> fragile ... the word is fragile. We've built an insanely fragile economy. Take a look. There's been no war. 100% of the (not so great) US infrastructure that was there before SARS-COV-2 is still there. We've lost about 100k people, which is horrific but in the scheme of things at "USA" scale, and with the skewed demographics, not much of a hit to the economy.
And yet the economy is staggering and it's likely to get worse. Why? Because people have stopped doing things
We've built an entire economy around people doing things they don't really need to do. In and of itself, that's not so bad, but we've also built an economy with so little resilience, so much fragility, so little spare capacity that the mere fact of people stopping doing a bunch of stuff has the potential to cause complete economic disaster for, what 15-20M Americans?
Citation needed. Things seem to be functioning pretty well, all things considered. I can still buy virtually everything I need from the local grocery store and Amazon.
I've lived in third-world countries where regular products would be out of stock for months at a time under normal circumstances.
To me, the economy looks insanely resilient in a global pandemic.
> the mere fact of people stopping doing a bunch of stuff has the potential to cause complete economic disaster for, what 15-20M Americans?
That's just how it works, if people stop buying the stuff that 20M people produce, the work for those jobs stop existing for the moment. That's neither good nor bad, it just is. There's literally no way around it.
The problem isn't fragility or doing unnecessary things. You just need a social safety net, which Europe has been better at providing than the US, but the US could easily provide if it wanted.
If you want to have a conversation, the one to have is about social safety nets, not an "economic resilience" bogeyman.
> To me, the economy looks insanely resilient in a global pandemic.
It does seem having a large part of the economy focussed on frivolous endeavours has given us a fairly big buffer. We have seen formula one teams making medical equipment, supermarkets hiring restaurant staff, hospitals hiring air stewards (after the opposite in recent years).
It looks to me like the developed world will cope with this (some countries better than others of course).
> To me, the economy looks insanely resilient in a global pandemic.
We’re still in the early days of this pandemic, as it usually takes many months for the upfront shocks to fully process through the economy. Numerous reports detail a potential collapse of the commercial real estate market, the government is signaling that it is going to hand out any more stimulus money, and health experts are warning about a second wave. Economists aren’t ruling out 40% unemployment down the road, which puts us firmly in depression territory.
I have no idea where you live, but I live in Austin, TX, a fairly affluent city, and the changes to the city have been dramatic and very visible. So much retail is still closed, and many thousands are out of work with little opportunity to renter the workforce and likely without future stimulus.
Just look at the George Floyd protests, there’s an inherent economic component to American racism and Covid provided a lot of fuel that the senseless killing of Floyd ignited. Those events did not occur in a vacuum, which is partially why we’re seeing unrest that we haven’t witnessed in 60 years.
Not to mention that millions never recovered from the last major crisis while politicians and big business pretended like everything was back to normal after the big market rallies.
Austin, despite the government and technology economy narrative, has been in a service economy bubble for some time as local businesses capture dollars arriving from elsewhere in the form of brunch costs.
> Numerous reports detail a potential collapse of the commercial real estate market
While I'm happy to bail out workers, can we please simply bust out the overleveraged on assets for once?
Part of the reason why the economy has no resilience is that we keep bailing out the irresponsible so there is no incentive to be responsible. Why keep inventory and cash reserves when you can go into 3x debt and get bailed out? Why be responsible when your competitor is basically going to get loan forgiveness instead of going bankrupt and you being able to buy them?
How about some "trickle up"? Bail out the individuals who are basically unleveraged and let the leveraged compete to try to stay afloat or go bankrupt and release the assets to those less leveraged. The real estate doesn't suddenly lose it's value because the owner got busted out.
It's what capitalism is supposed to be--risks are supposed to get upside AND downside.
If you want to have a conversation, the one to have is about social safety nets, not an "economic resilience" bogeyman.
Porque no los dos? You say you've lived in third-world countries, surely you can see the utility in a conversation on both and how much overlap there is between the two hemispheres of that particular socio-economic Venn Diagram..I'd hope?
100,000+ people have died because our country is fragile. unemployment is somewhere between 15-25%. a virus is about the dumbest enemy we could ever hope to face, and we've failed.
the u.s. is in massive debt, the highest in the world. the u.s. has no socioeconomic safety net, and i question your claim that the u.s. could easily provide one if it wanted. the existing "safety nets", such as social security and taxes, are so abused and misused that they serve as explicit counter examples to your claim. roads and infrastructure in the u.s. are falling apart.
in no household would it be advisable to have massive debt upon debt while the house is falling apart and you're living paycheck to paycheck. and yet, that is exactly what the u.s. is doing.
in many respects, the response to the virus has been both the u.s. didn't want to react to it and that the u.s. couldn't react to it. the u.s. does not have the organizational capacity to handle it.
Well said. People often forget that optimizing for efficiency isn't free, it has a cost in flexibility. The modern economy is heavily optimized which, yes, can produce enormous profits, but it also makes the economy extremely brittle.
Approaches like just-in-time manufacturing or loading up on debt in a good economy to expand faster work out great... until they don't. And when things go bad, they can go bad quickly.
I've heard a number of people referring to COVID-19 as a black swan event, but it's really not. Pandemics are a known risk that have happened many times in the past and will happen many more times in the future. The fact that such an unsurprising disaster has stressed modern economies so tremendously makes me really pessimistic for our society's long term prospects.
Yes! That is an astute point. Corporate farms are efficient. Monoculture forests are efficient, etc. But they are fragile. Unions and income transfers cause inefficiencies, but without them, society becomes fragile.
Despite all the disruption, I'd be surprised if it were on the whole more efficient for companies to optimize for resiliency... for an event that happens once in 100 years.
Rather than fall back on central banks & governments, and expect them to throw everything and the kitchen sink at it.
Ideally, though, what the government will and won't do should have been communicated well in advance of a pandemic, so that everyone had an even investment playing field. Piecemeal bailouts are asking for insider trading.
According to Wikipedia, the original author does not consider COVID-19 a black swan event, so I think you must be right. However, while we know a pandemic will occur, we don't know when. Neither do we necessarily know ahead of time what measures are appropriate to take to mitigate the risk.
The aspect of the Black Swan theory where you point to the data after the fact and say, "We should have known" is very similar. For example, countries that experienced SARS and MERS where very much more prepared for COVID-19. Other countries which didn't have many problems did not prepare. This is because they didn't realise that they should prepare. For them COVID-19 was out of the blue -- a complete shock. Of course, we should have looked at the original data and if we had, we could have improved the outcomes. But we didn't have that experience and we didn't know when to expect a large problem.
The Tohoku earthquake in Japan in 2011 was similar. Earthquakes of that size hit Japan about once in 1000 years. We know it will happen. We don't know when. We don't know if it will happen in our generation. Should we prepare for it. In hindsight, yes, of course. At the time, it was a shock.
Is that a black swan event? I don't know. However, I don't think we need to have much of a distinction. Even if we should know, the fact that we don't know is all that matters. It is still a surprise.
One I'm familiar with moved to a LEAN system where they did not keep large inventory of supplies. There was some protest about not keeping essential supplies on hand for the lab etc.
And now we see the problem with this. Profit margin over safety.
> We've built an entire economy around people doing things they don't really need to do.
Even hunter-gatherers spend a great deal of hard-earned resources on things "they don't need to do," such as art, music, parties, luxury foods and jewelry, and so on. This is human nature. It has nothing to do with how the economy is structured. The stuff we're not doing that "we don't need to do" is not economically redundant make-work symptomatic of an inefficient economy. It's symptomatic of us being a species that prefers nicer digs to "a cave with access to rice and beans."
In any economy, activity shuts down if individuals fear an active plague. Human nature also entails people being scared of choking to death on their own lungs.
The last paragraph here is trying to sound profound but it's really just catastrophically stupid. There's really no such thing as an economy that has the "spare capacity" to offset 25% of the workforce being furloughed. There are political economies that can adequately respond to this shock - perhaps with a large Keynesian stimulus - but that's very different from having an economy that's somehow structurally immune to the impact of widespread inactivity.
Unless its author means "give people free money until the crisis passes", the comment you're approvingly citing badly misunderstands what an economy actually is.
I think you missed the point. If I understood GP correctly, the "things they don't really need to do" are the modern-day pencil pushers and middlemen who exist in industries that are basically modernized rent-seeking. Health insurance is an obvious example but we can also take it to the extreme and point out that there are sometimes (not often) 3 people at some grocery checkout counters: the cashier, the bagger, and the person who takes the bags and puts them in the basket.
The latter two aren't really necessary, but we gave them jobs because it looks good when you report the quarterly unemployment stats. Think about who would be the first to be let go in the case of any economic disruption that impacted that grocery store.
Although I agree with the rent-seeker problem I really don’t think that’s what he was saying - for starters, the pencil pushers are much more likely to be at work (from home) than the food/entertainment/etc people I mentioned, and much more likely to keep their jobs during the pandemic. If your argument is what OP meant then I was giving them too much credit.
> The latter two aren't really necessary, but we gave them jobs because it looks good when you report the quarterly unemployment stats.
I don’t even know where to start with this. Clearly you have never worked in a grocery store. Beyond that - why would private businesses agree to hire unnecessary workers to juke unemployment stats? This entire argument makes zero sense.
It seems like you have some strong views about the economy but they are disconnected from the facts.
I see it as a bit of both. I don't see myself going to a movie theater anytime soon even if they are allowed to open. Our restaurant spending is 1/3 what it used to be. A tank of gas lasts almost a month rather than a week. I used to go grocery shopping every week with at least one additional trip to grab one thing I needed. Now I go every 2 weeks and don't make a special trip unless we absolutely can't make anything without that missing ingredient.
All kinds of jobs are at risk in this type of environment. Service will be hit hardest but there are ripple effects that will impact pretty much everyone to some degree.
Have you ever been in a grocery store outside the US? Am I really the one disconnected?
The grocery stores obviously don't care about unemployment stats, but federal government incentivizing "job creation" without getting into specifics about the utility, necessity, etc. of those jobs is a real problem. Everyone who drives for Uber has a "job" but that is hardly anything to survive on.
your example is really not appropriate. a grocery store (big or small) will not hire additional checkout staff "because it looks good when you report the quarterly unemployment stats".
private businesses really couldn't care less about those stats. they will hire the minimum number of people necessary to perform their service, at the minimum cost that they can.
> There's been no war. 100% of the (not so great) US infrastructure that was there before SARS-COV-2 is still there.
The infrastructure may not be physically destroyed, but it is effectively out of commission. Same with everything from warehouses to meat cutting plants. You could make the same argument if a gas attack were used on a factory instead of a bomb.
Are you actually seeing out of commission infrastructure in your city or your business?
I’ve seen virtually no impact on the services I depend on locally (except toilet paper for a few weeks). Some supply chain delays on the business side, but it’s delays due to temporary shutdowns rather than permanent factory closures. The orders are still coming through a few weeks later than expected.
Obviously, companies that depend on crowds and foot traffic are seriously hurting right now.
However, many other industries are still business as usual. E-commerce businesses might actually be doing better than ever.
I tried to schedule a few contractors to get work done recently, thinking they’d have additional openings with the slowdown. Turns out, they’re booked farther out than ever. Everyone else working at home had the same idea to schedule that work.
This will clearly shake a lot of businesses, but the real question now is which ones survive and which ones can’t come back. I suspect a lot of the businesses that don’t make it were nearing the end of their viability anyway.
As one data point, I run small online retail business and saw sales utterly rocket worldwide during this event. At the peak of the lockdowns, I saw a 200% increase in sales. I’m in the musical instrument accessories business. My wife has a retail business as well (photography accessories) which also saw large gains. In the last week or so, things have nearly normalized.
I'm not sure what country you live in, but here in the US, the overwhelming majority of activity was not suspended.
My city has been in lockdown for two months, yet I look out my window, and see a full freeway of people going to work, going from work, transporting goods, transporting themselves...
Look through the list of essential activities in your local shutdown orders. By the time you get through all the pages of it, you'll be wondering what the hell is left that's non-essential.
I'm going to say most of the businesses at the smaller end of the scale would never have enough money to continue paying employee's without any income coming in. I think everyone kinda knew that shutting down the economy was going to be bad, unless it was only done for a very brief period. If the government can get no strings attached money to companies to pay their employees and get them to open as fast as possible we may come out of it.
No, it’s due to people not going to movie theaters and not going to Home Depot and not going out to eat at restaurants. You know, things they would normally do but haven’t been doing because it’s not essential.
Yah, I should take my own advise here and buy HD, I'm pretty regular at the one near my house. I don't think i've ever seen HD as busy as its been recently. I guess instead of going to restaurants people are fixing all the little things wrong in their houses.
I think the GP's point is that since it's an election year, "Mitch" will eventually give in. Mitch McConnell is many things, but I wouldn't count "stupidity" among them. And although his personal seat is quite safe, he clearly wants his party to stay in power.
I'm actually more concerned about what happens if Biden wins in November, and the Republicans feel incentivized to let the economy crash and burn.
I'm honestly taking advantage of the stock bounce-back we're experiencing right now to move some money back out into cash before things fall back down. The current uptick just feels ludicrous and probably short-lived.
This is an interesting analogy because the roadrunner just runs without looking and everything works out fine.
Wile E. Coyote only has problems because he is aware of what a huge mistake he’s made.
I don’t know what the behavior analogous to road runner is in an economic sense. Perhaps suspending capitalism? I can’t imagine anyone going along with that.
The parallel here, to me, is that the stock market is solely based on investors' perceptions of reality, not reality itself. As soon as investors realize that their investments are untenable, they will pull out, triggering an accelerating freefall until we hit terminal velocity.
The economy is unhealthy but people can be convinced to ignore that because it's not easy to see the holistic conditions of the US economy on a day-to-day basis, and the way we summarize it in public discourse and media (looking at indices of the stock market) are assuaging any fears that may arise.
The roadrunner is achieving prosperity. He goes far, fast. He keeps winning because he is obeying his animal spirits[1] -- literally running on roads. The coyote pursues prosperity, but rather than using his animal spirits, which would tell him to hunt like a coyote does, he instead repeatedly requisitions absurd contraptions that are manufactured by "Acme." We presume (because the cartoon is on TVs in America, and America's mythos is pervasive and ever-present) that Acme is a private company which uses the free market to drive its innovation and development cycles. Acme's advertising is presumably based on their mail-in order business, which at the time was heavily oriented toward homemakers and other "normal people." These contraptions invariably have negative unintended consequences, and yet Wile E Coyote turns to them in the next episode for the next great promise in technology, never learning his lesson.
The metaphorical business cycle plays out in every episode: Coyote puts his trust in the Solution To His Problems; he spends money and time buying and setting up the contraption that will Solve His Problem; he deploys it, but because of external (usually environmental) conditions it fails; Coyote is worse off than before because he over-extended himself. Coyote in this case would be a small business owner or similar everyman who is trying to figure out and out-play the game to get rich.
I guess the lesson here is to create an economy that is amenable to the localized, instinctive decisions made by each of its participants, and not to spend time on manufacturing conditions for success by setting up extremely efficient but otherwise very finicky systems, but rather to pursue it step by 3-toed step. The fancy contraptions (quantitative easing being an obvious and recent example) never end up working as intended and instead make life harder for workers in aggregate.
Great analogy. I just finished "Zen and the Art of Motorcycle Maintenance", and your concept of animal spirit sounds similar to Phaedrus' concept of quality.
Are you saying that the economy isn’t just a complicated game that we play to distribute wealth and it had a merit beyond its utility to those playing it?
It seems we should rethink the game if it falls over every few years and fails to serve the majority of the players.
Going with this analogy, what if the government partnered up with banks and offered huge loans to everyone, with minimal interest and the ability to postpone repayment for months/years.
Since money is a human invention, if everyone pretends that these are not handouts but just a lot of debt, the economy can keep going and those loans will be repaid slowly or it will be a figure somewhere of how much debt the public is in.
A complete rent, mortgage, and property tax holiday/pause for the duration of the emergency, along with universal income assistance at the individual (not corporate) level.
As is, only some of those things were done in some places, which almost certainly leads to conflict.
Problem is, there's always two parties in every transaction. Holiday for the rent payer is a death knell for the landlord. Mortgage holiday is the same for the bank and its bondholders/depositors.
And I addressed the two parties in that particular chain that don't have access to the central bank's reserves (rent and mortgage holding landlord). Landlords that don't hold mortgages don't need anywhere near as much assistance.
In particular, the conflict I mentioned in the last sentence was directly alluding to the problem of only giving a rent holiday without a mortgage holiday to go with it. It's actually kind of hard to believe you read my really short post in its entirety, because you're arguing quite a strawperson here.
For banks or lenders that don't have direct access to the central bank's reserves they will need to sort that out between themselves or possibly with further legislation, but it's a much much easier problem to solve than individual renters going insolvent en masse because their landlord is still demanding rent while they can't leave the house.
Is that a problem? Those landlords and banks have collateral -- the properties and mortgages themselves. I care a lot more about housing from a "how well does it house humans" perspective than a "how well does it generate income for landlords/capitalists" perspective. If landlords and mortgage lenders ended up having to sell their assets for pennies on the dollar, I'd imagine it would make housing a lot more affordable to people and spread more evenly.
Sometimes people are forced into becoming a landlord. They bought an affordable condo in an affordable city (think 5 digit prices). The market dies and they can't sell. They lose their job. They have to go back to school. So they move in with friends and rent out their place just to cover the mortgage they can't get out of. Bankruptcy would ruin their chance to dig themselves out.
I really feel for both renters and small-time landlords. I've been in and/or known people who've been in tough spots on both sides. But I have limited empathy for those who have no empathy.
I've been in the position of owning a condo with an underwater mortgage with difficulty finding work. It was fucking awful and it made my life hell for years. When I finally sold it it was for less than 2/3rds the remaining value of the mortgage.
I still had more viable options and was in a better place than most people living paycheque to paycheque are if they're renting and their ability to work is interrupted for months.
All these situations are not equal, and if your 'empathy' tries to force them all into the same bucket, that's a problem.
Especially in times like these, we should be trying to find common ground with one another, not putting up walls and saying "you aren't allowed to think you understand what I feel" or "your problems are insignificant because mine are worse".
We're in a thread where people are talking about just "canceling rent". If the landlord doesn't pay the mortgage, the renter is out (and possibly the landlord too). If the renter doesn't pay rent, the landlord doesn't pay the mortgage, and the renter is out. They're both in a bind. A landlord with a mortgage is not a property owner if the mortgage isn't paid.
If they work together as human beings they might find a solution that works with the means of each party, but if they start a hardship contest then they both lose.
So, I started this particular thread on cancelling rent and I started it with a proposal that both rent and mortgages go on a holiday and a universal income supplement be enacted for the duration of the emergency. This is an arrangement that enables all three of renters, landlords with mortgages, and landlords without mortgages to have a shot at getting through this without bankruptcy.
And yet every reply comes in crying about mortgages, which I said right in my first post should have a holiday as well because otherwise there's conflict.
There's a knee-jerk reaction of empathy for people holding property that isn't being extended to renters here in this thread. It's showing in where people stop reading and hit the reply button. If you can't read past "rent holiday" to see the next part, you aren't spreading your empathy evenly, let alone fairly (which is not necessarily the same thing).
The Great Recession was only a decade ago. Of course it's a problem, and we have recent evidence of what happens when you almost let the real estate and banking industries collapse.
what makes you think those houses would end up being bought to live in rather than scooped up en masse by even wealthier (aspiring) landlords with some spare cash? seems like the best case scenario would be a brief period where it's a great time to buy a house, followed by a return to the norm but with different landlords. that's not necessarily worse than what we have now, but I wouldn't expect anything to change long term without adjusting any of the other factors that make housing expensive.
And all the pensions and retirement accounts of teachers, firefighters, anyone with a 401k/403b/125 account are the ones propping up those mortgage holders and "capitalists". There is no imaginary backstop here, except the Fed for a little while. Eventually that will crumble as well.
Exactly, that’s why I suggested suspending capitalism, but in which case what do you replace it with?
We could of course just give everyone what they would have made, based on last year’s tax returns or whatever, of course this has its own problems (inequality, inflation, etc.)
I don't know, I went from being an extreme pessimist to somewhat of an optimist around this pandemic's effect on the economy. One of the first positive points is the covid-19 death rate, during Feb/March it was quoted as being 4-6% which was terrifying. Very quietly the CDC has mentioned it now thinks it is around (0.8% to 0.26%)[1] (it is impossible to know the exact number but given S. Korea's numbers this seems reasonable). There are talks of a vaccine that could arrive around the September/October 2020 time frame by astrazeneca (provided results of testing are positive)[2]. Lastly, a treatment has been found in remedivsar [3] (although not extremely effective it is found to have some efficacy). Once a vaccine arrives expect a wave of shopping/travel the likes of the world has never seen being a majority of the people have been locked down for almost a year which would revive a frozen travel industry. What is still concerning is small mom-pop businesses closing and never reopening, Just remember 6 trillion was created out of thin air to alleviate the effects of this pandemic in the US [4]
> Very quietly the CDC has mentioned it now thinks it is around (0.8% to 0.26%)[1]
The CDC says CFR -- deaths out of cases that involve symptoms -- could be as low as 0.26% but this is bonkers. New York City has seen 16,992 deaths plus 4,760 probable. The total city population was 8,336,817 as of last July. So if we assume every single man, woman and child in NYC was infected and symptomatic, we get a death rate of 0.204% using only confirmed deaths, and 0.26% by adding in the probable cases. (Note that this doesn't include excess mortality, which could add thousands of deaths.)
Of course, antibody tests last I checked were only at about 20% for NYC, and presumably many of those people were asymptomatic. So the rate is potentially much, much higher than that. But even under ridiculously "optimistic" assumptions, the CDC's lower bounds are crazy.
> Bed Bath & Beyond, Famous Footwear, H&M, and the Gap, AMC and Regal movie theaters, and 24 Hour Fitness gyms have all missed payments, jeopardizing the stability of their property management companies and municipal governments that rely on property taxes, The Post's Heather Long reported.
All roads lead to the Federal Reserve. Stores defaulting on rent payments starves landlords for cash. Landlords unable to service mortgages or pay taxes starves banks and state/local governments. Banks starved for money turn to the Fed for bailouts. States starved for cash turn to Washington. Washington issues bonds which the Fed buys because nobody in their right mind would buy 10 or 30 year Treasuries with the goal of holding to maturity.
The Fed's balance sheet has exploded higher (>20% GDP), with no end in sight:
The most likely outcome is (2). One way or another, the dollar is headed lower. Perversely, this could be great for stocks, bonds, and other assets nominally. The problem is the size of the dollar depreciation that would be required to bring the Fed's balance sheet back under control.
The only problem is that the dollar happens to be the world's reserve currency. As the Fed does its best to slaughter the dollar bull, every other country is printing money as fast as possible to depreciate their own currencies.
The US by definition can't default on its own debt. It's literally impossible because all debt is in USD. If the US gets into the situation where it doesn't have enough money to pay off its interest payments, the only one solution is to print more money to pay off the debt. This will lead to #2 in your list, which is actually just #1.
When the US starts printing money, it will lead to a lot of destruction of assets because China will also start selling their UST causing interest rates to jump. I can see a weird situation where inflation starts to jump but also interest rates jumping as well.
It can default on its debt by .. refusing to pay it. Remember all the debt ceiling fiasco and the furlough of federal workers? It would be a huge moment of voluntary stupidity, but anything's possible.
If you have the ability to pay your debt by printing more money, but then default because you don't, is absurd. It just won't happen. They would never choose to not pay when they can simply print more money.
If you want to go down that route, you can say that the US can also cancel its own debt by threatening every country that owns its debt with nuclear missile attacks if they don't cancel the debt.
And a big chunk of the 'funds to run' go to servicing existing debt. This is a big part of why interest rates never substantially increased to pre-GFC levels. Governments would never be able to afford the higher interest rates.
> The only problem is that the dollar happens to be the world's reserve currency.
This is actually great for the US. As you said, every other country will deflate their own currency so the dollar will likely not change that much relative to the other currencies. The inflation will make people want to spend money, especially a spent up demand is released as the eco use normalize. We may see rapid economic growth.
Depreciation (writing off a loss on the fed balance sheet) might cause a lot less problems than you think. Recessions like this are already deflationary. Plus global economic slowdowns increase demand for dollars
Regarding #2, or rather inflation, is it a hidden way to transfer wealth from one generation to the next? Older savers see their wealth dissolve away due to inflation, while the younger generations are held somewhat stable by rising wages. It's unfortunate, but probably the least painful way out of this.
Right now, sure. But I think we're talking longer term. We've been in an asset/debt bubble for quite a while. Some would argue decades. Inflation may be the least painful way out.
yes, it all goes to the fed, then to the tax payers.
and all that bounce back to where it began, and the 1% uses it to either buy realstate or save the money in a way its immune to the incomming inflation, making things worse in the long run
The problem with betting against the dollar is that the West is to a great extent dependent on the US as a place to park its money and sell things. If the US sneezes everyone else catches a cold.
> Perversely, this could be great for stocks, bonds, and other assets nominally
Nominal stock values are still climbing despite the mire of bad news.
> nobody in their right mind would buy 10 or 30 year Treasuries with the goal of holding to maturity
What the hell else are big "cash" holders going to do with their dollars? Put it in a bank which then immediately gives it to the Fed? Try to fill a giant, expensive Scrooge McDuck warehouse with individual greenbacks?
30-year yield is 1.56%. The tiny yield compared to holding stock for 30 years is the huge premium the holder pays for safety.
> The problem with betting against the dollar is that the West is to a great extent dependent on the US
Not even just the West. The Asian "tiger" economies are all heavily export oriented. If China, Japan and Korea cannot sell to the US, there is no viable plan B; Europe is in no state to absorb all of that, to say nothing of poorer countries.
Chinese consumer purchasing power has certainly grown, but not enough, and if anything the Chinese social safety net is thinner than the American one and they have still not fully recovered from their lockdowns. And CNY has a long way to go before it's as liquid as USD.
It feels like a huge wave just crashed, and many people standing waist-deep in the water think things are on the upswing now -- when really they're about to get sucked into a powerful undertow.
Judging by the state of the stock market, many investors seem oblivious to the magnitude of the effects of the pandemic.
The S&P 500 lost more than a third of its value in the pandemic crash. Yet the index is now two-thirds of the way back to its high point:
But look at the levels of initial jobless claims still coming in at multiples above where they should be. Look at how many businesses are still shuttered, with an uncertain H2 ahead.
Given the harsh economic reality, I'm very bearish right now. I think we're going to see another significant drop as the full effects sink in, which is what has happened in other crashes. Investors call it a dead-cat bounce. But in this case, I'm picturing a bigger animal. Hippo maybe.
>Given the harsh economic reality, I'm very bearish right now.
as am I.
I've more-or-less frozen my trading until a) a recovery plan is clear and being executed or b) until it is more clear we've hit a real bottom.
All these hopeful spikes that do not correlate to the economic reality are probably going to throw a lot of people through hoops until any real roof or floor is hit.
It sucks because I keep having these "buy the dip" moments, but then I have to hand-wave the opportunity away knowing that whatever dip i'm looking at is likely one of many upcoming movements.
Time in the market beats timing the market. If you continue to invest regularly even in a down market you will eventually make more than those who target peaks and dips.
Compare this to the (once upon a time) conventional wisdom that buying a house with a mortgage is a sure bet because housing prices must go up. I'm not saying you're wrong, I'm saying I don't know. Unprecedented times can result in unprecedented outcomes.
Doesn't this really only apply to variable rates that people thought they could consistently refinance as their homes value went up? If you have a set rate you'll just pay the same monthly payment for 30 years, I don't see how your homes value would really affect you unless you had to move and sell at a loss.
Correct, however most people don't have the discipline or money to put in all their money in the beginning of the year, or whenever they get it. It's better to automate the habit of deposits rather than not doing so.
This has merits in a bull market regime. However, we may not in a bull market: history suggests that we will have a deeper bottom within 3 - 12 months. So if you buy stock now, when the market is within 10% of it's peak, and you have to wait for two years for the market to recover to that peak, there's plenty of time for someone to wait for the trough and substantially outperform you. Hopefully you are at least collecting dividends, but 2% is a small solace for spending 30% more than you would need if you were patient for a few months.
Time in the market applies to all the market, there's no qualifier for just a bull market - that would be timing the market. Vast majority of people cannot time the market.
IF you're so confident then why don't you plug your life savings into shorting the market? You'll make millions.
There's been countless examples of projecting returns for an investor who tries to time the market and one who keeps buying and almost universally the timer loses.
being pretty sure that the market will crash at some point in the next year isn't really actionable information for an investor. a temporary rally at any point could trigger a devastating margin call. you could just sell all your long positions and buy back in whenever you think the market is at its lowest point, but you're probably not gonna make millions this way.
FWIW, I haven't sold anything, but I haven't bought any shares either since the beginning of the crisis. I would be wealthier today if I had kept buying on my normal schedule.
History suggests that? The only time in modern history that this has happened (1918), the stock market never had the slightest reaction. It just carried on its merry way...with 50 million dead.
Think about it. Everyone you talk to is saying exactly what you’re saying. Do you really believe that you have insight that a hedge fund worth billions of dollars does not? Do you think they didn’t already think about this before the rebound even happened? Chances are very good that they understand this situation on a level that most do not. They are driving this rebound, not unsophisticated retail investors. Bearish investors will sit on the sidelines and miss out on potential gains or will go short and lose their money. The rich will get richer. Rinse and repeat.
I can tell you when the market will crash. It’s when you and everyone you know are convinced that your bearish intuition is wrong. That wont happen for some time.
I suspect part of the reason why the prices are staying higher is lack of alternative places to put the money and with no pull out the drop is somewhat limited.
And I am of the opinion that it feels like prices should have dropped more and feeling a bit guiltily disappointed at the lack of a crash for investing opportunities. That and a confused "Why does my portfolio keep on rising now of all times?"
Both of the movies The Big Short and Too Big To Fail have a moment where they're watching people come out of a subway or walk down the street, and say something like, "They don't have any idea what's about to hit them."
It sort of feels like that now. Lots of normality still. There is definitely something not right about the stock market not feeling the impact of millions of unemployed and more than half of retail stores missing rent payments.
Maybe there's macroeconomic explanations involving credit and the Fed. Maybe the stock market is in fact disconnected from the general economy as a whole, and is really just a plaything for giant corporations and the 1%. Maybe it's not as bad as it seems. Maybe everyone's betting on a V shaped recovery after the virus fades. But as we saw during the financial crisis, everything seems fine until it isn't - then things go pear shaped in a hurry.
The difference here is that in the financial crisis, The market was in a bubble. Almost anyone you would talk to at the time would tell you the Stock market has never been stronger. A very, very few number of people knew what was coming. Now, every armchair trader is believing they’re reliving The Big Short and they’re the main character. They fail to realize that this is literally the opposite situation- a crash that has already happened and now the subsequent recovery we’re in.
How many crashes did you know about before they happened? I’m guessing zero. You still believe this time is different.
You're asserting that the crash happened (came to an end) and we're in recovery now. A lot of people, myself included, are less than convinced that's the case: believe it or not, there's still a lot of room for this to get much worse. The pandemic is barely getting started in places like India and South America, and the US is not out of the woods yet.
Poorer parts of the world are going to see the virus work its way through their population without much resistance. I doubt it will have the economic impact that it will in the developed world.
>It sort of feels like that now. Lots of normality still. There is definitely something not right about the stock market not feeling the impact of millions of unemployed and more than half of retail stores missing rent payments.
Not saying their right but Wall St. types will tell you the market has already priced the pandemic and current unemployment numbers in and is forward looking.
When the next pandemic hits, I doubt any government will dare to attempt a closure.
The costs for these closures have been high in terms of economic pain. In addition, the protests, though they are justified due to the oppression the community has experienced, are likely undoing a lot of the effects of social distancing by putting a lot of people together in close proximity for hours.
So in the end, we will have experienced a lot of economic pain for not that much benefit.
> When the next pandemic hits, I doubt any government will dare to attempt a closure.
> The costs for these closures have been high in terms of economic pain.
It's not as if the choice is have a lock down and reduce deaths but ruin your economy vs don't have a lock down and have a lot of death with a good economy. Having a lot of death will ruin your economy too.
Utah is very clearly having a significant infection surge, and the state just recommended to itself that we pretty much drop the rest of the few restrictions we ever had in the first place.
Mine as well. I do hope the reports saying outdoor spread is unlikely are correct becaust the protests seem to be ideal superspreader events. Hot sweaty people packed into enormous crowds coughing because of tear gas and smoke? Thankfully some people are wearing masks but it's almost a worst case scenario.
>So in the end, we will have experienced a lot of economic pain for not that much benefit.
This is very US-centric. Our lockdown was more or less completely useless, it wasn't enforced and case numbers continue to rise while in much of Europe they appear to have worked exactly as intended.
If the next pandemic hits relatively soon, we will be better prepared, so the shutdown can be more restricted.
Also, if a government doesn’t attempt a closure, and things run out of hand, the population may start a chaotic closure.
I may be too pessimistic, but looking at the political climate in the USA, I think that could take the form of neighborhoods attempting to close off other neighborhoods to ward of the (perceived or real) threat of an epidemic spreading. The result could be a lot worse than what we see now.
Honest question though... did we? Did we actually ramp up healthcare and medical supply manufacturing? I saw a lot of news about it when the pandemic first started but I still see a lot of news stories about PPE shortages.
Well, the effect of the protests is tempered somewhat by the fact that they are all outdoors. So the risk of Covid + Protests is significantly lower than that of Covid + No Lockdown.
Purely as a thought experiment, if we suspended mortgage repayments for N months and rental payments for N months, what bad (or good) effects might we see?
The whole banking system would collapse like in 2007-2008 because "everyone stops paying mortgages all at once" is basically what happened then.
Renters stop paying their rent so landlords go broke. Landlords stop paying their mortgages. Mortgage-backed securities go into default. Anyone with lots of exposure to mortgage-backed securities folds. Their counterparties in all sorts of financial arrangements can't collect (insurance, bonds, you name it). Credit markets dry up, and all the Main Street businesses that are rolling over some of their debt find they can't borrow, so they file for bankruptcy. Normally, they'd take out loans to make it through bankruptcy and restructure... but no loans are available, so they liquidate.
EDIT: worth noting that this is less likely now than in '07-'08 because the Federal Reserve has been buying up bonds like crazy (that basically means financial institutions, governments and businesses are often able to get unlimited cheap credit) but if they scaled that back or stopped doing it, things are already so bad there would've been a credit crisis in March or April without a national rent/mortgage freeze. So imagine how much worse it would be with one.
I would like to add to your comment and highlight that this isn't similar to 2007-2008 as those loans were made to people who should never have gotten them in the first place and had no hope to pay it off. Those loans were straight up losses, whereas here, the loans are still good and some companies are even earning interest by delaying mortgage payments. But if too many people stop paying at the same time, the system will collapse and we'll have a repeat of GFC.
Suspended, but interest keeps accumulating, and will eventually have to be paid? Because banks can handle a bit of that, if the bank is able to borrow from a central bank.
What country is that? Is everything government owned? Because how can a landlord possibly manage that? And why is the landlord the one asked to help the tenant, isn't that the job of government?
Suspension of mortgage would help the landlord not the renter. The owner/landlord pays the mortgage not the tenant, the tenant pays rent to the landlord.
> Renters stop paying their rent so landlords go broke. Landlords stop paying their mortgages
But I said in my question: "if we suspended mortgage repayments for N months and rental payments for N months"
Landlords are not paying their main cost (the mortgage) so why do landlords go broke? They have some fixed overheads but those are usually a few % of the mortgage.
The normal way payment holidays work is the missing months are added at the end, and the interest (historically incredibly low at the moment) accrues as normal. So the mortgage holders are not really out of pocket here. Nor are the landlords since they can charge another tenant at the extended end of their mortgage term.
I would disagree - everyone didn't just stopping paying their mortgages. The issue was that it was uncovered how inappropriate a portion of mortgages had been and how toxic the investment mixes were. This realisation led to banks valuations changing and led to a run on banks. The property behind these mortgages was worth less than the mortgages supplied on them.
While the default rate increased in some areas, it was in no way universal, or as high as we see today in the retail property market. Also (currently) the property backing the mortgage has retained its mortgaged value. So these are not that similar scenarios
What if everybody gets a loan, minimal/no interest with delayed repayment? Just pretend it's not a handout, but actual debt that will be repaid... someday? Just a thought
What's the proportion of commercial landlords that have a mortgage to pay? Because when their building is already paid, interruption of rent isn't really impacting them.
Property tax on commercial property is huge and lasts forever. Interruption of rent may force them to sell their property or be unable to afford their taxes.
>The whole banking system would collapse like in 2007-2008 because "everyone stops paying mortgages all at once" is basically what happened then.
This obviously ignores the issue with massively leveraged firms making poor bets on housing bonds. But lets be real, they'll get bailed out if there's any problem.
The more I listen to you, the more grateful I am that you will never be given the chance. Someone who's so cocksure that he's sure he's smart enough to organize the entire economy is the last person I want to see given the chance.
This would make sense to me. Why are some businesses being shut down and have to deal with income losses and others like landlords can keep going and demand their income? This seems fundamentally unfair to me.
Ah, but comrade, paying rent itself is inherently unfair. It allows for profit off merely having bought something sooner than another had a chance to. If the rent stops now, why should the rent start back up?
My goodness, people here must really not have any experience either renting or owning. As a new homeowner, it is obvious what I used to be paying for -- someone to fix my living space any time something broke without charge and someone to maintain my building and my outdoor areas. It turns out that these things are actual work...
Not to mention the financial risks, liability, having to handle problatic tenants, etc. Ironically, a lot of landlords are those trying to live the American dream. They're people that are working their ass off trying to be upwardly mobile. And while I understand that even they often have privlages not afforded to the lowest income brackets, they also aren't the 1% or aristocrats of the French revolution. The virtiole against billionaires has filtered down to them pretty unfairly. ...and tte real issues we have over what parameters of the power law distribution of wealth should be tolerated have a much lower impact on the income bracket of lanlords than they do on the top 0.01%
One to look at rent is that it's like the old joke about prostitution: you don't pay for the sex, you pay for them to leave afterwards.
Rent gives you greater location flexibility and less commitment to a specific place and building. You don't have to maintain it yourself, and you are freed from the mental load of having to do long-term planning around it at all. Not that it's necessarily good for the surrounding community, but to some degree, renting gives you the luxury of "driving it like you stole it" and that's a real value for some people.
I own my house. When plumbers dumped water in the basement and destroyed a floor, that was my problem. Renters pay for that kind of stuff to be someone else's problem.
I can see the argument about flexibility, but it doesn't really seem to mesh up with the skyrocketing demand for rental properties in urban areas.
On the other hand, I'm not sure why the service of removing risk from home ownership is good (or why it couldn't be separated into ownership and property management.) In the paradigm you're proposing, the renter wants to be insulated from the risk of property damage or adverse effects on the home they purchased. And the price they're willing to pay for this is... 100% of the equity of the place they live in?
This isn't all that different then how a person chooses to work for a company rather than run a company themselves.
People often dread working for others, but still do it because the risk and difficulties of running a business themselves aren't worth the ability to easily change jobs/roles/location that working for someone else allows.
If you own a house or business, if something goes wrong, you have to fix it, or sell the asset so it's not your problem anymore. If you rent/work for someone else you simply move/work somewhere else.
Anyone who wants to buy a rental house is free to do so. Just make an unsolicited purchase offer to the landlord for more than the net present value of all expected future rental income. Most landlords are willing to sell their properties, even when they're not currently listed on the market.
People who would rather buy houses than rent should feel free to do so. No landlord is forcing someone to rent their property.
It is often the case that renting is quite a bit cheaper and always the case that it's more flexible to do so, which is why a lot of people choose to rent instead of buying. Society benefits when people who wish to rent housing have housing available for lease.
It's certainly more feasible to rent if you don't have the money to buy a house, which is why every single renter i know is doing do. I'm just not sure why this is necessary or a valuable economic innovation that justifies the rent paid.
Rentals are a useful innovation because the transaction is beneficial for both parties.
The leasor turns their large investment into a stream of payments, and the leasee turns their stream of payments into use of a large investment without having to make such an investment and without needing to have the capability to make that investment.
Avoiding making a large investment in property makes it easier for the leasee to move if needed, since there aren't significant costs to unwind a lease like there are to unwinding property ownership.
You're not sure why it's a valuable economic innovation that people who don't have the money to buy a house can rent one? What alternative are you suggesting, that they should get a house for free?
But the price of buying a home would be a lot lower if there was no rent (or other ways to own a home you don't live in). There are more homes than there are people.
Just about every 4-plex and apartment building in the world wouldn't exist if there was no rent to pay for their construction.
(On a much more minor note, there are not more housing units (about 140M) than people (about 335M) in the US and probably not in the world; though that's literally what you claimed, it's probably not what you really meant to claim. Taking the most charitable re-interpretation of your claim: there are slightly more housing units than households (about 140M vs about 130M) in the US. See above about the prediction that many of these housing units likely not existing [or continuing to be offered/maintained] if rent were outlawed.)
The fact that the people who would rather buy them lack the available resources to do so on their own, putting aside any economies of scale benefits from either developers or their demand.
Preferring a better option doesn't mean much unfortunately. To go with a variant on a crass old joke "I would rather be paid billions to sleep with an endless line of beautiful women than work retail but they aren't hiring for that position unfortunately."
The opportunity cost of the downpayment (and also the fact that lots of people wouldn't have the money for a down payment anyway). Generally the returns from property investing are relatively low compared to other investments.
Things like property taxes and maintenance are fixed costs for property owners. Those can eat up 50% or more of the rental income. So if renters aren't paying, even property owners who don't have a mortgage have high fixed costs that they have to pay.
Because virii and reality don't give a damn about human sense or fairness fairness compared to what can and does work. "Making things fair" and forcing non-hazardous businesses to close as well even if they can teleoperate would be counterproductive.
The rents are given locked in periods which change vs the potential real swing in value. It is a "futures contract" sort of situation. If sales at a location increase tenfold over others of comparable nichw and expenses rent raising relative value compared to comparably priced competitors then the landlord cannot instantly raise rent for the contract period. They effectively got stuck renting "undervalued". This situation is a reverse of sorts - the income is down but the price is locked in so the retailers are paying for overvalued rent.
This leads to a bit of rent hardball as the retailers can "call their bluff" as they know if they were evicted they could not be replaced with anyone willing to pay the old value and try to force concessions.
I wonder how many people asked that during the World Wars? Why do they have to suffer because some rich assholes decided they need every industry to support the war.
You'd see a devaluing of the underlying property, so you'd be upside down on your mortgage. Property owners would stop taking care of buildings in terms of rentals, so maintenance would be a significant issue.
There are a lot of bank loans using a real estate asset as collateral - those would now be significantly riskier for the banks to hold, so new loans would probably stall and/or become more restrictive, slowing growth.
Municipal services would start to take a hit next, since a lot of the property taxes go to things like schools and waste disposal.
On the flip side, people not paying their rent would have more money in their bank accounts to cover an unforeseen medical bill. I doubt retail would increase by that much if quarantining was still in place, though.
It would probably be hard to find a rental during that period, as legally you wouldn't have to pay to occupy the space. Though landlords might be cash strapped enough to let you move in to get the down payment.
Banks shouldn’t have a ton of this stuff on their balance sheets because of post ‘08 changes. The more likely parties to be damaged are asset managers.
> Many retailers have asked for assistance from their landlords to no avail. For some businesses, even pinpointing who to ask can be difficult as the majority of commercial properties are owned by real estate investment trusts and investors in commercial mortgage-backed securities.
even pinpointing who to ask can be difficult - can it get any more comical?
They really should have offered dollar-for-dollar grants to landlords who forgave rents. (Or dollar-for-dollar property tax discounts.)
I own commercial property in 94089. We didn't charge our tenants rent in April and May. They received $44,000 in stimulus and grant money--each. We received zero. Weren't eligible for anything.
Fortunately, we have no mortgage to cover. But we do have a $50,000 property tax bill coming due. There's no relief for property tax.
I'm kind of glad things are falling apart. It's like walking in the slightly wrong direction, every day you don't change course you add a bit of debt. At this point we're hitting something of a dead end, and it may finally be time to fix things.
The burn it down and rebuild approach is terrifying. There's absolutely no reason to think there will be anything left to rebuild. Do you really think a Country like the US with thousands of nuclear weapons will allow itself to be torn down? You really think strongmen won't appear and enforce totalitarianism on any country sufficiently destabilized? There's a million ways for that sequence to go horribly wrong and like 5 where it works out. It's not a real solution.
Is there an economist here that might know if this would lead to stores decreasing prices on products in order to move merchandise, keep the same, or increase?
Way back in the day I worked for CompUSA while they were going out of business and helped shut down a number of their stores in my area. The process was to mark everything back to normal retail prices, announce a going out of business sale and on a set time frame start to lower prices (depending on how fast we needed to clear the store).
Most of the high value things were bought at their normal “on sale” prices with the few things that snuck by to the lower price points getting picked up by employees and friends of employees. Everything else was junk and would get sold off for 40%-80% off of retail. Then we would sell things like shelving and display cases.
Obviously this isn’t an equivalent scenario, but if we start seeing retail stores going out of business, I imagine it will follow a similar pattern.
Given a sufficient number of astrologers, you are guaranteed to have one with a correct prediction for your future. The hard problems is picking which one to listen to.
1. a civil war: lots of guns lying around n a demagogue in the white house. n trump like a rat, he's been biting n blowing air on the wound. come nov, he can easily say the elections were rigged, if in the small chance event he loses to sleepy Joe i.e Biden. he's supporters will buy it, as they already bought about mail in voter fraud. n his repeated calls for violence against minorities etc. people frustrated by the economy n elites etc
2. a major depression: this is already in play, as unemployment numbers had been propped up. n the fragility of the US economy i.e dependent on excessive credit n consumption.
so it's catch 22: which one is gonna happen first.
Our crash may come in the fall when UI payments stop and the rent floats become unsustainable. About the time the second wave hits.
https://66.media.tumblr.com/bbbf0aec68490ae2679ef489709c3d18...