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Inflation speculation

I’m working madly to finish The Fiscal Theory of the Price Level. This is a draft of Chapter 21, on how to think about today’s emerging inflation and what lies ahead, through the lens of fiscal theory. (Also available as pdf). I post it here as it may…

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I'm working madly to finish The Fiscal Theory of the Price Level. This is a draft of Chapter 21, on how to think about today's emerging inflation and what lies ahead, through the lens of fiscal theory. (Also available as pdf). I post it here as it may be interesting, but also to solicit input on a very speculative chapter. Help me not to say silly things, in a book that hopefully will last longer than a blog post! Feel free to send comments by email too. 

Chapter 21. The Covid inflation 

As I finish this book's manuscript in Fall 2021, inflation has suddenly revived. You will know more about this event by the time you read this book, in particular whether inflation turned out to be ``transitory,'' as the Fed and Administration currently insist, or longer lasting. This section must be speculative, and I hope rigorous analysis will follow once the facts are known. Still, fiscal theory is supposed to be a framework for thinking about monetary policy, so I would be remiss not to try. 

Figure 1. CPI through the Covid-19 recession.

Figure 1 presents the CPI through the covid recession. Everything looks normal until February 2021. From that point to October 2021 the CPI rose  5.15% (263.161 to 276.724), a 7.8% annual rate.

What happened, at least through the lens of the simple fiscal theory models in this book? Well, from March 2020 through early 2021, the U.S. government -- Treasury and Fed acting together -- created about $3 trillion new money and sent people checks. The Treasury borrowed an additional $2 trillion, and sent people more checks. M2, including checking and savings accounts, went up $5.5 trillion dollars. $5 trillion is a nearly 30% increase in the $17 trillion of debt outstanding at the beginning of the Covid recession. Table 21.1 and Figure 2 summarize. ($3 trillion is the amount of Treasury debt purchased by the Fed, and also the sum of larger reserves and currency.  Federal debt held by the public includes debt held by the Federal Reserve.)

M2, debt, and monetary base (currency + reserves) through the Covid-19 recession.

Some examples: In March 2020, December 2020, and again in March 2021, in response to the deep recession induced by the Covid-19 pandemic, the government sent ``stimulus'' checks, totaling $3,200 to each adult and $2,500 per child. The government added a refundable child tax credit, now up to $3,600per child, and started sending checks immediately. Unemployment compensation, rental assistance, food stamps and so forth sent checks to people. The ``paycheck protection program'' authorized $659 billion to small businesses. And more. The payments were partly designed as economic insurance, transfers from people doing well during covid to those who had lost jobs or businesses, and efforts to keep businesses from failing. But they were also in large part, intentionally, designed as fiscal-monetary stimulus to boost aggregate demand and keep the economy going. The  massive ``infrastructure'' and ``reconciliation'' spending plans occupied the Congress through 2021, adding expectations of more deficits to come.  

From a fiscal-theory perspective, the episode looks like a classic fiscal helicopter drop. There is a large increase in government debt, transferred to people, who do not expect that debt to be repaid. It is a``fiscal shock,'' a decline in surpluses s_t, with no expectation of larger subsequent surpluses. Of course it led to inflation! 

We might try to think of the episode as a rise in debt B_t without future surpluses that raises expected inflation. But this does not look like expected inflation. The Fed, Administration, survey expectations, low interest rates, and private forecasts were completely surprised by inflation. As of the end of 2021 the Fed and Administration continue to proclaim it ``transitory,'' i.e. not expected to continue, and interest rates remain low. Survey expectations have risen. The divergence between  survey expectations and bond markets is intriguing, and the expectations hypothesis is known for its failures at short-run forecasting. But even this rise only came in the middle of the event, not with the bond sales as a rise in expected inflation would do. 

But the frictionless model is too simplistic to track an episode. We must think of the event with at least some sticky prices and long-term debt in mind. As a start, one might think of the fiscal shock with no interest-rate response and sticky prices of Figure 5.6. That model quickly resolves a first discrepancy: In the frictionless model, a fiscal shock does not raise the value of debt, and an AR(1) fiscal shock results in a lower value of debt. In the event, the value of debt rose. But the value of debt also rises in the sticky-price model of Figure 5.6. Higher inflation with constant nominal interest rates lowers the real rate, so the discount-rate effect accounts for the higher value of debt despite lower surpluses. In this view, the higher debt-to-GDP ratio is transitory and will be slowly inflated away. (The figure posits that 40% of a fiscal shock is inflated away, and 60% is eventually repaid. This event looks like a larger fraction will not be repaid. But the Figure still gives a first sense of dynamics.) 

In the model, Figure 5.6,  inflation starts immediately, while there was a year delay in the data. One might want a different model of price stickiness, or model the anecdotal evidence that people waited a year to start spending their newfound money. Most likely, the first stimulus checks did not fully reveal to people how large the final fiscal expansion would be. My expectations suffered several shocks in the same direction; I did not expect $5 trillion when it started. Or, perhaps the expectation that the debt would not be repaid took some time to settle in. Perhaps the debate over the large ``build back better'' bill cemented expectations on that score. 

A monetarist might object that this event was (finally) proof of MV=PY. Helicopter yes, but helicopter money, not helicopter bonds. M2 rose $5.5 trillion, the rest is irrelevant.  But we can ask all the questions of Section 14.1 about helicopter drops: Suppose the M2 expansion had been entirely produced by purchasing existing Treasury securities, with no deficits. Would this really have had the same effect? Are people starting to spend their M2 because they don't like the composition of their portfolios, which have too much M2, paying 0.01% (Chase), and not enough one-year treasurys paying 0.1%?  Or are they simply spending extra ``wealth?'' Suppose the Federal Reserve had refused to go along, and the Treasury had sent people Treasury bills directly. Would that not have stoked the same inflation?  The fiscal expansion, the wealth effect, is the natural interpretation of this episode.  

Why did this stimulus cause inflation, and that of 2008, or the deficits  from 2008 to 2020, did not do so? Federal debt held by the public doubled from 2008 to 2012, as inflation went nowhere. (Figure 5.6.) From the fiscal theory point of view, the key feature is that people do not believe this debt will be paid back. (In principle discount rates or real interest rates could be different, but in this case they are nearly the same.) So why, this time, did people see the increase in debt and not infer higher future surpluses, while previously they did? Several speculations suggest themselves.

First, we can just look at what politicians said. In 2008 and following years, the Administration continually offered stimulus today, but promised deficit reduction to follow. One may take those promises with a grain of salt. But at least they bothered to try. This time there was no talk at all about deficit reduction to follow, no policies, no plans, no promises about how to repay this additional debt. Indeed, long-run fiscal policy discussion became focused on how low interest costs, r<g, and modern monetary theory allow painless fiscal expansion.  The discussion of tax hikes in the spring and summer of 2021 focused entirely on paying for some of the ambitious additional spending plans, not repaying the Covid helicopters. 

Second, much of the expansion was immediately and directly monetized and sent to people as checks. The previous stimulus was borrowed, and funded government spending programs that have to gently work their way into people's incomes. Following 2008, M2 did not rise as much as debt. The QE operations were mostly confined to a switch of bank assets from Treasury debt to reserves, as we see from the contrast between the monetary base (currency + reserves) and M2 in Figure 2. (Note the base is on a different scale.) 

Money and bonds may be perfect substitutes, but who gets the money or debt and how can still matter. Traditional buyers of Treasury debt have savings and investment motives. (Think of an insurance company.) If the Fed instantly buys the debt, and Treasury sends reserves (checks) to people, the larger debt  goes quickly to people who are likely to spend gifts quickly. Debt sold to traditional bond purchasers, who show up at Treasury auctions or buy from broker-dealers, sends a different signal than money simply created and sent to people. This statement implies some slow-moving capital frictions and heterogeneity, but most of all it echoes the idea that the institutional context of debt expansion matters to expectations of its repayment. We distinguished Treasury actions as a share issue and reserve creation as a split, differing only in the expectations of repayment that each engenders.  We distinguished ``regular budget'' and ``emergency budget'' deficits, likewise signaling backed vs. unbacked expansions. Since the desire was stimulus, and stimulus requires the government to find a way to communicate that the debt will not  be repaid, one can regard the effort as a success at its goal, finally overcoming the expectations of repayment that made previous stimulus efforts fail, guilty only of having overdone it. 

Third, the Covid-19 economic environment was clearly different. The pandemic and lockdown shock is fundamentally different from a banking crisis and recession shock of 2008. GDP and employment fell faster and further than ever before, and then rebounded most of the way, also faster than ever before. From a macroeconomic point of view,  the Covid-19 recession resembles an extended snow day rather than a traditional recession. One might call that a ``supply shock,'' as the productive capacity of the economy is temporarily reduced, but demand falls as well, for the same reasons that people don't rush out to buy in a snow day either. (I write ``from a macroeconomic point of view.'' A million people died in the U.S., an ongoing public-health disaster. Many people suffered lost jobs and businesses.) Roughly speaking the economy was operating at its reduced ``supply'' capacity all along, not needing extra ``demand.''  Providing that ``demand'' could reasonably spill more quickly to inflation. 

Will inflation continue? You'll know the answer, and I don't. But it's worth writing how one might think about the question. The $5 trillion total fiscal expansion is an approximately 20% expansion in debt. If the expansion came with no change at all in expected future surpluses, that will result in a cumulative 20% price-level rise, once we work through all the dynamics. Several commentators view this outcome positively: An unexpected crisis is met with a Lucas-Stokey state-contingent default, a wealth tax, via inflation. Whether that optimal tax argument extends to stimulus payments rather than insurance or war-fighting is a bit more tenuous. But the effect will be to have financed the stimulus payments by a wealth tax on government bonds. 

But that's it. Whether inflation continues depends on future fiscal and monetary policy, and whether people have changed their expectations of future repayment and the underlying monetary-fiscal regime. If people regard the stimulus payments as ``emergency budget'' expenditures that will not be repaid, but the existing 100% of GDP debt still to be repaid, and the additional borrowing of the years ahead  back to the ``regular budget,'' that will be repaid, fiscal inflation need not continue. If, however, having changed their expectation that greater debts, especially those that finance cash transfers, are now not to be repaid, additional deficits will lead to additional inflation, and additional debt issues will just raise nominal interest rates. 

The models remind us though that bad fiscal news can only affect unexpected inflation, though sticky prices, long-term debt, and endogenous policy responses can smear out that basic logic over many years. Once Covid passes, the U.S. will likely be back on the previous track of trillion dollar deficits in good times and $5 trillion in each crisis. Not sustainable, but not news. Thus, if the 2020s are the decade of fiscal inflation, that will likely come from changing expectations of repayment, or a changing (higher) discount rate, not particularly important news about short-term deficits. Such expectations can shift slowly, hope triumphing over experience several times in a row, which along with the smoothed dynamics can lead to a decade of inflation, not a one-time price-level jump. 

What of monetary policy? The episode and the decade will likely offer different interpretations, which may help to sort out the fiscal theory plus rational expectations view, and the traditional adaptive expectations view, in which higher interest rates reliably lower inflation, interest rates rather than fiscal affairs are the main cause of inflation, and swift more than one-for-one response is necessary to keep inflation from spiraling out of control. 

From the traditional perspective, the Fed's monetary policy in 2020 and 2021 is a significant institutional failure. The Fed was caught completely by surprise. The Fed claims that supply disruptions caused inflation. But the Fed’s main job in the conventional reading is to calibrate how much ``supply'' the economy can offer, and then adjust demand to that level and no more. A central bank offering supply as an excuse for inflation is like the Army offering that the enemy chose to invade as excuse for losing a war. If the Fed is surprised that containers can't get through ports, why does it not have any of its thousands of economists calculating how many containers can get through ports? The answer is that the Fed's ``supply'' modeling is pretty simplistic, relying mainly on the non-inflationary unemployment rate (NAIRU) concept. More deeply, the Fed worked with Treasury on the stimulus in the first place, misdiagnosing the economy's fall as simple lack of ``demand,'' not disruption due to a virus and lockdowns. 

More broadly, the general policy discussion involving Fed, Administration, politicians and pundits relating inflation to specific markets and supply shocks, like containers stuck in ports, confuses relative prices for inflation. Supply shocks cause relative price changes. Strawberries are more expensive in winter. That's not inflation. Aggregate supply is the relationship between the rise of all prices and wages together, and the total amount produced in the economy.  That is a question about the nature of shocks to the Phillips curve, which may or may not have anything to do with supply restrictions of individual markets. Inflation is a decline in the value of the dollar. In that sense all inflation comes from ``demand.'' Blaming inflation on microeconomic shocks, corporate greed,  producer collusion, speculators, hoarders, middlemen, price-gougers, and other hunted witches goes back centuries.  Trying in vain to talk or threaten down prices goes back centuries. The Roosevelt Administration tried to cure deflation by creating monopolies to raise prices. Kennedy, Johnson, Nixon and Ford all pressured companies to lower prices and unions to lower wages. None of it worked. The Biden Administration's effort to attack oil companies for collusion will fail just as predictably.  

Going forward, in this conventional reading of monetary policy, the Fed seems primed to repeat the mistakes of the 1970s. The Fed of the early 1970s also blamed inflation on price shocks, and declared inflation to be transitory. The Fed's 2020  strategy review practically announces a return to 1970s policy. The Fed will deliberately let inflation  run hot for a while, running down a static Phillips curve, in an effort to boost employment. The Fed will wait until inflation persistently exceeds its target before doing anything about it.  The Fed will return to filling ``shortfalls'' rather than stabilization, a return to the belief that even at the peaks the economy can never run too hot.  The Fed understand “expectations” now, unlike in 1971, but views them as a third force,  amenable to management by speeches, rather than formed by a hardy and skeptical experience with the Fed’s actions, a durable ``rule'' or ``regime.''  And the ``strategy'' is so flexible that pretty much any discretionary action can be justified. To be a bit charitable, this strategy was developed before 2020 and is designed to ward against zero-bound deflationary spirals with ample inflationary forward guidance.  But if inflation continues, that will now be an exquisite Maginot lineThe absence of contingency planning for inflation will be laid bare. In the conventional reading,``anchored'' expectations come from one place only: belief that the Fed will, if needed, replay 1980: Sharp persistent interest rate increases that may cause a painful recession, but the Fed will stick with them as long as it takes. But though our current Fed says  it has “the tools” to contain inflation, it's remarkably reticent to state just what those tools are. Do people believe our Fed will do it? 

But the simple fiscal theory models in this book are kinder to the Fed. The Fed could tamp down inflation by swiftly raising rates, and exploiting whatever mechanism lies behind a negative short-run effect. And we have seen that rate rises are useful to smooth fiscal shocks, producing slow steady inflation rather than sharp price-level jumps. But the emphasis on a greater than one-for-one response, and the view that failing to promptly follow that policy will lead to instability is gone. 

Indeed, if the rational expectations versions of the models in this book are right, inflation is stable under an interest rate target. If the Fed left the interest rate alone, inflation would eventually return, though transitory may take a long time and involve a lot of short-run dynamics on the way. All the hedgeing of Section 5.3 still applies. The Fed would have to say this is its strategy, which it certainly does not do, and stick with it while short-run dynamics and fiscal shocks run their course. If people think that after a certain amount of inflation the Fed will give in and raise rates, then inflation will start up in advance and the strategy would fall apart. Still, history may be kind to the Fed and suggest that it worked its way to such a strategy by ``as-if'' experience-based action, even though the Fed's models and theories say otherwise. 

Suppose inflation does surge in the 2020s. What will it take to stop it? The traditional view demands a sustained period of high real interest rates. If expectations are adaptive or mechanistic, that period of real interest rates must cause a fairly deep recession. 

The fiscal theory plus rational expectations view offers more possibilities. A period of high real interest rates will likely be the policy choice, using whatever the short-run negative response is to quickly push inflation down, and then nominal rates can quickly fall to the new lower expected inflation. Whether it works, and how much recession is involved depends on that mechanism. The long-term debt mechanism we have explored requires that the higher rates are unexpected and credibly long-lasting. But financial friction or other mechanisms may have other preconditions, and we will learn what those mechanisms are. 

The model, and Sargent's timeless analysis of the ends of inflations, opens another possibility: A credible joint fiscal, monetary, and microeconomic reform, can allow a relatively painless disinflation, and one in which nominal interest rates fall immediately in Fisherian fashion. 

Which of these will happen? A repeat of 1980 will be harder this time. Most obviously, the willingness of our government to sustain a deliberate, bruising and persistent recession, with monetary stringency rather than the monetary largesse of 2008 and 2020, seems much weaker. However, a decade of inflation may change that, as it did in the 1970s. 

But no matter which theory applies, fiscal policy will place a greater constraint on monetary policy based on high real interest rates. In 1980, the debt-to-GDP ratio was 25%. In 2021 it is 100%, and rising swiftly. If our government wishes to repeat 1980, it will first of all have to pay four times larger real interest costs on the debt. 5% real interest rates mean 5% of GDP additional deficit, $1 trillion 2021 dollars, for each year that the real interest rates continue. That amount must be paid by higher primary surpluses, immediately or credibly in the future.  Will our government do it? The last time debt-to-GDP was 100%, in the aftermath of WWII, the government explicitly told the Federal Reserve to hold interest rates down to help finance the debt. 

Second, the government will have to raise surpluses further, to pay a windfall to long-term bondholders, as it did in the 1980s. People who bought 10-year Treasury bonds in September of 1981 got a 15.84% yield, as markets expected inflation to continue. From September 1981 to September 1991, the CPI grew at a 3.9% average rate. By this back-of-the-envelope calculation, those bondholders got a 12% annual real return. That return came courtesy of U.S. taxpayers, though largely through growth and a larger tax base rather than higher tax rates. This effect is  now four times larger as well. 

Finally, but largest of all, this time the underlying problem will likely be more clearly fiscal. The U.S. government will have to solve the long-run fiscal problem and convince bondholders once again that the U.S. repays its debt. 

Without the fiscal backing, the monetary stabilization will fail, and that applies to all our theories.  In a fiscally-driven inflation, it can happen that the central bank raises rates to fight the inflation, that raises the deficit via interest costs, and only makes inflation worse. This has, for example, been an analysis of several episodes in Brazil. The simulations of Section17.4.2 make this point explicitly. 

But the chance of any such large fiscal contraction, a thoroughgoing fiscal reform, seems remote in current U.S. politics. Anchoring of expectations from the belief that this will all happen smoothly seems doubtful. 

A successful inflation stabilization always combines fiscal, monetary, and microeconomic reform, in a durable new regime that commits to pay its debts. 1980 was such an event, not just a period of high interest rates. High interest rates can drive down inflation temporarily in all these models, giving time for the fiscal (1986 tax reform) and microeconomic reforms to take effect. In their absence, inflation takes off again. A new inflation stabilization would have to be such an event as well, but in the face of at least four times larger debts, larger structural deficits, and a more deeply entrenched regulatory regime. 

Or, inflation may fade away and all this speculation will apply to 2040 or 2050. 

 

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Four Years Ago This Week, Freedom Was Torched

Four Years Ago This Week, Freedom Was Torched

Authored by Jeffrey Tucker via The Brownstone Institute,

"Beware the Ides of March,” Shakespeare…

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39 mins ago

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March 12, 2024

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Four Years Ago This Week, Freedom Was Torched

Authored by Jeffrey Tucker via The Brownstone Institute,

"Beware the Ides of March,” Shakespeare quotes the soothsayer’s warning Julius Caesar about what turned out to be an impending assassination on March 15. The death of American liberty happened around the same time four years ago, when the orders went out from all levels of government to close all indoor and outdoor venues where people gather. 

It was not quite a law and it was never voted on by anyone. Seemingly out of nowhere, people who the public had largely ignored, the public health bureaucrats, all united to tell the executives in charge – mayors, governors, and the president – that the only way to deal with a respiratory virus was to scrap freedom and the Bill of Rights. 

And they did, not only in the US but all over the world. 

The forced closures in the US began on March 6 when the mayor of Austin, Texas, announced the shutdown of the technology and arts festival South by Southwest. Hundreds of thousands of contracts, of attendees and vendors, were instantly scrapped. The mayor said he was acting on the advice of his health experts and they in turn pointed to the CDC, which in turn pointed to the World Health Organization, which in turn pointed to member states and so on. 

There was no record of Covid in Austin, Texas, that day but they were sure they were doing their part to stop the spread. It was the first deployment of the “Zero Covid” strategy that became, for a time, official US policy, just as in China. 

It was never clear precisely who to blame or who would take responsibility, legal or otherwise. 

This Friday evening press conference in Austin was just the beginning. By the next Thursday evening, the lockdown mania reached a full crescendo. Donald Trump went on nationwide television to announce that everything was under control but that he was stopping all travel in and out of US borders, from Europe, the UK, Australia, and New Zealand. American citizens would need to return by Monday or be stuck. 

Americans abroad panicked while spending on tickets home and crowded into international airports with waits up to 8 hours standing shoulder to shoulder. It was the first clear sign: there would be no consistency in the deployment of these edicts. 

There is no historical record of any American president ever issuing global travel restrictions like this without a declaration of war. Until then, and since the age of travel began, every American had taken it for granted that he could buy a ticket and board a plane. That was no longer possible. Very quickly it became even difficult to travel state to state, as most states eventually implemented a two-week quarantine rule. 

The next day, Friday March 13, Broadway closed and New York City began to empty out as any residents who could went to summer homes or out of state. 

On that day, the Trump administration declared the national emergency by invoking the Stafford Act which triggers new powers and resources to the Federal Emergency Management Administration. 

In addition, the Department of Health and Human Services issued a classified document, only to be released to the public months later. The document initiated the lockdowns. It still does not exist on any government website.

The White House Coronavirus Response Task Force, led by the Vice President, will coordinate a whole-of-government approach, including governors, state and local officials, and members of Congress, to develop the best options for the safety, well-being, and health of the American people. HHS is the LFA [Lead Federal Agency] for coordinating the federal response to COVID-19.

Closures were guaranteed:

Recommend significantly limiting public gatherings and cancellation of almost all sporting events, performances, and public and private meetings that cannot be convened by phone. Consider school closures. Issue widespread ‘stay at home’ directives for public and private organizations, with nearly 100% telework for some, although critical public services and infrastructure may need to retain skeleton crews. Law enforcement could shift to focus more on crime prevention, as routine monitoring of storefronts could be important.

In this vision of turnkey totalitarian control of society, the vaccine was pre-approved: “Partner with pharmaceutical industry to produce anti-virals and vaccine.”

The National Security Council was put in charge of policy making. The CDC was just the marketing operation. That’s why it felt like martial law. Without using those words, that’s what was being declared. It even urged information management, with censorship strongly implied.

The timing here is fascinating. This document came out on a Friday. But according to every autobiographical account – from Mike Pence and Scott Gottlieb to Deborah Birx and Jared Kushner – the gathered team did not meet with Trump himself until the weekend of the 14th and 15th, Saturday and Sunday. 

According to their account, this was his first real encounter with the urge that he lock down the whole country. He reluctantly agreed to 15 days to flatten the curve. He announced this on Monday the 16th with the famous line: “All public and private venues where people gather should be closed.”

This makes no sense. The decision had already been made and all enabling documents were already in circulation. 

There are only two possibilities. 

One: the Department of Homeland Security issued this March 13 HHS document without Trump’s knowledge or authority. That seems unlikely. 

Two: Kushner, Birx, Pence, and Gottlieb are lying. They decided on a story and they are sticking to it. 

Trump himself has never explained the timeline or precisely when he decided to greenlight the lockdowns. To this day, he avoids the issue beyond his constant claim that he doesn’t get enough credit for his handling of the pandemic.

With Nixon, the famous question was always what did he know and when did he know it? When it comes to Trump and insofar as concerns Covid lockdowns – unlike the fake allegations of collusion with Russia – we have no investigations. To this day, no one in the corporate media seems even slightly interested in why, how, or when human rights got abolished by bureaucratic edict. 

As part of the lockdowns, the Cybersecurity and Infrastructure Security Agency, which was and is part of the Department of Homeland Security, as set up in 2018, broke the entire American labor force into essential and nonessential.

They also set up and enforced censorship protocols, which is why it seemed like so few objected. In addition, CISA was tasked with overseeing mail-in ballots. 

Only 8 days into the 15, Trump announced that he wanted to open the country by Easter, which was on April 12. His announcement on March 24 was treated as outrageous and irresponsible by the national press but keep in mind: Easter would already take us beyond the initial two-week lockdown. What seemed to be an opening was an extension of closing. 

This announcement by Trump encouraged Birx and Fauci to ask for an additional 30 days of lockdown, which Trump granted. Even on April 23, Trump told Georgia and Florida, which had made noises about reopening, that “It’s too soon.” He publicly fought with the governor of Georgia, who was first to open his state. 

Before the 15 days was over, Congress passed and the president signed the 880-page CARES Act, which authorized the distribution of $2 trillion to states, businesses, and individuals, thus guaranteeing that lockdowns would continue for the duration. 

There was never a stated exit plan beyond Birx’s public statements that she wanted zero cases of Covid in the country. That was never going to happen. It is very likely that the virus had already been circulating in the US and Canada from October 2019. A famous seroprevalence study by Jay Bhattacharya came out in May 2020 discerning that infections and immunity were already widespread in the California county they examined. 

What that implied was two crucial points: there was zero hope for the Zero Covid mission and this pandemic would end as they all did, through endemicity via exposure, not from a vaccine as such. That was certainly not the message that was being broadcast from Washington. The growing sense at the time was that we all had to sit tight and just wait for the inoculation on which pharmaceutical companies were working. 

By summer 2020, you recall what happened. A restless generation of kids fed up with this stay-at-home nonsense seized on the opportunity to protest racial injustice in the killing of George Floyd. Public health officials approved of these gatherings – unlike protests against lockdowns – on grounds that racism was a virus even more serious than Covid. Some of these protests got out of hand and became violent and destructive. 

Meanwhile, substance abuse rage – the liquor and weed stores never closed – and immune systems were being degraded by lack of normal exposure, exactly as the Bakersfield doctors had predicted. Millions of small businesses had closed. The learning losses from school closures were mounting, as it turned out that Zoom school was near worthless. 

It was about this time that Trump seemed to figure out – thanks to the wise council of Dr. Scott Atlas – that he had been played and started urging states to reopen. But it was strange: he seemed to be less in the position of being a president in charge and more of a public pundit, Tweeting out his wishes until his account was banned. He was unable to put the worms back in the can that he had approved opening. 

By that time, and by all accounts, Trump was convinced that the whole effort was a mistake, that he had been trolled into wrecking the country he promised to make great. It was too late. Mail-in ballots had been widely approved, the country was in shambles, the media and public health bureaucrats were ruling the airwaves, and his final months of the campaign failed even to come to grips with the reality on the ground. 

At the time, many people had predicted that once Biden took office and the vaccine was released, Covid would be declared to have been beaten. But that didn’t happen and mainly for one reason: resistance to the vaccine was more intense than anyone had predicted. The Biden administration attempted to impose mandates on the entire US workforce. Thanks to a Supreme Court ruling, that effort was thwarted but not before HR departments around the country had already implemented them. 

As the months rolled on – and four major cities closed all public accommodations to the unvaccinated, who were being demonized for prolonging the pandemic – it became clear that the vaccine could not and would not stop infection or transmission, which means that this shot could not be classified as a public health benefit. Even as a private benefit, the evidence was mixed. Any protection it provided was short-lived and reports of vaccine injury began to mount. Even now, we cannot gain full clarity on the scale of the problem because essential data and documentation remains classified. 

After four years, we find ourselves in a strange position. We still do not know precisely what unfolded in mid-March 2020: who made what decisions, when, and why. There has been no serious attempt at any high level to provide a clear accounting much less assign blame. 

Not even Tucker Carlson, who reportedly played a crucial role in getting Trump to panic over the virus, will tell us the source of his own information or what his source told him. There have been a series of valuable hearings in the House and Senate but they have received little to no press attention, and none have focus on the lockdown orders themselves. 

The prevailing attitude in public life is just to forget the whole thing. And yet we live now in a country very different from the one we inhabited five years ago. Our media is captured. Social media is widely censored in violation of the First Amendment, a problem being taken up by the Supreme Court this month with no certainty of the outcome. The administrative state that seized control has not given up power. Crime has been normalized. Art and music institutions are on the rocks. Public trust in all official institutions is at rock bottom. We don’t even know if we can trust the elections anymore. 

In the early days of lockdown, Henry Kissinger warned that if the mitigation plan does not go well, the world will find itself set “on fire.” He died in 2023. Meanwhile, the world is indeed on fire. The essential struggle in every country on earth today concerns the battle between the authority and power of permanent administration apparatus of the state – the very one that took total control in lockdowns – and the enlightenment ideal of a government that is responsible to the will of the people and the moral demand for freedom and rights. 

How this struggle turns out is the essential story of our times. 

CODA: I’m embedding a copy of PanCAP Adapted, as annotated by Debbie Lerman. You might need to download the whole thing to see the annotations. If you can help with research, please do.

*  *  *

Jeffrey Tucker is the author of the excellent new book 'Life After Lock-Down'

Tyler Durden Mon, 03/11/2024 - 23:40

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Red Candle In The Wind

Red Candle In The Wind

By Benjamin PIcton of Rabobank

February non-farm payrolls superficially exceeded market expectations on Friday by…

Published

6 hours ago

on

March 11, 2024

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Red Candle In The Wind

By Benjamin PIcton of Rabobank

February non-farm payrolls superficially exceeded market expectations on Friday by printing at 275,000 against a consensus call of 200,000. We say superficially, because the downward revisions to prior months totalled 167,000 for December and January, taking the total change in employed persons well below the implied forecast, and helping the unemployment rate to pop two-ticks to 3.9%. The U6 underemployment rate also rose from 7.2% to 7.3%, while average hourly earnings growth fell to 0.2% m-o-m and average weekly hours worked languished at 34.3, equalling pre-pandemic lows.

Undeterred by the devil in the detail, the algos sprang into action once exchanges opened. Market darling NVIDIA hit a new intraday high of $974 before (presumably) the humans took over and sold the stock down more than 10% to close at $875.28. If our suspicions are correct that it was the AIs buying before the humans started selling (no doubt triggering trailing stops on the way down), the irony is not lost on us.

The 1-day chart for NVIDIA now makes for interesting viewing, because the red candle posted on Friday presents quite a strong bearish engulfing signal. Volume traded on the day was almost double the 15-day simple moving average, and similar price action is observable on the 1-day charts for both Intel and AMD. Regular readers will be aware that we have expressed incredulity in the past about the durability the AI thematic melt-up, so it will be interesting to see whether Friday’s sell off is just a profit-taking blip, or a genuine trend reversal.

AI equities aside, this week ought to be important for markets because the BTFP program expires today. That means that the Fed will no longer be loaning cash to the banking system in exchange for collateral pledged at-par. The KBW Regional Banking index has so far taken this in its stride and is trading 30% above the lows established during the mini banking crisis of this time last year, but the Fed’s liquidity facility was effectively an exercise in can-kicking that makes regional banks a sector of the market worth paying attention to in the weeks ahead. Even here in Sydney, regulators are warning of external risks posed to the banking sector from scheduled refinancing of commercial real estate loans following sharp falls in valuations.

Markets are sending signals in other sectors, too. Gold closed at a new record-high of $2178/oz on Friday after trading above $2200/oz briefly. Gold has been going ballistic since the Friday before last, posting gains even on days where 2-year Treasury yields have risen. Gold bugs are buying as real yields fall from the October highs and inflation breakevens creep higher. This is particularly interesting as gold ETFs have been recording net outflows; suggesting that price gains aren’t being driven by a retail pile-in. Are gold buyers now betting on a stagflationary outcome where the Fed cuts without inflation being anchored at the 2% target? The price action around the US CPI release tomorrow ought to be illuminating.

Leaving the day-to-day movements to one side, we are also seeing further signs of structural change at the macro level. The UK budget last week included a provision for the creation of a British ISA. That is, an Individual Savings Account that provides tax breaks to savers who invest their money in the stock of British companies. This follows moves last year to encourage pension funds to head up the risk curve by allocating 5% of their capital to unlisted investments.

As a Hail Mary option for a government cruising toward an electoral drubbing it’s a curious choice, but it’s worth highlighting as cash-strapped governments increasingly see private savings pools as a funding solution for their spending priorities.

Of course, the UK is not alone in making creeping moves towards financial repression. In contrast to announcements today of increased trade liberalisation, Australian Treasurer Jim Chalmers has in the recent past flagged his interest in tapping private pension savings to fund state spending priorities, including defence, public housing and renewable energy projects. Both the UK and Australia appear intent on finding ways to open up the lungs of their economies, but government wants more say in directing private capital flows for state goals.

So, how far is the blurring of the lines between free markets and state planning likely to go? Given the immense and varied budgetary (and security) pressures that governments are facing, could we see a re-up of WWII-era Victory bonds, where private investors are encouraged to do their patriotic duty by directly financing government at negative real rates?

That would really light a fire under the gold market.

Tyler Durden Mon, 03/11/2024 - 19:00

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Trump “Clearly Hasn’t Learned From His COVID-Era Mistakes”, RFK Jr. Says

Trump "Clearly Hasn’t Learned From His COVID-Era Mistakes", RFK Jr. Says

Authored by Jeff Louderback via The Epoch Times (emphasis ours),

President…

Published

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March 11, 2024

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Trump "Clearly Hasn't Learned From His COVID-Era Mistakes", RFK Jr. Says

Authored by Jeff Louderback via The Epoch Times (emphasis ours),

President Joe Biden claimed that COVID vaccines are now helping cancer patients during his State of the Union address on March 7, but it was a response on Truth Social from former President Donald Trump that drew the ire of independent presidential candidate Robert F. Kennedy Jr.

Robert F. Kennedy Jr. holds a voter rally in Grand Rapids, Mich., on Feb. 10, 2024. (Mitch Ranger for The Epoch Times)

During the address, President Biden said: “The pandemic no longer controls our lives. The vaccines that saved us from COVID are now being used to help beat cancer, turning setback into comeback. That’s what America does.”

President Trump wrote: “The Pandemic no longer controls our lives. The VACCINES that saved us from COVID are now being used to help beat cancer—turning setback into comeback. YOU’RE WELCOME JOE. NINE-MONTH APPROVAL TIME VS. 12 YEARS THAT IT WOULD HAVE TAKEN YOU.”

An outspoken critic of President Trump’s COVID response, and the Operation Warp Speed program that escalated the availability of COVID vaccines, Mr. Kennedy said on X, formerly known as Twitter, that “Donald Trump clearly hasn’t learned from his COVID-era mistakes.”

“He fails to recognize how ineffective his warp speed vaccine is as the ninth shot is being recommended to seniors. Even more troubling is the documented harm being caused by the shot to so many innocent children and adults who are suffering myocarditis, pericarditis, and brain inflammation,” Mr. Kennedy remarked.

“This has been confirmed by a CDC-funded study of 99 million people. Instead of bragging about its speedy approval, we should be honestly and transparently debating the abundant evidence that this vaccine may have caused more harm than good.

“I look forward to debating both Trump and Biden on Sept. 16 in San Marcos, Texas.”

Mr. Kennedy announced in April 2023 that he would challenge President Biden for the 2024 Democratic Party presidential nomination before declaring his run as an independent last October, claiming that the Democrat National Committee was “rigging the primary.”

Since the early stages of his campaign, Mr. Kennedy has generated more support than pundits expected from conservatives, moderates, and independents resulting in speculation that he could take votes away from President Trump.

Many Republicans continue to seek a reckoning over the government-imposed pandemic lockdowns and vaccine mandates.

President Trump’s defense of Operation Warp Speed, the program he rolled out in May 2020 to spur the development and distribution of COVID-19 vaccines amid the pandemic, remains a sticking point for some of his supporters.

Vice President Mike Pence (L) and President Donald Trump deliver an update on Operation Warp Speed in the Rose Garden of the White House in Washington on Nov. 13, 2020. (Mandel Ngan/AFP via Getty Images)

Operation Warp Speed featured a partnership between the government, the military, and the private sector, with the government paying for millions of vaccine doses to be produced.

President Trump released a statement in March 2021 saying: “I hope everyone remembers when they’re getting the COVID-19 Vaccine, that if I wasn’t President, you wouldn’t be getting that beautiful ‘shot’ for 5 years, at best, and probably wouldn’t be getting it at all. I hope everyone remembers!”

President Trump said about the COVID-19 vaccine in an interview on Fox News in March 2021: “It works incredibly well. Ninety-five percent, maybe even more than that. I would recommend it, and I would recommend it to a lot of people that don’t want to get it and a lot of those people voted for me, frankly.

“But again, we have our freedoms and we have to live by that and I agree with that also. But it’s a great vaccine, it’s a safe vaccine, and it’s something that works.”

On many occasions, President Trump has said that he is not in favor of vaccine mandates.

An environmental attorney, Mr. Kennedy founded Children’s Health Defense, a nonprofit that aims to end childhood health epidemics by promoting vaccine safeguards, among other initiatives.

Last year, Mr. Kennedy told podcaster Joe Rogan that ivermectin was suppressed by the FDA so that the COVID-19 vaccines could be granted emergency use authorization.

He has criticized Big Pharma, vaccine safety, and government mandates for years.

Since launching his presidential campaign, Mr. Kennedy has made his stances on the COVID-19 vaccines, and vaccines in general, a frequent talking point.

“I would argue that the science is very clear right now that they [vaccines] caused a lot more problems than they averted,” Mr. Kennedy said on Piers Morgan Uncensored last April.

“And if you look at the countries that did not vaccinate, they had the lowest death rates, they had the lowest COVID and infection rates.”

Additional data show a “direct correlation” between excess deaths and high vaccination rates in developed countries, he said.

President Trump and Mr. Kennedy have similar views on topics like protecting the U.S.-Mexico border and ending the Russia-Ukraine war.

COVID-19 is the topic where Mr. Kennedy and President Trump seem to differ the most.

Former President Donald Trump intended to “drain the swamp” when he took office in 2017, but he was “intimidated by bureaucrats” at federal agencies and did not accomplish that objective, Mr. Kennedy said on Feb. 5.

Speaking at a voter rally in Tucson, where he collected signatures to get on the Arizona ballot, the independent presidential candidate said President Trump was “earnest” when he vowed to “drain the swamp,” but it was “business as usual” during his term.

John Bolton, who President Trump appointed as a national security adviser, is “the template for a swamp creature,” Mr. Kennedy said.

Scott Gottlieb, who President Trump named to run the FDA, “was Pfizer’s business partner” and eventually returned to Pfizer, Mr. Kennedy said.

Mr. Kennedy said that President Trump had more lobbyists running federal agencies than any president in U.S. history.

“You can’t reform them when you’ve got the swamp creatures running them, and I’m not going to do that. I’m going to do something different,” Mr. Kennedy said.

During the COVID-19 pandemic, President Trump “did not ask the questions that he should have,” he believes.

President Trump “knew that lockdowns were wrong” and then “agreed to lockdowns,” Mr. Kennedy said.

He also “knew that hydroxychloroquine worked, he said it,” Mr. Kennedy explained, adding that he was eventually “rolled over” by Dr. Anthony Fauci and his advisers.

President Donald Trump greets the crowd before he leaves at the Operation Warp Speed Vaccine Summit in Washington on Dec. 8, 2020. (Tasos Katopodis/Getty Images)

MaryJo Perry, a longtime advocate for vaccine choice and a Trump supporter, thinks votes will be at a premium come Election Day, particularly because the independent and third-party field is becoming more competitive.

Ms. Perry, president of Mississippi Parents for Vaccine Rights, believes advocates for medical freedom could determine who is ultimately president.

She believes that Mr. Kennedy is “pulling votes from Trump” because of the former president’s stance on the vaccines.

“People care about medical freedom. It’s an important issue here in Mississippi, and across the country,” Ms. Perry told The Epoch Times.

“Trump should admit he was wrong about Operation Warp Speed and that COVID vaccines have been dangerous. That would make a difference among people he has offended.”

President Trump won’t lose enough votes to Mr. Kennedy about Operation Warp Speed and COVID vaccines to have a significant impact on the election, Ohio Republican strategist Wes Farno told The Epoch Times.

President Trump won in Ohio by eight percentage points in both 2016 and 2020. The Ohio Republican Party endorsed President Trump for the nomination in 2024.

“The positives of a Trump presidency far outweigh the negatives,” Mr. Farno said. “People are more concerned about their wallet and the economy.

“They are asking themselves if they were better off during President Trump’s term compared to since President Biden took office. The answer to that question is obvious because many Americans are struggling to afford groceries, gas, mortgages, and rent payments.

“America needs President Trump.”

Multiple national polls back Mr. Farno’s view.

As of March 6, the RealClearPolitics average of polls indicates that President Trump has 41.8 percent support in a five-way race that includes President Biden (38.4 percent), Mr. Kennedy (12.7 percent), independent Cornel West (2.6 percent), and Green Party nominee Jill Stein (1.7 percent).

A Pew Research Center study conducted among 10,133 U.S. adults from Feb. 7 to Feb. 11 showed that Democrats and Democrat-leaning independents (42 percent) are more likely than Republicans and GOP-leaning independents (15 percent) to say they have received an updated COVID vaccine.

The poll also reported that just 28 percent of adults say they have received the updated COVID inoculation.

The peer-reviewed multinational study of more than 99 million vaccinated people that Mr. Kennedy referenced in his X post on March 7 was published in the Vaccine journal on Feb. 12.

It aimed to evaluate the risk of 13 adverse events of special interest (AESI) following COVID-19 vaccination. The AESIs spanned three categories—neurological, hematologic (blood), and cardiovascular.

The study reviewed data collected from more than 99 million vaccinated people from eight nations—Argentina, Australia, Canada, Denmark, Finland, France, New Zealand, and Scotland—looking at risks up to 42 days after getting the shots.

Three vaccines—Pfizer and Moderna’s mRNA vaccines as well as AstraZeneca’s viral vector jab—were examined in the study.

Researchers found higher-than-expected cases that they deemed met the threshold to be potential safety signals for multiple AESIs, including for Guillain-Barre syndrome (GBS), cerebral venous sinus thrombosis (CVST), myocarditis, and pericarditis.

A safety signal refers to information that could suggest a potential risk or harm that may be associated with a medical product.

The study identified higher incidences of neurological, cardiovascular, and blood disorder complications than what the researchers expected.

President Trump’s role in Operation Warp Speed, and his continued praise of the COVID vaccine, remains a concern for some voters, including those who still support him.

Krista Cobb is a 40-year-old mother in western Ohio. She voted for President Trump in 2020 and said she would cast her vote for him this November, but she was stunned when she saw his response to President Biden about the COVID-19 vaccine during the State of the Union address.

“I love President Trump and support his policies, but at this point, he has to know they [advisers and health officials] lied about the shot,” Ms. Cobb told The Epoch Times.

“If he continues to promote it, especially after all of the hearings they’ve had about it in Congress, the side effects, and cover-ups on Capitol Hill, at what point does he become the same as the people who have lied?” Ms. Cobb added.

“I think he should distance himself from talk about Operation Warp Speed and even admit that he was wrong—that the vaccines have not had the impact he was told they would have. If he did that, people would respect him even more.”

Tyler Durden Mon, 03/11/2024 - 17:00

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