Bill Owens: Confounding And Confusing Events 5/11/20
POTUS and the head of the Federal Reserve, Mr. Powell, are now proposing negative interest rates which means, in effect, Banks would be paying customers to borrow. It also means that if you have a positive checking or savings balance you may be being charged that negative interest rate as well to maintain your money in the Bank. This nuance of negative interest rates is unlikely to be disclosed by the Trump administration as POTUS tries to pass off the blame for the result on the Banks. This is clearly complex economic theory, but this theory does have claws that might scratch you.
It appears Florida may have weathered the pandemic better than other states due to a number of factors that appear to have been properly managed by the Governor. There are certainly hot spots, but actions taken in early March appear to have gotten control of the pandemic and limited its damage. The reopening poses a new test to see whether or not that the good ideas that they implemented in March will be reversed in May. Let’s hope that Florida, in fact, has a systemic positive approach that can be adopted by other states.
There have been a number of articles carried in the Wall Street Journal and New York Times about students walking away from acceptances at colleges due to cost and the likelihood the school may not open in the fall. Under such circumstances the student would be buying on-line courses, at least in the short-term. This raises very difficult questions for communities that have colleges in them, as apartments will go unrented, local eateries and bars will have declining usage, the college will be buying less in the way of food and other services for the students who live on campus, and numerous other negative economic impacts will likely ensue. I am sure that students are also concerned about getting a job after they spend a considerable sum to attend college, and thus, are making a different economic decisions than they might have six months ago. This is another economic arena we are going to have to watch carefully to see how it affects not only local communities, but the national economy.
The reluctance of Chinese consumers to return to pre-health crisis spending habits is posing a challenge for global brands. For those who envision a v-shaped recovery, this may be evidence that, at least in China, that is not taking hold. Are the Chinese and potentially many other consumers likely to be worried about a resurgence of the virus, and therefore, an extended loss of wages and income, and thus, their response is to hold back. This is obviously complex because if consumers are spending less than we come out more slowly from the recessionary effects of COVID-19, so this is a bit of a Hobson’s choice on an individual and on a societal basis.
It has been reported that China hid the severity of the Corona virus to hoard supplies based upon US intelligence gathering. POTUS jumped right on that, as he desperately seeks someone to blame. In this case he may well be right, but whether that exonerates him from failing to act when he knew in January is another issue in its entirety. This is all part of the Trump strategy of throwing chaff in the air in hopes that it deflects the attack and the truth.
The US March trade deficit has widened as a result of the Corona virus, what is more significant is not the widening of the trade deficit but the shrinkage of trade. Imports declined 6.2% to $232.2 billion, and exports were down 9.6% to $187.7 billion. Simple math gives you the trade deficit of $44.4 billion. Obviously, the decline of both imports and exports is evidence of the economic disruption which is occurring and experts are predicting it will become worse in April when those results are reported. This is an important area to keep an eye on as we move forward as changes, either positive or negative, are likely to reflect the direction of the economy.
Continuing about our conversation on trade, this week the Canadian dollar hit its lowest in some time at approximately 71¢. Think of all the bargains one could be enjoying in Canada if travel restrictions were lifted. It is obvious that both economies are suffering, and hopefully, we will be able to join together to return those economies to their robust synergies.
Adding to the US trade deficit is a 70% decline in travel from Canada and Mexico. Clearly, border towns like Plattsburgh are greatly affected by the lack of Canadian tourism, and how the summer develops in terms of the Canadians use of campgrounds, arenas, beaches, etc., will have an enormous impact on our economy and on revenues of municipalities, particularly in the sales tax arena. Nationally, we have seen a $7.5 billion decrease in travel just in the month of March of 2020, while transport services declined by 2.6 billion. The decline of Canadian and Mexican travelers is virtually equaled by a loss of travelers from the EK, Japan, Brazil and Germany, which fell by more than 65%.
As protesters gather without masks, and without social distancing, their actions raise a number of obviously concerning questions. The basic principal that they are espousing is one of complete freedom, irrespective of the impact on others. If one applied that logic, it would imply that these protesters see no difference between walking into a room with a shotgun as they are spraying the room with the droplets they emit each time they speak or cough. The potential impact is analogous – serious injury and potentially death. It further appears that they accept the argument that severe illness and deaths are low enough to be tolerated in exchange for opening the economy. That may be a rational debate to have, but that said, if the decision is to open, then it has got to be done in a way that protects everyone’s rights, not just theirs. If they fail to see that, then they fail to see what it is to be a human being.
Now for humanity at its best. The Choctaw Nation sent $170.00 to Irish famine victims over 170 years ago. Today the Irish are sending over $1.8 million to the Choctaw Nation to help fight COVID-19. A blessing upon both.
Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.
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