A video has emerged of Donald Trump talking about cutting the US pandemic response team in 2018 – days after claiming that he knew nothing about the disbanded White House unit.
Mr Trump said of the pandemic team that “some of the people we’ve cut they haven’t been used for many, many years and if we ever need them we can get them very quickly and rather then spending the money”.
“I’m a business person, I don’t like having thousands of people around when you don’t need them,” he added.
The US president has come under fire in recent days for his decision to disband the National Security Council directorate at the White House responsible for planning the US’s preparedness for future pandemics.
The unit had been established by the previous White House administration in 2014 after the outbreak of Ebola.
A former director of the unit, Dr Beth Cameron, used an op-ed in The Washington Post to say that “it is clear that eliminating the office has contributed to the federal government’s sluggish domestic response”.
In a press conference on Friday, Mr Trump denied knowing anything about the cuts in 2018 when questioned by Yamiche Alcindor, a reporter for PBS.
After denying that his administration was responsible for any failures in the roll-out of American coronavirus testing, Alcindor had asked Mr Trump: “You said that you don’t take responsibility, but you did disband the White House pandemic office, and the officials that were working in that office left this administration abruptly. So what responsibility do you take to that?”
The US president responded by saying: “Well, I just think it’s a nasty question …You say we did that, I don’t know anything about it.”
The Coronavirus Calls for Wartime Economic Thinking
Despite an unprecedented intervention over the weekend from the Federal Reserve, which cut short-term interest rates to close to zero and introduced emergency lending measures, the U.S. stock market fell sharply again on Monday. By the close of trading, the Dow Jones Industrial Average had fallen almost three thousand points—the worst single-day points loss in history—or thirteen per cent. The market is now down by almost a third from its peak, in late February.
Clearly, investors are spooked by the widening coronavirus outbreak and the likely impact of the public-health measures that are being taken to deal with it. But what exactly is going on in the markets and the economy? In search of answers to this question, I spoke on Monday with Ian Shepherdson, the founder of Pantheon Macroeconomics, a firm that advises Wall Street firms, hedge funds, and institutional investors.
Shepherdson, who was formerly the chief U.S. economist at the international bank H.S.B.C., said that some investors were alarmed by the fact that the Fed felt obliged to act just a couple days before one of its regular policy meetings, and that they were also fretting about the delay in getting both chambers of Congress to pass an emergency spending bill. But Shepherdson also suggested that there were other factors at play, including some psychological ones. “To be brutally honest,” he said, “I think a lot of people on Wall Street didn’t take the virus seriously enough until it was their towns where cases were being discovered and their kids who were being sent home from school.”
Now the virus is impossible to ignore, and so are its economic consequences. “It’s going to be catastrophic,” Shepherdson said bluntly. “This is an economy built on discretionary consumption.” He was referring to all the nonessential purchases that people make in their daily lives, things ranging from new clothes and appliances to personal services such as spa sessions, meals in restaurants, and Uber rides. According to Shepherdson, all this nonessential stuff amounts to about forty per cent of the U.S.’s gross domestic product. In other words, it is enormous, in terms of both its dollar contribution to the economy and the number of people it employs.
As of yet, we don’t have any over-all figures for how shutdowns and curfews and self-isolation are impacting spending, but there are some preliminary indications. Over the weekend, movie-ticket sales fell forty-four per cent compared to the previous weekend. Shepherdson has been monitoring the number of people eating out through the booking site OpenTable. On Sunday night, the amount was down forty-eight per cent compared with the previous year. He read out some of the figures for individual states: “Alabama: down thirty-eight per cent. California: down fifty-five per cent. New York: down forty-seven per cent. New Jersey: down fifty-six per cent. This is just unbelievable.”
That was when most restaurants were still operating. Now that many states, including New York and New Jersey, have ordered them to close, apart from making deliveries, business is going to fall even more dramatically. The same is going to be the case for countless other enterprises, small and large. As they shut down, many of them are going to furlough their workers or let them go permanently.
This will result in a sharp rise in unemployment and in negative G.D.P. growth—in other words, a recession. “The U.S. economy is shrinking as we speak—I have no doubt at all about that,” Shepherdson said. On Monday, some Wall Street economists suggested that the G.D.P. could fall at an annualized rate of five per cent in the second quarter of this year. Shepherdson believes the downturn could be even more severe than that, with the G.D.P. contracting at a rate of about ten per cent. A collapse in discretionary consumer spending isn’t the only danger, he noted. As businesses react to the crisis, they will likely postpone a lot of capital spending, too. “We have no information about that yet,” he said. “But it is definitely going to get hit badly, as well.”
To alleviate some of this damage, economists of many different political persuasions agree that the Trump Administration and Congress need to introduce a substantial stimulus package on top of the coronavirus spending bill that the House of Representatives passed on Saturday. How big should these measures be? “I am in the one-trillion-to-two-trillion-dollar camp, preferably by dinner time,” Shepherdson said. “I think they should be just throwing money at people and businesses that are in the front line. Cash has to be given out to households. Cash has to be given out to small businesses. Cash has to be given out to gig workers. I don’t know what the figures are for Uber drivers, but they are probably catastrophic.”
It’s not just small businesses that are being affected, of course. Airlines, hotels chains, and other corporate entities are hemorrhaging money. Shepherdson said that some airlines could go bust “very quickly” if they don’t receive some sort of aid. “People say don’t bail them out—they’ve made billions of dollars in profits and paid their senior executives enormous sums,” he said. “I’m very sympathetic to that argument. But we are going to need an airline industry in September. So bail them out and sack the C.E.O.s. You can’t think in normal terms. This is more like a wartime crisis than a normal economic situation.”
Shepherdson isn’t the only economist making an allusion to the emergency measures that governments make in a war economy. “The world is de facto at war (against the virus, rather than against each other—this is the good news . . .),” Olivier Blanchard, the former chief economist at the International Monetary Fund, tweeted on Monday. He went on to point out that, during the Second World War, the federal deficit as a percentage of the G.D.P. rose to twenty-six per cent, as the Roosevelt Administration spent heavily on armaments and other programs. “Let’s not be squeamish,” Blanchard added.
Shepherdson agrees. “This is not a normal economic event in any way, shape, or form,” he said. “You have to be willing to think what previously would have been unthinkable.” If necessary, he said, the Federal Reserve could buy the bonds that the U.S. Treasury issues to finance a massive economic support package—a tactic known as “monetization,” which also was employed after the Second World War.
“Why do we worry about monetization?” Shepherdson said. “Because we are concerned about hyperinflation, but that isn’t an issue now, and we have a much bigger problem in our faces.” If the economy slumps in the way he thinks it is about to, a lack of adequate financial support for people who are adversely affected could lead to social unrest. “The first job of the government is to prevent social breakdown,” Shepherdson said. “If ever there was a case when quick government action could do that, then this is it.”
Dave Ramsey Reacts To Potential Stock Market Crash!
Dave Ramsey Reacts To Potential Stock Market Crash!
Transcript
00:02
for those of you that are as old as me
00:04
you remember this when we were kids we
00:07
used to have these things called service
00:08
stations they’re different than gas
00:11
stations because someone would actually
00:12
come out to your car and pump your gas
00:13
for you and I distinctly remember on
00:17
Nolensville Road the main drag right
00:19
down from our home that there was a
00:21
service station on three different
00:23
corners of a possible four corner
00:25
intersection three of them competing
00:27
with each other occasionally a sign
00:30
would go up that would say gas war if
00:33
you’re old you remember gas Wars your
00:36
local gas stations would compete with
00:38
each other and one of them would drop
00:40
the price and all that everybody would
00:42
go over there the other one will drop
00:43
the price more and everybody would go
00:44
over there and the other one drop the
00:45
price more and they’d all go over there
00:46
and these is competition in the
00:49
marketplace without government
00:52
intervention drove the prices down until
00:55
the guys got tired of it and then they
00:56
just kind of raised all the prices back
00:58
up but we’d go through a period of time
01:00
that this head-to-head competition
01:03
caused a gas war and it was competition
01:06
and it was turned out to be good for us
01:08
because we didn’t have a lot of money
01:10
and we could put gas in our tank because
01:12
it was cheaper well guess what Russia
01:17
and the Middle East have decided to have
01:20
an oil war not a war where they’re
01:24
shooting each other but where they’re
01:26
driving the price of oil down
01:28
dramatically it’s dropped 33% over the
01:35
weekend now you know those gas stations
01:38
I was talking about when they dropped
01:39
their prices everybody help me with this
01:42
do they make more money or less money
01:44
with lower prices they made less money
01:47
okay everybody knows this right their
01:49
profits went down didn’t it but they got
01:51
customers and they got to stay in
01:53
business by competing so guess what
01:55
happens when the price of oil goes down
01:57
two guys like Chevron and Exxon people
02:02
like that their profits go down because
02:08
the price of their barrel of oil went
02:10
down that they’re sucking out of the
02:11
ground
02:12
you
02:13
you know that means you’re about to get
02:14
some cheap gas in the coming weeks for
02:16
your car right people if oil drops 33%
02:21
do you know I think it’s going to affect
02:21
your dadgum get price at the pump yes it
02:24
will okay because the gas war will are
02:28
the oil war which gas has made out of
02:30
oil will turn into a gas war at the pump
02:32
around here it won’t have a little sign
02:34
up that says gas war it’s probably
02:36
politically incorrect you probably get
02:37
put in jail but end of the day is you
02:40
guys are gonna get some cheap gas
02:42
because this is driven down now it’s is
02:45
it you think it’s gonna stay down no no
02:47
more than the gas war between the gas
02:48
stations continued forever it’s not
02:51
going to stay down and so Exxon is going
02:53
to survive and Chevron is going to
02:54
survive and BP is going to survive and
02:55
Halliburton is going to survive
02:57
everybody that all these oil stocks that
02:59
are driven by profit in the oil business
03:01
but guess what they’re part of the Dow
03:03
Jones Industrial Average and when their
03:05
profits go away to the tune of 33% over
03:08
the weekend guess what their stock price
03:10
does it goes down oh let’s mix that with
03:14
all of you people have completely lost
03:16
your mind
03:17
over the coronavirus and everybody’s
03:20
scared out of their brains and can’t
03:22
even think clearly now oh and now we
03:25
have a wonderful buying opportunity on
03:28
the stock market today the stock market
03:30
is tanked based on this oil war and the
03:33
coronavirus now let me help you with
03:35
this my friend art Laffer who is one of
03:37
the leading economists in the world
03:38
without a doubt has a great saying he
03:43
says people don’t make good decisions
03:45
when they’re drunk and they don’t make
03:48
good decisions when they’re panicked if
03:54
you’re thinking about pulling your money
03:55
on the stock market because you think
03:57
the coronavirus is going to destroy the
03:59
US economy you are a panicked fool
04:03
you’re a fool Southwest airs stock
04:08
prices down 30% do you think Southwest
04:12
air has lost 30% of its value because of
04:16
the coronavirus in reality I mean learn
04:20
to do a little basic math here that
04:23
means that throughout the next five
04:25
years there
04:27
on their planes would have to be down
04:29
30% for them to have permanently lost
04:32
30% of their value that’s asinine you’re
04:37
panicked or you’re drunk I don’t know
04:39
which it is or both
04:41
that’s ridiculous and so the stock
04:46
market going down is as artificial as it
04:49
can be it is based on drunk people panic
04:52
people in an oil war and that’s what
04:55
it’s based on this is the best buying
04:58
opportunity in 10 or 15 years on the
05:01
stock market today because these numbers
05:05
are down artificially these companies
05:07
have not lost all of this money they’ve
05:11
not lost all of this value do you think
05:13
Cruise Lines dropped 40% in value over
05:18
the last 16 days come on I’m dumb are
05:20
you okay listen here’s the deal
05:23
40,000 people will die of car wrecks
05:25
this year in the u.s. 14,000 people have
05:28
died of the flu so far in the US and
05:30
around 40,000 will die of the flu this
05:33
year in the US 22 people have died of
05:35
the corona virus and yet you cannot find
05:41
a bottle of that hand-washing stuff
05:45
anywhere in any store in America today
05:47
you would think the stuff was gold if
05:50
you got a case of it you ought to put it
05:52
on eBay overnight because some panicked
05:54
fool will pay you $8,000 an ounce for
05:58
that stuff in it people have lost their
06:01
minds if you lost their minds and I
06:05
don’t want the corona virus and I don’t
06:06
want you to die the corona virus and I
06:08
don’t want you to die the flu I don’t
06:09
want you to die in a car wreck I don’t
06:10
want anybody die I want everybody to
06:12
live have a good life I’m here for you
06:14
but you’re sacrificing your entire
06:16
freaking retirement because you’re
06:19
panicked because you watch too much news
06:23
you need to turn off the news you need
06:26
turn off let me tell you the level of
06:29
anxiety you have is directly tied to the
06:32
number of hours a day you spend watching
06:34
news if you just turn it off and open up
06:39
your Bible my friend Zig Ziglar
06:40
say I read the newspaper every morning
06:42
and I read the Bible every morning so I
06:43
can tell what both sides are doing and
06:46
you know I tell you what you’re just
06:48
gonna have to think people when you’re
06:51
drunk and when you’re panicked you don’t
06:52
make good decisions usually as soon as I
06:56
get really really scared right after
06:58
that I get really really desperate and I
06:59
get riot right after that really really
07:01
stupid and cashing out your retirement
07:03
account or stopping your investing or
07:05
bailing on your 401k because you’ve
07:08
watched too much news is absolutely
07:10
asinine do not do that as a matter of
07:14
fact if you’ve got some extra money it’s
07:16
a good week to put some money in I don’t
07:17
believe in market timing I don’t have a
07:19
single dollar allocated in my personal
07:22
budget for timing the market so all of
07:24
my purchases of mutual funds are on
07:26
autopilot they just go when they go but
07:29
I’m kind of regretting that right this
07:30
second because man I could turn a
07:32
million dollars into two million so fast
07:34
right now thank you to Russia and thank
07:37
you to the Middle East for driving the
07:38
oil prices down because I’m gonna get a
07:40
cheap tank of gas from my big butt
07:42
Raptor pretty soon out of you people and
07:44
I’m gonna grin all the way to the bank
07:47
when this stock market comes right
07:48
straight back up and the rest of your
07:50
standing on the sidelines going I lost
07:52
half my retirement because you panicked
This Is How the Coronavirus Will Destroy the Economy
Though the Federal Reserve moved over the weekend to slash rates and buy treasuries, markets around the world fell on Monday anyway. The coronavirus threatens to set off financial contagion in a world economy with very different vulnerabilities than on the eve of the global financial crisis, 12 years ago.
In key ways the world is now as or more deeply in debt as it was when the last big crisis hit. But the largest and most risky pools of debt have shifted — from households and banks in the United States, which were restrained by regulators after the crisis, to corporations all over the world.
As businesses deal with the prospect of a sudden stop in their cash flows, the most exposed are a relatively new generation of companies that already struggle to pay their loans. This class includes the “zombies”— companies that earn too little even to make interest payments on their debt, and survive only by issuing new debt.
The dystopian reality of deserted airports, empty trains and thinly occupied restaurants is already badly hurting economic activity. The longer the pandemic lasts, the greater the risk that the sharp downturn morphs into a financial crisis with zombie companies starting a chain of defaults just like subprime mortgages did in 2008.
Over the last century, recessions have almost always been started by a sustained period of higher interest rates. Never a virus: The damage such contagions inflicted on the world economy typically lasted no more than three months. Now this once-in-a-century pandemic is hitting a world economy saddled with record levels of debt.
Central banks around the world are waking up to the prospect that the cash crunch can beget a financial crisis, as in 2008. That’s why the Federal Reserve took aggressive easing measures on Sunday that were straight out of the 2008 crisis playbook. While it is unclear whether the actions of the Fed will be enough to prevent the markets from panicking further, it’s worth asking: Why does the financial system feel so vulnerable again?
Around 1980, the world’s debts started rising fast as interest rates began falling and financial deregulation made it easier to lend. Debt tripled to a historic peak of more than three times the size of the global economy on the eve of 2008 crisis. Debt fell that year, but record low interest rates soon fueled a new run of borrowing.
The easy money policies pursued by the Federal Reserve, and matched by central banks around the world, were designed to keep economies growing and to stimulate recovery from the crisis. Instead, much of that money went into the financial economy, including stocks, bonds and cheap credit to unprofitable companies.
As the economic expansion continued, year after year, lenders grew increasingly lax, extending cheap loans to companies with questionable finances. Today the global debt burden is again at an all-time high.
The level of debt in America’s corporate sector amounts to 75 percent of the country’s gross domestic product, breaking the previous record set in 2008. Among large American companies, debt burdens are precariously high in the auto, hospitality and transportation sectors — industries taking a direct hit from the coronavirus.
Hidden within the $16 trillion corporate debt market are many potential troublemakers, including the zombies. They are the natural spawn of a long period of record low interest rates, which has sent investors on a restless hunt for debt products that offer higher reward, with higher risk. Zombies now account for 16 percent of all the publicly traded companies in the United States, and more than 10 percent in Europe, according to the Bank for International Settlements, the bank for central banks. A look at the data reveals that zombies are especially prevalent in commodity industries like mining, coal and oil, which may spell upheavals to come for the shale oil industry, now a critical driver of the American economy.
Zombies are not the only potential source of trouble. To avoid regulations imposed on public companies since 2008, many have gone private in deals that typically saddle the company with huge debts. The average American company owned by a private equity firm has debts equal to six times its annual earnings, a level twice what ratings agencies consider “junk.”
Signs of debt stress are now multiplying in industries impacted by the coronavirus, including transportation and leisure, auto and, perhaps worst of all, oil. Slammed on one side by fear that the coronavirus will collapse demand, and on the other by fears of a supply glut, oil prices have fallen to below $35 a barrel — far too low for many oil companies to meet their debt and interest payments.
Though investors always demand higher returns to buy bonds issued by financially shaky companies, the premium they demand on U.S. junk debt has nearly doubled since mid-February. By last week the premium they demand on the junk debt of oil companies was nearing levels seen in a recession.
Though the world has yet to see a virus-induced recession, this is now a rare pandemic. The direct effect on economic activity will be magnified not only by its impact on balky debtors, but also by the impact of failing companies on the bloated financial markets.
When markets fall, millions of investors feel less wealthy and cut back on spending. The economy slows. The bigger markets get, relative to the economy, the larger this negative “wealth effect.” And thanks again to seemingly endless promises of easy money, markets have never been bigger. Since 1980 the global financial markets (mainly stocks and bonds) have quadrupled to four times the size of the global economy, above the previous record highs set in 2008.
On Wall Street, bulls still hold out hope that the worst can pass quickly and point to the encouraging developments in China. The first cases were reported there on Dec. 31, and the rate of growth in new cases peaked on Feb. 13, just seven weeks later. After early losses, China’s stock market bounced back and the economy seemed to do the same. But the latest data, released today on retail sales and fixed investment, suggest the Chinese economy is set to contract this quarter.
While China is no longer center stage, as the virus spreads worldwide there are renewed fears that the crisis could circle back to its shores by hurting demand for exports. Over the last decade China’s corporate debt swelled fourfold to over $20 trillion — the biggest binge in the world. The International Monetary Fund estimates that one-tenth of this debt is in zombie firms, which rely on government-directed lending to stay alive.
In other parts of the world, including the United States, calls are growing for policymakers to offer similar state support to the fragile corporate sector. No matter what the policymakers do, the outcome is now up to the coronavirus, and how soon its spread starts to slow.
The longer the coronavirus continues to spread at its current pace, the more likely it is that zombies begin to die, further depressing the markets — and increasing the risk of wider financial contagion.
Ruchir Sharma is the chief global strategist at Morgan Stanley Investment Management, author of the forthcoming book, “The Ten Rules of Successful Nations,” and a contributing opinion writer. This essay reflects his opinions alone.