Never trust anyone who claims to be an expert on economics: if he knows the answer you want, he can come up with the statistics to prove it.
The more I read about the arcane science the more I realize how little I know. However, I do know about fish, particularly decaying fish. It has a particularly bad odor, very similar to the American economy right now.
Unemployment is supposedly at 16 percent right now, which is high, but the full effect of the “shutdowns”, both the ones we experienced in the Spring and those being re-imposed now, are yet to be felt because we’re still affected by the “sugar high” induced by the governmental stimulus packages. Even still, it is very possible that we could end 2020 with 50 million people out of work.
Or worse.
That is because the Covid-19 pandemic has roared back stronger than ever, invading virtually every state in the Union. Tens of millions of Americans (including our President) chose to ignore the recommendations of health experts in favor of flaunting their “freedom” to be selfishly irresponsible, and now the Nation is going to suffer a grotesque plague and devastated economy.
In the midst of this calamity, the stock market is booming. How can that be?
Businesses large and small are failing, the projected GDP of the United States is actually going to shrink, and tens of millions of households and businesses will soon be defaulting on mortgages, loans, lines of credit, and such. The economic meltdown of 2020/21 will dwarf that which we endured in 2008.
So, what’s “up” with the stock market? Shouldn’t it be “down” like the underlying economy?
The simple answer is that investors are participating in a mammoth Ponzi operation funded by the Federal Reserve.
All of those trillions of dollars that the Fed recently infused into the economy are propping up share prices. Large businesses that have lost their customer base (i.e. leisure industries like airlines, car rental, hotels, cruise lines, restaurants, casinos, conventions centers, sports franchises, bars, nightclubs, strip joints, and such) are simply taking advantage of cheap money (the prime rate is near zero) to borrow.
The big banks and financial institutions aren’t worried: they’re “to big to fail”. As in 2008, if things go to shit, the Federal government will bail them out.
Ten percent of Americans own 85 percent of the publicly traded stock. Normally, in bad economic times, investors would flock to the safe haven of bonds. However, the return on bonds right now is bupkis. So, with a bunch of free money available for play, the richest Americans are dabbling in stocks. In gambling it is called “playing with house money”: the player can’t lose.
For the past three plus years America has been led by an individual who has played with house money ever since he was a kid. He got a couple hundred million dollars from his Dad, it made him think he was smart, he made a lot of bad business decisions, and suffered a bunch of bankruptcies. However, he was a good salesman who could always find new buckets of house money from gullible banks to play with. Most recently, the Federal Reserve has been his “Huckleberry”.
At some point, probably at about the time investors realize that Donald Trump is not going to be reelected, Ka-Boom, the stock market bubble will burst in a big way. Then, the market and the economy will match up.
America will be in a very depressed state.
It’s going to take a decent amount of time for an effective vaccine to be developed, mass produced, distributed, and inoculated into a receptive population. There will be new battles over immunization: the anti-vaxxers will be out in full force, scaring the bejeezus out of people. There may have to be multiple injections to develop long-term immunity. It will take a multi-year effort to achieve some sort of herd immunity for Covid-19.
Let’s hope it works.
Meanwhile, society will be dealing with one-third or more able-bodied Americans out-of-work. Unless jobs can be found for them, poverty, sickness, and crime will skyrocket. It will be the kind of environment that is ripe for social unrest like our country faced in the 1930’s.
It will be time for a “New” New Deal.
In the Thirties, the Federal government created jobs to build public buildings, national parks, dams, bridges, and such.
This time out, we need to replace public facilities…many of which are those same 90-year-old New Deal projects. Infrastructure improvement, of any kind, will put people to work building things that will help the economy run at full speed.
We also need to build our economy “smarter”, so that we’re not so reliant on global supply chains. The information gleaned from the catastrophe of 2020 can be used to identify industries that need to be bolstered with Federal support. Home grown “widgets” may cost more, but we’d be employing American workers and our supply chain would begin and end stateside.
We’ve also learned from our current predicament how dependent our economy is on “leisure” industries. Perhaps we need to re-tool so that we’re producing more of the things that other countries want to buy? Like food. Or, perhaps, re-tool so that we don’t need commodities from other countries? Like oil from the war-torn Middle East, or personal protection equipment from China.
Before 2020, America was beginning to fall behind industrialized nations in education. There is a world of untapped potential in our citizenry, folks who can’t get a higher education due to their economic circumstances. We might want to consider a “G.I. Bill”-type benefit for anyone who puts in 4 years of New New Deal (NND) work for the Federal government. Perhaps that benefit is an online University degree? Part of the NND could be development and staffing of said University.
In 1945, our enemies, the Germans and the Japanese, were left with their countries in ruins, the citizenry was demoralized, and the standard of living was devastated. Twenty years later their economies had recovered substantially and within another twenty years they enjoyed global super economies.
What did they have in common? They were able to re-tool many industries from scratch, so they were able to utilize the latest technology.
We have many factories in the Rust Belt and elsewhere that look as devastated as Dresden. Perhaps they could be re-tooled into producing products that we can use internally and can sell excess externally. The labor force is there, ready, willing and able.
Maybe we commit to 100 percent electric vehicles in five years or so. That would keep assembly lines moving.
If our Nation can afford to print money to enable a massive Ponzi operation on Wall Street, then it can afford to print money to employ NND workers to re-tool America’s industries, build needed public works, and provide an on-line college opportunity to those who serve.
All it would take is paper and ink. And some smart people.
We’ve got lots of those things.