Thursday Assorted Links
1. Epsilon Theory: Our Escape Story
A challenge to ignore professional financial pundits preaching moderate consensus views on CNBC. We're in uncharted territory, our escape story out the coronavirus economy won't likely look familiar to most of us.
2. WSJ: How to Treat the Financial Symptoms of Covid-19
John Cochrane (The Grumpy Economist) sounds the warning bell on the ability of Covid-19 to lead to a financial panic, hence the Fed's recent actions to support credit markets, which have shown clear signs of strain. I agree with his diagnosis that the economy is fundamentally strong, we just have this tricky issue of needing to shut down a large part of the economy for a few months, which we just don't have any precedent or policy tools for. Businesses and individuals have a continuing stream of obligations while the income spigot has been abruptly shut off.
Cochrane's prescription is mostly focused on the supply side. I agree with him that it would be a massive mistake to let firms fall into bankruptcy and fail during this economic pause. Cochrane argues for loans as a % of last year's income tax return. Fine, unless you made very little money last year, in which case loans do next to nothing for you. Loans are good, we need loans too, but not in lieu of cash payments to hourly workers and people losing jobs. Cochrane argues cash payments won't get spent in the way that we need right now. Cochrane's probably right that they won't get spent right now, but they will get spent, at one point or another.
3. This Is the Only Way to End the Coronavirus Financial Panic
Andrew Ross Sorkin recommends something similar to the above proposal, but much looser and more flexible: a no-interest bridge loan to businesses, payable over a 5 year payback period. It would likely cost somewhere in the trillions.
It's worth considering a proposal like this in terms of the downside opportunity cost -- lost economic output over the medium term. It seems to become more obvious by the day that this will be the deepest and quickest recession in decades, probably since the great depression, so the downside risk here could be keeping us out of a prolonged deflationary depression.
4. Trump’s $1.2 Trillion Won’t Do It. Try $2.5 Trillion
A strong argument against a payroll tax cut, as it only helps those who have a job, and employed people are less likely to spend the stimulus. Three proposals are thrown out: pay every person under 40 $10,000 (more likely to spend), government bonuses for every person who gets tested, and extending unemployment benefits beyond the normal 26-week period.
5. Michael Bloomberg: The Economic Response We Need to the Coronavirus
An argument for a large infrastructure spending bill to jumpstart the economy once the immediate coronavirus risk passes.
If Congress passes a major infrastructure and clean-energy bill before the April recess, shovels can start hitting the ground when workers, businesses and investors are looking for signs of hope, indications of growth, and reasons to believe that the worst has passed.
6. U.S. Blood Supply Under Stress as Shutdowns Stop Blood Drives
Blood bank supplies have been decimated as a result of the economic shutdown.
About 4,000 blood drives scheduled for March, April and May have been canceled, reducing projected supply by 130,000 donations, according to America’s Blood Centers, an industry group.
Go here to find out where you can donate.