Monetary and Fiscal Policies in Times of Large Debt:

[0R0 + 6,251]

1 hour ago, canadas canadas said:

Isn't the Chicago economic school known for its support of neoliberal economics called neoliberalism?

 

It is more of a free market perspective than a neoliberal policy driven perspective. It is more liberal in the classic sense.

[Meredith Poor + 883]

12 hours ago, 0R0 said:

Low and negative real interest rates are the result of excess savings in the economy. It is to a large extent demographic. As the higher proportion of older high productivity savers vs. young consumers getting started in life that drive consumption.

Can you put a number on 'excess savings'? Is Federal Government 'debt' the same as private 'savings'? What sort of ratio would you put on government debt in comparison for current demand for private sector equity (Dg/ΔEp)?

[Meredith Poor + 883]

12 hours ago, Dan Warnick said:

The majority of debt the Chinese and the Japanese have purchased is in bonds, which are quite different from T-Bills which are short term.  It's complicated, buy here is a pretty good article to break it down:

Is it a risk for America that China holds over $1 trillion in U.S. debt?

Many worry that China’s ownership of American debt affords the Chinese economic leverage over the United States. This apprehension, however, stems from a misunderstanding of sovereign debt and of how states derive power from their economic relations. The purchasing of sovereign debt by foreign countries is a normal transaction that helps maintain openness in the global economy. Consequently, China’s stake in America’s debt has more of a binding than dividing effect on bilateral relations between the two countries.

Even if China wished to “call in” its loans, the use of credit as a coercive measure is complicated and often heavily constrained. A creditor can only dictate terms for the debtor country if that debtor has no other options. In the case of the United States, American debt is a widely-held and extremely desirable asset in the global economy. Whatever debt China does sell is simply purchased by other countries. For instance, in August 2015 China reduced its holdings of U.S. Treasuries by approximately $180 billion. Despite the scale, this selloff did not significantly affect the U.S. economy, thereby limiting the impact that such an action may have on U.S. decision-making.

(more at the link)

This doesn't answer the question about how China and Japan got into a position to buy US sovereign debt. How did China and Japan get those dollars?

[0R0 + 6,251]

4 minutes ago, Meredith Poor said:

This doesn't answer the question about how China and Japan got into a position to buy US sovereign debt. How did China and Japan get those dollars?

They printed up money domestically, used it to buy dollars and thus lowered their currency exchange rate, Therefore managed to sell more exports and then used the net dollar balances to buy Treasuries and other reserve assets.

China had over 20% of its GDP in reserves at some point in the early 2000s.

That is only the start of the cascade of effects.

To think of it clearly, you can think of it as using vendor financing to push sales of your products.

[0R0 + 6,251]

14 minutes ago, Meredith Poor said:

Can you put a number on 'excess savings'? Is Federal Government 'debt' the same as private 'savings'? What sort of ratio would you put on government debt in comparison for current demand for private sector equity (Dg/ΔEp)?

No. it is similar to private debt, just that it has the full faith and credit of the Federal reserve's printing press behind it so that it "can't" default. Treasury notes and bonds are often used for core capital in financial institutions that allow them more private debt purchases or lending - same as cash would. Thus sovereigns enjoy a monetary premium because they are used as money.

Equity gets the excess bid from funding of debt emissions refinancing old debt. The new cash is used to pay off the holders of the old debt. The old holders reallocate their portfolio to more equity if their debt holdings were inflated by the Fed's bid (they were) while the central bank is the incremental lender into the debt markets during these crisis conditions.

The use of Treasuries (and MBS) as collateral for repos makes them into a quasi cash in the Eurodollar market.

[0R0 + 6,251]

To get an idea of how deflationary cumulative policy had been on the part of the US and EU vs. China, we can compare the Debt to M2 ratios. It shows the US is able to raise its monetary balances much further before striking an inflationary issue, while the EU also had plenty of space as of 2018 and Japan had somewhat less space. China, on the other hand, was bank credit driven till 2011, when it allowed bond credit and private finance to expand outside the reportable bank figures. Thus China - at least by this measure with official data - appears to have no room for monetary action at all as demand for cash is largely met. Incremental monetary expansion would cause key prices to rise, either real estate or food and other key consumables. Food inflation on the order of 20% is extremely destabilizing for China in the context of 20-25% unemployment. .

[specinho + 439]

20 hours ago, Marcin2 said:

Do not understand this pizza example ?

 

The pizza photo shows that if the base  is not solidly attached onto, then, the whole content of pizza could be easily shaken or tilted with careless handling. What I was trying to say is : concepts of economy, including monetary and fiscal policies, are founded on subjective opinions upon changeable conditions. They are not firm but widely accepted and propagated with multiplication of magnitude...... We regurgitate what were said and copy what were done without fully understanding the possible impacts on current conditions.......... The consequential mess is the result............

Edited May 23, 2020 by specinho

[Hotone + 412]

3 hours ago, 0R0 said:

If you were Chinese you would be pro American because that is the only power standing against the CCP that has been misdirecting the economy for the better part of a century while increasingly suppressing their lives since the hardliners returned to the fore. The CCP is a parasite on the Chinese, and they would much appreciate having it gone. They just are not allowed to say so.

Doesn't seem to be what the MSM says, may be you have other sources? Fox news, One America?

https://www.forbes.com/sites/niallmccarthy/2018/01/22/the-countries-that-trust-their-government-most-and-least-infographic/

Edited May 23, 2020 by Hotone

[0R0 + 6,251]

2 minutes ago, Hotone said:

Doesn't seem to be what the MSM says, may be you have other sources? Fox news, One America?

https://www.forbes.com/sites/niallmccarthy/2018/01/22/the-countries-that-trust-their-government-most-and-least-infographic/

As I said, they are not allowed to say so.

[0R0 + 6,251]

Just now, 0R0 said:

2 minutes ago, Hotone said:

Doesn't seem to be what the MSM says, may be you have other sources? Fox news, One America?

https://www.forbes.com/sites/niallmccarthy/2018/01/22/the-countries-that-trust-their-government-most-and-least-infographic/

As I said, they are not allowed to say so.

I will add that While I would trust the US government to the level of 2 stars on the Amazon grade, I would provide a 1 or 2 stars for most Western governments, and no stars for China's.

[SUZNV + 1,197]

4 hours ago, 0R0 said:

If you were Chinese you would be pro American because that is the only power standing against the CCP that has been misdirecting the economy for the better part of a century while increasingly suppressing their lives since the hardliners returned to the fore. The CCP is a parasite on the Chinese, and they would much appreciate having it gone. They just are not allowed to say so.

CCP told them that US and Western people are all in big trouble, backed by negative news about their government and praise for China economics from Western media (I think CCP is a big donor) and are afraid of China power rising and CCP is fighting for them and should have their supports. 

Many of them in big cities sit and see the real estate prices keep increasing and listening how their mum and dad got better life started from 0 or negative. They refused to change out of fear of losing everything they got. Anything they possessed are politically and legally hold as hostages so they mind only how to make as much money as they can by any meaning everyone  else around them do even by bribing, not in political system. So it is purely greed. With the poor people or in or from the countryside, they even don't care more. Money is above everything else but they don't mind working with cheap salary if the real estate are high because their parents encourage them to live with them or live a lots of people in small space for immigrants from countryside. 

That's why CCP can keep in power in a long time. Most Chinese are under oppression but not desperate, they don't really trust CCP but choose to keep what they can have and certainly don't trust the Western as well (and governments encourage them to not to trust the opponents). Without jobs and real estate bubble and international trade, China is not much different from North Korean. Because confident in justice is what glue people together in a society and people don't really trust CCP justice, people tend to be selfish and doubt to any stranger and insensitive to social injustice (not my problem). So driven by fear and greed rather than right and wrong or help to build a good society around.

It is hard to live if you have a very black and white mindset, you will try to get out of China by any mean.  You either risk to lose everything you have and being isolated with your family members or choose to believe in the only choice CCP provided and hope for more money. Jobs & Money & Nationalism and someday will lead the world is the morphine for normal Chinese to find meaning of life.

Anyone else in the world who understand CCP and still love or admire them are either bought by CCP or have their businesses or investments interests hold as hostages, CCP understands human psychology, public relations  for centuries and it  was built in Chinese cultures for a long long time  time as they never truly have any kind of democracy (something like ancient Greek or Rome Republic), except maybe HongKong, Taiwanese or Macau.

Communism destroy many aspects of positive human values for generations: hard working, believe in justice, believe the goodness in people which strengthen the society bond and help each other but always have the "the greater good" or "Equality"  or "Stability" as excuses. 

 

Edited May 23, 2020 by SUZNV

[Meredith Poor + 883]

2 hours ago, 0R0 said:

No. it is similar to private debt, just that it has the full faith and credit of the Federal reserve's printing press behind it so that it "can't" default.

In other words, a private saver buying treasury bonds is no longer 'saving'.If those bonds aren't 'savings', what are they?

[0R0 + 6,251]

1 hour ago, Meredith Poor said:

In other words, a private saver buying treasury bonds is no longer 'saving'.If those bonds aren't 'savings', what are they?

whatever the Fed decides they are when it is the main bidder, or other central banks when they are the main bidder, or the other investors when they provide the top bid. The main point is that they are quasi cash in the way they are used within the banking system. For the investor they are assets, debt assets. They are not savings, despite being called "savings bonds" or "savings account".

Savings are not liabilities but real assets like cash, commodities (gold) canned goods electronic media that are not liabilities (bank accounts no, bitcoin yes).

[Meredith Poor + 883]

2 hours ago, 0R0 said:

whatever the Fed decides they are when it is the main bidder, or other central banks when they are the main bidder, or the other investors when they provide the top bid. The main point is that they are quasi cash in the way they are used within the banking system. For the investor they are assets, debt assets. They are not savings, despite being called "savings bonds" or "savings account".

Savings are not liabilities but real assets like cash, commodities (gold) canned goods electronic media that are not liabilities (bank accounts no, bitcoin yes).

So 'savings' and 'assets' are different?

[Meredith Poor + 883]

6 hours ago, 0R0 said:

To think of it clearly, you can think of it as using vendor financing to push sales of your products.

So China and Japan got their $trillion by selling more to the US than we sold to them? $1 trillion more, perhaps?

[0R0 + 6,251]

43 minutes ago, Meredith Poor said:

So China and Japan got their $trillion by selling more to the US than we sold to them? $1 trillion more, perhaps?

Not necessarily to the US.

They could simply buy dollars with their currency. Dollars are printed up by offshore banks in the Eurodollar system the same way they are printed up in the US banking system. Anyone could borrow dollars into existence and buy stuff from China and Japan. They just need to have a floating currency tradeable abroad or the willingness to put up collateral and commit to the dollar debt.

[Jan van Eck + 7,558]

19 hours ago, waltz said:

 I really am having a hard time determining if we are heading for a period of deflation or if all the money being pumped into the system will lead to inflation.

It is my view that the USA is headed for a period of asset value deflation.  You will see price deflation in real estate and that will lead to deflation in other asset classes.  My reasoning is that the US is now well over 15% unemployment and in some rural States already over 22%; those are the "official" rates and so far do not include the non-working self-employed and those that have stopped looking for work (lots of those around).  The solution, such as it is, of the "Republicans" is to open up the economy by stopping the shut-downs, and the "solution" of the leftist "Democrats" is to issue everyone a paycheck for life, under the guise of Universal Basic Income.  And I have no idea which way it will end up. 

That said, remember that people who are working are adding real value to the economy (except for government bureaucrats, as differentiated from actual govt workers, such as road repair crews). When those people stop, the economy shrinks, and the secondary spin-off is by a factor of roughly two to one, so you have a lot of earnings being sucked out of the economy.  Those workers then at some point (typically after exhausing their savings) end up unable to pay their mortgage loans, which are no longer held by the Originating financial instution but instead by some unknown third party, typically an investment trust.  The so-called "servicers" of those loans then pretend they have the authority to go collect on them, whcih they do not, but the court system has not figured that out.  So the "servicers"  (who are not servicers but independent debt collectors without authority) then file foreclosure lawsuits, and the now flat-broke homeowners leave town.  The house then gets bought up by some private equity fund and turned into a high-price rental.  The remaining dispossessed homeowners then end up as renters, paying far more in rent than for that mortgage loan, so even if they get back to serious work their disposable income is getting sucked up by the money class. You end up with this gigantic transfer of earnings, and thus wealth, to the money class, which is basically a return to feudalism. 

If you have a smaller community in rural or semi-rural America, and there are lots of those towns out there, and the major employer either folds or cuts back, then the workers are unemployed and end up leaving.  Those houses then end up dumped onto the local real-estate market, but cannot sell, as there are no new Buyers  (except possibly undocumented Mexican farm workers and contract labour).  Prices start to drop as the market gets stagnant.  The remaining sellers refuse to sell at the depressed prices, thinking that "the market will come back," so you have a restriction of supply, for a time.  But that eventually ends and you have what is known as "seller pent-up demand" for selling, for a variety of reasons, including of course "estate sales," where the homeowner is dead.  That fresh wave of selling demand hits the local market, and there still are no Buyers, so the market falls yet again.  And so it goes.

The ultimate result can be seen in small farm communities in North Dakota, where before the Bakken the prices of perfectly nice homes were as low as $10,000  - ten thousand dollars for a complete house - and that only if you could find a Buyer.  Lots of homes end up abandoned, as you can see in Ukraine  (where the population is in collapse as the people migrate to Western Europe in search of real jobs at real wages; the typical Ukraine wage for a younger woman in clerical or retail is now $200 a month).  

In the USA, you have the example of Flint, Michigan, where the closing of the General Motors plants left the entire town utterly destitute, unable to raise the taxes to pay the policemen and the firemen.  Or, over in Rhode Island, the case of Central Falls, which actually went bankrupt and the State had to take over and administer the Town.  In rural Michigan, the town of Benton Harbor was the home of the Whirlpool Corporation, the huge American builder of washing machines, which closed the factory doors and moved the plants to Mexico  (compliments of Bill Clinton's policies), and the Town collapsed, ended up with an Administrator appointed as feudal lord from the Governor of the State.  The population no longer had anything to say and the (white) Administrator then promptly sold the remaining town asset, the park and beach on Lake Michigan, to the white community next door  (Benton Harbor is overwhelmingly black), so once again ugly race politics showed up as economic warfare. 

If you take a rural city such as Rutland, Vermont, the major employer is the regional hospital, with some 1,750 workers.  Right behind it is General Electric Aviation, with two plants that make parts for jet engines for commerical aircraft.  Well, if your airline customers have 95% of their airplanes parked, then you can forget about supplyng those customers with rebuilt jet engines.  The market has evaporated.  So GE laid off 880 workers, and I predict the plants will close, the remaining military work to be consolidated at some other plant.  Why run two sets of plants at 15% capacity when you can run one at 30%?  It is not as if GE has lots of cash to go spend, and GE is not sentimental about their factories. 

Commercial real estate will fare no better.  Rutland had one large indoor mall go under, now empty.  There are no Buyers.  You cannot sell a mall in the USA today; you cannot even give it away.  Nobody wants it because there are no shoppers, that has moved to the internet, and there are no tenants, as the big-box stores are closing, places such as Macy's and Kohl's and even the promoted "upscale" places such as Nordstrom's; nobody is shopping, so the store tenants cannot pay the rents.  Burlington, Vermont had two malls; the University mall on the outskirts went bankrupt but is still operating, with stores there albeit closed down due to the "pandemic," and the Macy's Mall downtown, which was torn down in the idea there there would be this masive new mall and office space complex built instead, for $230 million.  But the financing for that was to come from the Bank of the Ozarks, a big lender to commercial properties;  gues what has happened to their Mall portfolio?  Can those other borrowers pay their Notes?  Hardly.  The developer on that deal was Brookfield Asset Management out of New York City, but they are not totally stupid, and are refusing to put their own cash into the construction, no, that is borrowed money, so the result is that Burlington will have this big hole in the ground over several city blocks, for years to come.  Nobody is going to build a new mall there.  Not going to happen.

As these factories and malls closed down, they will not be paying taxes.  The cities and towns reliant on those tax flows will see thier incomes evaporate, and so they will have to go charge more to the homeowners.  The private homes will have theri taxes zoom through the proverbial roof - but those workers are now unemployed, and thus unable to pay.  What will the Town do?  Foreclose for taxes?  Then what?  The Buyers will be the sharks from Wall Street,all Jews of course, buying in at less than 50%, then turning them into high-priced rentals.  The result will be the collapse of the restaurant trade, even cheap pizza places, as nobody will have disposable incomes any more.  And the population that can flee, will.  That leaves you with old pensioners, the drug addicts,  the criminal element, the poor living off food stamps and welfare programs, and the government workers.   Not an appetizing future. 

So:  my conclusion: you are headed for a deflationary spiral in hard asseet values including real estate and autos, and a re-structuring of USA society into two levels, a classic "rentier" class of the wealthy with their real-estate trusts owning lots of houses, and the managers who rent them out to the "dispossessed" class of peasants, who will pay their incomes over into rent.  And then, when the masses have had enough, you have revolution, and the guillotine.  

[Meredith Poor + 883]

15 hours ago, 0R0 said:

Not necessarily to the US.

They could simply buy dollars with their currency. Dollars are printed up by offshore banks in the Eurodollar system the same way they are printed up in the US banking system. Anyone could borrow dollars into existence and buy stuff from China and Japan. They just need to have a floating currency tradeable abroad or the willingness to put up collateral and commit to the dollar debt.

So if they 'buy dollars with their currency' then we should have $1 trillion in yuan, and another $1 trillion in yen. Has anyone noted or complained about the US Government's foreign exchange holdings?

[SUZNV + 1,197]

9 hours ago, Jan van Eck said:

 

So:  my conclusion: you are headed for a deflationary spiral in hard asset values including real estate and autos, and a re-structuring of USA society into two levels, a classic "rentier" class of the wealthy with their real-estate trusts owning lots of houses, and the managers who rent them out to the "dispossessed" class of peasants, who will pay their incomes over into rent.  And then, when the masses have had enough, you have revolution, and the guillotine.  

I couldn't agree more. In Western Countries, the less people can afford houses, either because of urbanization or regulations or globalization, the more "liberal" and the whole Western political systems keep shifting left.  In developing or poor countries where majority of people still can have their own houses, natural they will be more "conservatives" and they may risk their lives for whoever want to take their land away from them, even in countries that following communism where people don't trust their government for their retirement.

--------------------

After moving from Communism to Progressive to Conservative countries, 17 years, 15 years and 4 years, I found out that you either vote for learn more, work harder to prove your value with corporations so you can have some controls of your life with your own retirement cave or vote for having a liberal lifestyle, work hard play hard yet no saving on house and depend on government will feed you in your cage in your retirement and vote for left government out of your fear when you are most vulnerable and view people who vote Right as their enemy.

If the governments are evil enough, they can give you something like Covid19 to balance out their spending.

Middle class can never have both (your own house and live on public service for free) unless you are key  person of corporations or politicians.  For retirement I rather choose evil US, where an old person in the nursing home billed state government or your retirement fund at least 400 usd a day or even more (some 800 to 1200), if you still can go to toilet, would be more if you can't, depends on your condition. Because that means I am the important customer and they lose a big customer like me when I die. If the healthcare are under  government regulations and not for profits and health pay cheaply, they wouldn't care I live or die, their earning from government budget would be the same under government controls.  My healthcare in the old age will depend on the people working pay a lots for healthcare now so I happy to pay my share while I can work. You choose your own destiny with your vote and it will affect someone else destiny either they choose the same values with you or different.

It is always  about living in the jungle or in the zoo.

Edited May 24, 2020 by SUZNV

[Jan van Eck + 7,558]

On 5/22/2020 at 11:30 AM, Douglas Buckland said:

I asked what YOU would have done differently! Answer the damn question for once in your life!

PS: frankfurter IS anti-American, haven’t you been reading his posts!

In the very short term, there is not much that anyone can do differently, because the country is largely locked down by the various State Governors (over whom the Federal executive branch has no control).  In the somewhat longer term, the Executive, led by the President, can enact policies specifically designed to put people back to work and thus accelerate "money velocity" inside the USA.  And that is what Trump is doing, albeit that he grasps that intuitively, and not by academic research, knowledge or insight.  Does not matter; all that counts is the result.

trump's advisors are venal men, they are there to enrich themselves, so the real question is: do the advisor actions have the external effect of inujecting earnings into the internal economy?  They might, but not to the extent that a focused program such ast he FDR "New Deal" wouild have. 

I would have started off on a two-prong program.  Prong One would be to levy a 50% or greater tariff on goods from China, right across the board.  Domestic importers would be on notice that moving to yet another offshore location would not resolve their duty problems, those duties would get extended to other locations soon enough.  As you will recall, Ford once announced moving their sedan auto production to Mexico; that was met by a declaration by Trump that he would impose a 35% tariff on those (Mexican built) autos.   Was that a good idea?  Answer: probably. You could argue that it artificially enhances US auto worker's hand in union negotiations, but there has been so much ground lost that you might as well go all-out at this point to keep production (specifically, large component manufacturing such as metal stamping, and assembly) inside the USA.    It is time to move China production back to the USA, and forget about thsoe people.

The second prong is Federal infrastructure programs, designed to vastly improve life and earnings inside the USA.  One such program is water.  a hefty chunk of the USA is semi-arid, basically close to being desert.  A large part of the Southern USA central plains is prone to drought, yet there is a surplus of water in the Northern Plains that washes down the Missouri and red Rivers and causes extensive flooding every year. Now that water can be moved to the arid Southwest by a canal system running down from Devil's Lake, North Dakota  (currently some 27 feet over flood stage, and has flooded tens of thousands of acres of farmland permanently) down to North Texas, with recharge of the ground aquifers along the way.  

The North Dakota Dept of Transportation has been dumping vast amounts of gravel on their roads in order to raise the elevation, as you can see here.  You can also see the faint remnants of the mainline railroad, now submerged and useless, in the photo above. 

Letting all this water go to waste, and allowing it to do billions in damage, is foolish:

You can build a surface canal cheaply enough, with the added benefit of recreation, including ice skating in the winter assuming it freezes over  (which is likely).  All that water will need tobe "lifted" several hundred feet to get to an elevation South of the Missouri River when it can flow naturally into the Southern central plains.  But the USA has the technology to do that: currently there are these 100 MW packaged nuclear reactors installed on aircraft carriers that would work perfectly to drive a bank of large pumps to lift and move the water.  Those are now "off the shelf" technology and can be easily installed at a pump station at the source point or points. 

Moving the water, and re-charging the depleted ground aquifers, probably will do more good to the central plains than anything else the federal government could deream up.  What would it cost?  50 billion?  Who cares? Do the project and put men back to work, with huge downstream benefits. A lot cheaper than paying people to sit around at home, in my view. 

[El Nikko + 2,145]

11 hours ago, Jan van Eck said:

  And then, when the masses have had enough, you have revolution, and the guillotine.  

I like that bit

[Jan van Eck + 7,558]

1 minute ago, El Nikko said:

I like that bit

But you really don't want to be around when it goes down.  There are at least 87 million Americans with private arsenals, and the ammo to match.  When they set loose upon the land, and I predict they will, the results are uncontained.  Nobody knows where it goes and how it ends up.  Will Wall Street be wiped out?  Probably.  How about the surveillance capitalists, the Googles and Facebooks?  Probably.  Agri-business corporation executives?  Probably.  One thing for sure: lots and lots of blood in the streets.  Revolutions are inherently violent and messy. 

[El Nikko + 2,145]

3 minutes ago, Jan van Eck said:

But you really don't want to be around when it goes down.  There are at least 87 million Americans with private arsenals, and the ammo to match.  When they set loose upon the land, and I predict they will, the results are uncontained.  Nobody knows where it goes and how it ends up.  Will Wall Street be wiped out?  Probably.  How about the surveillance capitalists, the Googles and Facebooks?  Probably.  Agri-business corporation executives?  Probably.  One thing for sure: lots and lots of blood in the streets.  Revolutions are inherently violent and messy. 

Maybe that is why the UK government is having our police acting like the Stasi right now? The UK is a strange country, we're actually very authoritarian but under the guise of being goofy tea drinking nitwits. All I can say in over the last 10 years or so things have just got worse and worse and worse and it's almost like living in a dream at the moment because most people have absolutely no idea what is about to hit us because the government handed out a load of 'free' cash. I was begging people to stop and think 12 weeks ago, destroying the economy is only going to lead to misery but no one listened.

I agree with what you wrote, to say I am worried would be a huge understatement but honestly I think any kind of revolution would fail, I think they might let the 'far left' and 'far right' rip each other to pieces for a while (like Germany in the 30s) but I think the surveillance state is far more powerful than anyone realises.

The reason I started that prediction thread a few weeks back was because I wanted to speculate about this sort of thing but then we saw -37 oil and that just broke my brain.

[0R0 + 6,251]

13 hours ago, Jan van Eck said:

It is my view that the USA is headed for a period of asset value deflation.  You will see price deflation in real estate and that will lead to deflation in other asset classes.  My reasoning is that the US is now well over 15% unemployment and in some rural States already over 22%; those are the "official" rates and so far do not include the non-working self-employed and those that have stopped looking for work (lots of those around).  The solution, such as it is, of the "Republicans" is to open up the economy by stopping the shut-downs, and the "solution" of the leftist "Democrats" is to issue everyone a paycheck for life, under the guise of Universal Basic Income.  And I have no idea which way it will end up. 

That said, remember that people who are working are adding real value to the economy (except for government bureaucrats, as differentiated from actual govt workers, such as road repair crews). When those people stop, the economy shrinks, and the secondary spin-off is by a factor of roughly two to one, so you have a lot of earnings being sucked out of the economy.  Those workers then at some point (typically after exhausing their savings) end up unable to pay their mortgage loans, which are no longer held by the Originating financial instution but instead by some unknown third party, typically an investment trust.  The so-called "servicers" of those loans then pretend they have the authority to go collect on them, whcih they do not, but the court system has not figured that out.  So the "servicers"  (who are not servicers but independent debt collectors without authority) then file foreclosure lawsuits, and the now flat-broke homeowners leave town.  The house then gets bought up by some private equity fund and turned into a high-price rental.  The remaining dispossessed homeowners then end up as renters, paying far more in rent than for that mortgage loan, so even if they get back to serious work their disposable income is getting sucked up by the money class. You end up with this gigantic transfer of earnings, and thus wealth, to the money class, which is basically a return to feudalism. 

If you have a smaller community in rural or semi-rural America, and there are lots of those towns out there, and the major employer either folds or cuts back, then the workers are unemployed and end up leaving.  Those houses then end up dumped onto the local real-estate market, but cannot sell, as there are no new Buyers  (except possibly undocumented Mexican farm workers and contract labour).  Prices start to drop as the market gets stagnant.  The remaining sellers refuse to sell at the depressed prices, thinking that "the market will come back," so you have a restriction of supply, for a time.  But that eventually ends and you have what is known as "seller pent-up demand" for selling, for a variety of reasons, including of course "estate sales," where the homeowner is dead.  That fresh wave of selling demand hits the local market, and there still are no Buyers, so the market falls yet again.  And so it goes.

The ultimate result can be seen in small farm communities in North Dakota, where before the Bakken the prices of perfectly nice homes were as low as $10,000  - ten thousand dollars for a complete house - and that only if you could find a Buyer.  Lots of homes end up abandoned, as you can see in Ukraine  (where the population is in collapse as the people migrate to Western Europe in search of real jobs at real wages; the typical Ukraine wage for a younger woman in clerical or retail is now $200 a month).  

In the USA, you have the example of Flint, Michigan, where the closing of the General Motors plants left the entire town utterly destitute, unable to raise the taxes to pay the policemen and the firemen.  Or, over in Rhode Island, the case of Central Falls, which actually went bankrupt and the State had to take over and administer the Town.  In rural Michigan, the town of Benton Harbor was the home of the Whirlpool Corporation, the huge American builder of washing machines, which closed the factory doors and moved the plants to Mexico  (compliments of Bill Clinton's policies), and the Town collapsed, ended up with an Administrator appointed as feudal lord from the Governor of the State.  The population no longer had anything to say and the (white) Administrator then promptly sold the remaining town asset, the park and beach on Lake Michigan, to the white community next door  (Benton Harbor is overwhelmingly black), so once again ugly race politics showed up as economic warfare. 

If you take a rural city such as Rutland, Vermont, the major employer is the regional hospital, with some 1,750 workers.  Right behind it is General Electric Aviation, with two plants that make parts for jet engines for commerical aircraft.  Well, if your airline customers have 95% of their airplanes parked, then you can forget about supplyng those customers with rebuilt jet engines.  The market has evaporated.  So GE laid off 880 workers, and I predict the plants will close, the remaining military work to be consolidated at some other plant.  Why run two sets of plants at 15% capacity when you can run one at 30%?  It is not as if GE has lots of cash to go spend, and GE is not sentimental about their factories. 

Commercial real estate will fare no better.  Rutland had one large indoor mall go under, now empty.  There are no Buyers.  You cannot sell a mall in the USA today; you cannot even give it away.  Nobody wants it because there are no shoppers, that has moved to the internet, and there are no tenants, as the big-box stores are closing, places such as Macy's and Kohl's and even the promoted "upscale" places such as Nordstrom's; nobody is shopping, so the store tenants cannot pay the rents.  Burlington, Vermont had two malls; the University mall on the outskirts went bankrupt but is still operating, with stores there albeit closed down due to the "pandemic," and the Macy's Mall downtown, which was torn down in the idea there there would be this masive new mall and office space complex built instead, for $230 million.  But the financing for that was to come from the Bank of the Ozarks, a big lender to commercial properties;  gues what has happened to their Mall portfolio?  Can those other borrowers pay their Notes?  Hardly.  The developer on that deal was Brookfield Asset Management out of New York City, but they are not totally stupid, and are refusing to put their own cash into the construction, no, that is borrowed money, so the result is that Burlington will have this big hole in the ground over several city blocks, for years to come.  Nobody is going to build a new mall there.  Not going to happen.

As these factories and malls closed down, they will not be paying taxes.  The cities and towns reliant on those tax flows will see thier incomes evaporate, and so they will have to go charge more to the homeowners.  The private homes will have theri taxes zoom through the proverbial roof - but those workers are now unemployed, and thus unable to pay.  What will the Town do?  Foreclose for taxes?  Then what?  The Buyers will be the sharks from Wall Street,all Jews of course, buying in at less than 50%, then turning them into high-priced rentals.  The result will be the collapse of the restaurant trade, even cheap pizza places, as nobody will have disposable incomes any more.  And the population that can flee, will.  That leaves you with old pensioners, the drug addicts,  the criminal element, the poor living off food stamps and welfare programs, and the government workers.   Not an appetizing future. 

So:  my conclusion: you are headed for a deflationary spiral in hard asseet values including real estate and autos, and a re-structuring of USA society into two levels, a classic "rentier" class of the wealthy with their real-estate trusts owning lots of houses, and the managers who rent them out to the "dispossessed" class of peasants, who will pay their incomes over into rent.  And then, when the masses have had enough, you have revolution, and the guillotine.  

While I would have taken your points as the big drivers in any prior time following the kind of crisis CV19 had been, I don't believe they are what you think they are any longer. There are bigger trends at play going forward. Those will more than compensate for the losses you are pointing to but for the large Democratic states, particularly NY and NYC metro, and CA. which will bear the brunt of the permanent job losses and be on the losing end of the work from home trend.

The survey stats from Redfin and Zillow show a likely 28% of office workers will not only leave CA cities (SF silicon Valley LA Orange SD) and NYC, but many will leave those states, including WA and MA. These are high paying jobs where the state was taking a big bite of paychecks. Commercial real estate in those cities and residential RE as well will suffer in the same way that industrial small towns had for 40 years. The service jobs associated with those office dwellers will didsapear right along with them. The working class people would soon follow the upper middle class out of the cities to exurbia.

The hedgies from NYC financial district have already snapped up the Conneticut property market where homes were languishing on the listings for years. They are shutting down their offices permanently and moving to work from home. All that is left behind are their trading computers and the technical staff that keep them running. The high end restaurants and the coffee houses and bars they frequented will be distancing because their clientelle has moved away permanently. Not because of the virus. Downtown NYC office and retail rents and residential prices throughout the boroughs and particularly Manhattan will suffer. Others will take some time to finance the move out as they don't have the hedgies' bags of cash lying about. But it will be a fast top down migration, concurrent with a bottom end migration of renters.

The target migration communities will be hit with a demand spike shock for housing and hospitality and support businesses. The former Brooklyn or NJ high rise dweller is not going to know the first thing about mowing his lawn, or making home repairs. His income will make hiring a local service a trivial choice. Construction in small town America and the exurbs will be huge, particularly outside the high tax states and in the South. This is a large boon to employment and oil and materials consumption..

 

The second trend countering your analysis is reshoring of supply chains into NAFTA and the US proper. Both as a means to form resilient supply chains and in order to make use of what I expect Trump to run on in his package to induce reshoring of manufacturing in at least some key industries and likely all of them at least to some extent, Combining capital subsidies, worker training grants, and tax benefits, as well as threats of future tariffs, import bans and quotas, the companies so gung ho to make their goods anywhere but home will scamper back in a hurry. This a bipartisan project and will be done on a war footing. US manufacturing, once the capital and permitting costs are covered, is actually cheaper than in China because all the source materials and components are cheaper in the US. While that may increase the US skills gap from the current 4 million to 6 or 7 million, there is a large unemployed talent pool ready to be trained for it. And the country is wealthy enough to pay for that whether directly or through businesses. China, on the other hand, has a 44 million skills gap and no way to fill it. .

 

Of the 40 million fired, roughly 75% should resume their work in small businesses, as there is no real limit on capacity for your hair and nail salon, just on their waiting areas and the use of PPE. Restaurants will remain restricted below their profitable customer density but many have established delivery services by their former wait staff and can keep their doors open and most of their staff, if their rents are lowered. As so many will be closing, I don't expect they will meet resistance on lower rents. I believe air travel will revive a bit more than people expect, but the airliners will have to restructure seating to the point of small regional jets being taken out of service. Lower density flights means more flights per passenger count and more air crews too. More oil burned as well. Ticket prices will have to be substantially higher. But oil consumption for travel and motel (rather than hotel) use will be up with long road trips in SUVs to avoid airplane cabins.

The 10 million (perhaps more) that lose their jobs permanently will be concentrated in high tax high cost real estate areas like LA, Seattle, NYC, SF and the valley, Boston and Chicago. They will leave to the low tax new growth industrial areas and new work from home communities in low tax areas where construction and industrial work will be plentiful and then hospitality retail and delivery work and residential and technology support services.

 

In both the cases of transportation and the office space, it isn't so much the CV19 scare or distancing that are making the big difference, it is the surprising efficiency and productivity gains and lack of substantial consequence for the loss of conferences and industry shows, and meetings. Management productivity and availability skyrocketed. The typical cost savings for employers dumping their office space for up to 75% of their employees is nearly identical to their payroll in scale.  They are also expecting to lose the coastal pay premium of ~$40k average that they had to pay to retain people in their coastal city offices. They are expecting employees to move out of the cities and take a pay cut, or at lea,st delay pay increases. New hires are not moving to the city, they will also not get the coastal city premium in their pay offer. The big deal is the increase in profitability despite real and substantial losses in revenue.

 

The enormous amounts of money printing and fiscal programs will provide much of what will be needed to fund the two main trends of expanding the housing stock into the boonies and the sun belt to accommodate work from home parents, and to fund installation, construction equipment and labor training for repatriated industrial production.

 

 

[Dan Warnick + 6,100]

Well, @ronwagn, if half of what @0R0 predicts comes true it will be great for Decatur/Springfield/Taylorville, Mt. Auburn, Illiopolis, Niantic, Rochester, Mechanicsburg, Buffalo, Riverton, hell even Lanesville, and all the rest.  Wouldn't it be sweet to see the area reinvigorated in our lifetimes?  Hey, we've already lived longer than we thought we would, all we have to do is wait another 10+ years to see it happen.  Glory Days!  🤞🤞👍🖖