1. Cameron says:

    Thank you Brian.

    The market cap of US shares at 178% of GDP is based on Q2. Do you expect Q3 and Q4 GDP to be higher?
    There is this extend and pretend in the US. Everything can go into forbearance: rent, mortgage, car loan, etc . For example in the area I live in they just extended eviction moratorium until the end of November. To what extent employed and unemployed are in some form of forbearance I don’t know. The way the CARES Act was written, you don’t have to provide proof that you have a need. Here is the part that is not talked about, arrears will have to be paid at some point. How in the world are they expecting Americans to come up with for example 9 months worth of rent when moratoriums are lifted? Let’s not worry about car loans, student loans, credit card balances that are in forbearances. 70% of American used to live paycheck to paycheck before the pandemic. There is absolutely no way that arrears will be paid. The stimulus money is already spent on other things. What are the implications for Q3 GDP? Can businesses pretend that they receiving payments in the meantime? Cook the books?
    To what extent is this the situation in Europe?

    What do you mean by crater capitalism? Collapse? Depression? I think you’re implying that the US stock market cannot be levitated by the Fed for ever in which case capitalism should crater.

  2. Hi Cameron,

    Thank you for the fine detail. Matters are similar in the UK with regard to having to make up in the future, any missed payments under the moratorium. I share your view that many of these arrears will not be met, or if met, will impact spending in other parts of the economy. The third quarter does hang in the balance. From what I can see, infection rates are on the rise once more. It all hinges on vaccines. If viable vaccines are not ready by year end, then the next lockdown could be more severe than the first. The next three months I believe are the most important of the pandemic.

    By cratering capitalism, I mean literally. The bubble is so huge and so consequential, should it burst, given the other weaknesses you have described, it could lead to such a severe depression that the capitalist economy itself becomes dislocated. Currently the value of US stock exchanges is around $38 trillion. If there is a loss of only 40% tit would wipe out over $15 trillion of paper profit, equivalent more or less to one year’s worth of GDP (setting aside nonsense like owner occupied rents). We are truly in uncharted waters. I believe the FED is aware of this and bracing for it. I think history will look back, having formulated the following equation; the more delayed the resolution of fictitious capital over-accumulation, the greater the magnitude of this resolution, the more destructive and consequential is this resolution.

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