Archive for March 28th, 2020

Trump $6.2 TRILLION Fight Against COVID Is Economically Responsible 

March 28, 2020

Finance is a convenient servant to the economy. Finance is not even necessary to the economy, and no economy, no money.  The six trillion dollars signed and negotiated by Trump do two things: 1) and most important, sustain and amplify the essential economy. 2) keep alive the non-essential economy, which would otherwise stop existing (… we can gently ease it out later…) 

The 2.2 Trillion Dollars Coronavirus Aid, Relief, and Economic Security (CARES) Act passed the US Senate 96 to zero (4 Senators were COVID or quarantined). Two days later the US Congress passed it, and Trump, who had helped to negotiate the details, signed it immediately. There were no hearing: all gt together, including Trump, who agreed to much Democratic ideas…

This was the largest financial intervention act of a state in the history of humanity.

The same day, Trump used the Defense Procurement Act, forcing General Motors to produce respirators. Trump added he may use the FPA again, as “we have a couple of little problem children… two companies which are NOT doing what they said they would be doing.  

Some anti-Trumpers screamed to high heavens that Trump was exploding the national debt, and bringing financial ruin to the US. Critics of the 6.2 trillion dollar intervention do not understand how the economy works. In particular, they do not understand the essence of the economy, which is GOVERNMENTALISM. Let me explain.

***

Big US debt procurement during World War Two was highly profitable to the US… and WORLD, economy… Let alone those who wanted to smash Nazism and other fascisms…

National debt, in a sovereign country acts, potentially, like a future tax, on those wealthy enough to have lent the money, or, potentially, as a future tax on those who received the money… I say debt is a “potential tax”, because reimbursement conditions can, and often, will vary. For example, if money is lent, but not reimbursed, it acts as gift, or theft, depending if one is on the receiving, or donating end. Europeans have acted stupid, ever since the EU was founded, as if they didn’t understand that (but the UK understood it, explaining partly its better economic performance.)

Let me add that this is not the case here; the 6.2 trillions are no augmentation of the national debt (explanation another time). 

What Trump is doing is putting the US economy on life support, while providing massive financing for research and development… and health care: 150 billion dollars for hospitals alone.

Here is an example: CDC Dr. Fauci said industrial fabrication of vaccines will be launched, even while one can’t know yet if those vaccines will work, or even if those vaccines do not launch the dreared “IMMUNE ENHANCEMENT”… that is during Phase 2 trials; that will be costly as perhaps two dozen vaccines are being developed (using sometimes extremely different methods: the Pasteur institute is using its usual method to see if its hybrid coronavirus-brucellosis is safe on mice and soon primates… While Sanofi will further push a 2017 “prototype” SARS vaccine using recombinant tech; several RNA vaccines are already in human trials, testing for basic safety…)     

A nominal increase in national debt acts as real free money for now.. And a potential, just potential, tax. I say potential, because, for a country of Argentina and if the money has been lent by foreigners, one may have to pay back part of it… But if one is the USA, one doesn’t have to pay any of one’s debt. Especially to foreigners. If foreigners don’t like it, they should feel happy to have lend so much money to such a superpower

One of the reason the European economy has stagnated is that it has insisted to inflict high taxes on citizens, instead of much more forgiving debt (which growth can erase; so debt enables and incites a sovereign country to grow faster…)

As it is, moreover, Trump’s two trillion is not necessarily a debt. And it’s actually six trillion dollars. 

Japan has a national (“Federal”) debt in excess of 200% of GDP. On March 27, it had only 49 deaths from Coronavirus, out of 1,700 cases, with a (so far) completely flattened curve, and a death rate per million not even one tenth that of the USA. In general the Japanese economy had not been doing badly with that debt… maintaining, for example a first class universal health system…. At a time when the USA is demonstrating, for the whole world to see, that a profit guided health system is a colossal disaster. Indeed, soon the USA may have much more than a million Coronavirus cases, and that will be imputable in part to not have been willing to spend more on healthcare (instead of spending on the billionaires who profit from US healthcare).  

The Federal government created two trillion dollars as direct help with CARES. To this one has to add 4 trillions of the US Federal Reserve at the disposal of banks through leverage (to start with; the Fed has said it will create whatever money is needed). None of this money is really debt. At most it means part of the US economy is getting nationalized (the average citizen becomes a shareholder).

***

Take four cases I personally know of:

Picture a 500 rooms/apartments hotel/resort without any revenue for the rest of the year. It’s a “family business”. It has employees, pays their healthcare 100%. It’s at 7,000 feet, it has large fixed cost in heating, security, maintenance. And revenue is now zero. And will stay so for many months. What to do? A bank loan! But where does the bank get the money from? The Federal Reserve, which lends it at zero interest!

Picture my climbing gym. Actually a company with a dozen climbing gyms, with course setters, maintenance, staff, and paying 100% health care. Same story as the preceding.

Third example: a research institute in AI getting its money from corporations with now zero revenue. They said they were firing all their scientists, effective in June. The Trump administration is stepping in.   

Fourth example: Several science museums I know. There is money for them in the two trillions. Trump himself explained the Kennedy Center for the Arts needed 25 millions to pay salaries, maintenance (the Dems wanted 35 millions initially). 

***

Trump is using MASSIVE GOVERNMENTALISM. Smart.

What is important is that expertise not be lost. OK, a bit of expertise lost in completely useless parts of the economy will be OK… But futuristically essential services should be maintained. For example in teaching, research, industrial base. 

The mightiest states are always living with fiat money. The Inca were using knots on ropes. The very fact a state can impose fiat money is an expression of its power. As it is, there is going to be a hole of one third of GDP, because one third of all transactions in one year will not happen. So the state making it so that it will appear these transactions did happen… Even if they didn’t. 

Debt, left unpaid, means some people with excess capital may be cheated on. But debt, left unpaid, can save an economy. What is it not to like? I always said that Trump, as his chronology and behavior indicates, was truly a real Democrat (aka a “populist”… despised by the haves). TARP, organized by Obama, was truly a Transfer of Assets to Rich People. Whereas CARES has tight oversight, and pays the average family (which TARP didn’t do). CARES is the right thing to do. The alternative was a depression worse than 1929.

This virus crisis is an excellent occasion to find out how the economy works. First, one can see that 90% of the economy, or so, is useless. One can also see that the essential part of the economy, including scientific research, advanced, life saving technology, is underfinanced.

In Italy, some medical workers get paid less than $1,000 a month. Yes, less than a thousand dollars, and now the opportunity to die. But then they were honored by watching on TV brainless muscle guys paid more than one hundred million a year, just to hit a ball with their foot.

Ironically enough, the USA, and the world, is lucky that the US President is a specialist of saving (his won!) value through bankruptcy (ironically yours truly saw this, at the time, as corruption… Meanwhile, though, we have seen much bigger corruption than that…

CARES is bringing in money, as needed. Trump is ordering around General Motors, as, unfortunately, needed. This is a war. War can be good.  Universal health care systems in Europe were created thanks to the shock of World War Two. Coronavirus is the bellicose occasion we needed to reorganize the world economy in a more essential way.

Patrice Ayme 

.