Relevant and even prescient commentary on news, politics and the economy.

Coronavirus dashboard for March 22

Coronavirus dashboard for March 22

This is a new daily or nearly daily update I hope to post, including the most important metrics to show how controlled – or out of control – the cononavirus pandemic is. Hopefully the numbers will move ever closer to the tipping point where the epidemic is under control.In order to bring this pandemic under control, and prevent both health and economic catastrophes, in my opinion the US needs 2 weeks of China (total lockdown, preventing community spread) followed by 1 month of South Korea (extremely aggressive testing). The metric to be watched for testing is a ratio of 15 tests administered for every infection found (the ratio at which South Korea turned the corner).

Here is the update through yesterday (March 21)

Number and rate of increase of Reported Infections (from Johns Hopkins via

  • Number: up +7,123 to 26,747 (vs. +5,374 on March 21)
  • Rate of increase: day/day: 36% (vs. 34.6% baseline exponential average per Jim Bianco) (and vs. 38% on March 21)

Jim Bianco’s excellent exponential projection from March 10, of a daily 34.5% growth in reported infections for the next 10 days has been almost exactly correct. I am using this as a baseline against which we can tell how well “social distancing” strategies are working as well as State-mandated partial and total lockdowns.

In the last five days, the rate of exponential growth has actually risen from about 28% to 40% and even 50%, probably due to increased testing being able to uncover more infections.

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Weekly Indicators for March 17 – 21 at Seeking Alpha

b7 New Deal democrat

Weekly Indicators for March 17 – 21 at Seeking Alpha

A vignette….

Cognoscenti: “It’s impossible to forecast the economy.”

Forecaster: “Actually, if you rely upon a tried and true series of long and short leading indicators, you ca-“


G.S.M.O.D.: [BOOM!

Forecaster [poking head through rubble]: “Y’know, Deity, that really wasn’t very fair.”

Sigh. At least, the high frequency indicators have been the first to show the economic impacts of the coronavirus, as opposed to waiting around for monthly data. The Weekly Indicators post is up at Seeking Alpha.

Clicking through and reading will bring you as up to date as possible on the economic carnage, as well as reward me a little bit for my efforts.

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The best US solution to the coronavirus pandemic: SHUT.IT.DOWN — two weeks of China + one month of South Korea

The best US solution to the coronavirus pandemic: SHUT.IT.DOWN — two weeks of China + one month of South Korea

For the last few weeks, I have been screaming at the top of my lungs about “exponential growth.”   That’s because so few people realized the impact such growth could have in a pandemic, over the course of just a few months, even weeks.I first began thinking about this as soon as I read a Tweet by Trevor Bedford a month ago about how coronavirus had probably been circulating, undetected, in Washington for three to six weeks. I immediately thought, with a jolt, about what that meant in terms of exponential growth.

Looking back over my private correspondence, I see where I first voiced the likely impact back on February 27. Here’s what I wrote then:
“The CDC only has 250 working test kits. They have *none* to spare to check for community spread. Thus the virus will spread for several weeks undetected until tests are administered among the first very sick. By then it will be too late.

“Meanwhile the Administration has clamped a gag order on the government scientists. To my knowledge, it has taken no action to obtain the thousands of test kits that are needed from other countries.

“In short, malpractice by the Buffoon in chief could easily lead to tens of thousands of unnecessary deaths.”
And so I started shouting from the rooftops about exponential spread. Nothing since then has caused me to change my mind.

By now, at least among those who are able to listen and comprehend, exponential growth has been accepted as the immediate course of the pandemic. Steps have been taken, of greater or lesser effect, in a number of countries to stop it.

Today I want to switch gears. Because I am congenitally predisposed to thinking about what we are able to control – how to come up with a solution to when we cannot avoid being rolled over by a bulldozer.

So, here’s what I think we need to do to stop the exponential spread of this disease:

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Some Ideas for Pandeminomics

Some Ideas for Pandeminomics

The starting point for all of what follows is that government, if it has the will to act, is currently in the driver’s seat.  Much of the private sector is facing a terrifying confluence of crunches: supply breakdowns, demand falling off a cliff for many goods and services, and a looming shortfall of liquidity to service debt.  A wide swath of business is on the ropes and needs a rescue from government.  This puts the power in our hands if we can wield it.  Of course, with Republican dominance in Washington and the continued loyalty of the Democratic Party to the liberal wing of the plutocracy, the likelihood that we will take advantage of this moment is small.  Still, the opportunity is there, and that’s the basis for thinking ambitiously.

1. Debt-equity buyouts.  There’s a lot of business debt, and borrowers face a crisis as their earnings tumble.  Andrew Ross Sorkin proposes a scheme in which the government would offer no-interest bridge loans to any and all comers, with repayment delayed until after the immediate crisis abates.  The key condition, and just about the only one, is that recipients commit to retaining 90% of their pre-virus workforce.  Dean Baker would go further and provide direct bailout support in exchange for quid pro quo’s, like zeroing out shareholders and limiting CEO pay.

Here is another idea.  Have the government offer to purchase any and all outstanding corporate debt, converting it into an equity stake.  Wipe the debt off the books and take a public ownership position instead, which could be used to pursue objectives, like cutting pay at the top and expanding worker benefits, that the vast majority of Americans support.

2. Public voucher purchases.  For the small business and self-employed sector, particularly in services, I like the Saez-Zucman idea of having the government serve as buyer of last resort.  Specifically, I would set up a public fund to enable the government—perhaps at state and local levels—purchase vouchers for future goods.  A massage therapist, for example, could sell a quantity of vouchers for future massage sessions, providing an income stream to make it through the quarantine.  When the crisis recedes, the government would distribute these vouchers to the public, either through a highly discounted sale or even free distribution.  Perhaps the vouchers could be for steep discounts, say 80%, off the posted price to all for a bit of post-virus income as well.

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The Coronavirus Recession has begun

The Coronavirus Recession has begun

This morning we got two reports that confirm the beginning of the Coronavirus Recession: initial jobless claims and the Philadelphia Fed manufacturing index.

Initial claims rose to 281,000 one week ago. They are now 15% higher than their low last April, as well as almost 15% higher preliminarily on a monthly basis than last March, and the 4 week moving average is just shy of 5% higher than one year ago.  This meets two of my three “recession warning” triggers for this metric.

The Philadelphia Fed’s new orders subindex came in at -15.5, a big decline from last month’s +33.6, that clearly represented manufacturers’ trying to lock in new supplies. Together with the Empire State’s big decline to -9.3 earlier this week, the average of the new orders subindexes for the five regional Feds is -4.

Other high frequency indicators have also tightened or turned neutral this week: credit conditions from the Chicago Fed, the spread between Treasuries and corporate bonds, the Harpex shipping index, the US$, and of course the stock market, which has continued to crash.

I’ll have the full report up this Saturday, but the bottom line is that with this morning’s reports, it is clear in the data that the Coronavirus Recession has begun.

Two final notes:

1.  When I checked a short time ago, reported cases of coronavirus in the US had jumped 45% in a single day to 9415. This is only -6% below Jim Bianco’s exponential forecast from one week ago. Yes, much of this increase can be put down to increased testing, but the point is, that increased testing keeps finding an increased number of infections. This pace of increase is likely to continue for at least one more week.

2.  On the other hand, I will not leave you with DOOOM. I am working on a piece detailing what data to look for to know when we are turning the corner on this crisis.

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Given the Coronavirus crisis, there will be bailouts. Should there be bailouts ? If so how should firms be bailed out ?

I think it is useful to look at the last round of bailouts from 2008-9 for lessons learned. First with the benefit of hindsight, does it seem that bailing out firms was a mistake ? On the one hand one can argue that it was necessary to prevent the Great Depression. It is hard to discuss whether it was worth the cost, because there was no cost. Instead, the US Federal Goverment obtained the highest profits recorded in human history by accident when focused on saving the financial system (and GM and Chrystler).

The many brilliant economists who argued that we should stick to laissez faire and that, in particular, socialism for bankers and ruthless capitalism for everyone else is no good, have not examined the outcomes. I think this is because the evidence is overwhelmingly damaging to their case.

OK so let’s bail out again. Looking back, can we decide on a better way to do it ? It is challenging. Preventing the second great depression while making hundreds of billions in profits is a good year’s work by any standard.

If things worked out rather well (and the bailouts did even if aggregate demand management was distorted by austerians) what can we learn ?

It seems to me that we learn that Treasuries should bear risk. Bearing risk is highly rewarded in expected value. Bearing risk is highly rewarded on long term average. This is what matters to Treasuries who are concerned about long term debt sustainability. Bearing risk is very very highly rewarded during crises, when it is buying at fire sale prices.

In general the riskier the positions taken by the US Federal Government in 2008/9 the more it helped the private sector and the more it profited.

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Let’s get real about coronavirus testing . . .

We do not know how severe the covid-19 epidemic will be or how much economic and social pain it will cause, but it clearly has the potential to kill hundreds of thousands or even millions of Americans, and the economic consequences could include a deep recession and even a financial crisis that will cause misery to tens of millions of people.

Testing is key to getting the epidemic under control, and it is not clear to me that policymakers are being nearly as aggressive about expanding testing capacity as they should be.  Think of two alternative testing strategies.  One strategy is to selectively test people who have symptoms or who may have been exposed to someone with the disease.  The alternative strategy is to develop the ability to do mass screenings for the virus among the general population.  (There are various intermediate strategies one can imagine, such as doing mass screenings in local areas with a high incidence of disease.)  Of course, selective testing is the place to start, but the ability to do mass screenings would allow us to pro-actively identify and isolate almost all carriers and would thus avoid the need for widespread social isolation which is wreaking havoc on the economy.  Selective screenings, in contrast, may or may not be able to contain the epidemic sufficiently to allow normal economic activity to resume.

I am not sure what is being done to expand our testing capacity, but if we want to develop the ability to do mass screenings, we need to make it a priority nowThe government will need to contract with equipment manufacturers and other suppliers (of reagents, swabs, protective gear, etc.) for large capacity commitments on a short timeline.  I have no idea what this would cost or even if it is feasible, but if there is even a small chance that the epidemic will last for six months or return next winter, it seems that a $10 or $20 billion investment in testing capacity would be short money.

The Democrats should jump on this as they take up the next coronavirus response bill.  Not only is it good policy, it will give them an opportunity to highlight the fumbling, timid response of the Trump administration to the crisis.

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The Coming Fiscal Crisis Of State And Local Governments

The Coming Fiscal Crisis Of State And Local Governments

Yesterday my wife Marina and I met with our personal attorney, a close friend also, to fix  some loose ends in our wills due to some recent family deaths, as well the current situation.  He also happens to sit on the Harrisonburg City Council, as well as having been Mayor for a  while and a longtime member of the city Planning Commission, someone whose competence we have great respect for.  Anyway, he noted that on April 14 the City Manager is to present a proposed budget to the City Council, and that it will have a giant hole in it given that taxes on restaurants are a significant source of revenues for the city, and while not completely shut down, restaurants are now seriously restricted in their activity, not to mention that students will not be returning this semester, and they provide a lot of business.  In short, the city will face severe budgetary problems as the now occurring recession proceeds.  It is not only Harrisonburg that faces this problem, but probably just about every state and municipality in the United States.

Obviously this is currently low on the priority list of most people, and while Congress has now voted for a stimulus bill that will help out indiviuals and businesses, and another may be on the way, so far there  has not been a whisper regarding a likely need to help out state and local governments, who, after all, contribute more to the US GDP (and employment) than does the federal government, which mostly just ransfers money, except for the DOD in substantial terms.  The problem is that unlike the federal government, nearly all state and local governments face balanced budget rules for their current activities, with most needing to pass bond referenda for specific projects in order to borrow money.  So when the revenues fall short, which they shortly will start to do for all these state governments, they will face the choice of cutting spending and laying off workers or raising taxes on populations facing sharply reduced incomes and employment.  The sooner the federal government recognizes this and starts to do something, the better, although probably for now natonal politicians are hoping this will all be over before too much damage happens to the local governments, to the extent they are thinking about this at all, which I doubt.

I note that in the Great Recession, this problem was recognized, and the 2009 fiscal stimulus plan by Obama included as about a third of its spending the distribution to state and local governments of revenue  sharing.  This did help out their  problems that arose at that time.  Doing so again I think would be wise, but again, for the moment this problem is under the radar at the national level.

Barkley Rosser

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In the quaint, pre-coronavirus world of February, the economy was already very weak

In the quaint, pre-coronavirus world of February, the economy was already very weak

I have a post up at Seeking Alpha, taking a look at this morning’s retail sales and industrial production reports for February, and briefly considering their implications for employment in the coming months, even before the impact of coronavirus.

Here’s a graph that didn’t make it into that post, showing the past 25+ years of real retail sales (red), jobs (blue), and real aggregate payrolls (green):

For the past 11 months, real retail sales in February were only up +0.9%. We’ll never know for sure, but it is entirely possible that, even without coronavirus, real retail sales might have turned negative YoY this month, suggesting that job growth might screech to a halt in the next few months.

Also, in the more current weekly data, we got two important reads on chain store sales this morning. Both Redbook and the Retail Economist recorded surges in chain store sales last week, as consumer rushed to stockpile supplies.

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The Coronavirus Recession (probably) begins

The Coronavirus Recession (probably) begins

Looks like today is going to be an interesting one at the Wall Street casino. As I write this, futures are down -10%. Does this mean Trump has to take back his autographed copies of the surge in the indexes Friday afternoon?

I’ve expected this, since the reality that Trump was, as usual, lying in his Friday afternoon announcements didn’t occur until after 4 p.m. when the markets were already closed. Yesterday’s announcement by the Fed of an emergency rate cut to zero was also appropriately recognized as a sign of panic. And until people feel safe again getting out into public to do their business, it won’t matter.

In the meantime, I’ve been waiting on hard data to document a downturn in producer and/or consumer behavior due to the coronavirus. Up until now we’ve only had intermodal railroad shipments (showing the impact of China’s shutdown) and, last week, Open Table’s reservations collapse.

Last month I noted the spike higher in new orders in the regional Fed manufacturing reports, and have suggested that it might represent manufacturer’s locking in supplies in advance of a shortage. This morning’s Empire State Manufacturing Survey appears to have confirmed that idea in spades.

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