by Lee Adler, Wall Street Examiner
The data shows that the US economy has been weakening sharply since the beginning of June. That follows May’s dead cat bounce, which the administration and Wall Street had all touted as recovery. Uh… no.
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Obviously, I think there’s a tie between this downturn and the curve of COVID infections. They are getting much worse in the 3 most populous states, California, Texas, and Florida, and in the Southeast, Southwest and other central and western states. And this is before the second wave hits the Northeast and Midwest, which have managed to get their outbreaks under control for now.
The national totals are beginning to rise as a result of the trends in these states. Unfortunately, as the case numbers rise in the rest of the country, lockdowns are gradually being lifted in the states that managed to suppress the virus.
No doubt, those states will also begin seeing their cases trend up in a second wave of viral spread. Americans travel freely. They will bring the virus back from areas where case numbers are growing rapidly, particularly from protests and political Superspreader Rallies. The first of the latter was held in Oklahoma last night (Saturday), where case numbers have also recently begun to surge.
Without effective social countermeasures, the exponential spread of the virus will kill both people and the US economy. The tax data is telling us that the latter is already starting to happen.
Now maybe I’m wrong, and next week we’ll see a strong enough rebound in tax collections to reverse the trend. I doubt it, but I want to read the data, not argue with it. So even though it’s definitely getting worse now, I’ll keep an open mind about next week.
At first, the states in the East had their turn at the initial massive surge in cases and deaths. They locked down and it killed the economy, but they were successful at driving the case numbers down to very low levels.
The other states had every opportunity to learn from the experience of that. And in fact, initially they were very successful at minimizing the spread of the virus when they reluctantly locked down.
But the governors of those states chose not to learn the lessons of using strict measures to control the virus. They ignored warnings of epidemiologists who cautioned about what would happen if they reopened too early. These governors misinterpreted their low case numbers, in some cases deliberately. They were ideologically predisposed to getting people back to work while taking the risk that more people would get sick and die.
So they immediately went back to a laissez faire approach that is now failing miserably. Let’s trust individuals to do the right thing so that we can all get back to work.
So much for that idea.
Cases are soaring, and hospitalizations are following. This will have chilling effects on business in those areas. Actual sickness, death, and rational fear, particularly among people over 60 with risk factors, will cause big cutbacks in spending. That will trigger more layoffs and suppress hiring, to say nothing of businesses that will need to close simply because workers are getting sick.
Like those restaurants in Jacksonville last week that were allowed to to reopen at full capacity. What the fuck was expected?
These governors are killing their own political base now. How does that help their political fortunes, to say nothing of economic activity? If nothing, you need to keep the bars and nightclubs closed. Otherwise, every Friday and Saturday night they’ll be running Superspreader Specials.
The economic effect of rising numbers of cases will be similar to the effect of lockdowns, only without the benefit of suppressing the virus.
The worsening effects would be ongoing until herd immunity is reached. According to Johns Hopkins epidemiologists, 70% of a population needs to be infected before herd immunity is achieved. In the 3 states I highlighted in the chart above, where cases are growing rapidly, positive test results are now at a high of 12% in Arizona, and just 7.3% in Texas, and 5.9% in Florida.
Those rates have been rising since the beginning of June in Arizona, and in the last week in Florida and Texas. But we are a long, long way from herd immunity. Without widespread suppressive measures like mandatory mask wearing, social distancing, and enforcement restrictions on the size of gatherings it would take a couple years before herd immunity was reached.
So we’re basically left to pray that effective vaccines will be available soon. Some reports have said that that can happen in 6 months. Good luck with that.
Doctors are learning and doing better at keeping more people alive, and hopefully the case death rate will fall. But there will be more deaths as cases trend upward with no meaningful effort to suppress the spread. That will go on for at least 6 months in the best case scenario for a vaccine.
Rather than locking down and stopping the virus, economic activity will simply dry up, and businesses will now simply die by attrition instead of government decree. The actual effect of people getting sick, and the buildup of fear that goes with that and the lack of protective measures will be quite effective at crushing business.
The virus will be like a metastasizing cancer on the body of the US economy. The short sightedness of governors who oppose sensible protections like mandatory mask wearing, social distancing, and crowd size limits, will impose a massive cost on the US economy, not to mention the physical, mental, and economic well being of their constituents.
This report is an excerpt from These Real Time Charts Show US Economy Contracting Again in June. Subscribers can click here to download the report. To understand the whole story of how we know the economy is plunging again, you can read this report now and get Lee Adler’s Liquidity Trader risk free for 90 days!
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