Is 'Financial Repression' The Solution to the Trillions In Unpaid Debt Arising From The Pandemic?

As most who read this blog know, financial posts are often a feature when I am not writing about astrophysics, math, deep politics, climate change or atheist ethics.  Right now, for those who may not read the financial pages, a huge concern is the mounting debt loads which have leaders around the world biting their nails.   It is useful here to consult the graphic showing debt as a percentage of GDP for  5 specific nations and a generic "advanced economies" overall.   This is from the recent Wall Street Journal article 'Debt Battle Awaits Post-Virus World', June 15, p. A2)

On top of this, there is now  a sobering article for The Atlantic’s July/August 2020 issue — which warns another banking calamity is a strong possibility and which ought to be required reading for  all sentient Americans.  It also, to me, clearly shows why Trump - the most ineffectual, incompetent leader in over 100 years- cannot be allowed a repeat performance. (Aside from this, I am still puzzled by recent polls showing a plurality of Americans - 48% to 35 %-  favor Trump over Joe Biden to deal with the economy. Ahem...this is the same Bozo who crashed the economy leading to 42 million unemployed, folks!)

Anyway, with respect to the Atlantic piece, UC Berkeley law professor Frank Partnoy writes:

"After months of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there’s another threat to the economy too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed"


The prime culprit?  The 'CLO' or collateralized loan obligation.  According to Prof. Partnoy:

"After the housing crisis subprime CDOs naturally fell out of favor. Demand shifted to a similar — and similarly risky — instrument, one that even has a similar name: the CLO or collateralized loan obligation. A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses — specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan.”

Adding:

"CLOs have been praised by Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin for moving the risk of leveraged loans outside the banking system.”

Understated in all the huff and puff about expanding debt is that  just because CLOs are  "praised" by Powell doesn't mean they aren't risky.  (Recall before the 2008 credit crisis and housing collapse, the then Fed Chair Alan Greenspan praised adjustable rate mortgages - ARMS - at the heart of the housing meltdown).  Also, we know most of the outstanding debt - probably 75 %   - is not from stimulus packages such as the CARES Act- but a combination of extended tax cuts and overleveraging in the financial markets.   Two years ago the warning was sounded by the IMF as reported (April 17, 'IMF Sounds Alarm On Excessive Global Borrowing' )  in The Financial Times, though the leveraging debt was not mentioned specifically, i.e.:

"The world's $164 trillion debt pile is bigger than at the height of the financial crisis a decade ago, the IMF has warned, sounding the alarm on excessive global borrowing.  The fund said the private and public sectors urgently need to cut debt levels to improve the resilience of the global economy, and provide greater firefighting ability it things go wrong... World borrowing is more than twice the size of the value of goods and services produced and 225% of global gross domestic product. This is 12 percentage points higher than the peak of the previous financial crisis in 2009.

Vitor Gaspar, the director of fiscal affairs at the  IMF, singled out the U.S. for criticism, saying that it was the only advanced country that was not planning to reduce its debt pile - with the recent tax cuts keeping public borrowing high."


Meanwhile, in the WSJ Business & Investing section  one is alerted to the understated role of  leverage (i.e.  'In Selloff, A Trading Strategy Is Faulted' (Feb. 9th,  2018, p. B11). So  we learned:

"Risk parity funds aim to reduce the danger from a collapse in any one market by limiting bets on more volatile assets like stocks and commodities, and use leverage to load up on safer assets such as government bonds."

In other words, these funds use debt, i.e. leverage,  to purchase safer bonds.   However, as the piece goes on to point out, when volatility jumps the leverage can force the funds' automated trading strategies to dump those assets, forcing a selloff.  Let me add here both individual investors and whole companies have now taken to the leverage 'drug'  to place their market bets using borrowed money.  The losses they have accrued, along with decades of trillion dollar tax cuts,  have helped to monumentally add to the $164 trillion in global debt.  But WHO is being asked to pay now, even with the party still going on? Well, the average Joe and Jane on Main Street.

In a separate WSJ piece, Paul Hannon warns us:

"In the U.S. and elsewhere, government debt is set to soar this year, reflecting lower tax revenue and the cost of financial aid to households during lockdown. The International Monetary Fund forecasts that U.S. government debt will reach 131%  of annual economic output this year, up from 109% in 2019."

Hannon makes clear Joe and Jane American are going to have to pay the piper, especially if we are to avoid bank collapses such as forecast by Prof. Partnoy.   While the Federal Reserve has ruled out negative interest rates (for now) three other options are on the table, none of them palatable:

1) Apply more austerity using a combination of spending cuts and higher taxes. However, the worry of the financial elites is that this may trigger even more political division and austerity protests along with the ones against the police.

2) Allow inflation to roar back  diminishing the value of the dollar and thence, the magnitude of the debt owed.

3)Financial repression is therefore preferred. (According to a 2015 paper by economists Carmen Reinhart and M. Belen Sbrancia, it lowered the average interest bill for 12 governments by between 1% and 5% of GDP from 1945 to 1980).  It therefore "played an instrumental role in liquidating the massive debt accumulated during World War II"

Basically, financial repression means sustaining policies that ensure interest rates remain low.  These would include: central bank purchases of gov't bonds and regulations prodding investors to hold such securities.  (Since March, the Fed has slashed its benchmark interest rate to near zero, bought $2.1 trillion in Treasury and mortgage bonds, and rolled out numerous lending programs).

Of course, apart from savaging savers, the repression strategy would cut ordinary citizens' spending even more.   Now, according to the latest data, one will also have to add spending pullbacks by the wealthy.

Economists at the Harvard-based research group Opportunity Insights estimate that the highest-earning quarter of Americans has been responsible for about half of the decline in consumption during this recession. And that has wreaked havoc on the lower-wage service workers on the other end of many of their transactions, the researchers say. According to  Michael Stepner, an economist at the University of Toronto:

“One of the things this crisis has made salient is how interdependent our health was. We’re seeing the mirror of that on the economic side.”

As income inequality has grown in the U.S. , so has inequality in consumption. That means that when the rich spend money, they drive more of the economy than they did 50 years ago. And more workers depend on them.  When workers lose jobs or the rich stop spending in those job areas it translates into acute financial pain. Add in the pandemic and the situation becomes intolerable - which means more stimulus money has to be infused.

This is why Fed Chair Jay Powell told the Senate Banking Committee two days ago that congress needs to pump more money in,  and especially  that it should consider extending unemployment benefits beyond the current July 31 cutoff date.    He also warned the recovery would be long and arduous and jobs not likely to return until consumers felt confident enough to go out and partake in the economy, i.e. in dining out, cinema attendance, even shopping for durable goods. In Powell's words: 

"Some form of support for those (unemployed) people going forward is likely to be appropriate.  There are going to be an awful lot of unemployed people for some time until a vaccine appears."

In the heat of a battle like this, no one is obsessing about how much pandemic -related debt is exploding.   As the World Bank's chief economist explains it (WSJ, ibid.): "This is a war. In a war, you worry about winning the war, and then you worry about paying for it."

So true.

Update: From WSJ  June 19, p. A8 ('Americans Skip Millions Of Loan Payments')

"Americans have skipped payments on more than 100 million student loans, auto loans and other debts since the coronavirus hit the U.S., the latest sign of the toll the pandemic has taken on people and finances.  The number of accounts in deferral, forbearance or some other type of relief reached 108 million at the end of May, according to credit reporting firm TransUnion."

"The surge in missed payments suggests that the flood of coronavirus related layoffs has left many Americans without the means to keep up with their debts. Many people have used up their stimulus checks and unemployment benefits."

From same page story ('Debt Relief Has Ripples'):

"Benign though the many debt forbearance decisions may seem, they're rippling through the financial food chain with unpredictable consequences. America is living out a financial experiment unseen in modern times - testing what happens when the economy deals a devastating blow to millions of borrowers, but lending institutions behave as if it hadn't.

Repo agents and debt collectors may be criticized but they clear the detritus of soured loans, recycling the lent capital.  Their activity helps keep money moving between lender and borrowers, especially high risk borrowers. .. With the credit recycling machinery largely frozen, banks may be less willing to make loans."

See Also:

Economic Policy

Instead of Bailing Out For-Profit Colleges, Congress Should Cancel Student Debt

Tanking Stock Market Thursday A Harbinger Of COVID 19 Resurgence & Economic Collapse: Will 'Muricans Heed It?

"The worst case projection I saw last year is we might see negative four percent GDP in the world. But just this week the World Bank predicted the entire global economy - every single country on Earth collectively - is  going into a negative 5.2 percent GDP.  That's 5.2 percent of the wealth of the planet just shrinks.  And in the midst of all that we have a pandemic and it's not just going to go away, And here in the United States we have no national policy, no consistent strategy across the nation, and no guidance coming to states in any coherent way from the CDC.

And the whole entire stock market has been hanging by its finger nails until today when reality started  to set in. They were thinking 'Okay we gotta have a vaccine gotta have a vaccine and that's gonna get us out of this.  Well what happens if one of the front line vaccines doesn't work properly - Well what does the market do? Stand back and watch the dust settle."  - Laurie Garret, on Rachel Maddow, Thursday night

- There has been solid research that it makes a difference to have more women on boards and in grass-roots positions, but evidence that they make better presidents or prime ministers has been lacking — until Covid-19 came along. It’s not that the leaders who best managed the virus were all women. But those who bungled the response were all men, and mostly a particular type: authoritarian, vainglorious and blustering.  -  Nicholas Kristoff, NY Times, 'What The Pandemic Reveals About The Male Ego'

The headline on the front page of yesterday's Wall Street Journal screeched:

'DOW Falls 1,800 On Virus Worries'

Noting:

"Growing fears of a surge in coronavirus infections sent the stock market falling Thursday pulling the Dow Jones Industrial Average down more than 1,800 points or 6.9 %.....For months investors have been betting the U.S. and other countries will be able to reopen their economies without seeing an increase in coronavirus cases that might force them to backtrack... But in the past few days investors have gotten more signs that the smooth reopening they had been hoping for might be increasingly difficult to achieve- throwing into doubt their hopes for a nascent economic recovery..

'It was a wake up call' said Art Hogan, chief market strategist at National Securities, of Thursday's pullback"


Which begs the question of why these investor goobers didn't spot or attend to the growing exponential increases of Covid cases in states -  exposed by Rachel Maddow Thursday night-  states including; North Carolina, Texas, Tennessee, Utah, South Carolina, Florida and others.

 I mean, as Maddow pointed out (as well as her guest Laurie Garrett) the signals leading to this moment were hard to ignore, even for the most bullish of investors. Coronavirus infections are rising in 21 states. Congress is divided on extending more aid. And on Wednesday, even the Federal Reserve chair, Jerome Powell, warned that the depth of the downturn and pace of the recovery remained “extraordinarily uncertain.”

For investors, who often make buying and selling decisions by looking at the future, it was altogether too much, but as Ms. Garrett said, that's because their brains are full of too much irrational exuberance. Not enough common sense and attending to the data before them, opting to go with wishful thinking.

Stocks suffered their worst drop in nearly three months as the S&P 500 stock index fell 5.9 percent — just days after it had recouped its losses for the year oh and oil prices also cratered, reflecting the sudden unease that swept across financial markets.  According to Matt Maley, chief market strategist at Miller Tabak, an asset management firm:

“Chairman Powell threw a bucket of cold water on the thought that the economy is going to go back to where it was in 2019 any time soon,”

But is anyone paying attention?  The biggest contribution of Maddow last night- apart from having pandemic writer Garrett on  -   was showing Christopher Wilson's chart - from Yahoo News  - of how U.S. Covid cases are spiking precipitously (by 36.46%) and more than any other nation in the world, e.g.



This is god -awful and also exposes the WSJ editorial lies from yesterday ('The Second Wave Covid Scare', p. A 14) in which it was claimed  "The numbers are better than the headlines"  which the chart shows - as well as Maddow's exponential case curves- are flat out not true.  As the Yahoo News document states:

"In a Centers for Disease Control and Prevention document dated June 9, the  U.S. had the highest spike of percentage change in daily cases, with a 36.5  percent jump in recent days. Of the top 10 countries in total cases, that is the  biggest spike by a significant margin, compared with drops in cases in Brazil,  Spain, Italy, Germany and Iran and growths of under 5 percent in Russia, India  and Peru. A June 9 Federal Emergency Management Agency document shows the same spike in  cases. The rolling average of deaths in the U.S., per the FEMA document, is  starting to trend up over 1,000 per day."

This is serious, folks, and as Maddow took pains to point out the 36% -plus increase was in THREE days.  That is a freaking disaster no matter which way you cut it and all the WSJ editorial efforts at happy talk and spin  (including misusing statistics) are going to fail.  At least for those who've retained some gray matter during this pandemic and Trump's insane response to it.  As Maddow put it:

"If' you've got the largest epidemic on Earth, and two million cases and 110,000 people dead  and twenty -one states where cases are rising - and your case numbers are rising 36 percent in three days when you're already this bad, if that's your economy, that's your market  that is your politics, then that is a national disaster. And it's not a national disaster we've been through and we're trying to get out of,, it's a national disaster right now."


Laurie Garrett also noted the insanity in the fact a number of states have never been in total lockdown yet now are planing to go into Phase III reopening,.   Case in point, Tex-ASS, now plans to go to a 75 % allowed capacity for in house dining in restaurants despite exponential increases in case numbers.

As she put it, using another less noted facet, commerce and travel between states:

"Reopening across state lines? This is just irrational.  Here in New York you're going to hear a hue and cry from people who've sacrificed so much being in lockdown for weeks  and and now what? Travelers are going to come in from Florida where those restrictions have all been lifted?  And they reintroduce Covid?   You see here is where the insanity is, we don't have a national strategy.  So what you're go to see is more animosity between states, more and more tension within states - between counties that have low levels and those with skyrocketing levels  So the kind of solidarity that's essential to conquering  disease is evaporating before our eyes.

Garrett then noted how -  during the Swine flu pandemic - (by contrast with today), the CDC was "fully in charge" doing at least one press briefing per day - and without any presidential  interference, spin, gaslighting and pill pushing.   So back then we knew what supplies everyone needed, but 'we don't have any of that now."

What we do have is lots of lying and misrepresentation by the Rightist op-ed and FOX news zombies that all is A-ok and the left and media are just inflating the stats. In the words of the already cited  WSJ editorial (ibid.)

"Liberals and the media demanded more testing before states could reopen, yet now are criticizing states because more testing has revealed more cases"

But they have it ass- backwards. What we said was the extent and aggression of reopening must be contingent on the test results.    IF  then more testing reveals more cases you have to apply more controls, more brakes, more precautionary measures to continue to open.   You cannot just rush pell mell into reopening any way you want, devil take the hindmost. Hell, those states with spiking numbers aren't even initiating enough contact tracing.  As Maddow put it, "hoping for things to get better is not a plan."  

To which Ms. Garrett added,  referencing the response to the H1N1 pandemic in 2009:  "The level of engagement was enormous" in contrast to now, where the head of the CDC - Redfield - has become another Trump lapdog.   The result of the Obama plan and CDC was that "there was a consistent policy across all states and the territories".  But what has Trump done? He's turned even the sane act of wearing a mask into a culture war - where his zombies instantly lose it when they see anyone walking while masked - taking them for a socialist, leftist Antifa thug or god forbid, Democrat.

As Dr. David Agus explained yesterday morning:

"People who go out in crowds should all wear a mask. They need to block the spread of droplets from one person to another We have a new way of life these next months until a vaccine comes. We need to behave differently Wearing a mask is different, it's not in our DNA to focus on others but we need to."


Indeed, this attention to mask  -wearing,  as Dr. Ashish Jha explained on 'All In' Thursday night, is one way to open up in a judicious - as opposed to reckless- manner-  and  hence to ensure a downturn in infections as opposed to the spikes we're seeing.   It then becomes a practical alternative to extended lockdown, and a means to reopen the economy while still maintaining protections, precautions - in addition to social distancing and hand washing. 

The problem is that Trump and the Right have incited their zombies into treating masks as political expressions and a part of identity politics. So all who wear them are "commies", "Nazis" or "leftist thugs", opposed to "our" liberty as "sovereign citizens".  So the red state Trumpers refuse to comply with this simple precaution, taking it as a sign of being a "slave" or submission.  Hence, even in their states where the case incidence is trending exponential they happily help the virus to spread further.  The political backlash is so virulent now that we behold medical doctors like Dr. Nicole Quick being forced to resign in Orange County, CA after being called a Nazi and receiving a death threat over an order to wear masks.  This, despite the fact that mask wearing is the key to staying safe in any large reopening. Oh, and definitely preferable to continuing in lockdown mode!

 Last night on 'All In' Chris Hayes played clips of these fake liberty besotted nitwits decrying local health officials.  I could scarcely believe my eyes and ears and Janice was apoplectic - ready to hurl a shoe at the TV.   In the case of an Orange County council meet one heard the following  eruptions from the assorted aggrieved nincompoops:

"I've been discriminated against five times in the last three days, unable to go into businesses without a mask!"

"I'm being told by these Nazis to breathe in CO2 when God...gave me the ability to extract that from my body! So now you want me to put it back into my body!"

"By continuing to keep people in masks without any legitimate cause you are kneeling on the necks of the people! You are continuing to act in a thuggish manner!"

"I mean like it's over! Are we still talking about this?"

To which Chris Hayes responded:  "Yeah, we're still talking about this. People are still dying from it. But that's the view of the White House and these people imbibe it."

Hayes then referenced how this idiocy is happening in Ohio too, in similar venues  - despite the fact the state has been a leader in containing the virus.  But now the Trumpian peanut gallery is getting restless and has taken to sounding off and complaining,  even leading to the resignation of Dr. Amy Acton who had advised Gov. Mike Dewine on the need for an early lockdown, Now the state's Reeptards and their minions are depicting her as the bad guy- even carrying guns and signs with anti-Semitic messages outside her home.   As Chris Hayes noted,  after playing the clip:  "Dr. Amy Acton has guided Ohio through this pandemic and now has become the target of reactionary idiots."

 This is what a good segment of the nation has descended to:  degraded, regressed, non-toilet trained infants with serious mental issues.  Look, if a second wave arrives (see: 'Get Ready for the Second Wave',  WSJ today, p A13)  and another lockdown has to be imposed, you can thank imbeciles such as the ones blowing brain farts out of their asses and forcing medical experts in the different states to resign or go into hiding.    

As for Bill Maher's continued harping about "eating better"  as the key to avoiding the virus ("It only takes 4 to 6 weeks to get healthier!")  that is airy fairy opining which will not help  us with the population we have here and now. (Only 12 percent metabolically healthy according to his latest nutrition guru guest doc.)  Here's more concrete advice  and one thousand times more practical: wear a damned mask when you go out and deliver the middle finger to any toads who object. Oh, and be sure to social distance!   (My technique when I go into an establishment with a mask on and after a jaundiced look from non-mask wearers,  is to commence my deepest, most spasmodic coughing - in response to which the Trumpies move away, slinking like shamed dogs.  My unspoken message? "Hey, I am protecting you idiots!")

 Against all this misfiring and deranged politicization in countering the pandemic we behold a cratering economy which is on the cusp of a full fledged depression, yet few seem to notice.  If the core of a depression is collapsing economic output the writing is already on the wall.  Commerce Dept data show ((WSJ today, p,A1, 'Global Economy Faces Steep Climb To Recover')  Americans saved $6.15 trillion of income (much of it coming from the gov't in the CARES act) in April, but that savings rate increase of 33 % cratered consumption(which props up  70 % of GDP)  and sent the economy into a tailspin --as Laurie Garrett described.  To avoid a depression (a recession has already been evident since February) means much more money must be infused to increase demand, e.g. for goods and services.  Americans, unless they see the government come through, will simply close their wallets to  further spending  so they can hold out against the  debt headwinds.  Which  penny pinching will spell disaster.  The Dems have offered $3 trillion in the HEROES act but the GOP is saying "No way!"

I mean, another 1.5 million (from the Friday unemployment report) are now seeking government support and yet most programs are set to terminate next month. For example, a moratorium on evictions will expire on July 23rd, and the unemployment bonus $$ that has propped up so many millions and helped the economy will follow on July 31st.  Is anyone besides the House Democrats doing anything to help? Nope.  McConnell and the pukes are still sitting on the House bill, convinced they can just wait it out and soon everyone will be back at work so...no problemo.  "We don't need to shovel any more government dollars at the needy millions".  

Well, guess not, so long as you're prepared to face a depression level economic contraction as Laurie Garrett pointed out with 5.2 percent of the world's wealth sucked out. She pointed also to a World Bank estimate of - 8.5 %  in U.S. economic activity, compared to  +1 % at the end of the great recession;  The former is a depression warning, make no mistake.
  See Also:

Hospitalizations climb, cases spike in Arkansas, Texas, Oklahoma, N.C.

And:

Donald Trump

Trump Unmasked

by Steven Harper | June 13, 2020 - 6:57am | permalink

— from BillMoyers.com

Excerpt:

Medical professionals agree unanimously that wearing a mask in public prevents the spread of COVID-19. In violation of the Centers for Disease Prevention and Control guidelines, Trump refuses to wear one.

Trump says that it’s because he is tested for COVID-19 regularly and so are those around him. That doesn’t explain why he mocks former Vice President Joe Biden for wearing one. Even apart from the FDA’s warning that the tests may return false negative results, ordinary Americans don’t have the luxury of weekly tests with immediate results.

If The Fed's Powell Is Ready To 'Print Trillions' To Help The States, Tightwad GOP Should Let Him!

Fed chairman Jay Powell, makes an excellent case for providing a safety net to states, as well as corporations.

"Congress seems to be at war with the states. Only $150 billion of its nearly $3 trillion coronavirus relief package – a mere 5% – has been allocated to the 50 states; and they are not allowed to use it where they need it most, to plug the holes in their budgets caused by the mandatory shutdown. On April 22, Senate Majority Leader Mitch McConnell said he was opposed to additional federal aid to the states, and that his preference was to allow states to go bankrupt"- Ellen Brown, today, 'Crushing The States, Saving The Banks', smirkingchimp.com blog


'Powell Urges Policy Makers To Spend More'  (WSJ, April 30, p. A2)  shows that Fed Chairman Jerome ('Jay') Powell has a much deeper appreciation of the financial straits the nation is in than the Repuke bean counters, Scrooges and austerity clowns. Right now, the greatest imperative is to get money to state and local governments, which the earlier CARES act omitted.  Why infuse  more $$$ for the states and local governments? Well, because they embody the essence of what government is about.   I mean, what citizen in his or her right might wants to see schools, law enforcement, fire departments and utilities shut down - because of lack of funding?  That way madness lies.   

To fix ideas, as reported in The Denver Post (p. 1A,  5/2) , Colorado's state government is now planning some $228 million in spending cuts that could affect everything from police departments, to schools, to health clinics to correctional facilities and even Medicaid.   In Maryland, the state we used to live (before coming to Colo. in December,  2000) 90 days of shelter in place orders are forecast to blow a $3 billion hole in its $90 b annual budget.   That will mean severe cutting of vital services. Other states are having to do the same with no federal lifelines in the pipeline.   Do people in these states really want to do without police, fire depts. and schools?

But this is the gist of the Republican penny-pinching strategy which -  if it succeeds - will see the U.S. end up in a 2nd Great Depression, not just a bad recession.   In fact, while the austerity -minded Repubs have resisted calls for additional funding, citing added debt burdens,  Jay Powell pointed out (ibid.):

"This is not the time to act on these concerns. This is the time to use the great fiscal power of the United States to get through this with as little damage to the longer run productive capacity of the economy as possible."

It's incredible that the Scrooge clones like Mitch McConnell don't grasp this, and would rather put us into another Depression but there it is.  They would rather be chintzy now - especially with the states, local governments-  and pay ten to fifty times later to dig out from the carnage.   Which is why it's good we didn't have these losers in power after the credit meltdown in 2008.

Across the country now there are  massive budget shortfalls  in state and local governments arising from cratering tax revenues. 21 states will have to fill budget gaps of at least ten percent to avoid furloughs of police, firemen and other critical service workers.  And don't even think the existing federal benefits are enough. For example, just applying for and renewing the SNAP (food stamps) requires overcoming a host of bureaucratic hurdles.  And even the fraction who qualify must also rely on food banks given the average monthly SNAP benefit amounts to $134.

In truth, we desperately need not just a $1, 200 one off payment to each American, but a universal basic income (UBI) of at least $2,000/ month for the next 6 months.  (As policy analyst Heather McGee noted on 'All In' last week). So despite the caterwauling and gaslighting from the Repukes, it is clear we need a massive infusion of at least $800 b to help the states, and possibly another $2 trillion more by the end of the fiscal year.  This despite the endless austerity whining of the likes of The Wall Street Journal (e.g. 'The Government Economy',  April 30, p. A14) who bellyache the states "contributed only 0.2% to  the CARES Act".  Well, duh! That's because THEY took the brunt of the lockdown hit ("economy put into the equivalent of a medical coma"), and also they have laws that require balanced budgets -  so must cut if spending exceeds a certain threshold. Also they have no latitude to print money like the Federal Reserve.

Playing into the WSJ editors' hands, Moscow Mitch and his sidekick in stupidity, Rick Scott, blame many blue states for "mismanagement" of their money to explain the predicament and having to cut services, furlough state employees. That is bollocks.  As  NY Gov. Andrew Cuomo  has acidly observed (according to Joe Conason), New York pays $116 billion more than it gets back annually, while Kentucky, the deadbeat home of Senate Majority Leader Mitch McConnell, gets $148 billion more than it pays each year. By that reckoning, New York has kicked in far more over the past few decades than any of the states whose Republican leaders criticize supposed liberal profligacy.

McConnell, meanwhile, doesn't get the dire straits states are in could lead to a true Depression era, and collapse of remaining demand.   The goober with the mouth of a drunken Guppy blabbed:

"We're not interested in borrowing money from future generations to send down to states to help them with bad decisions they've made in the past, unrelated to the coronavirus."

But this is horse manure. As economist Paul Krugman pointed out Friday on Morning Joe , there is no "borrowing from future generations" since we are  borrowing  internally and in our own currency - not from outside creditors like the IMF or other nations. The truth is there is almost no limit to what can be borrowed given we are borrowing  from ourselves, and also interest rates are effectively zero.   Other nations like Great Britain and Japan have done it, and the U.S. can do the same. As Krugman has recently  written in the WaPo:

"Deficit obsession was deeply destructive in the years that followed the global financial crisis, helping conservatives push for austerity measures that held back economic recovery for years." 

And on 'Morning Joe' last week Prof. Krugman made it clear deficit spending was the primary way to alleviate hardship for the 30 million now unemployed, as well as the states.  As he told Joe Scarborough, who mentioned his abiding concern over the deficit for 25 years and asked why we shouldn't be concerned now:  

"If  you ask what is the future burden on the budget by the borrowing we're doing now, it's negligible, a rounding error.  It's just not going to matter.   Yeah, the headline numbers will be large and debt as a percentage of GDP will be as larger or larger than during World War II.  But everything we know about advanced nations that borrow in their own currency - like Great Britain and Japan - shows they are able to carry very high debt loads without crisis.  Even when interest rates aren't as low as they are now they are consistently below the growth rate of the economy.  So the debt will erode over time relative to GDP so long as you aren't totally irresponsible.   

Yes, there must be some limit but looking at the historical record it's very hard to find it. Look at Japan, its debt is 200 percent of GDP and no problems.  We came out of World War Two with debt at 100 percent of GDP and which everyone thought was terrible, but it turned out to be no problem at all.  And by the way we never paid that debt back, we just grew out of it.  Britain had debt that was 270 percent of GDP and they grew out of it too, after a few years down to 50 percent of GDP.

If there is an upper limit it should be so far from where we are that it shouldn't  bear on our policy decisions now."

The  responses to deficit worries given above also comport with what Krugman wrote for the Guardian not long ago:

In such an economy (with zero interest rates) the government does everyone a service by running deficits and giving frustrated savers a chance to put their money to work. Nor does this borrowing compete with private investment. An economy where interest rates cannot go any lower is an economy awash in desired saving with no place to go, and deficit spending that expands the economy is, if anything, likely to lead to higher private investment than would otherwise materialize...  

Why does deficit obsession and pandering to austerity work, say in the public debate sphere? Krugman again:

"Part of the answer is that politicians were catering to a public that doesn’t understand the rationale for deficit spending, that tends to think of the government budget via analogies with family finances."


The point Krugman is making is that while family finances are limited by the family income, and hence a family cannot spend more than it earns (unless it uses credit cards and runs up debt and a greater likelihood of delinquency), the federal gov't can print as much money as it needs to. Yep, debt is generated but in its own currency.  Also the debtor here is also the creditor so there's no problem. But the family has to answer to outside banks, credit card issuers, collectors etc.  So the family debtors are not the same as the creditors.   Nor can the family just print money to pay off its outside obligations, whether an auto loan, mortgage or medical bill.


Bottom line? If we measured national debt and deficits in the standard ways other nations do, i.e. to external  nations, or agencies like the IMF (like Barbados, when it needs loans)  there wouldn't be  half the kerfuffle about it.  Rather than wasting time fretting over an increase in the national debt that amounts to a "rounding error" we need to help the states and 30 m suffering citizens get the money they need.  And in the process help the whole nation avoid an economic calamity.  

All the Fed needs is the green light from congress (namely the GOP run Senate), since it cannot lend or provide money to states on its own, only to businesses. 

   See also:

Economic Policy | Mitch McConnell

As McConnell Tries to Hold Aid to States and Cities Hostage, Mass Layoffs of Public Employees Begin

Excerpt:

"People like having their garbage collected, their roads plowed, and their 911 calls answered. They want their cities to function. They like their kids' teachers. They know all these people in their communities. That's the fire Mitch McConnell is playing with, and you can bet more than one vulnerable Republican senator recognizes that."

And:

Economic Policy

Republicans Are Indulging in a Nasty Gambit — but They Won’t like the Final Endgame

IS Trump Using Tariffs To "Strong Arm" The Fed Into Cutting Rates? The Nasty Meme (And Truth) Is Now Afoot

On Thursday Trump squealed in a deranged tweet:

"One would think I would be thrilled with our very strong dollar. I am not!  The Fed's high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers to compete."

Anyone who knows the extent of Trump's chronic derangement knows he'd be all too happy to pursue a sordid policy of dollar debasement to try to get a few market brownie points.  Also, they'd know what's making life more difficult for manufacturers - as well as farmers (and soon U.S. consumers) - are Trump's idiotic tariffs, which are really a tax on domestic interests.  But the malicious buffoon is savvy enough - in a twisted sense- to grasp he can use tariffs to pressure the Fed to lower rates.

It's a fair bet that few,  if any,  citizens are aware of the appalling degree to which American farmers are being put through the economic wringer for Trump.  The tariffs he's now increased on China - causing it to retaliate- will have devastating consequences on farmers as they are unable to sell hogs to the biggest pork consumers, or soybeans.

Less likely is that many would have seen what I read a few days ago in the Business & Finance section of The Wall Street Journal (p. B14,  Aug. 7) i.e.  that many economics experts and finance mavens now believe our nutso occupant of the Oval Office is using tariffs to "strongarm the Fed"  into cutting interest rates.

Look, we already know Tyrant Trump has been on Fed Chair Jerome Powell's case the past year to cut rates.  We know the swine has berated the Fed incessantly about lowering rates,  going so far as  to try to tilt the Federal Reserve Board with two unqualified lackeys: Herman Cain and Stephen Moore.  Fortunately, after much media heat centered on their woeful and clown -like backgrounds both backed out. 

But Donnie Dumpsterfire  never let up on his Fed attacks and search for leverage so pushed a new toady - Judy Shelton  (see photo above)- who, wait for it:   Yearns for the resurrection of the gold standard.   As a recent (July 3rd) Reuters report  described her:

"She has long advocated a return to the gold standard for the U.S. dollar, something most economists regard as a deflationary regime that would curb the Fed’s ability to respond to an economic downturn. She has also criticized the central bank’s post-crisis policies of zero interest rates and bond buying.

She has changed her tune in recent weeks, arguing that the Fed should be cutting rates to allow the administration’s tax cuts and deregulation to benefit the economy. That seems expedient, perhaps indicating that Shelton will in fact reflect the president’s views at the Fed."

Well, we all ought to worry if she succeeds in getting  a place on the Federal Reserve board, especially if this vapid virago still believes the gold standard is an answer. And also if she practices the financial philosophy of "political winds' directions", i.e. criticizing Fed near zero interest rates when Obama was president, but now ready to go against them with Dotard having seized the office with the Russkies' help and an archaic Electoral college. 

But the percipient will see her as yet another Trump pawn to try to push the Fed to fulfill his will, i.e. to lower interest rates to try to stimulate the economy when it doesn't need it. The increased tariffs (up to 10 % on all Chinese goods now)  are an even more potent force in this direction, because they tend to create weakened economic conditions for the U.S. which need addressing and for which few other options exist. The problem is that they are destroying the livelihood and  financial stability of the nation's ordinary (non-corporate) farmers. See e.g.

https://www.cnbc.com/2019/08/10/trump-is-ruining-our-markets-farmers-lose-a-huge-customer-to-trade-war----china.html


Key takeaways from the piece:

• U.S. farmers lost their fourth largest customer this week after China officially cancelled all purchases of U.S. agricultural products, a retaliatory move following President Donald Trump’s pledge to slap 10% tariffs on $300 billion of Chinese imports.
• China’s exit piles on to a devastating year for farmers, who’ve struggled through record flooding and droughts that destroyed crop yields, and trade war escalations that have lowered prices and profits this year.
• “It’s really, really getting bad out here,” Bob Kuylen, a farmer of 35 years in North Dakota, told CNBC.
• “There’s no incentive to keep farming, except that I’ve invested everything I have in farming, and it’s hard to walk away.”

Process that, and then the meme that Trump is using tariffs to strong arm the Fed.  They are not mutually exclusive. Indeed, in the WSJ Op-ed 'A Fed Reversal Will Store Up Trouble' (July 30, p. A17) we learned:

"The escalating U.S. - China trade war had led bond markets to price almost three rate cuts by the end of 2019 at one point, signaling the Federal Reserve will do whatever it takes to maintain GDP growth"

This after already observing (ibid.), the action has been spawned by "Trump's increasing criticism and calling for rate cuts and another round of quantitative easing."    Put the two together and what do you get?  Well,  that Trump is stoking the trade war with his escalating tariffs and will continue to do so to try to strong arm Powell's Fed into giving rate cuts.    But as the authors (Danny Yong and Nikhil Srinivasan)  also warn:

"By folding to these external pressures and cutting interest rates while U.S. equity markets are at all time highs and unemployment is at multi-decade lows the Fed is putting its credibility at stake."

Worse, the meme is out that a prime Trump Toady, Peter Navarro, in league with Trump, will trigger another recession with this madness. (cf.  WSJ, 'A Navarro Recession?',  Aug. 8, p. A14).  The Journal editors had a clear warning for Trump, writing:

"The irony, and a dangerous one, is that Mr. Trump doesn't seem to understand that his trade policy is contributing to exchange rate instability and a rising dollar."

Which is interesting given that Dotard - from his tweeting rant (see top quote)- accused the Fed and Powell of the rising dollar.  It's clear even the WSJ perceives he really is the dumbass we all suspected, certainly  in terms of  his inane  economic policies. The editors go on:

"When he slaps tariffs on China he reduces the demand for Chinese yuan. He also encourages capital flight to safe havens like the dollar, which encourages more capital into dollar instruments and the U.S."

In other words, Trump is acting the part of a mentally deficient kid playing with matches near a gas stove. The moron has no conception of cause and effect- i.e. between his tariffs and the flight to the dollar (raising the greenback's value).  As the editors conclude:

"If Mr. Trump can't strike  a broader trade deal with China before the election, he should at least call a trade truce to reduce the damage...Trump's willy-nilly trade offensive could be the mistake that turns a slow down into the Navarro recession'"

Let's also note that in an earlier editorial ('The Confusing Federal Reserve', July 30, p. A16) the WSJ editors were alarmed enough by the Fed's quixotic moves re: rate cuts that they noted: "This contributes to the suspicion in markets that the Fed is really trying to accommodate Mr. Trump's public demand for rate cuts."

In other words, Powell and the Fed have shown - and likely will further show  - even with rate cuts into negative interest territory they they are at the beck and call of the narcissistic autocrat in the White House.

This elicits the question: Does Powell even know that he and his compadres are being strong armed into rate cuts?   To quote the WSJ editors (ibid.):

"We'd like to think that's not true and it's dangerous for the Fed's credibility if it is.  But as long as the Fed bounces from tightening to easing based on inconsistent logic, the suspicion will persist."


See also:

China | Donald Trump | Trade

Trump’s Sudden Surrender in His Trade War with China Shows He Still Has No Idea What He’s Doing