Jul 102020
 
 July 10, 2020  Posted by at 1:44 pm Finance Tagged with: , , , , , , , , , ,


Gerry Cranham Protection for the pretty 1963

 

 

Imagine you’re standing across the street from a house that’s on the verge of falling apart, a condemned building, an edifice devoured by rot from bottom to top. Now imagine you see a construction crew arriving to repair it, and they start to fix the roof. You would think that’s not much use if the walls, floor and foundation are just one wolf’s huff and puff away from collapse.

Still, that is what the world’s central banks are doing today: they “fix” the top by bailing out banks and allege that somehow that will fix the rest of the edifice too. In that same analogy, while central banks prop up banks, governments try to support the walls, by bailing out businesses. Again, while the floors and foundations keep on rotting away. And when the floors cave in, so of course will the walls, just like the roof.

There may appear to be some logic to all this, but it’s only the “inner logic” of an economic and political ideology that deals exclusively with how things should be, not how they are. Of course it’s nice to have a shiny new roof, and strong walls. But neither have any value if there are no more floors to support them.

This is what is happening today to our economies and societies. The 2008 crisis wasn’t bad enough to expose the failures of the “inner logic” of the system, but the fallout of COVID19 will be. And it’s not the virus that does it all, or the lockdowns, they merely expose a system that’s been rotting for many years without its floors and foundations ever being repaired.

(And yes, you’re right, the central banks are not merely fixing the roof, they’re gold-plating it for good measure).

 

So you got the Fed team working on the roof and the government team working on the walls, and absolutely nobody working on the floors and foundations. And at some point you’re going to have to ask what these people actually know about building and construction, even about gravity: are they aware that roofs and walls are infinitely more dependent on solid floors than floors are on them?

Actually, I think they are. They just don’t think it’s possible that the floor may fall out from underneath them (i.e. they deny gravity). But that is what is threatening to happen. Not only in the US, but all over the western world. And if there’s one thing you don’t want to happen to your house, or your economy/society, it’s for the bottom to fall out. Because where will you live?

Still, with headlines such as

“More Than Half Of The US Population Is Not Working”,
“50 Million Americans Have Lost Their Job In Past 6 Weeks”,
“42 Million Unemployed, 25.5% Unemployment Rate”,
“52% Of Small Businesses Expect To Be Out Of Business Within Six Months”,
“53% Of Restaurants Closed Amid Coronavirus Have Shuttered Permanently”,
“US Retail Apocalypse: Over 25,000 Stores Could Close By Year End”
,

and more of the same on the way, we should at least consider the possibility of the bottom falling out, and prepare accordingly.

It’s one thing to want to save the businesses, but if you have huge amounts of people who can’t afford to buy anything from them, businesses will inevitably fail in huge numbers. If the bottom threatens to fall out, you need to focus on saving the floor and foundations, the people, not the businesses. Nothing to do with socialism or anything like that, but with preserving your society as a going concern.

 

The first thing I didn’t quite get, but then again did, was that all the PPP’s and their equivalents, the various global payment protection programs, were aimed at protecting businesses by guaranteeing wages and salaries of their employees. What an odd idea, I thought. After all, if you want to protect wages, there is no reason to do that through a business, you might as well pay the employee directly.

If you pay the business which must then pay the employee, how would that help or protect that business? By giving off the false impression it can still pay the wages? Of course, if you do pay it through businesses, at least no-one can bring up a theme such as Universal Basic Income, anymore than they can MMT. While you in effect practice both, you can also deny practicing either. Pretty smart, right? Neat!

But turn this around for a moment. Say the governments pay the wages and salaries. These are the biggest cost for many if not most businesses, certainly the small ones, which are, obviously, the most vulnerable to sudden events like a pandemic and lockdown. So as a government, you take that liability, and that risk, away.

It would appear that then you can assess much better how viable such a business really is. Because a business that doesn’t have to pay its biggest cost should be able to survive for a few months, even if there’s no revenue coming in, unless it has deeper problems, like -too much- debt. The advantages for everyone are clear: less paperwork for government and business owner, guaranteed wages for employees, and a better view of a business’s financial situation for everyone.

 

Not that you should pay employees 100% of their wages, as many countries have. You would only do that if you think the problems will be over soon, but in reality you have no idea if they will be. You need to support the lowest-paid people -because they are the bottom that’s about to fall out- but as you work your way up to higher wages, you start taking off a percentage, rinse and repeat, and end up paying maybe $50,000 to people who made $100,000 (and yes, that goes for government employees too).

Why would you hand someone, anyone over $100,000 for not working? Of course there are people with mortgages and car loans that are so elevated that they need more than $100,000 to keep their families alive, but that is a different story. That does not deal with the bottom falling out. For those cases, you need a separate program. Just like you do for businesses that still can’t survive once all their wages have been taken care of by the government.

Obviously, as Midwest small businessman Bruce Wilds said recently in his guest post here, Small Business Firings to Start, for some businesses showrooms, or inventory, taxes, utilities, can be major liabilities. Again, separate program. Support the bottom, the people, first. Because it’s urgent. Because you risk too many people having too little to survive on. In fact, so many that your businesses come under threat from having no customers left.

 

As one of its first measures, Greece, when it went into lockdown, lowered rents for businesses by 40%, without as much as a plan for how to compensate landlords. That’s the spirit. But it’s a spirit few will understand, let alone politicians. In the end, the reality is that most landlords and mortgage lenders will get less money. For a long time. You can try to help everyone out with cheap loans to individuals and businesses to pay off their mortgages, but that’s a just another short term plan, and has nothing to do with long time views.

And cheap loans won’t save the bottom from falling out. If you put it like that, people will actually understand: you don’t save a failing economy by pouring in cheap money. Any more than a lick of paint will save a condemned building.

But at the same time, that’s all our political systems manage to come up with. While fervently hoping for, counting on, a miraculous recovery, and planning to make the poor pay by raising taxes when we’re “back to normal”. It’s just that there comes a time when the poor have nothing left to pay with, not even for their food. That’s when the bottom falls out.

To be continued. I have much more to say on this. Like: what to do now?

Look, it’s quite simple really: if you ask yourself, or your friends, or someone on the street, if they think the economy will recover within a “reasonable” timeframe, most will say yes. Conditioned by politicians, by the media, and by their own fear of what will be their fate if it doesn’t. But that is a giant blind spot. If half of businesses and half or restaurants are shut for good where ever it is you live, where would that recovery have to come from? Do ask yourself that question, and try not to be afraid of the answer for a moment.

 

 

 

 

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Home Forums The Bottom’s Falling Out

This topic contains 17 replies, has 10 voices, and was last updated by  Geppetto 1 month ago.

Viewing 18 posts - 1 through 18 (of 18 total)
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  • #60991

    Gerry Cranham Protection for the pretty 1963     Imagine you’re standing across the street from a house that’s on the verge of falling apart
    [See the full post at: The Bottom’s Falling Out]

    #60994

    Dr. D
    Participant

    Not to follow old tracks: so if we pay the people, but temporarily, everything is just in deep-freeze, when it stops, all like before. Okay. However, think of it as we pay all the people, but not the businesses. Further, the businesses — and people — do no work. Aren’t we paying for mass consumption, but preventing — outlawing — production?

    It’s difficult to see how that would work, although paying all people for all things in fact the Soviet system.

    Okay, more problems: we pay the restaurants in London for eaters they don’t have. We force lower the rents in Greece. But every producer is a consumer, every creditor is a debtor: how do you think the Landlords will pay their bills? They will lose to their common predator, the banks, who will then own all the landlords, who will own all the renters…who are owned/controlled by the government. The Soviet system.

    You can run this through pensions, doctors, even food and farmers, but the result is the same. Any control seems to spread to controlling everything, or else it falls apart. And the controllers can’t be everywhere and know everything, what rent is too much, not enough, what crops to plant, who to bail out or not. Which restaurants, which families, which dreams live and die. People resist, and then you must riot and kill them.

    And so what if it fails? Doesn’t that just mean we have free markets and real prices? Who does that injure? Since it’s the vanishing few controlling and containing, but with massive power, doesn’t that suggest that the free markets hurt the wealthy insiders and therefore would help the people?

    So again, the helping isn’t helping. It’s forestalling bankruptcy of the rich and real, fair prices and truth from taking hold again. It seems like it isn’t, because the only way to get out of a lie is to take it in the teeth, but it’s still true. The new help, the new bailouts, the new price-setting, are just more fake prices, more lies. Are we going to cure our lies with more lies the way we cured debt with more debt?

    Stay tuned, because of course we are. They will do it until it fails. Which is the point. They are hoping or even making some even happen they can blame it on. Anything besides themselves. Their system. Their undue, unjust reward.

    #60997

    zerosum
    Participant

    If the bottom threatens to fall out, you need to focus on saving the floor and foundations, the people, not the businesses.

    or

    the helping isn’t helping

    LOOK AT THE POKER GAME

    Biden – 5 million jobs
    Trump – 20 million.
    Covid19 – All in – “unknown pneumonia”
    IMF – ‘Equity-Like’ – MMT
    military spending package – $740.5 billion
    market – $6.5 trillion.
    insurers – fold
    Steven Pinker – academicians – fold
    peace – fold
    Christopher Steele – justice – fold
    THE HOUSE – JUBILEE FOR THE SELECTED FEW

    #60998

    Mr. House
    Participant

    No one is willing to accept pain. I know its not popular to say it but people should save more, no matter what their income is. Having that money on hand for emergencies is the only kind of freedom you truly have in a system like ours. But the media and the government don’t want people to save, and the TV tells them not to. So they don’t, and then as soon as something bad happens all we here are the cries to the heavens of who will save us! Is this a society worth saving?

    #60999

    Mr. House
    Participant

    People are too partisan, it either has to be all left or all right, never realizing that neither extremes work well.

    #61004

    Maxwell Quest
    Participant

    @Dr D

    Your analysis made my day. Watching the hubris of our ‘leaders’ is truly stunning. Barely capable of rudimentary inference thinking themselves, they boldly interfere in the operation of highly complex systems (like the economy) whose interrelationships are beyond the comprehension of even a room full of Einsteins. One of the least understood of these relationships is human emotional psychology. It’s very difficult for spreadsheet formulas to capture that one. Like putting a chimp in the cockpit of a 747, only disaster awaits the unwary passengers.

    Add to this recipe an insatiable appetite for personal gain or power, or put another way, a total disregard for the public good, and it leaves no room for a healthy economy or the social system supported thereby.

    Of course, as Mr. House has implied, no politician is going to risk his popularity (or financial support) by proposing that his donors swallow a bitter pill, so we must all crash together.

    #61005

    Geppetto
    Participant

    Well I’ll stay with you guys for a bit longer. Good to see Raul using metaphor to convey his idea. Dr.D…well heck man! Your first sentence! Why do you do it AGAIN then? Mr House gets it. My opinion only as always, but again what do I know?

    Sometimes I wonder if all the armchair rocket scientists I encounter on the internet *know* which way a light bulb screws in? Seriously. Do you turn it right or do you turn it left? Is there a standard for that sort of stuff. ASME, ISO, ANSI, BA…? Of course there is. But it lies under the surface as most *foundations* do.

    Sometimes I wonder if all the armchair anarchists I encounter on the internet have ever added value to anything? Built , created art, made music, built a surfboard, a bicycle, a car, an airplane, a house? I wonder if they have ever had to kill another sentient being to get some protein? Probably not but there is obviously somebody who does and is willing to add his *idea* of value and risk the judgment of someone else’s *idea* of value.

    We are dancing around on the surface of things with critique and risk free opinion. I hang around with some very strong peeps. We go deep often. We are respectful of the others perception. We are respectful of risk . We understand the ‘precautionary principle’ but do not surrender our power to fear. We are tolerant of failure and share our success. Our mantra is ‘ adapt , create, endure…but in no necessary order’. I’m sure you have some strong friends too.

    Peace

    #61007

    The banks get all the foreclosures- including the remaining smallish farmlands. Real estate prices in most areas will plummet. Gated enclaves will be protected by private security. Hangers-on outside of them will fall prey to chaos, and then they, too will be bought out.
    Then they will call “scrip!” (As currencies turn to ashes). You turn in what you have and they give you a chip. If you had some savings, you will be better off than those who didn’t, but most folks will get their UBI if they work in those fields or factories or at those desks and counters.
    Feudalism- with its constant petty chessboard wars: That’s what I see coming. And lots and lots of death.
    Until Arthur shows up and pulls a sword from a stone.
    Or aliens could land again ; ) -preferably before we finally decide to play with our nuclear/biological/chemical toys.

    The happiest one is that all the rich bastards get on a luxury space yacht and land on Mars where they will find out the concierge has gone on to better things.

    #61009

    zerosum
    Participant

    Too bad you are not favored
    https://www.zerohedge.com/political/lancetgate-scientific-corona-lies-big-pharma-corruption-hydroxychloroquine-versus
    Authored by Prof Michel Chossudovsky via GlobalResearch.ca,
    Payed for it once June 29: Fauci Greenlight. The $1.6 Billion Remdesivir Contract with Gilead Sciences Inc

    Pay for it second time Who will be able to afford Remdisivir? 500,000 doses of Remdesivir are envisaged at $3,200 per patient, namely $1.6 billion (see the study by Elizabeth Woodworth)

    The Drug was also approved for marketing in the European Union. under the brandname Veklury.

    Remdesivir for Covid-19: $1.6 Billion for a “Modestly Beneficial” Drug?
    Remdesivir, the only drug cleared to treat Covid-19, sped the recovery time of patients with the disease, …

    #61010

    oxymoron
    Participant

    Dr D. Stunning work. Loved it. Thanks for pointing at predatory banks. They are also know as Vampire squid. I still believe to produce even only the smallest bit more than you consume is better than porkin’ out on debt fuelled bounty.
    Also my parent said know – I reckon you are pointing in the right direction. I think Kunstler was on it but turns out a virus born of mother nature’s bag of tricks was the vector. Always hard to pick timing and causation over patterns.

    #61017

    V. Arnold
    Participant

    Lily
    I really miss the Worldometer chart that you used to have at the beginning of each day’s posting. It was always the first thing I looked at in the morning.

    Yeah, me too…
    It offers a great way to track the virus all over the planet with one chart/view…
    Pretty please… 😉

    #61023

    Geppetto
    Participant

    Well, here is a chance to hold some feet to the fire at a *local* level.

    https://helloskip.com/ppp-data/

    In our small community of 10,000+ I found at least 10 cases of what I would consider ..moral hazard. Work the *system* baby!!

    #61026

    Arttua
    Participant

    Geppetto,
    “Sometimes I wonder if all the armchair anarchists I encounter on the internet have ever added value to anything? Built , created art, made music, built a surfboard, a bicycle, a car, an airplane, a house? I wonder if they have ever had to kill another sentient being to get some protein?”
       As an armchair anarchist, I should say, yes, I play jazz every morning before TAE, and have built guitars. I haven’t built a house, but have replaced almost every window, floor and ceiling.  I own a small farm so yes those sentient beings.  I’ve built hundreds of bicycles.
      I think what most people don’t understand is that anarchy is basically the lack of hierarchy. Mao, Stalin, Pol Pot, et al, had a lack of anarchy and an over abundance of hierarchy.  1968 had some anarchy, and it looked like things might get better.  It is hierarchies that wage war, not anarchists. “What ever happened to that peace, love, hippie shit?”  -Pete Townsend
       It is the hierarchy that has failed in the US, and elsewhere, and the anarchists know it.  90% of human history has been anarchic, only the last 10k years hasn’t been.  I think Vico got it wrong when he said civilization  goes from Theocracy, to Aristocracy, Democracy, Chaos.  That last stage, and the beginning of a new one is Anarchy, a far cry from chaos.

    #61030

    Geppetto
    Participant

    Arttua,
    You make my heart sing! If what you say is true then you are far more than *armchair* anything. I’ll reiterate my muse, beneath that hierarchy you speak of is Raul’s metaphoric ‘foundation’. *We* mistakenly insist the problems are at the top of the hierarchy. I maintain that the problem is at the foundation level. So, along the time line of my 32 years as a businessman in Cali I made the large mistake of taking a $200,000 SBA loan. A mistake that I could write a book about. I paid that $200,000 back because in my view it was YOUR money that YOU lent to me. A moral issue. Thus my dismay and disapproval when I look at my local PPP loan list and see at least 10 or more of my fellow businessman and women who have taken…..aid? Well I know for a fact (because I spend a good portion of my social contract mentoring and hanging out with young peeps, many who are employed by these business’s.) that in some cases these kids ( realize a 35 year old is a kid to me) were on unemployment all thru the initial lockdown. I also know for a fact that many of these business owners showed up at the local trailhead on brand new high end mountain bikes, bought new trucks and in one case a new boat!. I would say …moral hazard? Or maybe something else. As a business of 32 years we manage to fund 3 months a year of essentially zero sales. We spend frugally and try to hedge against an ambiguous at best future. Failure is always a possible outcome. Suck it up buttercup as grandma used to say.

    Arttua, you are obviously more well read and probably smarter than myself. But I will put my street cred up against anyones any day. Everything on that list I have done many times in my working life. I have only built a couple dozen bikes in my time but at least half from raw tube.

    When you look at your shoes, say my name.

    Peace brother Arttua, I have a feeling we are kindred.

    #61031

    Geppetto
    Participant

    Arttua, If I have made an assumption and you are in fact a sister. Please accept my apology.

    Peace

    #61059

    Arttua
    Participant

    Geppetto, “3 months a year of essentially zero sales. We spend frugally and try to hedge against an ambiguous at best future. Failure is always a possible outcome”
    Sounds very familar, I owned a bicycle shop, and in retrospect, I am suprised I made it through that first winter. After that I closed for a month every winter and went riding somewhere, many times to the Nepalese Himalaya. My shop was doing well with BMX, and then Mt biking started happening, and the bottom fell out of BMX. So I’ve always been paranoid that the bottom might fall out.
    I read “Decline of the West” by O. Spengler back in the 80’s then onto others like The Crisis of our Age, Collapse of Complex Societies, and others. So all that is happening I’ve been anticipating, I know things might get really tough, but not for me yet, for me.
    “Nobody told me there’d be days like these
    Strange days indeed — most peculiar, mama” -J Lennon

    #61060

    Arttua
    Participant

    Oh, I should add, yes the bottom fell out, the land lord raised the rent by 70%.

    #61061

    Geppetto
    Participant

    Arttua,
    Prob around 1977 my girlfriends (now my wife) friends son was riding for SE. He was Pro class but he was a big guy. He showed up at my house in Pacific Grove one day on an SE Racing Old Man Flyer. I feel in love with the idea of a big bmx bike. I found an old Schwinn beach cruiser at a garage sale. $5. Stripped it, cobbled some motorcycle handlebars, tightened the spokes and ripped down Del Monte forest to Asilomar until I killed the wheels and moved on to windsurfing. Those guys in Marin thought they invented Mtb. Hahaha! I have ridden bicycles my whole life and reconnected with the Mtb concept again in 1988 until now. I have always used my surfing, windsurfing and Mtb as a metaphor for my life. Bushido…. meet life head on. Flow state high in the Himalayas. Don’t expect one single outcome but have MUCH expectation…… blah blah blah…

    You got this
    Peace

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