HARPER: THINKING ABOUT THE POST-COVID-19 NEW NORMAL

The almost total shutdown of the U.S. and global economies as the result of the COVID-19 pandemic is unprecedented in modern times.  The consequences for the global economy will be enormous and long-lasting whether the virus apex is reached in 60 days or six months.  Here are some thoughts on what the post-COVID-19 state of the economy will look like.

When parts of the country and eventually all of the United States come out of economic quarantine and attempt to return to "normal," the level of economic devastation, bankruptcy and household impoverishment will be beyond what people now imagine.  To maintain some level of survival, the Federal government through the Treasury Department and the Federal Reserve will have pumped in a minimum of $5-10 trillion, creating the biggest government debt crisis on record.

It has already been suggested that the Federal government will in some way take equity stakes in big companies like airlines, auto manufacturers, defense companies.  In effect, in some fashion, the United States will look a lot more like China, where 80 percent of the economy is state-owned entities (SOEs).  It will take a decade or more for the recovery to reach the point where the Federal government can begin to sell off these equity holdings.  

Can the US manage such a situation?  It will require drawing upon the private sector and entrepreneurial talents of the population to create a viable but totally new structure.

Small and medium size enterprises will suffer greatly, as many will find it impossible to reopen doors after the prolonged shutdown.  This will impact the financial sector in many previously unprecedented ways, as mortgages go unpaid for months, as foreclosures are stopped but owners have no means to pay back rent and mortgage payments.  Local and state governments that rely on tax revenue from these income streams will feel the effects deeply as well.

Talk of a $2 trillion infrastructure investment make sense as a source of jobs and needed economic revival.  The bill of materials for such endeavors will be part of the big challenge.  Where will the steel, the cement, the heavy equipment come from?  

I apologize that these are somewhat random thoughts, but I hope to start a thinking process about a completely new phenomenon that no one has ever been through before in our lifetimes. 

Will the United States resemble Germany at the immediate end of World War II?  Less physical wreckage and rubble, but no real economy standing.  What will be the psychological fallout?  Will part of the new normal be adequate inventory of medical supplies to deal with a future replay of the coronavirus?  Health care is now a primary national security concern and that was not the case just a few months ago.

Comments

[Serge]

Doctor's Note: Can coronavirus cause permanent damage?
https://www.aljazeera.com/indepth/features/doctor-note-coronavirus-permanent-damage-200410112235801.html

I work for a CRO currently involved in around a dozen clinical trials related to SARS 2 some of them investigating this exact question of permanent damage caused by the disease. We expect a flood of these trials to come in in the next year and beyond. This article talks about lung/kidney damage but I have previously pointed out the potential for cardiac/testicular damage as well. People are focusing too much on the (low) mortality rate, we need to look at the unknown long term effects of this disease. This big unknown makes the herd immunity strategy a big gamble IMO.

[Fred]

Blue,

"This is why some are getting angry"

Tens of millions, probably not including many of the 'some peope' your firm advises, are angry because of the destruction being wrought by government mandated shutdowns which are destroying more economic futures than NAFTA, which was supported by the brilliant Robert Reich, founder of The Prospect, source of your article. The words "Certificate of Need" and "Regulation" appear no where in said article. Like Hienz ketchup, regulation is making me wait. Pennsylvania isn't the only state to forbid all elective health care procedures.

How is everyone enjoying thier centrally planned single payer health care trial?

[JerseyJeffersonian]

I don't think that this is really O/T. California Governor Newsome apparently thinks this is a great time to flirt with secession, according to this Bloomberg editorial:

https://www.bloomberg.com/opinion/articles/2020-04-09/california-declares-independence-from-trump-s-coronavirus-plans

Now, the writer of this article is clearly a radical leftist crank (just read it, all of the boxes are checked off), but this seems like a new turn in the coup against Trump. Having signally failed with the succesion of previous attempts, Russiagate, Ukrainegate, Obstructiongate, etc., the plotters are now trying out their hand at Calhoun's old strategy of State nullification of policies and directives of the Federal government, but juiced by playing to the national political aspirations of the participating Democrat party state governors.

I view these state governors' actions as those of classic accelerationists, willing to bring on and/or prolong social and economic crises in order to forward their own agendas. This is, indeed, an interesting point of attack, exploiting the tension between States' prerogatives vs. those of the Federal government inherent in our federal constitution. To my eye, of course, this is total hypocrisy, as these very same people, if ever they attain control of the Federal government, will not hesitate to deny the right of individual states to question their favored absolute, centralized control over any and all social, economic, and legal policies and practices, and no alternatives will be countenanced in the USA. They do not view the USA, as a union of states, but only as a centralized State, with the individual states being merely historical relics, no longer accorded a role, as the old "laboratories of democracy" theory had it, as entities with SOME value in their continued existence within the Federal structure, but rather as sketchy, tenuous entities whose only future continuation will be as administrative zones fully answerable to the central govwrnment.

As TTG has been wont to muse, "What are you going to do now, Ranger?", when confronted with this sort of manuevering?

[Jack]

Sir,

This editorial from the WSJ notes that the current Fed policy benefits Wall St more than Main St. Coming from the WSJ who is as Wall St friendly as possible it says something.

https://www.wsj.com/articles/the-feds-main-street-mistake-11586474912

More detail on the recent programs announced by the Fed. The scale of the Fed program is best seen in the growth of their balance sheet. When the euphemisms and marketing language gets translated to plain English it basically says that the Fed will grow its balance sheet to purchase assets from Cerberus, KKR, BlackRock, Renaissance, Elliott, et al.

https://www.cnbc.com/2020/03/23/fed-announces-a-slew-of-new-programs-to-help-markets-including-open-ended-asset-purchases.html

The Federal Reserve said Monday it will launch a barrage of programs aimed at helping markets function more efficiently amid the coronavirus crisis.

Among the initiatives is a commitment to continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

That represents a potentially new chapter in the Fed’s “money printing” as it commits to keep expanding its balance sheet as necessary, rather than a commitment to a set amount.

The Fed also will be moving for the first time into corporate bonds, purchasing the investment-grade securities in primary and secondary markets and through exchange-traded funds. The move comes in a space that has seen considerable turmoil since the crisis has intensified and market liquidity has been sapped.

[turcopolier]

jack

OK. What would be your policy? BTW, my local privately held community bank is going all out on the small business loans.

[Jack]

Sir

My suggestion would be to re-direct a large part of the Fed’s balance sheet from Wall St to a) small & community banks for small business working capital financing; b) municipal, transportation and transit systems and federal agencies financing for public works; c) capex financing to manufacturers, utilities and telecommunications to modernize their US based plants and infrastructure and to move their offshore manufacturing plants to the US; d) R&D financing to US-based and owned companies and institutions as long as the development work is done in the US.

The Fed can then hold some of these assets to perpetuity if it warrants. I believe that sophisticated investors on Wall St should only be bailed out partially and under strict conditions as Walter Bagehot recommended over a century ago - lend freely to solvent enterprises at a discount to good collateral. My contention is swing the pendulum to Main St and away from financial engineering.

[Norbert M Salamon]

Fred:
I did not ask for privacy transgression of the US [or world] average citizen.

I said trace the ILLEGAL OFFSHORE FUNDS, and appropriate what the law calls for. I could not care less whose money is taken, or who owned the funds - they represent individually and as a cohort extremes greed, lack of compassion for their poorer citizens, and total disregard of the tax law applicable to their domicile.

It is far better IMHO that the state use these funds, rather than continue the rewarding the hedge funds, private equity etc. via large government debt issuance - which is repayable by the deplorables. Things are not so rosy for 80-90% of the population much better to take steps ere the pitchforks[or bullets] come to solve inequality.

[Fred]

Norbert,

Do you believe in having trials to prove guilt or just sieze and redistribute away?''

"Things are not so rosy for 80-90% of the population..." I agree and we need to go back to work sooner rather than later.

[blue peacock]

Col. Lang

It would appear the community bank in your neighborhood is fronting the lending to small business as part of the $350 billion appropriated by Congress for small business. I've heard from several companies that the smaller banks are being more responsive in processing the paperwork relative to the big banks like Chase, Citi, Bank of America and Wells Fargo. There is a mad scramble to get applications in, as the amount is capped at $350 billion. As of yet I hear the paperwork processing is jammed up because of disagreements between Treasury and SBA.

Contrast this with the Fed bailout of Wall St which is near $2 trillion already created with just a click on a keyboard with no requirement for the lengthy political battle of a Congressional appropriation. The acquisition of financial assets by the Fed is also opaque preventing any public scrutiny.

[turcopolier]

blue peacock

The oldest bank in Virginia, as much a community bank as anything you can find.

[J]

Senator Dr. Scott Jensen of Minnesota recently exposed how the AMA is encouraging U.S. doctors to over-count coronavirus deaths across the U.S. He showed a 7 page document coaching him as a doctor to fill out death certificates with a COVID-19 diagnosis without a lab test to confirm the patient actually died from the virus, Turns out that the package relief, hospitals are paid more for to attend to this virus. In other words no one is dying of the flu anymore, only COVID-19.

Numbers justify money, the numbers are being used to keep the flow of money flowing by misrepresenting this as an epidemic. Fraud is being used to justify keeping the economy locked down longer, and the AMA is contributing to the destruction of the nation's livelihoods. What the AMA is doing is encouraging FRAUD by classifying a death as COVID-19 without testing. It's actionable FRAUD no different from Medicare Fraud which is a crime.

For Medicaid and Medicare fraud, federal law establishes
-- a civil statute of limitations of 6 years (42 U.S.C. 1320a-7a(c)(1), and
-- a criminal statute of limitations of 5 years (18 U.S.C. 3282).

Our nation's future is being destroyed by the corruption inspired by such actions and programs.

Across the pond in London a gentlemen took his mother to the hospital and he knew she was near death. Two days later the hospital claimed she had died from the coronavirus. She hadn't gone in with that. In London it seems that COVID-19 is their medical-community cure. No one in London has died from a heart attack, only COVID-19.

COVID-19 is turning into massive fraud on a global scale.

[Mark Logan]

Harper,

Great points, if this becomes a new normal it means the world as we knew it is in for vast changes. But how likely is is this new normal? I see two things which suggest that unlikely.

This is a new bug and it will take a bit of time for the docs to catch up. They have been caught with their pants down but for how long? The process takes some time but there's a fair chance, with a few months to work on it, effective therapeutics to bridge the gap to effective vaccines to be developed. Currently we even lack the ability to even conduct broad testing, and that will all but certainly be on-line soon.

The current measures are unlikely sustainable for more than a month or two. There will be so many people in deep economic pain demanding an end or heavy enough modification to allow them to get back to work. Anecdotal perhaps, but this week already I have received several letters from suppliers setting resumption of production dates for late this month. They have set course to start treating the mandates of the government as recommendations, and just a few weeks in. The internal pressures of business to get back to business are enormous.

Most are stating they will re-open with internal disease spreading measures in place to protect their workers. This is wise in several ways. It helps morale of the workers concerned with the disease and provides the foundation of a legal argument against the governmental attempts to force them to shut down again, if they come. I expect this to snowball.

[Serge]

I posted here yesterday my concerns with the herd immunity strategy(unknown long-term effects of this disease on the human body), here is a paper published yesterday on neurological symptoms of the disease, again appearing in both mild and severe manifestations like the study which looked at reduction of testosterone in affected males:
>Neurologic Manifestations of Hospitalized Patients With Coronavirus Disease 2019 in Wuhan, China
https://jamanetwork.com/journals/jamaneurology/fullarticle/2764549

Excerpts of particular interest:
>Most neurologic manifestations occurred early in the illness (the median time to hospital admission was 1-2 days). Some patients without typical symptoms (fever, cough, anorexia, and diarrhea) of COVID-19 came to the hospital with only neurologic manifestation as their presenting symptoms.

>In January 2020,3 ACE2 was identified as the functional receptor for SARS-CoV-2, which is present in multiple human organs, including nervous system and skeletal muscles.11 The expression and distribution of ACE2 remind us that the SARS-CoV-2 may cause some neurologic manifestations through direct or indirect mechanisms. Autopsy results of patients with COVID-19 showed that the brain tissue was hyperemic and edematous and some neurons degenerated.12 Neurologic injury has been confirmed in the infection of other CoVs such as in SARS-CoV and MERS-CoV. The researchers detected SARS-CoV nucleic acid in the cerebrospinal fluid of those patients and also in their brain tissue on autopsy

[Fred]

Serge,

You still trust reports out of Wuhan China? "Those with severe infection... may die sooner" I think the medical community has known that for some time. Also the points about the ACE2 receptor.

[J]

Documentary Explores the Origins of the CCP Virus

https://www.theepochtimes.com/who-created-the-ccp-virus-documentary-exposes-pandemic-origins_3305798.html

1st Documentary on the origin of the CCP (Chinese Communist Party) Virus.

https://www.youtube.com/watch?v=Gdd7dtDaYmM

[blue peacock]

Jack

I get that your position is that if the Fed is going to print money anyway at least direct it to the real economy as opposed to Wall St financial speculation.

Here's the problem. The Fed has been printing money during every financial "crisis" which typically has been excess financial speculation reaching its apex and then deflating due to its own weight. As Greenspan stated the Ph.Ds at the Fed can't recognize financial speculation on its way up and can only discern a burst speculative bubble. Since the LTCM "crisis" the Fed prints money to backstop the deflation induced in credit instruments when financial bubbles fail. In the aftermath of the crisis induced by the mortgage credit speculation in 2008, Bernanke stated that "extraordinary monetary policies" were required and that the growth of the Fed's balance sheet was going to be temporary. As we saw the Fed barely reduced its balance sheet by 10% before Wall St started getting the chills in various corners of the structured credit markets.

Now with the China virus induced shutdown of the global economy, the Fed and other central banks have used this real economic crisis to print trillions of dollars to once again backstop Wall St speculation. The Fed's balance sheet is now in vertical takeoff and nearly $1.5 trillion above the highs in the aftermath of the GFC.

With politicians, the media, the economic & financial punditry and even some elements of the general public now recognizing that the Fed's printing press is not constrained by the challenges of Congressional appropriations and its asset purchases are opaque, it would seem that the Fed's money printing would be used to "finance" all sorts of schemes to aid those with the necessary political connections under the cover of a "crisis" du jour.

In your opinion, what are the long term implications of an unconstrained Fed balance sheet? What happens when the Fed prints "money" to be the buyer of first and last resort of the junkiest credit and there is no limit to the creation of such credit paper? And when the Fed follows the BOJ & SNB to acquire the equity & debt of failing businesses with the worst possible managements intent on self-dealing but who have the scale and connections to be considered "worthy" of rescue?

I know we are through the looking glass and Pandora's Box has been opened wide.

[J]

ROBERT F. KENNEDY JR. EXPOSES BILL GATES’ VACCINE AGENDA IN SCATHING REPORT

https://www.infowars.com/robert-f-kennedy-jr-exposes-bill-gates-vaccine-agenda-in-scathing-report/