Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Extreme Economic Policies the Coronavirus Depression will Inspire

The horrific coronavirus depression will drive American politicians to implement radical economic policies unprecedented in our history.

America’s Congress has already taken the historic step of sending a $1,200 stimulus payment to most citizens. Meanwhile, both Republicans and Democrats are proposing increasingly radical measures.

For example, conservative US Senators Cory Gardner (R-Colorado) and Josh Hawley (R-Missouri) want the federal government to pay many employees’ salaries, Politico reports. Meanwhile, moderate US Speaker of the House Nancy Pelosi (D-California) wants to increase unemployment insurance by $1 trillion.

The Coronavirus Depression will Lead to Radical Economic Measures

I think the coronavirus depression is so bad that the Congress will pass and the president will sign extreme radical economic measures few of us will expect.

We will see such measures because the US Labor Department estimates that 20.5 million jobs vanished in April 2020. Moreover, America’s official unemployment rate rose to 14.7%, the Associated Press observes. The AP claims that rate is resembles the unemployment level during the Great Depression of the 1930s.

Additionally, the number of continuing unemployment claims in the United States could rise to over 25 million, The American Bankruptcy Institute estimates. Thus, America’s economy is in the worst depression the nation has seen since the 1930s.

The Great Depression led to radical economic measures including the Bank Holiday, federal jobs programs, federal oversight and regulation of investment markets, and Social Security. Significantly, a conservative Southern-led Democratic Congress passed the New Deal. In addition, the president who signed the New Deal legislation was Franklin D. Roosevelt (New York), a moderate pro-business Democrat.

Given this history, we could see the implementation of many radical economic measures that were unthinkable a few months ago. Moreover, I predict we will see many self-proclaimed “conservatives” and moderates; including President Donald J. Trump (R-Florida) supporting such measures.

Extreme Economic Polices Coronavirus will Inspire

Some extreme economic policies the coronavirus depression causes include:

1. The U.S. Federal Reserve System and the U.S. Treasury will buy stocks.

I predict the Federal Reserve; America’s central bank will buy stocks if the markets collapse. I think the Fed buying stocks is inevitable because the Federal Reserve already buys ETFs, corporate debt, and corporate paper.

For example, the Fed is already buying corporate-bond exchange-traded funds (ETFs) in the open market, The Street reports. In addition, the Fed buys corporate debts and corporate paper.

Currently, federal law bars the Fed from direct stock purchases. However, the U.S. Treasury can buy stocks with Fed money. In fact, the U.S. Treasury is buying a kind of stock; corporate debt ETFs from BlackRock (NYSE: BLK), The Street reveals.

“The Fed is essentially acting as banker to the Treasury, which is using BlackRock as its broker to carry out the effective nationalization of parts of markets,” The Street’s Jason Orestes wrote on 3 April 2020.

To explain, The Treasury buys the stocks through special purpose vehicles financed by the Fed. Hence, a mechanism to buy stocks with Fed money is in place.

Consequently, I believe we will see massive purchases of stocks with Fed credit by the Treasury if a bad bear market develops. Therefore, the tools for a massive Wall Street bailout are in place.

2. There will be efforts to nationalize Social Media and Digital Platforms

If the Coronavirus Depressions lasts for more than a few months, there will be efforts to nationalize Social Media and Digital Platforms.

For example, there will be calls to nationalize Facebook (NASDAQ: FB) to prevent the spread of “dangerous ideas.” Significantly, we are hearing calls to censor political speech and writing on Facebook.

Beyond Facebook, there could be calls to nationalize lesser platforms such as Reddit to suppress radical ideas. For example, federal authorities could seize Facebook if we see riots or outbreaks of domestic terrorism.

Furthermore, I believe government could seize companies such as Amazon (NASDAQ: AMZN), PayPal (NASDAQ: PYPL), Alphabet (NASDAQ: GOOGL), CoinBase, Facebook, and Palantir to gain technological capabilities it lacks.

For example, Amazon’s logistics capabilities exceed those of federal agencies. Amazon could send masks, coronavirus tests, drugs, or even food to tens of millions of people in a few days.

In addition, PayPal can instantly distribute money to millions of people at once, something Congress wants to do but cannot. For example, the US government could not distribute stimulus payments to ordinary people in a reasonable time frame. Plus, Coinbase’s blockchain capabilities could add layers of security and flexibility to PayPal’s capabilities.

Additionally, Palantir and Alphabet’s data collection, data analytics, and processing capabilities could exceed those of federal agencies. Moreover, Palantir and Alphabet’s research capabilities could rival the federal government’s.

I believe there will be political pressure for government to control artificial intelligence (AI) research. Hence, there will be attempts to nationalize AI companies such as Alphabet and its Waymo subsidiary.

Finally, government will try to control communications in extreme emergencies. Facebook with over 2.6 billion active users on one social network in 1st Quarter 2020 is the world’s most powerful communications company.

Therefore, I believe the federal government will seize Facebook in times of war or civil unrest. Notably, the British government seized control of telegraph cables during World War I to prevent the spread of German propaganda. America and China will behave in the same way in a future conflict.

3. The US Congress will Make Continuous Cash Stimulus Payments to All Citizens

I predict the CARES Act stimulus payments will be the first of many cash payouts by Uncle Sam to ordinary Americans. I think we will see monthly; or perhaps weekly cash stimulus payments to ordinary people for the duration of the coronavirus crisis.

However, the Treasury and the Federal Reserve lack the technology to make such payments. Meanwhile, PayPal, Apple (NASDAQ: AAPL); through Apple Pay, Alphabet (NASDAQ: GOOG); through Google Pay, and big banks have platforms capable of making such payments. In addition, Facebook, Block.One, and CoinBase are experimenting with cryptocurrency capabilities that could enable such payments.

4. The Federal Government will Cancel Student Loan Debt

One of the fastest and cheapest ways for the Federal Government to give ordinary Americans an economic boost is to cancel student loan debt.

Overall, 44.7 million Americans owed $1.64 trillion in student loan debt in January 2020, StudentLoanHero estimates. Hence there are 44.7 million potential voters who could benefit from student loan debt cancellation.

In addition, I think graduates will never repay a large percentage of that student loan debt. For instance, there are millions of people who will never make enough money to pay off their student loan debts. That includes millions in underpaying professions such as teaching.

Hence, a fast and cheap way for the president to become a hero to those is people is to cancel student loan debt. In addition, canceling student loan debt could boost the economy.

For example, a person who makes $200 a month in student loan payments will see her spending power increase by $200 if they cancel her debts. Thus, I believe student loan debt cancellation is inevitable.

Frighteningly, I believe canceling student loan debt could have catastrophic effects on higher education. For example, many private colleges and universities and trade schools could collapse because lenders will stop making student loans.

Thus, a free college scheme; in which the federal government pays tuition, will have to follow student loan debt cancellation. Notably, popular, but failed, presidential candidate U.S. Senator Bernie Sanders (I-Vermont) has been promoting such a scheme for years. Sanders plan is to finance tuition with a tax on investments.

Hence, the Coronavirus Depression will be the end of higher education as we know it. I think one side effect of Coronavirus will be the federalizing of American higher education.

5. The US Treasury and the Federal Reserve will take over Digital Payments

I predict we will see efforts to nationalize such companies’ payment platforms and fold them into the Federal Reserve System. There is a historic precedent for such nationalization.

Private banks invented paper money, but the Treasury eventually took over the printing and distribution of paper money. Thus, I predict the federal government or federal reserve will ultimately take control of all digital payments in the United States.

Ultimately, I think angry citizens stuck with paper stimulus checks they cannot cash will drive such nationalization. Politicians needing quick stimulus at election time could force PayPal, Apple, or JPMorgan Chase (NYSE: JPM) to distribute stimulus as its patriotic duty.

6. We will see massive federal bailouts of unexpected industries

The Great Economic Meltdown of 2007 to 2008 led to unprecedented and controversial bailouts of the auto industry, banks, and Wall Street.

I predict even greater bailouts this time around. I expect Congress will try to bail out dying retailers; such as Macy’s (NYSE: M), tourism businesses, casinos, hotels, newspapers, broadcasters, and some entertainment companies.

Controversial future bailouts will be efforts to “save” cruise ships, casinos, hotels, ski resorts, and theme parks. For instance, what happens if Disney (NYSE: DIS) demands a bailout to keep Disneyland or Disneyworld open? Disney is a profitable entertainment conglomerate, but its theme parks are closed.

They will aim more controversial bailouts at cable TV companies, radio and TV station owners, cable networks, and newspapers. I think politicians will try to “save” old media such as cable networks and broadcast stations because those companies deliver political propaganda to probable voters (people over 60).

Just imagine the political firestorm that will result if Republicans try to save Fox News or CBS (NYSE: CBS), or Democrats attempt to bailout MSNBC or The New York Times. If advertising; television’s primary revenue source, collapses expect to see proposals for a massive television bailout effort on Capitol Hill.

7. America will Nationalize its Health Insurance System

Currently, America’s national health insurance system (Medicare and Medicare) covers a little over a third of the nation’s population. Therefore, two-thirds of Americans relies on private health insurance or out-of-pocket expenses to pay for health care.

In detail, 70.712 million Americans receive Medicaid and CHIP, Medicaid estimates. To elaborate Medicaid is a health insurance program for the poor and the Children’s Health Insurance Programs (CHIP) cover low-income children.

Meanwhile, 59.869 million Americans participate in Medicare a federal health insurance program for senior citizens and the disabled Kaiser Family Foundation estimates. Thus, I calculate national health insurance covers 130.401 million out of 330 million Americans.

However, there is powerful pressure for the federal government to cover all coronavirus related care and testing. Consequently, pressure to expand federal health insurance coverage to all Americans will grow.

A probable scenario for health insurance nationalization will be the collapse or bankruptcy of a major health insurance provider such as UnitedHealth Group Inc. (NYSE: UNH) or Cigna Corp (NYSE: CI).

8. The Federal Government will Pay Many Americans’ Salaries

Some conservative foreign governments; including those in France and Britain, are covering the salaries of employees idled by the coronavirus.

For instance, France pays up to 70% of an idled workers’ salary through chômage partiel or partial unemployment. The generous French system pays up to €6,927 ($2,724.58) a month, France 24 estimates. Meanwhile, Britain’s Coronavirus Job Retention Scheme pays 80% of salaries up to £2,500 ($3,048.54) a month.

Neither French President Emmanuel Jean-Michel Frédéric Macron, nor British Prime Minister Boris Johnson is a radical socialist. In fact, Johnson a Conservative is a key Trump ally. Yet both men signed off on salary guarantees fast.

As I noted above, two conservative US Senators Cory Gardner (R-Colorado) and Josh Hawley (R-Missouri) want America to imitate the British and French schemes with their REHIRE America proposal. Under REHIRE America, the federal government will cover up to 120% of a rehired employee’s wages. Additionally, the federal government will pay up to 80% of wages up to $50,000 for workers on payroll.

I predict the federal government will pay salaries for both idled and active employers in the next few months. In particular, I predict the federal government will start covering the payrolls for state and local governments.

A probable scenario is that some big city cannot pay its police or firefighters. That will force the federal government to step in and pay them.

Obviously, this scenario will make a mockery of federalism by giving Congress direct control over state and local governments. But I think this scenario is inevitable because Uncle Sam has one power state and local governments lack. That power is the ability to issue or print money.

Moreover, I predict there will be pressure for the federal government to cover private salaries. Particularly, there will be demands for the federal government to cover essential workers’ salaries.

9. America will pay a Basic Income

I think a basic income is inevitable because of the stimulus payments. Under a basic income, the government pays each citizen an amount of cash.

The stimulus paid most citizens $1,200 a month. Thus, the precedent for paying every citizen regardless of employment, income, or need is set.

I think the precedent will lead to something similar to failed presidential candidate Andrew Yang’s (D-New York) Freedom Dividend. Under the Freedom Dividend, Yang proposes a payment of $1,000 a month to all Americans over 18.

A probable scenario is that Republicans frightened of a Herbert Hoover (R-California) level defeat in 2020 will jump on the basic income bandwagon. Notably, I think Hawley and Gardner are half way to basic income with their salary guarantee.

Many of these policies seem improbable now, but I think they are inevitable if the Coroanvirus Depression continues. I predict most opposition to such policies will vanish if the Depression lasts for more than a few months.

Thus, America will come out of the Coronavirus Depression with a radically different economy.