Then, ten-year Treasury bonds — which today have interest rates close to zero percent — will need to have an inflation premium. So, think about a ten-year Treasury, five years from now, going from one percent to 5 percent, while inflation goes from near zero to 4 percent. Well, in the fourth quarter of 2018, when the Federal Reserve tried to raise rates above 2 percent, the market couldn’t take it. But suppose you take production from a labor-intensive factory in China — in any industry — and move it into a brand-new factory in the United States. You are going to design that factory to use as few workers as you can. Any new factory in the U. S. is going to be capital-intensive and labor-saving. It’s been happening for the last ten years and it’s going to happen more when we reshore.
The science says these extreme events are becoming more frequent, are coming farther inland, and are doing more damage. And I’m going to continue running down my balance sheet. ” And the market totally crashed. And then, literally on January 2, 2019, Powell comes back and says, “Sorry, I was kidding. I’m not going to raise rates. ” So the economy couldn’t take a Fed funds rate of 2. 5 percent. There is so much debt, if long-term rates go from zero to 3 percent, the economy is going to crash. Now, I’m not talking about hyperinflation — not Zimbabwe or Argentina.
The United States is increasing the share of Medicaid paid by the federal government. Policy needs to be ready to stay in place and even grow in the places and times it is needed. The more that policies can have triggers to automatically continue and expand in places and times they are needed, the better. There is, however, little evidence that massive and frequent testing will be implemented anytime soon.
Of course the markets are going higher because there’s a massive monetary stimulus, there’s a massive fiscal stimulus. People expect that the news about the contagion will improve, and that there’s going to be a vaccine at some point down the line.
So reshoring means increasing production in the United States but not increasing employment. And the profits of those firms that relocate production may be slightly higher than they were in China (though that isn’t certain since automation requires a great deal of expensive capital investment). He told me that tomorrow, they could convert their factories to run with all robots and no workers. In Korea, you cannot fire these workers, they have lifetime employment. They’ve either boarded them up or emptied their shelves, because they’re worried people are going to steal the Chanel bags. The few stores that are open, like my Whole Foods, have security guards both inside and outside. You’re telling me everything’s going to become normal in three months?
And there is an element “FOMO”; there are millions of new online accounts — unemployed people sitting at home doing day-trading — and they’re essentially playing the market based on pure sentiment. My view is that there’s going to be a meaningful correction once people realize this is going to be a U-shaped recovery. If you listen carefully to what Fed officials are saying — or even what JPMorgan and Goldman Sachs are saying — initially they were all in the V camp, but now they’re all saying, well, maybe it’s going to be more of a U. Roubini allows that, after a decade of misery, we may get around to developing a “more inclusive, cooperative, and stable international order. ” But, he hastens to add, “any happy ending assumes that we find a way to survive” the hard times to come. In the United States this means expanding eligibility for unemployment insurance, increasing the amount of benefits ($50 per week added), and expanding other programmes for the most vulnerable, like the Supplemental Nutrition Assistance Program. In addition, increasing federal funding for states is critical and one of the best mechanisms for this.