Mailvox: invading academia

A grad student writes concerning a recent economics paper:

I forgot to thank you for your analysis on the deflation argument. I started a graduate program in economics last fall, and your deflation argument served as a critical point in a paper I wrote during the fall semester for a finance class. I received an A on the paper and am very grateful for your blog and Darkstream channel. The professor has an MBA in finance from University of Chicago and has worked in corporate banking since the 70s, so what you have been saying for decades is starting to resonate with economics professionals. He  wrote that the argument was very thought-provoking. I cited your sources rather than you directly because of how far you are out of the economics academic hierarchy.

A wise decision. It might bother some people to know that they will never receive public credit for their ideas, but it doesn't bother me in the slightest. The more that you understand that the public laudation of intellectual celebrities is nothing but Promethean PR and ethnic propaganda, the less that sort of thing appeals to you. If, at this point, the media suddenly started talking me up as an important public intellectual and handing me awards, I'd be wondering where on Earth I'd gone wrong.

For me, the most interesting thing about the reader's email is the fact that his professor, with an MBA in finance and 40+ years of banking experience, considers the concept of credit deflation to be "thought-provoking". That underlines how completely inept, how completely ignorant, the greater part of the so-called intellectual elite are, even in their areas of credentialed expertese.

In any event, the reader is quite welcome. It's good to know that someone, somewhere, is getting something out of this pensaverie.

How debt destroys

Hertz is bankrupt despite owning one of the largest fleets of vehicles in the world:

What one world war, one Great Depression and numerous oil price shocks couldn't do, the coronavirus did in less than three months and late on Friday, auto rental giant Hertz which was founded in 1918 when it set up shop with a dozen Ford Model Ts, quietly filed for Chapter 11 bankruptcy protection struggling under a massive debt load after its business was brought to a grinding halt during the coronavirus pandemic and talks with creditors failed to result in much needed relief.

The company had a total of 568,000 vehicles and 12,400 corporate and franchise locations worldwide at the start of this year.

Last night on the Big Bear's stream, we talked about deflation, and how the debt portion of the money supply is much larger than the cash + bank accounts percentage of it. Printing the latter doesn't help if the former is vanishing at a faster rate.

The Hertz bankruptcy is a good illustration of this. While the corporation still has more than $1 billion in cash, that's only four percent of the total debt it owes. And that's why simply giving it more money to service its debts isn't going to keep it alive for long, as the only thing that will allow it to continue operations is the bankruptcy court agreeing to wipe out a significant percentage of its $24.4 billion in debt.

And that is, as Zerohedge noted, a deflationary bomb, given the size of the company and the price-depressing effects of the liquidation of its vehicular assets. Speaking of those assets, it's interesting to note that Hertz actually listed more assets than debts on its bankruptcy petition, which would seem to indicate that it's not actually bankrupt, but actually suggests that the real total value of its assets are less than recorded.

Deflation in Canada

The 12-year period of credit disinflation appears to be over as the global economy is finally beginning to visibly deflate despite the best efforts of the central banks:

Canadian inflation went negative for the first time since the 2009 recession after the coronavirus lockdown put the brakes on the world economy.

Consumer prices dropped 0.2 per cent in April from the same month a year earlier, Statistics Canada reported Wednesday from Ottawa. That’s down from a 0.9 per cent annual rate in March and 2.2 per cent in February.

The report adds inflation to the list of economic indicators showing an historic impact from the coronavirus pandemic. Collapsing gasoline prices have pulled inflation lower over the past two months, but weak demand should keep inflation at extremely low levels for an extended period, and could even spur worries about deflation. That will keep pressure off the Bank of Canada to ease up on accommodation efforts any time soon.

From March, prices fell 0.7 per cent, matching the largest one-month drop since 2008.

Deflation is actually good for consumers and the real economy, since their money is worth more, but it is very bad for those who are dependent upon living off the debt of others. Which, of course, is why the banks and the financial elite have been desperately fighting to delay the deflation and credit crash that has been inevitable since 2008.

Debt jubilees are coming. Intellectuals of both the Left and the Right are already calling for them. In fact, one of the primary reasons behind the systemic overreaction to Corona-chan, as well as the constant goalpost-moving concerning the lockdowns, may be the cover provided for the ongoing economic crash.

Mailvox: debt deflation confirmed

A reader writes to observe that the concept of debt deflation is gradually leaking out into the mainstream discourse:

I found a little snippet that NeonRevolt posted from Reddit's Wallstreetbets concerning Debt Deflation. I will reproduce the two pertinent paragraphs below, and while I am unsure of the veracity of some of the other points, I find his conclusions in the second paragraph, which I have bolded for emphasis very interesting.

OKAY. So demand has been reduced dramatically around the world, our $21 trillion GDP has basically been paused for 2 months, so to keep it afloat (rough math), the government had to add $3.5 trillion to keep the economy running somewhat smoothly. That's a lot of printing, you idiots probably expect inflation. Wrong, step away from the US and look at what other countries are doing, the ECB (European Central Bank) and BOJ (Bank of Japan) are having to print trillions of dollars worth of EURO and YEN to keep their economies going, along with every other country getting pounded. Not only that, but since the US dollar makes up 70% of global transactions, in liquidity terms, trillions worth of euro and yen is MUCH MUCH more than any amount Jpow feels like printing, there's no way our printing could offset what the rest of the world is doing, so inflation isn't coming. If you want proof, just look at the euro/usd (going lower) and literally ANY emerging market currency is getting absolutely clapped vs the dollar.

Furthermore, not only is US corporate debt at an all time high, but emerging markets, the eurozone, and asia has borrowed more dollars than ever before at any point in history, basically everyone around the world's debt is denominated in US DOLLARS. So what's about to happen? It's already happening, demand for US dollars is going up because everyone around the world wants to borrow more to offset cash flow concerns and pay off existing debts, which will cause the dollar to increase in value. What happens when the whole world has debt in dollars and the dollar goes up in value? DEBT BECOMES MORE EXPENSIVE. This is DEFLATION, and in particular and even more terrifying DEBT DEFLATION, a phrase that would make Jpow absolutely shit himself (and he knows its coming). This has already started before the whole beervirus nonsense, look at Venezuela and Zimbabwe, they had too much dollar debt, no one wanted to lend to them anymore and whoops, their currency is worthless now. It's going to be like a game of musical chairs for people trying to get access to dollars, starting with emerging markets and eventually moving into the more developed economies. The result: massive corporate bankruptcies, countries defaulting on debt (devaluing their currencies) and eventually a deleveraging of massive proportions. This WILL occur and no amount of printing can stop it, it's already too far gone.

The reason I am sending you this is that I have been following your posts/darkstreams concerning debt, deflation and how money is created ex nihilo, with great interest. I am also aware of your stance versus inflation versus deflation, and while your arguments already convinced me completely that deflation is in order, this is further proof of your predictions.

In other words, think this is another example of:

Of all the words of screen and pen
The saddest are these:
Vox was right again.

Deflation is inevitable. It doesn't take any great mind or vast understanding of economics to grasp that. In fact, it has taken decades of intentional deceit and maleducation to convince the economic mainstream otherwise.

Mailvox: Money magic

A reader observes the creation of money ex nihilo in action:

I wanted to share something with you that demonstrates how you are correct that debt and money creation are one and the same.

Recent changes to 401k rules (from the CARES act) allowed me to withdrawn/borrow 90k from my retirement account, with the promise to pay it back over 5 years to avoid the tax penalty. I did this to pay off my mortgage. Even though this doesn't change the basics of my personal finances, I just like the idea of being the only person with a legal claim on my house. Also, I figured the market is going to go down, so now might be a good time to sell, and buy-back over the next 5 years.

So I apply for the loan. I get the 90k check and deposit it in my bank. I look at my 401k balance and the amount has not changed! The 90k was literally created out of thin air with the understanding that I'm obligated to pay it back over 5 years.

Now that money essentially exist in 2 places; in my house, and in the stock portfolio of my 401k. I naively thought that the 401k was an arrangement between me and the government that I get a tax break on money I put aside for retirement. In reality, the 401k is an arrangement between me on the one side, and the government and the financialized class on the other side. Once I put money in those stocks, I can't sell it off until I turn 60 without a huge tax penalty. My 401k money is essentially a trust fund for the financial class.

At face value, most would think this is beneficial to me. But in reality, I'm prevented from the opportunity to sell high and buy back low. This protects the financialized racket from any loses today, but it also prevents the opportunity for that money to be redirected toward more profitable endeavors in the future. As losses to the financial market are prevented, so too the opportunity for profits are prevented. And they wonder why the economic recoveries are so feeble or non-existent.

Heads, everybody wins. Tails, they win and you lose. It's not the worst scam in the history of financial shenanigans. But it will lead to an economy-wide breakdown, in which everyone loses, sooner or later.

That aged well

Just months after almost everyone on Wall Street worried that a recession was just around the corner, Goldman Sachs said a downturn is unlikely over the next several years. In fact, the firm’s economists stopped just short of saying that the U.S. economy is recession-proof.
- December 31, 2019

The hilarious thing is that the downturn had already begun. This sort of thing is why I meant it very literally when I wrote the chapter entitled "No one knows anything" in RGD.

It is also why destroying your nation simply because the economists tell you that doing so will make everyone rich is a horrifically bad, horrifically stupid idea.

Whose hype do you buy?

The China-China-China crowd has been predicting the collapse of the Chinese economy for years. But is it actually as vulnerable as they believe? More than a few international economists simply don't buy that assumption:

RT talked to economists to find out if Beijing may have foreseen the economic crash and about the Chinese government’s response to it.

“Nobody, including Beijing, could have foreseen the depth and gravity of this pandemic, specifically the cryptic transmission parameters by which the Covid-19 virus spreads. It is truly a once-in-100-year pandemic event,” said Sourabh Gupta, senior fellow at the Institute for China-America Studies.

According to him, China was better prepared because “it is in a much healthier fiscal position compared to most advanced economies and many emerging economies too.”

Gupta explained that the central government’s debt level as a percentage of GDP is fairly modest, which means there is ample space on the government’s balance sheet to ramp up policy support. Also, consumers’ debt levels relative to income is modest, so they are not overleveraged either and can open up their wallets.

He was echoed by Andrew Leung, international and independent China strategist, who said “China is always very long-term strategy-minded” and is better prepared for any crisis thanks to its state capitalism. “The state can direct massive funds and mobilize businesses and people more effectively than the West. The same capability was demonstrated during the Asian financial crisis of 1997-98 and the world financial crisis of 2008-09,” said Leung.

According to Temur Umarov, an expert on China and Central Asia at Carnegie Moscow Center, every country is in a different economic situation, so their response to the coronavirus pandemic also differs. While numerous economic stimulus packages were announced by some countries, China has focused on recovery of domestic consumption, as well as on help for small- and medium-sized businesses, he said.

All the analysts agreed that neither China nor other countries could have foreseen the magnitude of the current crisis.

“There is a tsunami of negative views about China as a result of the spreading coronavirus crisis. America’s bad-mouthing has also helped. But China remains by far the second-largest economy, bigger than the rest of the BRIC countries combined,” said Leung. He noted that many more countries have China as their largest trading partner than the United States.

I think the Chinese economy is better poised to survive the crisis simply because it is less financialized, which is another way of saying that it is less fictional. And I would remind those who cite the failed predictions concerning Japanese preeminence of the 1980s of three things.

1. The US economy of 2020 is not the US economy of 1985. The USA of 2020 isn't even recognizably American anymore.
2. China is not Japan.
3. The Japanese economy of 1985 was very heavily financialized. Most of its massive real estate wealth was as fictional as the Silicon Valley wealth is today.

The good guys

I have to admit, I really don’t quite know where to start with the “hurr durr Vox thinks China are the good guys” crowd.

Let’s start with observing that the very formulation contains a category error. Nations and governments are not people. Therefore, they do not have friends, only interests. Nations and governments are also not moral agents. Therefore, they cannot be “good guys”, or, for that matter, “bad guys”.

This is why I detest the inevitably disastrous attempts of my intellectual inferiors to summarize my thinking.

Let me be perfectly clear: I do not think China are "the good guys". I am aware that it is a nation ruled by the Communist Party. I am familiar with Chinese history and I am cognizant of the fact that its current rulers are persecuting Christians.

You may recall, that I picked up an East Asian Studies major to go with my Economics degree while I was at university.

However, unlike my critics, I am also aware that the Chinese governments persecutes Christians with considerably less vigor than it persecutes Tibetans, Uighurs, and corrupt government officials. In fact, it is only ranked 23rd on the list of religious persecution, and is not known to have executed a single Christian in 2020. This hardly ranks with Diocletian or North Korea.

Furthermore, who could honestly condemn a nationalist government that persecutes Christians, at least so-called Christians of the sort who are actively aiding and abetting the ongoing invasion of the West? I'd very much like to see a dedicated persecution of those Churchians myself.

Finally, I invite my critics to contemplate this conundrum: a socialist system based upon a planned economy does not work because it is unable to allocate resources effectively due to the lack of price signals, as per Mises and The Contradictions of Socialist Economies. The Chinese economy features both price signals and effective resource allocation, as well as considerable economic growth.

Discuss amongst yourselves.

Theory vs practice

It's not a good sign that every argument in support of the USA's continued global ascendancy is based on pure theory:

In a recently published book, Why Nations Fail, economists Daron Acemoglu and James A. Robinson characterize China’s ruling elites as “extractive”—parasitic and corrupt—and predict that Chinese economic growth will soon falter and decline, while America’s “inclusive” governing institutions have taken us from strength to strength. They argue that a country governed as a one-party state, without the free media or checks and balances of our own democratic system, cannot long prosper in the modern world. The glowing tributes this book has received from a vast array of America’s most prominent public intellectuals, including six Nobel laureates in economics, testifies to the widespread popularity of this optimistic message.

First, there is no ruling elite as extractive and parasitic, and few as observably corrupt, as the current US ruling elite.. Second, these theoretical strengths are mostly imaginary and based on the historical American posterity rather than actual US demographics. Consider the reality:

Over the last few years one of the most ambitious Chinese projects has been a plan to create the world’s largest and most advanced network of high-speed rail transport, an effort that absorbed a remarkable $200 billion of government investment. The result was the construction of over 6,000 miles of track, a total probably now greater than that of all the world’s other nations combined.

Meanwhile, America has no high-speed rail whatsoever, despite decades of debate and vast amounts of time and money spent on lobbying, hearings, political campaigns, planning efforts, and environmental-impact reports. China’s high-speed rail system may be far from perfect, but it actually exists, while America’s does not. Annual Chinese ridership now totals over 25 million trips per year.

Of course, the most significant development of the last decade is one that has gone almost entirely unnoticed by everyone, which is of course, the Chinese rejection of one faction of the US ruling elite's gracious offer to transfer the benefits of their wise and impartial guidance from the USA to China. It would appear the Chinese elite is content with their extant extractive abilities.

It increasingly appears that Ron Unz had it right back in 2012 when he cast his vote with Richard Lynn:

Richard Lynn, a prominent British scholar, has been correct in predicting for a decade or longer that the global dominance of the European-derived peoples is rapidly drawing to its end and within the foreseeable future the torch of human progress and world leadership will inevitably pass into Chinese hands.

I don't know about you, but I, for one, hope that other dark meat tastes a lot better than it looks.

Smells like deflation

Oil prices have gone negative in Canada:

And there it is... May WTI just traded below zero for the first time ever (trading below NEGATIVE $40 per barrel)... There was a small bid right into the settlement at 1430ET leaving the May contract to settle at negative $37.63.

Interesting times, my friends. Very interesting times.

Make them do it

As usual, the big US corporations have learned absolutely nothing from the disruption of the production and supply chains as a result of the coronavirus.

Large US companies operating in China don’t want to move production and supply chains from the country in the near future, even though the coronavirus may force them to adjust their business strategies, a recent survey found.

Around 70 percent of 25 firms with global revenue of over half a billion dollars have no relocation plans, despite the effect the coronavirus outbreak has had on their business, according to a joint poll conducted by the American Chamber of Commerce in China and the American Chamber of Commerce in Shanghai. The results of the March survey, published on Friday, also show that around 40 percent of the respondents would rather keep their long-term supply chain strategy for China unchanged.

While more than half of the firms polled say it’s too early to make any decisions on relocation, only four percent of the companies are planning to shift all production outside China, while 12 percent of the respondents intend to move part of their facilities.

It's time for President Trump to start imposing massive penalties on US firms manufacturing anything outside the USA, and for Congress to do the same. And any firm that lobbies against the penalties or opposes them in any way should be deemed ineligible for any bailout money or federal funding for its employees.

David Ricardo is dead. Free trade is the most expensive and destructive kind of trade. There is no comparative advantage. And this is why no nation that plans to survive can afford it.

Prestige Ameritech.  The North Richland Hills company is America’s No. 1 maker of hospital surgical masks.

During this crisis, you’d think the company would be pushing forward on all cylinders, working 24/7 to manufacture the one commodity that Americans and the rest of the world want so badly.

Nope.

When there's an outbreak -- like last time, with Swine Flu -- he gets orders.  He ramps up to fill them.

Then the outbreak passes, and guess where the hospitals go?  Back to China.

This leaves him with capital equipment leases and people. If he doesn't lay them off he goes out of business.  If he does lay them off he get's hammered with much higher unemployment insurance premiums, the leases on the equipment he has no use for, and he goes out of business.

The last time he nearly did.

This time, he's demanding long-term contracts. Good for him.

Guess how many he's gotten?

I'll bet you can figure that out.

Corporatism not only isn't capitalism, it is pure and unadulterated short-term-preferenced evil.

The default cycle begins

Which will mark the post-2008 transition from credit disinflation to actual deflation:

We didn't really need any more confirmations. In recent weeks, as the US economy came to a screeching halt because of the coronavirus pandemic, we have seen banks take over $20 billion in reserves  in anticipation of a looming default wave (a five-fold increase if not nearly enough based on historical precedent), Moody's predicting that as many as 30% of Americans with home loans – about 15 million households – could stop paying their mortgages if the U.S. economy remains closed through the summer or beyond, with the number of households that have already stopped paying their loans soaring by 1,496% in just six weeks, and even JPMorgan in the process of shutting down its entire net interest margin origination platform, by getting out of new loans and HELOCs and boosting the standards on new loans.

These are all clear signs that a wave of mass defaults has started and is about to break all across America as tens of millions of household suddenly lose their jobs.

2008 is when the post-war debt system finally broke. Since then, the Federal Reserve has frantically been kicking the can of consequences harder and harder, until now, when the can finally didn't move. All of the various estimates are meaningless, but we can be confident that the current system will be replaced, we simply can't know what the successor system is going to be as it will largely depend upon how the massive pool of existing bad debts are written off.

UPDATE: For those of you who are, apparently, still too stupid to grasp the obvious, THIS IS WHY USURY WAS HISTORICALLY BANNED IN WESTERN SOCIETIES. Because once the debt cycle starts, it ALWAYS ends this way, sooner or later. The only reason it took this long to go terminal is because, for the first time in history, the entire global economy was turned into collateral supporting the credit inflation.

The financialization of the US economy

Encapsulated in a single picture.

The coronavirus death toll in the U.S. — now topping 23,000 — skyrocketed as families continued to huddle in their homes uncertain of what’s next, while an unthinkable number of more than 16 million people have now filed for unemployment amid an economy grappling with the shutdown.

Yet, somehow, the stock market has managed to push higher. In other words, at least those fortunate enough to own stocks had something to smile about. Democratic strategist Justin Horwitz summed up the disconnect with this tweet that went viral across Twitter TWTR, +2.68% :

As you can see, that’s CNBC’s Jim Cramer talking about the rally in the market while the chyron points out the grim reality of the historic job losses.

One commenter captured much of the response on social media by saying, “The Dow is not the economy. It is a giant government sanctioned Ponzi scheme for the wealthy.”

Another pointed to the fact that, according to Federal Reserve data, 84% of stocks owned by U.S. households are held by the wealthiest 10% of Americans — essentially Wall Street vs. Main Street.

The financial industry doesn't lubricate the economy. To the contrary, it is both a huge parasite and a massive anchor that drains more than one-third of ALL corporate profits out of the real economy. To put this in perspective, the total amount of all retail trade profit was $154 billion in 2018. The total amount of all transportation and warehousing profit was $55.6 billion. The total amount of all food, beverage, and tobacco profits was $50.5 billion.

The total amount of financial profit was $448.3 billion, and that almost certainly understates it. If you want to know what is wrong with the economy, the answer is "the transfer of profit to the financial institutions" which is done through ever-expanding debt. This is why either a debt jubilee or mass defaults and the total collapse of the US economy is absolutely inevitable.

Deglobalization begins

It won't happen overnight, but people are finally beginning to grasp the vital importance of making things in their own nations, with their own people:

Japan has earmarked hundreds of billions of yen of its coronavirus stimulus relief to go toward helping its manufacturing companies move their production plants out of communist China and back to Japan or to other countries.

“The extra budget, compiled to try to offset the devastating effects of the pandemic, includes 220 billion yen (US$2 billion) for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries, according to details of the plan posted online,” Bloomberg News reported. “That has renewed talk of Japanese firms reducing their reliance on China as a manufacturing base. The government’s panel on future investment last month discussed the need for manufacturing of high-added value products to be shifted back to Japan, and for production of other goods to be diversified across Southeast Asia.”

David Ricardo is finally, at long last, being buried for good.

And what we’ve — what we’re learning from that is that no matter how many treaties you have, no matter how many alliances, no matter how many phone calls, when push comes to shove you run the risk, as a nation, of not having what you need.

How money is created

Earlier today, I banned the commenter "map" for his ignorant attempt to "correct" those who actually understand how money is created. And on that note, if, at this point, you are going to try to argue with me on core economic concepts, you simply will not be permitted to comment here. The fact that I have correctly predicted two out of the last two serious economic crises - and done so in a timely manner - is sufficient justification for not putting up with idiots opining in ignorance on the basis of their outdated college textbooks. I am perfectly familiar with their beliefs about everything from comparative advantage to the money supply to the woefully inaccurate belief that banks keep 10 percent of their deposits in reserve.

In any event, back in 2014, the Bank of England helpfully explained how modern money is actually created in an article entitled Money Creation in the Modern Economy (pdf). If you don't understand that money is debt, read the whole thing. And if you still don't understand that after reading the article, read it again.

One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them.  In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.... Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach....

Lending creates deposits — broad money determination at the aggregate level

As explained in ‘Money in the modern economy:  an introduction’, broad money is a measure of the total amount of money held by households and companies in the economy.

Broad money is made up of bank deposits — which are essentially IOUs from commercial banks to households and companies — and currency — mostly IOUs from the central bank. Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves.

Commercial banks create money, in the form of bank deposits, by making new loans.  When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes.  Instead, it credits their bank account with a bank deposit of the size of the mortgage.  At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.

Just as taking out a new loan creates money, the repayment of bank loans destroys money. For example, suppose a consumer has spent money in the supermarket throughout the month by using a credit card.  Each purchase made using the credit card will have increased the outstanding loans on the consumer’s balance sheet and the deposits on the supermarket’s balance sheet. If the consumer were then to pay their credit car bill in full at the end of the month, its bank would reduce the amount of deposits in the consumer’s account by the value of the credit card bill, thus destroying all of the newly created money.

Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.

Now, perhaps you will understand why I am a deflationista. And so are you, if you believe that any of the current outstanding debt will be written off or otherwise go unpaid, even if you don't realize that you are. Debt forgiveness and bankruptcy-related debt write-offs are the literal destruction of money, and since deflation is a reduction in the money supply, any reduction in the amount of debt must necessarily be deflationary.

Let them go bust

NN Taleb is right about letting the airlines fail:

"Planes will fly with new owners."

Famed author and statistician Nassim Nicholas Taleb has trained his sights on billionaire Richard Branson, urging the UK government to let the airline owned by the “tax refugee” to go bankrupt. Branson has had a torrid fortnight, drawing the ire of politicians of all stripes for putting all Virgin Atlantic staff on unpaid leave because the carrier has been walloped by the Covid-19 pandemic.

The tycoon has led the calls for a state-sponsored bailout of the aviation sector, but plans to use the funds to cover fixed costs, rather than pay its staff.

That goes for the banks too.

Corona-chan may kill women's sports

A reader writes about the beneficial impact of the health crisis on the world of sports:

I have been watching the economic impact that this virus could potentially have on the sports landscape. I read this article where the University of Florida AD discusses the economic impact of missing football season. 85 percent of the athletic department's budget comes from football. One season without football and we can bid adieu to women's sports. I can already hear the shrieks.

Also, I found it very interesting that the NBA has had to increase their line of credit from $650M to $1.2B to cover operational costs. They already lost $200M before the season started with their Chinese debacle so this can't be good for the most "woke" league in all of sports. The NBA is not nearly as popular as the media makes you think. ESPN breathlessly covers it because they spent $24B on a contract to air games until 2025. With the financial perils ESPN faces, I find it hard to see them making it through that contract. Now I'm sure that league will do everything they can do to keep an already bottomless money pit in the WNBA afloat, but for how long?

Personally I love college football and enjoy the NFL. But if going one year without it means we rid ourselves of a lot of nonsense I can gladly find other things to fill my Saturdays in the fall.

Is there anything she can't do? 

This may work out better than we'd imagined

The God-Emperor may - I stress MAY - have already nationalized the Federal Reserve, if these complaints from Bloomberg are on point:

The economic debate of the day centers on whether the cure of an economic shutdown is worse than the disease of the virus.  Similarly, we need to ask if the cure of the Federal Reserve getting so deeply into corporate bonds, asset-backed securities, commercial paper, and exchange-traded funds is worse than the disease seizing financial markets. It may be....

To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.

So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position. What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury.

In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.

This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump. [emphasis added - VD]

In 2008 when something similar was done, it was on a smaller scale. Since few understood it, the Bush and Obama administrations ceded total control of those acronym programs to then-Fed Chairman Ben Bernanke. He unwound them at the first available opportunity. But now, 12 years later, we have a much better understanding of how they work. And we have a president who has made it very clear how displeased he is that central bankers haven’t used their considerable power to force the Dow Jones Industrial Average at least 10,000 points higher, something he has complained about many times before the pandemic hit.

When the Fed was rightly alarmed by the current dysfunction in the fixed-income markets, they felt they needed to act. This was the correct thought. But, to get the authority to stabilize these “private” markets, central bankers needed the Treasury to agree to nationalize (own) them so they could provide the funds to do it.

In effect, the Fed is giving the Treasury access to its printing press. This means that, in the extreme, the administration would be free to use its control, not the Fed’s control, of these SPVs to instruct the Fed to print more money so it could buy securities and hand out loans in an effort to ramp financial markets higher going into the election. Why stop there?

The concerns about inflation - which as a deflationista I don't take very seriously anyhow - are obviously far less important than the potential prospect of the USA taking control of its own money supply again.

The answer to the "responsibility" objection

It's quite common for stupid and self-righteous conservatives to object to student loan debt cancellation on the basis of "personal irresponsibility", moral hazard, and the fact that the student signed the loan contract. But as Zippy Catholic points out, Thomas Aquinas conclusively answered that objection a long time ago.

Accordingly we must also answer to the question in point that it is by no means lawful to induce a man to lend under a condition of usury: yet it is lawful to borrow for usury from a man who is ready to do so and is a usurer by profession; provided the borrower have a good end in view, such as the relief of his own or another’s need. Thus too it is lawful for a man who has fallen among thieves to point out his property to them (which they sin in taking) in order to save his life, after the example of the ten men who said to Ismahel (Jeremiah 41:8): “Kill us not: for we have stores in the field.”
- Thomas AST II-II, Q78, A4):

Since borrowing at usury is inherently scandalous, it probably depends on the extent of the need. But you’ve got pretty wide moral discretion to hand over your property to thieves, so you’ve probably got similar prudential latitude here.  As a matter of intrinsic morality, usury – insisting on interest when making a mutuum loan – is a sin on the part of the lender, not the borrower.

The lender is the wrongdoer, not the borrower. Therefore, there is no moral hazard created by cancelling student loan debt, unless the government then proceeds to bails out the lender. It is bailouts, not debt cancellations, that are both immoral and morally hazardous by nature.

The need for a debt jubilee

It's not often that I agree with socialist economics, but in this case, my only disagreement with Michael Hudson's argument is that we are quite obviously already in a depression. It's too late to avoid it, but a debt jubilee - as commanded by the Bible - is both a way to end the depression and free the productive classes from the chains of a relentlessly rapacious and entirely anti-productive financial elite:

Even before the coronavirus appeared, many American families were falling behind on student loans, auto loans, credit card balances and other payments. America’s debt overhead was pricing its labor and industry out of world markets. A debt crisis was inevitable eventually, but covid-19 has made it immediate.

Massive social distancing, with its accompanying job losses, stock dives, and huge bailouts to debt-strapped corporations, raises the threat of a depression. But it doesn’t have to be this way. History offers us another alternative in such situations: a debt jubilee. This slate-cleaning, balance-restoring step recognizes the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is simply to cancel the bad debts.

The word Jubilee comes from the Hebrew word for trumpet — yobel. In Mosaic Law, it was blown every fifty years to signal the Year of the Lord, in which personal debts were to be cancelled. The alternative, the prophet Isaiah warned, was for smallholders to forfeit their lands to creditors: “Woe to you who add house to house and join field to field till no space is left and you live alone in the land.” When Jesus delivered his first sermon, the Gospel of Luke describes him as unrolling the scroll of Isaiah and announcing that he had come to proclaim the Year of the Lord, the Jubilee Year.

Until recently, historians doubted that such a debt jubilee would have been possible in practice, or that such proclamations could have been enforced. But Assyriologists have found that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne. Instead of blowing a trumpet, the ruler “raised the sacred torch” to signal the amnesty.

It is now understood that these rulers were not being utopian or idealistic in forgiving debts. The alternative would have been for debtors to fall into bondage. Kingdoms would have lost their labor force, since so many would be working off debts to their creditors. Many debtors would have run away (much as Greeks emigrated en masse after their recent debt crisis) and communities would have been prone to attack from without.

The parallels to the current moment are notable. The U.S. economy has polarized sharply since the 2008 financial crisis. For far too many, the debts in place leave little income available for spending on goods and services or in the national interest. In a crashing economy, any demand that newly massive debts be paid to a financial class that has already absorbed most of the wealth gained since 2008 can only further split our society.

The way to restore normalcy today is a debt writedown. The debts in deepest arrears, and most likely to default, are student debts, medical debts, general consumer debts and purely speculative debts. They block spending on goods and services, shrinking the “real” economy. A debt writedown would be pragmatic, not merely a moral sympathy with the less affluent.

Financialization does not help the economy by making it more efficient. To the contrary, it makes the economy far more fragile while destroying the underlying society for the benefit of a few foreign invaders.