Warm Southern Breeze

"… there is no such thing as nothing."

The Economy WILL Crash. It’s only a matter of “WHEN?”

Posted by Warm Southern Breeze on Wednesday, June 24, 2020

Economics has long been called the “dismal science.”¹

Perhaps it’s because they either a.) Tell the truth, or b.) Warn about bad things to come. Either way, it’s hardly a French tickler, and more like a Marquis de Sade.

But, some folks don’t enjoy hearing the truth, or as the actor Jack Nicholson’s character Guantanamo Base Commander Colonel Nathan Jessup raged upon the witness stand in the 1992 motion picture “A Few Good Men,” that “You can’t handle the truth!”

Of course, we’re familiar with how that movie turned out.

Free economies are based upon consumer spending. Period. Full stop.

If consumers don’t have money, they don’t spend. That’s easy enough to understand.

And, if anything, the coronoavirus pandemic has shown up how poorly prepared this president’s administration has been, and continues to be.

Again, those aren’t “nice words” to hear or read, but they are the unvarnished truth.

To say that “the economy is improving” is a mischaracterization of enormous proportion, so much so, and to the extent that, it’s either whistling past the graveyard, or Whistler’s Mother – both of whom are dead.

The economy was “doing well” according to some estimates. Those estimates included the DJIA, the stock indices of various firms and select industries, and some hedge funds. The “essential” worker bees were just hanging on by a thread in their retail, meat processing, and low-paid food service industry jobs. And once they got sick, they were fired, and… BAMMO! The shit hit the high-speed fan.

Suddenly, there were no more “worker bees” and the economic house of cards began to collapse with each puff of wind from COVID-19 patients’ coughs.

Fortunately, Congress (as in the House of Representatives) had the wisdom and foresight to actually bail out THE PEOPLE this time, and to give a much smaller hand-out to industry. The familiar cry “Where’s MY bailout!?!” was the primary sticking point with the previous administration in the process of recovery from “the Great Recession” when Big Business and industry got practically everything their hearts desired, but the people got nothing. Literally, nothing. Bupkis. Zero. Zilch. Nada. Not even a peck on the cheek after they were screwed.

This time, The People who lost their jobs due to COVID-19 were given an extra $600 per week of Unemployment Compensation, which was set to expire July 31. Ever seeking cheap labor to fill their stores, factories and farms, the Republicans decried the matter, but agreed to go along with the plan, hoping that the administration would  have a more cohesively unified plan to stop the assault of COVID-19 upon America’s lives, young and old, alike.

But as it became increasingly clear that nothing of the sort was going to happen, and that an extension of such benefits would likely become necessary because either businesses went belly-up, or couldn’t guarantee their employees’ safety on the job (as protection against COVID-19), the employees, many of whom were already at risk of serious injury from such infection, declined to return to work, and continued to draw their extra $600/week Unemployment Compensation.

But hey! A bright spot!

Facebook, Apple, Google, Amazon, and other industry monoliths were doing A-okay, and were even increasing profits! So yah… it was all sweetness and pleasantries once again for the Billionaire Class.

But The People.

Those pesky people.

Those essential sacrificial lambs of industry… what to do with them? Those who could – and still had jobs – worked from their residences. Those who, for whatever reason (ineptitude and incompetency of largely Republican-dominated states) could not draw Unemployment Compensation, or whose benefits were delayed, in turn, passed the buck, and delayed paying their utilities, mortgages, rents, cay payments, student loans, and many, if not most, or even all, lost their healthcare insurance since they were no longer employed. No more insulin for you! And, off to the streets you go! Hope you enjoy that bridge you live under!

Wow! What a tough row to hoe, eh? But, that’s GOPers for ya’! Heartless bastards. So now, some industry giants and fiscal fortune tellers like Jamie Dimon, CEO of JPMorgan Chase – the BIGGEST of the “too big to fail” banks that got EVEN BIGGER after the last go-round of failures, consolidations, and closures – have said that hard times are a’comin’, but government ya-yas refuse to even listen.

In part, he wrote that,

“… knowing there will be a major recession…p10

“…at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008.p15

“The current pandemic is only one example of the bad planning and management that have hurt our country: Our inner city schools don’t graduate half of their students and don’t give our children an education that leads to a livelihood; our healthcare system is increasingly costly with many of our citizens lacking any access; and nutrition and personal health aren’t even being taught at many schools. Obesity has become a national scourge. We have a litigation and regulatory system that cripples small businesses with red tape and bureaucracy; ineffective infra-structure planning and investment; and huge waste and inefficiency at both the state and federal levels. We have failed to put proper immigration policies in place; our social safety nets are poorly designed; and the share of wages for the bottom 30% of Americans has effectively been going down. We need to acknowledge these problems and the damage they have done if we are ever going to fix them.There should have been a pandemic play-book. Likewise, every problem I noted above should have detailed and nonpartisan solutions.”p18

“My fervent hope is that America rolls up its sleeves and starts to attack these problems. Fixing them would better prepare us for future catastrophes, create better economic outcomes for everyone (with policies that aim to maximize economic growth, driving the best potential outcomes), improve income inequality, protect the most vulnerable and foster economic growth that is more resilient, which would also strengthen America’s role in the world. We must never forget that America’s economic prosperity is a necessary foundation for our military capability, which keeps us free and strong and is essential to world peace. These issues could all be tackled while preserving the freedoms ascribed by our Founding Fathers: life, liberty and the pursuit of happiness, freedom of speech, freedom of religion and freedom of enterprise, which means the free movement of capital and labor (meaning you can work where you want and for whom you want). At the end of the day, the pursuit of happiness, our freedoms and free enterprise are inseparable.If we acknowledge our problems and work together, we can lift up those who need help and society as a whole. Business and government collaborating together can conquer our biggest challenges.p18

“…we do not have a divine right to success. Our challenges are significant, and we should not assume they will take care of themselves. Let us all do what we can to strengthen our exceptional union.”p19

Point being…

The news item linked herein, headlined as “Why Reopening Isn’t Enough To Save The Economy,” by Greg Rosalsky, published June 23, 2020, 6:30 AM ET, states in part that “Rich people have stopped going out, destroying millions of jobs.”

Having spent some time at “Freakonomics Radio” and authored several articles published in numerous publications, Mr. Rosalsky’s bona fides are just as impressive as the man about whom he writes, having “earned a master’s degree at Princeton University’s Woodrow Wilson School, where he studied economics and public policy.”

He identifies Raj Chetty, the William A. Ackman Professor of Public Economics at Harvard University, as “a star economist,” whom he further characterizes as “the Michael Jordan of policy wonks.”

In the article, he points to new research published “late last week by a gang of economists led by Harvard University’s Raj Chetty” which “focuses on the economic impact of COVID-19 and the government response.”

The research, entitled How Did COVID-19 and Stabilization Policies Affect Spending and Employment?A New Real-Time Economic Tracker Based on Private Sector Data, examines key indicators in the categories of:
1.) Consumer Spending;
2.) Businesses;
3.) Employment.
4.) Education;
5.) Public Health, and;
6.) Small Business Employment.

And, more broadly investigated four areas of economic concern:

1.) Consumer Spending;
2.) Jobs;
3.) Government Rescue Effort, and:
4.) State-Permitted Reopenings.

Overall, the findings are not encouraging.

Professor Dr. Chetty and the group consider the differences between this economic downturn and others, and note that most recessions are driven by a reduction in purchases of durable goods, while this one differs because it’s “driven primarily by a decline in spending at restaurants, hotels, bars and other service establishments that require in-person contact.” In other words, the nation’s “essential” low-wage workers are the very ones whom are directly affected in two ways, and ironically, are the very ones propping up the economy because of a significant “reduction in spending by the rich.

Pointing to research by others, they note especially that “the incomes of the rich have fallen relatively little in this recession.”

And as might be expected, larger metropolitan areas are more significantly affected, and the researchers found that “small business revenues in the most affluent ZIP codes in large cities fell by more than 70% between March and late April, as compared with 30% in the least affluent ZIP codes.”

They also found that the Paycheck Protection Program “had little impact on employment rates at small businesses to date.”

They summarize the matter by writing that “the primary barrier to economic activity is depressed consumer spending due to the threat of COVID-19 itself as opposed to government restrictions on economic activity, inadequate income among consumers.”

Suggesting potential resolutions to the problem at hand, they note that “providing social insurance to reduce hardship rather than stimulus to increase economic activity … may be best to focus on mitigating income losses for those who have lost their jobs.”

Simply packing up and moving isn’t much of a solution, insofar as they pointed to research which showed that “few people move to other labor markets to find new jobs after recessions.”

The researchers concluded that:

• “State-ordered reopenings of economies have only modest impacts on economic activity;

• “Stimulus checks increase spending particularly among low-income households, but

• “Very little of the additional spending flows to the businesses most affected by the COVID shock;

• “Loans to small businesses have little impact on employment rates.”

Neither that report, nor Jamie Dimon’s warning are the only ones sounding a gentle alarm.

The United States Federal Reserve, and the International Monetary Fund have both sounded alarms.

In their Monetary Policy Report submitted to Congress, the Fed identified the overall sheer loss of jobs – regardless of their sector – and wrote that that “the unemployment rate, which had been at a 50-year low, soaring to a post-World War II record high” would most likely create long-term problems for the nation.

Fed Chairman Jerome Powell stressed data findings by the Bureau of Labor Statistics and stated that the reported unemployment figures “likely understates the extent of unemployment.”

He was specifically referring to the BLS’ notation of the Unemployment Rate, which was, by necessity, inaccurate because of the bureau’s inability to precisely determine if people were unemployed permanently, or temporarily; thus his statement that, “accounting for the unusually large number of workers who reported themselves as employed but absent from their jobs would raise the unemployment rate by about 3 percentage points.”

In the June 2020 World Economic Outlook Update from the International Monetary Fund (IMF), their warnings were much more stark. They prefaced the report under the heading “A Crisis Like No Other, An Uncertain Recovery,” and stated in part that,

“Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.”

When it came to truth-telling and economic prognostications, the full report, “COVID-19 Crisis: More Severe Economic Fallout than Anticipated,” neither minced words.

“Economic data available at the time of the April 2020 WEO forecast indicated an unprecedented decline in global activity due to the COVID-19 pandemic. Data releases since then suggest even deeper downturns than previously projected for several economies.

The pandemic has worsened in many countries, leveled off in others. Following the release of the April 2020 WEO, the pandemic rapidly intensified in a number of emerging market and developing economies, necessitating stringent lockdowns and resulting in even larger disruptions to activity than forecast.

Severe hit to the labor market. The steep decline in activity comes with a catastrophic hit to the global labor market. Some countries (notably in Europe) have contained the fallout with effective short-term work schemes. Nonetheless, according to the International Labour Organization, the global decline in work hours in 2020:Q1 compared to 2019:Q4 was equivalent to the loss of 130 million full-time jobs. T he decline in 2020:Q2 is likely to be equivalent to more than 300 million full-time jobs. Where economies have been reopening, activity may have troughed in April—as suggested, for example, by the May employment report for the United States, where furloughed workers are returning to work in some of the sectors most affected by the lockdown. The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home.

“All countries—including those that have seemingly passed peaks in infections—should ensure that their health care systems are adequately resourced. This requires additional spending as needed in various areas, including virus and antibody testing; training and hiring contact tracers; acquiring personal protective equipment; and health care infrastructure spending for emergency rooms, intensive care units, and isolation wards.”

Again, it’s not a pretty picture.

But Great Depression II is well on its way.

It’s just a short matter of time before it arrives.

The IMF report, and data may be downloaded here:

The data for Prof. Dr. Raj Chetty’s report is available FREE of charge at: https://TrackTheRecovery.org/.

The original news item may be read here:

¹ Economics as the “Dismal Science”

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