Month: April 2020

China conducted war drills in the South China Sea this week as the COVID-19 pandemic terrorizes the US, forcing the Pentagon to divert its attention to the Homeland to manage the public health crisis that is unfolding rather than countering Beijing in the open seas.

Asia Times reports that in recent days China ramped up military drills and deployed military assets in the highly contested waters of the South China Sea, specifically in areas that are known to have massive fossil fuel reserves. 

While some see China’s nationalistic messaging as a bid to rally its people during difficult Covid-19 times, others view the increasingly aggressive naval maneuvers as a bid to exploit America’s weakened condition to secure new advantage in the hot spot theater. -Asia Times

While China conducted maritime exercises, countries surrounding the South China Sea, who also have staked rights to the fossil fuel reserves in the contested waters, are in countrywide lockdowns enforced by their respective militaries. This is an instance where military assets of Western powers and allies are preoccupied in their own countries, as Beijing sails around the South China Sea uncontested. 

Many people don’t realize, the Chinese virus unleashed a nuclear bomb on America, but did not destroy any physical assets. Instead, it imploded the financial economy. And without China firing a shot, the US Navy has likely lost the USS Theodore Roosevelt (CVN-71), a massive nuclear aircraft carrier stationed in Guam. At least 1,000 sailors have been evacuated from the vessel for fear of contracting the virus. 

The virus is a giant distraction from the Pentagon’s freedom of navigation missions that are used to counter China in the South China Sea. With most of its time and effort focused on fighting the virus on the Homeland and maintaining social order – America’s power overseas diminishes. 

The Western world is melting down over a virus outbreak. China didn’t even have to fire one shot – as it now seizes this opportunity to increase its power in the South China Sea: 

China’s bid to opportunize on the Covid-19 crisis which originated in its Wuhan city has been on display on multiple fronts. On one hand, Beijing has launched a concerted attempt to reshape the pandemic’s narrative, including the bizarre suggestion by top Chinese officials that the US military planted the virus in China.

This has gone hand-in-hand with attempts to drive a diplomatic wedge between the US and its traditional transatlantic allies, some of which have recently committed naval vessels to US-led freedom of navigation operations in the South China Sea. -Asia Times

The People’s Liberation Army flexed its muscles in the northern portions of the South China Sea last month, saying: 

Training for war preparedness will not be stopped even in the middle of the Covid-19 epidemic, and the training of carrier-based fighter pilots must continue.

The Global Times described the latest war drill as part of fighting the pandemic. 

An aircraft carrier is a large warship with many people concentrated in its cabins, making it vulnerable to infectious diseases. Being able to successfully conduct related missions indicated that the Liaoning has done a great job in controlling the epidemic. – Beijing-based naval expert Li Jie told Global Times.

And just like that, a Chinese virus implodes the American economy, takes out an aircraft carrier in the Pacific, and China makes a big move in the South China Sea. Is the virus the first silent shot fired by Beijing in World War III? 

One didn’t need to read our post explaining why with the Fed’s reverse repo operations now much more aggressively used (and in fact seeing some $182BN of usage well into the second quarter, so much more than just a quarter-end window dressing exercise) …

… than the Fed’s recently expanded, massive repo ops, which have basically been abandoned by Dealers in the past week …

… there was now a shortage of Treasuries: a quick look at where T-bills yields were trading on Monday was sufficient – virtually every issue to the left of 3 months had a deeply negative yield, and ushered in a risk-free arb that bond traders could take advantage of to make virtually unlimited money by purchasing Bills at a 0%-yield capped auctions and then selling them in the open market above par.

That’s when Steven Mnuchin realized he had to do something to address the bond shortage which was literally taking money from the Treasury and handing it to Wall Street, and that thing was to unleash a historic flood of Bills and Cash Management Bills, something we pointed out in “Treasury To Sell Over A Quarter Trillion Bills In 48 Hours.” Immediately the yields across the curve spiked, with all tenors now yielding back above 0% (the Bill arb disappearing in the process).

Yet this does not do justice to the absolute tsunami of issuance in the Bill market where the Treasury did everything in its power to not only flood the market with new debt (not that it had much of a choice) but to also prefund the Treasury’s historic outflows in the coming days.

As shown in the chart below, in addition to the previously discussed Bills and CMBs, this week’s Treasury has been on an absolute tear and in just the past 4 days has issued, in addition to the regularly scheduled 4-Week, 8-Week, 3-Month and 6-Month Bills, also 154 Day, 102 Day, 39 Day, 119 Day, 42 Day, 69 Day, and 37 Day Cash Management Bills, as shown in the chart below.

This $563 billion in gross Bill issuance ($93BN on Monday, $154BN on Tuesday, $85BN on Wednesday, $220BN on Thursday), is more than anything ever seen previously in a 4 day period. And while a portion of this gross issuance went to offset current maturities, the net effect was massive nonetheless, and nowhere more so than the Treasury’s cash balance (i.e. the Federal Reserve Account).

And, as shown in the final chart, the result of this Bill issuance flood is that the cash balance of the Treasury (i.e. the US government) just hit a record $515 billion, the highest on record.

Why? Because tomorrow is the day the crisis response officially begins as hundreds of billions in small, medium and very large business bailout demands hit the Treasury as up to $2 trillion in funds are handed out across the economy over the coming weeks.

As such, the half a trillion dollars held electronically at the US Treasury is just the beginning.

And here a quick aside: consider the path the money is taking before ending up in Joe Sixpack’s pocket: a desk worker at the Treasury punches a few buttons and sells electronic certificates which mature in a few weeks and are backstopped by the US government and which in turn fund the Treasury’s account with electronic dollars which were paid by some investor who similarly punched a few buttons on his computer and in hopes of parking his cash somewhere safe, handed over his electronic money to the Treasury desk worker. As a result of this transaction, hundreds of millions will receive a small amount of electronic ones and zeros in the next few days, which for countless people will mean the difference between disaster and survival.

Looking back, the fact that most Americans went about their daily lives as if nothing was happening for most of February – heeding the official advice of mayors including NYC’s Bill de Blasio and others – seems almost unconscionable. All the while, COVID-19 was spreading, unseen, among communities in suburban Seattle, and in NYC and the suburban areas surrounding the city.

And yet, even after colleges around the country cancelled classes or converted to all-digital learning, hundreds of thousands of “Covidiot” teenagers and early twentysomethings were still hell-bent on capitalizing on cheap flights and enjoying the extended spring break of their dreams, public welfare be damned.

Many of these selfishly ignorant teenagers helped spread the virus around the country, as studies have now shown. But sadly, the ignorance of American teenagers – and the at-times depressing impotence of parents struggling to ‘civilize’ them – apparently knows no bounds. Because the Washington Post‘s ‘society’ section just ran a story about parents trying to cope with teenagers who are almost pathologically incapable of staying at home and doing nothing.

The reporter told the story of one suburban Virginia mom with an undisclosed medical condition that has left her immunocompromised. Despite this, her 18-year-old son insists on going out and meeting up with “his boys” – fellow high-school-senior-age teenagers who have built a fort in the nearby woods where they go to violate the newfound strictures of society.

For two weeks now, since Loudoun County closed its schools March 12, Julian has been building a fort near the Potomac River with “my boys,” he says, about two dozen seniors who show up randomly, bringing free pallets of wood they’ve spotted on Craigslist and building supplies from Home Depot. Rather than socially distancing, they’ve hammered away for hours before grilling hot dogs and fish they catch in a nearby pond and huddling together “to chill.”

Julian arrived first to the clearing Thursday and offered a tour of the fort, which rose from the wooded landscape like a hermit’s dream with its frame of poles set in quick cement, covered by a blue tarp to keep out the rain. In recent days, the crowd had been dwindling as news of the coronavirus contagion grew more alarming and parents began putting their collective feet down.

Many teens in the Washington region and across the country are gradually moving past anger and depression to acceptance, at least for the time being, as they grieve the social losses that come with self-quarantining. But Julian — his mother wanted his last name withheld to protect his privacy — is stuck in denial.

His mother fights back with an endless barrage of “sticky note” reminders encouraging her son to wash his hands for more than 20 seconds and to take other steps to protect the family from being sickened by the careless actions of their ungrateful teenage child.

Julian knows he is supposed to keep his distance from his mother, who takes a medication that compromises her immune system. He calls her concerns “100 percent valid,” and said “it freaked me out” when she recently had a small cold. Even so, he sheepishly tries to duck into her space.

“Staying six feet apart from my mom is hard,” Julian says. “I like to go up and hug her all the time.”

As for Elisa’s written reminders, “As soon as I walk in, I get hit in the face with a sticky note,” Julian says. “You can’t grab something in the kitchen without a sticky note in your face.”

He seems more amused than annoyed; again, he understands. Still, “it’s hard to get in the habit of washing my hands literally after everything I touch,” he says.

No such rules apply at “Coronavirus Outpost,” the name he has given his communal fort in the woods.

Maybe these kids will remember the coronavirus as their big struggle, their “World War II” as it were. Though, given the tendency to accept and embellish unpleasant experiences into “traumas”, we imagine that American teens will use this as one more excuse why the government owes them every handout imaginable, from paying off their student loans to covering health-care costs for life.

One mom wondered why some parents were still allowing kids to have group sleepovers and other social events when the governor had expressly forbade gatherings of more than 5.

Kelly Davis was willing to take a hit when her 14-year-old daughter, Victoria, begged to go to a sleepover at a friend’s house. Victoria, a competitive gymnast and straight-A student who Davis calls “the love of my life,” pled with her mother. “Why can’t I go?” she demanded, as her friends watched raptly on FaceTime.

“First, I made her get off FaceTime,” recounted Davis, 52, a single mom and special education teacher in Elkhart, Ind. “I said, ‘No,Victoria.’ I really don’t care what other parents are doing,” She pulled the “grandmother card,” because Davis’s 84-year-old mother lives with them.

Still, Davis finds herself resenting other parents. After the sleepover smackdown, another friend invited Victoria to a birthday party.

“Who are these parents?” she asked. “… It’s hard when other parents aren’t doing the right thing. It makes me look like the mean mom.”

Kim Baxter was able to forge alliances with other parents so her 17-year-old daughter, Charlotte, a senior at Yorktown High in Arlington, could spend time with friends during the pandemic. Outside, of course, and the requisite six feet apart.

It did not go well.

Charlotte unwittingly texted her mother a photo while the foursome were out hiking. “They weren’t keeping any kind of distance,” Baxter, a 51-year-old attorney, said ruefully.

She later declined on Charlotte’s behalf when the mother of her daughter’s boyfriend and two other parents jointly approved a group camping trip. “The boys are Eagle Scouts and so that wasn’t my concern,” she said. “It was just the close proximity of what they were doing.”

Charlotte “had a moment,” then that moment passed. Now Charlotte and her boyfriend are allowed to hang out at each others’ houses.

“I’ve met his mom, and we’ve been texting,” Baxter said. “I think we both kind of agreed that these two are pretty tight and it would probably be unhealthy to separate them.”

These aren’t the first reports of American teenagers not taking the quarantine seriously. Oddly, the young’s seeming unwillingness to accept that they truly are vulnerable has led to them catching the disease in larger numbers since they’re more likely to recklessly ignore quarantine advice.

Authored by Andrew Singer via CoinTelegraph.com,

These are perilous times, and it hasn’t escaped anyone’s notice that the United States Federal Reserve is doing its part to alleviate the suffering — which began with the coronavirus pandemic and has spread to the global economy. It’s printing more money. 

“There is an infinite amount of cash at the Federal Reserve,” Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, told Scott Pelley of CBS on March 22, adding:

“We will do whatever we need to do to make sure there is enough cash in the financial system.”

The U.S. Federal Reserve itself reinforced that message on March 23, announcing that it would “continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning.”

image courtesy of CoinTelegraph

The death of capitalism?

Reactions to these affirmations of quantitative easing, or QE, have been swift from sectors of the crypto community: “With these words, the last vestige of #capitalism died in the US,” wrote Caitlin Long, who established the first crypto-native bank in the United States. “[The] Fed’s monetization U.S. debt is now unlimited.”

Mati Greenspan, the CEO and co-founder of Quantum Economics told Cointelegraph: “The Fed said it is willing to buy the entire market” if necessary to stabilize markets. Meanwhile, on the fiscal side, Congress’s $2 trillion stimulus package includes handouts like “helicopter money” — i.e., a $1,200 payment to every tax-paying adult who has an annual income below $75,000. “Inflation is pretty much a foregone conclusion at this point,” he stated elsewhere.

Garrick Hileman, head of research at Blockchain.com, told Cointelegraph: “The response by central banks to COVID-19 is truly unprecedented, with Fed and Bank of England officials using terms like ‘infinite,’ ‘unlimited’ and ‘radical.’” They’ve been using such extraordinary language in the hope they’ll prevent equity and credit markets from seizing up. “Only time will tell if they have gone too far.”

The U.S. dollar is dominant

Is inflation really imminent, though? Not if one recognizes that the global demand for U.S. dollars continues to exceed supply. As Civic CEO Vinny Lingham told Cointelegraph: “The reality is: Everyone needs to reprice assets, and they need to do it in U.S. dollars.” 

Lingham grew up in South Africa. He saw what happened with hyperinflation in neighboring Zimbabwe where “the demand for stable currency exceeded everything else.” With people in the grip of the current pandemic, entire business sectors have been shutting down all over the world. People have been selling assets whether it’s equities, collectible classic cars or Bitcoin (BTC). Lingham added:

“If I’m living in South Africa, I may have kept money in the form of a bar of gold that is priced in Rands. Now I’m selling it for local Rands and buying U.S. dollars with those Rands. As the Rand devalues, the dollar gets stronger.” 

Under such conditions, “if the Federal Reserve prints another $2 trillion USD, it’s okay,” said Lingham. Greenspan agrees that the U.S. dollar has been the world’s most in-demand financial asset in recent weeks, and theoretically, the Fed could print trillions more than it is currently proposing — and there may not be any hyperinflation. The problem is that no one knows what the “stop point” is — i.e., how much is too much. “We won’t know [hyperinflation is] happening until it’s too late.”

BTC as a store of value?

What does all of this mean for cryptocurrencies? Many in the crypto world assume that Bitcoin, with its fixed maximum supply — 21 million BTC — is bound to come out ahead if the Fed and other central banks print too much money. “Though that assumption has not been tested in real-time except in Venezuela,” said Greenspan. If you had bought BTC at its low point in Venezuelan bolivars and had sold BTC at its height, also for bolivars, you would have come out way ahead. It’s not clear that this case can be generalized, though. During the current crisis, BTC and other cryptocurrencies have plunged dramatically, just like equities — which has somewhat damaged Bitcoin’s claim of being a store of value. 

The current economic environment is not favorable for any asset class, Lingham observed. Bitcoin i3s now positively correlated with other asset classes. Greenspan said the correlation between BTC and the stock market has recently reached a high point of 0.6 — with 1.0 representing perfect positive correlation. If this were not the case, BTC would currently be priced somewhere between $12,000 and $15,000, Lingham suggested. 

Ariel Zetlin-Jones, associate professor of economics at Carnegie Mellon University’s Tepper School of Business, told Cointelegraph that he understands this moment is critical for the future of cryptocurrencies:

“U.S. equity markets have suddenly become as volatile as Bitcoin markets, and the U.S. government is undertaking a large scale intervention that involves a massive expansion of the money supply which in the absence of other major shocks (the economic shutdown due to the pandemic), would normally induce a large increase in the inflation rate.”

However, Zetlin-Jones does not see these developments causing Bitcoin to emerge as a leading store of value because in the long run: “Bitcoin is one of the riskiest stores of value in the world, with Bitcoin price volatility more than five times that of both gold or even U.S. equity prices.” Kevin Dowd, a professor of finance and economics at Durham University in the United Kingdom, told Cointelegraph:

“BTC does offer an alternative store of value, and there is no question about that. The issue is: How good is it? It all depends upon when you buy and when you sell, and so there remains a huge element of luck.”

According to Hileman, the University of Cambridge’s first “cryptocurrency academic,” the prices of gold and Bitcoin should both rise:

“Even before COVID-19, we felt the unprecedented level of public and private debts made Bitcoin, and hard assets in general, attractive. Historically, recessions and large fiscal and monetary expansions have driven up the price of hard assets like gold. […] We do not see a reason why this time should be any different.”

The future of crypto?

It is still too early to gauge the impact of QE on crypto, said Greenspan. “The initial shock of the global economy grinding to a halt” is still too fresh. “The long-term trend is yet to emerge.”

Moreover, BTC is just a small part of the story, though it has held its value well compared with other asset classes, Greenspan told Cointelegraph.

People have been struggling, and many individuals are selling everything they can, said Lingham. “Until there is excess capital, Bitcoin is in the same basket as other assets. There will be no mad rush to get into cryptocurrency unless the U.S. dollar falters” — and then, only maybe.

“I would be surprised if BTC bit the dust due to the current crisis, but you cannot rule anything out,” said Dowd, who has maintained in the past that Bitcoin’s price must go to zero in the long term — principally because its mining model, a natural monopoly, is unsustainable. 

In the short term, meanwhile: “The injection of money tends to float all markets, and that includes crypto,” said Greenspan. “Stocks will be first, but [the fiscal stimulus] is also likely to push up the price of BTC.” 

A more decentralized global economy?

The current crisis might eventually impel structural changes in the world economy, however, and these could change the crypto and blockchain space — for the better. Zetlin-Jones told Cointelegraph that once the recovery begins, a new way has to be found:

“We will need a more robust economy — one where supply chains are less dependent on a single producer, where workers are less dependent on the operations of a single firm, where individuals are less dependent on a single source of health care.” 

These are effective movements toward a more decentralized world economy, in which blockchain technology seems uniquely poised to play a key role, Zetlin-Jones said. “They might speed up the demand for blockchain solutions and, therefore, [improve] the long-run viability of blockchains and their associated cryptocurrencies.

The COVID-19 outbreak is proving to be the Trojan horse that justifies the ushering in of the surveillance state. We’ve noted how governments and corporations are quickly deploying big data and spy tools to monitor people during the pandemic.

The war on terror, the war on drugs, the war on illegal immigration, and now the war on COVID-19: all start out as legitimate responses but then are used by politicians to increase the surveillance state and erode any freedoms citizens have left. 

What’s coming to America in the not too distant future is a full-blown surveillance state, that could be on par with China’s. In particular, we want to show ZeroHedge readers what could be coming down the pipe: That is, “pandemic drones” outfitted with specialized sensor and computer vision system that can fly around cities and detect if people have elevated body temperatures, respiratory rates, as well as to identify if people are sneezing and coughing (all signs of a COVID-19 carrier)

A US-based drone company called Dragonfly is spearheading the effort to build a drone network across public areas to detect infected people. The drone network is called the “global early warning system” that would be able to spot the first signs of a pandemic. 

Dragonfly was recently selected by Vital Intelligence, a healthcare data services and deep learning company in conjunction with the University of South Australia, to “immediately commercialize” pandemic drones to monitor people in public areas.

“Draganfly is honored to work on such an important project given the current pandemic facing the world with COVID-19. Health and respiratory monitoring will be vital for not only detection, but also utilizing the data to understand health trends. As we move forward, drones and autonomous technology doing detection will be an important part of ensuring public safety,” said Andy Card, Director of Draganfly and former Secretary of Transportation and White House Chief of Staff.

As shown below, the pandemic drone can easily detect breathing rate, heart rate, body temperature, and if the person is sneezing and coughing – all signs that could point to a COIVD-19 carrier. 

Here’s Dragonfly’s video showing the drone in action: 

On Monday, former FDA chief Scott Gottlieb told CNBC that the US must build a “massive surveillance system” to detect where the virus might be spreading next – and maybe one of the best ways to monitor large swaths of the population could be through the use of pandemic drones across major US metropolitan cities. 

“What you really want … is a massive sentinel, surveillance system where you can be testing people randomly in the background to detect where the virus might be spreading. That’s going to be an early tripwire,” says @ScottGottliebMD on preventing more #coronavirus outbreaks. pic.twitter.com/GfumE4XJXn

— Squawk Box (@SquawkCNBC) March 30, 2020

President Trump and the White House task force delivered another lengthy, and at times rambling, press conference Thursday evening, and after Mnuchin finished speaking about the stimulus bill ‘complications’, we suspect most viewers probably tuned out.

But those who didn’t may have heard Trump engage in some classic Trump opposition-baiting, telling off Chuck Schumer for a letter he wrote to President Trump criticizing the White House’s coronavirus response, and – included among a list of suggestions – urging the White House to appoint a “senior military officer” to help lead the federal response.

Well, as it turns out, Trump didn’t stop there. As millions of Americans wonder what’s taking so long with the bailout checks, and hundreds of thousands of small business owners anxiously chew their cuticles while wondering how long it will take to get the money in their accounts, Trump was busy composing a written response to Schumer’s letter, essentially calling him an idiot for failing to realize that Trump already has military people in charge of the federal coronavirus response (though there are no active military personnel on the task force).

Trump also blasted Schumer for failing to take helpful steps to help his state – New York, the epicenter of the crisis in the US – prepare for this crisis. But the truth is, when it comes to “who’s responsible?” there’s enough to go around (and some for Trump as well). But this time, he added a new element. Since Schumer is in Congress, he spent most of the last two years helping the Democrats build up their ridiculous impeachment hoax instead of helping prepare for the crisis, or doing, well – anything  – truly productive other than inside-baseball favor-trading to protect his constituents.

Dear Senator Schumer:

Thank you for your Democrat public relations letter and incorrect sound bites, which are wrong in every way.

1. As you are aware, Vice President Pence is in charge of the Task Force. By almost all accounts, he has done a spectacular job.

2. The Defense Production Act (DPA) has been consistently used by my team and me for the purchase of billions of dollars’ worth of equipment, medical supplies, ventilators, and other related items. It has been powerful leverage, so powerful that companies generally do whatever we are asking, without even a formal notice. They know something is coming, and that’s all they need to know.

3. A “senior military officer” is in charge of purchasing, distributing, etc. His name is Rear Admiral John Polowczyk. He is working 24 hours a day, and is highly respected by    everyone. If you remember, my team gave you this information, but for public relations    purposes, you choose to ignore it.

4. We have given New York many things, including hospitals, medical centers, medical< supplies, record numbers of ventilators, and more. You should have had New York much better prepared than you did, and as Dr. Fauci and Dr. Birx said yesterday, New York was very late in its fight against the virus. As you are aware, the Federal Government is merely a back-up for state governments. Unfortunately, your state needed far more of a back-up than most others.

If you spent less lime on your ridiculous impeachment hoax, which went haplessly on forever and ended up going nowhere (except increasing my poll numbers), and instead focused on helping the people of New York, then New York would not have been so completely unprepared for the “invisible enemy.” No wonder AOC and others are thinking about running against you in the primary. If they did, they would likely win.

Fortunately, we have been working with your state and city governments, Governor Andrew Cuomo and Mayor Bill Delllasio, to get the job done. You have been missing in action, except when it comes to the “press.” While you have stated that you don’t like Andrew Cuomo, you ought to start working alongside him for the good of all New Yorkers.

I’ve known you for many years, but I never knew how bad a Senator you are for the state of New York, until I became President.

If you have any questions, please do not hesitate to call. Or, in the alterative, call Rear Admiral Polowczyk.

Even after Trump back-tracked, caved to Democrats, and summoned his DPA powers to try to ramp up production of the desperately needed ventilators (something he probably should have done almost two weeks ago), the president didn’t shy away from taking a swing at Schumer during Thursday night’s briefing, bringing up the letter the Senator had written him, and mocking Schumer for purportedly being unaware that Trump had already appointed a “military man” to help run the federal response.

“Chuck if you knew a little bit more, we have one of the most highly respected people in the military, the admiral…”

Watch the clip below:

President Trump sets Senator Schumer straight regarding Schumer’s letter stating Trump should put a military man in charge. pic.twitter.com/6ghziIGy7b

— The Daily Wire (@realDailyWire) April 2, 2020

After re-watching that clip, it also occurred to us that Admiral Polowczyk might have only been brought to the press conference as a prep. But we have no evidence to back up that claim.

Does Trump know Rear Admiral Polowczyk name? Probably not. And is it really fair to say that Polowczyk is helping to lead the federal coronavirus response? That might be a stretch, for example, he’s not actually on the task force, though he does seem to have a relatively senior role, at least on paper.

But then again, does anybody really know who’s running what inside the task force, other than the fact that VP Pence is nominally in charge.

With a labor market in freefall, ten million Americans have lost their jobs in two weeks. CNN reported Thursday afternoon that stimulus checks for households could take up to 20 weeks, which is creating a perfect storm of possible social unrest. 

The Federation of Red Cross and Red Crescent Societies recently warned that a “social bomb could explode at any moment” over Western cities. That is because the evolution of the pandemic, which has crashed the American economy into a depression, could result in social unraveling in major metros, specifically in low-income areas. 

We’ve noted in the last several weeks that Americans are panic hoarding guns as the fear of social unrest could be imminent. President Trump signed an executive order last Friday that allows for up to one million National Guard and reservists to be called up to fight the virus or be used to maintain social order. 

With lockdowns across the country, the National Guard has been deployed across many states. Here are some sights from Baltimore: 

Baltimore pic.twitter.com/Am0hEO6ZxB

— Peter R. Quinones (@PeterRQuinones) March 20, 2020

Signs of social unrest are already starting to develop this week. Law enforcement agencies in South Carolina and California have charged people with looting businesses during the shutdowns, reported The Sun. 

Police in Santa Cruz, California, arrested five people who were robbing businesses in the city, despite a “shelter-in-place” public health order enforced by the state government. 

In South Carolina, police arrested two men as they attempted to raid a storage warehouse unit. 

Many Americans recognize the writing on the wall of what could happen next, that is, the possibility of social unrest – and it makes sense why gun stores saw record sales across the country last month with weapons and ammo in short supply. Now Google searches for buying ammunition online are surging to a record high as America faces a new reality that a pandemic could trigger a social unraveling of the nation:  

Search trend “buy ammo” hits the highest level ever across every US state:

Search trend “buy ammo online,” again another record level: 

“Can you buy ammo online” soars to new highs:

And with states closing gun stores and many places running out of weapons and bullets, people are now starting to print 3D guns at home. 

With the US in deep economic and financial crisis, with the Fed now monetizing more than 100% of debt issuance, and with US debt set to hit $30 trillion from its current $23 trillion in about 2 years, there were growing concerns that this was an opportunity for a perfect storm to strike with one or more rating agencies downgrading the US as a result of the nation’s upcoming unprecedented surge in debt.

To be sure, US CDS had already started moving sharply higher, an indication that at least some traders – clearly not of the idiot MMT persuasion – were growing concerned about the country’s long-term viability.

However, the US won a much needed reprieve late on Thursday when perhaps still recalling the nightmare backlash to what happened in August 2011, when it downgraded the US from the pristine AAA to AA+ and the unprecedented attacks from Tim Geithner, S&P reaffirmed the US at AA+, outlook stable. So at least for now, the US credit rating is safe, even if the reserve status of the dollar is getting riskier by the day. In fact, it is no accident that in the S&P rating, the analyst explicitly singled out the dollar’s reserve currency state:

“Inherent economic and institutional strengths underpin the U.S. dollar’s status as the world’s premier reserve currency.”

We’ll see how much longer that lasts.

Key excerpts from the S&P rating below:

U.S. ‘AA+/A-1+’ Sovereign Ratings Affirmed; Outlook Remains Stable

Overview

The sovereign ratings on the U.S. reflect its diversified and resilient economy, extensive monetary policy flexibility, and unique status as the issuer of the world’s leading reserve currency.
The ratings are constrained by high general government debt and fiscal deficits, both of which are likely to worsen this year following the economic shock caused by the coronavirus pandemic, before moderating over the next three years.
We are affirming our ‘AA+/A-1+’ sovereign credit ratings on the U.S.
The outlook remains stable, reflecting our expectation that unprecedented fiscal and monetary stimulus will limit the economic downturn and set the stage for recovery in 2021.
Rating Action
On April 2, 2020, S&P Global Ratings affirmed its ‘AA+’ long-term and ‘A-1+’ short-term unsolicited sovereign credit ratings on the U.S. The outlook on the long-term rating remains stable. The transfer and convertibility assessment is unchanged at ‘AAA’.

Outlook

The stable outlook indicates our view that the negative and positive rating factors for the U.S. will be balanced over the next two years. We expect continued political disputes about the implementation of economic and other policies in the lead-up to national elections in November. However, we expect continuity in the recent economic measures aimed at mitigating the effects of the pandemic, regardless of the election outcome. We also expect the U.S.’s institutional checks and balances, strong rule of law, and free flow of information to support stability and predictability of economic policies. The U.S. dollar’s status as the world’s premier reserve currency, and the size and depth of the U.S. financial market, should sustain policy flexibility.

We expect economic recovery in 2021, which will partly compensate the loss of output this year, and continued GDP growth afterward. A recovering economy will lead to moderate fiscal improvement next year after a sharp rise in the fiscal deficit and sovereign debt burden in 2020. However, a larger and more prolonged deterioration in public finances beyond our current expectations, without positive signals of future corrective actions, could place pressure on the ratings, leading to a negative action.

On the other hand, we could raise the rating if we see signs of more effective and proactive public policymaking beyond the quick policy response to the current recession, which could reflect greater bipartisan coordination between the executive branch and Congress than has been the norm in recent years.

Rationale

The sovereign credit ratings on the U.S. are supported by:

• The wealth, resilience, and diversity of its economy;
• Its institutional strengths;
• Its extensive economic policy flexibility that includes a proactive monetary policy; and
• Its unique status as the issuer of the world’s leading reserve currency (the U.S. currency accounts for almost 60% of official exchange reserves held globally).

The institutional strength, independence, and credibility of the Federal Reserve System provides the U.S. with considerable monetary policy flexibility. The Federal Reserve has undertaken timely and forceful steps to restart quantitative easing, and set up various new lending facilities to support financial and nonfinancial corporations, municipal governments, money markets, and the commercial paper market, to help stabilize the economy. It has also reinstated swap lines with central banks around the world to provide dollar liquidity globally.

Disagreement across and within political parties has resulted in slower decision-making in normal times and has limited the government’s ability to enact forward-looking legislation, particularly for corrective fiscal policy. That, along with the government’s fiscal profile, including a high level of debt, constrains the ratings.

However, the rapid economic policy response to the coronavirus pandemic illustrates the ability of the U.S.’s governing institutions and political leadership to undertake timely and forceful measures during a crisis, as was also seen in 2008. Congress and the president quickly reached agreement on a massive fiscal stimulus on March 27, only eight weeks after the end of an impeachment trial of the president. The ability to respond forcefully to the economic challenge, amid intense partisanship during an election year, has shown that the checks and balances embedded in the U.S. political system, along with widespread distribution of power across branches of government and across levels of government, have been generally effective in maintaining stability and confidence.

Flexibility and performance profile: Strong monetary policy credibility and international reserve currency status provide flexibility to undertake massive countercyclical policies to stabilize the economy

• The U.S. dollar remains the premier international reserve currency.
• The credibility of the Federal Reserve system is unparalleled, supporting monetary flexibility.
• The recession will enlarge the fiscal deficit and boost the net general government debt burden toward 100% of GDP in 2020.

The U.S. is drawing upon its extraordinary monetary flexibility to combat the downturn as the Federal Reserve has acted quickly and forcefully. It has restarted quantitative easing by purchasing Treasury bonds and mortgage-backed securities with no announced caps. In addition, it has set up two new lending facilities–primary- and secondary-market corporate credit facilities–to support credit to large employers for new bond and loan issuance and to provide liquidity for outstanding corporate bonds, respectively.

It is also expanding its money market lending facility and opening its commercial paper funding facility to high-quality municipal debt, an important step to help stabilize public finances at the subnational level. The central bank has eased capital and regulatory restrictions and expanded repo lending. Moreover, it has entered into currency swap and repo arrangements with many other central banks to provide dollar funding to the global financial system.

Inherent economic and institutional strengths underpin the U.S. dollar’s status as the world’s premier reserve currency. This status affords the U.S. significant flexibility in its external accounts. We believe that the U.S. has unparalleled external liquidity, thanks to its key reserve currency status, as well as the degree to which it has supplied liquidity around the globe.

Our external analysis has been complicated by the dollar’s dominant reserve currency role. We expect the ratio of external debt (net of liquid assets) to current account receipts to hover near 320% in 2020-2022, which is high compared with the ratios of most sovereigns. However, the overall net external liability position of the U.S. is lower. In addition, the external debtor position may be overstated, considering currency issues, composition considerations, and the difficulty of recording multinational activity of U.S. private companies in offshore centers. Changes in valuation of the U.S.’s external assets and liabilities, including derivatives, outweigh the role of current account flows in measurements of the U.S.’s external stocks of assets and liabilities. The current account deficit was 2.3% of GDP in 2019 and is likely to be around 1%-2% in 2021-2022.

The combination of recession, higher government spending, and support for financial and nonfinancial enterprises will raise the fiscal deficit and the public sector’s debt burden. However, we expect economic recovery will lead to fiscal improvement after the near-term deterioration. The general government deficit may approach 16% of GDP in 2020, partly due to spending rising by more than 6 percentage points of GDP. We assume that economic recovery in 2021 will partly recoup some lost tax revenues, and that government spending will decline (as a share of GDP) from its peak levels, cutting the deficit below 8% of GDP. We expect the general government deficit will decline below 5% of GDP by 2022.

In our view, the net general government debt burden is likely to spike toward 100% of GDP in 2020, and stabilize around that level in coming years. Thereafter, its trajectory will depend on corrective revenue and spending reforms to counteract a potential deterioration partly due to demographic trends. Nonresidents hold about 40% of the debt (the largest held by Japan and China, which together account for 13% of total debt), down from a peak of 49% in 2012. The Federal Reserve Bank held about 15% of the total debt until recently, but it will hold more as part of its expansionary policy.

The total cost of fiscal measures (including potential added stimulus measures later this year) is difficult to estimate, given uncertainty about actual disbursements from the fiscal stimulus (which includes both direct spending and lending commitments) and about the losses in the financial system that ultimately are borne by the sovereign. We believe there will be bipartisan support for moderate corrective fiscal measures, despite challenging politics, after the upcoming national elections.

Our primary fiscal metric on the flow side is the change in net general government debt, which we expect to reach 16% of GDP in 2020 but decline toward 7% in 2021 and average 3.9% during 2022-2023. The change in debt results mostly from yearly central government deficits but also from off-budget activities, such as net lending. We expect the general government deficit (as stated in the National Income and Product Accounts on a calendar-year basis) to follow a similar trajectory. The change in net general government debt also includes items such as the increase in direct student loans.

The U.S. government has periodically reached its statutory debt ceiling (last time in March 2019) as Congress failed to either raise the debt limit or suspend it, forcing the Treasury to undertake extraordinary measures to remain within the debt limit while still meeting its legal obligations. Current law lifts the debt ceiling limit until mid-2021, after the elections later this year. Our ratings assume Congress will continue to raise or suspend the debt ceiling.

Our assessment of the U.S.’s debt position incorporates our view that contingent liabilities from the financial sector and all nonfinancial public enterprises are moderate. This assessment stems primarily from the materiality and systemic importance of Fannie Mae and Freddie Mac in light of their low capitalization. The credit standing of both entities incorporates our assessment of an almost certain likelihood of extraordinary support from the Treasury given their critical policy role in the housing sector and integral link with the government. With $5.7 trillion in assets as of December 2019, they are material in size (around 27% of GDP).

Authored by Kevin Ryan via Off-Guardian.org,

The economic, social and public health consequences of these measures could claim millions of victims…

The initial, alarming estimates of deaths from the virus COVID-19 were that as many as 2.2 million people would die in the United States. This number is comparable to the annual US death rate of around 3 million. Fortunately, correction of some simple errors in overestimation has begun to dramatically reduce the virus mortality claims.

The most recent estimate from “the leading US authority on the COVID-19 pandemic” suggests that the US may see between 100,000 and 200,000 deaths from COVID-19, with the final tally likely to be somewhere in the middle.” This means that we are expecting around 150,000 US deaths caused by the virus, if the latest estimates hold up.

How does that compare to the effects of the measures taken in response? By all accounts, the impact of the response will be great, far-reaching, and long-lasting.

To better assess the difference we might ask, how many people will die as a result of the response to COVID-19? Although a comprehensive analysis is needed from those experienced with modeling mortality rates, we can begin to estimate by examining existing research and comparative statistics. Let’s start by looking at three critical areas of impact: suicide and drug abuse, lack of medical treatment or coverage, and poverty and food access.

SUICIDES AND DRUG ABUSE

According to the National Center for Health Statistics, over 48,000 suicides occurred in the US in 2018. This equates to an annual rate of about 14 suicides per 100,000 people. As expected, suicides increase substantially during times of economic depression. For example, as a result of the 2008 recession there was an approximate 25% increase. Similarly, during a peak year of the Great Depression, in 1932, the rate rose to 17 suicides per 100,000 people.

Recent research ties high suicide rates “to the unraveling of the social fabric” that happens when societal breakdowns occur. People become despondent over economic hardship, the loss of social structures, loneliness, and related factors.

There is probably no greater example of these kinds of losses than what we are experiencing today with the extreme response to COVID-19 and the effects will be felt for many years. The social structures might return in a few months but the economy will not.

Some think that the economy will recover in three years and others think it will never recover in terms of impact to low-income households, as was the case for the 2008 recession. However, if we estimate a full recovery in six years, the effects will contribute around 3 suicides per 100,000 people every year during that time for a total of over 59,000 deaths in the United States.

Related to suicides are drug abuse deaths. According to the National Institute on Drug Abuse, over 67,000 deaths from overdose of illicit or prescription drugs occurred in 2018. This does not include alcohol abuse. Only 7% were suicides and 87% were known to be unintentional deaths largely due to drug abuse caused by depression or other mental conditions. Such conditions can be expected to rise during times of economic collapse and if we estimate the impact due to COVID-19 over six years as being a 25% increase (as with suicides) that projects about 87,000 additional deaths due to drug abuse.

LACK OF MEDICAL COVERAGE OR TREATMENT

Unemployment is expected to rise dramatically as a result of the COVID-19 response and the effect is already being seen in jobless claims. One of the major impacts of unemployment, apart from depression and poverty, is a lack of medical coverage.

A Harvard study found nearly 45,000 excess deaths annually linked to lack of health coverage. That was at the pre-COVID-19 unemployment rate of 4%.

As reported recently, millions of Americans are losing their jobs in the COVID-19 recession/depression. For every 2% increase in unemployment, there are about 3.5 million lost jobs.

The US Secretary of Treasury has predicted a 20% unemployment level, which translates to 12 million lost jobs. If the 45,000 excess deaths due to lack of medical coverage increases uniformly by unemployment rate, we can expect about 225,000 deaths annually due to lack of medical coverage in the US at 20% unemployment. Extrapolating this over a 6-year period would mean 1.35 million deaths.

This assumes that funding for important health-related programs are not further cut or ignored, a bad assumption that means the estimate is probably low.

Beyond lack of coverage, medical services are being reprioritized to respond preferentially to COVID-19, causing less resources to be available for treatment of other medical conditions. The capacity of medical service providers has already been significantly impacted by the COVID-19 response in some areas.

Additionally, clinical trials and drug development are expected to be severely impacted. This means that important new medicines will not reach the market and people will die who otherwise would have lived. There is not yet enough information on the overall impact to medical service provision therefore we will not include an estimate.

POVERTY AND FOOD ACCESS

The Columbia University School of Public Health studied the effects of poverty on death rates. The investigators found that 4.5% of US deaths were attributable to poverty. That’s about 130,000 deaths annually.

How will this be affected by COVID-19? One way to begin estimating is to consider how the number of people living in poverty will increase.

Before the COVID-19 response, approximately 12% of Americans lived below the officially defined poverty line. That percentage will undoubtedly rise significantly due to the expected increase in unemployment. If unemployment rises to 20% (from 4%) as predicted, the number of people living in poverty could easily double. If that is the extent of the effect, we will see another 130,000 deaths per year from general poverty.

Although deaths due to poverty are not entirely about food access, it is a significant factor in that category. In times of economic hardship many people can’t afford good food, causing malnutrition and, in some cases, starvation. People also can’t access food causing the same outcomes. Limited access to nutritious food is a root cause of diet-related diseases, including diabetes, cardiovascular disease, and infant mortality issues. A recent estimate suggests 20% of all deaths worldwide are linked to poor diets.

Food access issues will be further exacerbated with the COVID-19 problem due to the anticipated issues with food production and prices. If the COVID-19 response lasts for years as expected, our estimate will need to be a multiple of the 130,000 annual figure. Using the 6-year estimate, we get 780,000 deaths.

CONCLUSION

The total deaths attributable to the COVID-19 response, from just this limited examination, are estimated to be:

• Suicides 59,000

• Drug abuse 87,000

• Lack of medical coverage or treatment 1,350,000

• Poverty and food access 780,000

These estimates, totaling more than two million deaths above the estimated 150,000 expected from the virus itself, do not include other predictable issues with the COVID-19 response. An example is the lack of medical services as stated above. Other examples include the EPA’s suspension of environmental regulations. It has been estimated that the EPA’s Clean Air Act alone has saved 230,000 lives each year.

Moreover, the anticipated failure of the US Postal Service (USPS) will lead to more illness and death. The USPS “delivers about 1 million lifesaving medications each year and serves as the only delivery link to Americans living in rural areas.”

Even using these low estimates, however, we can see that the response will be much worse than the virus. The social devastation and economic scarring could last more than six years, with one expert predicting that it will be “long-lasting and calamitous.”

That expert has noted that he is not overly concerned with the virus itself because “as much as 99 percent of active cases [of COVID-19] in the general population are ‘mild’ and do not require specific medical treatment.”

Yet he is deeply concerned about the “the social, economic and public health consequences of this near total meltdown of normal life.” He suggests a better alternative is to focus only on those most susceptible to the virus. Others have reasonably suggested that only those who are known to be infected should self-quarantine.

Some public health professionals have been pleading with authorities to consider the implications of the unreasonable response. Many experts have spoken out publicly, criticizing the overreaction to COVID-19. A professor of medical microbiology, for example, has written an open letter to German Chancellor Merkel in an attempt to draw attention to the concerns.

The real problem we face today is not a virus. The greater problem is that people have failed to engage in critical thinking due to the fear promoted by some media and government officials. Fear is the mind killer, as author Frank Herbert once wrote. Ultimately, the fear of COVID-19 and the lack of critical thinking that has arisen from it are likely to cause far more deaths than the virus itself.

In yet more dire outbreak-induced medical supplies shortage news, the federal government’s own emergency stockpile of respirator masks, gloves, and ventilators is already nearly depleted. Two Homeland Security Department officials told the Washington Post that crucial supplies kept in the Health and Human Services Department’s Strategic National Stockpile are woefully low and will run out amid the pandemic.

“The stockpile was designed to respond to a handful of cities. It was never built or designed to fight a 50-state pandemic,” one official said. “This is not only a U.S. government problem. The supply chain for PPE worldwide has broken down, and there is a lot of price gouging happening.”

The national supply chain has already broken down, indicated by what now seems like daily stories of hospital staff in hard-hit major cities having to reuse protective gear, and in other instances actually attempt to make their own out of things like trash bags and household items.

Though in reporting on the federal emergency stockpile crisis The Washington Post and others are emphasizing rampant price gouging as driving it, creating “a Wild-West-style online marketplace for bulk medical supplies dominated by intermediaries and hoarders who are selling N95 respirator masks and other gear at huge markups” — as the Post put it, it remains that the national shortages are rooted in over-reliance on Chinese manufacturing, which itself in the opening months of this year was ravaged by the coronavirus outbreak, causing the shuttering of factories and disruption of ports.

The resultant huge drop in medical supply imports into the the US (a drop in up to over half normal numbers in the case of crucial supplies like the N95 mask), led to the emergence of instances such as what the AP earlier alarmingly detailed: “Doctors, nurses and first responders in the U.S. are resorting to spraying their masks with bleach at the end of each day and hanging them up at home to dry to use for another day, according to the American College of Emergency Physicians.” 

All of this has also led to a deeper questioning of the White House narrative in terms of its ability to tap necessary emergency supplies: 

President Trump said during Tuesday’s White House briefing that the administration has nearly 10,000 ventilators on reserve and that authorities are ready to deploy the lifesaving equipment rapidly to coronavirus hotspots in coming weeks. He also said that large amounts of PPE were being shipped directly from manufacturers to hospitals. But the DHS officials said the stockpile has not been able to handle the load.

Hospitals and states face a real risk of running out of supplies, one of the officials said. “If you can’t protect the people taking care of us, it gets ugly.”

Meanwhile, FEMA officials have indicated the federal government has over $16 billion to purchase needed supplies as a fall-back in the anticipation that the Strategic National Stockpile will be exhausted.

FEMA spokesperson Janet Montesi told WaPo: “FEMA planning assumptions for COVID-19 pandemic response acknowledged that the Strategic National Stockpile (SNS) alone could not fulfill all requirements at the State and tribal level.” 

She added: “The federal government will exhaust all means to identify and attain medical and other supplies needed to combat the virus.”