities.

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  3. Good point about the moral hazard. But the problem is it applies everywhere. The economist William Lazonick has spent his career determining what corporations do with their cash and investments and he says corporations have on average spent over 90% of their profits over the last decade on buybacks and dividends, about half each. That leaves precious little for R&D, expansion or worker retraining. Indeed, they often go into debt instead! The airline industry spent just about as much on buybacks ($45b) as it is now going to receive from the CARES bill ($50b): https://www.washingtonpost.com/business/2020/04/06/bailout-coronavirus-airlines/
    As for student loans, I borrowed a total of $7,000 in the early 1980s to go through a good State college; the last two years only, for both tuition and room & board in the dorms.
    Even with inflation, it is way more today due to state and federal cutbacks, mostly, with some overpaid luminaries and administrators added in.
    There’s guilt everywhere, but the fallout is not equally shared.

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  4. So much of understanding political discourse in the USA (and often in parts of Europe) consists of working out what obvious, simple, working, solution we’ve had in Australia for ages, that they haven’t got, and are arguing is “impossible”.

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  5. Does the American relief package have anything like Job-Keeper here in Australia? We have “Job-Seeker” for those looking for work, and “Job-Keeper” allowances which are paid to employers to pay to employees of locked-down jobs to try and keep the economic relationships there so that we can hibernate the economy without killing it.

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  6. If we’re keeping people safe with stay-at-home orders, we’re NOT keeping essential workers nearly as safe.

    This will hit health care for COVID19 victims hardest, as they get sick despite the best precautions and stay out sick for weeks. Unlike the rest of us, the ‘curve’ for workers in hospitals won’t ‘flatten’ any time soon, as our avoided risk accumulates there.

    A 38000 employee hospital health system in Detroit has about 1500 workers sick with COVID19 symptoms. 4% out now – 40% in another month? Even if it only hits 10%, it’ll be a crisis on top of a crisis.

    Also starting to get hit – fast food places that pay too little to make it worth the risk – starting with any ‘kids’ who live with Mom&Dad, who won’t want to risk COVID19 getting in the house. One place near me had previously shut down their indoor order area for renovations, and foolishly re-opened it. Next day, 4 workers simply didn’t show up.

    Also, low wage workers will soon realize better paying options are opening up to those willing to take the risks, as more important essential services lose workers or need more for expanded services (like grocery order delivery).

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  7. Generation Y : People who still live with their parents and are too lazy to get a job.
    Generation Z : Lazy kids who can’t walk 2 blocks to school.

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  8. America is going to use this emergency to bring as many supply chains home as possible. Loser: China. Winner: Mexico.

    China might stay in the air for a while like Wile E. Coyote but we all know what happens when he looks down, even for a moment.

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  9. If you’re going to do that, to be fair you need to contrast their normal economic levels to normal economic levels in the US; Which reveals that normality for many of them IS catastrophic economic circumstances by US standards.

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  10. US households had 113 trillion in assets as of end of 2018. So the size of the Fed intervention doesn’t really reach beyond the level of liquidity level interventions yet. You need to put “hundreds of billions” into perspective.

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  11. our fed system works fine,,, the problem with it is that the rest of the world doesn’t have the same philosophy when it comes to money… they save too much… which fucks everything up…

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  12. They don’t print money….money is M0…. it’s all based on credit expansion of M2 money to banks…. And M2 money only exists as a number in a Bank ledger…. you could never cash In All of the M2 Money to get physical M0 money…it doesn’t exist,,, you can increase M2 money by changing fractional reserve percentage by banks or changing interest rate that fed uses to lend money to banks… Not sure which money supply derivatives from 2008 falls into…. maybe that was M4….. 😉 And M3. We don’t even want to know that one…. you get too see how much the Chinese have piled in T -bills or something like that,,,, Fed doesn’t wants to publish that data anymore,,, Not that it matters because the Chinese aren’t allowed to sell their T bills that theIr gov’t bought anyways….They have to trade them with other countries to get rid of them…. But, our T bills are matured…. we want Our money back… nope sorry china You just missed the deadline to take it out and it goes into the automatic T bill repurchase program… (Don’t tell China that’s called the paper shredder…)

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  13. Also, contrast the levels of catastrophic economic circumstances with other countries, e.g. those which have healthcare systems rather than elaborate insurance scams, and a safety net for people other than millionaires.

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  14. The problem with forgiving student loans, in particular, is that it rewards people who went into debt, at the expense of people who struggled to stay current with their expenses by working and having their parents sacrifice.

    That makes it a real non-starter for the right, which is not predisposed to like rewarding bad choices, and which has those who sacrificed for their educations over-represented in their ranks.

    There are other stimulus approaches that don’t particularly reward bad choices. You could, for instance, just hand out pre-paid dining cards to save the restaurant industry.

    The other problem with stimulus in general is that we’ve been running deficits, and thus “stimulating”, for decades now, continually, instead of counter-cyclically. How do you stimulate somebody who’s been mainlining methamphetamines? Stimulus only works when you mostly don’t stimulate.

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  15. Heck, the US economy was cruising for a bruising after the 2008 bailout. You never know what’s going to make the avalanche fall, you only know that it is, sooner or later.

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  16. Re: exercise
    I’ve been getting out for a walk every couple of days, & been seeing plenty of other people doing the same. At least in my part of Calgary things aren’t so crowded that the 2 meter separation is hard to maintain, & few people weren’t maintaining it.

    Before COVID hit I was using a gym for weight training. Now I have improvised some weights from water jugs for non-bodyweight exercises. I can’t find a reasonable substitute for all the exercises I was doing, but it is better than nothing.

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  17. Covid does not LOOK so bad exactly because mitigation measures that cause damage to the economy were taken.

    Otherwise, 2 million Americans would die. From covid directly. Many more indirectly due to the collapse of the system.

    And worse, if reaching such levels, the economy would stop anyway but too late to stop the virus spreading to 85% of the US population and killing 2 million + indirectly

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  18. Good point. Take a look at the Repo market that the Fed has been propping up with hundreds of billions of dollars since September, 2019, and which was getting out of control just before the shutdown. This CV couldn’t have come at a better time for a reset. The public would never have stood for a second massive bank bailout (hedge funds this time too), but they’ll stand for a pretend “stimulus” package, which is mostly low interest loans and direct industry bailouts. See how reluctant the Republican Congress is to do a second package that gives money directly to working people, and forgives things like student loans, most of which the government owns itself. That would really stimulate the economy, but they won’t do it.

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  19. Covid is not so bad… I think we should have just blockaded the road to nyc and New Jersey… and let the Covid run it’s course without shutdown for the rest of the country…. the only places that have a critical problem are high population density areas… every other place in a United States already has enough capacity to handle the influx of patients because it’s spread out more…. Rural areas of the country think that covid is a fuvking joke…

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  20. Baby Boomer: a person that creates bureaucratic/administrative jobs for their kind that do nothing, obsessed with having stuff, and obsessed with having extra living space they don’t need (just in case their kids that hate them will visit). All paid by bailouts and funding for BS using government debt to pay for it all.

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  21. Let those stock buybacks crash and the idiot Trump supporters that were high on their 401Ks weep. Then the government can go ala Citi Bank circa 2009 and issue a conditional bailout that gives the government a share via stock, to sell later for a profit. All banks, airlines, automakers, and Boeing should be handled this way. Then put conditions on stock options and buybacks.

    BTW I made 150% on a stock trade just a month before the government selloff of Citi Bank buying in the low 2s in 2009 selling Feb-March 2011 where it went from mid 2ish to nearly 5-6 a share, then a 10-1 reverse split took it to 25-30 range. I sold at high 4 to 5ish and bought around 2-2.30 near the bottom. I realized the government buy that was going on and that there would be a big sell at some point once the price hit where it would open up to mutual funds again, which they triggered with the reverse-split. Sold just before that.

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  22. Until we get a vaccine, we need new social rules and economic practices.
    Possible examples:

    • Seniors (retirees) stay social distanced. Only they are allowed out for exercise 9-11am and 9-11pm. One day a week is seniors-only shopping. A different day is seniors-only doctors.
    • Sidewalks are made one-way (opposite of vehicular traffic for safety where there are no sidewalks).
    • Office workers do 3 shifts of 3 days work at home, 2 days in office – MTh, TuF, WSa. [Separated by 2 days so if get sick in office, may know before come back.] Managers in MWF but required to take strong precautions. Masks for in-person interactions closer than 10′ or in a small room. Not allowed in office if sick. First/last 15 min each day spent disinfecting.
    • School kids match parents’ office schedule – school is day care. Hire aides to monitor classrooms of 10 or fewer kids. Teachers mostly online conference or work alone – occasional in-school lectures (recorded for other kids) for social contact with kids. No moving between classsrooms/desks. National effort to make and share best ed-videos, assignments, work-plans, etc – not just Youtubes. As needed, provide decent netbooks/subsidized home internet.
    • Bars/restaurants stay delivery and outdoor pick up only – no customers indoors where food is prepared. Minimize contact between kitchen and customer-contact workers.
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  23. Seventy-three percent of American households report having suffered a loss of income in March. For many, that loss is catastrophic, tipping them into acute need, default, and bankruptcy.

    Did the survey determine what percent of respondents would have preferred to roll the dice and contract the virus in order to avoid those loses?

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  24. The US was definitely put on the road to a down slide after that Tax Giveaway To the Rich Act of 2018, making us unable to meet simple future expenditures. On a greater scale, what do you expect? The economy is a contrived concept, 100% man made, ignoring all natural laws.

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