Urgent Steps to Halt and Reverse the Onset of a New Dark Age
By Angela Vullo
March 13, 2020–Probably not since the onset of the 14th Century Dark Age has civilization been hit with the simultaneous spread of a killer disease along with the collapse of the global financial system. In 1347 Europe was engulfed by the arrival of rat-carried bubonic plague, a terrifying and unknown pathogen, only several years after the collapse of the Bardi-Peruzzi banking system that had been running most of Europe into the ground. That convergence left Europe ripe for the ravages of the Black Death, which ultimately wiped out up to an estimated half the population of the continent. Like the pandemic of today, Europe was not the first to be visited by bubonic plague, which ultimately ravaged most of the planet, reducing much of Asia to a killing field.
So now, we too have the double-headed hydra of a downward-spiraling financial crisis amidst the rapid spread of a killer disease. Many public health steps are now being taken, probably too late to stop the spread of the disease, but hopefully in time to mitigate the catastrophic loss of life. However, on the financial front nothing is being done to rein in the situation, let alone initiate a durable recovery.
Which Came First? The Virus or the Wall Street Blowout?
Long before the coronavirus emerged on the national and international scene, the Wall Street banking system went into the first phase of collapse. In early September, the overnight lending market, the Repurchase market, the repo market, froze up. This market is a crucial cog in the financial engine powering U.S. business and banking operations. It seized up on September 17th, requiring an emergency infusion of cash from the Federal Reserve, unprecedented since the 2007 Great Recession. The NY Fed began pumping billions of U.S. dollars into that overnight market..
Since September 17, this amount has reached over $7 trillion. Despite moves by Fed Chairman Powell on March 3 to quell the crisis, by lowering interest rates by two basis points and increasing the overnight repo lending to $150 billion (since raised to $175 billion/night!), the turbulence in the markets has continued. On March 9, it resulted in the biggest single day drop in U.S. history (over 2000 points), which is being referred to as the “coronavirus sell off.” Despite continued Federal Reserve intervention, on March 12 the market dropped by over 2300 points, characterized as the biggest drop since the 1987 crash. Despite the ongoing bailout, the stock market is dead, but everything is being done to try and save it at the expense of the population.
Against this backdrop of severe financial unraveling, enter the coronavirus pandemic. Since January, the coronavirus has gotten people’s attention, and is now dominating the news cycle. There is much speculation by commentators as to how bad this virus is. Should it be compared to SARS, H1N1, Ebola, or maybe even the Spanish Flu of 1918, when an estimated 50 million people died globally? As fear spreads throughout the country, President Trump initially claimed that everything was under control.
Yet the continued, rapid spread of the disease exposed the lie in those initial foolish comments. Increasingly, the Administration has moved to do more to try to protect the population. The initial delay by the White House set back the efforts considerably, and now they are playing catch up to a disease that has no news cycle.
As of March 13, it is impossible to tell how many Americans have been tested; an investigation published March 13 by The Atlantic could only confirm 16,471. The Atlantic adds that at this point in the course of the disease in South Korea, that country had tested more than 100,000. The major reason for the discrepancy? The test kits just aren’t available here, even in the richest counties in the country.[1]
Despite recent declarations by Trump that very few people have died, that number is constantly growing, and will continue to do so. The number infected as of this writing is over 2100, itself probably a gross underestimate. Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, testified in Congress on March 11 that COVID-19 is “ten times more lethal than the seasonal flu,” which has already taken 20,000 U.S. lives this season. However, no one actually knows how bad the crisis is because there has been no adequate Investigation or testing.
Numerous experts have compared the threat of the coronavirus to that of the Spanish flu, which killed 673,000 Americans over its 1918-19 course. On March 13, the New York Times and other media cited the estimates of the magnitude of the deaths to be expected, by Dr. James Lawler, an infectious disease specialist and public health expert at the University of Nebraska Medical Center.
Dr. Lawler recently presented his own “best guess” projections to American hospital and health system executives at a private webinar convened by the American Hospital Association. He estimated that some 96 million people in the U.S. would be infected. Five out of every hundred would need hospitalization, which would mean close to five million hospital admissions, nearly two million of those patients requiring intensive care and about half of those needing the support of ventilators.
Dr. Lawler’s calculations suggested 480,000 deaths, which he said was conservative. By contrast, about 20,000 to 50,000 people have died from flu-related illnesses this season, according to the C.D.C. Unlike with seasonal influenza, the entire population is thought to be susceptible to the new coronavirus.
Meanwhile, Back to the Markets and the Economy
In contrast to Trump’s negligence on the coronavirus, he has repeatedly demanded that the Fed lower interest rates even more to try and save the stock market. While Trump flails about like a beached whale, the equally negligent Congress has failed to even hold hearings on the Federal Reserve bailout of the repo market. Congress is mandated by the Dodd-Frank Act to hold the Fed accountable for any large outlays to the serially criminal Wall Street banks. It is the Wall Street banks who are the recipients of the largesse that the NY Fed has been pumping into the repo market, and the Congress has abdicated its responsibility by refusing to hold the Fed or the banks accountable for this fiasco.
To try and stop the disintegration of the financial markets the Fed has now announced a $1.5 trillion immediate bailout of the Wall Street banks in the form of mammoth repo loans and purchases of securities. In a show of desperation and panic, the unglued Fed is now going to sluice money into the system in exchange for any kind of bond, i.e., “nominal coupons, bills, Treasury Inflation-protected Securities, and Floating Rate Notes.” Read, ”the kitchen sink.” Never mind the disintegrating value of these less-than-useless pieces of paper. All of this is designed to prop up the stock market and the solvency of the biggest Wall Street Too-Big-To-Fail banks (TBTF). And yet, none of this will work. The crisis is the underlying collapse of the real economy, not the paper pyramid scheme perched on top of it.
The repo crisis is only the tip of the proverbial iceberg. Underneath the financial markets one finds the mammoth corporate debt bubble, bigger in size than the mortgage bubble of 2007. Much of that bubble is tied up in junk-rated companies known as zombies, who have been borrowing just to meet interest payments. Those corpses will wash up on the shore. Among the first to go will be-energy related companies and their banks, hedge funds, and other lenders. With the price of oil down to $30 per barrel, these companies will not survive. They will spark a flurry of mass layoffs, bankruptcies, collapsing cities, and other debris.
Next are the companies who have been borrowing to finance previous debt and have been selling off their bonds as sub-prime configured securities, the so-called Collateralized Securities Obligations, CLOs. These companies and their highly leveraged debt will go next, but this debt is massively hedged by hedge funds, private equity companies, and others. Those hedges are all derivatives, and this entire bubble is interlinked with the banks, including the giant TBTF companies. Underneath the bankruptcy of the market lies the $275 trillion derivatives bubble, bigger than that of 2007, and set to blow up if this crisis is not brought under control. Like a nuclear bomb, which is detonated by a smaller fission device, the virus/repo combination is that precipitating entity which threatens to blow the whole thing “sky high.”
In the midst of this, bond rates will tumble, as we are now seeing. In a situation characterized by unloading of bad debt, there will be nothing stimulative about falling bond and other rates. Reducing rates will only encourage holders of such useless debt to unload their paper before it falls to negative rates, something being foolishly promoted by the White House.
This ensuing scenario was laid out in detail by Washington Post columnist Steven Pearlstein on March 10. “And in a market characterized by panic selling, lower bond rates will do nothing to encourage investors to hold on to their riskier assets—if anything, they will only add to the sense of panic.”
On top of the financial debacle, and the now escalating spread of the virus is the vulnerability of the population to the possibility of mass death, which was helped along by budget cuts in public health being carried out over the past years.
Death from a thousand budget cuts
The response of the Administration has bordered on the ludicrous. It is now lurching forward with spending proposals and moving needed supplies into the states and cities. Yet, at the same time it is being victimized by its own propensity for budget cutting, which included the following steps taken at the end of February.
Forbes reported on February 26, 2020, amid the global spread of the coronavirus,
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Trump released his proposed 2021 budget Monday, which included a 16% cut to the CDC’s budget and a 10% overall reduction to the Department of Health and Human Services’ funding, according to the Washington Post.
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The U.S. contributes about 2.5% of the World Health Organization’s overall $4.8 billion budget, and Trump’s proposal calls for a $65 million cut to the group; if enacted, the U.S.’ contribution would be reduced by over 40%.
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An additional 34% reduction is proposed for overall global health programs, but Trump is asking for $115 million to be set aside for global health security for the purpose of combating “infectious disease threats.”
Reflecting the schizophrenia of its decision making, the Administration on March 6 signed the $8.3 billion emergency funding bill that was rushed through the Congress to begin to address the crisis, and then at the same time pushed more budget cuts.
According to The Hill on March 10:
Russ Vought, the acting director of the White House Office of Management and Budget, on Tuesday [March 10] doubled down on proposed cuts to health services and the Centers for Disease Control and Prevention (CDC), despite the coronavirus outbreak.
It proposed cutting health funding by $9.5 billion, including a 15 percent cut of $1.2 billion to the CDC and a $35 million decrease to the Infectious Diseases Rapid Response Reserve Fund.
Next Priority—More Hospital Beds and Equipment
There are many requirements of general infrastructure that must be built in the nation, as the American Society of Civil Engineers has repeatedly elaborated. Their estimate is at least $4.6 trillion worth. However, in the short term, there is a dramatic shortage of hospital beds, masks, ventilators and other equipment. That must be provided, post haste.
Rural areas already face a massive shortage of hospitals and hospital beds. That will have to be rectified.
In rural America, 20% or 430 hospitals across 43 states are near collapse. The following summary by The Hospitalist in 2012, laid out the conditions of life in rural America, which have definitely not improved since then:
Only about 10% of physicians practice in rural America despite the fact that nearly one-fourth of the population lives in these areas.
Not only is there a crisis in rural health care and hospitals, but there is about to be a crisis nationwide in the capacity of hospitals, beds, equipment, etc. to meet the demand.
As of this posting, there are no solid estimates of what hospital needs will be over the next six months, but there are some educated guesses. According to an analysis issued by USA Today on March 13,
Johns Hopkins Center for Health Security estimates that approximately 38 million Americans will need medical care for COVID-19, including as many as 9.6 million who will need to be hospitalized, and one third of whom might need ICU-level care. In February, University of Nebraska researcher Dr. James Lawler told the American Hospital Association that as many as 96 million Americans could become infected.
According to researcher Liz Specht, quoted in statnews.com,
The U.S. has about 2.8 hospital beds per 1,000 people (South Korea and Japan, two countries that have seemingly thwarted the exponential case growth trajectory, have more than 12 hospital beds per 1,000 people; even China has 4.3 per 1,000). With a population of 330 million, this is about 1 million hospital beds. At any given time, about 68% of them are occupied. That leaves about 300,000 beds available nationwide. …
At a 10% hospitalization rate, all hospital beds in the U.S. will be filled by about May 10. And with many patients requiring weeks of care, turnover will slow to a crawl as beds fill with Covid-19 patients. If I’m wrong (Specht) by a factor of two regarding the fraction of severe cases, that only changes the timeline of bed saturation by six days (one doubling time) in either direction. If 20% of cases require hospitalization, we run out of beds by about May 4. If only 5% of cases require it, we can make it until about May 16, and a 2.5% rate gets us to May 22.
The American Hospital Association believes that there will be six seriously ill patients for every existing hospital bed.
That analysis, based on data from the American Hospital Association, U.S. Census, CDC and World Health Organization, is conservative. For example, it assumes all 790,000 beds will be empty. Since two thirds are not, the reality could be far worse: about 17 people competing for each open bed.
“Unless we are able to implement dramatic isolation measures like some places in China, we’ll be presented with overwhelming numbers of coronavirus patients – two to 10 times as we see at peak influenza times,” said Dr. James Lawler, who researches emerging diseases at the University of Nebraska Medical Center and the Global Center for Health Security.
“If the influx of new patients is spread out over months, they may be able to be accommodated, but if there is any surge, the hospitals will be overwhelmed. If they are overwhelmed, then other urgent care conditions, from heart attacks to strokes, will be fighting for limited bed space, a nightmare scenario.”
As Michael Osterholm, Director of the Center for Infectious Disease Research and Policy at the University of Minnesota, correctly surmised, ““We can’t approach this like I approach a game of checkers with my 10-year-old grandson,” he added. “We have to approach this like a chess master thinking 10 to 15 moves down the board.”
Based on their estimates, the American Hospital Association went to Congress in February asking for money to build hospitals and other units to provide isolation for patients in need.
Some quick estimates underscore the gravity of the onrushing situation, assuming a surge of cases:
- Oregon, Washington, New Mexico and California might need eight times as many beds as they currently have.
- If Arkansas has a surge of cases over four months, it would run out of beds
- In a surge, only eight states have enough beds to handle the situation, and they are all in rural areas, which are served by small hospitals not equipped to handle this kind of disease
However, according to the USA Today study, “Before hospitals run out of beds, they could face problems finding enough qualified nurses, radiology and CT technicians, and intensive care doctors.”
As for masks, according to Liz Specht,[2] “The U.S. has a national stockpile of 12 million N95 masks and 30 million surgical masks for a health care workforce of about 18 million. As Covid-19 cases saturate nearly every state and county, virtually all health care workers will be expected to wear masks. If only 6 million of them are working on any given day (certainly an underestimate) they would burn through the national N95 stockpile in two days if each worker only got one mask per day, which is neither sanitary nor pragmatic.”
“The same analysis applied to thousands of medical devices, supplies, and services — from complex equipment like ventilators or extracorporeal membrane oxygenation devices to hospital staples like saline drip bags — shows how these limitations compound one another while reducing the number of options available to clinicians, “ according to Specht.
So, the question begging for an answer is can we build the physical infrastructure in health care which the nation needs, to address the oncoming tsunami?
End Game or New Recovery?
Urgent steps have to be taken to address the intertwined crises of economic collapse, financial disintegration, and pandemic infection. None of these conditions should be a shock to people. These were crises waiting to happen.
None of these crises can be addressed in isolation. When everything goes wrong at once, it is beyond a systemic financial crisis; it is a question of life or death on a mass scale.
Anyone who has read this blog is acutely aware of the long-term nature of the severe physical breakdown in the country, along with the corruption and greed in the financial system long before the coronavirus surfaced. This breakdown is the result of an overall lack of investment in our industries and manufacturing over the last 40-50 years. We have drawn the connection of this industrial breakdown to the overall growing despair that has gripped our nation. The markers include the drop in life expectancy, marked by the dramatic increase in suicides and the dramatic increase in deaths from opioid and drug overdoses. With the magnitude of this horror show and the negligence of our leaders to do anything of significance about it, can you blame the American people for not trusting the government?
To address the crises, emergency measures must now be undertaken.
On the hemorrhaging economic front, two measures must be taken immediately. The first is the restoration of Glass Steagall, a bill (HR 2176) for which is now in the U.S. House and must be passed immediately. This would put a firewall between the commercial banking system and the investment banks. Just as the population is being told to stay away from anyone who is sick, Glass-Steagall would quarantine infected investment banks and their derivatives-virus spewing cousins from contaminating our commercial banking system. The ability of the Too-Big-to-Fail Banks, from JP Morgan Chase to Citigroup, to finance the $275 trillion derivatives bubble and the assorted Stock and Bond market bubbles would be immediately be curtailed by the passage of Glass-Steagall.
Next, we must get the productive economy going by putting people back to work at real jobs, not low-wage service jobs, but high-paying manufacturing jobs. The centerpiece of this would be a new national infrastructure bank. This new bank would used in the same manner as Roosevelt used the Reconstruction Finance Corporation to finance the phenomenal New Deal infrastructure drive. A $4 trillion bank can begin to rebuild the urgently needed infrastructure of our nation. And the first emergency task would be to finance new hospitals and public health facilities to attack the dreaded coronavirus crisis.
This country needs to be rebuilt from the ground up and the economy needs to be restructured to benefit the majority of the population, not the 1% at the top. That means fulfilling the principle of the general welfare. If that principle holds, we can become a healthy human nation again.
During the Black Death of the Middle Ages, Giovanni Boccaccio chronicled many of the horrors of the period in his book The Decameron. His reflection is equally apt today:
“To have compassion for those who suffer is a human quality which everyone should possess, especially those who have required comfort themselves in the past.”
[1] Upon asking for a test at an emergency room in Loudoun County, considered among the richest in the nation, one 76-year-old woman experiencing symptoms and with a history of cancer, was told she didn’t meet the criteria, and there were only 15 tests available! Apparently, you have to be at death’s door, or been in touch with a known case.
[2] See article cited above.
Tags: Angela Vullo, banks, coronavirus, Dr. James Lawler, Dr. Michael Osterholm, Federal Reserve, financial crisis, Glass-Steagall, Wall Street