Thursday, May 14, 2020

A Second Wave Is Inevitable

That there will be a second wave (and a third wave later, and a fourth) is a foregone conclusion. Until there is a vaccine, we will keep having waves. The only question is, when will that second wave strike, how big will that be, will we be able to control it when it arrives, and how much economic damage can we expect?

Trump's recklessness means we might not have to wait until Fall for the second wave to strike. If the second wave strikes during summer, people are going to be really scared during the Fall and winter. And if they are, the economy will take a much bigger hit.

But the worst-case scenario is not that a second wave might strike earlier, the worst-case scenario is that the second wave is so big it is pretty much out of control. Flattening the curve is no longer an option. Now we are no longer projecting 200,000 dead, but upwards of a million, and that just in the US.

Negative interest rates are like when oil prices went negative. People would give you the oil for free and then pay you for keeping it. If the second wave is large enough, the Fed could give you money and instead of charging you low or no interest rates, it would pay you, and people would still not come out of their homes to go to work.

What Donald Trump is attempting is not Sweden. In Sweden, they are protecting the elderly. What Donald Trump is attempting is not even civil war. The last civil war had two clean-cut sides. He is not even attempting chaos. He is delivering confusion. Only this confusion comes in body bags, lots of them.

It is not a choice between lockdown and an economy. It is about smartly easing the lockdown with circuit breakers in place so as to not suffocate the economy too much. There is nothing smart and gradual about the Trump rulebook.

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