The Beacons Are Lit

Thoughts from the Frontline ^ | 20MAR2020 | John Mauldin

[AdmSmith]

Coronavirus is both a public health problem and an economic problem, and the two work against each other. The measures we must take to save lives necessarily mean shutting down large parts of our consumer-driven economy. People are losing jobs and businesses are losing revenue.

Does that mean we simply ignore the virus and let people get sick and sometimes die? No, that won’t work, either. Our healthcare system can’t handle what would happen. It would collapse and be unable to help anyone with anything.

We need to sustain the economy for however long it takes to beat down the virus. That’s going to mean massive fiscal stimulus spending—multiple trillions of dollars’ worth. We are going to have to do for everyone the kind of things we have long done for natural disaster victims—emergency grants, subsidized loans, exemptions from rules, and more.

How will we pay for it? There are several ways but they all involve massive government debt and deficits that will shock us. We’re going to figure it out because we have no choice. The good news is, we’ve done this before. We fought and won World War II on a massive pile of debt.

Let me be clear. The US is facing a deflationary depression. One cannot have the economic impacts we are seeing and think they will magically go away when the virus does. That’s not how economics and business work.

I am not the first person to say it, but we need something like a Marshall Plan for the US. I recognize that Europe and the rest of the world are struggling too. I get it. But the entire world will go into a deflationary depression if we do not solve the crisis in the US. Hopefully an eventually strong US can help lead the world out.

I am calling for significant quantitative easing or whatever you want to call it. I get the irony in that. The Federal Reserve is largely responsible for where we are today, keeping rates too low for too long, and the government running deficits way beyond nominal GDP. These are bad things

[AdmSmith]

It will be bad.

[period end of story]

Politicians who want to get elected, going back 50 years have learned that they need not worry about deficits.

Otherwise the first thing they would preach would be
to say, vote for me and I won’t spend one dime more than I have.

[Pontiac]

Politicians who want to get elected, going back 50 years have learned that they need not worry about deficits.

They can do that because the United States learned how to tax the entire world.

When the US Dollar became the reserve currency of most of the world’s nations and US Treasury Bonds became the Gold Standard safe investment, the US gained the ability to tax the entire world by inflating the dollar.

Every time the Federal Reserve issues new currency it devalues US dollars held outside the US thus stealing wealth from the foreign holders of dollars. In effect a tax.

[preacher]

L8r

[Adder]

It would be a whole lot different if millions, even hundreds of thousands were actually sick.

This is madness.

[Java4Jay]

ping

[TheConservativeBanker]

Exactly! People, including many here, seem to think that shutting the economy down, via totalitarian control will not affect the level of resources to deal with national health. We need to keep in mind that we not only defeated Nazi Germany and Soviet Union militarily - we defeated them economically by outproducing them.

I am (theoretically) in one of the “vulnerable” demographic groups - a few months shy of 70. My wife has Huntington’s disease. I would rather take care of myself and have an economy which allows me to find resources to take care of my wife, than to become a ward of the state, which a number here seem to be content with.

Death will come to all of us. Inordinate fear of death, as opposed to prudence, provokes irrational and harmful behavior. I urge everyone to be prudent, but also remember that cowardice is always harmful and “fake prudence” is often offered as an excuse for cowardice.

[SkyPilot]

The US is facing a deflationary depression.

The Fed has used inflation for decades as a "stabilization" tool.

Inflation is the legacy of the Federal Reserve.

The dollar has been so devalued it is shocking.

In a deflation, the price of goods and services should go down.

Imagine walking into a grocery store, spending $100, and walking out with more than three bags of items.

But deflation is devastating. The economy can grind to a halt, layoffs will be massive, and everything spirals down.

Unfortunately, the Fed will use more Quantitative Easing (printing money) to combat deflation.

Rough economic waters ahead, for the whole world.

[Aevery_Freeman]

Bears repeating:

[R]emember that cowardice is always harmful and “fake prudence” is often offered as an excuse for cowardice.

Stay strong, stay safe, stay brave. We are AMERICANS!

[ConservativeMind]

Deflation is not a problem.

In essence, it is the financial impact of Productivity.

[AdmSmith]

IMHO all countries have reacted wrong in handling this pandemic. It is not the Black death that is estimated to have killed 30% to 60% of Europe's population. COVIG-19 has an estimated case fatality rate of about 1 %. Remember that more than 80 % will have a mild infection and many will not even notice that they are infected.

We should not kill the economy in the futile attempt to kill the virus. What I wrote a week ago is still valid https://www.freerepublic.com/focus/news/3810827/posts?page=121#121

These groups should be protected:
Older adults
People who have serious underlying medical conditions like: Heart disease, Diabetes and Lung disease
https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/high-risk-complications.html

Those in these groups should
Stay at home.
Wash their hands often.
Avoid close contact (6 feet, which is about two arm lengths) with people who are sick.
Clean and disinfect frequently touched services.
Avoid all cruise travel and non-essential air travel.

But those not in these groups should
Go to work
Wash their hands often - there are other disease !

However, we now have a number of good drug candidates for treatment and some of them are even on the market for other diseases.

Naturally, resources should be provided for clinical trials.

Do not stop air travel - it has no effect on the spread of the virus as it is everywhere.

This https://www.sfchronicle.com/news/medical/article/US-Canada-working-on-mutual-ban-on-non-essential-15139223.php will only destroy the economy, not the spread of the virus.

[ConservativeMind]

Deflation is perfectly fine.