Monday, May 18, 2020

Left Coast Correspondent: Chinese Propagation of Coronavirus to Globe Through International Flights Likely a Deliberate Calculation

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2 MIN READ - The Cautious Optimism Correspondent for Left Coast Affairs and Other Inexplicable Phenomena offers a yet-unproven but highly viable theory to explain why the Chinese Communist Party allowed unrestricted international flights to leave Wuhan even as travel within China was locked down to contain the domestic spread of the Wuhan coronavirus:

General Jack Keane (ret.)

"Post-pandemic, there needs to be a comprehensive strategy in dealing with [what] China has done… …actually growing a pandemic from an epidemic by permitting international flights out of the country," [Chairman of the Institute for the Study of War Jack] Keane said.”

“The retired general theorized that China allowed the virus to spread because Chinese President Xi Jinping wanted to neutralize the advantage other countries could have gained while China struggled with the outbreak.”

“He doesn't care about loss of life. He cares about the economic contraction that was experienced in his country. And he wanted the other countries to go through that same economic contraction as he was going through," Keane said. "And he was hoping that he would recover sooner than they did. That's what this is about. And he's got to be held accountable for that."

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(Left Coast Correspondent’s comment) While no evidence is available to the outside that Xi Jinping and the Chinese Communist Party leadership calculated to deliberately allow the virus to spread across the globe and place the rest of the world at the same economic disadvantage China was experiencing, such a sinister decision would be perfectly consistent with Beijing’s inexplicable and contradictory domestic and international "containment" policies.

Within the first few weeks or even days of Wuhan’s lockdown it’s impossible for the CCP leadership not to have realized its epidemic controls would inflict immense damage on their economy. They also would have quickly realized the virus and the economic consequences of fighting it might stay with them for a long time, perhaps years. China’s own scientists and economists aren’t stupid and it would be naive to think they didn't put two and two together very early.

Therefore, knowing that the Chinese economy was “going down,” Keane theorizes Beijing made a calculated decision that “If our economy is going down, we’re going to make sure the rest of the world goes down with us so that we maintain our number two position in the world.” A regime determined to level the playing field by dragging everyone down to their disadvantaged level, no matter how low the playing field would go, would have done exactly what China did.

Sunday, May 10, 2020

Analysis: Generations of Keynesian Policies Have Made Us Extremely Vulnerable to the Covid-19 Economic Crisis

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4 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff was particularly impressed by this article’s thesis (“an economy starved of savings has little resilience to any shock”), but more for its financial insights than its traditional Austrian capital insights which he’d like to criticize oh so slightly.

Read article here:

For those not familiar with Austrian Business Cycle Theory (ABCT), the act of saving one’s income—which means deferring consumption—preserves a share of the real physical economy to be channeled towards producing capital tools and machines that enable greater production and higher standards of living in the future.

The article opens with the first of two major insights by establishing that when consumers spend all their income and more, they are signaling to businesses to focus more on producing goods for immediate consumption and less on producing capital goods that increase output per worker in the future. And over time sustained overconsumption leads to slowing economic growth as “seed corn is eaten.”

ABCT also argues that when central banks force interest rates down, they discourage saving and encourage more borrowing and consumption. Thus fewer capital goods are produced and the artificially low interest rate actually slows economic growth over any time frame beyond the short-term cheap money “sugar rush.”

There are more nuances to ABCT but the Economics Correspondent will stop there and say he generally agrees with the theory.

However the key economic disruption in the coronavirus economic crisis is not insufficient capital goods leading to meager gains in productivity.

Even if factories were flush with more modern capital tools and machines, the economy would still be in the hole now because government lockdowns and the virus itself are interfering with the ability of human workers to cooperate and employ those machines efficiently—not to mention managerial planning, maintenance of capital machines, distribution of intermediate and final goods and services, and the ability of end consumers to purchase them or take delivery.

Which leads to the second and stronger insight of the article regarding the Federal Reserve’s policy impact on the economy’s financial health.

It’s no secret that nearly a decade of zero interest rates has encouraged debt, debt, and more debt—taken on by firms, households, and governments.

Companies have leveraged to the hilt, floating huge debt offerings not only to finance expansion, but also to buy back stock.

While the Economics Correspondent has no objection to share buybacks per se, the zero interest rate environment has incited more financially irrational buyback schemes.

For example, paying a cheap 3.5% on corporate notes to raise cash to buy back shares that pay dividend yields of 4% might seem like a perfectly logical move to a CFO except that debt markets would never buy the notes at 3.5% to begin with were it not for Fed interest rate manipulation. Hence the unnatural math has spurred higher risk and higher corporate debt loads.

Borrowing to buy back shares also deprives firms of financial flexibility during a slump. When the music stops suddenly—as it has now—a company can suspend those dividend payments to preserve cash, but it can’t stop paying interest on the debt or refuse to repay it which would lead to bankruptcy.

Households have racked up record debt since 2008 as well. Although household debt as a percent of GDP is slightly lower than in 2008, household debt as a percent of household income is once again at a record. And just as importantly the gap between household debt and personal savings has never been greater.

And of course there’s the government’s highly publicized national debt and debt-to-GDP ratio. After rising rapidly from 2009, the debt-to-GDP ratio stabilized somewhat in 2014 around 100% and has set new peacetime records slowly ever since, but that stabilization is about to change very soon for the worse.

The Economics Correspondent predicts the national debt will very soon eclipse the all-time record debt-to-GDP ratio of 120% set during World War II.

All of these record levels of debt and low savings are the result of a central bank that forced interest rates to or near zero for over a decade. With such low rates the public would be crazy not to borrow and consume, and just as crazy to save—except for the highly disciplined few willing to stomach paltry returns and save anyway.

Which brings us to the crisis. Suddenly firms, households, and governments don’t see much income coming in. We’ve all been forced to hunker down and, even when that ends, will mostly still keep hunkering down voluntarily until the virus problem is unequivocally resolved.

A society that had accumulated ample savings—both corporate and household—would have a cushion to ride out the storm. It would be painful, but it wouldn’t have to be desperate, at least in the short-term.

But thanks to the Fed few firms and households found themselves in that favorable position in March when the crisis erupted.

The result is companies are scrambling to borrow even more to build that cash cushion (with the Fed accommodating them yet again), many that were previously overleveraged are going bankrupt, and households and small businesses—which unlike corporations have few capital assets to pledge as collateral—are left dependent on unemployment checks and government assistance since they have little savings to get through the slump.

Even the federal government doesn’t have the money and has to borrow to, among other things, bail out highly indebted state governments.

And why didn’t they have a cushion? Keynesian economic policies.

Central banks believed before and after the 2008 crisis that economic recoveries should be “stimulated” with record low interest rates that ultimately produced record levels of indebtedness. Ironically the Austrian criticism argues that super low interest rates lead to slower growth and slower recoveries over the longer term because the economy is starved of savings and deprived of real physical capital.

And the attached FEE article is dead on right that America’s companies, households, federal and especially state and local governments are in a far more desperate financial position now because of the Keynesian monetary policies of yesterday.

Left Coast Correspondent: British Intelligence says all Cell Phone Activity at Wuhan Virology Institute Stopped October 7-24, 2020

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The now-secretive Wuhan Institute of Virology
The Cautious Optimism Correspondent for Left Coast Affairs and Other Inexplicable Phenomena eagerly awaits any evidence Secretary of State Mike Pompeo claims United States intelligence agencies have accumulated proving the Wuhan coronavirus originated from the Wuhan Institute of Virology (WIV) laboratories.

Meanwhile British intelligence has recently ascertained that all cell phone traffic to and from the the WIV came to a sudden and complete stop between October 7 and 24.

Although a seventeen day cessation of all cell traffic is not conclusive evidence of anything more, it is highly unusual for an institute that employs large numbers of scientists/workers and would be consistent with a complete shutdown resulting from an accidental release at the pathogen-housing biolab.

Unfortunately all publicly disclosed evidence of a lab leak has so far been circumstantial.

1) The CCP claims the virus broke out at a wet market, but has reopened the country's wet markets for business anyway. Odd policy for a government that has stated such markets have demonstrated the capacity to unleash more pathogens that threaten the survival of all humankind.

2) The CCP claims the coronavirus just happened to break out in the one city that contains China’s only biosafety level 4 laboratory that also coincidentally stores and studies bat coronaviruses—an amazing coincidence given that same city contains 8/10ths of 1% of China’s population and 9/10ths of 1% of China’s land mass

3) A new study from University College London and University of Reunion Island, soon to be published in the “Infections, Genetics, and Evolution” scientific journal, has used worldwide genome sequence analysis to place the first Covid human infection date as early as October 6th. All cell phone traffic in and out of the WIV suddenly ceased on October 7th.

4) The Chinese government began the destruction of documents and evidence as soon as the Wuhan breakout began.

5) Nearly all of the scientists and technicians who were working at the WIV at the time of the outbreak have disappeared, making it impossible for outside investigators to question them.

6) The CCP refused to allow American and other outside scientists into the WIV at the time of the outbreak, and has still refused any outside access six months later.

Or course physical evidence and testimony from key witnesses would be preferable to circumstantial evidence, but the Chinese Communist Party has made that impossible, consistently putting up obstacles and barriers to attempts by outside health and government authorities to ascertain what really happened at the WIV.