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Submitted by Christopher Dembik of Saxobank

Earlier this morning, there has been a couple of Japanese data releases. Japanese consumer price inflation was unexciting with a rate at 0% YoY. While we see some relative price changes in many countries, the basic story for the moment is that inflation will remain low in most countries. In addition, Japan National Tourism Organization has published its latest data regarding the flow of foreign visitors in July. Basically, it shows what a nation cut off from the rest of the world looks like.

The flow of foreign visitors in Japan published by Japan National Tourism Organization is out this morning.

The country was supposed to welcome an unprecedented number of Olympic fans from all around the world just about now, but the pandemic has turned everything upside down.

Arrivals of foreign visitors plunge 99% YoY in July, at 3,800 individuals (slightly up compared to the previous month, when it stood at 2,600 individuals). For the sake of comparison, at the beginning of the year, the country recorded more than 2.6 million foreign visitors in a month’s time.

Whilst the country expected to draw around 40 million visitors this year, the final number for 2020 might fall to 7-8 million at best, which would represent a drop of 80% compared to the target. Over the past years, the contribution of travel and tourism to GDP has significantly increased, to reach 7% in 2019, on the back of government’s incentives to promote foreign tourism via marketing push overseas and eased visa requirements.

The COVID-19 constitutes a serious setback for the government’s hopes for tourism and it is unlikely that the recent campaign to spur domestic tourism launched on July 22 will offset losses generated by the drop in the flow of foreign visitors. Considering the number of new COVID-19 cases has sharply increased since mid-July and that many countries at global level are facing the acute risk of second wave, the country is not expected to reopen to foreigners anytime soon and will probably postpone initial plans to let foreign students and businessmen return.

Like Japan, many other countries has decided to close borders to fight against the spread of the virus, thus hitting hard the tourism sector. At the start of the pandemic, many economists underestimated the negative ripple effect on tourism.

Now, there is a broad consensus that global tourism will not get back to normal before at least 2022-23, if it ever gets back to normal.

Black billionaire Robert Smith who, along with Floyd Mayweather and Tyler Perry, paid for George Floyd’s extravagant funeral, and who – most famously – once promised to pay off the student loans for an entire class of Morehouse College students at the close of his speech, is fighting a criminal tax inquiry, Bloomberg reports.

The story of the actual fraud is somewhat opaque – not unlike the deed itself, which allegedly saw assets flow through various offshore entities connected to Smith and another businessman who was one of Smith’s early mentors, Robert Brockman (the man who gave Smith some of the early investor capital he used to power). In 2000, Brockman contributed to the $1 billion Smith used to launch his San Francisco-based Vista Partners, a private equity firm.

According to Bloomberg, Smith is trying to convince the DoJ to forgo any criminal charges and instead settle the matter civilly. Given the current climate, the IRS pursuing one of America’s only black billionaires wouldn’t be a great look for the federal government, and the DoJ might have a hard time convincing a jury, especially considering the confusing nature of the investigation, which involves tracing $200 million in assets through a web of offshore entities before they can even establish whether Smith was indeed the beneficial owner of these assets.

Justice Department to forgo criminal charges and resolve his case with a civil settlement, according to three of the people. A conviction could send him to prison and force him out of Vista Equity Partners, a money management firm with $65 billion in assets that has brought him fame and a luxe lifestyle.

Part of his defense rests on a reported pledge by the private equity fund to direct proceeds to charity. If prosecutors determine that the proceeds were designated for charity all along, it could bolster the argument that Smith was never the beneficial owner and not liable for taxes.

Interestingly enough, Bloomberg’s sources claim Smith has talked to prosecutors about the possibility of cooperating in exchange for leniency. Similar to the allegations against Steve Bannon, Smith appears to be only a secondary suspect – and it’s possible that the investigation into Smith was only brought about to pressure him to cooperate.

Whatever the case may be, it’s early days.

The Justice Department has discretion in deciding whom to charge, weighing factors such as the prosecution’s evidence, the strength of the defense and the way a jury would likely respond to the facts. Smith, a prominent Black businessman and philanthropist, may be viewed sympathetically by a jury in a time of protests for racial justice, lawyers said.

“The issue of jury appeal is often considered by prosecutors in cases that are a close call,” said David S. Weinstein, a former federal prosecutor in Miami who isn’t involved in the case. “If 12 jurors believe they want to acquit a defendant based on something other than the evidence, that’s their inherent right. They may believe it’s not the right time or place to bring a case against a particular defendant.”

Smith pledged $34 million to pay off the student loans of an entire Morehouse College class last year, a dedication that earned him a place among Bloomberg’s ’50 People Who Defined 2019″.

But given the nature of the allegations against him, after reading the Bloomberg story, it’s worth wondering: Would Bloomberg’s reporters have been this forgiving if the person at the center of the investigation was anybody but the black billionaire who became a folk hero by paying off a whole class of students’ loans?

Authored by Mark DeWeaver via The Mises Institute,

Austrian economists have traditionally argued against central planning on the grounds that much of the economically relevant knowledge in society could never be made available to a single planning authority. But today, with an unprecedented and ever increasing volume and variety of data now potentially accessible to the planner, it seems that an omniscient government may be possible after all. Has the big data revolution rendered the promarket arguments of Ludwig von Mises and Friedrich von Hayek obsolete?

In chapter 3 of their 1920 bestseller, The ABC of Communism, Soviet theorists Nikolai Bukharin and Yevgeni Preobrazhensky claimed that in the communist society of the future the state would “know in advance how much labor to assign to the various branches of industry; what products are required and how much of each it is necessary to produce; how and where machines must be provided.”

In reality, of course, the Soviet Union never came close to realizing this vision.

Given the impossibility of setting targets for the millions of individual items required by a modern economy, planning at the highest level had to be limited to some sixty thousand aggregate categories, which were then disaggregated at lower tiers of the bureaucracy (see chapter 7 of  János Kornai’s The Socialist System for more on planning in the USSR). Contrary to Bukharin and Preobrazhensky’s expectations, the result was a chronic failure to allocate resources efficiently. Shortages of essential industrial and consumer goods became the norm.

Could this failure have been avoided if only more advanced computational capabilities had been available? Nowadays, problems involving millions of variables are no longer insoluble. Might the day have at last arrived when, as Oscar Lange wrote in 1967, the market process “may be considered as a computing device of the pre-electronic age?”

As several authors have recently argued (here and here, for example), in the absence of markets planning would have to proceed without the information on supply and demand conditions revealed by actual transactions. In the short term it might be possible to make decisions about “what products are required and how much of each it is necessary to produce” based on the supply-demand equilibria prevailing in a preexisting market economy, but as the situation changed the plan would quickly lose its relevance to the real world. Sooner or later, the planner would end up “floundering in the ocean of possible and conceivable economic combinations without the compass of economic calculation,” as Mises put it in Economic Calculation in the Socialist Commonwealth.

But in fact an even more fundamental objection can be raised: the market process is nothing like a computing device. As Austrian economists have long emphasized, competition in markets is not simply a mechanism for transitioning to preexisting equilibrium outcomes. It is rather an engine of knowledge creation and entrepreneurial discovery. Running a business is not just a matter of resolving uncertainty about “known unknowns” through an orderly learning procedure. It requires realizations regarding “unknown unknowns” that did not initially play a role in decision-making.

Consider, for example, the famous case of Walmart’s use of data analytics to predict a jump in demand for strawberry Pop-Tarts in areas about to be hit by Hurricane Frances in 2004. As a series of zeros and ones in computer memory, the big data behind this prediction was not in itself information. It had first to be interpreted by a human being with an incentive to answer a particular question and a hypothesis about which variables might be significant. Someone had to have an intuition that an adverse weather event might create a profit opportunity at some particular time and place. Big data and artificial intelligence are tools to enhance the entrepreneurial discovery process, not a substitute for the inspiration of the profit-seeking market participant.

The existence of big databases does not make it any easier to centralize society’s stock of useful knowledge, because local knowledge is necessary to make productive use of data. “Planners,” as Israel Kirzner points out in chapter 2 of The Meaning of Market Process, “simply do not know what to look for: they do not know where or of what kind the knowledge gaps are.” Even if provided with links to every network node in existence, they would still be incapable of replicating the insights of countless individual decision-makers, each with his or her own unique viewpoint and distinct motivation to generate data-driven ideas.

Big data analytics is a means of strengthening the market process by reducing search costs, not a means of replacing it. This technology undoubtedly has important operational implications for individual companies. But it does not make the private firm any less necessary as an institution for efficient resource allocation. Indeed, big data is entirely irrelevant to Hayek’s local knowledge problem, because it does not provide any new means of aggregating the understandings of different individuals. Big data, while covering a wealth of different local situations, is not knowledge. Artificial intelligence software does not “know” anything.

There is thus no reason to think central planning could work any better with bigger datasets and faster processing power than it did during Soviet times, when the planning had to be done with slide rules and primitive mainframes. Smarter devices will not make socialism smarter.

In the latest bizarre incident of this ‘lockdown summer’ of COVID-19 social distancing measures and policies, Robert J. O’Neill — the former US Navy Seal who’s long claimed to have taken the kill shot on Osama bin Laden during the famous May 2011 raid on the Abbottabad, Pakistan compound — says he’s been permanently banned from Delta Air Lines for sharing a social media pic.

Specifically, he appeared to brag about flouting Delta’s mandatory mask policy aboard flights in the post. A since deleted tweet and photo showed O’Neill sitting on a Delta flight Wednesday while maskless.

Other passengers all around him could be seen with masks, while O’Neill commented in the post, subsequently deleted when it became center of controversy: “I’m not a pu**y.”

“I didn’t delete my tweet. My wife did,” he later wrote. A day later on Thursday, he tweeted, “I just got banned from Delta for posting a picture… Wow.” 

“I had my mask in my lap. Everyone has gone crazy,” he stated additionally.

Needless to say the 44-year old who has been frequently featured in the media, especially on Fox News, for his heroism during arguably the US military’s most famous terrorist targeted kill operation in history, set off a firestorm on social media, with other high profile people and even celebrities like Alyssa Milano piling on against him.

Milano and some others went so far as to dramatically claim the veteran and war hero might actually end up killing people by not wearing a mask:

You do realize you may be a-symptomatic and give the virus to other people that could potentially kill them. I think that makes you a sociopath. Besides, pussies are actually so strong that we can deliver human beings out of them. Please, I’m begging you, wear a damn mask.

— Alyssa Milano (@Alyssa_Milano) August 19, 2020

Weeks prior to the Delta incident, O’Neill vowed to stand his ground against authorities as well as social pressures which he says are ultimately overstepping bounds:

They can’t make you wear masks. They can’t make you take your temperature. They can’t make you quarantine. Wise up.

— Robert J. O’Neill (@mchooyah) July 31, 2020

He hasn’t backed down, instead going on the offensive against what he’s cast as a fundamental issue of individual liberty.

After his original photo post went viral, in which he also decried the airline’s “dumbass mask” policy, Delta said it would review the matter. 

And some supporters on Twitter noted the irony of the whole situation:

I just banned @Delta . Next time someone hijacks one of your planes and flies it into a building, don’t ask Seal Team Six to find who did it.

— West Coast Hockey Bias (@MarcelAndRogie) August 20, 2020

An official Delta statement cited in The New York Post said subsequently, “All customers who don’t comply with our mask-wearing requirement risk losing their ability to fly Delta in the future.” It’s even possible that Delta was willing to initially let it slide or at least look the other way, but then the social media mob jumped on the issue – led by celebrities – and the rest is history.

Throughout the Democratic National Convention there was a common, if contradictory, theme: on one hand, the Democrats bashed Trump for his response to the covid pandemic while at the same time they lamented the dismal state of the economy, where millions have lost their jobs and countless corporations have gone bankrupt. Well, which one is it, because you can’t have both: if Trump had enacted a more forceful response to the pandemic, the US economy would have been shut down for longer (as Neel Kashkari now urges, seeking another 6 weeks of shutdowns and setting the stage for the next crisis); alternatively the economy would be firing on all cylinders but the fallout from covid would be much more widespread. 

On Friday afternoon, in an exclusive interview with ABC “World News Tonight”, Biden revealed on which side of the fence he is saying that as president, he would shut the country down to stop the spread of COVID-19 if the move was recommended to him by scientists.

“I would shut it down; I would listen to the scientists,” Biden told Muir Friday, alongside his running mate, Kamala Harris, during their first joint interview since officially becoming the Democratic Party’s presidential and vice presidential nominees.

“I would shut it down. I would listen to the scientists.”

Joe Biden tells @DavidMuir in an exclusive interview that as president, he would shut the country down to stop the spread of COVID-19 if the move was recommended by scientists. https://t.co/2A9r07d7EC pic.twitter.com/Ib99cshlSI

— ABC News (@ABC) August 21, 2020

Biden also criticized what he argued is the “fundamental flaw” of the Trump administration’s response to the coronavirus pandemic, that the nation cannot begin to recover economically until the virus and public health emergency is under control, which is strange considering that in isolated cases such as Sweden which did not succumb to the media panic and did not enforce a uniform shutdown – while at the same time not forcing the population to take draconian measures to limit the spread of covid – the economy hit was far less than most of its European counterparts, while the Covid breakout has almost completely faded.

“I will be prepared to do whatever it takes to save lives because we cannot get the country moving, until we control the virus,” Biden added. “That is the fundamental flaw of this administration’s thinking to begin with. In order to keep the country running and moving and the economy growing, and people employed, you have to fix the virus, you have to deal with the virus.”

Biden’s statement brings up one immediate question: which scientists would he listen to? The WHO which, under heavy influence from China, pretended for well over a month that covid was innocuous as the following Feb 23 soundbite from WHO Director Tedros Ghebreyesus confirms:

I have spoken consistently about the need for facts, not fear. Using the word pandemic now does not fit the facts, but it may certainly cause fear. This is not the time to focus on what word we use. That will not prevent a single infection today or save a single life today.

… and only on March 11 – just days before the US announced economic shutdowns – declared the coronavirus outbreak a pandemic (apparently succumbing to “causing fear”). Or perhaps Biden should have listened to scientists like the US Surgeon General Jerome Adams, who on February 29 tweeted “Seriously people- STOP BUYING MASKS! They are NOT effective in preventing general public from catching #Coronavirus.”

Seriously people- STOP BUYING MASKS!

They are NOT effective in preventing general public from catching #Coronavirus, but if healthcare providers can’t get them to care for sick patients, it puts them and our communities at risk!
https://t.co/UxZRwxxKL9

— U.S. Surgeon General (@Surgeon_General) February 29, 2020

Or perhaps he meant listening to scientists like Anthony Fauci who on June 12 said “we know that you don’t need an N95 [mask] if you’re an ordinary person in the street” adding that “masks are not 100% protective.” When confronted with this contradiction in the government’s public-health advice, Fauci said “actually the circumstances have changed,” he said. “That’s the reason why.”

So will Biden shutdown the entire economy, leading to tens of millions more in job losses, just because it is the prevailing opinion circumstance at the time that he should do so?

Or perhaps what Biden meant to say is that as a leader it is his job to weigh costs and benefits of all policy options, as the catastrophic consequences of another economic shutdown could and likely would outweigh the benefits from a draconian response to a disease which as we showed recently has led to virtually no outsized under-40 fatalities, and yet as Jim Reid said in July, it is the “younger people will be suffering most from the economic impact of Covid-19 for many years to come, we wonder how history will judge the global response.”

We wonder too, especially now that we know that if there is another wave of covid in the US – whether domestic, or imported from China again or some other country – the US will have another full-blown economic shutdown, just as Minneapolis Fed president Neel Kashkari has been urging (we also know who Fed chair would be in a Biden administration). 

One final point about science, best laid out on twitter, is that “Science is NOT a magic wand. Especially “science” as it’s practiced today. Bureaucratic science is ALL about consensus. What gets funded is political. What gets published is political.”

Science is NOT a magic wand.
Especially “science” as it’s practiced today. Bureaucratic science is ALL about consensus. What gets funded is political. What gets published is political.

Science is about dissent
If i can get cancelled for asking a question science doesn’t exist

— Lizzy (@lizzie363) August 21, 2020

 

The US State Department says the government of President Nicolas Maduro is blocking US citizens from leaving Venezuela, including dual nationals, after the United States attempted to arrange evacuation flights that Washington says are for “humanitarian” needs.

“We have made offers in the past that would allow U.S. citizens to leave, but all were rejected by Maduro and his cronies,” US State Dept. spokeswoman Morgan Ortagus said in a written statement.

She said the US is currently exploring other options for getting Americans back safely to US soil, though without giving numbers of Americans stuck inside the Latin American country.

Caracas appears to be disputing these claims, however, with Foreign Minister Jorge Arreaza stating on Thursday that the government has offered to return American citizens via flights on state-owned airline Conviasa.

Ironically, the standoff appears centered on the fact that Conviasa remains under far-reaching Venezuela sanctions which have been in effect over the past year.

A US diplomat based in neighboring Colombia alleged that Maduro was keeping the Americans “hostage”. James Story of the State Department’s Venezuela Affairs Unit gave in indication last week that the standoff could involve up to 1000 people or more.

“I have more than 800 people who have asked for my support in helping leave the country,” he said, according to Reuters.

So it appears the repatriation issue is centered on the Maduro government finding a creative way and leverage to highlight how destructive the sanctions regimen is on the country in what’s essentially a “use our state-owned airline or else it’s not our problem” moment.

The crisis of the stranded Americans comes as not only sanctions are further crushing the already spiraling socialist economic and system, including derelict public infrastructure, but after the bizarre failed “invasion” attempt of a group of former Green Berets turned mercenaries on May 4. Two Americans were given 20 year prison sentences each, in a plot the Trump administration insists it had nothing to do with.

The latest in what has become a steady drumbeat of arrests of foreign spies and double-agents in the intelligence community continued on Friday when federal prosecutors charged a former Green Beret living in northern Virginia with espionage activity dating back to 1996.

The spy was accused of working with Russian Intelligence, and was even assigned a code name by his Russian handlers, implying that he was a de facto part of their organization. He allegedly signed a statement saying he wanted “to serve Russia.”

It’s already the second arrest this week involving a US official caught stealing and transmitting US secrets to a foreign power. On Aug. 17, an ex-CIA officer was charged in Hawaii. Other cases involving corporate America and academia have cropped up earlier this year as well. 

The US attorney who brought the case in released a statement promising to hold service member double-agents “accountable”.

“When service members collude to provide classified information to our foreign adversaries, they betray the oaths they swore to their country and their fellow service members,” said G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia., whose office is prosecuting the case. “As this indictment reflects, we will be steadfast and dogged in holding such individuals accountable.”

Debbins was arrested Friday, prosecutors told the AP. However, online court records remain sealed, so details of the case including related to Debbins’ representation are unclear.

The espionage allegedly occurred between 1996 to 2011, prosecutors say, a period where Debbins served in the US Army Special Forces as a Green Beret.

Once again President Trump’s anti-establishment and ‘anti-deep state’ instincts look like they’ll be promptly reigned in by those around him. He shocked leaders in Congress and within his own administration when one week ago he mused openly in a New York Post interview that maybe Edward Snowden should be pardoned. In follow-up he said at a press briefing last Saturday “There are many, many people – it seems to be a split decision that many people think that he should be somehow treated differently, and other people think he did very bad things.” And further that: “I’m going to take a very good look at it.”

The president raised eyebrows and anxiety across the D.C. beltway with his unprecedented remarks: “There are a lot of people that think that he is not being treated fairly. I mean, I hear that,” he had initially told NY Post, before adding: “Many people are on his side, I will say that. I don’t know him, never met him. But many people are on his side.” This immediately raised hopes among those that hail the NSA leaker as a whistleblower who exposed deeply unconstitutional surveillance of the domestic populace that he might one day soon see freedom.

But now Attorney General William Barr is throwing cold water on such a bold prospect, saying to the Associated Press on Friday that he’d be “vehemently opposed” to any initiative to pardon Snowden, who remains on the run from US authorities – but given asylum in Russia. If he were to return to the United States he would face severe charges related to the Espionage Act and spilling of state secrets, which would certainly bring life imprisonment.

“He was a traitor and the information he provided our adversaries greatly hurt the safety of the American people,” Barr said in the new comments. Interestingly, Trump’s own view as expressed years ago was that Snowden was a “traitor”.

Barr’s latest comments frame Snowden’s actions as motivated by money and fame, and not of out of a sense of patriotism or concern for upholding the Constitution: “He was peddling it around like a commercial merchant. We can’t tolerate that,” Barr added firmly.

Recall that last year the DOJ under Barr fought to ensure that Snowden wouldn’t see any money generated from US sales of his tell-all book Permanent Record.

Edward Snowden’s book profits must go to the government, judge rules https://t.co/3UYCQ6Xgyi pic.twitter.com/q7WTne7aoD

— The Verge (@verge) December 18, 2019

Critics have still claimed that Snowden has raked in millions from his online remote appearances at conferences, and in speaking events and interviews.

This whole latest discussion as to the administration’s stance on Snowden had arisen when in the NY Post interview Trump’s former advisor Carter Page was brought up in connection with allegations of abuse and illegal surveillance under the aegis of the Foreign Intelligence Surveillance Act and the secret FISA court.

After years of the whole sordid ‘Russiagate’ saga, it appears Trump has formed a new perspective and appreciation for just what Snowden was exposing, and what the government contractor was up against.

One month ago, with millions of newly unemployed Americans fearful about their future in an economy transformed by the covid pandemic, Deutsche Bank’s Jim Reid made a remarkable observation: “Recessions don’t usually result in personal income soaring, but this one has thanks to government support around the world.” This was shown in the following chart:

This was not a surprise: as Bank of America writes, one of the regular features of US recessions since the 1950s is that they always trigger, with a bit of a lag, an expansion of unemployment benefits. In normal times, benefits in the US are lower than for most other developed market economies, but there is an attempt to close some of the gap during the recession. In recent recessions the additional benefits have tended to be earlier, bigger and last longer. Thus benefits weren’t enhanced until the end of the 2001 recession and provided 13 weeks of additional benefits through Mar 2004. However, for the Great Recession of 2008-9 enhanced benefits were enacted on July 2008, a year before the end of the recession, lasting through December 2013, with the unemployment rate down to 6.7%.

Initially the response to this crisis continued the trend toward stronger responses. Facing a much deeper and faster recession, enhanced benefits were almost immediately implemented and included a large bonus benefit of $600/week. Unfortunately, 4 months later and policy has taken a 180 degree turn: the benefit has been allowed to expire with an unemployment rate still north of 10%. Needless to say, it seems a bit early to declare mission accomplished.

That said, the US is now caught in an unprecedented dilemma – as BofA also notes, “Absent government support disposable income would have fallen the most in history; with that support it has risen the most in history.”

So what’s Congress – and the President – to do?

Well, while the full impact of this economic transformation has yet to be felt across the country, at least for some the government support ended on July 31 when the infamous “fiscal cliff” hit and has yet to be renewed by Congress (executive orders signed by Trump two weeks ago have offset only a modest portion of the stimulus). The group most directly affected are recipients of unemployment insurance (UI) who have seen a notable reduction in income.

To quantify the impact, Bank of America examined spending trends of the population of card holders who receive UI through ACH
(direct deposit) and compared to all other households. What it found was a dramatic divergence as the YOY rate of growth for UI recipients slowed dramatically but increased for the broader population since Aug 1st.

By income, over the past two weeks, the YOY growth rate slowed by 12% for the unemployed cohort (formerly) earning under $50K vs. a roughly 5% drop for the middle and upper income cohorts.

Some more math: a closeer look at the US household income statement underscores the resulting hole in household income as a result of the lapsing of the fiscal stimulu. The $600/week benefit was not a small support to the unemployed, it accounted for more than 60% of unemployment benefits in June (Chart 1). As the numbers on the chart indicate, that means a payment equivalent to about 5% of household income just disappeared. We don’t have data yet for July and August, but the daily treasury statement confirms the collapse in payments (Chart 2). In July the average daily outlay was $4.8bn, in the past five working days it has collapsed to $2.3bn, or a drop of more than half from the peak stimulus period.

These charts show just how reliant on the government much of America has become.

To be sure, much has been made about the resilience of the consumer so far in this crisis. Indeed, while services spending remains depressed, retail sales have fully recovered. However, as shown above, this recovery is deeply dependent on fiscal support. The next chart decomposes the various sources of income in recent months-unemployment benefits, other tax and transfer benefits, labor income, proprietors income and other income.

And here is BofA’s remarkable observation: “Absent government support disposable income would have fallen the most in history; with that support it has risen the most in history.” Note that the role of government stimulus is even bigger because the surge in proprietors income was due to another (now fading) federal program-the Paycheck Protection Program.

So just how much of a hit to consumption – which represents 70% of US GDP – is coming?

Well besides the already noted slump in spending by unemployed Americans, it will take time to see the full effect of the lost payments on consumer spending since presumably some recipients have savings or can postpone rent, credit card and other bills. The early evidence suggests “a moderate shock” according to BofA which again notes – see chart 4 above – that among the unemployed, lower income groups were among the hardest hit, with the YOY growth rate slowing by 12% for the cohort earning under $50K vs. a roughly 5pp drop for the middle and upper income cohorts.

While the bank has not done a formal simulation of the impact of the lost fiscal stimulus, a simple illustrative example from the Petersen Institute can give a sense of the magnitude. First, they assume that 20MM people were unemployed at the end of July and that the $600 benefit has a fiscal multiplier of 1.5 (around the midpoint of the CBO’s range of estimates). The expiration of the $600/weekly benefit would therefore remove about $50bn in income from the economy per month. By their estimate, this would result in about a 2.5% decline in GDP, 2MM less jobs over the next year and a 1.2pp increase in the unemployment rate.

As BofA summarizes “while illustrative, these are staggering numbers.” Moreover, based on the latest claims data there were around 15MM people on standard unemployment benefits as of the week ending August 8 with millions more in other programs such as Pandemic Unemployment Assistance (PUA). Thus, the full impact will likely be even more acute than modeled by BofA.

The final question is whether President Trump’s executive orders can offset the shock to incomes.

Let’s look first at the unemployment benefits and then at executive orders as a group. The executive order earmarks the $44bn in remaining FEMA funds for unemployment benefits of $300/week. In addition, initially it required states to provide $100/week in matching funds, but that requirement was dropped as it became clear that it would deter cash-strapped states from participating. Since the program is new it will take time for states to set up the new system, and indeed as we pointed out earlier this week, only 7 states have so far signed up for the $300 unemployment stimulus plan. Hopefully a number of states will have the program up and running by the September 1 launch date. While this new payment cuts the income shock in half, the funds are likely to only be enough to cover a month or so or into early October, one month ahead of the elections. Moreover, the order is backdated to start on Aug 1. So in practice, the funds may be disbursed quickly after states have set up their programs.

The other major executive order is the deferral in the employee component of the payroll tax from September 1 until December 31. Objectively, this will provide very little support to consumer spending, and as we also noted earlier, business lobbies are already complaining that the program is “unworkable” – a letter co-signed by a number of groups including the US Chamber of Commerce, the National Retail Federation, the National Association of Manufactures and others argued that (1) the order would result in a significant tax bill in 2021 for employees, (2) the implementation of the order is unworkable and (3) many members expect to decline to actually adopt the deferral.

Even for workers at firms that do implement the deferral the impact on spending will likely be very small. Households that are not in financial distress will save most of the tax cut in anticipation of a big bill at tax year end. Of course, workers that are in distress due to unemployment will not benefit from cutting a tax they are not paying. That leaves a relatively small group of households that remain cash strapped even though they are still employed. Presumably they will spend a good part of the tax cut.

What happens next?

As we have reported almost every day for the past three weeks, Congressional negotiations seem hopelessly bogged down and furthermore, Congress is currently on recess with funding the post office has become a major distraction. Both parties are having their conventions. Both parties are watching to see if the executive orders work. And an election looms.

As BofA’s economists concludes, while they had hoped for a deal this month, “increasingly it looks like one only comes after Labor Day and after demonstrable pain in the economy.” Unfortunately, in a world in which the market no longer reflects the economy, it is unclear just what signal US politicians will seek to determine that the economy is “in pain.” Ironically this will make the disconnect between the soaring market which just hit a fresh all time high and the economy which is about to double dip, even more grotesque.

Hillary Clinton “gifted” a prestigious job in the Obama State Department to the nephew of accused pedophile and sex trafficker Ghislaine Maxwell, according to OK! Magazine – and whose employment was confirmed by the Daily Beast.

Alexander Djerassi, the son of Maxwell’s sister, went from working on Hillary Clinton’s 2008 Presidential campaign, to a “very powerful and prestigious position” within the state department, working under Clinton in charge of the Bureau of Near Eastern Affairs. He returned to Clinton’s 2016 campaign, according to the Beast.

“Secretary Clinton gave Alex a job in one of the most sensitive areas of Obama’s executive apparatus,” an anonymous source told OK!. “The fact Alex Djerassi, fresh out of college, was put in charge of the State Department’s Bureau of Near Eastern Affairs, covering the Middle East, was an interesting move.”

“He worked directly on the Arab Spring, and Hillary sent Alex as the US representative to the expatriate rebel groups Friends of Libya and Friends of the Syrian People,” the source continued, adding that Djerassi was given “special treatment.”

A State Department spokesperson confirmed Djerassi’s employment with The Daily Beast, though could not comment on whether the job was in fact “gifted” by Clinton.

A year before Mr. Djerassi’s appointment, his aunt’s ex-boyfriend, Epstein, pleaded guilty to a state charge (one of two) of procuring for prostitution a girl below age 18 and was sentenced to 18 months in prison.

Epstein served almost 13 months before being released for a year of probation on house arrest until August 2010.

What’s more, during his tenure at the State Dept., Maxwell attended Chelsea Clinton’s wedding to Marc Mezvinsky in July 2010. –OK! Magazine

According to Djerassi’s LinkedIn profile, “He worked on matters relating to democratization and civil society in the Arab world, the Arab uprisings, and Israeli-Palestinian peace. Djerassi has served as a U.S. representative to the Friends of Libya conferences, Friends of the Syrian People conferences, U.S.-GCC Strategic Coordination Forum, and several UN General Assemblies.”

Djerassi previously worked at the Carnegie Endowment for International Peace, focusing on Tunisia and US foreign policy towards the Middle East and North Africa.

Frequent WikiLeaks mentions

According to the Beast, Derjassi’s name appears in a ‘collection of Clinton’s emails’ published by WikiLeaks – with Assistant Secretary of State Jeffrey Feltman referring to his “special assistant, Alex Djerassi” in November of 2011 and January 2012.

Meanwhile, the Beast also notes his employment on Clinton’s campaign.

From September 2007 to June 2008, Djerassi was a policy associate for Hillary Clinton’s presidential campaign. He listed his job duties as such: “Researched and drafted memos, briefings, and policy papers for candidate, senior staff, and news media on wide range of domestic and foreign policy issues. Prepared for more than 20 debates.” (In late 2007, Epstein was under investigation for trafficking girls in Palm Beach and working on a secret plea deal with federal prosecutors. Maxwell is believed to be one accomplice who was protected under the controversial agreement.)

The Yale and Princeton alum—the son of Maxwell’s sister Isabel—apparently returned for Clinton’s 2016 presidential run. –Daily Beast

Bill Clinton notably flew 26 times on the infamous “Lolita Express” belonging to Maxwell associate and convicted pedophile Jeffrey Epstein. The former US President was notably fingered as having been seen on Epstein’s “pedo island” according to court documents released three weeks ago.

More recently, photos of Clinton receiving a neck rub from one of Epstein’s accusers (who said he was a perfect gentleman) surfaced in the Daily Mail.