Countdown 94 Days

IT’S NOT THE ECONOMY STUPID

I’ll give Steve Mnunchin Secretary of the Treasury and Jerome Powell Chair of the Federal Reserve an A for their efforts to keep the stock markets riding high. I’ll give them an F for handling the economy. The Stock Market is not any indication of the health of the economy. It never has and never will be. For those like President Trump that are confused, let me explain. 

The markets, DOW and S & P 500 are now within a few points of their record values in July, with the pandemic raging, 30-40 million Americans unemployed, and a GDP contraction of 9.5 in one quarter. How can this be you ask? Simple, you throw enough money at the market with infusions of cash and you make investors happy – the 1%.  The markets are rife with borrowed cash provided by the Fed. Will this be able to be repaid? 

The Republicans don’t care because it will win the election and then they have 4 more years to screw things up worse. If the Republicans don’t win, it’s the deferred debt that the Democrats will inherit just like in 2012, as well as the savings and loan debacle of 1989, when the Republicans had loosened reserve requirements and allowed banks to take on risky investments. This seems to be the Republican playbook, deferred debt giving the newly elected officials the garbage. The financial impact of the virus is being postponed until after the election.  All the stopgap measures are only a temporary fix. 

The Fed continues to purchase 120 billion dollars monthly of bonds and mortgage securities. Again I must add this is an unprecedented purchase of bonds with extreme future risk with a prolonged virus (future debt incurred to prop up the markets?) The Fed also pledged to keep all interest rates at record lows for the foreseeable future. This action has fueled the housing market with home sales, picking up since spring by wealthy investors and Real Estate Investment Trusts (RITS). The real estate market has experienced the lowest mortgage loan rates of less than 3% for the first time in 50 years. This keeps liquidity in the market along-side record low interest rates and a flood of cash, which finds a home in the Stock market, gold, housing, and other commodities.  I will continue to call this deferred debt incurred in 2020 and realized with defaults in 2021 after Trump is ______ (fill in the blank). The pandemic has yet to unleash its most devastating impact. 

Homelessness and poverty will explode as a result of continued unemployment, which will be sluggish for many more quarters. Foreclosures and evictions had been postponed for millions that live paycheck to paycheck, who are about to lose the $600 lifeline. When mortgage assistance, moratoriums on evections and foreclosures cease the problems begin for landlords and renters alike.

The impact to the economy of the virus is 2½ times the financial impact to GDP than was felt in the great financial crisis in 2011. The rate of decline is unprecedented and is worse than in the great depression and the worst ever performance on record of any quarter. The 2^nd quarter GDP has shrunk by 32.9% annualized. This is 9.5% for the quarter (the 3 months Apr-Jun) the largest ever decline. The equivalent of 2 trillion dollars for the quarter and over 7 trillion annualized.

Jerome Powell issuing the economic report included a statement that reads “The path of the economy will depend significantly on the course of the virus” This realization for this administration may help to align everyone to pay attention to the pandemic and let the economy rise as a result has been long in coming. Powell also said “A full recovery is unlikely until people are confident that it is safe to engage in a broad range of activities.” He also stated “we are committed to using our full range of tools to support the economy. We will continue to use these powers until we are confident we are solidly on the road to recovery.”  The Fed also signaled they would keep its short-term rate near zero through 2022.

An additional 1.43 million individuals are unemployed. The individuals drawing unemployment was 17 million with 800,000 added last week. The 800,000 lags the 1.4 million reported to be unemployed last week and therefore, using unemployment benefit recipients to determine any rate of unemployment with this lag undercounts the actual numbers of unemployed.  For 19 straight weeks new unemployment has topped 1 million.

It takes many weeks to get unemployment benefits due to the demand and wait times experienced. Individuals have the unemployment offices on speed dial and wait weeks for service. Even when qualified, some recipients have not seen the added $600. And some have experienced starts and stops in the benefit. I have been made aware of this from an individual receiving unemployment in Los Angeles County.

Next week when the unemployment monthly data is released it should be between 12-15%. I am curious how they can get the rate lower without caveats. There are a sizable numbers of individuals not counted in the unemployment data as they do not qualify for unemployment, are no longer seeking work and are not qualified to draw unemployment benefits. 

The economic devastation needs a plan to deal with the collapse when millions become homeless. A plan like the new deal, with economic intervention to insure everyone is fed, housed, educated, kept healthy, and has a job. Indications that re-educational efforts such as increasing numbers into the CCC type programs that currently exist are being proposed. Re-training will be necessary due to the over-reliance on service jobs that will not come back for years. 

Soup kitchens and large camps of homeless will require public attention. Iran had used subsidies for basic commodities so that even the poorest of the poor had food and fuel. This could be used as a temporary salve to take care of the most vulnerable. Farmers and other individuals would be happy with the government guaranteeing purchase of crops for distribution in food banks, this is insurance so as the population does not starve and food riots won’t happen. What planning is there for the potential for this calamity is happening?

The Fed has finally seen the light that the virus is dragging the economy and without confidence that it is safe to venture out, it will remain stagnant. Without a leader that expresses more concern for public health and science over politics, we will be the Divided States America, the worlds virus pariah. It has only been the economy for Trump, which is unfortunate for those who have unnecessarily suffered with the #Trumpvirus because of Trump’s lack of leadership. His singular focus has no window for anything else, even truth and light cannot enter his big brain. 

He may have finally realized last week that there is a relationship between health and the economy for a few hours in his re-constituted daily virus disinformation briefings. It’s too bad he has not come to the same conclusion on testing. 

There has been speculation (conspiracy theory types) that Kushner and Peter Navarro conspired to slow down testing when the virus was only impacting blue states. This pure political act is disgusting if true and the impact (again, if true) is now being felt. With the virus spreading like wildfire due to lack of testing, it is now in red states as well as blue and still, where is the testing?  Trump himself said he did not like testing because it creates more of the #Trumpvirus.