Don’t they know; it’s the end of the world
Wow…What a week.
Each hour the stock market was open cost investors $97 billion. By the end, the Dow was down 12%. It was its worst week since 2008. The Wall Street Journal:
When the S&P 500 closed at a record on Feb. 19, American stocks seemed untouched by the anxiety around the coronavirus epidemic that had already rattled investors in other markets, including bonds, commodities and some foreign shares.
Nine days later, an unnerving reality has set in. The S&P 500 has just suffered its fastest-ever 10% decline from an all-time high. The Dow Jones Industrial Average is headed for its worst week since the start of the 2008 global financial crisis.
It was clear that the feds were going to react. Federal Reserve governor James Bullard was the first to take the stage.
‘Further policy rate cuts are a possibility…’ he led off.
On his tail the next day, Fed chief Jerome Powell told investors that the Fed would ‘act as appropriate.’
What is the appropriate action for a central bank in the event of a pandemic? That is not a question that Powell, Bullard, Trump et al. are going to ask. Because there is only one thing they can do…and it’s completely inappropriate.
That’s the charm of the feds…There is no calamity — natural or manmade — that they can’t make worse.
All they have to work with is fake money. They either add it. Or take it away. Guess which one they are planning to do now?
By Sunday night, after a warning from the Organisation for Economic Co-operation and Development (OECD), central banks all over the world had had time to get their story straight. Bloomberg:
Central Banks Pledge to Ensure Stability…
And then, this morning…Yahoo Finance UK:
European stocks were in the green on Monday as central banks around the world pledged measures to stabilise economies from the continued spread of coronavirus.
The coronavirus, by the way, is indifferent to Fed policies, no matter how jackass they are.
From the beginning of the species, humans have been regular victims of microscopic attacks. But for the first 200,000 years or so, modern plagues couldn’t get much of a purchase. People were too dispersed.
Then, with the arrival of agriculture, animal husbandry, large, settled communities, and widespread trade, the little creeps saw their opportunity…
Useless remedies for coronavirus
Roman historian Procopius tells us that in the Plague of Justinian, as many as 10,000 people died every day. Victims tried cold water baths and powders blessed by saints. But nothing worked.
Emperor Justinian himself got the fever, but recovered. And while survivors were soon back on their feet, the Byzantine Empire never fully recovered. Dead men pay no taxes, nor do they serve as soldiers or administrators.
The Black Death struck Europe in 1347, killing as many as 30 million. This time, people showed more imagination.
Many believed the scourge was a punishment for sin. To atone, they joined mobs of self-tormentors, as many as a thousand in a bunch, roaming from town to town (spreading the plague!). These Flagellants dragged heavy crosses and whipped each other as they went along.
Again, the remedies were useless. And in addition to killing half the population, the plague caused an economic collapse.
Laborers, farmers, craftsmen — there were few left to do the work. And those few, healthy though they may have been, must have felt the cold finger of death tapping them on the shoulder. They saw no point in working.
Fields, shops, markets, canals, roads, city walls, houses, barns, whole towns — all were abandoned or neglected.
But while the Flagellants blamed themselves, others found more appealing scapegoats. Jews were targeted, especially in the Rhineland. There, whole communities of them, in Mainz and Frankfurt-am-Main, were annihilated.
(It’s no coincidence: Jews were the moneylenders of the era. By killing Jews, people were also able to reduce their debts.)
With much of the working population wiped out, the surviving peasants found themselves in a good bargaining position. Wages were doubled…even tripled.
Naturally, the feds interceded. King Edward III tried to force wages back to 1346 levels, but with little success.
Later on, the Great Plague of London in the 17th century was comparatively mild, claiming only about 100,000 victims. The rich fled the city to the relative safety of their country houses. This proved somewhat effective. Most of those who died were the poor who were left in the city.
Back in London, people lit bonfires to clean the air and prayed to the saints to spare them. Cats and dogs were killed…in the belief that they carried the disease. (This probably made things worse since they no longer controlled the rats, which were the real carriers.)
Finally, the end of the plague was marked by another catastrophe, the Great Fire in 1666. The pestilence had wiped out the poor, and the fire wiped out the rich. London had to be rebuilt — its population and its wealth — almost from scratch.
Archangels of the Fed against the coronavirus
Today, we live in a modern era…enlightened by science and daytime talk shows.
In times of crisis, we turn to the archangels Alan, Ben, Janet, and Jerome. ‘Touch us…heal us,’ we pray.
Every house in America has a photo of the 12 disciples of the Federal Open Market Committee on its wall. And we make the sign of the dollar every time we pass by.
But in all of these historical accounts of pestilence, plague, and bug attacks, no mention is made of central bankers — either in curing the disease or remediating the economic damage.
The reason for that is simple: There is nothing they can do. Fake money can distort prices — either asset or consumer prices. But fake money can’t replace workers…or sales…or profits. Not even real money can do that.
And while the coronavirus is nothing like the Black Death, it has a similar economic effect: The capital is still there — the buildings, the stocks, the factories, the savings, roads, and resources. But the income has disappeared.
In Wuhan, the steel factories are cold and quiet. Schools in Japan and Italy no longer echo with happy cries when the bell rings. Airplane pilots have been grounded. Restaurant owners eye their empty tables, awaiting diners who never show up. And spiders build their webs at the entrance to cruise ships, confident they will not be disturbed.
Those sales…income…and profits don’t show up on company reports, on wage statements, or in GDP. And like virginity, they can never be recovered.