Former FL Governor Candidate Andrew Gillum Involved In Meth Overdose Incident
Former Florida gubernatorial candidate Andrew Gillum was involved in a Friday morning meth overdose incident in a Miami Beach hotel room.
According to the Tallahassee Democrat, police arrived at a West Avenue hotel around 1 a.m., where they found Gillum – the former Tallahassee Mayor, and two men identified as Travis Dyson and Aldo Mejias, according to a Miami Beach Police Department report.
Paramedics were treating Dyson at the time for a possible overdose. Gillum was too inebriated to speak with officers, though he was later reported in stable condition with normal vital signs.
Police found plastic baggies of suspected crystal meth on the bed and floor of the hotel room, the report says. But Gillum, in a prepared statement issued shortly after news broke, denied using the drug and offered an apology.
See an unverified version of the complaint here, which claims that “Dyson was being treated for a possible drug overdose,” and was in “stable condition” before being transported to Mount Sinai hospital for medical treatment.
“Officers then made contact with two other males who were inside of the hotel room: Aldo Mejias (Complainant) and Andrew Gillum (Involved Other).
Mr. Mejias provided his credit card information to Travis Dyson to rent a hotel room for the night. Mr Mejias was to meet Mr. Dyson later in day. Travis Dyson rented the room at approximately 1600 hours on 3/12/2020. Mr. Mejias arrived at the hotel at approximately 2307 hours where he discovered Travis Dyson and Andrew Gillum inside the room under the influence of an unknown substance. Per Mr. Mejias, Mr. Dyson opened the hotel room door and immediately walked over to th ebed and collapsed in a prone position. Mr. Mejias observed Mr. Gillum inside of the bathroom vomiting. Mr. Mejias stated that he observed Mr. Dyson having difficulty breathing, prompting him to wake him up. Mr. Dyson then began vomiting on the bed and immediately collapsed again. Mr. Mejias began conducting chest compressions on Mr. Dyson and proceeded to contact police and fire rescue.
Officers then attempted to speak to Mr. Gillum. Mr. Gillum was unable to communicate with officers due to his inebriated state.“
Gillum – who has been rumored to be in the pool of potential Democratic Vice Presidential picks, said in a statement:
“I was in Miami last night for a wedding celebration when first responders were called to assist one of my friends. While I had too much to drink, I want to be clear that I have never used methamphetamines. I apologize to the people of Florida for the distraction this has caused our movement.”
Gillum then thanked “the incredible Miami Beach EMS team for their efforts,” and said “I will spend the next few weeks with my family,” adding “and appreciate privacy during this time.”
Fear of the coronavirus is causing shutdowns on a global scale like we have never seen before. Just about every major sporting event that you can think of has been either canceled or postponed, schools and universities are keeping students away, global tourism is absolutely collapsing, churches are being shuttered, conferences and festivals are being taken off the calendar, businesses are asking workers to work from home, and even Disneyland is being closed down. Over the past several days the wave of closings and cancellations has become an avalanche, and all of our lifestyles are going to be dramatically altered for the foreseeable future.
For the first few days, a lot of people are actually going to enjoy this “free vacation”. After all, what kid doesn’t enjoy time off from school, and there are lots of Americans that relish the opportunity to work from home.
But as the weeks drag on and the economy grinds to a standstill, this “free vacation” will start evolving into a horror show.
The more this coronavirus spreads, the more restrictions we will see on human interaction throughout the western world, and that has very serious implications.
Yes, there is much that we can do through the Internet today, but most economic activity still requires at least some actual human interaction. So when authorities restrict human interaction they are actually choking off trade.
I can’t think of too many other things that could trigger an economic collapse faster than a global pandemic could. We had better pray that life will get back to normal in a few weeks, because a complete and utter economic nightmare is ahead if that does not happen.
Unfortunately, life is not likely to get back to normal any time soon. The number of confirmed cases continues to grow at an exponential rate, and those that are getting infected now will be able to infect others for weeks to come…
Researchers looking at cases in China say patients could spread the virus for up to 37 days after they start showing symptoms, according to the study published in the British medical journal The Lancet.
On average, survivors still had the virus in their respiratory system for about 20 days and could presumably continue to spread the disease, researchers found.
So how long will it be before this pandemic is finally over?
Will it be months?
Could it be years?
Don’t forget, the Spanish Flu pandemic lasted from January 1918 to December 1920.
I think that Wall Street is starting to grasp the reality of what we are potentially facing. On Thursday, we witnessed the largest single day stock market point crash in American history. The Dow Jones Industrial Average was down 2,352 points, and that shattered the “old record” of 2,013 points that was just set on Monday. Overall, the Dow was down 9.99 percent, and that was the biggest percentage decline since the nightmarish stock market crash of 1987.
Incredibly, European stocks did even worse on Thursday. In fact, it was the worst day ever for stock markets in Europe.
We have never seen a time when the entire western world has been in the process of literally shutting down simultaneously. The following is how a Slate article described what we are currently witnessing…
Virtually every activity that entails or facilitates in-person human interaction seems to be in the midst of a total meltdown as the coronavirus outbreak erases Americans’ desire to travel. The NBA, NHL, and MLB have suspended their seasons. Austin’s South by Southwest canceled this year’s festival and laid off a third of its staff. Amtrak says bookings are down 50 percent and cancelations are up 300 percent; its CEO is asking workers to take unpaid time off. Hotels in San Francisco are experiencing vacancy rates between 70 and 80 percent. Broadway goes dark on Thursday night. The CEOs of Southwest and JetBlue have both compared the impact of COVID-19 on air travel to 9/11. (That was before President Trump banned air travel from Europe on Wednesday night.) Universities, now emptying their campuses, have never tried online learning on this scale. White-collar companies like Amazon, Apple, and the New York Times (and Slate!) are asking employees to work from home for the foreseeable future.
The NCAA will not crown a men’s or women’s basketball champion in 2020.
Conceding defeat to the COVID-19 virus and a cascade of uncertainty about how bad its ongoing spread might impact public health across the United States, the NCAA announced Thursday all its winter and spring championships have been canceled after a series of moves across multiple sports leagues that foreshadowed the eventual arrival at this decision.
I can’t even imagine the heartbreak that many of those athletes are feeling right now.
They have been training all of their lives to fight for a championship, and now that opportunity has been taken away.
Of course the business world has been thrown into chaos as well. Companies all across America are going to great lengths to minimize human interaction, and all sorts of non-essential activities are being eliminated.
In the days ahead, the list of public gatherings that are still happening will probably be much shorter than the list of public gatherings that have been canceled.
All of this is being done to save lives.
But in the process, it is going to absolutely kill the economy.
REPORTER: Are you considering travel restrictions within the United States, such as to Washington State or California? [Emphasis added]
TRUMP: We haven’t discussed that yet. Is it a possibility? Yes. If somebody gets a little bit out of control, if an area gets too hot. You see what they’re doing in New Rochelle, which is — which is good, frankly. It’s the right thing. But then it’s not enforced, it’s not very strong but people know that they’re being watched … New Rochelle, that’s a hotspot.
Can you imagine the giant temper tantrum that we would see if that actually happened?
Earlier today, the top headline on CNN was “America’s way of life changes indefinitely”, and for once they got it exactly right.
As long as this virus is spreading out of control, decision makers all over the western world are going to be afraid to resume normal activities.
Just think about it. If you are a decision maker and you resume normal operations too quickly, someone could get sick and die. Not only could that cost you your job, but it could also get you sued into oblivion.
In our overly litigious society, the threat of lawsuits is going to play a major factor in this crisis. In fact, I am sure that some people are already in contact with their lawyers.
Hopefully the measures that are being taken will help to reduce the spread of this virus. But as one of my good friends has pointed out, even if the U.S. was totally locked down for 30 days, this virus would just keep coming back into the U.S. from other countries that are not locked down.
So the truth is that we would need the entire globe to be completely locked down for an extended period of time to really defeat this pandemic, and that simply is not going to happen.
Like hundreds of thousands of people across the world, the super-rich are preparing to self-isolate in the face of an escalation in the coronavirus crisis. But their plans extend far beyond stocking up on hand sanitiser and TV boxsets.
The world’s richest people are chartering private jets to set off for holiday homes or specially prepared disaster bunkers in countries that, so far, appear to have avoided the worst of the Covid-19 outbreak.
Of course most of us do not have that option.
Most of us are going to have to ride this thing out right where we are, and that reality is causing a lot of people to completely panic. Just check out what is happening in New York…
Panicked New Yorkers rushed to stock up on essentials forming long lines and clearing shelves of produce as Mayor Bill de Blasio declared a state of emergency in the city due the coronavirus outbreak.
He made the decision on Thursday afternoon saying the last 24 hours had been ‘very, very sobering’ and that the world had been turned ‘upside down’ in just a day.
The announcement immediately sparked furious panic shopping from New Yorkers as grocery stores across the city saw chaos and frantic stockpiling with residents fearing the worst.
Sadly, this is just the beginning.
As things go from bad to worse, we are likely to see fear and panic on a scale that is absolutely unprecedented.
But as I discussed yesterday, now is not a time for fear.
During any major crisis, cool heads and calm hearts are needed. The days ahead are going to be full of challenges, and by God’s grace we shall do our very best to meet those challenges.
US Summons Chinese Ambassador Over “Blatant, Global” Covid-19 Disinformation Campaign
Chinese state media conspiracy theories and allegations which have suggested it was actually the United States that first infected Wuhan province with deadly coronavirus via a US Army covert operation were “made official” this week by words of Chinese Foreign Ministry Spokesman Lijian Zhao.
Lijian Zhao claimed in a tweet that “It might be US army who brought the epidemic to Wuhan,” citing prior televised testimony by CDC Director Robert Redfield in which he said that early COVID-19 cases were mistaken for regular influenza.
The US State Department said on Friday it has summoned the Chinese ambassador to rebuke China’s “blatant, global” disinformation campaign on the novel coronavirus.
Chinese Ambassador Cui Tiankai leaving State. He was summoned earlier this morning. pic.twitter.com/u02KhwCrXK
A senior State official told Fox News that Assistant Secretary for East Asian and Pacific Affairs David Stilwell called in Chinese Ambassador Cui Tiankai over China’s “blatant, global” disinformation campaign on the novel coronavirus.
Ambassador Tiankai was seen leaving the State Dept. building on Capitol Hill late this morning. He did give reporters any official comment on the meeting with US officials, which was no doubt testy.
“Be transparent! Make public your data! US owe us an explanation,” Lijian had further demanded in the prior controversial statements which triggered the diplomatic row.
1. Chinese spox: We hope certain US officials could focus on domestic response & international cooperation instead of trying to shift the blame to China by denigrating Chinese efforts to fight the epidemic. This is immoral & irresponsible, & will not help mitigate COVID-19 in US. pic.twitter.com/YBA5fZhPsU
But he wasn’t alone. Days ago China’s ambassador to South Africa also suggested Chinese cities which early on became the global epicenter of the outbreak were likely infected from the outside.
Chinese Ambassador to the United States Cui Tiankai. Image source: Xinhua
“Although the epidemic first broke out in China, it did not necessarily mean that the virus originated from China, let alone ‘made in China,” Amb. Lin Songtian tweeted.
The English messages coming out of Chinese diplomats and officials in online social media statements appear deliberately aimed at a foreign audience, which is what has reportedly further angered Washington officials.
Oil Surges After Trump Orders DOE To Fill Up Strategic Petroleum Reserve
Amid the panic buying surge in the last 30 minutes of trading, sparked by Trump’s national emergency declaration, oil has soared higher after Trump said that he has asked the energy department to buy “large quantities of oil” for the Strategic Petroleum Reserve and to “fill it right to the top.”
With the reserve currently 635MM barrels full, that means there is over 90 million barrels that will soon be purchased by the US to fill up the SPR.
And since Trump’s demand means that there will be a forced buyer even as OPEC is an aggressive seller, oil quick spiked with WTI & Brent surging to session highs, boosting the energy sector and leading to an extension of gains in equities, while also helping the petro-currencies such as CAD, RUB, MXN catch a bid.
US Equity Market Crashes Below 2007 Highs Despite Massive Surge On Trump Stimulus Plan
Today saw the biggest spike in US equities since October 2008 after an avalanche of intervention in the last 24 hours across the world and extended by 1600 Dow points as Trump unveiled his stimulus/testing plan…
But, overall, the market just suffered its fastest, most aggressive collapse into a bear market… ever…
But even more ominously, the broadest measure of the US equity market – The NYSE Composite Index – has collapsed below the 2007 highs (despite trillions in added liquidity)…
Ray Dalio nailed the top…
We’re sorry but no clip better serves as an analogy for this Minsky Moment than this one…
US equity markets ended the week on a stronger note, big gains overnight (limit up in futures), a plunge at the cash open, only to rebound when rumors hit that the President would declare a National Emergency (implicitly some fiscal largesse) and when he announced his plans, the market went vertical… this was the best day for stocks since 10/28/08…
This was the market’s worst week since Oct 2008, but Small Caps’ 20% crash this week is the worst since 1987 (Small Caps’ 3-week plunge of 30% is the worst ever)
European stocks were hit hard this week too (Italy down over 23% on the week – worst week in history)…
Source: Bloomberg
And even Chinese stocks sold off with ChiNext hit hardest…
Source: Bloomberg
Direct-Virus-impacted sectors were monkeyhammered this week…
Source: Bloomberg
Banks were battered (but bounced today)…
Source: Bloomberg
VIX surged higher this week at an unprecedented pace, closing near record highs…
The VIX term structure collapsed to its most inverted since Lehman this week…
Source: Bloomberg
Investment Grade credit crashed this week – by our record this is the biggest weekly spread decompression in history…
Source: Bloomberg
HY credit risk also exploded this week – again the biggest weekly decompression in our datasets…
Source: Bloomberg
Stocks and bonds were dumped unceremoniously this week…
Source: Bloomberg
As Risk-Parity Funds saw the biggest deleveraging losses in history…
Bonds suffered a total bloodbath this week – despite the collapse in stocks, with the end of day seeing a melt-up in rates…
Source: Bloomberg
30Y yields exploded higher this week after Sunday night’s crash to record lows. Today saw 30Y spike to 1.79% intraday before tumbling back to 1.39% on the Fed’s emergency QE today…
Source: Bloomberg
After collapsing to 69bps on Sunday night/Monday morning, this week’s blowout on yields is the biggest ever…
Source: Bloomberg
But most worryingly, the Bond ETF world really started to break as massive, unprecedented discounts occurred in Treasury, Muni, and HY Credit ETFs exposing the illiquidity of the underlying assets…
Source: Bloomberg
In Munis, the SEC restricted short-sales in the ETF to try and maintain some order – it failed.
Source: Bloomberg
Before we leave bond land, we note that CMBX crashed back towards its lows as virus anxiety impacting malls and the credit collapse combine to benefit Carl Icahn’s short…
Source: Bloomberg
And the market is now demanding practically 1 full percentage point cut in rates next week by The Fed…
Source: Bloomberg
The Dollar was massively bid this week as it appears key safe-haven flows – and liquidity demands – sparked a ‘sell-everything-else’ trade worldwide… (3 days this week were the biggest daily gains in the dollar since Nov 2016)
Source: Bloomberg
This was the biggest weekly gain for the dollar since Oct 2008 (Lehman)…
Source: Bloomberg
Japanese Yen had its worst week since Nov 2016…
Source: Bloomberg
This was the worst week for cryptos since April 2013 – a total bloodbath (yes, Bitcoin Cash is down over 50% this week)…
Source: Bloomberg
With Bitcoin crashing below $4,000 intraday
Source: Bloomberg
The surge in the dollar this week did not help but commodities were clubbed like baby seals as it seemed someone was mass liquidating everything in a scramble for cash…
Source: Bloomberg
This was WTI’s worst week since Dec 2008 (and biggest 3-week drop ever)…
Gold suffered its worst week since Sept 2011, smashed back below $1600…
Silver also saw its worst week since Sept 2011…
And perhaps the most stunning moves were in precious metals among all this chaos as gold slumped into the red for the year and high-flying palladium was destroyed…
Source: Bloomberg
Finally, this was the worst weekly loss for a ‘diversified’ book of bonds and stocks since Lehman…
Source: Bloomberg
And, if you’re wondering where this ends, it’s simple – below 2,000 for the S&P 500… as the last five years of equity market gains have been total delusion…
Source: Bloomberg
And if you thought The Fed’s Trillion-dollar-plus care-package helped… it didn’t! FRA-OIS spreads continued to blow out, strongly suggesting massive dollar shortages and/or fear of systemic bank credit risks…
The very first point of Joe Biden’s plan to stop the spread of coronavirus in the United States highlights the need to stop “acts of racism.”
Because when dealing with a global pandemic, preventing people’s feelings from being hurt is surely of the utmost importance.
In the first section of Biden’s plan, “Restoring trust, credibility, and common purpose,” curbing misinformation and stopping xenophobia are listed as key goals.
“Stop the political theater and willful misinformation that has heightened confusion and discrimination,” states the plan, adding that “This communication is essential to combating the dangerous epidemic of fear, chaos, and stigmatization that can overtake communities faster than the virus.”
“Acts of racism and xenophobia against the Asian American and Pacific Islander community must not be tolerated,” according to the plan.
In prioritizing the prevention of “racism,” Biden is taking his lead from the World Health Organization, which has repeatedly issued statements attempting policing the language used to describe coronavirus in order to prevent “stigmatization.”
Mainstream media networks and pundits like CNN’s Jim Acosta have also suggested that saying COVID-19 originated in China is xenophobic, even though it’s a fact.
Meanwhile, countries like Singapore and Russia who ignored the WHO’s demand not to profile potential coronavirus victims and closed their borders early have comparatively few coronavirus cases and zero deaths.
As Breitbart highlights, much of the rest of Biden’s coronavirus plan is merely copied from the Trump’s administration’s version.
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Something Is Breaking: Fed Fails To Ease Epic Dollar Shortage As FRA/OIS Goes Parabolic
One certainly can’t blame the Fed for trying: after firing a repo “bazooka” yesterday, which could provide up to $5 trillion in monthly liquidity in exchange for eligible pledged securities, and following that up with an emergency QE operation today when the Fed announced it would buy up to $37 billion in securities across the curve from domestic and foreign banks, risk assets have staged a modest rebound after the biggest selloff since Black Monday, and the relentless selloff of Treasurys, likely prompted by historic risk parity fund unwinds, has moderated.
But where the Fed has catastrophically failed, is in addressing the most important task facing it this moment: easing the unprecedented dollar shortage which is getting worse by the minute.
Despite the barrage of central bank actions meant, more than anything, to ease bank fears that dollars will not be available when needed to rollover trillions in maturing debt, the dollar has seen a relentless surge higher, with today’s move shocking in its severity and consistency.
Yet while one can argue that the dollar is traditionally a flight to safety in times of stress, the fact that the dollar is surging today even as stocks are soaring and the Dow is about to be up 1,000 suggests that something else is going on.
That something else is the relentless move higher in the 1st IMM FRA/OIS, which was supposed to ease after today’s massive term repo operations, yet which spiked when it emerged that there was barely any usage early this morning, arguably due to regulatory limitations and concerns about liquidity coverage ratios.
As a result, the FRA/OIS, which is traditionally a closely-watched indicator of interbank dollar funding stress (the higher the spread, the worse the liquidity shortage), has inexplicably soared to 80bps, above all prior crisis levels hit in the past decade and back to levels last seen during the financial crisis.
The bottom line is that whatever the Fed is doing to inject much needed dollar liquidity, is not working.
So what should the Fed do? One possible answer comes from Zoltan Pozsar, Credit Suisse’s iconic repo market expert, who last week wrote an article on “Covid-19 and Global Dollar Funding”, which first laid out the sequence of stresses that the escalating funding crisis would take, all of which are materializing as expected…
peripheral cross-currency bases (e.g., KRW/USD) as missed payments grow;
€/S and $/¥ bases as reserve managers stop lending in the FX swap market, to help banks and banking systems deal with dollar outflows in their jurisdictions;
U.S. dollar Libor-OIS spreads as banks start fixing their LCRs that are being damaged by outflows of operating deposits and corporate credit lines; and lastly,
o/n GC repo markets as FX reserve managers and large banks are scrambling to turn collateral into cash to fund banks’ and corporate customers’ liquidity needs.
… and then concluded that his “recommendation for the Fed would be to combine rate cuts with open liquidity lines that include a pledge to use the swap lines, an uncapped repo facility and QE if necessary.“
Also recall that this recommendation took place before oil prices collapsed this weekend following the Saudi oil price war, crushing the petrodollar recycling system and crippling oil exporters’ dollar funding, adding even more pressure on dollar funding. In short, the situation has only gotten far, far worse now.
While China is ‘recovering’ (according to its ‘official’ numbers), the rest of the world is escalating aggressively in terms of the exponential growth in Covid-19 cases (and sadly, deaths).
How bad can it get if the rest of the world does not go full-China in terms of authoritarian crackdowns?
Given the current rate of expansion – and assuming exponential growth – the virus could infect one billion people within 81 days (up over age around 10x every 16 days).
But as Stanford grad Grant Sanderson lays out in great detail and simplicity, it doesn’t work that way as what really happens is a ‘logistic curve’ as opposed to an exponential curve…
While this video uses Covid-19 as a motivating example, the main goal is simply a math lesson on exponentials and logistic curves. The following video is more focused on Co-19 itself:
The COVID-19 economic crisis is different. It hit the economic giants all at once – the G7 nations and China. And the economic strikes are widely spread, hitting many sectors all at once. It is not a credit crisis, or a banking crisis, or a sudden-stop crisis, or an exchange crisis. Today’s crisis is a bit of all these. Given the transient nature of the underlying medical shock, this column argues that governments should focus on ‘keeping the lights on’ using costly but quick measures to ensure the circular flow of money continues to circulate. The goal should be to reduce the persistence of the crisis and avoid the unnecessary accumulation of ‘economic scar tissue’.
How should we think about containing the COVID-19 economic crisis?
Christmas lights, when I was a kid, were wired in series. If one lightbulb blew, the whole string went dark. My Depression-era parents taught me to fix it by checking each bulb, one-by-one, all one hundred of them. The tree was dark for a long time. But since bulbs were expensive and labour was cheap back then, the prolonged darkness was worth it.
Today, I would do it differently. I would tend towards a ‘costly but quick’ option, say, replacing all bulbs at once. After all, goods are cheap, labour is expensive, and Christmas is short.
I suggest that policymakers think about the ‘economic medicine’ for the COVID-19 crisis in the same way.
Governments should choose quick options that keep the economy’s lights on without worrying too much about costs. After all, people are the important thing, money is cheap, and this medical shock is transient.
This economic crisis is different
Economic crises are like buses; there’s always another one coming along (IMF 2020). But this one is different. And it is different in two main ways.
1. The underlying shock has hit all the G7 nations and China at the same time.
Unlike the Asian or Global Crisis, the COVID-19 economic crisis did not start (economically) in one or two nations and then spread to many others. The medical shock, as measured by the number of new cases, started in China in late 2019. But it was only a matter of a few days before cases showed up in some G7 nations. By 31 January 2020, every G7 nation had at least one case.
2. The medical shock is striking the economy at multiple sites.
The most-studied economic crises start at one site. Banking crises start with the banks, exchange rate crises start in the forex market and central bank reserves, sudden-stop crises start with international capital flows, and so on. This one is not like that.
Three types of economic shocks
To organise thinking about what we should do, we need to ‘simplify to clarify’ when it comes to the nature of the economic shocks that the virus has sparked. Three facets are key (Baldwin and Weder di Mauro 2020).
First, the disease hits output by putting workers into their sickbeds; this is like temporary unemployment. Or economically, it is like August in Europe – the labour force ‘downs tools’, but only temporarily. In the US and some other nations, this may also lead to a direct hit to spending since some workers do not get paid when they are sick. Others are in the ‘gig’ economy where they don’t get paid if they don’t work.
Second are the public-health related containment measures aimed at flattening the epidemiological curve (see my previous column, Baldwin 2020) – factory and office closures, travel bans, quarantines, and the like.
Third is the expectations shock. As in the Global Crisis of 2008-09, the COVID-19 crisis has consumers and firms all around the world crouched in a wait-and-see mode. This is most obvious in the massive drop in travel and hotel stays – but probably only because those data are released so fast. Leading indicators like the Purchasing Manager Indices (PMIs) are all down sharply.
Strike sites: Where are the three types of shocks striking the economy?
The COVID-19 crisis has struck the economic ‘machine’ in several places at the same time, as Figure 1 illustrates schematically.
Figure 1 COVID-19’s multiple strikes in the circular flow of income diagram
The figure displays a version of the well-known circular money flow diagram (e.g. Mankiw 2010). In simplified form, households own capital and labour, which they sell to businesses, who use it to make things that households then buy with the money businesses gave them, thereby completing the circuit and keeping the economy ticking over.
The key point is that the economy continues running only when the money keeps flowing around the circuit. Roughly speaking, a flow-disruption anywhere causes a slowdown everywhere. The diagram here adds in a few more complications by allowing for a government and foreigners. It also separates consumption expenditure and investment expenditure.
The red crosses show where the three types of shocks can, or are, disrupting the flow of money – the economic dynamo, as it were. Starting from the far left and moving clockwise:
Households who don’t get paid may experience financial distress or even bankruptcy – especially in the US where medical bills are a major source of people going broke (Debt.org 2020).
This reduces spending on goods, and thus the flow of money from households to the government and firms.
The domestic demand shocks hit the nation’s imports and thus the flow of money to foreigners.
This doesn’t directly hit domestic demand, but it dampens foreign incomes and thus spending on the nation’s exports. This can slash the flow of money into the nation that used to be coming from export sales. In the 2008-09 Global Crisis, these two strike zones were particularly important leading to what came to be known as the Great Trade Collapse (Baldwin 2009, Bems et al 2012).
The drop in demand and/or direct supply shocks can lead to a disruption in international and domestic supply chains.
Both lead to further reduction in output – especially in the manufacturing sectors. The hit to manufacturing can be exaggerated by the wait-and-see behaviour of people and firms. Manufacturing is especially vulnerable since many manufactured goods are postpone-able – things you can wait for without huge costs for at least a few weeks or months.
Business bankruptcies (Benassy-Quéré 2020).
Many businesses have loaded up on debt in recent years (BIS 2019), so they may be vulnerable to reductions in the cashflow. The bankruptcy of the British airline Flybe is a classic example. This sort of shutting down of firms creates further disruptions in the flow of money. Creditors don’t get paid, often workers don’t get paid fully, and in any case become unemployed. To the extent that the firms that go under are suppliers to or buyers from other firms, the bankruptcy of one can put other firms in danger. This sort of chain-reaction bankruptcy has been seen, for example, in the construction industry during housing crises.
Labour layoffs, sick leaves, quarantines, or leaves to care for children or sick relatives.
This is the last but perhaps most obvious of the strike zones. When workers lose their jobs – even when they have unemployment insurance or other income support – they tend to cut back spending on less necessary, more postpone-able items. The precautionary motives may be less evident for workers who keep their jobs but are taking leave, but as mentioned, this sort of leave is not recompensed in all G7 nations, or not for very long.
What should governments do?
The basic principle should be: keep the lights on. The COVID-19 crisis was sparked by a medical shock that will dissipate. It does not seem to be an especially deadly pandemic, so although many will die and each death is a tragedy, it is not like the plague where the workforce will be reduced significantly on a permanent basis. The key is to reduce the accumulation of ‘economic scar tissue’ – reduce the number of unnecessary personal and corporate bankruptcies, make sure people have money to keep spending even if they are not working. A side benefit of this would be to subsidise the sort of self-quarantine that is needed to flatten the epidemiologic curve.
There are already a number of excellent plans posted. My favourite, by Benassy-Quéré et al., was posted on VoxEU.org on Wednesday.
Watch Live: President Trump To Declare National Emergency Over Covid-19
President Trump is set to hold a news conference at 3pmET to discuss the coronavirus as cases and deaths soar in the US.
The virus has killed at least 40 Americans and there are more than 1,700 cases nationwide as of Friday morning, according to data compiled by Johns Hopkins University.
And set to get worse…
Bloomberg News reported he plans to declare a national emergency, a move that had been under consideration for some time.
As The Hill reports, declaring a national emergency would allow wider use of federal funds by state and local authorities, some of which have been overwhelmed by the fast-moving coronavirus.
The press conference will come as House lawmakers are likely to vote on sweeping legislation to provide financial help to victims.
We suspect Trump will also take this opportunity to blast the Obama administration(he spent part of Friday morning lashing out at them over its response to the swine flu), The Fed(for failing to take stronger action on the economy), and the current Democrats(he tweeted this morning that because we have had a very strong border policy, we have had 40 deaths related to CoronaVirus. If we had weak or open borders, that number would be many times higher!).
