We’re looking at a situation like after 1929 or after World War II. The largest factory closings since World War II has hit the United States and Europe.
We could witness a retool and shift of production which would echo the industrial transformation of the 1940s, when factories moved from producing consumer goods like cars to turning out tanks and guns for the war effort. There isn’t, however, a precedent for such a synchronized shutdown globally, particularly in the auto industry. The closures in Europe and U.S. trail those in other big producing nations, such as China, Japan, and South Korea.
President Trump, who has referred to himself as a wartime president leading the fight against an “invisible enemy”, activated the Korean-war era Defense Production Act of 1950 last week. The goal of the act is to boost private industry production of supplies needed for the health crisis.
Signed by President Harry S. Truman over concerns about supplies and equipment during the Korean war, the bill has been invoked multiple times since then to help the federal government for a range of emergencies, including war, hurricanes and terrorism prevention.
The idea is to mobilize moving American businesses that can manufacture anything related to the abatement of the coronavirus.
Secretary Mnuchin noted with President Trump that, under the current proposal, we’re looking at Americans receiving two checks per month––somewhere between $1,000 and $3,000. We’re moving into a full Keynesian supply side reality. Printing money as economic policy.
The challenge we’re going to run into, both near term and long term, is logistical. How do we keep society running? What are we going to have for the millions of Americans in the gig economy who are partially employed? For instance, on Broadway or in Hollywood. These industries employ hundreds of thousands of people at least in some fractional capacity. All of that is gone for now. None of that is coming back for a period of time.
We must look at the economy as a layer cake. The most at risk Americans will be hourly and wage workers. These people are working, not only in Broadway or Hollywood, but, also, the mall. All of these jobs have suddenly been suspended.
The next layer of Americans are those with some piece of a union that is paying out. That won’t be effective for very long, because nobody has accounted for such a massive disruption. Volkswagen and Mercedes Benz shut down production. General Motors, Fiat, and Chrysler have shut down production, too.
Then there’s the remainder of Americans. Those of us involved in funds, crypto projects, and traditional business. They will be affected in various ways. America has a six month buffer, before we start running into major problems.
What’s more, we might not be into the full crux of this pandemic until mid-summer. We may be looking at self-exclusion well into mid-summer. I’m in New York. I know, at least, three personally with coronavirus. Moving forward, there will be people skirting the regulations or just ignoring the exclusions.
The President is sending Navy warships to the coasts of New York and Los Angeles to serve as an emergency hospital. The types of things being done right now have not taken place in the New Deal or World War II.
From a global perspective, we are moving towards some type of marginal trade freezing or slowdown. Italy and France have canceled mortgages and rents. Calls for freezing rents and mortgages are ringing out amid stay at home orders. The U.S. ordered a yearlong break on mortgage payments, while renters are still waiting for a similar reprieve.
What are the cascading impacts that that will have on central banks in Europe and the United States? How much will policy continue to shift? We’re looking simply at how do we keep the US solvent and operational, as well as other countries?
Oil is at its lowest price since 2003. We are looking at a long term reduction of what people are willing to pay for that commodity. This will open doors to green science and a Green Deal different things that other people have been looking at for policy.
Politicians will start listening to these ideas. In the U.S., we can look to Europe’s green deal ambitions, which are going through a shock test now. The Czech Prime Minister called for a cancellation of their Green Deal.
We’re hearing the term helicopter money. I haven’t heard that used in the news since President W Bush held high office. Milton Friedman coined the phrase in 1969 as a parable of dropping money from a helicopter to illustrate the effects of monetary expansion. The economy was revived by such monetarism in the early 2000s following Japan’s Lost Decade.
We heard how President Trump and Secretary Mnunchen plan to cut checks to Americans. There is also a secondary challenge to this approach. How do we not break the dollar?
There’s going to be some interesting conversations had with big banks, very much like those Obama had with big banks during the 2008-2009 bailouts. Obama worked with every large American bank to push a bailout. The problem we face with most large institutions is that banks hold money, loan money, and invest money to make money. How do they make money now?
Fears of a deflation have bubbled to the surface as a coronavirus pandemic harms the economy. What we may also see is a suspension of rules as we know it. The pandemic will not end anytime soon.