Economic Reset ?

Governor Whitmer announced that she will defund the Michigan police just after the cop defundings in places like New York and Los Angeles resulted in startling jumps in homicide and violent crime rates. Empirical data from lockdown round 1 have shown that children are most often not symptomatic (or very mildly so) from COVID infection, that they do not suffer long term damage to their lungs nor elsewhere in their bodies, and that they do not transmit the virus to adults. So sending kids to school to continue their education & social interaction, and to exchange COVID is a simple, costless way to safely develop herd immunity and cease its spread. But it is a policy that would be pilloried as ‘murder’ if implemented, and California has locked our kids down again. Local politicians in places like Portland are bristling at the federal government’s moves to provide security and law enforcement in their cities that are still under siege from highly organized rioting groups. There has been massive fraud in reporting the results of COVID infection testing.

These are not naive mis-judgements on the part of the politicians – they are purposeful actions with harmful consequences being made in service of some agenda. Democrats have assured state and municipal political leaders federal bailout of their revenue shortfalls following a Biden victory, so a number have resumed their economic lockdowns. The World Economic Conference summit will convene in January 2021, with “The Great Reset” as its focus. Klaus Schwab describes it thus: “As we enter a unique window of opportunity to shape the recovery, this initiative will help determine the future state of global relations, the direction of national economies, the priorities of societies, the nature of business models, and the management of a global commons.” Among his top priorities are remaking economies in-line with a Green New Deal type of ideology (though CO2 constitutes merely 0.04% of the atmosphere and used to constitute significantly more), and emphasizing the need for a global command and control apparatus to deal with COVID (though its fatality rates still lie within the ranges of the flu and it will be a mere memory in two years). Experience shows that it is generally much better to let the forces within the economy (the people) dictate how it reshapes and redirects itself rather than impose a prescribed direction and purpose upon it. But the hubris of elites in policy making and enforcement, central banking, and other roles continues to make it difficult for them to accord with that. So does the allure of gaining more control, which they tend to seek a greater degree of. But when they begin to do so in ways that are obviously harmful and divisive to the people, history shows it’s good to keep a keen eye on them.

I started this blog to comment on economic and market outlooks, and the risk profiles they present, but political risk has overshadowed all of that. Capital would be flowing more copiously from overseas into US private assets now if it weren’t for Trump’s decline in the poll numbers that began a few weeks ago (and places like Europe enacting greater controls on the free migration of people and money). Biden’s policy team consists of Beto O’Rourke, AOC, Bernie Sanders, Pelosi, and Schumer. These people will be running the US government if he’s elected. The prospect that they will tax and constrain US-invested capital in new and significant ways has made foreign investors think twice about parking their assets here. For the next couple of years, capital flows will be driven more by the aim to find safe havens for it rather than by fundamental growth within economies. But if Trump ends up with a takeaway win, go long the US equity market. If Biden wins and you live in a household with income over $200,000/year, you will be subject to a 70% income tax rate, and likely a wealth tax on everything you own and have already paid for.

Ironically, the stable top-down control the CPC has over China’s economic policy has made it a better place than the USA for corporations to rollout long term business strategies. The schizophrenic ebb and flow in tax rates, regulatory regimes, and labor laws that occur as the administration occupying the White House vacillates between conservative and liberal makes the US a much harder environment for businesses to formulate and deploy enduring long term growth plans. Our markets are now traded on and much of US business capital is deployed over timescales too short to capture the cycles in economic fundamentals and in business growth. Though much of this is driven by the impatience of near-term oriented investors, a good deal of it is due to having to operate within a policy and taxation regime that can change entirely every 4 or 8 years. Both of these drive corporate boards to plan more for short term earnings targets rather than longer term for the business milestones inherent for the types of enterprises they are pursuing. The Democratic party has always been the one more restrictive on businesses. But now it has also become hostile to individual freedoms, fundamental rights to safety and property, capitalism altogether, and friendly towards the social insurrection that is occurring in cities. The street protesters disrupting society have found kindred spirits in elected officials who have sworn to uphold its order and safety.

Unfortunately, this election looks to be among the messiest and most controversial in US history. It is possible that neither side will accept the result, and the supreme court might end up seating the next president. Trump is already insinuating that the election process is being significantly corrupted, and some democrats are saying that they will have him dragged from office if he questions a Biden victory. Interest rates will inexorably rise as the private sector continues to lose confidence in the public sector. The debt loads in Europe and America are such that government will find it impossible to roll their debt not long from now. It is likely that around the end of the 2020s, China will be the clear economic and financial superpower if the United States continues to fragment into greater political and social polarization, and its economy into greater decline.

One reason governments are playing deleterious power games now has to be that socialism has reached the end of its road in numerous countries. At local and federal levels their programs are going bust and the promises that politicians have made to maintain their status quo are going bad. An ideologically-framed ‘reset’ is likely just a red herring for more economic chicanery, though it does have its true-believers (useful idiots), similar to the pawns now in play in America whose belief that it is inherently the most racist place that has existed on the planet is reinforced by media, education, and other institutions. But one need not even decrypt the agenda behind all the turmoil going on now to get a sense of the destination it is tending towards. Just look at the data (history) for other places in the world where groups of people were turned against each other by the demagoguery of the MSM and political leaders, where the destruction and confiscation of property, along with violence, were utilized coercively, where guns did get confiscated, free speech squelched, and the group driving that was out to take increasing control over what were previously peoples’ personal decisions and affairs. After these initial steps what followed were government takeovers often totalitarian enough that they were succeeded by many newbie “dissidents” (citizens who peaceably disagreed with what the new government was doing) getting rounded up and killed or otherwise suppressed.

In just the 20th century this drove the murder of nearly 100 million people in numerous countries including Cuba, Chile, Argentina, Kosovo, Bosnia, Cambodia, Vietnam, North Korea, China, Russia, Germany, Turkey, Rwanda, Hungary, and Poland. In other countries like Venezuela, Syria, and Sudan, people were not rounded up en-masse, but many still died from the violent conflict, economic deprivation, and high crime rates that followed the government takeover. Political factions utilize such means to take power when they want to impose something that a consensus of the people would not freely choose for themselves. And when they kill, they do it much more effectively than COVID. Though more Americans are more armed than ever and determinedly so, this still diverts much of my attention away from the risk of the pandemic (and racial discord and climate change) that I’m constantly told to keep it focussed on, and draws it more upon the risk of the political machinations underway. That risk is not nearly as distant as it used to be, and when such things change, it can happen fast. Prior to March with the US economy historically strong, it would have been futile to try to gain American support of an economic ‘Great Reset’. The COVID lockdown, and the social turmoil catalyzed by George Floyd’s death, changed that. After the second round of lockdowns there will be more social disharmony. Be sure that people at the levers directing policy and the social narrative will again act to direct that frustration and anger toward the usual targets.