Depression, Inflation, I’m so confused!

The Weimar German Mark…Not just Zimbabwe – Log scale

The numbers are ugly. Something like 1 in 5 Canadians out of work. Mortgages deferred, rent unpaid, bills falling in arrears without a regular pay cheque. The 2K a month CRED money is lovely but it does not actually cover most middle class people’s mortgages, car leases, minimum credit card payments, hydro, taxes, more taxes, and, well, food.

So, economically, I think it is fair to say that we are already in a depression. GDP growth will crater, unemployment will balloon. Cash will evaporate.

But it may be worse than that. The reality is that most Western countries have said, “The Hell with the deficit and national debt, we need to helicopter money in, stat.” The problem with this idea is that to do it you need to print money. Lots of it. Billions for Canada, trillions for the US. Which, if you have your own central bank is easy to do and, initially, costless. After all, what is money? It is a book entry and if you double the total what could go wrong?

If you flood enough money into an economy that economy will look robust. It will look normal even with a fifth or a third of its citizens not actually working but still being paid.

Here is picture of a meth addict:

A country which decides to simply make all the money it needs right now is jumping on the meth train. There is a temporary high where all looks grand and then a terminal decline.

The COVID-19 crisis – if it is a crisis – has given our federal government the social licence to start shooting economic meth. The fact is that the economic meth won’t work. Real estate is going to crash. Asset prices generally will crash. The end of demand is, well, the end of demand. Without demand prices drop and, hey, pretty soon, you have a recession and, perhaps, a depression.

Depressions can be survived. They are nasty and stimulating the demand which takes you out of one is tough.

But now imagine a depression proceeded by a huge currency inflation. Where a government, in a panic, floods the market with paper currency unbacked by any actual GDP. In a matter of a year, the savings of a nation as well as the assets of a nation, can be rendered worthless in paper money.

Here’s a gent buying eggs in the Weimar Republic:

A grand inflation in front of a depression is pretty much the end of an economy. If the government prints money in serious quantities and issues debt in more or less unlimited quantities the game is over. The gold bugs will have won.

A rather smart investor named Rick Rule once said, “We don’t want to live in a world with $10,000 an ounce gold.”

Right now there is a greater than zero chance that this will be exactly the world we live in.

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27 thoughts on “Depression, Inflation, I’m so confused!

  1. Justausername says:

    It appears that the majority of our politicians in Canada never took a class in economics. That helps them sleep at night, because they have no idea what they are doing right now.

    I pity the small business owners out there who have sunk life savings into their business, or have loans that need to be repaid. They employ themselves, and probably a few others, and now they have no idea how to pay the lease, the utilities, their creditors on their stock. If they relied on cash flow to make it from month to month, and had a small nest egg, then I would imagine that most are near the end of their savings. And that leads to bankruptcies. And that leads to job loss. And that leads to mental health issues and suicides.

    Our “leaders”, and I use that term very loosely, seem to have set unrealistic goals on when to “open the economy”. I read a CBC article here in BC where the Education Minister was talking about defeating covid-19. You can’t defeat a virus, you can only slow it down.

    “The high level defeat of the coronavirus in B.C. is what we need to see,” said Fleming, adding that will be when there are no new cases and the risk of another outbreak is almost zero.”

    Not a realistic goal at all. There will be cases of this for years to come. We have a vaccine for H1N1 flu, and have had it since 2009, and every year we have thousands of cases of H1N1. And there will be no vaccine for months yet.

    They went from “flatten the curve” to “have no new cases” slowly over the past month. And the BC Public Heath doctor keeps telling us “two more weeks”. They cleared over 3000 beds before the end of March, for the surge of cases that never came. But they are keeping the clear for the surge that is just two weeks away.

    I am so fortunate to be retired, and earned a pension, and have my house paid off in a couple of months. I see my adult children living through this, we help where we can, but the media and the politicians are milking the fear for all it is worth. If we talked about all of the things that could kill us every day, we would never leave the house. We put out of mind all the possibilities, and we carry on, because that is what we have to do to not go crazy.

    • Jay Currie says:

      I share your scepticism about a vaccine. We’ll likely have one and it will not be 100% effective.

      We are learning a lot about COVID-19 including getting a better handle on just how lethal it is and to whom. It seems pretty deadly for people over 80 but so are a lot of things. We are also learning a lot about preferred treatments and developing new treatments and protocols to reduce the seriousness of illness.

      Basic economics has long since left the building. We are now out at the extreme ends of the graphs. Which means that things like your perfectly sensible analysis of what is actually happening to small businesses is lost on our politicians. It is also, apparently, lost on the stock market which seems to be pricing in a more or less instant recovery with very little hangover. I think this is insanely optimistic.

      Asset depreciation to zero is going to be a reality for tens of thousands of small businesses and that is going to ripple out into an already weakened economy. Everything from banks to real estate to wholesaling and retail will be hit hard. Worse, somehow governments will have to pay for the borrowing they are doing right now. Only one place to get that money – taxes. Which will further depress demand.

      I just finished watching the every impressive Dr.Bonnie Henry, BC’s Chief Medical Officer. She has done a great job keeping BC’s numbers low; but she is a doctor, not an economist. She’s speaking in terms of months, if not years of a social distance regime and the shutdown of the economy. Yes, that is probably what it would take to keep the numbers very low; but it would kill the economy and that would cause other numbers to rise. At some point, quite soon I think, there has to be a cost/benefit conversation. It will not be pretty because it will, necessarily, touch on how many extra deaths, for whom, opening up the economy will entail.

      The economic opening can be managed so as to minimize the exposure of the most vulnerable. Quarantining the genuinely old – 80+ – will make sense. So will wide spread anti-body testing so we have an idea of what percentage of the overall population has already had COVID-19. But any opening will create risk and that risk needs to be balanced against the gains. This is not a health conversation, this is an economics discussion.

      You are entirely right about “If we talked about all of the things that could kill us every day, we would never leave the house.” It is about time that we put the risk of COVID-19 into perspective and got on with life.

      • Philip Jemielita says:

        Commenting on your statement: “You are entirely right about “If we talked about all of the things that could kill us every day, we would never leave the house.” It is about time that we put the risk of COVID-19 into perspective and got on with life.”

        I am still puzzling about how to think about all of this. But here is one thought. Ok, let’s talk about all of things that could kill me. Hmm, car accident, tree falling on me, murdered, food poisoning, slip on floor, bitten by rabid dog, airplane drops on me, terrorist attack, attacked by white militia, die of cancer, heart disease ,bike accident. Odds of these things happening save the bike accident are effectively zero. I am worry free. I expect to live to 95.

        Now covid, father in law had symptoms, had a test, was negative. Youngest son sick for 10 days, lives in Chicago, goes on public transit a lot. No tests available, he is getting better. conclusion not bad odds, say 30% he had it. What now are the odds I could get covid and be seriously ill. In addition, if I got it, odds are that I would be asymptomatic as my immune system is best in class, so I would be inflecting people that I would not want to hurt.

        Add to this that I have a job that allows me to work from home. So my personal economic incentive is to deeply isolate. I arrive at this decision from a rather rational risk assessment. I suggest that most of my social class – people with stable jobs – say 60% are drawing the same rational conclusions.

      • Jay Currie says:

        There are a total of 120 cases on Vancouver Island. Mainly in long term care facilities.

        I have worked from home for thirty years. Kids home school. Susan stays at home and sews – a lot. While I do the social distance dance, the reality is that the chance of infection in our ex-urban environment is really very low. I was isolated long before COVID and live pretty much exactly the same way now. (With a lot more hand washing.)

        The fact is that we are enjoying our privilege. Rationally. I can’t imagine what it must be like for a family who live in a two bedroom apartment in a near suburb and whose breadwinners have “essential” jobs which can’t be done from home. Nurses, checkout clerks, Costco shelf stockers – they are unlikely to get the damned thing but they have no choice but to show up for work.

        Relative wealth matters a lot in the COVID pandemic. Your taut immune system is all about eating well for forty years and riding a dumbly expensive bike in -40 temps. You are golden, I am sort of silver (but, apparently, the smoking helps – who knew?), but there is a great mass of people who cannot avoid infection and who will be very sick or die if they catch it.

        Where it hits us is not physically but economically. You cannot close down an economy and expect it to restart without serious losses. Those “stable jobs” may not be there in three months. Crashing the real economy is likely going to hurt, indeed kill, more people than the virus does.

  2. Justausername says:

    They have no sense of reality, nor a sense of risk management. I fear people will cheer the boot at their throats, all in the name of safety, over the next 12 months. Remember “safety is just two weeks away”.

  3. A Woman Of A Certain Age says:

    Tam needs to be fired and Trudeau needs to resign.
    Sick people should stay at home, and healthy people should go back to work & school.
    China owes the world trillions for their Wuhan virus. Meanwhile, dismantle the WHO and throw terrorist Tedros in prison for past/present crimes against humanity.
    Society needs a giant reset. We were on the verge of no return. It’s not too late.

  4. […] From 2020-04-17 Jay Currie: Depression, Inflation, I’m So Confused! […]

  5. Philip Jemielita says:

    Jay, your comment about the difficulty of restarting the economy. My modest thought is that the problem is not that people are deluded by false evaluations of risk but have different risk assessments dependent on social class. See you on the other side.

    • Jay Currie says:

      I agree Phil. If you can work from home – and, apparently, the Bank of Montreal has just told 3/4 of its staff that they will be working from home – you understand the risk very differently than a checkout clerk at your local grocery.

      • Justausername says:

        The greatest supporters of the lock down are government employees who are not suffering the loss of income. Teachers who are afraid to go to the school in case they “catch it” from the kids. People who are making more money sitting on their butts because the over generous payment system was implemented by a moron and his moron cabinet without consideration. This thing is almost done. Eight cases in BC yesterday. Open the economy.

  6. Justausername says:

    I read the “exit plan” of the Horgan government. Load of trash. Timid, weak, and cowardly to say the least. I guess it lines up with the popular opinion, all those people hiding under their beds quaking in fear. Phase 4 especially pisses me off, as there is no guarantee that they will ever have a vaccine for this. No vaccine for HIV after 30 years. Do we have any vaccine for a coronavirus? I hold no hope in that direction at all. That leaves treatment. You would think that after 6 full weeks they could have whipped together some good hydroxychloroquine testing protocols, but due to Trump derangement syndrome the idiots have been fighting this every step of the way.

    And today, a main story is that 82% of all deaths have occurred in care and nursing homes in Canada. It appears that if you are under 60, or not domiciled in a care home, you have less than a 1 in a 1000 chance of dying to this. And the odds go down the younger you are. In fact, in places that show their mortality by age in Canada no one under 19 has perished. None under 30 in Quebec, the hardest hit of the provinces.

    To save lives, sequester those over 60 who wish to be sequestered. And let those over 60 who decide to take their chances, take their chances. For all others, open back up and get on with life.

    • Philip Jemielita says:

      Being a sort of data oriented person, I wonder if you have any idea of the effects of the policy you advocate. But luckily, the red states (I now in the US now in Minnesota) are providing an experiment for you. Let’s see if the lock down blue states thrive compared to the red states that are apparently following your thoughts.

      • Justausername says:

        Only time will tell. But riddle me this, how is Florida doing in comparison to New York state? Similar populations, some very large urban areas, an aging population in Florida, and yet it seems to be weathering the storm. I don’t think that Blue state, Red state really matters. I think it is very much like a bad flu, and NY State has the misfortune to be farther north where a virus is more likely to live longer than it is in warmer and nicer Florida.

        I’m not an epidemiologist, but I can read and understand a bit. When this started my first thought was that it was being blown out of proportion. While I can safely say that it is real, and it is killing people, I also think I can safely say that it isn’t unprecedented nor all that dangerous.

        The next few weeks will be very telling, but I will link you a website to the USA CDC Mortality tracker. You can play with it a bit, like I did, and you will find that if you look at overall mortality over the past few weeks it isn’t as remarkable as the media would have it seem. The reason I say this is that you look at past data and compare. I had a look at overall mortality for the first few weeks of 2017. It was a bad flu season. Here are the total numbers of moralities, all causes for weeks 1 through 7:

        wk 1 66,134
        2 67,495
        3 64,647
        4 62,780
        5 60,974
        6 61,110
        7 59,779

        Now, you can look at weeks 12 through 16 this year

        wk 12 53,811
        13 57,147
        14 63,809
        15 65,524
        16 52,521
        17 not complete *week ending 25 Apr.

        I am sure the following weeks numbers will all be high, but when I look at the Worldometers website I can see the 7 day average peaked around the 14th of April, call it between week 15 and 16. The numbers are falling slightly, and reported deaths today don’t mean deaths yesterday, but deaths that have been registered over the past week or two. So the Worldometers kind of lags actual death days. Still, I expect a bit of an uptick on week 17 and 18 numbers, if the last few days are an indication, but we have not seen 7 sustained weeks over 60,000 yet.

  7. Jay Currie says:

    At a guess, regardless of the stringency of the lockdown, there will be a certain percentage of the population infected and then demographics and the skill of the jurisdiction’s public health people will determine the death count.

    It is interesting that today Gov. Cumuo in NY reported that people who had been self-isolating were, none the less, dying in droves.

    Myself, I am hoping that Spring, good, warm, weather and plenty of sun driven Vit D will kill the thing. But, apparently, it is supposed to snow tomorrow on the Eastern seaboard.

  8. Philip Jemielita says:


    On your comment “Only time will tell. But riddle me this, how is Florida doing in comparison to New York state? Similar populations, some very large urban areas, an aging population in Florida, and yet it seems to be weathering the storm. I don’t think that Blue state, Red state really matters.” Where NY and Florida are right now is not all that interesting re policy because both states are sort of figuring it out from different initial conditions and very different urban density profiles.

    On your thought to essentially drop the current level of restrictive policies, the blue/red state divide in the US allows us to evaluate your premise – I would be very glad to see that you are right by the way. I saw a map showing which states were continuing the restrictive policies and where were opening up. It was sad to see that it was solely along partisan lines. So we will be able to see relative increases in death rates/infections etc from the current starting point and see if your suggestion pans out. Say compare Iowa to Minnesota or California to Texas etc.

    Hope you are right.

    • Justausername says:

      I hope the experts I have listened to are right. They seem very convinced that this virus will run its course like all viruses do. Sadly, Democrats seem to be staunchly in favour of anything directly opposed to whatever President Trump proposes. I think it is a mental block, and will likely prove disastrous in the long run. I am cheering for Sweden, and other jurisdictions, to succeed. It will make these timid policy makers look even worse in the long run. And perhaps even adjust people’s support for policies that seemed to be reasonable at the beginning, but more onerous as time passes.

      For whatever reason, it seems that most humans lost both their spines, and their immune systems, back around mid March. I can only hope some of them find them and get us back to business.

      As for me, I am retired, house near paid off, I have no reason to care if others work at home or not, but this lack of common sense offends me greatly.

      • Terry Rudden says:

        Your comment on Sweden is an interesting one. Its laissez-faire, low intervention approach made it the darling of Republicans in March and early April, who triumphantly compared its mortality rate per capita to that of the more draconian countries like Spain and Italy.
        The comparison was misguided. To compare Sweden’s stats with those of high-density, high traffic countries that were hit early and hard doesn’t work. If you’re going to assess the effectiveness of Sweden’s strategy, compare herrings to herrings, and look at Scandinavian countries with similar demographics. And when you do that, you discover that relative to Norway, Denmark and Finland, Swedes per capita are getting sicker, being tested less, and dying at a significantly higher rate than their neighbours, all of whom introduced strict isolation measures.

  9. Justausername says:

    Terry, the thing about Sweden is their approach is to try and achieve herd immunity while not causing disruption to their hospital system. People will die, they always do when they get sick. It doesn’t matter if it is an unknown coronavirus or Influenza or other like illness, a certain amount of people will die. The question in this case was how many? We don’t know, and still don’t know. But Sweden managed their hospital beds and ICUs while recommending that certain measures be taken. They didn’t foresee the effect on the care homes that every other nation is experiencing, and no nation has found a solution for either. I maintain, if Sweden’s approach was that dangerous they should have a much worse showing in fatalities than any of the worst places in Europe. No one is talking about a second wave in Sweden either, they can ignore that doomsday scenario as well.

    We were told “flatten the curve” to stave off swamping out hospitals and ICUs. We never got close here in BC. I recall reading an article in late March where they were quite pleased that they had cleared out around 3500 hospital beds in preparation for the great tsunami of covid cases. We barely broached 150. And we are still locked down as they have moved the goal post from a realistic “flatten the curve” to an unrealistic “no new cases” or some other unattainable goal. I will add that “flatten the curve” never was a means to avoid infections and deaths, it was a means to prolong it to allow for time to absorb the excess hospital cases and allow for some study and possible treatment. We have proven ample hospital room, even if we are without a peer reviewed treatment.

    Worse yet, our much congratulated public health professionals believe that we cannot have large scale events until we have a vaccine, or some kind of treatment. As humans have not had success making a vaccine against a coronavirus I hold no hope from that direction. They have been working for 30 years on an HIV vaccine with no success. As for treatments, there are several being studied, but just calling for a treatment without definition is punting the problem down the road.

  10. Jay Currie says:

    I am sceptical that we will have a safe, effective vaccine any time soon. I hope we do, but we have to be prepared in case we don’t.

    It is odd that the lockdown/no lockdown/Dear God let us out debate has broken out on partisan lines. Essentially, the left is saying lockdown, one size fits all, do you want granny to die? and the right is noticing that total lockdown is a failing economic policy for more than a couple of weeks. It is a really dumb argument from both sides.

    My province, British Columbia, has never locked down in the sense of fining random people for being outdoors. We’ve been given information, a significant sector of the business community has been shut down by Health Order and we have been treated like responsible adults. So far it is working.

    The fact that this strategy has been invoked by nasty, NDP, socialist, heathens has made absolutely no difference. Because it is not political and it shouldn’t be. We all get that.

    Every jurisdiction is different. Some can resume “normal” faster than others. Blue/Red makes no difference. The virus does not vote.

    • Phllip Jemielita says:


      Referring to your comment “My province, British Columbia, has never locked down in the sense of fining random people for being outdoors. We’ve been given information, a significant sector of the business community has been shut down by Health Order and we have been treated like responsible adults. So far it is working.”

      BC is clearly a bright spot about this virus. What do you attribute this difference to? I presume it is government what is the government doing that it is different? It is somewwhat mysterious to me from MInnesota.

    • Justausername says:

      I am astounded at the timid response in the provinces that have suffered the least. PEI, New Brunswick, Manitoba, Yukon and the Territories, and even Newfoundland could all open up tomorrow and just monitor their hospitals and ICUs. I don’t think that any of those jurisdictions suffered numbers even close to a bad flu month.

      It appears too many Canadians lost their spines and their immune systems sometime in March. This pandemic doom porn has gone on far too long.

  11. Jay Currie says:

    It is a good question, Phil. I think the biggest factor has been that the BC gov’t has treated its citizens as adults. No official lockdown, no fines for going to the park – be smart, stay at home, socially distance but we’ll leave it up to you how you do all that.

    Plus information. It was at least a month ago that our Chief Medical Officer, Dr. Bonnie Henry, shared the government’s modelling with us. Being a data guy you know all models are wrong, but some are useful. The BC Government models were surprisingly crude but they tracked the actuals as they came in. Sharing those models meant we could evaluate our own behaviour and practices. People were cautious but not paranoid.

    The one variable which I would include intuitively and with not a whiff of science is that BC had one of the most lovely runs of weather I have ever seen in late March and April. Sunny, warming, maybe three days of rain (which, as you know, is extraordinary). I suspect this reduced virus transmission, increased our Vitamin D and, frankly, cheered everyone up. Standing in a line for the grocery store in the sun is a hell of a lot more acceptable than doing it in the rain.

    We are doing the phased “back to normal” thing but no one here seems to be in much of a hurry. The 2K a month federal cheque keeps wolves from the door. It is not income replacement but it means people are not desperate. There are a lot of jobs which are gone forever, but BC actually had a bit of a labour shortage going in so that will adjust.

    Mainly, people are optimistic that the virus will pass and they will be able to figure out how to get back on their feet.

  12. Philip Jemielita says:

    Jay, these posts are about high strategy, but I am bugged by a small virus problem – should I get my hair cut when the hair salons open on June 1 in Minnesota. Here are my thoughts, my wife does not look at me with her normal affection when she glances at the hair length you may remember from 45 years ago. Nor do I want to burden her with the pain of trying to cut my hair and butchering it. Now suppose I go the hair salon and catch the virus and either harm other people or myself. How stupid I would feel if this result occurred for a mere bit of vanity. Also consider the impact on the economy and the beauty industry if all citizens thought the same way.

    Justanusername – what is your recommendation?

    Confused in Minnesota.

    • Justausername says:

      You sound like a full grown adult, you decide. I need a hair cut, when the government decides to allow barbers to ply their trade I”m going to get one. My body, my choice.

  13. Jay Currie says:

    It is exactly this sort of question, Phil, which is going to delay any sort of economic recovery. That there is an issue at all means you will hesitate to do something you have been doing as a matter of habit for forty years. And everybody will be making the same calculation.

    All of which means we will be dealing with a very different economy.

    Doing this sort of risk analysis for a hair cut is going to add tremendous friction to the transactions of ordinary life.

    Here in the largely virus free bastion of North Saanich I am getting the damned haircut. Your mileage will vary in Minnesota.

    • Philip Jemielita says:

      Justausername and Jay,

      Thanks for your replies. By the way, on this particular case, I think about this only when my wife scowls at my hair – which is every second day.

      But my hair is a modest example of what I believe a lot of people are thinking about with regard to the virus. For example-
      1) Do I need to spend so much money on haircuts – just buzz it.
      2) Are those 2 week jaunts to Europe crowding into Rome really worth it
      3) Should I become a vegan so not to be dependent on highly risky envrionmently dubious oligopolistic meat packing plants dependent on illegal migrant workers
      4) Do I really want to drive 1 hour a day to go to an office job where I can work as efficiently at home
      5) My mimosa drinking is up tremendously – because after breakfast and the mimosa I just go upstairs to my “office”

      2 and 3 came from a stump grinder working at my house – I was surprised by by how spontaneously such detail opinions were offerred. 4 comes basically from everyone at my company.

      Jay as to your point about me hesitating about something that I have been doing for 40 days, maybe it is good to be jogged out of habits.

      Anyway, I am beginning to suspect that many people will discover in the stay at home in the virus a lot of things that they will do differently afterwards. The trouble for the economy could very well be a reduction in demand for a lot of services. I read a couple of day ago for example that demand for clothing has gone down by 79%. Maybe some of that frugality will stick after the virus. At any rate such a reduction in demand will be very hard on a lot of people.

  14. Jay Currie says:

    Phil, I agree completely that people are going to rethink a lot of their habitual lives.

    Having worked from home for thirty years I cannot imagine an hour commute. The fifteen seconds from bed to computer seems about right although the smartphone in bed has its attractions.

    I will never become a vegan but Susan and I increasingly buy our meat from very local butchers. And, of course, as you get older the amount of protein you eat falls. So you can afford really good meat in small quantities. (However, as you know, teenage boys require protein in vast quantities so we are not out of the woods quite yet.)

    I have no great interest in a two week jaunt anywhere, I like my garden, pup, kids and books. My bet is that many more people will find “staying at home” more pleasant than the alternative once they have tried it for a while.

    I have been fascinated to see my sweet Susan plunge into her sewing room. She has been collecting bolts and pieces of fabric for years and has now sewn everything from linen nighties (from linen table clothes she bought for nothing at thrifts and garage sales) to a pretty dress and three pairs of trousers. It is a skill she has been carrying with her since girlhood but only now has had the time to really use it.

    I expect that the world is going to be quite different. Slower, less frantic, likely more stationary. It will take a while, but the economy, left to itself, will adjust.

    I reserve the pleasures of mimosa drinking for the weekends, if for no other reason than to remind myself that it’s Saturday.

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