Moonbat logic at work - budget edition

There's a breathtakingly stupid piece of moonbat propaganda floating around, seeking to blame local and state government fiscal mismanagement on ... wait for it ... Mitch McConnell, the Senate Majority Leader!

The main instigator for [defunding police], of course, is the protest movement sparked by the police killings of George Floyd and other African Americans. In their efforts to reduce law-enforcement budgets, however, the protesters have an unlikely ally: Senate Majority Leader Mitch McConnell. By spurning congressional Democrats’ efforts to dispatch additional aid to state and local governments, McConnell is enabling budgetary crises in city after city. These crises, in turn, are making well-funded police departments an easier target.

Police budgets are mostly paid by local governments. And for local governments, COVID-19 has been a fiscal catastrophe. Local governments fund themselves through a combination of property taxes, sales taxes, income taxes, special taxes (on the occupants of hotels, for instance), and aid from states. By slashing consumer spending, the pandemic has slashed sales-tax revenue. The collapse of tourism has decimated special taxes paid by the hospitality industry, and job losses have reduced revenue from income taxes. Moreover, states—which face their own budgetary shortfalls—are likely to cut local aid. The result, according to the National League of Cities, is that from now until 2022, cities collectively face a budgetary hole of $360 billion.

On May 15, House Democrats responded by passing the HEROES Act, which would have allocated close to $1 trillion to state, local, and tribal governments—$375 billion of which would have gone to cities and counties. Because most states and many cities start their fiscal year on July 1, that cash might have helped local governments stave off major budget cuts.

Senate Republicans, however, oppose another large infusion of federal funds anytime soon. In April, McConnell suggested that states respond to their fiscal woes by declaring bankruptcy.

There's more at the link.

As we've covered in these pages many times, the reason state and local governments don't have enough money is that they've "wasted their substance on riotous living".  They're prodigal sons who refuse to come to their senses.  They've lavishly funded pensions for their workers, entitlement programs for their voters, and politically correct programs, outreaches and activities beyond number.  When they didn't have enough money coming in to fund their pet projects, they borrowed it.

As a result, many US cities and states are billions - sometimes hundreds of billions - of dollars in debt.  Unable to dig themselves out of the fiscal hole they've dug, they're turning to the Federal government and demanding bailouts from taxpayers all over the USA.  The so-called "HEROES Act" is nothing more than an attempt by the Democratic Party to ram that through Congress.  I'm very glad Senator McConnell has stopped it dead in its tracks so far - although, if the Democrats take control of the Senate and the White House in November's elections, I'm afraid it'll be forced upon us willy-nilly.

I think the premise of the HEROES Act, and the article cited above, is ridiculous.  I see no reason why taxpayers in fiscally responsible states should have the liability for fiscally irresponsible ones foisted upon them.  I think Senator McConnell is entirely correct when he said that states who've spent themselves into bankruptcy should be allowed to declare it, and take the consequences themselves.  Why should we pay for their profligacy?

To assert that police defunding is, or will be, the result of Senator McConnell's obstinacy in refusing to bail out states and cities, is breathtaking in its arrogance and denial of reality.  Those entities don't have enough money because they've wasted everything they had!  If we gave them money to bail out their debts, they'd merely incur more debt right away, to continue to live beyond their means.  They wouldn't recognize the concept of fiscal responsibility if it jumped up and bit them in the unmentionables.

The only sane approach is to spend no more than you have or can afford to pay off - not to borrow yourself into oblivion to fund such spending.  If cities and states need more money, let them cut spending, even at the expense of their much-vaunted "progressive" programs and activities.  To use an old idiom, let them "cut their coat according to their cloth" - and that includes paying down the debt they've already incurred.  Only when they're doing that, and have done so for some time, and are demonstrably on the way to genuine fiscal reform and recovery, should we consider helping them.  If they want to continue their financially self-destructive ways, let them do it on their own, without wasting our money into the bargain.

Distrust any attempt by the mainstream media to blame anything on anybody.  As Glenn Reynolds, a.k.a. the Instapundit, has said so often, "Just think of the media as Democratic Party operatives with bylines, and it all makes sense".  He frequently quotes the tweets shown below.

Keep that in mind, and a lot of things will become clearer.

Peter

The pandemic continues to cause shipping problems

The container shipping industry remains in the doldrums thanks to the COVID-19 pandemic.  It hammered shipments earlier, as we noted in these pages:  and its ongoing effects are creating long-term problems for shippers and their customers.  GCaptain reports:

From sportswear maker Puma to mall stalwart Gap , many retailers have been forced to reduce or slow down shipments of new merchandise. Civil unrest in the United States has compounded their problems by further clouding the prospect for a recovery in the world’s biggest retail sales market.

Puma’s Chief Executive Bjorn Gulden, for example, said it was managing some of its excess inventory by stowing it on slow-going ships as stores in the United States and Europe tentatively reopen.

However, at the same time, the shipping slowdown has created headaches for those retailers, from Walmart and Amazon to shoe seller Rothy’s, who have never stopped selling products to homebound consumers, ranging from books and shoes to exercise equipment, much of it sold online.

Now those retailers are fighting for space on the fewer, faster-moving ships on the high seas.

. . .

Slower shipping times also means importers can delay payments made on delivery . . . Shereen Zarkani, Maersk’s global head of sales, told Reuters: “One customer told us: If you make my container go around the world a couple of times that would be good.”

. . .

There does not appear to be any let-up in sight for container shipping companies as their retail clients could still be feeling acute financial pain in July, when they begin placing orders for holiday and winter merchandise.

There's more at the link.

I've noticed the effects of shipping disruptions in a number of areas.  For example, there was a particular part I needed in my ongoing efforts to rebuild some older rifles for friends.  I ordered it in mid-April, but found it was out of stock at the time.  The manufacturer was waiting on a couple of injection-molded plastic components from an overseas supplier, which they would then build into the finished product.  Their supplier had the parts, but couldn't find shipping space to send them.  I was notified just this morning that the part I needed is finally in stock, and my order is in the process of being fulfilled.  That's a seven-week wait, for a part that's normally available 24/7/365!  I know I wasn't their only frustrated customer.  It's yet another example of how "just-in-time" manufacturing can grind to a halt if supplies of parts and components don't reach the factory on a regular basis.

The after-effects of the coronavirus pandemic are going to be with us for at least the rest of this year, and probably well into 2022.  Be prepared for that.

Peter

Walmart reads the signs of the times

I was initially puzzled to read about a tie-up between Walmart, the nation's largest retailer, and thredUP, a San Francisco-based used clothing reseller.  However, Barron's put it in perspective.

Walmart is taking a new tack in its effort to expand in e-commerce.

The company said this week that it formed a partnership with the clothing reseller ThredUp in a move that will see Walmart’s website offer secondhand clothing. The giant retailer will take a cut of the revenue.

Barron’s has written before about how ThredUp hopes to capitalize on a number of trends in the industry, from the treasure-hunt mentality that has fueled off-price retailers to millennials’ desire to shop more sustainably. We’ve also noted how Walmart has been willing to spend to boost its online presence in clothing, buying up brands like Modcloth and Jet.com to experiment with new ways to reach consumers.

. . .

The latest deal with ThredUp isn’t an acquisition. It will allow ThredUp products to appear on Walmart’s website, with Walmart providing free shipping for purchases over $35 and receiving a share of the sales.

Paying Walmart a commission seems like a reasonable trade-off for ThredUp, given that the partnership will give it access to a huge new audience.

Yet Walmart could also benefit from the deal, as it will have a large number of brands added to its site and get a piece of the preowned clothing market. Instead of making a risky acquisition, Walmart is mimicking Amazon.com, offering access to its site to a third-party seller.

There's more at the link.

What we're seeing is the emergence of online shopping malls.  In a physical shopping mall, people go "to the mall" to shop at an anchor tenant - a big store.  As they go to and from it, or relax with a snack in the food court, they see and are attracted to other stores in the same location.  The big stores attract customers to the small ones.  Online, customers go to Amazon.com or Walmart.com because they know they can get most of what they need there.  If, in the process, they can also be exposed to other businesses, and find interesting products there, they'll do their shopping through the main site, which gets a cut of the revenues from such transactions.  Ergo:  an online shopping mall.

I think we'll see more and more of this in future.  The big e-commerce sites basically have a lock on the market right now.  Smaller businesses would have a torrid time of it trying to break such a stranglehold from outside.  Therefore, as the old saying goes, "If you can't beat them, join them".

This may have an impact on independent authors and their books, too.  Right now, that market is owned by Amazon.com, which has made itself all but indispensable to most indie authors and publishers.  If another retailer such as Walmart can offer an alternative online home for them, with terms and conditions at least as good (if not better) than Amazon's and comparable market penetration, perhaps with better advertising and publicity opportunities, that might open up the market to more competition.  That'll be good for writers - and it can't be a bad thing for readers, either.

Peter

The vulnerable links in our economic chain

In one sense, I suppose we should actually be grateful to the coronavirus pandemic for the way it's highlighted how our economy has been structured around a series of assumptions, which in turn have driven decisions made to implement those assumptions.  The whole house of cards is predicated on nothing disturbing the arrangements thus made.  Throw a wild card into the equation, and massive disruption ensues - and COVID-19 has been one heck of a wild card!

Let me illustrate with a few examples.  Nobody in their right mind would argue that food safety is unimportant.  Upton Sinclair's novel "The Jungle", serialized in 1905 and published in book form the following year, exposed the appalling conditions in Chicago's meat-packing industry, leading to the establishment of what we know today as the Food and Drug Administration.  This regulates the food and drug industries, their methods of production, the safety of their products, etc.  In order to make such control easier, it was advantageous for many smaller plants to be consolidated into fewer, larger ones, so that fewer inspectors could supervise and control processing and production.  Over time, this consolidation increased, particularly as it became more and more expensive to attract and retain sufficient inspectors with the specialized knowledge and qualifications needed to oversee operations.

Today, there are relatively few meat-processing plants, and those that exist tend to be very large.  Cattle, pigs, sheep, poultry, etc. are brought to them over long distances for processing.  When these plants were hit by COVID-19 infections and closed, consumer shortages inevitably resulted, since there was nowhere else to take the animals for processing.  Because they could not be slaughtered, their numbers increased very rapidly, augmented by ongoing production on the "factory farms" that feed animals into the system on a regular basis.  The result has been the euthanasia of literally millions of animals and birds, and the disposal of their carcasses in landfills - even while consumers were having to make do with a more limited selection and lower quantities of meat available in stores.  Farmers and processors have lost tens of millions of dollars, all because the system was set up for massively large-scale processing in relatively few plants.  A more distributed system, with a lot more smaller plants situated closer to the farms, would probably have been less hard hit by the coronavirus pandemic, and supplies would probably have been maintained at a more stable level.

Another example is "just-in-time" manufacturing.  In the name of efficiency and the most productive application of capital, factories have largely been set up to keep minimal stocks of their input components (raw materials, parts, etc.) on hand.  They receive them "just in time" to use them on the production line.  (This has been reinforced by so-called "inventory taxes" levied by some states.  Where these are applied, it actually costs businesses money to keep large stocks of inventory, rather than move it in and out as quickly as possible.)  As a result, the factory-to-consumer pipeline is a high-volume, low-reserve proposition.  Goods move from factory, to distributor, to store, to consumer on a day-by-day basis.  There are no major reserves anywhere, so that a breakdown in that chain of movement inevitably results in shortages downstream of the break within a very short time.  We saw this earlier in the pandemic, where auto factories shut down within a couple of weeks of critical supplies of parts being interrupted.  It's since spread to almost every high-technology industry.

That, in turn, has been made worse by the global supply chain.  In the name of saving money on wages, buildings and other production costs, many companies shifted production of their components and finished products to lower-cost countries.  China, in particular, has benefited from this over the past few decades.  When manufacturing in those countries, and/or shipping of their production from source to market, was affected by the pandemic, supplies already on hand dried up fast, leaving chronic shortages that are still plaguing us.  (The availability of personal protective equipment for hospital personnel, such as masks, gloves, gowns, etc., is a well-known example.)

The question now becomes:  should our production and distribution systems, facilities and practices be revised in the light of the pandemic?  This seems like an obvious solution to many people - but it will involve massive expense.  To set up new factories in our own country, and have many smaller facilities rather than fewer, larger ones, and keep reserves of products in case of disruptions . . . we're talking billions, probably trillions of dollars in the short to medium term to accomplish those changes.  They may be desirable, and offer the only practical alternative to what we have at present;  but if we can't afford them, they're going to remain a pipe-dream.  What's more, if private enterprise is expected to accomplish all that on its own, it'll soak up a vast amount of money - something those who own the money will resist, because it'll take profits out of their pockets.  Also, countries where our products are presently made will do everything in their power to keep their factories open.  They may reduce their prices so much that it's uneconomical to make goods anywhere else, or impose economic sanctions to make the cost of moving production much higher than it would otherwise have been.  (China is taking all those steps at present, and being very unpleasant to countries that resist its pressures.)

We're in an "irresistible force meets immovable object" moment here.  What will the outcome be?  Nobody knows right now.  The only thing we can be sure of is that disruptions are likely to continue.

The current shape of our economy has proved to be inadequate to cope with a crisis like the coronavirus pandemic.  We can reshape it to be more flexible and responsive, but only at a very high cost.  Are we willing to pay that, as a society?  Are the owners of current means of production willing to forgo short-term profit to change the way they do business, in the hope of long-term stability of production?  Are our politicians willing to forgo short-term tax money (particularly inventory taxes), and provide tax credits, in order to make it easier and more affordable for businesses to change their methods of production?

Nobody knows the answers to those questions right now.  What we do have is a stark choice between a centrally managed economy (the socialist ideal) and a free-market one, where businesses decide for themselves how to change and the market tells them (by voting with its wallet) whether they've made good choices or bad.  Given government ineptitude in handling the coronavirus pandemic, I know which option I prefer.

What about individuals and families?  Each of us needs to take these things into account in planning for our own future.  We should determine what our "essentials" are - the things that we really need to have on hand to cater for what's important to us.  Examples:

• We need a sound, reliable basic food supply.  It's not a bad idea for every family to have at least one month's food in reserve (what my wife calls a "deep pantry") in case of shortages or emergency.  I prefer a three-month supply, and some people try to keep a year or more's food on hand.
• If we rely on a vehicle for transportation, we should consider keeping basic consumables - oil, brake fluid, transmission fluid, filters, belts, etc. - on hand, so that if there's any disruption in factory supplies, we can keep it operating for at least a few months.  A few tools to allow us to change fluids and do other basic maintenance would not be amiss, either.  Also, we should probably be proactive in changing tires, shock-absorbers, etc. before they actually wear out, so that we can be sure they'll have a reasonable useful life if supplies of replacement components are disrupted.
• If we have particular interests, sports or hobbies, how about keeping enough reserve supplies that we can continue with them during interruptions?  For example, I enjoy the shooting sports.  I've made sure that I have a decent reserve supply of ammunition, so that in a sudden shortage (such as we're currently experiencing, and which looks set fair to continue for at least months, if not years) I can continue to enjoy my hobby.
• What about clothing?  Nobody can stock a complete spare wardrobe, but if you have specific needs - business clothing for office wear, or workshop clothing for blue-collar workers, etc. - there's no harm in keeping a small reserve supply of it, particularly safety gear such as work boots, head and eye protection, and so on.  That way, a shortage of supply won't prevent you working, or be embarrassing if you have to wear visibly old, worn-out clothing.
• We live in an electrically powered world.  How many of our essential items of equipment rely on batteries?  Do we have adequate stocks of spare batteries?  What if we suffer local brownouts or blackouts if the electricity supply is cut off due to a lack of spare parts?  Do we have emergency measures (e.g. battery powered flashlights or lanterns) in place?  What about recharging things like cellphones, tablets, laptop computers, etc.?  A small generator (or, at the very least, a solar charger) might well be regarded as an indispensable accessory today.  If we have well-stocked freezers, it's doubly so.

Those are just a few ideas.  If you have more, please share them with us in Comments.

Peter

The demon of inflation has lost more of the chains holding it back

Demonocracy is known for its graphic illustrations of financial facts and figures that can be so large we simply can't grasp them.  It puts them into visual terms to which we can relate.  For example, here's $1 trillion in $100 bills, stacked up and arranged neatly together alongside objects with which we're familiar (a Boeing 747, an eighteen-wheeler, the White House, etc.) for scale.  Click the image for a larger view.

Demonocracy has used the same technique to visualize the current US stimulus package in response to the coronavirus pandemic.  It's frightening when you realize just how big it is - and understand that the whole thing is based on borrowings and "printed money", generated out of nowhere, with no economic reality to back it up.  Here it is in video form.  I recommend watching it in full-screen mode to get the full impact.

You can see the whole thing as a Web page at this link.  It's even more frightening like that than in a small video window.

Finally, remember that you and I - every single US taxpayer - is on the hook to repay that money, sooner or later.  I don't think that's economically or mathematically feasible, which leaves only two options.  Both may happen, separately or together.

1. The rate of inflation will be deliberately allowed to grow, rendering "current" dollars almost worthless in relation to "historical" dollars.  Old debts can then be repaid with new dollars, a much less painful process.  Unfortunately, that leads to hyperinflation.  Just look what happened to Weimar Germany when it tried to do exactly that to repay war reparations.
   
   
   
   
2. The US government will simply ignore fiscal reality and continue to borrow money to fund its expenditure.  This will see the deficit climb, and climb, and climb, until eventually no-one will buy US bonds or securities any more, because the "debt overhang" has become so great as to threaten the stability of the world's economic system.  At that point, the US government's ability to pay for all its programs will collapse - as will the US dollar as a world reserve currency, and the US economy as a whole.

As I said, the really scary prospect is that we may see both of those things happening simultaneously.  During the previous recession, the Federal Reserve ended up as the largest "buyer" of securities issued by the US Treasury, effectively printing money to pay for printed securities that weren't worth the paper they were printed on.  It's doing the same thing now, as international demand for US securities can't absorb the trillions of dollars required for the current pandemic stimulus package.  The Federal Reserve's balance sheet has grown astronomically over the past couple of months, and the growth shows no signs of slowing down.

There are those who argue that the current situation may lead to deflation, rather than inflation, due to asset prices taking a major hit.  In the short term, they may well be correct.  However, in the long term, the lesson of history is clear.  Dilute the currency in any way (adulterating precious metals with base, or printing money without any economic foundation to support it) and sooner or later, the chickens come home to roost.  Inflation is the inevitable result.

I think we're already seeing some of that affecting the consumer.  Have you noticed food prices lately?  I know they're attributed to market conditions, but I think they also reflect the underlying reality of inflationary pressure on the consumer.  I've demonstrated several times in the past that real consumer inflation, as measured by objective sources such as Shadowstats or the Chapwood Index, has been far higher than official figures.  As Miss D. and I do our shopping every week, we're seeing inflation even higher than that.  Some items' prices have increased by more than 25% since March!

What will dumping an extra few trillion dollars into the economy, money created out of nothing from nowhere, do to the rate of inflation over time?  I think we all know.

Peter

The coronavirus may damage nature for years to come

Having worked in the Third World (specifically sub-Saharan Africa) for many years, I've been expecting an uptick in human predation on the environment, due to many people being thrown out of work by the coronavirus pandemic and becoming desperate to survive.  It looks like that's already happening worldwide.  The BBC reports:

You might be forgiven for thinking that the global lockdown measures keeping us all at home can only have been good for the environment ... But in the world’s tropical forest regions, it’s another story. Environmental agencies have reported an uptick in deforestation during lockdowns, as well as increases in poaching, animal trafficking and illegal mining worldwide. The trends are alarming, environmental experts say, and could be hard to reverse.

“This narrative of nature having been given a break during Covid, it’s not entirely accurate. It’s accurate in cities and peri-urban areas,” says Sebastian Troeng, executive vice-president of Conservation International. “But unfortunately in the rural areas, the situation is almost the inverse.”

. . .

Brazil and Colombia have seen an uptick in illegal logging and mining; the Philippines has also reported illegal logging and wildlife trafficking; Kenya has reported increased bushmeat and ivory poaching, as well as increases in charcoal production, which has been illegal since 2018; Cambodia has seen an increase in poaching, illegal logging and mining; and similar reports have come from Venezuela and Madagascar.
Concerns have also been raised in Malaysia and Indonesia, which have the highest deforestation rates in South-east Asia, while in Ecuador, indigenous and afro-descendent communities have reported increased illegal mining in the Choco and Amazon rainforests.

There are two main factors that could be driving these trends, says Troeng. The first is criminal groups and opportunists expanding their activities, taking advantage of lockdown and diminished forest monitoring and government presence. The second is that people living in these rural areas are facing increased economic pressures and are forced to rely more heavily on nature for food and income. In some cases, such as Madagascar and Cambodia, there has been a large urban-rural migration as people lose their jobs in the cities or return home to be with their families during quarantine, which has put extra pressure on local environments.

“What worries me is that we’re seeing these emerging trends, and they’re not going to be reversed when Covid measures are lifted because they’re related to economic factors. So my anticipation is that we’re going to have to deal with this for potentially months and years,” says Troeng.

There's more at the link.

In my old African stamping-grounds, this is particularly evident.  When so many people are surviving on the ragged edge of starvation, any added burden like the coronavirus pandemic will drive those barely "making it", now deprived of what little opportunity they had, to turn to anything available - even if that means destroying nature around them.  It's that, or die, as far as they're concerned.  The BBC again:

It isn't just for food or money, either.  Animals that compete with humans for scarce resources will be regarded as a threat, and eliminated on the simple basis of economic competition.  Headlines from Botswana this week bear that out.

Wildlife authorities in Botswana, the country with the world’s biggest elephant population, are seeking an explanation for the death of 56 of the animals in the north west of the country.

Over the past week 12 carcasses were found, adding to the 44 found in a week in March, the environment ministry said in a statement on Tuesday. Tusks hadn’t been removed from the elephants, indicating that they were not the victims of poachers, the department said.

. . .

Elephants have become a political issue in the southern African nation with President Mokgweetsi Masisi last year lifting a hunting ban and saying more needed to be done to stop the 135,000 elephants in the country from damaging crops and occasionally trampling villagers.

Again, more at the link.  Bold, underlined text is my emphasis.

I know that part of the world.  The only income - I repeat, the only income - in the area comes from tourism to the Okavango Delta, one of the greatest game reserves in the world.  It's an almost unbelievably beautiful place, one that I hope to visit again before I die . . . but the people living there must compete with wildlife to survive.  As long as they derive income from tourists, that's not a problem.  Take away the tourists (as has happened over the past couple of months), and it's a different story.  I'm willing to bet that those 56 elephants were probably poisoned, just as poachers in Zimbabwe have used cyanide to poison elephants in nature reserves and steal their tusks.  If it's a question of "we eat our crops, or the elephants eat our crops", the elephants will go to the wall.

Ecological and environmental sensitivity is basically a rich person's prerogative.  Those living on the margins are just trying to stay alive, and they'll do whatever it takes - even if that means destroying the world they live in.  As far as they're concerned, they're living for today.  Tomorrow?  If they live long enough to see tomorrow, they'll worry about it then.

That's already been a death sentence for ecologically sensitive areas and endangered animal (and human) populations all over the world.  It's likely to get worse, more's the pity, because the richer First World is preoccupied right now with economic survival and regrowth.  It doesn't have money to spare to help with Third World problems.

Peter

Depressing, but probably accurate - and very important

Charles Hugh Smith, whom we've met many times in these pages, has a gloomy forecast for the economy in the short to medium term.  It's depressing reading, but it's vitally important to understand what's probably heading towards us.  Too many people are only looking at superficial details, not examining the "big picture" and planning (or failing to plan) accordingly.  Mr. Smith doesn't make that mistake.

Here's an excerpt.  Bold, underlined text is my emphasis.

While the stock market euphorically front-runs the Fed and a V-shaped recovery, the reality is the crash has only just begun. To understand why, look at income and debt. Income, earned and unearned, is in free-fall, while debt — which must be serviced by income — is exploding higher.

Bailouts are not a permanent substitute for income. In the short-term, bailouts are a necessary substitute for lost income. But longer term, subsidizing income with borrowed money weakens the currency and the economy, as productivity stagnates.

As for servicing debt — the unemployed working class is getting an extra $600 a week not out of kindness but to make sure these households can continue to service their debts: auto and truck loans, student loans, credit cards, etc. Absent a federal bailout, millions of unemployed would cease making loan payments, creating a financial crisis for lenders.

. . .

The money that’s being sent to unemployed workers is borrowed, and small businesses are being offered loans, much of which will be forgiven if the funds are used to pay wages. In other words, all of these trillions of dollars being substituted for earned income are borrowed ... there are no capital flows which will support a return to commerce and productivity that will pay wages or generate investment income.

. . .

The crash has only just begun. Everything, including a rational, connected-to-reality, effective financial system, is on back-order and unlikely to ship any time soon.

There's more at the link.

I'm afraid that from a logical, rational perspective, Mr. Smith is quite correct.  Every cent the government is throwing at the coronavirus pandemic and its economic consequences is borrowed money - and that's on top of trillions upon trillions of dollars already borrowed in the past.  That leaves only three possibilities to deal with so vast a burden of debt:

1. The debt will be repaid, but that'll take a long time (decades), and the burden on the economy will hobble further growth and development.
2. The currency will be deliberately inflated (i.e. the dollar will be allowed to weaken), thereby allowing the "old" debt to be paid off with new, much cheaper dollars.  This will lead to massive economic disruption (see the Weimar Republic for details).
3. The debt will be repudiated (i.e. rejected and not paid) - which will destroy the "full faith and credit" of the United States, and have catastrophic worldwide consequences on the international economic system.

Right now, I 'd say #1 is practically impossible - the debt is already too large to be repaid out of current and future revenues.  #2 is most likely, IMHO, but #3 isn't beyond the realms of possibility, especially if economic illiterates like Alexandria Ocasio-Cortez and her Democratic Socialists have their way.

Mr. Smith teamed up with Gordon Long to discuss the impact of the current economic situation on municipal and local governments.  Since many of us live under the administration of such entities (including yours truly), this is a vitally important subject, as well as a microcosm of what our big cities are facing.  As Mr. Long points out, such governments have "expenses going out, but nothing coming in".

I respectfully suggest that this video provides vitally important information for all of us.  It's half an hour long, but well worth your time, IMHO.

Brace yourselves, folks, and keep your powder dry - economically and in every other way.

Peter

The folly of relying on credit to save your fiscal butt

I've long advocated building up an emergency fund and/or "rainy day fund" if at all possible, to help get through hard times if and when they arrive.  However, I know many people who've dismissed that advice.  They've said they simply can't afford to do that on their income, so they'll rely on credit cards and other debt instruments to cover expenses if something goes wrong.

Well, they're now running headlong into the reality of the financial markets.  A lot of them are finding that the credit lines they'd planned on using are either less than they'd expected, or aren't available at all.  For a start, credit card issuers are reducing their exposure to potentially bad debt.  Everyone except those with stellar credit ratings and history is at risk.

A new survey has found that about 25% of card owners in the US had their limits reduced or accounts closed within the past 30 days.

Almost 50 million people saw their credit limits decreased or cards closed involuntarily, according to a CompareCards survey conducted in late April.

There's more at the link.  Bold, underlined text is my emphasis.

To make matters worse, credit limits on credit cards can be adjusted by their issuers without specifically notifying card-holders.  Your only notice will be the changed credit limit printed on your monthly statement - and many don't read those in any detail.  That means you could find yourself suddenly maxed out on your credit card, without any prior awareness of that risk.

That new wariness by lenders is extending even to secured debt such as mortgages and home equity lines of credit (HELOC's).

Over the past month, lenders have put in place higher credit-score and down payment requirements, and in some cases stopped issuing certain types of loans altogether, in effect shutting down a large swath of the mortgage market ... The impact has been dramatic, with one model showing mortgage credit availability has plunged by more than 25% since the U.S. outbreak of the virus.

. . .

JPMorgan Chase & Co. tightened its standards last month, requiring borrowers to have minimum credit scores of 700 and to make down payments of 20% of the home price on most mortgages, including refinances if the bank didn’t already manage the loan.

Wells Fargo & Co. increased its minimum credit score to 680 for government loans that it buys from smaller lenders before aggregating them into mortgage bonds.

The banks’ revised standards are far above the typical minimum score of 580 and down payment of 3.5% that borrowers need to qualify for home-buying programs supported by the federal government.

Wells Fargo is no longer letting borrowers refinance their mortgages while cashing out home equity, and both Wells and JPMorgan have suspended new home-equity lines of credit.

Again, more at the link.

That's potentially very bad news indeed if you were relying on a HELOC, or planning to cash out some of your equity in your home, to get you through the present crisis.  For example, if you own more than 50% equity in your home (i.e. the outstanding balance on your mortgage is less than 50% of your home's current market value), you might have planned to draw on that in a financial emergency (such as many of us are facing in these difficult times).  However, now you won't be allowed to access that equity through a HELOC.  That's going to put a big crimp in some people's ability to cope.

I've even heard from some friends that their existing, pre-approved HELOC's have been "frozen" or suspended at their present levels.  For example, they may have been approved for a $25,000 HELOC, but they're only using, say, $12,000 of that facility.  Now they're finding that they can no longer access the remaining balance of the credit they'd already arranged.  That's proving to be a huge financial headache for them.  I know a few who are applying for second mortgages, with different lenders, to make up the sudden shortfall - but that's costing them a lot more in fees and higher interest rates.  Worse, in the present economic climate, sometimes second mortgages are simply not available.

One can't blame lenders for seeking to protect themselves, but if you rely on credit to make ends meet from month to month, that doesn't help you at all.  As I've said so often in the past (for just one example, see here), get out of debt if at all possible, and stay that way!  That's investing in your own future, in the best possible way.  Also, build up some sort of emergency fund as soon as possible.  In fact, I'd go so far as to suggest, if possible, using your government coronavirus stimulus checks to start such a fund, rather than using them to pay off debt or cover other needs.  If you have no emergency financial "cushion" at all, that'll be a whole lot better than nothing.

Some people have told me that they haven't bothered to build up their own emergency "nest egg" because they'll be eligible for unemployment, or some other form of social welfare or entitlement program, if they're laid off or their employer goes bankrupt.  Er . . . not so fast.

People in many states, including New Jersey,  Maine, and Pennsylvania report they haven’t yet gotten a dime from unemployment. In fact, a whopping 71% of jobless Americans haven’t gotten their unemployment payments from March.  Lines at food banks are literally miles long in some areas.

Without a nest egg, and with your usual credit facilities now circumscribed, you may find yourself in the same boat - unless you have something set aside for a rainy day.

If you're still doubtful about the need (or possibility of saving) for an emergency fund, see Aesop's latest.  Scroll down to point #3, and read it.  Slowly and carefully.  Yes, he's talking to you.  Then, go back and read the entire article.  He makes good sense, and underlines everything I've had to say on the subject for the past twelve years or so on this blog.

Peter

Betraying America, redux - or, fiddling while America burns

The well-known (and almost certainly apocryphal) story of Emperor Nero playing the fiddle while his city of Rome burned around him is well-known.  It seems the same story could be told of Nancy Pelosi and the Democratic Party right now . . . but not apocryphally.  They appear willing to let this country go to the dogs, just so long as they can ram through their ideology - an ideology which has nothing whatsoever to do with the coronavirus pandemic and the damage it's done to our nation and our economy.

Let Tucker Carlson explain just how ghastly is their new "HEROES Act" and its focus on ideological concerns, rather than relief for those who are suffering.  You really should take seven minutes to listen to his monologue from last night.  To call this bill "mind-blowing" is an understatement, IMHO, as he makes clear.

When the Democrat's first "relief bill" appeared, I called it "Betraying America", and asked:

Would somebody please point out to me what (if anything) those points have to do with providing relief to American citizens and corporations from the effects of the coronavirus pandemic?  I'm calling on Democratic voters and supporters in particular.  Come on - precisely how do those points bring relief to Americans who've lost their jobs and livelihoods, and to companies that are about to go to the wall under the impact of this crisis?

I can only say the same thing, in spades, for the legislative atrocity the Democrats are calling the "HEROES Act".  It's 1,815 pages long, containing 347,000 words.  Something that massive is obviously not a recent, hurried production.  Clearly, this has been prepared over a long period of time, probably with various departments and groups working on specific sections and clauses.  It's bundled together every pie-in-the-sky socialist wet dream you can imagine, and seeks to thrust this burden onto the backs of those Americans still working, who'll have to pay for it, one way or another, sooner or later.

This is so blatant, so in-your-face, that its sheer chutzpah leaves one breathless.  Nancy Pelosi has even gone so far as to dismissively observe, "I can't be bothered about what others say.  What I'm proud of is what we are doing."  I'm sure she is . . . but I suspect the rest of America, particularly its taxpayers, won't be anything like as proud.  In particular, allocating about $900 billion to cities and states to bail out their spendthrift budget deficits and long-term indebtedness is sheer lunacy.  All that guarantees is that they'll immediately take out more loans and go into debt once again, to continue to fund expenditure they can't afford;  then they'll come back to Congress and demand yet another bailout, citing this first one as a precedent.

If this bill passes, America will become a debt-ridden, fiscally crippled hellhole almost overnight.  It's that bad.  I sincerely hope that every legislator who's signed on to, or votes for, this monstrosity will be punished severely at the polls in November's election.  They deserve nothing less than to lose the offices they've disgraced by ignoring reality and pandering to socialist pie-in-the-sky.




Peter

Landlords versus renters - not as simple as it looks

Governor Andrew Cuomo has extended for another two months his original 90-day order suspending evictions in New York state for failure to pay rent.

Cuomo said that landlords who face utility bills and mortgages can turn to banks and federal programming for help.

He also said that officials will ban any late-payment fees and allow renters to use their security deposits as payment.

"Everyone is just making do, and everyone has hardships," he said during his daily briefing Thursday. "We just want to make sure the people who are most vulnerable are protected."

There's more at the link.

This is very useful to those who've been laid off or furloughed.  They'll at least have roofs over their heads for the next few months, while they figure out how to make a living.  However, it doesn't excuse them from actually paying the rent they owe.  If they don't pay for five months, until August 20th, and then expect to go on as before, they're in for a big surprise.  I'm sure landlords will be applying for eviction orders as soon as they're legally able to do so, and kicking out those who haven't paid, and suing them for rent arrears.

Landlords are in a terrible position over this.  They'll be portrayed as evil and mean and greedy for insisting on payment:  yet they have to pay mortgages on their properties, and insurance, and rates and taxes, and pay for repairs when necessary.  Without rents coming in, how can they do that?

I'm not a landlord, but I know several small investors who rent out property as retirement income.  One of them owns an apartment block with 36 units (not in New York state, but the same principle applies).  His tenants (many of them still working) have gotten together and sent him a round-robin letter, telling him flatly that they're going on "rent strike" until the crisis is over (even though many of them are still working and able to pay).  The rent they pay is his only retirement income apart from Social Security.  What's he to do now?  He can't sue them or apply for eviction orders, because local courts are closed during the coronavirus pandemic shutdown.  His bank will insist on payment of his mortgage, under threat of foreclosure;  and the city will want its rates and taxes, or they'll suspend his license to do business.  Talk about being between a rock and a hard place!

It's all very well for Governor Cuomo to tell landlords to "turn to banks and federal programming for help".  Banks may not be interested in helping:  they want their money too.  Federal programming is not always available - many who've applied for small business loans have heard nothing so far, or have been turned down.  However, landlords are a relatively small class of voters.  Those who rent from them are a much larger class.  Therefore, the politicians will pander to those with the greatest number of votes.  Others are left holding the short end of the stick.

I think we may see a wave of landlord bankruptcies in the not too distant future, as banks and others foreclose on their properties.  That'll be a very strong disincentive to others to invest in rental property in future, for fear of the consequences if anything goes wrong.  Over time, that's likely to prove very negative for the rental property market as a whole, diminishing the supply of housing units and driving up costs for everyone.  I wonder if Governor Cuomo bothered to think about that before issuing his edict?

Peter

The wider, longer-term effects of the coronavirus pandemic

Aesop has an excellent article at his blog considering the wider ramifications of the current pandemic for our economy and our society.  Here's an excerpt.

The Oil Industry

People ignore the fact that Russia and OPEC were getting into a throat-slitting contest before the pandemic became news outside China, but that shindig, coupled with .Gov ringing the alarm over Kung Flu, gave Wall Street the go-ahead to take the most massive fiscal **** on itself in recorded history.

Last week, the price of oil was down to "If you'll take this crap off my hands, I'll pay YOU $19/bbl to unload it for me." Imagine Macy's giving $50 bills away for taking suits and dresses - marked down to "FREE" - off their store racks, and you've got the idea.

Fracking? Drilling? Fuggedabowdit.

Short-term, OPEC countries are going to starve, first for cash, and then quite possibly for real. This is when "Arab Spring" from a couple of years ago turns into a Long, Hot Summer Of Discontent.

American drilling platforms, oil fields, and general operations? Probably taking a months-to-years long **** on themselves too. We may never see things like they were last December again, for years, to decades, to ever.

. . .

The Auto Industry

We were already sitting on a months-long glut of cars, because the "booming" economy wasn't trickling down from banks and board rooms to where people buy new cars. With unemployment where it is now, defaults on auto loans to come, and metric ****tons of repo cars, demand for new cars will probably hit 1930 levels. I.e. nada. If Detroit announced there would be no 2021 models or model year, it wouldn't surprise me at this point. So auto workers, and ancillary parts makers, dealerships, auto finance, banking, etc.

. . .

Entertainment

Disney Inc. probably won't re-open any parks in 2020, by all accounts. They're posting 90% Q2 losses (on top of the epic flop that was their craptastic StarBores additions, which lost them billion$ already), and it isn't getting better, as they look to do without any summer park revenue either. Add Six Flags, and every other theme and amusement park to that list, as what gets re-opened, and the whims of both the government and the public change like the wind daily.

The movie business is about to get the worst summer in history, in all likelihood. Pisser not just for Tom Cruise and Top Gun 2, but for the entire multi-billion $$ industry, from fat-cat producers and overpaid actors, all the way down to the folks who wash the cars, take the tickets, sell the popcorn, and those who provide everything from midnight meals for production crews, to props, wardrobe, equipment, and a gajillion rentals of everything known to man.

Concerts? Who's likely going to attend COVIDfest 2020? Is it even going to be an option in most places? I'm thinking it's unlikely at best, for some time.

. . .

The engine of the economy just had a huge bubble of water pumped into the fuel line, and one of the pistons just sheared off. What happens after that?

You ain't seen nothin' yet.

And this is just the everyday stuff, inside the country.

Wait until this rumbles through 150 other countries' economies.

There's more at the link.  Recommended reading.

I can't disagree with anything Aesop says;  in fact, I've said many similar things myself over the past few months.  There's a chance - a small one - that the American economy will kick-start itself, and things will return to normal faster than anticipated:  but I doubt it.  Over thirty million people (let's look at that in figures:  30,000,000 people) have lost their jobs, or been furloughed, during the past two months or so.  How many of them will find that their employers have closed their doors?  How many will find that their hours have been cut when their employer re-opens, because the customers just aren't there in the same numbers as before, or spending as freely as before?  I think at least half of those thirty million people are going to be on the breadline for a long time to come.

The question then becomes:  what to do if you're among them?  I think this is a time to pull in your horns, financially speaking, and do everything possible to position yourself to survive.

• Cut back on every single expenditure you can.  Budget carefully, and stick to it no matter what.  No impulse purchases, no extravagances, no "my spouse will never know about that!" moments.  Every penny counts.
• Reduce costs wherever possible.  Refinance your mortgage if necessary, to get a lower monthly payment even at the expense of a longer payment period.  Get rid of whatever you can't afford, even if you take a loss on it (for example, a car that's costing you several hundred dollars a month that you no longer have).
• Sell assets that can bring in cash to reduce debt elsewhere.  I got a head start on that after my heart attack last November.  I knew my writing income would suffer badly over the recovery period, so I began to sell firearms from my collection, and ammunition from my stash, to cover expenses.  It's kept me afloat so far.  Sadly, thanks to COVID-19's effect on the economy, I may have to do a lot more of that, for a lot longer than I'd anticipated.  Watch this blog for more sales soon!  Take a long, hard look at your own hobbies, assets and valuables, and consider doing likewise.
• Consider what you can earn on the "black economy", doing odd jobs for cash or swapping your goods and services for those of others.  ("I'll help fix your plumbing if you'll help me service my car," and that sort of thing.)  This can save a lot of money, and generate a little income on the side.
• Be prepared to walk away from debts that become intolerable.  It's lousy to be homeless . . . but if keeping your home is crippling you financially, why are you still there?  Begin planning right now what you'll do if you're forced into such an extremity.  Do you have family or friends with whom you can stay?  For how long?  What about the stress to which that'll subject your relationship with them?  Can you arrange to stay at one place for a week or two, then move to another, and so on, to create less stress for your hosts?  Plan ahead.

Finally, if you don't already have one, I urge you as strongly as possible to find a network of like-minded people, relatives and/or friends you trust to help you and your family through hard times.  None of us know what those hard times may include, but I think we can all see them coming.  A small network of people providing mutual support is much more likely to survive them than a "lone wolf".  Miss D. and I are blessed to have a local group of friends like that, and a wider one online.  I hope you're as fortunate.

In one sense, the readership of this blog, and of Aesop's, and those that have come together around other blogs and bloggers, already form such networks.  Let's share ideas and support each other, even if at present it's only moral support.  Who knows what dividends that may pay in future?

Peter

The central business district may not be so central for much longer

Earlier in the coronavirus pandemic, I speculated:

Think about it.  If you're a business that until now has rented, say, a couple of floors in an office building to house your administrative functions, but you now learn to do the same job with most of your admin workers telecommuting from home . . . why go back to renting that space?  Why not continue to have them work from home, and save tens or hundreds of thousands of dollars in rental every year?  It's a no-brainer.  Landlords should already be factoring that into their considerations for the future - and getting concerned.

Looks like I'm far from alone in thinking about that.  The BBC reports:

Having thousands of bank workers in big, expensive city offices "may be a thing of the past", Barclays boss Jes Staley has said.

About 70,000 of Barclays' staff worldwide are working from home due to coronavirus lockdown measures.

This had led to a rethink of the bank's long term "location strategy", Mr Staley said.

. . .

In recent years, banks worldwide have shifted staff away from expensive skyscrapers in financial hubs, but Barclays and its rivals still have busy offices in places such as London's Canary Wharf.

But Mr Staley said his bank was re-evaluating how much office space it needed, as it was now being run by staff working "from their kitchens".

He added that in the future retail branches could be used by investment banking and call centre workers, hinting at an end to long commutes for some workers.

"There will be a long-term adjustment to our location strategy," Mr Staley told reporters. "The notion of putting 7,000 people in the building may be a thing of the past."

There's more at the link.

The implications of such a decision, spread across thousands of companies currently taking up office space in cities' central business districts (CBD's), are staggering.  Consider:

• What about the transport infrastructure that's been built up to ferry people in to work and back home again?  Railways, buses, even the roads themselves - what if the historical network suddenly falls to a much lower level of use or occupancy?  Budgets will have to be adjusted, plans for expansion curtailed, vehicles and rolling stock mothballed, staff laid off.  I don't think anyone's looking at that yet.
• What about businesses created to support businesses in the CBD?  Cafes, restaurants, food carts, dry-cleaning outlets, gift shops - there are thousands of businesses set up to cater to and for office workers.  If those workers aren't there in the numbers they were before, what's going to happen to those businesses?
• The biggest losers in the business world may be landlords.  Hugely expensive office buildings may become financial millstones around their necks.  (For example, One World Trade Center cost almost $4 billion to construct.)  Loans to build more such buildings may dry up altogether if banks can't be sure of a return on so large an investment.  Rents will probably have to be drastically reduced in an effort to persuade tenants to remain, and/or to persuade tenants to move from one landlord's premises to another's.  Competition to sell office space might become much more cut-throat than has been normal up to now.
• Cities will be faced with a massive reduction in rates and taxes from a shrinking CBD.  How will they make up for the shortfall?  What about the money they've spent to build up a transport network to support the CBD?  Many such networks have "featherbedded" contracts with trades unions.  If demand for their services falls, can the city lay off workers, or is it contractually obliged to keep them, at vast expense?  What will the unions have to say about it?

All these are questions that will have to be answered, and soon.  Frankly, once companies see how much money they can save by having employees work from home, I can't see them keeping up such large offices any longer than they have to.  They can always bring in staff once a week to smaller premises, staggering work days so that a central office receives, say, one-fifth of the employees and/or corporate divisions every day to brief them on developments, ensure everyone's working to the same script, and do the necessary administrative work.  Even one day a week may prove to be more than is necessary in the long run.  How will companies reorganize their operations and structure to take advantage of the "new normal"?

This will bear careful watching.  I think it's going to affect a great many white-collar workers before long.

Peter

A monster container ship is collecting . . . empties?

One of the biggest container ships in the world, the MSC Anna, recently visited California.  Here's a video report about her arrival.

What I found most interesting was the comment that she'd come to collect empty containers, and take them back to China.  This is a vitally important part of re-establishing international trade.  With the shutdown across the globe, containers that were en route to their destinations were delivered - and then just sat there, with no way to get them back to the factories that sent them.  Without those containers, the factories couldn't pack goods for export, even if they got their production lines running again.  There was basically a complete, almost unbridgeable disconnect between producer and consumer, particularly when most container shipping shut down.

It's encouraging to see so large a ship filled with thousands upon thousands of empty containers.  May they soon be filled again!

(The ship itself is an absolute monster, posing all sorts of challenges to pilots and port staff.  You can read about that in this article.  I found it very interesting.)

Peter

Bailing out the states: the momentum - and the prospect for violence - builds

Regular readers will know that for years, I've predicted that the failing states in the Union - failing because of their feckless, fiscally inept and terminally greedy politicians, plus the cronies to whom they pour out largesse from the state budget - are going to demand that the federal government bail them out, and assume responsibility for their catastrophically large, otherwise unpayable debts, deficits and overheads.

I was right.

As I reported last week, Illinois Democrats have asked for over $41 billion in financial aid, ostensibly related to the costs of the coronavirus pandemic, but in reality specifically earmarked to make up the shortfall in state pension funding, pay off the state's deficit, and basically cover their overspending for the past decade or two.  The money has little or nothing to do with the coronavirus, but everything to do with ensuring that their past misdeeds are paid for by the taxpayers of the entire United States, not just those in Illinois.  What's more, you and I know full well that if they succeed, they won't change their spendthrift ways.  Within a few years, they'll have dug themselves into yet another fiscal hole, and demand to be bailed out yet again - citing this bailout as precedent.

If you want to know some of the facts underlying Illinois' predicament, read this article.

Our analysis at OpenTheBooks.com shows that an Illinois family of four now owes more in unfunded pension liabilities ($76,000) than they earn in household income ($63,585). In a state of 13 million residents, every man, woman, and child owes $19,000 — on an estimated $251 billion pension liability.

Our auditors discovered 110,000 public employees and retirees who earned more than $100,000 last year.

We found tree trimmers in Chicago making $106,663; nurses at state corrections earning up to $277,100; junior college presidents making $491,095; university doctors earning up to $2 million; and 111 small town managers who out-earned every governor of the 50 states ($202,000).

There's more at the link.

It's becoming clear that almost every state and major city that's in similar self-inflicted dire straits is hoping for a similar bailout.  Democrats are demanding it;  Republicans are pushing back.

Democratic leaders on Tuesday doubled down on their demand for $500 billion in aid to states to help with the coronavirus crisis while rejecting a suggestion by Senate Majority Leader Mitch McConnell that some struggling states may need to declare bankruptcy.

“Right now the House is hard at work for the next bill CARES 2, which must contain robust funding for state and local government to pay frontline workers,” House Speaker Nancy Pelosi, D-Calif., said in a call with reporters. “Governors and mayors, Republicans and Democrats, are crying out for support.”

. . .

"In terms of funding we may have two packages, one for states and one for locals," Pelosi said. Later she clarified: “It looks like we’re going to need 500 [billion] for the states and we may also need a very big figure for counties and municipalities."

. . .

On Monday, President Trump appeared open to signing such a bill, but also asked why taxpayers should bail out “poorly run states.”

“Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help?” Trump tweeted Monday. “I am open to discussing anything, but just asking?”

Again, more at the link.

New York City is trying to get in on the act as well.

The word “absurd” doesn’t even begin to describe this ridiculous demand by New York City Mayor Bill de Blasio as he publicly says he wants the federal government to replace all of the missing revenue from the COVID-19 economic shut-down.  This is bonkers.

If the federal government was to even consider taking such action it would essentially be promoting all states and cities to remain shut-down forever; because, in the mind of those who live from the government trough, there would be no need to reopen.  The mental disconnect here is incredible. I think the needle on my ‘nope-meter‘ just broke off.

While private citizens, private companies and private workers are forced –by government– to remain locked in their homes; unable to earn a living and on the cusp of financial despair, or face arrest; the NYC Mayor wants the government system and workers to be isolated from any economic impact via a federal bailout.

Sundance, blogging at The Last Refuge, believes this is part of a deliberate wider strategy by Democrat-controlled cities and states to prolong the economic impact of the pandemic for as long as possible, hoping that the misery it inflicts will bring them votes in November.  It's hard to disagree with him.  Bold, underlined text below is my emphasis.

It is being reported the San Francisco Bay area will remain in a state of forced lock-down with an extension of the stay-at-home orders throughout May.  Considering this is the home of Speaker Nancy Pelosi,… this decision highlights an expectation that the federal government will bail out local and state governments.

We anticipated this type of approach where Blue states & Blue regions will keep their economies closed as long as possible to inflict maximum political damage.  Simply, if San Francisco were not confident they will gain a federal bailout they would not be keeping their economic system closed for another entire month.

. . .

It is likely that Democrat governors and Democrats in the House have organized a specific media allied approach to demand the federal bailout.  There is simply no way any state or local region would remain shut down unless they were confident of funding.

Any bailout would only help the local and state government. It would not help the private sector, or private sector workers. By using federal taxpayer funds to replace missing tax revenue, the Blue states/regions would be protecting their own big government ideology.

The three step plan seems predictable:

1. Get out ahead of President Trump.
2. Defy the ‘all clear’ and shape economic benefit to their political allies.
3. Then use Fauci’s upcoming dossier to hit the administration for heartlessly opening the economy too early.

This is going to be one hell of a battle.

Essentially we are looking at a Spring and Summer conflict, an economic civil war between Blue states/regions and Red states/regions.

More at the link.

Essentially, many state and local governments are using the pandemic as an excuse to suspend constitutional rights and liberties, and govern by decree.  They're now trying to extend that to the federal government as well, by making it dance to their fiscally irresponsible tune.  As the American Spectator points out, "Now that officials have learned they can suspend our civil liberties by edict, expect such “emergency” measures any time there’s another crisis, real or perceived."  I expect that'll apply to bailouts as well.

I don't think those agitating for a federal bailout, using the economic misery generated by the pandemic as a lever to apply pressure, have thought this through.  If their residents find that government largesse is no longer flowing (at least in the amounts they want);  and if they believe (or have been told, loudly and repeatedly, by their politicians) that they're entitled to such largesse;  then they're going to get out of control and try to take what they want.  The results are likely to be catastrophic for law and order, and civil society.

I think the ordinary people of America realize this.  After all, that's why they bought more guns in March than any other month in previous US history.  They're getting ready to defend what's theirs - and I believe they're right in anticipating the need to do so.  Again, bold, underlined text is my emphasis.

"Simply put: I wanted peace of mind when it comes to the safety of my family," Eaton said.

. . .

"To me, it's all about protecting my family, and if a gun makes that easier, so be it," Scott, a California tech worker with a wife and daughter, said.

Many of the new gun owners cited concerns about personal protection as states began emptying jail cells and police departments announced they would no longer enforce certain laws. Jake Wilhelm, a Virginia-based environmental consultant and lacrosse coach, purchased a Sig Sauer P226 after seeing Italy enact a nationwide lockdown on March 9.

"[My fiancée and I] came to the conclusion in early March that if a nation like Italy was going into full lockdown, we in the U.S. were likely on the same path," Wilhelm said. "Given that, and knowing that police resources would be stretched to the max, I decided to purchase a handgun."

. . .

"I think a lot of people were afraid of exactly what's happening now," Viden said. "They're afraid if it continues to go on longer, things are going to get worse."

. . .

The fear extended past the disease to how communities would bear the strain of job loss, lockdown orders, and law enforcement policies adopted in the wake of the spread. One Tampa inmate who was released over coronavirus concerns has now been accused of murder, according to the Tampa Bay Times. Brian, a 40-year-old living near Tampa, lost his full-time bartending job in March but was concerned enough about deteriorating public safety that he dipped into his savings to purchase a Smith & Wesson M&P Shield.

"My biggest fear is that our local police force comes down with the virus," he said. "If the good guys are all out sick, who is going to stop the bad guys? When people have no hope, they get desperate. And we fear the worst is to come."

More at the link.

You want to know why my friends want me to upgrade their rifles?  You want to know why I've been warning about COVID-19 as a threat to personal security, and suggesting ways to keep your shooting skills honed, even during the lockdown?  You want to know why I wrote my recent three article series about personal defense rifles?  Look no further.  To quote a sixties trope, "You don't need a weatherman to know which way the wind blows."  As I pointed out a few weeks ago, the grasshoppers are already coming after the ants.

I expect that problem to become exponentially worse during the next two to three months.  Other observers are even more pessimistic than I am.  (Try this one as an example:  "The economy is dead on arrival, the pin to the grenade has already been pulled, the majority of Americans simply don't realize it yet.")

I don't think it's going to be as bad as that, but it's certainly going to be a very difficult few years ahead.  I can only hope and pray that the worst expectations and predictions are wrong.

Peter

I agree - let the states dig themselves out of the hole they've made

Earlier this week I pointed out that, just as I predicted some time ago, states with serious budgetary and fiscal problems of their own making were using the coronavirus pandemic as an excuse to get Federal funds to bail themselves out.  I used Illinois as the prime example, but added:

Look for other states to make similar demands during this crisis.  They think that since so much federal money is being thrown around, no-one will notice (or care very much) that they're taking the opportunity to divert billions, even trillions of federal dollars to pay for their own excesses and self-indulgence.  We dare not let that happen, because it will establish a precedent that will be used again in future.  If we pay off Illinois', or California's, or any other state's deficits, what's to stop them spending just as much all over again, then demanding another bailout?  What makes you think they've learned anything from their excesses, and won't repeat them at our expense given half a chance?

I'm relieved to see that Senate Majority Leader Mitch McConnell is well aware of the danger, and has a proposal to fend it off.

Senate Majority Leader Mitch McConnell said Wednesday he favors allowing states struggling with high public employee pension costs amid the burdens of the pandemic response to declare bankruptcy rather than giving them a federal bailout.

“I would certainly be in favor of allowing states to use the bankruptcy route,” he said Wednesday in response to a question on the syndicated Hugh Hewitt radio show. “It’s saved some cities, and there’s no good reason for it not to be available.”

The host cited California, Illinois and Connecticut as states that had given too much to public employee unions, and McConnell said he was reluctant to take on more debt for any rescue.

“You raised yourself the important issue of what states have done, many of them have done to themselves with their pension programs,” he said. “There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”

McConnell’s remarks drew a biting response from state and local officials ... McConnell’s statements also set up a conflict with House Speaker Nancy Pelosi, who said on Bloomberg Television Wednesday that a “major package” of aid for state and local government will be in the next stimulus legislation considered by Congress.

There's more at the link.

I think the Senator is exactly right.  Our Founding Fathers never intended the Federal government to be an endless cornucopia of funds and other largesse, pouring taxpayer dollars into the states to cater for their needs.  Each state was supposed to be financially independent, raising its own funds, balancing its own budget, and providing for its own needs.  That's long since gone by the board, because the allure of federal funding has proved too strong for greedy, fiscally feckless politicians.  It's long gone time the constitutional balance was restored.

Of course, the propaganda drumbeat in favor of the states has already started.  Consider this article yesterday, published even as Senator McConnell was stating his position.

State and local governments are warning of a wave of layoffs and pay cuts after getting left out of the federal coronavirus relief package expected to pass Congress this week.

In many places, those painful reductions are already taking shape:

• Los Angeles plans to force city workers to spend 26 days on unpaid leave as revenues are forecast to drop as much as $600 million next fiscal year.
• Detroit has proposed laying off 200 workers and furloughing thousands more.
• In Ohio’s Hamilton County, Commissioner Denise Driehaus is taking a 10% pay cut alongside county workers. “We are really struggling,” Driehaus said.

The $2.2 trillion emergency legislation known as the CARES Act, which President Donald Trump signed late last month, included $150 billion in direct help for state and local governments grappling with the impact of the deadly outbreak. Democrats pushed to include another $150 billion in the next tranche of aid, but Republicans sought to keep the bill narrowly focused on support for small business.

By Tuesday night, Democrats yielded on their demand. The Senate passed the legislation by unanimous consent — without additional help for state and local governments. The House is slated to vote Thursday, and Trump is expected to sign it.

Senate Minority Leader Chuck Schumer vowed to revisit the issue in the coming round of negotiations over what could be an even bigger package of relief.

“The people who are on the front lines, they should get extra money, and at the top of the list is a robust state and local plan,” Schumer said. “We’re going to fight for that and many more things” in the next aid bill. It “will soon be upon us because the nation will demand it.”

. . .

“The approaching state budget cuts … will cause the U.S. economy to contract further — making the economic downturn deeper and more protracted, causing many more people to lose their jobs, and magnifying the serious hardship we already see,” said Robert Greenstein, the think tank’s president.

Again, more at the link.

The comment by Mr. Greenstein is disingenuous.  As Illinois just showed, fiscally irresponsible states aren't just asking for money to cope with the coronavirus.  They're asking for billions and billions of dollars to bail out their pension systems, pay off their deficits, and fund their own social and entitlement programs.  Funds for day-to-day state government expenditure are relatively minor by comparison.

For that matter, why shouldn't state governments be forced to contract and reduce expenditure, just as almost every business - and every taxpayer - has had to do in their jurisdiction?  Why should government employees be "feather-bedded" and insulated against the economic realities imposed on the rest of us?  Why should taxpayers have to bail them out at their expense, at a time when many of us are facing personal ruin as we watch our jobs and our livelihoods being destroyed as the result of the pandemic and resultant government decisions and actions?

There's no way I can or will ever support federal funds being used to bail out states and state governments for the mistakes their own politicians have made, and the egregious greed they've demonstrated.  They dug their own hole.  Let them get out of it by their own efforts - or, as Senator McConnell rightly states, let them declare bankruptcy and find a fiscally responsible way out of the mess.  Funds to deal directly with the pandemic and its problems?  Possibly.  Funds to bail out decades of overspending and waste?  No way!

For a start, how about balanced budget amendments for the federal government and every single one of our fifty states, including a prohibition on borrowing more than a given percentage or proportion of state expenditure?  If they were all forced to balance their budget each and every year, instead of relying on deficit spending and endless, uncontrolled borrowing, the entire nation - and all of us taxpayers - would be in a far better position.  Now that's a financial system I'm sure many of us, of all shades of political opinion, would support!

Peter

Am I a prophet, or what?

Yesterday I wrote an article titled:  "Should we pay companies to move manufacturing out of China?"  In it, I suggested (bold, underlined text is my emphasis):

Aid can be given to help critical industries diversify production, so that it's spread across several countries in more than one region (thereby preventing loss of production in one country from shutting down manufacture of that product altogether).  Additional subsidies to bring at least part of that manufacture back to the USA might also be feasible.  They might not involve payment up front, either:  if the US government guaranteed the purchase of a given amount, or a given proportion of domestic production, that might be sufficient incentive.

Well, guess what?  Within hours of my publishing those words, Presidential economic advisor Larry Kudlow, who's also the Director of the United States National Economic Council, was interviewed by Fox Business.  At about 8m. 35s. in the interview, he had this to say:

A 100% tax write-off of all expenses involved in moving production from China back to the USA?  That's a good start, and demonstrates I wasn't far off the mark.  I have little doubt additional subsidies will be made available once our economy is firing on all cylinders once more.

I suspect a public avowal like that of support for manufacturing repatriation is unlikely to please China.  We'll have to see what their reaction might be:  positive, negative, or a combination.  They can crack down on US companies already there, or offer them incentives to keep their production in China, or both.  Which way will they jump?  One thing is for sure;  they'll put their own interests ahead of those of the United States.  That's a given.

Peter