Friday, March 20, 2020

COVID-19 represents a serious health threat. But casinos shutting down represent a coming disaster within the world's reorganizing national economies

When you know that casinos in Las Vegas and elsewhere are shutting down because of the COVID-19 pandemic, you know we do have a public health crisis. And it is clear that this crisis must be handled by state and local governments as stated yesterday by President Donald Trump with regard to hospitals lacking enough ventilators and other equipment to handle the coronavirus:

    “Governors are supposed to be doing a lot of this work … the federal government is not supposed to be out there buying vast amounts of items and then shipping. We’re not a shipping clerk. As with testing — the governors are supposed to be doing it … but this is really for the local governments, governors, and people within the state, depending on the way they divided it up.
    “Governors are supposed to get it. States are supposed to get it. For years, they bought ’em — and now, all of a sudden, they’re coming to the federal government.”

The fact is there will be a crisis in medical care because of the pandemic. It is embarrassing that as a nation, we didn't tax ourselves at the state and local level to prepare for it instead of buying smart phones. It isn't as if we didn't know it was coming as Bill Gates explained in a 2015 TED Talk:

We also know that when the Las Vegas strip and thousands of businesses across the nation are shutting down, an economic crisis will ensue. Our hope is that the federal government will effectively limit the impact on the national economy to the recession we are effectively already in.

On Monday the UCLA Anderson Forecast done by economists at the UCLA Anderson School of Management declared we are already in a recession (click on image above to read the news release):

    Revising a forecast published March 12, UCLA Anderson Forecast economists say the U.S. economy has entered a recession, ending the expansion that began in July 2009.
    The revised forecast, which incorporates data reflecting a rapidly changing U.S. economy, together with a review of the 1957–58 H2N2 influenza pandemic, is for the recession to continue through the end of September.
    This marks the first time in its 68-year history that the UCLA Anderson Forecast has published an updated forecast between its regularly scheduled quarterly releases.
    After the economy had experienced a solid start to 2020, the escalating effects of the coronavirus pandemic in March have reduced the first-quarter 2020 forecast of GDP growth to 0.4%. GDP for the second quarter of the year is now forecast to slow by 6.5%, and by 1.9% for the third quarter. With the assumption of an end to the pandemic and repaired supply chains by this summer, the Forecast predicts the resumption of normal activity in the fourth quarter of 2020 and a GDP growth rate of 4.0%.
    For the full 2020 year, it is expected that GDP will have declined by 0.4%. In 2021, with the abatement of governmental pandemic expenditures and the continued contraction of residential and commercial construction, the economy is forecast to grow at 1.5%. The full recovery and return to trend is now expected in 2022.
    For California, a state with a larger proportion of economic activity in tourism and trans-Pacific transportation, the economic downturn will be slightly more severe. Employment is expected to contract by 0.7% in 2020 with employment contracting during the second and third quarters at an annual rate of 2.6%. The state's unemployment rate will rise to 6.3% by the end of this year and is expected to continue to increase into 2021 with an average for 2021 of 6.6%. By the first quarter of 2021, California is expected to lose more than 280,000 payroll jobs with more than one-third of those in the leisure and hospitality and transportation and warehousing sectors.
    The revised forecast comes with an important caveat. If the pandemic is much worse than assumed, this forecast will be too optimistic. If the pandemic abates quickly because of the extraordinary measures being put into place to address it, an outcome that the medical community thinks unlikely but possible, then the forecast will be too pessimistic and economic growth in the third and fourth quarters of the year will be higher.

As observed today Bank of America agrees:

    Bank of America warned investors on Thursday that a coronavirus-induced recession is no longer avoidable — it’s already here.
    “We are officially declaring that the economy has fallen into a recession ... joining the rest of the world, and it is a deep plunge,” Bank of America U.S. economist Michelle Meyer wrote in a note. “Jobs will be lost, wealth will be destroyed and confidence depressed.”

Goldman Sachs projects initial jobless claims could spike to a record 2.25 million this week as coronavirus-driven layoffs hit the labor market.

Such a recession, depending upon how it evolves, could become a depression. Most certainly it will become a "great" recession whatever that means. The problem in this writer's opinion is that this disruption was not created by economic mismanagement by bankers as in 2008 or the 2001 dot-com bubble burst.

Instead this "economic downturn" is the result of a failure to heed the warning as expressed by Bill Gates in the video above, a warning about something other than money and stuff to buy. Unfortunately, it comes in the middle of an amateurish attempt by the right wing of the Republican Party to crush the international economic expansion of the late 20th Century because it did not adequately favor "traditional American values" reflected in nationalism.

Since 2016 the United States has withdrawn from its world leadership role and from international economic cooperation. Most countries today do not trust Americans. Yet the American economy, a consumer economy, depends upon imports manufactured by cheap foreign labor. It is not a coincidence that the picture above from the heading of the UCLA Anderson Forecast is of an empty port.

China is beginning its recovery from the pandemic. But manufacturing stuff for the American consumer will continue to be on hold because the U.S. is three months away from its recovery. There are serious questions about whether leadership in China and other Asian countries will continue to emphasize exports to the U.S.

Just as Brexit is to be implemented, the pandemic is sweeping through Europe shutting down those economies even including the unprecedented closing of the Casino de Monte-Carlo in Monaco. In the middle of all this we read:

    In an unprecedented step for the British government, the chancellor, Rishi Sunak, said the state would pay grants covering up to 80% of the salary of workers if companies kept them on their payroll, rather than lay them off as the economy crashes. The extraordinary payments will be worth up to a maximum of £2,500 per month, just above the median income.
    Economists at Deutsche Bank forecast the British economy could suffer the worst recession for a century – outstripping the 2008 financial crisis – with millions of workers losing their jobs and the unemployment rate doubling.

The U.S. Congress, divided because the nation is politically divided,  has entered into a dispute within this election year based upon (a) the view that a one-time payment to individuals and bailing out businesses is best (Republicans) or the view that expanding unemployment benefits and personal tax credits is best (Democrats).

The casinos shutting down represent a coming disaster within the world's reorganizing national economies in this writer's opinion.

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