The Council on Foreign Relations canceled its “Doing Business Under Coronavirus” conference scheduled to begin in New York this Friday because of — what else? — coronavirus.
Doctors have diagnosed, in a state of nearly nine million people, 173 cases of coronavirus. The Empire State, during the same sickness season, endured 140,000 influenza cases, including, during the most recent week for which statistics became available, 8,459 new infections.
Nevertheless, two industries famously headquartered in New York — media and finance — opted to re-enact Julie Brown’s 1980s MTV cult classic “The Homecoming Queen’s Got a Gun” in response not to the flu but to COVID-19.
New York Times columnist Paul Krugman, along with many others in the viral media, called coronavirus “Trump’s Katrina.” The Atlantic headlined a run-for-the-hills article “Cancel Everything,” which declared in the subheadline: “Social distancing is the only way to stop the coronavirus. We must start immediately.”
The Dow Jones Industrial Average yo-yo’d the heads of investors in its volatility to start this week. It lost, then gained, then lost more than 1,000 points on Monday, Tuesday, and Wednesday. Other indices followed suit. Like the hysteria that propels it, the markets’ wild mood swings seem not terribly rational. But with people staying home — from work, from traveling, from restaurants — reasons exist for bearishness.
The U.S. economy likely soon contracts and possibly goes into recession this year. Unfortunately, during the vibrant economy heretofore experienced during the Trump administration, fiscal and monetary masters behaved as though in a recession. Before the media proclaimed a falling sky in comparing coronavirus to the black plague, those in charge of budgets and the money supply did worse by seeing a clear, blue sky as a falling sky. This leaves the economy in an especially perilous position.
The president and Congress painted us into a corner by moving from a deficit of $665 billion during Donald Trump’s first year in office to one exceeding $1 trillion for this fiscal year. Given a national debt that at $23.5 trillion eclipses the gross domestic product (GDP), the ability to go further into debt to spend our way out of a recession appears reckless and, given the redness of the national bank balance, unprecedented.
As Committee for a Responsible Federal Budget President Maya MacGuineas noted in response to February’s $235 billion deficit,
It is beyond distressing that we may be entering a period of national emergency with record-high levels of borrowing. We ran higher deficits in February than any time in our nation’s history — and that was before any large effects of the coronavirus outbreak. Instead of taking advantage of our strong economic growth to get our fiscal house in order, we let it continue to fall apart by passing unpaid for tax cuts and spending increases. That leaves us less prepared for what could be a sustained economic slowdown.
Fiscal stimulus measures, through strangely now regarded as not stimulus but the new normal, barely receive public attention. The public exhibits an even weaker curiosity in the Fed’s role in stimulus:
- The Federal Reserve increased its balance sheet from about $3.7 trillion in September to almost $4.4 trillion today. By embarking upon quantitative easing before the economy needed it, the Fed limited its options once GDP started to contract.
- The repurchase agreement (repo) market, in which financial institutions provide short-term loans to one another, left unbothered since the 2008 downturn, witnessed the Federal Reserve intervene once again in September. This week, the New York Fed announced increasing the amount offered for short-term repos, extending its offering of two-week repos and adding new one-month repos. “Beginning Thursday, March 12, 2020 and continuing through Monday, April 13, 2020, the Desk will offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period,” the New York Fed explained on Wednesday. “In addition, the Desk will also offer three one-month term repo operations, with the first operation occurring on Thursday, March 12, 2020. The amount offered for each of these three operations will be at least $50 billion.”
- After three 2019 rate cuts, the Fed, earlier this month, dropped its funds rate 50 basis points to 1.00–1.25 percent. A panicked market expects even more intervention from the Fed. “Markets expect still more Fed action in the form of a 75 basis point interest rate cut by next week’s Federal Open Market Committee meeting, if not sooner,” CNBC.com reports. “There also is a further 25 basis point cut priced in for the April meeting, which would take the fed funds rate, used as a yardstick for short-term borrowing rates as well as for many types of consumer debt, down to near-zero, where it fell during the financial crisis and remained for seven years.”
How much lower can rates go? How much higher can deficits reach? How much more money can the Fed print?
Unfortunately, we may discover the answers to these questions. The same elected officials who stoke this panic now pledge to rescue us from it. In other words, after the government opens the floodgates it starts the bailout. The government works against itself here.
“For the vast majority of Americans,” the president informed Americans Wednesday night, “the risk is very, very low.” Yet, by fiat, he instituted a ban on European travel. His words said one thing. His actions said something else. Here, as in so much else, the government sends mixed messages.
All of this makes very little sense. Then again, so does banning fans from an NCAA basketball tournament that takes place every year at the tail end of a flu season always far deadlier than COVID-19. Like imprudently wasting monetary and fiscal stimulus during an expansion, a societal shutdown amid any public health scare may have just become the new normal.
Be afraid. Be very afraid.
Be very afraid of people very afraid.
Source: The American Spectator