Inflation And Broken Windows

Source: Our World in Data

This looks almost exactly like the Irish problem I mentioned two weeks ago. Notice that barely a month ago, Portugal was seeing a steep drop in cases per million, much like the US is today. Then boom!

We really need to avoid such a spike here, first of all to save lives, but also economically. People would stay home and businesses close voluntarily even if governors don’t order it, further devastating our already-weakened economy.

Former FDA commissioner Scott Gottlieb, looking at CDC data, thinks 50% of US coronavirus cases will be the B117 variant by the end of February. If this is the case (and we will know in a few weeks), then it means another very serious spike in cases.

This would leave governors no good choices. Lockdowns which are increasingly shown to be ineffective? No lockdowns and let it run? Nothing but bad options. Fortunately, we are getting better medicines to deal with the disease. The Cleveland Clinic has begun sending nurses to administer IV drugs in patients’ homes, avoiding hospitalization. We will see more such innovation and it will help.

Nevertheless, in a variant-driven spike event, the modestly recovering economy will probably fall back into recession. Recessions are by definition deflationary events.

Obviously we all hope to avoid that, and I think it is quite possible. A few more weeks of solid vaccine progress, warmer weather, continued distancing and other precautions, plus a little luck, might do the trick. But there is no time to waste. I urge everyone: Get vaccinated as soon as it is available to you, and keep avoiding crowds and all the other standard measures. That is the best way you can help the economy, and particularly the small businesses that have been hit so hard. We can get through this but it will require everyone’s cooperation.

Other risks remain, too. Scientists think the current vaccines will still work against the known variants, but that is not yet certain. The South African and Brazilian variants are already in the US (I have actually been to Manaus where the Brazilian variant came from). Other variants could appear, too.

It’s also still unclear how long immunity lasts, whether from vaccines or from prior infection. And more than a few people simply don’t want the vaccine, for whatever reason. Reaching “herd immunity” is not a sure thing even when vaccinations crank up.

Then there is the rest of the world. Truly solving this problem requires global herd immunity, which means billions of vaccinations. That part of the battle has barely begun and could take several years.

So the gripping hand, aside from superior strength, has independently moving fingers. We need them all to relax before we can relax. And oddly, that happy outcome might trigger the kind of inflation we’d rather not see. But I don’t expect it this year. And the bigger we build our debt in the US and Europe, the less likely inflation becomes.

If we overcome the virus, the dollar likely continues lower, although the eurozone is already trying to figure out how to manipulate the euro lower. If we get that spike here? And it shows up in the rest of Europe like it did in Portugal? The dollar bears could get their face ripped off. I think gold does well in any event. Sadly, every prediction and outcome is still in the Gripping Hand. Stay tuned…

1 2 3 4
View single page >> |

Disclaimer:The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.