Category: zerohedge

Authored by Charles Hugh Smith via The Daily Reckoning,

A popular claim is that the 1918–19 flu pandemic killed millions but no biggie, the Roaring ’20s started the following year. It’s onward and upward, baby, once we toss the masks.

Wrong. Completely, totally, dead wrong.

The drivers of the past 75 years of growth — globalization and financialization — are dead, and so is everything that depended on them for “growth.”

Here’s what’s poorly understood: Globalization and financialization die when they stop expanding.

Just as a shark dies if it stops swimming forward, globalization and financialization die once they stop expanding, because their viability depends on expansion.

Globalization and financialization have been losing momentum for years.

Globalization Has Strip-Mined Economies

Under the guise of “opening markets,” globalization has strip-mined every economy that can’t print a reserve currency and hollowed out economies globally as only globally competitive sectors survive globalization.

The net result is that once vibrant, diversified economies have been reduced to fragile monocultures completely dependent on global flows of capital and spending for their survival.

Tourism is a prime example: Every region that has seen its local economy crushed by global corporations, leaving global tourism as its sole surviving sector, has been devastated by the drop in tourism, which was always contingent on disposable income and credit expanding forever.

But credit can’t expand forever, as it eventually runs out of income to service additional debt.

Financialization is not just the expansion of credit and leverage to marginal borrowers; it’s also legalized looting, as the true risks of soaring debt and leverage are hidden in obscure financial instruments and bogus claims of “safety” and “hedging.”

Excesses of debt and leverage funneled into risky speculations inevitably end in default.

Asset and Consumption Bubbles

Financialization manifests as asset bubbles and hyperconsumption as people who never had credit spend up to the credit limits and beyond.

Both asset and consumption bubbles pop, pushing the financial sector that feasted off the unsustainable expansion of credit into insolvency.

In other words, neoliberal globalization and financialization — essentially one dynamic — are inherently destabilizing, as all the incentives are perverse.

Just as asset and consumption bubbles are inevitable, so too is the bursting of those bubbles and the devastation of everything that had become dependent on the expansion of those bubbles.

And that has real consequences.

Food security, to take a basic example, is impossible once globalization has destroyed local agricultural production, and financialization has rewarded factory-farming since Big Ag can borrow capital at scales that only make sense in a world of globalized monoculture agriculture.

1919 Is Not 2020

Everyone touting 1919 as the model for 2020 is deeply ignorant of history and the destructive ontologies of globalization and financialization. There is virtually no overlap between the world of 1919 and the world of 2020 in terms of financial structures and excesses.

That globalization and financialization are dead is revealed by what Federal Reserve bailouts and fiscal free-for-alls cannot do:

1. They cannot create creditworthy borrowers out of thin air like the Fed creates dollars out of thin air.

2. They cannot force lenders facing mass defaults to loan more money to uncreditworthy borrowers

3. They cannot force creditworthy borrowers to borrow money.

4. They cannot reflate asset and consumption bubbles that have popped.

5. They cannot restore confidence in long, fragile supply chains.

6. They cannot magically turn unprofitable enterprises into profitable enterprises.

7. They cannot create income streams — revenues, profits, wages, etc. — with bailouts that continue the perverse incentives of moral hazard or “free money” designed to give debt-serfs enough cash to continue making their loan payments.

8. They cannot forgive debt payments without destroying the wealth held as debt: Mortgages, student loans, auto loans, credit card debt, corporate junk bonds, etc., are assets that lose their value once borrowers default.

9. The Fed can buy impaired debt, but that doesn’t change their abject powerlessness (points 1–7 above).

Financialization was never sustainable, and neither was the destructive globalization it enabled.

Any system that depended on the ever-expanding exploitation of new resources, debtors and markets could never be anything but fragile. The ferociousness of its rapacity masked its inherent weakness, a weakness that is now exposed as fatal.

But let’s stick to the U.S. alone for now. The pandemic is having a dramatic long-term effect on Main Street local tax revenues.

First- and Second-Order Effects

To understand how, we need to consider first- and second-order effects.

The immediate consequences of lockdowns and changes in consumer behavior are first-order effects: closures of Main Street, job losses, massive Federal Reserve bailouts of the top 0.1%, loan programs for small businesses, stimulus checks to households that earned less than $200,000 last year and so on.

The second-order effects cannot be bailed out or controlled by central authorities. Second-order effects are the result of consequences having their own consequences.

The first-order effects of the pandemic on Main Street are painfully obvious: Small businesses that have barely kept their heads above water as costs have soared have laid off employees as they’ve closed their doors.

The second-order effects are still spooling out: How many businesses will close for good because the owners don’t want to risk losing everything by chancing reopening?

How many will give it the old college try and close a few weeks later as they conclude they can’t survive on 60% of their previous revenues?

How many enjoy a brief spurt of business as everyone rushes back, but then reality kicks in and business starts sliding after the initial burst wears off?

How many will be unable to hire back everyone who was laid off?

Falling off a Cliff

As for local tax revenues based on local sales taxes, income taxes, business license fees and property taxes: The first three will fall off a cliff, and if cities and counties respond to the drop in tax revenues by jacking up property taxes, this will only hasten the collapse of businesses that were already hanging on by a thread before the pandemic.

The federal government can bail out local governments this year, but what about next year, and every year after that?

The hit to local tax revenues is permanent, as the economy became dependent on debt and financialization pushed costs up.

Amazon and online sellers don’t pay local taxes except in the locales where their fulfillment centers are located.

Yes, online sellers pay state and local sales taxes, but these sales are for goods; most of the small businesses that have supported local tax revenues are services: bars, cafes, restaurants, etc.

As these close for good, the likelihood of new businesses taking on the same high costs (rent, fees, labor, overhead, etc.) is near zero, and anyone foolish enough to try will be bankrupted in short order.

Now that working at home has been institutionalized, the private sector no longer needs millions of square feet of office space. As revenues drop and profits vanish, businesses will be seeking to cut costs, and vacating unused office space is the obvious first step.

What’s the value of empty commercial space?

Trying to Get Blood From a Stone

If demand is near zero, the value is also near zero. Local governments will be desperate to raise tax revenues, and they will naturally look at bubble-era valuations on all real estate as a cash cow. But they will find that raising property taxes on money-losing properties will only accelerate the rate of property-owner insolvencies.

At some point valuations will adjust down to reality and property taxes collected will adjust down accordingly. If municipalities think they can make up the losses by jacking up the taxes paid by the survivors, they will quickly find the ranks of the survivors thinned.

This doesn’t exhaust the second-order effects: Once Main Street is half-empty, the attraction of the remaining businesses declines; there’s not enough to attract customers, and the virtuous circle of sales rising for everyone because the district is lively and attractive reverses: The survivors struggle and give up, further hollowing out the district.

The core problem is the U.S. economy has been fully financialized, so costs are unaffordable.

The commercial property owner overpaid for the buildings with cheap borrowed money, and now the owner must collect nosebleed-high rents or he can’t make the mortgage and property tax payments.

Local governments spend every dime of tax revenues, as their costs are insanely high as well. They cannot survive a 10% decline in tax revenues, much less a 40% drop.

The Lesson of Yellowstone

The metaphor I’ve used to explain this in the past is the Yellowstone forest fire. The deadwood of bad debt, extreme leverage, zombie companies and all the other fallen branches of financialization pile up.

But the central banks no longer allow any creative destruction of unpayable debt and misallocated capital; every brush fire is instantly suppressed with more stimulus, more liquidity and lower interest rates.

As a result, the deadwood sapping the real economy of productivity and innovation is allowed to pile higher.

The only possible output of this suppression is an economy piled high with explosive risk.

Eventually nature supplies a lightning strike, and the resulting conflagration consumes the entire economy.

A South Korean soccer club has been fined for posing sex dolls in the stands during a recent game, Yonhap reports.

South Korean football club FC Seoul was slapped with a 100 million won (US$81,410) fine on Wednesday for posing the sex dolls in the stands with signs, creating an uncanny tableau that apparently offended some of the more priggish officials running South Korea’s premier soccer league.

The use of more than a dozen life-size dolls in place of spectators (since fans weren’t allowed at the match) took place during the club’s Sunday match against Gwangju FC at Seoul World Cup Stadium.

In a statement, the league accused FC Seoul of “causing great damage to the image and the integrity of the K-League” and offending female fans.

The fine is the largest the league has ever levied against a club, according to Yonhap.

The team has said it will “humbly accept” the fine.

If any traders, or frankly anyone out there, still cares about fundamental economic data, there was little to celebrate this evening, when Japan reported another round of dismal trade numbers, with Imports plunging 7.2% in April, worse than the -5.0% drop in March but slightly better than expected. However, it was Japan’s exports – that key benchmark for the BOJ whose goal of keep the yen weaker is not only to support stocks but also to facilitate exports – that was the highlight, with the April number plunged by 21.9%, double the previous month’s -11.7% drop and the biggest plunge since the financial crisis.

But if Japan’s number was dismal, at least it was expected. What was more concerning was the latest Korean export number for the first 20 days of May, which some had expected to see a solid rebound in light of the so-called reopening observed this month. Well, it did not happen, and while the May number wasn’t quite as bad as the near-record plunge in April when exports plunged by 26.9% in the first 20 days, the -20.3% Y/Y drop in May – off an already depressed 2019 number – showed that any hopes for a solid global recovery taking hold have been painfully premature.

To be sure, there was a tiny silver lining, as semiconductor exports rose 13.4% in contrast to a 15% decline in the same period of April. According to Bloomberg “this supports optimism for an economic turnaround and equities’ rally” and is “likely to give investors fresh reasons to look at the tech sector in Korea and abroad” although we disagree.

As noted in recent weeks, just like during the trade war in much of 2019, the reason for a sharp pick up in semiconductor trade has been fear that China’s tech sector will soon be locked out of US supply chains – as the recent Huawei news confirmed – and as such any jump in S.Korean semi exports is simply frontloading of demand now ahead of more crackdowns on the Chinese tech space in the future, when Huawei et al may find themselves completely locked out from US suppliers, which in turn explains why as Bloomberg reported earlier, China is planning to invest $1 trillion in its semiconductor industry to if not overtake the US in technology, at least become self-sufficient and not rely on US semi production.

Authored by Kyle Bass, op-ed via NewsWeek.com,

In international politics, few things are certain during these uncertain times. But I can predict one: the relationship between America and Hong Kong is in the throes of major change.

On May 22, China’s leaders will convene for their annual People’s Congress, during which they will discuss the status of Hong Kong and whether to push forward with their rebuffed attempts to impose upon that special jurisdiction the laws and circumscribed rights of mainland China. If they do so, America and Britain will push back—with lasting consequence.

Hong Kong has become ground zero for the ideological clash between democracy and heavy-handed Chinese communism. This tug-of-war was on global display last summer, when over two million Hong Kongers—26 percent of the entire population—peacefully took to the streets of Hong Kong, in sweltering 100-degree heat, to protest Beijing’s overreach with a proposed extradition bill that would impose China’s laws on Hong Kong. The people of Hong Kong have completely lost faith in their embattled leader, Carrie Lam, and their police force. Peaceful protestors have been brutalized, pro-democracy figures have been illegally arrested and the Hong Kong Legislative Council’s day-to-day operations have been tampered with by the Chinese government. During the most recent attempt to conduct a Legislative Council meeting in Hong Kong, in a scene that is reminiscent of an event that might take place in a failed state, fist fights broke out between the pro-China members and the pro-democracy members.

Unfortunately, the rapt global attention and support that greeted Hong Kongers last year at the start of their protests has been sidetracked by other news. But this week, the world should again pay attention to Hong Kong.

At the People’s Congress, the Chinese Communist Party is likely to push forward with having Hong Kong implement a full set of laws with “Chinese characteristics” that give Beijing the right to essentially do whatever it pleases. This will shatter the Sino-British Joint Declaration of 1984, in which China agreed to allow Hong Kong to continue to operate “autonomously” until 2047. After 156 years of Hong Kongers experiencing British rule and all the freedoms and rights that accompanied it, expect larger and more dynamic protests and (hopefully) more global action from politicians. Recently, Secretary of State Mike Pompeo has said that he would not renew Hong Kong’s special trade status until he had seen the outcome of the People’s Congress.

But absent a complete about-face on that, it is unclear how Pompeo could possibly validate Hong Kong’s continued “autonomy” after the blood-letting the world has witnessed firsthand. In late 2019, Amnesty International titled a piece, “Hong Kong: Arbitrary arrests, brutal beatings and torture in police detention revealed.” Suffice it to say this is not something any responsible autonomous nation would do to peaceful protestors.

Unfortunately for citizens, at the same time that Hong Kong is experiencing the worst political destabilization since the Opium Wars, the special jurisdiction is already in the throes of the worst economic depression it has ever faced: GDP is down 24 percent quarter-over-quarter annualized. I have been studying the Chinese banking system and Hong Kong closely for the last decade, and I think that Hong Kong is living on borrowed time. (In full disclosure, I run global investment funds investing in this macroeconomic outcome.)

What happens in Hong Kong will not stay in Hong Kong. The battle between an expansionist, increasingly repressive Chinese communist government, on the one hand, and a Western rule of law-based democracy, on the other, will spill over into Taiwan. Already, the battle in Hong Kong has affected Taiwanese politics: watching China’s Communist Party try to assert control in Hong Kong is the primary reason that a historic number of Taiwanese voters took to the polls to rebuke the pro-Beijing candidate and elect a president, Tsai Ing-wen, who campaigned with the promise of protecting Taiwan’s democracy and sovereignty. Taiwanese voters will continue to be enthralled by every development in Hong Kong, because they know that an aggressive and emboldened Chinese Communist Party is bad news for them, too.

The world should focus on Hong Kong. This is not just about the fate of millions of peaceful protesters, but about democracy, reneged promises and a global order that is shifting as the Chinese Communist Party continues to change its terms of engagement.

As we have been writing since late 2018, when it comes to the technological arms race between the US and China, one place where China has been badly lagging the US, is in the production of semiconductors, which is also China’s biggest weakness in its ongoing scramble to catch up with the US technologically.

China’s media agrees: over the weekend, we quoted from a Global Times op-ed according to which “although the US had experienced a large-scale deindustrialization in the second half of the 20th century, it still maintains advantages in the semiconductor sector with companies such as Intel, which could complete the whole process of the chip design to producing. The country has held on to cutting-edge semiconductor manufacturing techniques over the past decade.”

And now that the cold war between the US and China is about as formal as it can get, China has decided it can no longer rely on the US for being its primary source of high-end technology, and according to Bloomberg, Beijing is accelerating its bid for global leadership in key technologies, and will pump more than a trillion dollars into the economy “through the rollout of everything from wireless networks to artificial intelligence.”

Purposefully invoking the spirit of “Made in China 2025”, a plan that has in the past infuriated the White House, China’s strategic “masterplan” is backed by President Xi Jinping himself, and will see China invest an estimated $1.4 trillion over six years to 2025, “calling on urban governments and private tech giants like Huawei Technologies to lay fifth generation wireless networks, install cameras and sensors, and develop AI software that will underpin autonomous driving to automated factories and mass surveillance.”

This also means that while pursuing China’s plans to reinvent its technological base and to restructure its entire semiconductor supply chain, Beijing will also create the supreme police state dystopia, one which is even more powerful than the current iteration.

Predictably, the new infrastructure initiative is expected to rely on local giants from Alibaba and Huawei to SenseTime Group while shunning U.S. companies. And as Bloomberg adds, “as tech nationalism mounts, the investment drive will reduce China’s dependence on foreign technology, echoing objectives set forth previously in the Made in China 2025 program. Such initiatives have already drawn fierce criticism from the Trump administration, resulting in moves to block the rise of Chinese tech companies such as Huawei.”

“Nothing like this has happened before, this is China’s gambit to win the global tech race,” said Digital China Holdings Chief Operating Officer Maria Kwok, as she sat in a Hong Kong office surrounded by facial recognition cameras and sensors.

“Starting this year, we are really beginning to see the money flow through.”

Maria Kwok’s company is a government-backed systems integration provider, among many that are jumping at the chance. In the southern city of Guangzhou, Digital China is bringing half a million units of project housing online, including a complex three quarters the size of Central Park. To find a home, a user just has to log on to an app, scan their face and verify their identity. Leases can be signed digitally via smartphone and the renting authority is automatically flagged if a tenant’s payment is late.

The tech investment push is part of a broader fiscal package waiting to be signed off by China’s legislature, which convenes this week. The government is expected to announce infrastructure funding of as much as $563 billion this year, against the backdrop of the country’s worst economic performance since the Mao era. It will also include an expansion in the PLA’s budget to contain the “growing threat of US conflict“, as we discussed last night.

As Vital Knowledge points out in a note on Wednesday afternoon, “depending on how Beijing frames its tech ambitions around the NPC, this $1T+ blueprint could draw the ire of the White House and spur further measures aimed at inhibiting Chinese IT firms (recall the White House pushed hard for China to drop its prior “Made in China 2025” tech plan).”

The GOP-controlled Senate Homeland Security Committee on Wednesday voted to issue a subpoena to a Democratic consulting firm, Blue Star Strategies, which Ukrainian energy company Burisma Holdings paid $60,000 in November 2015 in connection with efforts to help end a long-running investigation in Ukraine. Burisma notoriously employed Hunter Biden to sit on its board – paying him upwards of $50,000 per month.

The vote to subpoena Blue Star was passed 8-6 along party lines.

Blue Star responded to the subpoena Wednesday in a letter to Johnson, writing that they don’t understand the need for a subpoena, as they have cooperated – or intend to cooperate – with the committee “at every opportunity” in what Democrats are calling a politically motivated probe.

Sen. Gary Peters of Michigan, the top Democrat on the Committee, said the committee should be focusing on the pandemic instead of Hunter Biden.

“We’re in the midst of a pandemic with over 90,000 people who have lost their lives, we’ve got an unprecedented amount of unemployment that’s sweeping across the country,” Peter told reporters. “We need to be focused on the crisis.“

But Johnson says that he’s moving forward with the investigation because people “need to know the truth.” –NBC News

In March, Johnson said he wanted to specifically address matters involving Andrii Telizhenko – a former Blue Star consultant who hid behind a nondisclosure agreement.

“Because Mr. Telizhenko’s records and information would be responsive to the committee’s requests, and Blue Star has refused to provide them, a subpoena to Mr. Telizhenko for these records is appropriate at this time,” read a March letter Johnson sent to members of his committee. “Accordingly, I will be scheduling a vote in the near future to approve issuing the enclosed subpoena.”

“Blocking the receipt of relevant records, as any committee member voting against this subpoena would be doing, only heightens the risk of ‘disinformation’ because Congress would not have access to all pertinent information,” he added.

Hunter Biden was paid upwards of $50,000 per month to sit on Burisma’s board while his father was Vice President, and Obama’s point-man on Ukraine policy – where he notoriously forced the country’s prior administration to fire a prosecutor investigating the energy giant.

Meanwhile, Hunter and his colleagues had multiple contacts with the Obama State Department during the 2016 election cycle – just one month before Joe Biden forced Ukraine to fire the prosecutor investigating Burisma for corruption, according to investigative journalist John Solomon.

Via John Solomon Reports:

During that February 2016 contact, a U.S. representative for Burisma Holdings sought a meeting with Undersecretary of State Catherine A. Novelli to discuss ending the corruption allegations against the Ukrainian firm where Hunter Biden worked as a board member, according to memos obtained under a Freedom of Information Act lawsuit. (I filed that suit this summer with the help of the public interest law firm the Southeastern Legal Foundation.)

Just three weeks before Burisma’s overture to State, Ukrainian authorities raided the home of the oligarch who owned the gas firm and employed Hunter Biden, a signal the long-running corruption probe was escalating in the middle of the U.S. presidential election.

Hunter Biden’s name, in fact, was specifically invoked by the Burisma representative as a reason the State Department should help, according to a series of email exchanges among U.S. officials trying to arrange the meeting. The subject line for the email exchanges read simply “Burisma.”

“Per our conversation, Karen Tramontano of Blue Star Strategies requested a meeting to discuss with U/S Novelli USG remarks alleging Burisma (Ukrainian energy company) of corruption,” a Feb. 24, 2016, email between State officials read. “She noted that two high profile U.S. citizens are affiliated with the company (including Hunter Biden as a board member).

“Tramontano would like to talk with U/S Novelli about getting a better understanding of how the U.S. came to the determination that the company is corrupt,” the email added. “According to Tramontano there is no evidence of corruption, has been no hearing or process, and evidence to the contrary has not been considered.”

At the time, Novelli was the most senior official overseeing international energy issues for State. The undersecretary position, of which there are several, is the third-highest-ranking job at State, behind the secretary and deputy secretary. And Tramontano was a lawyer working for Blue Star Strategies, a Washington firm that was hired by Burisma to help end a long-running corruption investigation against the gas firm in Ukraine.

Tramontano and another Blue Star official, Sally Painter, both alumni of Bill Clinton’s administration, worked with New York-based criminal defense attorney John Buretta to settle the Ukraine cases in late 2016 and 2017. I wrote about their efforts previously here. 

Burisma Holdings records obtained by Ukrainian prosecutors state the gas firm made a $60,000 payment to Blue Star in November 2015.

Singapore has always been known for its strict and exacting justice system — recall for example the headline grabbing story from the mid-90’s of 19-year-old American Michael P. Fay who was sentenced to caning for theft and vandalism — but this week sets another unheard of precedent. 

A man has been issued a death sentence for his role in a drug deal, but the Singapore judged delivered the capital punishment verdict remotely via Zoom video call in a scenario that sounds straight out of the Black Mirror. 

“Punithan Genasan, a 37-year-old Malaysian, was told on Friday he would be hanged for masterminding a 2011 heroin transaction, court documents showed, as the country was under lockdown to try and curb its coronavirus outbreak,” Reuters reports. Other reports detailed that he allegedly facilitated the sale of 28.5 kilograms of heroin — a large drug deal by any measure, however very few countries in the world would consider it a capital offense. 

Singapore’s Supreme Court, which handed down the capital punishment, cited “safety” amid the COVID-19 pandemic as justification for the unusual proceedings. 

“For the safety of all involved in the proceedings, the hearing for Public Prosecutor v Punithan A/L Genasan was conducted by video-conferencing,” a court spokesperson said in a first for the southeast Asian city-state.

Earlier this month Nigeria actually became the first country to hand down a death sentence via remote hearing. In the Singapore case, Genasan’s lawyer said the defendant didn’t object to the pronouncement being delivered by teleconference call. 

Singapore’s courts have controversially issued death sentences for hundreds of drug offenses over the past decades as part of an ultra-harsh ‘zero tolerance’ legal system. This has included dozens of foreigners.

The country has also established a reputation for not bending when external governments attempt to get their citizens repatriated.

Human Rights Watch condemned the latest death penalty via Zoom: “Singapore’s use of the death penalty is inherently cruel and inhumane, and the use of remote technology like Zoom to sentence a man to death makes it even more so,” HRW deputy director for Asia, Phil Robertson, said.

California-based tech company Zoom, which has exploded in both popularity and controversy across the globe since the pandemic lockdowns across the West took effect, didn’t have comment on the Singapore case, Reuters noted. 

Authored by William Anderson via The Mises Institute,

It has been a long time since I read anything by Paul Krugman, and seeing his most recent column simply reminds me why I’ve not missed anything. As both an extreme Keynesian and political partisan, he long ago abandoned economic analysis for something economists should recognize as nothing less than what Mises called metaphysics.

Nonetheless, my curiosity got the best of me when he wrote that reopening the economy and allowing people to go to work almost surely will cause a depression. He writes:

Last week the Bureau of Labor Statistics officially validated what we already knew: Just a few months into the Covid-19 crisis, America already has a Great Depression level of unemployment. But that’s not the same thing as saying that we’re in a depression. We won’t know whether that’s true until we see whether extremely high unemployment lasts for a long time, say a year or more.

Unfortunately, the Trump administration and its allies are doing all they can to make a full-scale depression more likely.

Now, many of us believe that the massive monetary and “fiscal” interventions into the US economy from both federal and state governments are likely to create a depression and make the current rates of unemployment grow even more. That, however, is not Krugman’s point. In fact, Krugman seems to believe that there isn’t enough government intervention, which is a regular theme in his writings. Instead, Krugman is alleging that reopening the economy is what will usher in the next depression.

We have been there before. Who can forget Krugman’s 2011 clarion call to form real defenses against an imaginary invasion by space aliens in order to revitalize the economy? Anyone who has read (or taught) Keynesian economics knows that according to Keynesians, the economy always is a slip away from going into massive unemployment unless government (a) cuts interest rates until they cannot be cut anymore, and (b) engages in massive new spending to increase “aggregate demand” because “full employment” only can be reached when government intervenes, period.

But even I will admit that this column took me by surprise, although he has his usual partisan snipes. To the question of how we avoid an out-and-out depression, Krugman replies that we need to “stay the course” (in his words) and keep everyone locked up even longer. His reasoning is that if Americans are let out of home confinement now, all of the so-called gains that this country supposedly has made against the ravages of COVID-19 will be lost and then the rock will roll back down to the bottom of the hill. Krugman writes:

If we could get the coronavirus under control, recovery could indeed be very rapid. True, recovery from the 2008 financial crisis took a long time, but this had a lot to do with problems that had accumulated during the housing bubble, notably an unprecedented level of household debt. There don’t seem to be comparable problems now.

But getting the virus under control doesn’t mean “flattening the curve,” which, by the way, we did—we managed to slow the spread of Covid-19 enough that our hospitals weren’t overwhelmed. It means crushing the curve: getting the number of infected Americans way down, then maintaining a high level of testing to quickly spot new cases, combined with contact tracing so that we can quarantine those who may have been exposed.

To get to that point, however, we would need, first, to maintain a rigorous regime of social distancing for however long it takes to reduce new infections to a low level. And then we would have to protect all Americans with the kind of testing and tracing that is already available to people who work directly for Donald Trump, but almost nobody else.

The closest thing to this kind of thinking is AP correspondent Peter Arnett’s infamous quote after American air strikes decimated the village of Ben Tre: “It became necessary to destroy the town to save it.” In modern parlance, it means that in order to “save” the US economy, the government must enact and enforce policies that will severely hamper economic activity. However, Krugman, being Krugman, believes that there is an easy interim “solution” to enabling the economy to work just fine—without working, of course. He writes:

At the same time, the administration and its allies are apparently dead set against providing the financial aid that would let us sustain social distancing without extreme financial hardship. Extend enhanced unemployment benefits, which will expire July 31? “Over our dead bodies,” says Senator Lindsey Graham. Aid to state and local governments, which have already laid off a million workers? That, says, Mitch McConnell, would be a “blue-state bailout.” (Emphasis mine)

This statement truly exposes the extreme Keynesian mentality: printing money is the near-direct equivalent of actually producing something. Like all Keynesians, Krugman commits the fallacy of composition, believing that what might be good for one person (or a few persons) thus is good for everyone.

For example, we already have seen that thanks to current government policies, many workers are receiving unemployment benefits that are more than the wages they would receive if they returned to work, so, not surprisingly, they are staying off the job. According to the Keynesian-supporting journalists at CNBC, that is a “good thing.”

No, that is a disaster in the making. Although it might be good for me if the government gave me a million dollars a week not to work, it would be effective only if I’m the only one receiving the benefit. Although the rest of society actually would be worse off under such a policy—since it would be nothing but a naked wealth transfer from everyone else to me—I could claim that it really is a “good thing,” because, in Keynesian-speak, it would increase “aggregate demand.”

Think of this on a very large scale, and one has an idea of what Krugman is advocating in the name of preventing a depression. Although it is clear that the Trump administration has engaged in one policy disaster after another by flooding the economy with new money in hopes (vain hopes) that it can “replace” the permanent economic losses due to mandatory business shutdowns, one senses that Krugman believes that these so-called stimulus packages are not enough. Indeed, one can interpret his attack on Trump and Senate Republicans as saying that they are refusing to go as far as Krugman apparently wants: to put nearly the entire workforce on the dole.

One is reminded of J.M. Keyne’s quote that credit expansion from thin air “turns stones into bread.” Krugman essentially is saying the same thing; government via massive monetary injections into the economy magically is substituting money for the real thing: production of actual and consumable goods and services. Unfortunately, too many people in authority believe this nonsense and believe it to our demise.

Like so many others on the left, Krugman believes that we are faced with a stark choice: lock down everyone and defeat the coronavirus or allow people to live their lives without government interference and so get sick and die. As Michael Accad recently wrote, this is not about that kind of tradeoff. Given that the original policies which Krugman has endorsed came about because of an outright fraudulent epidemiological model by Neil Ferguson of Imperial College of London, which predicted a whopping 2.2 million American deaths unless government acted immediately to quarantine the whole country, it is just as hard to take Krugman the epidemiologist seriously as it is to take Krugman the economist with anything but a huge block of salt.

To sum up Krugman’s latest outburst, we have the following progression:

(a) shutting down businesses across the country has resulted in massive layoffs and depression-level rates of unemployment;

(b) letting people go back to work will result in even greater levels of illness than before, which will really spur unemployment;

(c) therefore, print lots of money and keep people inside and everything will be fine.

The logical fallacies here are overwhelming. If governments continue to keep businesses shuttered and people locked up, unemployment rates soon will skyrocket to unprecedented levels and we will be in an even worse depression. However, Krugman adds that if governments vastly expand credit that is now beyond already unrecognizable levels, then the glorified money printing will keep everything in check.

This is logic worthy of not just Keynes, but of cranks like Silvio Gesell and the gaggle of modern monetary theory (MMT) advocates. To be honest, the only thing missing from Krugman’s latest fantasy is the beginning line, “Once upon a time…”

Given the very noticeable rise in threatening rhetoric focused on Iran over the past week, it seems thoughts of regime change in Tehran are once again top of the agenda. Or perhaps simultaneously the administration needs a significant distraction of sorts amid the coronavirus pandemic, and the persistent national reopening question and agenda.

On Wednesday, Secretary of State Mike Pompeo went gloves off on Twitter, attacking Iran’s ‘Supreme Leader’ Ayatollah Ali Khamenei, blasting him as “anti-Semitic”, “disgusting” and as someone representing “hate speech,” according to Pompeo’s remarks.

The United States condemns Supreme Leader Khamenei’s disgusting and hateful anti-Semitic remarks. They have no place on Twitter or on any other social media platform. We know Khamenei’s vile rhetoric does not represent the Iranian people’s tradition of tolerance. pic.twitter.com/cfBhyOfFa9

— Secretary Pompeo (@SecPompeo) May 20, 2020

He announced new sanctions on the Iranian government, specifically targeting the Minister of Interior, Abdolreza Rahmani, as well as top intelligence officials, for leading protest crackdowns and human rights violations.

But Pompeo didn’t stop at Iran, in follow-up tweets coming just minutes and hours apart calling out the “dictatorial Castro regime” as well as Maduro, urging “peaceful democratic transition for Venezuela” — or again in other words regime change. 

Two years ago today, Maduro showed the Venezuelan people and the world that there can be no free and fair election while he occupies Miraflores Palace. The Democratic Transition Framework provides a roadmap for peaceful democratic transition for Venezuela. https://t.co/eB5TDZIuBk

— Secretary Pompeo (@SecPompeo) May 20, 2020

Within a few hours he issued no less than nine tweets targeting Iran, Cuba, and Venezuela. On Cuba the US top diplomat called out the “Castro regime” who has “trampled the rights of the Cuban people”.

“I salute the brave Cubans who continue the fight for democracy and prosperity. The United States stands with you,” he added.

Today, Cubans celebrate their independence, yet the struggle for freedom continues. The dictatorial Castro regime has trampled the rights of the Cuban people. I salute the brave Cubans who continue the fight for democracy and prosperity. The United States stands with you.

— Secretary Pompeo (@SecPompeo) May 20, 2020

White House and State Department briefings have been COVID-19 focused of late, whether on the domestic front or abroad — where the administration has been in a blame-game war of words with China over the virus origins and accompanying economic shutdown — but Wednesday’s Pompeo tweet rampage strongly suggests he’s ready to get back to the business of regime change. 

Recall that last summer was dominated by ‘tanker wars’ in the gulf and Mediterranean. It appears we’re in for another hot one. 

Authored by Michael Snyder via The Economic Collapse blog,

“When the people find that they can vote themselves money that will herald the end of the republic.” 

That is a direct quote from Benjamin Franklin, and it has turned out to be quite prophetic. 

Today, most of our politicians are socialists whether they accept that label or not, and the American people have come to expect the government “to do something for them” whenever any sort of a crisis comes along.  In response to this COVID-19 pandemic, Congress has borrowed and spent trillions more dollars that we do not have, and most Americans have been quite thrilled to receive their “stimulus checks”.  But of course now a lot of people are insisting that those checks were not enough and they want more.  In fact, one new survey just found that most Americans want the checks to keep coming.  The idea of “free money” is so seductive, but unfortunately most of the population simply does not understand that eventually there is a great price to be paid for throwing “free money” around.

So far, more than 300,000 people across the globe have died during this pandemic.  But during the Spanish Flu pandemic that stretched from 1918 to 1920, somewhere between 50 million and 100 million people died.  During that horrific pandemic, our society did not shut down and the federal government did not borrow and spend giant mountains of money in a desperate attempt to keep the economy afloat.  Instead, our leaders responded with common sense and quiet resolve, and it set the stage for a tremendous economic boom during “the Roaring Twenties”.

Unfortunately, this time around our leaders responded to COVID-19 by locking down nearly the entire country, and that is going to result in the largest GDP collapse in American history…

In its latest projections, the CBO sees GDP capsizing 38% on an annualized basis in the second quarter with the 26 million more unemployed Americans than there were at the end of 2019.

The forecasts are roughly in line with Wall Street economists and slightly less dour than the most recent tracking number from the Atlanta Federal Reserve, which sees GDP falling about 42% in the April-to-June period.

Without a doubt, we are now in a very deep economic depression, and the months ahead look very bleak.

But instead of focusing on solutions, many Americans are desperate for the federal government to take care of them.  According to one recent survey, 82 percent of Americans want the government to issue more “stimulus checks”…

A whopping 82% of people feel that the one-time stimulus check of $1,200 is not enough to cover their expenses. They feel that these checks should continue until the lockdown ends.

I have a hard time believing that number is actually that high, but even if you cut that number in half it would still be astounding.

Have we now reached a point where much of the nation is eager to embrace full-blown socialism?

Apparently so, and that is quite discouraging.

But the “free money” that socialists promise is never actually free.

When the Federal Reserve creates trillions of dollars out of thin air and pumps it into the financial system, that is not “free money”.

And when the federal government borrows and spends trillions of dollars that we do not currently have, that is not “free money”.  In essence, we are stealing that money from future generations of Americans, and what we are doing is beyond criminal.  For much more on that, please see my recent article entitled “Fear Of The Coronavirus Has Absolutely Destroyed America’s Future”.

Whenever a new dollar is introduced into the system, it erodes the value of all dollars that currently exist.  Usually this is a relatively slow process, but now our leaders have gone absolutely nuts and very painful inflation is on the way.

In fact, in some sectors of the economy it is already here…

Harold’s Chicken on Broadway in Chicago unleashed a wave of public backlash on social media last weekend after it slapped customers with a COVID-19 surcharge of 26%.

Restaurant manager Jacquelyn Santana told CBS Chicago that food suppliers raised wholesale chicken prices by 26% on Saturday “due to the COVID pandemic.” She said a case of chicken wings that generally cost $60, jumped overnight to $90, forcing the wing shop to pass on the costs.

The cost of living is going to be soaring, and most Americans will not be seeing matching increases in their paychecks.

In fact, more than 36 million American workers no longer have a job at all.

Things are about to get really tough for average American families.  Some are going into more debt in order to get through this crisis, while others are dipping into their retirement savings…

MagnifyMoney commissioned a survey of 1,239 Americans who have retirement accounts. Many of the analyses conducted look at responses by the “generation” of the responders. Gen Z is defined as ages 18-23, Millennials are 24-39, Gen X is 40-54, Baby Boomers are 55-74, and the “silent generation” is aged 75+.

The survey shows that 30% of Americans have withdrawn an average of $6,757.20 from their retirement savings from about March 1 through May 1. Another 19% responded that they have not taken money out yet but they plan to do so.

As time goes by, an increasing number of Americans will eventually come to a financial breaking point, and there will be a tremendous amount of pressure on the government “to do something” once again.

And just like we have seen with so many other socialist experiments, the answer will always be more “free money”.

But to see where this ends, just look at Venezuela.  Nearly everyone in the entire country is a “millionaire”, but nearly everyone in the entire country is also living in deep poverty.

Once faith in a currency is destroyed, it is nearly impossible to restore it.

And we are in the process of destroying faith in the reserve currency that the entire world uses.

Unfortunately, our leaders are not listening to people like me.  Instead, they are willing to try just about anything to turn the collapsing U.S. economy around.

At this point, even Federal Reserve Chair Jerome Powell is admitting that this is the worst economic downturn that we have seen “since World War II”…

The pair offered a cautious view of the economy, with Mnuchin displaying a more optimistic outlook than Powell, who told the Senate Banking Committee that “the scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II.”

Mnuchin noted that he anticipated the economy would recover but said “there is risk of permanent damage” should states wait too long in reopening their economies.

Sadly, things didn’t have to get so bad so soon.

If our leaders had responded rationally to this pandemic, the U.S. economy would still be in relatively decent shape.

But now our economic bubble has burst, and very challenging days are ahead of us.

As our problems mount, a lot of people are going to insist that “free money” is the solution.

Of course it isn’t any sort of a solution at all.  “Free money” is actually economic poison, and the U.S. economy is never going to recover from this.