The coronavirus is not just a medical crisis. It is a crisis of ignorance, a financial crisis that easily could be avoided if anyone in Washington had a brain.
Sadly, with a proven psychopathic leader, who has dismissed all the knowledgeable and experienced people who did not worship him sufficiently, and replaced them with brainless, corrupt sycophants, the likelihood of coronavirus morphing into full-blown economic crises is quite strong.
Here are excerpts from an excellent, THE WEEK Magazine article, that was written with more intelligence than exists in the entire, Trump administration:
How to fight a coronavirus recession
Jeff Spross, THE WEEK, February 27, 2020
At this point, the spreading COVID-19 coronavirus is not just a clear and present danger to American lives, but to our economy as well.
The major quarantines in China have curtailed both the country’s exports of goods and parts, as well as its imports from the U.S. and the rest of the world.
Other outbreaks of the virus are popping up around the globe, and U.S. officials are saying it’s all but certain to spread domestically as well.
But there are steps the U.S. government could take to protect the American economy from a recession, if they move as quickly as possible.
Specifically, the Federal Reserve should cut interest rates, and Congress and President Trump should put together a fiscal stimulus package to support the economy going forward.
There are four things history, both long and recent, should have taught us, they are:
- To cause recessions, cut deficit spending, and to prevent and cure recessions increase deficit spending. Recessions are symptoms of money shortages.
- Cutting interest rates does little to cure recessions. Cuts do not stimulate purchases enough to overcome the fact that low interest rates reduce the amount of interest money the federal government pumps into the economy.
- The federal government has the unlimited ability to deficit spend. It never can run short of dollars, and never needs to levy taxes to fund spending.
- Federal deficit spending does not cause inflations. All inflations and hyperinflations are caused by scarcity, usually shortages of food and/or energy (oil). To cure inflations, the government must cure the scarcities, which generally requires more, not less, deficit spending.
Almost half of U.S. companies that have business with China told a recent survey they expect to see revenue declines if things can’t return to normal by May — and one-fifth said they could lose half their revenue if COVID-19 isn’t contained by the end of August.
The Fed’s next meeting is not until mid-March. But to some degree, Fed officials could convince the financial markets to begin offering more credit right now simply by declaring unequivocally that they will cut at the next meeting.
This might be a good psychological step if it doesn’t convince Washington that nothing else is needed.
During the Obama administration, at the height of the “Great Recession,” rates were cut significantly, but fiscal stimulus was necessary to grow the economy.
Here is a closeup of the graph showing how little effect interest rate cut had:
The central bank’s recent cuts have been very modest adjustments of 0.25 percent each, and it should take the next meeting as an opportunity to do at least that much.
In fact, economist Kevin Warsh — a former Fed official, and usually a monetary policy hawk — has already called for the central bank to do just that. Financial analysts just told Politico they anticipate two rate cuts in April and June, and U.S. financial markets are already pricing in an 85 percent chance of a rate cut by mid-summer.
Yet even with financial markets anticipating rate cuts, the stock market has dropped like a stone.
The reason. Rate cuts have at best, a modest stimulative effect, and may even have a recessive effect.
Fiscal policy should also get in on the act. Obviously, the government should be making whatever public investments are necessary to respond to the virus directly: more resources for health responders to screen for symptoms, monitor the spread, and care for people who have become infected.
Congress is already debating spending packages of $4 billion to over $8 billion — and policymakers have blasted the Trump administration for a tepid response so far.
No one should be surprised at the “tepid response.” Remember, this is the administration that moved heaven and earth to eliminate ACA (Obamacare), not because it was bad but because it has Obama’s name attached to it.
This also is the administration that favors cuts to Social Security and Medicare, increases in the FICA tax, and is rabidly opposed to Medicare for All.
But we also need broader measures to support economic activity as a whole, and get more spending money out there.
A good example is the tax cut passed in response to the 2001 recession: President George W. Bush signed the tax cut in February, and by the end of April rebate checks were going out to Americans in the mail.
And that 2001 recession ended in the 4th quarter of 2001.
Another example is the temporary payroll tax cut that was part of the 2009 stimulus under President Obama. Federal payroll taxes bring in a colossal amount of money — roughly six percent of GDP each year — and reducing them or even eliminating them for a temporary period would leave that money in the economy for spending.
Indeed, since payroll taxes are automatically collected out of each paycheck, a halt to the tax would immediately put more money in Americans’ pockets.
If there were a clear head in Washington, the payroll tax (FICA) would be permanently eliminated in its entirety. (See Step 1. of the Ten Steps to Prosperity, below.)
Contrary to popular myth, the FICA does not fund Social Security, nor does it fund Medicare. In fact, the FICA tax does not fund anything.
Every single FICA dollar deducted from your paycheck and every single FICA dollar paid by your employer is destroyed upon receipt by the U.S. Treasury. They cease to exist in any money supply measure.
The reason is quite simple. The federal government (unlike state and local governments) is Monetarily Sovereign. It has the unlimited ability to create its own sovereign currency, the U.S. dollar. It never can run short of dollars.
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e.,unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
Even if the federal government collected $0 taxes, it could continue spending forever. It creates brand new dollars, ad hoc, every time it pays a bill.
Spending, i.e. paying bills, is the federal government’s method for creating dollars.
Now, there are real limits to what monetary and fiscal policy can do in a situation like this.
Both an interest rate cut and deficit spending are ways to increase aggregate spending.
But when a disease like the coronavirus shuts down economic activity, people can’t shop and spend money, and they also can’t go into work to produce the goods and services that other still-healthy populations are ready and willing to buy.
As dramatic as the stock market’s 10 percent nose-dive is, this effect on normal consumers and workers is the real threat to the economy.
If workers can’t man a factory because they have to stay home — or have been ordered to stay home — to avoid spreading a disease, no amount of money pumped into the economy can coax more production out of them.
This is also why a fiscal response to the coronavirus should focus on pure cash stimulus, since it will be hard to predict what specific areas of real-world work and production will and won’t be affected.
The author of the article is correct that a substantial pure-cash stimulus is necessary. Checks should go out to every man, woman, and child in America.
But he overstates the “can’t shop, can’t spend, can’t go to work,” claim.
At any given moment, even under the worst of circumstances, only a very small percentage of American people will be homebound. The vast majority of people who contract the disease, will recover in a few days and be forever immune.
And remember, Amazon.com, online grocery, restaurant delivery, and all the other on-line services available to the home-bound.
That said, many businesses will be hurt, so not only should the federal government provide dollars to consumers; it should provide dollars to the businesses most likely to suffer and most critical to the economy.
Tax cuts and rebates should go especially to industries supplying food and oil (to prevent the scarcities that cause inflations), health care, transportation, communication, and infrastructure.
Finally, we should think about longer-term policy changes that could help prevent future outbreaks.
I would begin with the Ten Steps to Prosperity
For instance, if the U.S. had a national paid sick leave system, employees would not feel nearly so much pressure to come into work when they’re ill or showing symptoms.
And guaranteeing affordable health care access for all Americans, such as with a Medicare-for-all program, would allow everyone to get treated as soon as possible when they think they might be sick, as opposed to forgoing a doctor visit entirely in order to avoid the costs.
And our failures to properly regulate market structures or enforce antitrust law have left us with highly-concentrated and monopolized global supply chains with little redundancy; we’re vulnerable to shortages and collapse if one key part goes down.
Good ideas. There is no reason not to plan and implement them — other than Washington ignorance.
Trump economic advisor Larry Kudlow may have brushed off the need for stimulus, saying the outbreak isn’t likely to become an “economic tragedy.”
But when it comes to COVID-19, moving now with an aggressive emergency-style stimulus is the best way to ensure that prediction actually comes true.
We have written about Kudlow before, here, here, and here. I consider him to be at Trump-level in competence (i.e. incompetence). He is a Trump acolyte, whose knowledge of economics seeming can be purchased cheap. Either that or he truly is ignorant.
Finally, the title of this post is, “How you can help cure the coronavirus crisis.“ You can help by contacting to your Congresspeople and telling them what is in this post.
At first contact, you will receive a stock non-answer to which you should respond by trying again and again and again. Write letters interspersed with phone calls, Emails, and texts. And urge your friends and family to write, call and text. And urge them to do the same.
Pols respond to volume. A dozen contacts won’t do much, but ten thousand will make a dent.
This is an election year, when all Representatives and 1/3 of Senators are running, and are more responsive to constituents. Take advantage of it.
Ten contacts won’t do much. But ten thousand will make a huge dent. And follow up with letters and calls to your local newspaper, radio, and TV. Do a YouTube bit.
One young girl is making a dent regarding climate change.
Maybe, just maybe, you too can change the world.
Rodger Malcolm Mitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell
THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually.
8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.