Long term macro effect of ncovid

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ertyu
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Long term macro effect of ncovid

Post by ertyu »

What will be the long-term macro impact of this virus? I am trying to make up my mind but can't decide.

Deflationary:

- 3-5% of population dead
- residential property prices likely down
- reduced demand for exports
- people likely to decrease consumption with social distancing
- which will probably trigger that recession everyone's been waiting for (unemployment up, incomes down, spending down, prices down).

Inflationary:

- will help with ageing population
- will increase drive to deglobalization, and deglobalization is inflationary
- impact of virus might pave way for fiscal response from both Trump's admin -and- a potential left-wing populist that may get elected
- deflationary pressure might be lessened given that those who pass might not have been great spenders anyway + most of them were likely drawing on social security + pensions anyway
- even if situation is not inherently inflationary, there's all the debt to inflate away. Inflation might be created deliberately even if without intervention the economy would've gone the deflationary route.

Unknowns: could this cause the euro to implode? (if yes, euro will likely devalue)
could the cost of resolving the crisis impact gvt budgets enough to tip the balance
how will china recover?

Opinions? I'm not necessarily thinking US only.

IlliniDave
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Re: Long term macro effect of ncovid

Post by IlliniDave »

From a naive simple-minded perspective.

I don't think this virus is the new normal. Earnings and GDP and the like will take a hit for a period of time but there is really no reason economic recovery shouldn't start in the latter part of the year. I'm skeptical it will be a "snap back" because the level of panic is unprecedented during my conscious lifetime. Time will tell if it is justified but far, far more human behavior is rooted in emotion than in logic. And at least here in the US emotions have been whipped into a frenzy. Sadly, being an election year, politicians of all stripes have been happy to turn it into a windfall for themselves. Be interesting to see when history sorts it all out how much politically-seeded discourse helped or hurt the situation.

Two big lessons that I see and hope we, at least here in the US, take to heart and actually learn from.

1. The government system we've created to manage and more important, respond to, supposedly on our behalf, these sorts of situations appears woefully inept. Not atypical of colossal bureaucratic organisms.

2. To me this event makes it staggeringly clear we should be applying some of the "Renaissance Man" principles on a national level. A list of strategic industries should be drawn up (healthcare should maybe top that list) where we find a way to create reserve/surge capacity for emergencies. It pains me to say that in a way because in all likelihood that would be left to the same bureaucratic colossus that can't even procure and efficiently distribute test supplies that seem much more readily available to healthcare practitioners in other nations. Prescription drugs and antibiotics seem a particular liability since we are largely dependent on a single source who is not always particularly friendly towards us, and in this case has had their production capability dramatically choked.

JCD
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Re: Long term macro effect of ncovid

Post by JCD »

I see 2 broad scenarios that might play out with two long term types of outcomes:

The scenarios break out to be:
1. China/Korea-like world: ~.5-2% death rate, contained to some small regions. Say 1-2k deaths per billion.
2. Italy-like world: 3-6% death rate, less well contained with a great deal more people exposed.

The long term outcomes are:
1. The virus does not reappear once containment is completed and everyone goes back to work in 3-5 months (depending on when lock down starts).
2. The virus ebbs and flows for 1-N years, becoming a long term new normal.  

Assumptions: 
- COVID-19 can reinfect people and we know the elderly get hit the hardest.  Citation:  https://www.worldometers.info/coronavir ... ographics/
- The elderly have the most assets be them retirement pension schemes or social security or stock/bonds.
- That models like https://medium.com/@tomaspueyo/coronavi ... d3d9cd99ca show the outbreak doubles every 2 days in countries like the USA.

In a 1.1 scenario, not much happens, the market recovers in a year and everything is good.  The market will look like a V. Will it go back to the previous highs? I don't know (due to human factors(*)) but on a purely "logical" view it would get close.

In a 2.1 scenario, the rich (who are elderly) die and leave their assets to who?  That group either invests or spends the assets and either main street booms (if it is diverse) or wall street recovers (if they invest like a family dynasty).  My bet is on the latter case, since income inequality does not seem likely to be cured by the death of the elderly (historically speaking).  The market will likely not completely recover in a "V" shape but it will recover(*).

(*) The great risk the above scenarios have is will the elderly re-invest into stocks after this big fall when they are about to retire? I can't predict that.

1.2 means that the lock down is rolling, perhaps seasonally and that might make spending more seasonal too.  That is of course a small possibility, but not impossible.  It is also possible that the lock down just has to keep going until we simply run out of candidate who are likely to die from it.  Then it becomes a new normal and life expectancy just drops, something not new to our world (where as long life for most is new).  Since antibiotics tend to only work on bacteria, a antibiotic may be less likely.  Something to shield from the effects might show up in 2 years, but that still fits the sort of new normal I'm describing.  I have less confidence of where the market will be with this.  It might look like an L.

2.2 Death rates climb and climb in most democratic nations.  Those to early retire may suffer sequence of return issues, but with the number of new job openings (in the future) it really won't matter.  The elderly boomers are shrunk in size, affecting elections world wide and things like US social security may become solvent again.  The good news is the dead are statistically all elderly and thus it lowers the world burden that is the retirement crisis (that would hit Europe, China and the US hard).  Since this goes on for 1+ year, the economy is hit hard and small businesses crumble.  There are already millions of business about to shut down as the boomers retire and have no one to hand those businesses off to.  Tech giants survive and grow while elderly care dies off.  Power becomes more concentrated since only the largest players have the cash to wait years for people to accept whatever this new normal looks like.  This may wipe out businesses that are over leveraged.  I have less confidence of where the market will be with this.  It might look like an L.

The question is, what is the probability of each scenario?  I think that is where the market is too.  Am I missing likely scenarios?  Am I incorrectly describing the outcome of any of these scenarios?  I'd like to open that up for comment.

ertyu
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Re: Long term macro effect of ncovid

Post by ertyu »

@JCD I think the quarantine is a one-time thing and then herd immunity will strengthen. I think an Italy type 3-6% death rate is way likelier (there were whispers that China underreported Covid deaths by assigning them a different cause). I also think that an Italy-style outcome is likely because the US is very, very unprepared for this.

JCD
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Re: Long term macro effect of ncovid

Post by JCD »

I think the quarantine is a one-time thing and then herd immunity will strengthen.
Then what do you define as long term? If this is a 3-6 months and then it is completely over, is that long term in your mind? Or is long term the next 10 years and impacts. That is to say, if this is a quickly done thing, will this be discussed like the 2008 crisis still is 12 years later or more like Brexit with 3 weeks of down markets then a sort of 'meh' response? If it really is short, then on a macro scale, isn't it just a blip and then why worry about things like housing prices or exports?

bostonimproper
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Re: Long term macro effect of ncovid

Post by bostonimproper »

My guess, completely unfounded but as good as any other: 1-2 year deflationary recession, recovery will be slower than all this V-shape talk implies. Euro will be fine. China will end up with greater influence around the world because they are and will be proactively sharing medical knowledge with others. USD may very well lose its status as world's reserve currency over the course of this crisis.

Toska2
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Re: Long term macro effect of ncovid

Post by Toska2 »

https://m.youtube.com/watch?v=kiVVzxoPTtg


Those that die will allow those to survive to consume.

Politicans might change, government coffers might fill faster bc inheritance tax, the youth might find their way.

AnalyticalEngine
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Re: Long term macro effect of ncovid

Post by AnalyticalEngine »

I think outcomes of COVID-19 will be highly disparate, not only between countries but between states and territories within the same country. I'm thinking of post-Katrina New Orleans here, which to this day has still not fully recovered. I expect states/countries who act quickly on public health measures will end up like SK, and the ones who do not will end up like Italy. We may see some parts of the US wiped out by this, especially in rural areas without good healthcare infrastructure. As such I expect it to worsen all existing inequalities.

COVID-19 is somewhat of a "broken window" situation where some things will be destroyed and money that could have gone to growth has to go to maintenance instead. As such we may see a recession or stagnation environment for a few years. Nevertheless, unlike other disasters, COVID-19 won't do much damage to physical infrastructure, so I don't think it will turn into a true economic apocalypse.

I do expect China to gain worldwide influence due to their rapid medical response and the way the US has utterly dropped the ball. COVID-19 has the potential to act like a wildfire that clears out economic and political deadwood. Zombie companies dies, and zombie nations (The US) lose influence to those who were able to act more quickly.

ETA: From an economic standpoint then what countries you invest in is critical. With disparate outcomes, you want to be investing in the rapid responders.

nomadscientist
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Re: Long term macro effect of ncovid

Post by nomadscientist »

The observed death rates are more like 0.2% in economically active people.

Higher is possible with a big outbreak overwhelming hospitals, but equally not everyone gets every disease. What is the last disease everyone in the world got? Some cold or flu? Even H1N1 (which infected 3/4 of a billion people, still only ~10% of world population)?

So, 0.02% of economically active dead maybe. A tiny real shock, not actually noticeable if less dramatic (people die quicker because they're a bit fatter for example).

Death of older people is mildly economically positive, especially in low birth Western countries, which is not to say it should happen, but is a functional consequence nonetheless.

Deflation/inflation is purely a choice of the central bank.

Short term disruption for sure.

ertyu
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Re: Long term macro effect of ncovid

Post by ertyu »

I have been thinking, what are the chances of his ending in a war-style (hyper?)inflation? The entire world shutting down and not paying taxes + goods scarcity seems like the perfect recipe for printing money.

J_
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Re: Long term macro effect of ncovid

Post by J_ »

" The future will be different. That is the reality and we may as well embrace it. Mother nature has flicked the reset button. We have an opportunity to reevaluate and change our behaviour for the better." A quote from a solo world sailor.
It is not only this virus which lays bare our unwise way of living and growing, we have the climate change too.

Is it not much better than to figure out what will possibly happen to think about what would be wise to let happen? Think about developing slack in our lives, in our number of people (free chosen: one or no child?). Reduce travel and use of energy, only plant based food etc. Make your choice.

Augustus
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Re: COVID-19

Post by Augustus »

7Wannabe5 wrote:
Sun Mar 22, 2020 3:33 pm
After reading Olsterholms book, any country that allows bushmeat is insane, it's pretty damning. Leaving it out raw or live in filthy crowded places is very very bad.

On a more personal note, my wife is from China, and I am constantly on her ass for not understanding germ theory. The Chinese thinking is that if you cook it, it doesn't matter that you left raw meat out all night and got blood everywhere. They recoil in horror when I eat raw salad, and don't understand why I am so finicky about washing my hands.

This is less about blame than fixing the problem. Food safety is important, we learned it the hard way in the west, which is why the regulations we have are in place. China needs to get their shit together, before they get more people killed.

Alphaville
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Re: Long term macro effect of ncovid

Post by Alphaville »

ertyu wrote:
Fri Mar 20, 2020 2:57 am
I have been thinking, what are the chances of his ending in a war-style (hyper?)inflation? The entire world shutting down and not paying taxes + goods scarcity seems like the perfect recipe for printing money.
it’s gonna be the official debut of MMT i think. i mean “as MMT”

more money chasing after fewer goods equals inflation, but i’m not really sure production will collapse.

i mean, there’s clearly a chance that this could happen, but china has been ramping up production for example

if money is not a commodity but simply the means of exchange—does it matter if the government collects taxes or not? taxes are just a way to diminish the money supply. money is purely artificial.

virtual dollars can be created or destroyed by an entry in a ledger, but what matters is supply and demand of actual goods and services

some services will diminish (eg gyms) but some products will increase to compensate (eg exercise bikes).

btw im about to order an exercise bike hahaha.

since i can’t go out in mine.

Tyler9000
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Re: Long term macro effect of ncovid

Post by Tyler9000 »

AnalyticalEngine wrote:
Fri Mar 13, 2020 10:36 pm
I do expect China to gain worldwide influence due to their rapid medical response and the way the US has utterly dropped the ball.
I don't. Short term, a few countries may thank China for the masks. Long term, the same countries will wonder why they had to depend on China for medical supplies.

The world was already trending away from globalism before the pandemic, and this could be exactly the type of event to encourage countries to become more self-sufficient. Once this passes, there's going to be a huge push for each country to be ready to take care of their own people even if the borders are on a hard lockdown for the next pandemic. For example, I read somewhere that China produces something like 80% of the pharmaceuticals used in the US. I expect that to be the first industry clawed back.

That's good for domestic manufacturers but bad for trade. And China is built on trade.

slowtraveler
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Re: Long term macro effect of ncovid

Post by slowtraveler »

I also see countries becoming more self sufficient. With the imminent growth of AI and distributed production technologies, it'll be easier for everyone to have their own capacity. The majority of value will be in the information to produce things rather than the materials. This will push many countries towards AI. Could be great for trade since other countries will begin pushing harder on these fronts that they may have been lazy about before.

I think the virus will also be a big push in the direction of flexibility. Restaurants are already repurposing themselves into delivery services around the world. Factories repurposed for mask production.

I hope countries become stricter about food and hygiene from this and that long term, the ccp loses its legitimacy among its own people so the people get their freedom back and develop their culture to something more clean and respectable like Hong Kong or Taiwan.

Alphaville
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Re: Long term macro effect of ncovid

Post by Alphaville »

Tyler9000 wrote:
Sun Mar 22, 2020 5:03 pm
And China is built on trade.
sure, but at this point they make everything and they’re okay to live on internal demand, so if trade dwindles growth will slow down but they will be fine.

ertyu
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Re: Long term macro effect of ncovid

Post by ertyu »

@slowtraveler and @tyler: your thinking is too us-centric. when you say "i see countries becoming more self-sufficient" what you really mean is, "the US will likely become more self-sufficient." this is correct, but does not necessarily extend to all countries in the world.

china still needs raw materials. there are still many developing countries exporting raw materials and looking to beef up their infrastructure and production capacity. these countries will not yet strive for self-sufficiency, especially given that on balance, they don't perceive themselves to be suffering from globalization (positives still outweigh negatives).

who will retain influence? for a while now, the us has been consumed in its own internal affairs and flailing in the incompetence of its administration.

As @Alphaville said, China will indeed be fine. For a long time, it didn't seem so: they had a lot of debt denominated in usd, and they had started to move from a net exporter to a net importer, their foreign currency reserves diminishing in the struggle to maintain the 7 rmb/usd peg. Now, China has re-started their economy while the rest of the world has slowed down production. Even if the fed doesn't extend a swap line to them (and they should, because if they don't, the resultant worldwide crisis will be the same for all), China will probably get a lot of foreign exchange still. The goodwill required to open up and maintain the trade relations that will allow it to do so is being created now.

Russia will be an interesting case. Putin wants to pretend he has no problems and is sending medical help to Italy. Meanwhile, his local doctors are going, "whose fucking president is he, doesn't he see the shortages and need for medical staff -we- are facing." Depending on how bad he bungles it up, it might weaken the political support he has from his own population.

slowtraveler
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Re: Long term macro effect of ncovid

Post by slowtraveler »

I don't see myself as US centric at all. I haven't been there in years. I don't know what it's like anymore. I hear talk of US flailing but it seems far more competent than China. Europe, Africa, Latin America, and even Australia all seem flailing if we believe the news.

China (mainland not Taiwan) is loaded in debt. They portray a narrative as being victims of racism when they are the most racist people I've ever encountered, they decieve beyond imagination, once everybody sees past the charade and takes out their capital, people will lose faith in their false prophet and transition towards the freedom they could have had all along.

I agree that USA seems isolationist at the moment, but that is a global trend as automation replaces the labor and services based economies. I see blocs established-EU, Mercosur, Asean, Oceania, Nafta. These each have the potential to be self sufficient groups if they just cooperated

The big thing I see is that USA is on path to implement a UBI sometime. It's already gotten into politics as an idea and it could likely reverse some of the isolationist trend in the long term. I even hear talk of it now during the coronavirus to relieve that burn. Maybe it'll become an annual or monthly thing. Long-term, the coronavirus could be good for the transition.

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TheWanderingScholar
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Re: Long term macro effect of ncovid

Post by TheWanderingScholar »

Eh, there is still the problem with China's debt still being massive, knock-off effects from a world-wide recession, population stalling out and decreasing at the end of this decade (probably already) leading to it being stuck in the middle income trap much like what happened in Latin American countries in the postwar era. Middle income trap as you stuck with low income and high debts to pay off.

The fact that Biden has strong chance of winning the general election, increasing each day as Trump w/ everyone else on Capital Hill screwing up this entire crisis in the eyes of the people. He will probably try to "renegotiate" the TPP (as in get some nice extras but not much else), get a trade deal with UK done as Brexit will official be done by then, and work with the EU to smooth things out. Probably by dropping off the tariff's he has.

China still has issues ahead of it during this crucial decade. If they play their cards right by navigating the middle income trap, they could become a strong regional power in Asia with very strong influence in South America, Europe, and Africa. If something goes wrong, such OBOR sputtering out completely, debt problem exploding in their face, becoming stuck in the middle income trap, or America completing her Pacific pivot placing SE East and Vietnam in her economic sphere? They will still be a strong regional power in Asia, with some influence in Europe, South America, and Africa, but not as much as they could have.


As an American, I can see the internal shit show in the USA continuing on, even if Biden wins. Many of problems within America is Senate v Congressional dick measuring contest, gerrymandering up the wayzoo, and people in general treating politics like soccer/football.

Honestly, by the end of century I can many countries that are "major powers" stagnating because of population decline and climate change wrecking havoc on agricultural land.

Alphaville
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Re: Long term macro effect of ncovid

Post by Alphaville »

“we’re all modern monetarists now”

https://www.businessinsider.com/coronav ... ory-2020-3

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