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one day loss of output, economy-wide, would be reported as a -4% change (at AR).


So EXPECT to see some HUGE


negative results! -30%? -40%? -60% Post-WWII, the worst Q was -10% for 1958:Q1, in part a result of a sharp decline of auto sales. This result may be exceeded, by a wide margin. Keep in mind that there ARE some


positive offsets. Regardless of whether they show up, for job count and income purposes, government workers remain fully employed. Health care demands are way up and employees are working overtime; health care products, too. Have you noticed supermarket And how much stuff is


lines lately?


in the baskets? Runs on toilet paper, sanitizers, foodstuffs – all of which must be produced to restock shelves. There is a huge wave of mortgage refinancing. Lower oil/gasoline prices are good for consumers. These “pluses” are unlikely to offset the “negatives. Macroeconomic policy-making is the rightful domain of economists. What should the objective of current policy- making, vis-á-vis COVID-19? • Health care policy: keeping the maximum number of Americans alive


• Economic policy: keeping the maximum number of Americans fed and American businesses solvent; preparing both to ramp up once the epidemic sufficiently ebbs


Macroeconomic POLICIES, Monetary • The Fed’s age old playbook in a credit crunch (e.g., 1987, LTCM in 1998, 2008-2009): FLOOD the system with liquidity (It’s a Wonderful Life.”) QE4! (Absorbs the federal deficit)


• Buy commercial paper • Signal banks: LEND!!! Relax regulatory barriers


• KEEP THE PLUMBING WORKING! Probably more QE But remember, monetary


policy is a blunt instrument


Macroeconomic POLICIES, Fiscal • Get money into lower/middle class hands (unemployment


®


compensation, food stamps, payroll tax holiday, helicopters?).


• Targeted but limited industry support (e.g., aerospace and airlines); some industries may NOT qualify (Casinos? Cruise ships?)


• Energy: add CHEAP oil to the SPR! • Jawbone “forbearance” on rents and accounts payable


• Allow/legislate a “mortgage holiday”; simply add unpaid months to the normal end of the term


• Don’t be surprised by a $3 trillion budget deficit!


Fiscal, approaches to an unprecedented deficit: • Keep in mind: fiscal resources are limited!


• Buy oil for the SPR; the long-term price of oil is probably not $20- 25/barrel. Sell later for a profit!


• Industry assistance comes at a cost! The federal government should take an equity stake, preferred stock with warrants, or be paid interest on its loans. (SBA loans are not free!)


• REMEMBER: the Treasury made money on its TARP lending to banks! This portion of deficit spending WILL be repaid!


How Does This End? Know this: it will end. The only questions


are when and how much public health / economic / business / financial / fiscal damage will be left in its wake. • The public health care crisis: * Social distancing works to some extent


* Some therapeutic treatments are shown to be at least partially effective


* In time, new cases recede markedly (a la China)


• Businesses start to re- engage and re-employ


• Financially, some respected investors (e.g., Warren Buffet, David Tepper) signal they are buying “big”; a buying panic ensues


• Economically, with business inventories already in good shape, then drawn down drastically during the crisis, a tremendous ordering/ restocking snapback ensues; the GDP rebounds at double-digit rates


Final Thoughts • God bless the health care workers, truck drivers and supermarket personnel – among others – who are akin to the heroic volunteers who secured Chernobyl from further radiation leaks.


• I wish you-and-yours stay healthy during this difficult period and you enjoy a vigorous financial recovery from this “black swan” calamitous event.


April 2020 ❘ 11


A new monthly ICI webinar series featuring Dr. Ken Mayland is scheduled to begin next month. This Members-Only benefit is designed to offer attendees first- hand insights into Dr. Mayland’s Essential Charts. Join us on May 12, 2020 at 1:00 pm eastern to learn why this data is essential. The link to the webinar series will be posted on the Clearview Economics Archives page in the Members Only section of the ICI Website and sent to all registered Members via email.


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