by The only realistic Plan B is a fundamental, permanent re-ordering of the cost structure of the entire U.S. economy. The fantasy of a V-shaped recovery has evaporated, and expectations for a W or L-shaped recovery are increasingly untenable. So forget V, W and L; the letters that will shape the future are N, P, B: there is No Plan B. All the hopes for a recovery were based on a quick return to the economy that existed in late 2019. All the bailouts and stimulus programs were based on this single goal: a quick return to The Old Normal. This was Plan A. For all the reasons that have been laid out here over the past six months, The Old Normal is gone for good. The Old Normal economy was too precarious, too brittle and too fragile to survive the toppling of any domino,
Topics:
Charles Hugh Smith considers the following as important: 5) Global Macro, 5.) Charles Hugh Smith, Featured, newsletter
This could be interesting, too:
Frank Shostak writes Assumptions in Economics and in the Real World
Conor Sanderson writes The Betrayal of Free Speech: Elon Musk Buckles to Government Censorship, Again
Nachrichten Ticker - www.finanzen.ch writes Bitcoin erstmals über 80.000 US-Dollar
Nachrichten Ticker - www.finanzen.ch writes Kraken kündigt eigene Blockchain ‘Ink’ an – Neue Ära für den Krypto-Markt?
The only realistic Plan B is a fundamental, permanent re-ordering of the cost structure of the entire U.S. economy.
The fantasy of a V-shaped recovery has evaporated, and expectations for a W or L-shaped recovery are increasingly untenable. So forget V, W and L; the letters that will shape the future are N, P, B: there is No Plan B.
All the hopes for a recovery were based on a quick return to the economy that existed in late 2019. All the bailouts and stimulus programs were based on this single goal: a quick return to The Old Normal. This was Plan A.
For all the reasons that have been laid out here over the past six months, The Old Normal is gone for good. The Old Normal economy was too precarious, too brittle and too fragile to survive the toppling of any domino, as the only Plan A “solution” was to push destabilizing extremes to new extremes, i.e. doing more of what failed spectacularly and increasing the fragility of precariously fragile systems.
|
A short list of what’s been irreversibly destabilized due to a systemic collapse in demand, exponential rise in risk and uncertainty, dependence on over-indebtedness, imploding global supply chains, structural decline in income and employment and the rapid emergence of new business models that obsolete high-cost, inefficient, sclerotic, bureaucratic monopolies include: 1.Healthcare 2. Higher education 3. Commercial real estate 4. Tourism 5. Restaurants / live entertainment 6. Business travel / conferences 7. Office parks, commutes, urban work forces, etc. 8. High-cost urban lifestyles We could also include entire sectors that have yet to recognize the tsunami that’s about to wash away their Old Normal: marketing, finance, local governance, etc. The problem is there’s no Plan B for anything in the U.S. economy. There is only Plan A, a return to 2019 / The Old Normal. If that’s no longer possible, there is literally nothing left on the policy / response plate. What nobody dares even ask is: what businesses and industries will still be financially viable running at 50% capacity? How many cafes, restaurants, resorts, airlines, etc. will turn a profit operating at 50% capacity? How many can not just survive half of the seats being empty, but turn a profit? |
Depression Dominoes Fall - Click to enlarge |
| The short answer is very few, because the operating costs of most businesses are unbearably high. The likely survivors are those enterprises with low fixed costs and low operating costs– enterprises that own their facilities in locales with low property taxes, and enterprises that can be run by the owners without employees.
How many enterprises have these kinds of barebones cost structures? Very few. For most enterprises, the only way they can lower their costs to a level that enables their survival is to cut costs by half: cut rent, mortgages, debt service, property taxes, fees, utilities, insurance, etc. by half. That would mean everyone down the line would have to survive on half of their previous revenues: landlords, banks, local municipalities, service providers, and so on. How many of these institutions and enterprises could survive on 50% of their previous revenues? The only realistic Plan B is a fundamental, permanent re-ordering of the cost structure of the entire U.S. economy. Call it DeGrowth, or creative destruction, or disruption if you prefer, but whatever name we use, the reality will be extraordinarily disruptive, uncertain, risky and unpredictable. As many of us has explained over the years, unstable, brittle, fragile systems characterized by soaring inequality, pay-to-play political corruption and dependence on debt, leverage and speculative bubbles were unsustainable. Plan B can be a chaotic mess of denial and failed half-measures that only make all the problems worse, or it can be a positive transformation that results in a society that does more with less. The choice is ours. Unfortunately, the pandemic chart I composed on February 2, 2020 is still playing out, increasing uncertainty. |
Exponential growth and the expansion of the coronavirus - Click to enlarge |
You Might Also Like
The Illusion of Control: What If Nobody’s in Charge?
The last shred of power the elites hold is the belief of the masses that the elites are still in control. I understand the natural desire to believe somebody’s in charge: whether it’s the Deep State, the Chinese Communist Party, the Kremlin or Agenda 21 globalists, we’re primed to believe somebody somewhere is controlling events or pursuing agendas that drive global responses to events.
Is Data Our New False Religion?
In the false religion of data, heresy is asking for data that is not being collected because it might reveal unpalatably unprofitable realities. Here’s how every modern con starts: let’s look at the data. Every modern con starts with an earnest appeal to look at the data because the con artist has assembled the data to grease the slides of the con.
Drivers for the Week Ahead
There are some indexing events this week that could add to market volatility; the IMF will release updated global growth forecasts Wednesday. The regional Fed manufacturing surveys for June will continue to roll out; Fed speaking engagements are somewhat limited this week.
Restricted Market Trading Comments
There were minimal changes to the status quo as the week commences. Bangladesh has announced revised trading hours on the local exchanges. No change of status in Nigeria and Kenya as they both continue to face limited liquidity. Please see trading comments below.
Dollar Firm as Risk-Off Sentiment Returns
Risk-off sentiment has picked up from reports that the US will impose new tariffs against the EU; there’s also been a messy set of headlines regarding the virus contagion outlook in the US. The IMF will release updated global growth forecasts today; the dollar is benefiting from risk-off sentiment; another round of fiscal stimulus in the US is in the works.
Dollar Firm as Risk-Off Sentiment Persists
Higher infection numbers in the US and other countries continue to fuel risk aversion across global markets; the IMF released more pessimistic global growth forecasts yesterday. The US has rekindled trade provocations against China through Huawei; weekly jobless claims will be reported; regional Fed manufacturing surveys for June will continue to roll out.
Recent Trade Developments Suggest Some Caution Ahead Warranted
There’s never a good time for a trade war. Yet here we are on the cusp of one between the US and the EU over unfair aircraft subsidies and comes at a time when renewed COVID-19 outbreaks are making the global economic outlook even cloudier. These developments suggest some caution ahead is warranted for risk assets like EM and equities.
EM Preview for the Week Ahead
Risk assets came under pressure last week as the virus news stream worsened. It’s clear that large parts of the US will be forced to delay reopening until their virus numbers improve. Markets had gotten too bullish on the US recovery story and so this reality check soured sentiment. This is a very important week for US data, and we think risk sentiment will remain under pressure ahead of what we think will be a likely downside surprise in the US jobs number Thursday.
Tags: Featured,newsletter