The Pronk Pops Show 1404, February 27, 2020, Story 1: All U.S. Stock Market Indices Correcting As Progressive Panic Propaganda Propagates Planet — Great Investment Buying Opportunities Ahead — Videos — Story 2: Chinese Communist Cough Containment Crisis Crashes Capitalism or Communism? — Are You Scared Yet — Not One Bit — Buy On The Correction and Hold On — Government Not The Answer — Government Is The Problem — Videos — Story 3: Coronavirus or COVID-19 Exposed America’s Heavy Reliance On China For Medicines — Trump Administration May Use Defense Production Act To Manufacture Protective Gear — What About Replacing Medicine, Drug and Ingredients Imported From Communist China By Establishing American Producers in United States As In The Past? — Video

Expansionary monetary policy constitutes a transfer of purchasing power away from those who hold old money to whoever gets new money. This is known as the Cantillon Effect, after 18th Century economist Richard Cantillon who first proposed it. In the immediate term, as more dollars are created, each one translates to a smaller slice of all goods and services produced.

How we measure this phenomenon and its size depends how we define money. This is illustrated below.

Here’s GDP expressed in terms of the monetary base:

Here’s GDP expressed in terms of M2:

And here’s GDP expressed in terms of total debt:

What is clear is that the dramatic expansion of the monetary base that we saw after 2008 is merely catching up with the more gradual growth of debt that took place in the 90s and 00s.

While it is my hunch that overblown credit bubbles are better liquidated than reflated (not least because the reflation of a corrupt and dysfunctional financial sector entails huge moral hazard), it is true the Fed’s efforts to inflate the money supply have so far prevented a default cascade. We should expect that such initiatives will continue, not least because Bernanke has a deep intellectual investment in reflationism.

This focus on reflationary money supply expansion was fully expected by those familiar with Ben Bernanke’s academic record. What I find more surprising, though, is the Fed’s focus on banks and financial institutions rather than the wider population.

It’s not just the banks that are struggling to deleverage. The overwhelming majority of nongovernment debt is held by households and nonfinancials:

The nonfinancial sectors need debt relief much, much more than the financial sector. Yet the Fed shoots off new money solely into the financial system, to Wall Street and the TBTF banks. It is the financial institutions that have gained the most from these transfers of purchasing power, building up huge hoards of excess reserves:

There is a way to counteract the Cantillon Effect, and expand the money supply without transferring purchasing power to the financial sector (or any other sector). This is to directly distribute the new money uniformly to individuals for the purpose of debt relief; those with debt have to use the new money to pay it down (thus reducing the debt load), those without debt are free to invest it or spend it as they like.

Steve Keen notes:

While we delever, investment by American corporations will be timid, and economic growth will be faltering at best. The stimulus imparted by government deficits will attenuate the downturn — and the much larger scale of government spending now than in the 1930s explains why this far greater deleveraging process has not led to as severe a Depression — but deficits alone will not be enough. If America is to avoid two “lost decades”, the level of private debt has to be reduced by deliberate cancellation, as well as by the slow processes of deleveraging and bankruptcy.

In ancient times, this was done by a Jubilee, but the securitization of debt since the 1980s has complicated this enormously. Whereas only the moneylenders lost under an ancient Jubilee, debt cancellation today would bankrupt many pension funds, municipalities and the like who purchased securitized debt instruments from banks. I have therefore proposed that a “Modern Debt Jubilee” should take the form of “Quantitative Easing for the Public”: monetary injections by the Federal Reserve not into the reserve accounts of banks, but into the bank accounts of the public — but on condition that its first function must be to pay debts down. This would reduce debt directly, but not advantage debtors over savers, and would reduce the profitability of the financial sector while not affecting its solvency.

Without a policy of this nature, America is destined to spend up to two decades learning the truth of Michael Hudson’s simple aphorism that “Debts that can’t be repaid, won’t be repaid”.

The Fed’s singular focus on the financial sector is perplexing and frustrating, not least because growth remains stagnant, unemployment remains elevated, industrial production remains weak and America’s financial sector remains a seething cesspit of corruption and moral hazard, where segregated accounts are routinely raided by corrupt CEOs, and where government-backstopped TBTF banks still routinely speculate with the taxpayers’ money.

The corrupt and overblown financial sector is the last sector that deserves a boost in purchasing power. It’s time this ended.

https://azizonomics.com/2012/08/07/the-cantillon-effect/

The Pronk Pops Show 1402, February 25, 2020, Story 1: Progressive Panic Pandering Propaganda — Chinese Communist Party (CCP) Coronavirus Goes Global — What Doesn’t Kill You Makes You Stronger — Are You In Fear of Your Life — Videos — Story 2: Stock Market Correction Linked To Impact of COVID -19 on China Supply Chains — Create More Money — Just Stay Home — Consumer Confidence Crashes — Stagflation Recession 2021 –Panic Propaganda — Do Not Believe It — Videos — Story 3: Neither Government Dependency Nor Country Dependency Are Reliable When A Real Crisis Hits — United States Gets Most of Its Drugs From Communist China and India — Cheap But Risky and Maybe Deadly — Videos

Data update dates: World Health Organisation: 25 Feb | Hubei: 25 Feb | China: 25 Feb

COVID-19 (Coronavirus) is the number 1 issue facing investors at the moment. Given issues with data from China, we have put together these charts (updating throughout the day) to highlight the data from outside of China. Often the final data point will only include countries which have reported that day and so will change throughout the day. 

NOTE: China has re-classified statistics at least three times. There are also numerous revisions to prior numbers. We have made some adjustments to the charts below to normalise these statistics where possible, but treat China and Hubei data with scepticism. We now use both suspected and confirmed cases in Chinese ratios. 

COVID-19 cases caught outside of China

Whilst at first most cases of COVID-19 outside China were people who had flown from China to another country, we now seeing transmission of the virus outside of China taking off:

 

 

Given that a single cruise ship made up the bulk of cases outside China in early February, it is still useful to look at cases with and without that ship.

The average incubation period of COVID-19 probably less than a week (but could be as much as 24 days), and then an additional 3-4 days before diagnosis. So, you would expect measures like quarantines and travel restrictions to take around 10 days before showing up in statistics.

Time to doubling

This is an examination of how long it takes for cases or deaths to double.

 

Winter is here

If we limit cases to only those caught in a particular country, exclude China, and then split countries into:

• Winter countries: Northern Hemisphere Countries currently in winter (including Vietnam as the domestic transmission cases are in the north)
• Summer/Equatorial countries: Southern Hemisphere countries currently in summer or Countries near the equator where temperatures are relatively high all year

Note: Countries near China are more likely to have contact with Chinese citizens and these countries are in winter which probably distorts this data.

New and total COVID-19 case numbers in Hubei, the rest of China

Our analysis (and the analysis of many others) suggests reporting of COVID-19 cases in Hubei province were under-reported.

Then, on the 7th of February, China changed its definition of how it is reporting new cases to exclude patients who test positive for the virus but have no symptoms will no longer be regarded as confirmed. This means up to 80% of cases might no longer be reported. On the 13th of February Hubei reclassified how it classifies cases. On 20th February Hubei reclassified again. All changes affect the quality of the data. Confirmed + suspected cases in China are our key measure.

We are tracking data from Hubei and the rest of China separately. We are sceptical of the China data, but there is some information in the series.

On 7 Feb China made some adjustments to how they report data. Below we have made an estimate of what the case count might look like if China did not make this adjustment:

 

New and total Coronavirus death toll in Hubei, the rest of China, and the rest of the world

 

 

COVID-19 Mortality Rate using lag periods

The mortality rate is where we can see distinct differences in data. Dividing the number of deaths by the number of cases during the early stages of an outbreak is very misleading. People who were diagnosed today with the disease are still alive, but they still might die from the disease in the coming days.

A better way is to compare the current deaths to the number of cases from “x” days ago. We still don’t know how many days we should be looking back. The stats so far suggest that the median days from the first symptom to death is 14. But with a broad range from 6 to 41. And, we don’t know how long on average after the first symptom a person would take to become a case.

The below charts show the death rate if the right period to look back is 4, 8 or 12 days. Using data without Hubei, a mortality rate of somewhere between 0.5% and 3% is likely.

In recent days, data from Iran has skewed the results. There is likely a significantly larger outbreak in Iran than what is being reported. We have started showing our mortality rates for the rest of the world excluding Iran.

For more on what this means, see our article on understanding COVID-19 statistics

 

 

 

More Analysis

See our latest investment view and here for our latest podcast. Keep in mind that the economic impact is not particularly related to the number of deaths, more important is the disruption to business which already looks to be significant.

Data sources

This is a list of some of the main data sources we use:

https://www.worldometers.info/coronavirus/  Probably the best one

https://ncov.dxy.cn/ncovh5/view/pneumonia  Faster than worldometers for Chinese data, but slower on rest of the world data

http://www.nhc.gov.cn/yjb/pqt/new_list.shtml Official source for Chinese Data. Explains data adjustments.

http://wjw.hubei.gov.cn/fbjd/tzgg/ Official source for Hubei Data. Usually comes out a few hours before the China data.  Doesn’t always explain adjustments.

https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports The slowest to update, but the most authoritative in our view. More consistent with definitions than other sources.

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6 The prettiest pictures, but one of the slower sites to update. I don’t find the charts that useful.

https://www.youtube.com/user/MEDCRAMvideos has a daily youtube wrap-up

https://www.youtube.com/user/ChrisMartensondotcom has a daily youtube wrap-up