Having spent some time with the numbers....

Here is what I think will happen....

Covid-19: the cause of insanity in those without the virus.

Would you ask your child aged(say) 30 to borrow a million pounds, in order to extend your final years of retired life another 20 years? No. Nor would I. Do not borrow without the means to repay.

Would you ask your neighbour to go to hospital when she knew she had caught a truly contagious disease (say a possible Ebola variant) for which there is no treatment and which could result in her death and anyone who came into close contact with her? No. Nor would I. She should stay at home.

Why are the so-called scientific specialists advising behaviours which are the opposite of common sense?Borrowings should be a small proportion of future income; and, for untreatable diseases the individual must isolate themselves away from everyone else.

 

An unprecedented number of doctors, nurses and health staff have died (Italy over 100, UK more than 27); and a small number of people have sadly died from the virus (under 1% of those infected).

Many UK service companies (say half of the 80%) in the UK economy are now stopped – that is sales values of around £5,747 million a day(based on Q4 2019) – at 40% that is £16bn per week.

For the 41 days of lock-down, that is over £ 94,251 million lost value. On top of this, the government is spending in the order of £330 bn(source independent 18/3/20) – so let’s forecast low, and say a total of £400,000 million.

 

A reasonable forecast of the maximum UK virus deaths delayed is around 80,000 (see detailed computations https://www.spreadsheetarchitecture.co.uk/2020-april-18th-covid-prediction-spreadsheet-v202) - and means that the delay of the pandemic is valued at £5 million per person.

This is madness.

 

In the USA the numbers are also bad. Total deaths in phase I will be around 80,000 – but avoidable deaths in wave II will be up at 1.4 m. Their economy runs at $58,704 million a day and 66% are services. If there is a 50% reduction in only those, a 40 day lock down will cost $774,893 million.Plus, the $2,000,000 million that Trump has announced as support to the economy over there.  Let’s just call it $3 trillion (an dramatic underestimate, I know: I expect USA costs to be over $5 Tn).

So to delay 1.4 m deaths, the USA economy will incur costs of around $2 m per person.

It is incredible that grown,supposedly responsible adults are spending the future income of our children in this way.  They are actively destroying economic value.

Who will pay, and why is this being done?

First, fear is driving the majority of the direct effort.Fear of death is whipped up by TV media, based on a small number of not very nice deaths (of course death is never “nice”). We all have parents (I am one)who are old and now at least partially retired, and they don’t want to die.  The TV people seem to believe in the idea that“you can’t value life”. This is just plain wrong.  

Second, the global economy has a massive amount of loan cash swilling around – over $70 Trillion – and all the bankers, and all the sovereign funds and all rich individuals and companies, are desperate for someone to really need it. That way they will be paid interest, and the bankers will make their 3% on everything. The only borrowers large enough for all that debt are Countries – so a Pandemic is the answer to their dreams. When interest rates go up – the Middle East will sigh in relief.

Third, democracy is hopeless when there is a national need for compliance. “Free” people act freely – unlike the Chinese, who will generally do as they are told. The politicians (who are meant to be able to take the tough decisions) all have their eye on the pollsters – knowing that the public really don’t understand where money comes from, and believe it is “free”.So the politicians will do what the TV press push them into doing – with precious little thought. A likely disaster, then.

 

What is the prognosis?

There are several huge changes are now imminent:

1.      The Euro will collapse, and that might mean that European collaboration will collapse. Germany is the only “rich”country, and is not willing to share it with the others. Most countries will seriously look at defaulting on their national debt. It is such a good thing that the UK is out of that particular EMU melting pot.  Without a central European ability to repay debt,each country will revert to its own currency (as the DM won’t help them) and so interest rates will be back with a vengeance. Within a foreseeable time after that, many will declare defaults.

2.      The USA with over 200,000 deaths by October will blame Trump and remove him – they will renege on most of his “super deals”.  Once the world realises that an un-payable amount of debt has been created, the price of money (ie, the $) will fall.  A lot. There is even possibility that some states (think California) will want to declare independence under Trump. Joe Biden is likely to get the hot seat, and will have to move swiftly to solve the huge US debt problem: expect interest rate control and capital controls in the early stages. The USA will seriously look at defaulting. 

3.      The UK will be seen as a slightly safer place than Europe, and as a more sensible place than the USA. Whether it will be or not, will depend on whether the government stops generating and supporting this mass hysteria of lock-downs and “protection” whilst incurring further debt.

4.      The huge medical pressure to find a vaccine or treatment will increase. The public protection laws will be removed,and everyone will be asked to become guinea pigs. If you are healthy, the risk of not becoming a guinea pig is not so high after all – for those aged over 60, the likelihood of death from the virus is below 3% unless you’re “at risk”.

5.      Once real analysis can be undertaken the “experts”will realise that the current “liberal” response is totally wrong: The opposite of common sense. Either a) Those with the virus should be isolated and treated at home by completely protected specialists, or b) Large centres should have been built to take all virus patients, with specially trained staff with specialist equipment. Using existing hospitals for an untreatable virus was a huge error.

 

During this coming period, most of the national banks will be told to “print the money you need” – so there will be no limit on cash supply. This will cause the Euro real issues (Italy, Greece,Spain and France will print – Germany won’t like it). If that were just one country, that would be a problem for the nation, if everyone does it – it will work OK if they all collaborate and use their printed money to buy one-another’s debt. This is basically what the European Central Bank does anyway – currencies are based on promises to pay: they are not based in reality (like gold). So most countries will buy the debt of many other countries – at 0% interest, it isn’t a problem.

The current $70-$80 trillion in world debt could easily become $100 Trillion, or more – if the big countries do it, why wouldn’t the small countries? All this will be in 2021, when the global economy and future is not as strong as it was in 2019 – so globally there will be no increase in value: only more currency in circulation. At a stroke therefore, a “haircut”or a reduction of 25% in the “worth” of the US dollar is necessary.

If the “haircut” does not occur,the value of everything is reduced anyway – through inflation.

This correction will be like the Weimar republic (think; wheel barrows of cash notes), just globally.

There is a need for someone riding a magical “white horse” who manages to put the international governments together who have printed all this money to agree to exchange all their borrowed money notes, back again – and to cancel them.  Of course governments will only do that if all of the debt they have also takes a haircut – privately owned and public alike. A kind of agreed debt default.

David Lynch MBA FCMA   20th April 2020