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The Real Economic Problem Is Not the Closedown
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What do we make of it all? I just read an article in the New York Times that reports that President Trump lied and hid from the public the severity of the Covid-19 pandemic https://www.nytimes.com/2020/04/28/opinion/coronavirus-trump-coverup.html . On the other side, I encounter endless Internet rage that Covid-19 is a hoax, that New York city’s hospitals are empty and no one has died. It is nothing but a Rothschild-Rockefeller-Bill Gates plot. Perhaps the most stunningly inconsistent claim of all is that it is a bioweapon that is so harmless that there should have been no lockdown. Why make a harmless bioweapon?

Where one stands on the closedown depends on where one stands on other issues. If you are a libertarian, you oppose the closedown because it interferes with your freedom and keeps useless old people alive who cost you payroll tax dollars. It you are a Trump-hater like the New York Times you blame trump for understating the threat and not closing down soon enough. If you are a Trump supporter you blame China and expect China to pay for it by forfeiting their trillion dollar holding of US government bonds.

Those decrying the closedown are unaware of the mischief they are making. They have set it up for the elites, who have taken us for another “bailout the one percent ride,” to blame the resulting economic depression on the closedown. The US economy has been in a long-term recession. Growth in income and wealth has accrued to the top few percent who own the majority of stocks and bonds driven up in price by the Fed’s money printing. The rest of the population has been hurt by the offshoring of their jobs and by the financialization of the economy that leaves them little or no discretionary income after they pay their rent or mortgage, car payment, credit card payment and student debt.

The economy was already in a debt deflation with 40% of the population unable to raise $400 cash according to the Federal Reserve. The inevitable consequence of a debt deflation is economic depression as debt deflation precludes sufficient consumer aggregate demand to drive the economy. GDP growth has received no help from business investment, because corporations have used their profits to buy back their own shares.

The closedown is not responsible for the debt deflation, the foundations of which were already in place. But the closedown has given it a push. Small businesses were not bailed out like larger ones such as Boeing. For small businesses the closedown represents a period when their costs exceed their revenues. For the unemployed that resulted from the closedown, their living expenses continued but their pay checks did not. The Trump checks help as do temporary moratoriums on evictions to dely the inevitable, but for the majority of the already heavily indebted, the closedown adds to their debt.

ORDER IT NOW

Michael Hudson and I believe that an economic system that enriches the rentier class by converting as much of personal income as possible to the service of debt is an economic system that is dead in the water. One possible way out is a debt writedown in order to create some discretionary income. Keep in mind that when the replacement of offshored manufacturing jobs with Walmart jobs stopped US GDP growth, Federal Reserve Chairman Alan Greenspan subsituted growth in consumer debt for the missing income growth, and by this substitution created discretionary income by loading up the consumer with debt.

That load is now full. We are in the unenviable position of having very high stock prices in an economy that has no growth potential. The high stock prices are the product of trillions of dollars injected into financial asset prices. If the reopening spreads the virus and produces a second wave that overwhelms the health care system on a broader basis, the economy could be shutdown again, or if kept open could be disrupted by widespread illness or reluctance to accept exposure to the virus. On the other hand, if the virus has run its course, or the threat was exaggerated, the existing stifling debt burden remains.

The danger in the shouting and finger-pointing is that a sick economy will be blamed on the closedown, not on the debt burden. Reopening the economy does not make the debt burden disappear. Michael Hudson and I have tried to focus the public and policymakers on the real problem. So far we have been unsuccessful.

(Republished from PaulCraigRoberts.org by permission of author or representative)
 
• Category: Economics • Tags: Coronavirus, Debt, Unemployment, Wall Street 
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  1. MarkinLA says:

    Growth in income and wealth has accrued to the top few percent who own the majority of stocks and bonds driven up in price by the Fed’s money printing. The rest of the population has been hurt by the offshoring of their jobs and by the financialization of the economy that leaves them little or no discretionary income after they pay their rent or mortgage, car payment, credit card payment and student debt.

    I believe it was called Reaganomics.

    • LOL: Twodees Partain
    • Replies: @Exile
    , @Twodees Partain
  2. The danger in the shouting and finger-pointing is that a sick economy will be blamed on the closedown, not on the debt burden. Reopening the economy does not make the debt burden disappear.

    Well, yes. The system was broken in the fall, when the Fed reversed course on balance sheet shrinkage. It was going to blow, and required another bailout. The problem: the elites had already snookered the public the last time around. If you recall, Mr. Roberts, the first vote on the bailout in 2008 failed. One Congressman said the mail he was getting was either “no,” or “hell, no.” The elites needed a gambit to get everyone to support the bailout this time.

    Cue mass unemployment as a result of a politically-driven reaction to a particularly infectious but not particularly deadly virus (death rates under 50 are about 5 per 100,000, which will be lower than the number of suicides that result from the lockdown in that group.). You might recall that only one congressman from Kentucky tried to slow things down, and Trump suggested he be kicked out of the Republican Party for doing so. Mission accomplished: people begged for a bailout where most of the dollars did not go to the little people.

    The transfer of assets into the financialized system will save it for a little while longer. But not much. We went 11 years after the last bailout; maybe 5 this time, and maybe not even that long. The cut in income is going to drive a wave of bankruptcies, including of whole states if McConnell is to be believed. Better than bankruptcy is a mass inflation that cuts the value of debt, and also cuts the money due to retirees, as in Illinois, since their inflation adjustment has been crushed by the use of Chained CPI.

    Put the things you’ve written together with what you observe of actual death rates from the virus and you’ll see. The system is still headed for a crackup.

  3. JasonT says:

    The real economic problem is the people in control of the financial system.

  4. jsinton says:

    Sweden proved that the correct course of action was common sense, not silly right or left bob and weave. Don’t close the economy, that’s stupid. Protect your old people, makes sense. Go for herd immunity. This time next year we will wonder why we went so far overboard, destroyed the economy, and ruined the lives of BILLIONS of people. We won’t be concerned about the handfuls of chronically sick old people that died of flu.

  5. @jsinton

    They didn’t prove nothin and you know nothin. You didn’t even read the article.

    The closedown is not responsible for the debt deflation, the foundations of which were already in place.

    Learn to read.

  6. Paul Craig Roberts has it exactly right. Your opinion on the virus depends on what political animal you see yourself as. Thus, a matter of science and medicine and fact becomes a matter of identity politics. I like how he says libertarians want us all to die. To protect their “freedom.” He’s got that right. Wouldn’t it be wonderful if libertarians were to die. Then they could be free. Because the only “freedom” is in the grave.

    • Agree: davidgmillsatty
    • LOL: joe2.5
    • Replies: @onebornfree
    , @Rich
  7. The source of the real economic problem has been the unending expansion of money and credit which apparently began in earnest in order to pay for Vietnam Nam.

    This was a massive intervention in the economy which has benefited a small slice of the country, at the expense of everyone else as the economy has been de industrialized. The solution is not additional intervention in the form of state mandated debt forgiveness. While it is true the actual solution, liquidation and return to functioning markets, is not likely to happen, that is no excuse for ill conceived projects designed to counteract the precedent corrupt policies.

    Debt forgiveness without monetary reform and some sort of liquidation may be conceived of as a wealth transfer to debtors to counteract the transfer of wealth to the already rich via monetary policy. It might be politically palatable but would have nothing to do with the real problem, unless you believe the problem is aggregate demand and can ignore the fact that it is the efforts to boost aggregate demand willy nilly that have got us where we are.

    • Replies: @MarkinLA
  8. Exile says:

    Good piece from PCR. This economy has been terminally sick for a lot longer than the last quarter. Europe is managing to support its citizens and guarantee their jobs much better than America despite the virtual vassalage of much of the Euro economy to America-led banksters and pirate-ship multinationals. The necessary corrective pain is regrettable but we’ll never get out of this parasitic death-spiral without radical course correction.

  9. Exile says:
    @MarkinLA

    More like Zionomics and it was well-entrenched well before 1980.

    • Replies: @MarkinLA
  10. I believe Paul Craig Roberts to be a bona fide economist, and a bona fide person.
    And I am convinced that he and Michael Hudson are correct that basing an economic system on money being created as debt is a grave problem. Such an economic system cannot engender a society which can serve the well-being of all of its people.
    That is the case because of a false belief: the belief that money stores the value that it measures.
    The reality – fact of life – is that value can only be stored in things that have inherent real value.
    I imagine that most people reading this would be prone to jump to the conclusion that gold or silver have inherent real value and therefore, being durable, constitute a perfect solution to this issue.
    To which I would counter with the question: do you really believe that storing wealth in precious metals or other durable commodities will [or has ever] served the well-being of all of any society’s people?
    No, that solution leads to the development of a tiny minority of extreme wealth and power – just like the insane system which believes that money stores value!
    Well, what then?
    The only solution that I have been able to think of is that the wealth of any society dedicated to serving the well-being of all of its people should be stored in that society’s productive infrastructure which must be dedicated to that very end – serving the well-being of all of its people.
    The purpose of a profession of ‘economics’ would need to reflect this end – ensuring the development and maintenance in perpetuity of a designed-to-be durable infrastructure which does in fact serve the well-being of all of a society’s people.
    The absurd belief that money can store value needs to be flushed down the toilet bowl of history.
    Haven’t you had enough – yet – of the best science, technology, government, history, news reporting, … that money can buy?

    • Replies: @davidgmillsatty
  11. MarkinLA says:
    @Exile

    He put it on steroids.

    • Agree: Exile
  12. MarkinLA says:
    @donald j tingle

    Unless you get the jobs back and at a pay rate that makes at least 85% of the workforce tax providers instead of tax consumers, nothing is going to right the ship. Even during the Vietnam war there was plenty of US generated income to handle the budget deficits. Government bonds and bills never had a shortage of old folks who wanted the benefits of income from Treasury securities without the risk of corporate bond defaults.

  13. Ko says:

    Maybe you guys are just confounded because you have no idea what the hell just happened. You are struggling to find answers and work a puzzle that has been manipulated and turned into a circling kaleidoscope of shattered logic and false equations. If you begin with the presumption that nothing happens by accident, that nothing is a coincidence, that the deep state will do anything to remove President Trump from office, that there is a reason the pedophile Bill Clinton is forcefully sequestered in some isolated place in Ireland and his disgusting psychotic wife if voicelessly shrieking as her relevance recedes into handcuffed oblivion, that the best laid plans by deceitful Democrats is to cheat it’s followers into supporting a morally bankrupt sexual predator who will resign at the right time so they can install someone no one voted for to run against Trump, then maybe, just maybe, you can begin to guess what the fuck just happened.

  14. @alan kerns

    What will gold be worth in 50 years? Inquiring minds want to know.

    https://www.investmentwatchblog.com/the-golden-asteroid-between-mars-and-jupiter-is-worth-700-quintillion/

    Whether it was the Big Bang, Midas or God himself, we don’t really need to unlock the mystery of the origins of gold when we’ve already identified an asteroid worth $700 quintillion in precious heavy metals.

    If anything launches this metals mining space race, it will be this asteroid–Psyche 16, taking up residence between Mars and Jupiter and carrying around enough heavy metals to net every single person on the planet close to a trillion dollars.

  15. @jsinton

    At this point herd immunity is looking like an unlikely savior. It may be that we never get a vaccine since we have yet to have one for HIV. And maybe if we have a second wave, it will take out all of the young libertarians who think this was a hoax.

    If it is a hoax, why are employers lobbying Congress for worker’s compensation and general liability immunity. That seems like the only immunity we might get.

    When did businesses lobby Congress for workers’ compensation and general liability immunity for the flu?

    • Replies: @nickels
  16. @MarkinLA

    Too true, and Paul was right in the thick of it back then. The good thing about being old is that I get to point out things I saw happening 40 years ago.

  17. nickels says:

    Yes, point taken. Most people knew this about the economy, but it doesn’t hurt to remember.
    Many will view the lockdown and authoritarian measures as an effect of the virus as well, much in the same way as the economic collapse. But, of course, this also has been long brewing, as those who follow the culture wars have known.
    America was no less totalitarian in March, 2020, if a bit more subtle.
    All they did was quit wearing their mask, and in exchange demand we wear our muzzle.

  18. nickels says:
    @davidgmillsatty

    Herd immunity is already here.
    Not total but enought that any flare up will be a minor background noise.
    We were at 5-13% two weeks ago, that is probably already to 30% by now.

    • Replies: @joe2.5
  19. swamped says:

    “Where one stands on the closedown depends on where one stands on other issues. If you are a libertarian, you oppose the closedown because it interferes with your freedom and keeps useless old people alive who cost you payroll tax dollars”…and old people &; libertarian are not mutually exclusive. You can be an old person & still chafe under an oppressive lockdown or care about civil liberties; and you can be a libertarian without urging Boomercide. And if you’re neither old nor a libertarian, you may have an even greater interest in this; youth especially, can’t sacrifice their youth – which won’t be reimbursed by the govt. – for a fake crisis. It may actually be youth, in fact, that this is mainly aimed at. The old & libertarians already have set ideas & aren’t very important interest groups, anyway; but if govt. can pen up youth & convince them lockdown is the ‘new normal’ – even though they’re least at risk – social control plus, will be here to stay. The economic crisis – also made much worse &; unmanageable by govt. closedowns – falls most heavily on youth, too. If you want to know what the real, lasting effects of this bogus shutdown – & any reaction to it – will be, keep your eye on the young. Their fate will decide it.

  20. joe2.5 says:
    @nickels

    Herd immunity is already here

    Well, the Herd has been around for an incredible long time, that’s beyond any doubt.
    Immunity, though, is totally in some people’s head. No proof yet. Also, according to what we know from the family of viruses related to this one, any immunity may be nonexistent, of poor quality or of short duration

    If you have any solid data to prove that there is reliable immunity to this SARS-CoV2, by all means bring it, so that we all can finally have a sigh of relief!

    • Replies: @nickels
  21. onebornfree says: • Website
    @obwandiyag

    “I like how he says libertarians want us all to die. To protect their “freedom.” He’s got that right. Wouldn’t it be wonderful if libertarians were to die. ”

    Nah, libertarians don’t want everyone to die. Just all of the scum-sucking commie nere-do-wells who can’t run their own lives and feel entitled to sponge off everyone else, and yet fancy themselves running everyone else’s lives according to their commie idiocy. For example, you. So fuck off and die, you worthless piece of shit.

    “Regards” onebornfree

    • Replies: @Biff
  22. onebornfree says: • Website

    PCR; “If you are a libertarian, you oppose the closedown because it interferes with your freedom and keeps useless old people alive who cost you payroll tax dollars.”

    This sentence is total bullshit.Extrapolate from there and apply to the entire article. End of story.

    No regards, onebornfree

  23. nickels says:
    @joe2.5

    Maybe try the fact that immunity is how every other disease in history works.
    Good starting point.

    • Replies: @joe2.5
  24. joe2.5 says:
    @nickels

    … try the fact that immunity is how every other disease in history works

    It’s very, very far from being a fact. Is this kind of general nonsense statement what you consider solid medical data? Do you want me to repeat my post?

  25. Tiska says:

    It is hard to imagine that any country studying and experimenting with a possible weaponized virus would not have also been experimenting and studying cures and vaccines for such a virus, and the argument that the covid-19 virus was deliberately released is not likely — unless someone comes up with a successful cure or vaccine very soon.

    I have seen that there is speculation that this virus was a weaponized disease possibly invented by the Chinese, or by the USA, or by Russia and or even by Israel. Surely if anyone thought of using such a weapon which is so dangerous to all, they would have also thought to develop a cure, and a vaccine, to protect themselves when it was released.

  26. Biff says:
    @onebornfree

    fuck off and die, you worthless piece of shit.

    Brilliant stuff. Did you take a writing class?

    • Replies: @onebornfree
  27. Missed opportunities to make some key and core corrections.

    The bailouts are not trickling down to where the ‘real’ economy operates small and businesses.

    Most people have no clue that perhaps a trillion dollars of the WS market is valued in the speculation of the market not actual products of value.

    I am a die hard capitalist — and even I think what is happening is stripped of any hidden agenda.

  28. We are learning that should the country be forced by the virus to shut down because people are incapacitated, for millions of people the breaking point seems to be one and a half months.

    That’s an important factor to consider.

  29. onebornfree says: • Website
    @Biff

    “Did you take a writing class?” Yes, dealing with both brevity and clarity. 🙂

    “Regards” onebornfree

  30. Rich says:
    @obwandiyag

    You don’t actually understand libertarianism. The libertarian doesn’t want to stop you from “locking down ” or hiding, he wants the individual to have the freedom to make his own decision. Some people choose to jump out of planes, that’s crazy and dangerous to others, should people therefore be prohibited from jumping out of planes? Some libertarians would choose to “lock down ” others wouldn’t. Libertarians believe adults should be allowed to decide for themselves. I don’t think the used car salesmen that run the Western world should be trusted with deciding my fate. You may feel differently.

  31. i have no issues with people being wealthy, getting wealthy as long as the rules applied to all are n play. But given the complaints about the economy, it should be a curious artifact that stock prices haven’t slumped — while the overall market supposedly has.

    https://www.marketwatch.com/story/heres-how-the-stock-market-has-performed-during-past-viral-outbreaks-as-chinas-coronavirus-spreads-2020-01-22

    https://economictimes.indiatimes.com/wealth/invest/coronavirus-how-it-impacts-your-money/articleshow/74147275.cms

    https://investorplace.com/2020/04/7-u-s-stocks-to-buy-on-coronavirus-weakness/

  32. The Central Ineptitude Agency, Pentagon, & USArmy all require asset inflation & money pump Federal Reserve printing of increased inflation due to the fact that Maestro Greenspan, Robert Rubin, & Lawrence Summers all wanted complete deregulation with the evisceration of Glass-Steagall Act so that they could turn the global economy into a global casino with requisite betting in the unregulated dark pool derivatives universe that was characterized early on by Warren Buffett as being weapons of mass destruction. In brief, nCov-19 is also a weapon of mass destruction and was intentionally released to cover up the Greatest Depression & Greenspan’s asset inflation era of financial largesse promulgated by the Chicago School of Economics & historical proponents.

    Face facts, professors.

    The $1.8 quadrillion dollar USD Dark Pool Derivatives Universe was built upon Maestro Greenspan’s one trick pony of asset inflation that was entirely built upon a substrate of debt which is analogous to sand that shifts randomly.

    Debt alone is the controlling determinant that predetermines behaviour near term & long term. Expansion of debt system wide will not restore sound money or the underlying fundamentals of sound money as debt expansion has limits of utility for both consumer & governance.

    The engines of Ponzi Casino Capitalism ran on cheap debt fueled growth of Petrodollar USD hegemony & USD supremacy worldwide until the debt serviceability became an unresolvable issue of intractability for the investment houses that started the money pump fraud to begin with when they collectively deregulated Glass-Steagall Act so that they could reap the financial whirlwind off of our collective backs.

    We don’t want to change the system, professors. We want to eliminate the fraud & fraudsters by destroying the system outright so that you cannot rebuild it for your greedy colleagues and their parasitic offspring of text book Psychopaths.

    Let the elite eat cake & Orwell’s boot to the face for eternity.

    Welcome to the New World Disorder, professors.

    RW

  33. “The $1.8 quadrillion dollar USD Dark Pool Derivatives Universe was built upon Maestro Greenspan’s one trick pony of asset inflation that was entirely built upon a substrate of debt which is analogous to sand that shifts randomly.”

    I am not sure you understand how derivatives work. And Director Greenspan openly admitted he didn’t get it. That is a some indication that issues regarding said formulas had nothing to do with the Fed. They are means of rating a product or creating a product that is valued in manner in which one can earn a profit. Since they are leveraging risk and risk is always in the market —- they would exist regardless of how the fed dealt with interest rates. The larger problem with derivative markets is that they are so complex usually that they are hard to regulate. It is my understanding that to this day, no one has figured out how to do so.

    https://www.wisegeek.com/what-is-a-derivative-market.htm

    The returns are can be substantial enough that no one seems eager to corral them in. Laughing. Note that final comment about due diligence —-

    http://www.differencebetween.net/business/investment-business/difference-between-hedging-and-derivatives/

    I y view these are not tangible products, but the area of investing I think is in the trillions of dollars.

    http://www.differencebetween.net/business/investment-business/difference-between-hedging-and-derivatives/

    Hedging as insurance — interesting turn of phrase.

    —–

    This is just a a guess, as I am not that familiar with Dr. Roberts’ actual views — but I think you are leaning in his direction as your final observations indicate.

  34. Paul Craig Roberts is one of the principle architects of Trickledown Economics that was built off of the bogus theorizing that corporations & banks would lend to small business instead of eliminating the middle class which was Roberts’ goal & end game with Trickledown your pant leg Economics.

    Derivatives are just off-exchange bets with a bookie that is unregulated & uninsured.

    I was looking at derivatives before Brooksley Born warned Congress.

    Buffett warned everyone.

    RW

    • Replies: @MarkinLA
  35. MarkinLA says:
    @Robert White

    Options and futures are considered derivatives as well and they do have exchanges.

    But, yes, the ones that caused the problems were off-exchange and unregulated. However, there was never any way to properly price them because, in spite of all WS claims of mathematical genius, there was never any way to properly price the assets that were the basis for the derivatives.

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