The New Great Depression
A recession is generally defined as two consecutive quarters with declining GDP and rising unemployment.
A depression is not just a longer recession or a serious decline in output, it means depressed growth relative to trend growth and can last for many years with intermittent growth from quarter to quarter.
Flattening the curve for covid infections was only to spread out the infections over a longer period of time, not to reduce the number of infections or deaths.
The lockdowns in the US resulted in $4 trillion in asset destruction and a loss of $2 trillion in economic output.
Inflated asset values (especially in stocks) were the result of passive investing, indexation, exchange-traded funds, stock buybacks, algorithmic robots buying the dip, and federal reserve money printing.
$2.2 trillion in lost output during the second quarter of 2020 is by far the worst on record and equates to over $6k lost per person in the United States.
The unemployment rate is calculated in a narrowly defined way. The denominator is the total workforce and the numerator is the number of people in the workforce who do not have jobs but are seeking them.
Those who have no job and are not seeking one are not counted in the unemployment rate. They are, however, included in the labor force participation rate, which is calculated by taking everyone who has a job and dividing it by everyone who doesn’t.
Money confidence and velocity are inversely correlated.
The velocity of money is inherently psychological and something the Fed can’t directly control.
Keynes suggested $1 of government spending can create more than $1 of growth, but when the debt-to-GDP ratio gets to about 90%, the Keynesian multiplier falls below one as the interest on the debt increases the debt-to-GDP ratio on its own.
Monetary policy fails because it ignores the behavioral rule of velocity, relying on money creation and not comprehending why people avoid spending money even when it’s abundant.
Fiscal policy fails because debt is so high already that citizens adapt their behavior to where default, inflation, or higher taxes are the only way out.
Deflation is aggressively avoided because it makes the real value of debt higher, which strains the banking system rather than propping it up and leads to widespread defaults.
Societal disintegration will be the greatest consequence of the covid pandemic.
Being diversified into several different sectors is not true diversification because you are all in on one asset class: equities. To truly diversify your wealth, you need to spread your risk across several different asset classes.
Over 90% of trading today is executed by robots and algorithms.
Official forecasts should always be listened to but never relied upon.
If central banks need to use gold to restore confidence in their currencies, the price of gold per ounce will have to rise to at least $10k to retain price parity—anything lower will require significant deflation.
Cash is a call option on every asset in the world, giving you optionality and liquidity when needed.