1) Covid-19 is a severe supply side shock, but main street will bounce back once the public health separation orders are relaxed in the months ahead. The idea of a Depression is nonsense because main street capitalism does not have a death wish. Households and businesses will creatively find ways to cope, repair, replenish and restart. When production recommences, wages and incomes will recover and spending will revive…..the idea of an inexorable, self-fueling demand collapse is Keynesian malarkey; and a 6 or even 12 month recession is not the end of the world. We’ve had 10 of them since 1945.
2) Wall Street is toast…..$20-40 trillion of bottled air will be wrung out of egregiously over-valued stock and bond prices on a worldwide basis, and the reckless speculators and gamblers of Wall Street will be carried out on their shields. The permanent shutdown of the casino is the silver lining of Covid-19.
3) The central banks are totally discredited. They did nothing for the main street economy during the last 10 years except to encourage households to load up with debt, the corporate C-suites to strip-mine their balance sheets to fund stock buy-backs and M&A and Washington to bury itself in public debt because the Fed falsified the cost of borrowing. They left the system fragile and defenseless against a moderate shock, not “in a good place” as so foolishly claimed by Pusillanimous Powell.
4) Zero interest rates and massive bond buying is insanity. What the market needs is rising interest rates to bring money out of hiding and compensate for the new-found recognition that there is risk in the world.
5) The proposed airline, shale, Boeing, and numerous other bailouts are an outrage…..Corporate America spent $20 trillion on stock buybacks, stupid and drastically over-priced M&A deals, special dividends and other forms of financial engineering since the 2008 crisis. If they are now running short of cash they have no one except themselves to blame, and should eat their broccoli by raising high cost debt or issuing dilutive common stock. Failing that, they should head for the bankruptcy courts to reorganize and get fired.
6) The Trump proposal to hand out $2,000 to nearly every American is an unspeakable act of stupidity and abuse. Its only purpose is to mitigate the inevitable recession so that the Donald is re-elected. He’s hijacking the US treasury as a campaign committee.
7)The fact is, 80% of America can get by during a temporary supply-side interruption by drawing down $4 trillion of unused credit card lines, $10 trillion of savings deposits, $1.3 trillion of checking accounts and by belt-tightening, deferrals, and selling excess junk on e-Bay or those already on welfare or wage earners who were imprudently living hand-to-mouth spending 100% or 110% of what they earned.
David Stockman served as Budget Director during Ronald Reagan’s first term. He provides a unique perspective to the economic and political scene, with backgrounds in economics and politics. Stockman’s Contra Corner is a daily blog post. Cost: $365 annually, $99 quarterly, $40 monthly.