EPISODES / WEEKLY COMMENTARY

Will Covid Be The Excuse For A Cashless Society?

EPISODES / WEEKLY COMMENTARY
Weekly Commentary • Sep 29 2020
Will Covid Be The Excuse For A Cashless Society?
David McAlvany Posted on September 29, 2020
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  • Will vaccines be mandatory?
  • As credit replaces money, should velocity be redefined?
  • Covid 19: Health crisis or global economic crisis?

 

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Will Covid Be The Excuse For A Cashless Society?
September 30, 2020

“At the end of the day, if you think about the MMT [Modern Monetary Theory] crowd, you have the ability to print. That’s one version of power. But the thing that’s required for you to not lose legitimacy is that you still maintain the power of coercion by taxes. But again, the more you control your audience and control the capital pool, the easier it is to maintain legitimacy, if you are in that MMT crowd.”

–David McAlvany

Kevin: Well, I had a new experience this weekend. I’ve done many zoom calls during this period of time, but I wasn’t actually part of a zoom conference until this weekend at Wealth Conference. And I thought, you know, since I can actually use a visual, I’m used to just talking on the phone, I thought I would do that. I took a $20 gold piece, one ounce, St. Gaudens back from 1908, and I held it up with a $20 bill, Dave. I said, originally this $20 bill was just simply a receipt for this $20 gold piece.

Then of course I had prepared fifteen $20 bills, and I counted it out right there on the screen. And I said, when I started in 1987 with Don McAlvany that’s what this $20 gold piece was worth – 15 of these receipts. And then I went on to say, now it’s close to 100 of these $20 bills. So it was interesting to me, I’ve never even done that visual. I’ve talked about it on the phone, but when you visually see that an ounce of gold stays the same, buys the same amount of bread that it did 100 years ago, but it takes one hundred $20 bills to do the same thing, it’s powerful.

David: When I’ve done something similar to that, my experience from that point forward has been a diminished interest in those paper receipts. I look at them with some degree of disdain and I have this compulsive desire to want to get rid of them as quickly as possible. And it could be on anything. I’d rather buy T-shirts.

Frankly, the smarter thing would probably be to buy gold or silver, but it doesn’t matter, I just look at it and I think, “This is a game and this game is being played on a clock, and if the time runs out, then it’s going to go from 1 to 15 to 100. To what’s the next multiple? Is it 200 or 1000? At a certain point, you realize that all we ever were playing with was confetti. And that’s the beauty of the old gold standard.

It’s fascinating, I’ve had this conversation with Richard Duncan offline about velocity of money, the change in the monetary system and why velocity is no longer important. And it’s a good conversation. It’s a healthy exercise.

Kevin: Right, because you’ve said if velocity increases, we’ve created an awful lot of money, so inflation has to hit.

David: And I want to hit this maybe next week, because we have the Z-1 report out. Doug Noland did a great job exploring some of that in last week’s Credit Bubble Bulletin, but I’m going to wait until next week to not only engage some of Doug’s comments, but also look at sort of Rich and my back and forth on that old equation, MV = PT [amount of money times velocity equals price times transactions].

Kevin: One of the things I like about Duncan is, he does raise my blood pressure because I don’t always agree with him, but MV equals PT has been a standard, and that’s being challenged by Richard.

David: Yes, so we agree that we have a new money and it is credit, so the old velocity doesn’t make sense anymore, and I’ll concede that to a certain degree. But I think if we’re saying we have a new M in the equation, we also have to look at a new V in the equation, which captures the growth in credit. And that’s why we will focus on the Z-1 report and say that velocity is not irrelevant, and actually, we have velocity moving into overdrive. We’re just looking for it in the wrong places. So we’ve adjusted our measure of money, but we’ve not adjusted what we’re looking for in terms of a measure of real inflation. Some of those comments next week.

Kevin: One of the questions that came up, Dave, when I showed a chart showing the dollar devaluation, if you go from one $20 bill to one hundred $20 bills for an ounce of gold, it was almost a 100% devaluation. I had a caller come on. They can do that on Zoom, they can ask questions. He said, “Well, if the dollar has lost almost 100% of its value, aren’t we done?” And I said, “No, you can start this chart again. A loaf of bread 100 years ago was six cents a loaf, now it’s close to $6. There’s nothing saying the chart couldn’t start again and go to $60 or $600. I know it sounds crazy, but it happens in every country that prints too much money.

David: And this is one of the conclusions that is arrived at by some of the smarter folks in the bond community who would say MMT will deliver that to you. Ultimately, what you get with MMT is nothing short of Zimbabwe. We’ve been there before. We’ve seen it in Hungary. We’ve seen it in Germany. You can pretend that this is new. You can call it modern, but this is the same old, same old when you start connecting the printing press to the debt which is created. When those two are connected, when those dots are connected, that’s the end game.

Kevin: One of the things that I’m concerned about, Dave, is MMT is something we’ve talked about over the last couple of years as just a euphemistic way of saying printing money. But now, we were talking last night about how Covid isn’t really a health issue at all. I mean, it is to a degree, but Covid is an economic issue, and the economic ramifications that we’re going to experience over the next few years will have little to do with the virus and everything to do with the response.

David: Yes, I think that’s fair to say. When you look at MMT, and its Modern Monetary Theory, but we are ultimately talking about economics and the impact on individuals’ lives. Because that’s – as you read through The Death of Money by Adam Ferguson, what you get is not a picture of money in theory, but people in practice. And this is where it is pain, and it is actual personal narratives that get played out when you start experimenting and doing things that ultimately are nonviable. So Covid – the drama continues. You’ve got the economic costs of shutdown which are piling up, and among those paying the highest costs are those who were in extreme poverty or those recently pushed into that category. I read a great piece in the Financial Times last week where Covid is in the process of lowering or demoting 71 million people worldwide into the extreme poverty category. That is defined as living on less than a dollar and 90 cents a day.

Kevin: 71 million more people living on a dollar-ninety a day.

David: That’s a downward migration. And this year, according to the World Bank economist, will be the first year of increase in global poverty statistics since the 1990s.

Kevin: One of the things that I wonder, too, we’re learning as we go along with this Covid thing, and are we really applying our learning? Because we’re starting to find there are elements of the population that are almost invulnerable to it, and then others that are more vulnerable.

David: This article from the Financial Times highlighted not a health shock but an economic shock. And the CDC report out in the last week also reports the infection fatality rate as follows, and I thought this was absolutely critical to understand. The infection fatality rate from the ages of 0 to 19 years old is 0.00003. That is four zeros and then a three, making the survival rate of people between zero and 19 who have had it and contracted it, 99.997% is the survival rate.

Kevin: You know what’s interesting on that? When you talk about pure gold, when we sell pure gold, we call it four nines fine.

So what we’re saying here…

David: This is virtually no one.

Kevin: This is like pure.

David: Right. So in that 20 to 49 age group, not quite as good. 20 to 49-year-olds, you’re talking about 0.0002, so your survival rate is 99.98%.

Kevin: Still a pretty good chance of living.

David: If you get it, 99.98% survival rate. That’s kind of interesting, 50 points, and this is again the CDC, the Centers for Disease Control. These guys are, I’ve been told, doing reliable science, but 50 to 69 years old, 0.005, so this is a half a percent, with a survival rate then of 99.5%.

Kevin: It’s the older people, isn’t it, that have a higher vulnerability.

David: There you go. Ages 70 and above it’s 0.054, so that’s 5.4% as the fatality rate. So the survival rate, those who contract at 70 and above. 94.6% survival rate. That’s again from the CDC. And I think from this it’s clear what age groups should take the greatest precautions and who, if anyone, should get a vaccine. This is not the flu. The flu picks on the very young and the very old. Covid, at least according to the CDC statistics, is very discriminating. It is picking on the old, at least it would seem.

Kevin: That goes back to what we were talking about. This is more of an economic crisis than it is a health crisis.

David: That was the main point of the Financial Times article. Economic shock, not a health shock, particularly in poor countries where death rates are far below the developed countries when it comes to Covid. That is worth pondering because there are two key factors, and I think these are fairly intuitive. Poor countries have younger populations.

Kevin: And why is that? Because the older have died earlier?

David: Yes, and I think this is one of the things. We look at our health system today, here in the developed world, in the U.S. and in Europe, particularly, but anywhere you want to include in the developed world, and our healthcare has allowed for maintenance of life with existing health conditions. So there are 50 different medications that someone might take to keep them alive. Just go back 50 years ago or 70 years ago or 100 years ago. With any of those conditions, that person would have been dead a long time ago.

But we’ve been figuring out ways to sort of stopgap measure our way to an older life. And now you can have one, but not two. And so again, this issue of co-morbidity, you can have one, but not two – you’re dead. Or you can have two, but not three. You can have five, but not six. So this is kind of like the tipping point with people of older age and pre-existing conditions.

Kevin: I also wonder, culturally, if poorer cultures can – the work at home thing is really for the first world. It’s not for the third world.

David: I think coming back to this issue of pre-existing conditions and our ability with a great health system in place in the developed world, it means that we’ve got a whole group of people that are in that five but not six category. Whereas if you go into the developing world, guess what? They’re already dead. And I don’t mean to say that cavalierly, but you end up with, as a consequence, a younger population. And as it relates to Covid, 99.997%, it means in the sub-50 category you’re pretty well in the clear.

The other thing is that you do have, I think, that second factor which to me is intuitive, is that poor countries have a lot more time spent outdoors. Again, we can work at home, they can’t. Lockdowns have had a disproportionately negative effect on the poor. I’m talking about an economic effect on the poor, because they’re required to get out for a daily hustle and find opportunity.

Kevin: Yes, it’s not Zoom that’s saving their job.

David: No, you can’t work at home. That is a first world solution, not a third world solution. So I would put this in the category of public policy demagoguery steeped in irrational fear, where we basically say, “Look, this is what’s working for us in the West and this is what everyone else needs to do. Shut down, shut down immediately.” And the consequences are very grave. Again, if it works for us, it must work for everyone.

I don’t know, I think that’s where we need to be a little bit more careful, a little bit more discerning in terms of how we apply these things. You’re in essence, for many of these developing countries, resetting economic, educational and health trajectories for the most vulnerable populations around the world, and you’re introducing an economic crisis which did not exist. And yes, I understand, we see through the lens of a health crisis in the West, particularly if you’ve got more gray hairs than anything else. But that’s the problem is that we’re seeing the world through our lens and there is another world out there, and we need to be careful that we don’t cross-apply too much.

Kevin: And what I’ve found, it’s actually a waste of energy trying to convince people whether Covid is a real deal, what these statistics are, because there’s no immunity from the economic outcome of the decisions. That’s the thing, you can waste an awful lot of energy trying to convince people that the policies need to be different. But the policies are not different. And I think we should look at what this is going to look like going forward from an economic standpoint. The financial markets have exploded to the upside, but that’s just because of printed money. You’ll talk about that next week.

David: And I think the economic departments of universities around the world will study this for decades to come, the economic devastation created by these broad-based closure measures, that’s what’s going to be analyzed. You have a decline in GDP growth, the growth rate record. This is record breaking. And so that in itself will stand out.

Kevin: Nothing like this in the world has ever occurred, including the Great Depression.

David: Right. So it will be discussed. It has to be discussed, at least as an anomaly, but particularly in development economics, and those development groups and NGOs are being set back decades, not as a result of Covid, but by the measures taken to mitigate the health risk. And that’s kind of the interesting irony here is we’re trying to solve one problem, and we’re actually creating one that may have far greater – I’m not insensitive to the fact that we have now a million global deaths. But what is it to push 71 million people into extreme poverty? What risk is it that we have multiples of 10 or 20 times the number of people who have died of Covid from the unintended consequences of shutdown? Does that make sense?

Kevin: Well, it does. And the world has never been so interrelated. I’m wondering if the reason the economic turn-down is going to be so devastating is because there’s really virtually no one that’s exempt worldwide.

David: That’s right. So you have the synchronicity of economic decline globally, which has never been on this scale before. Even go back to 1931 and it was a global depression. 83.8% of the world experienced recession or depression in that timeframe. 83.8% of the world was experiencing economic chaos.

Kevin: How about 1918 when we had a health crisis? Let’s tie that in with 1918.

David: Yes, so a flu far worse than what we have now, talking about claiming multiples in terms of the population, global population, 1918, was as bad as it got. It was probably the worst global health crisis ever recorded. So that’s 70% of – and I guess you could go back to the black plague if you wanted to use something comparably worse. So go back 500-600 years. 70% of countries experienced recession or depression in 1918.

Kevin: So fast forward.

David: 83.8% in 1931, 70% in 1918.

Kevin: How about 2020? Fast forward to now.

David: The estimates by the World Bank are that in 2020 92.9% of all countries will have experienced recession.

Kevin: And that’s not 2021, 2022, 2023. We’re just talking about now.

David: You could well argue that keeping economies open, which was an option, would have further exacerbated the case numbers and maybe even the total death. That’s possible. And to what degree we will never know.

Kevin: So what are we learning? The thing is, when you proceed forward in time, what you do is you say, “Now we know this. This is what we need to change.” Are we doing that, or are we still proceeding as if it’s the unknown disease we didn’t understand in March?

David: I think we’re still proceeding as if it’s an unknown disease that we still don’t understand. And the math suggests that smart engagement and risk segmentation would have been a far better approach. I realize that this is in retrospect. We could all construct a perfect response in retrospect, but going forward, it is still imperative to keep the math in mind as arguments are made for anything that is sort of broad-based, that is, across societal segments, and mandatory. Because you have groups like the CDC compiling numbers, and from that it’s clear what population groups are most at risk. Again, if you’re 0 to 19, your survival rate, if you contract it, is 99.997%. Let’s scoot up to the close to, while this could really be negative, 50 to 69 years old, you still have a survival rate of 99.5%. It’s only that category of ages 70 and above where you bump into 5%.

You remember weeks ago we talked about the fact that, and again, these are, I forget if it was the World Health Organization or CDC on those other statistics we were looking at, but co-morbidity where it was a high percent of those over 70 who may have had Covid, but they also had one, two, or three other things in addition to it. And so what was really responsible? It’s kind of like the straw that broke the camel’s back. That’s the point. It wasn’t Covid alone, it was a whole host of other things. And of course that, I think, is sort of out of the conversation today. But we are dealing with knowns versus unknowns at this point.

And so again, you look at the CDC’s compiled numbers, and it is clear what population groups are most at risk. And if we have knowns today that we didn’t have in March or February, then they should be informing health policies. They should reflect what we now know, particularly as we transition to a phase in the pandemic where vaccines are the crux for opening up economies again.

Kevin: Well see, that’s my concern, too, though, Dave, because I’ll be honest with you, I don’t trust the people sometimes that make decisions, whether it’s central bankers or whether it’s people who benefit from a cashless system or whether it’s people who benefit from possibly making inoculations mandatory.

I’ll give you an example. We have a family member right now who is 81 years old and he’s in a VA home, and he has not been able to be visited for months. We got a call because his life is on the line now. So when the life is on the line, my wife has been able to go in and spend time with him.

It’s a very difficult situation, but what we found out when we got there was compliance. I’m talking about mask, not associating with anybody who had had Covid in the last few weeks, making sure that we had not been in crowds. They took our temperature. All of those things. It was like going through, actually, the difference between East Germany and West Germany. Remember the wall, to get through? That’s what it felt like.

And so compliance. I have no problem wearing a mask, I will tell you, just out of consideration for others. But compliance was mandatory for participation. Does that move, Dave, to a mandatory inoculation? I’m worried about that, to be honest with you.

David: Well, it raises some interesting questions about choice. Where does choice get to play a role in this? An argument can be made of physical sovereignty where you are moving inside the body and need permission, if you’re talking about mandatory vaccines. And again, I don’t mean to sidetrack this with the whole vaccine, non-vaccine thing with children.

Kevin: But the question is, where do you draw the line?

David: One of the grand experiments embedded in this Covid saga is the issue of who and how a social convention defined.

Kevin: It’s the line. Where is the line?

David: Right. So that that’s one thing that I think is kind of a fun conversation. How are we defining social conventions and who is defining them? And then secondarily, what consequences are attached to being defined as compliant or noncompliant?

Kevin: Right. If you are noncompliant, you can’t participate.

David: If you’re non-compliant, are you viewed as a threat, again, according to that convention? These are things that are happening in real time, and because there’s fear attached to them, there’s not a lot of open conversation. It’s a lot easier to bifurcate and say, “I’m a mask-wearer,” or “I’m not a mask-wearer.” That’s really not my interest, and forgive me, I studied philosophy in college and that’s been a curse for 20-odd years.

But in the case of non-compliance of masks, it’s now denial of access. What about a vaccine? Make it mandatory once it’s available? And how do you deal with the burden of proof in terms of who has it, and how do you prove that you have it? These are significant practical and, I think, somewhat philosophical questions to consider, even his public policymakers push for a very simplistic, one-size-fits-all solution.

And I come back to these CDC numbers and say, “Do we need a one-size-fits-all solution when, actually, there is one particular segment in society which is at risk? And we should care for them. We should do everything that we can to preserve life for them. What does that mean, and how do we do that in a thoughtful fashion?

Kevin: Well, you’re not anti-vaccine. Let’s face it, that’s one of the great inventions of the 21st century.

David: It’s one of the greatest achievements of the 21st century. It has saved tens of millions of lives, maybe hundreds of millions of lives. But it’s worth noting that progress has had a price. And this is where, again, I look at what we’re doing with the vaccine today. There are adverse events, and these are the things that doctors are looking for in the process of doing multiple trials to see what’s going to happen? Are you going to have your eye lens delaminate from your eye? Are you going to melt down inside? What’s going to happen of a negative nature?

Adverse events are part of the routine trials that the original animals, literally animals, and then human guinea pigs, experience as a new protocol is rolled out? And so you have a 30-day look at, you have a 42-day look at, and even some after-studies where you might look at 60 or 90 days. But we haven’t had anything that has been promoted as the solution. And as soon as we do, there’s still going to be the question of adverse effects which may not show up until you’re outside of the trial periods. So we are, in that sense, dealing with the unknowns.

And then there is, of course, my body, your body, body-specific immune responses, which are very critical, and individuals need to be making decisions on the basis of what they know about their health. I remember going in at age 40 to a heart specialist in Houston. I was referred by one of her clients who was a heart surgeon in his eighties. I remember he was still literally doing these public presentations, this heart surgeon, about longevity and age. He was 75 years old and the first thing he would do standing on a stage in front of people is do a back flip. And it kind of gets your attention when a 75-year-old sticks a back flip on a stage.

Kevin: It reminds me of Jack Palance when he went out and he did one-armed pushups when he was close to 80 years old, I think.

David: And so this was a client of ours and he referred me to his heart specialist. So I go down to Houston, go to this heart specialist, and he starts looking at my blood work. I just wanted a baseline for sort of heart health moving forward, and I thought 40 would be a good time to do it. And he says, “You’re fine.” He gives me those weird decimals that go 0.0000000…. He said, “You’re fine in terms of heart disease, he says. But when you turn 50 you have a 50% chance of getting heart disease. And I said, “Wait a minute. Are you dealing with my numbers, or are you dealing with national averages?” And he said, “Oh, well, all we have to work on is national averages.”

Kevin: Talk about a disconnect.

David: The disconnect is that there is a solution which is good for everyone but might not be good for me. And the nurse marched in and said, “On the basis of where we see you at age 50, we recommend that you take these cholesterol meds.” And I thought to myself, “I have no problem now, but you’re prescribing something on the basis that’s hypothetical and applies to “everyman.”

Kevin: So this is your point today on Covid because if you think about it, if you look at the statistics, are we learning anything? Can we be clearer as far as who should be quarantined or who should be cared for? I don’t think mandatory inoculations makes sense for any age group, personally. They have no right to tell us that. But on the other side of things, just like this heart specialist, why would you be treated like the masses if it doesn’t affect you?

David: We’ve come so far. Think about what it costs to sequence the human genome today. We can have specialized tests done such that medicine is customizable to the individual. And yet we’re still dealing with medicine which is 30 years old, 50 years old, 100 years old, where we’re just basically dealing with statistics and bell curves instead of individuals. And I’m not sure that that’s how I want to be treated, because I know that I have particular health needs, and I’m very sensitive to what those health needs are.

I’ll never forget the bedside manner of the man who worked with my wife when she was diagnosed with cancer. We went to yet another. It was comparison and contrast. We went to M. D. Anderson and the doctor was 2½ hours late. So that kind of sets the tone for the meeting. Walks in, never makes eye contact, looks at the chart the whole time, says schedule surgery for Tuesday at 3:00 in the afternoon, and so and so will take care of postop, and walks out. We waited for 2½ hours for the guy to be a jerk. What my kids would call a Richard, and I think you can do the translation on that.

And so I think what I experienced coming back to Durango and sitting with the surgeon that we chose, he hops up on the countertop, sets her file aside and says, “Let’s talk. I want to know your story. I want to know about you. What’s been going on?” It was like, all right, he cares about her health. This is not just a procedure which is going to be done universally. It really, really meant something to me.

Kevin: I might have had that same surgeon because I was scheduled for surgery for a thyroid.

David: Dr. Deaver.

Kevin: Yes! And he looked at things and he did the same thing and he said, “Wait a second. I’ve got a buddy over in radiology. Let me check something.”

David: This is a New York City – he was trained at the best schools, decided that he wanted to live in a small town as sort of like a soft retirement, and he’s one of the best surgeons I’ve ever met. But his bedside manner meant everything because medicine was down to the individual. He cared about my wife, and I cared about that.

Kevin: And I ended up not having surgery, too, so that’s interesting. I’m learning this while we’re recording. It’s fascinating.

David: Well, she did have surgery and he was the one that did it, but it was such a better experience.

Kevin: Well, he thwarted that. So let’s go back to the Covid then for a second. If you’re saying this is not a universal application, what age group would you go for? Obviously you’d go for the older age group.

David: Yes. Going back to the CDC stats, should everyone get a vaccine? Not a chance. We’re moving at breakneck speed to solve a problem that is tapering already. I have a family member. He spent years at Mackenzie and then was very successful in his own business, happy to provide a link to his 77-page math study. His area of expertise is big data. That’s what he did.

Kevin: I read through that. It was all statistics, but they were good statistics. He showed that this is not a problem that should be solved as if it was just a universal Band-Aid.

David: Yes, a 77-page math study on Covid that I found helpful. Do we have, and will we continue to have, an increase in cases? Sure, in some places. What groups are actually at risk of mortality? Listen, I’m not trying to be callous or insensitive. I’ve noted previously, I’ve had nearly 10 family members and friends test positive, and it’s a very uncomfortable thing because you are faced with that question of mortality.

Now the math would suggest that odds are in your favor, but let’s be thoughtful about how we mitigate that risk. As vaccine trials are sped up and the normal clinical observation times are compressed, what are we doing? We are fitting an existential timeline, and it’s the existential timeline of politicians and panicked people. It would be worth segmenting risk according to age, sex, race and ethnicity, medical co-morbidity. And again, you factor all of those things into an appraisal of concurrent medications and all the relevant factors that go into saying, “We have to elevate your risk and the care that we give for you, and over here we don’t have the risk, we don’t have to apply it the same way.

Kevin: I can just say right now, from a business perspective, you don’t mind wearing a mask. There are certain rules and guidelines that Colorado has that you are basically requiring or asking for here at the office. So the mask-wearing is not the issue, and I don’t know that necessarily taking a mask off is making that great of a statement. I think that the issue that we’re coming into doesn’t have to do with masks. It has to do with privacy rights. What’s mandatory on a worldwide basis?

David: You’re right. I don’t mind wearing a mask. I think there are people all around me with medical conditions and friends that are of an age that fit the highest risk profiles. I have a lot of friends that are 70 and over. Out of respect for them and to reduce the risks of further spreading Covid, if I did have it and were asymptomatic, I’d choose to wear one. That is my expression of kindness. I don’t think it’s unreasonable. I’m happy to defer to clients or employees if they have a particular level of concern that exceeds mine, and again, just demonstrate kindness through that. But the non-compliance and therefore sort of access denied social conventions that have emerged out of Covid are frankly disturbing to me.

Kevin: And you can really feel it. When you get into anything where there’s a government operation or something, they don’t ask you what your opinion on Covid is, by the way.

David: No. I watched this YouTube video of a mother in Ohio getting tased at a 7th grade or 8th grade football game. Everybody is sitting far, far away on the bleachers, it’s outdoors, it’s not an indoor arena. And she’s not wearing a mask. Cop walks up to her and says, either put on a mask or leave. And she says, “I can’t wear a mask, I have asthma.” And he says, “Put on a mask or leave.” And she says, “I’m not leaving, this is my kid’s football game.” And he says, “Leave.” And now all of a sudden charges her with trespassing and tases her. And it’s like, wait a minute. What is this? What? And again, I’m just looking at the social conventions and this is the real issue for me, and again, set aside Covid, if you can do that.

Kevin: You’re questioning groupthink right now.

David: How are we coming to the conclusions we’re coming to in terms of constructing a social convention, defining it, attaching a value to it in terms of compliance, non-compliance, threat, non-threat, and then dealing with that socially through ostracism, shame, what have you? Or in this case, a Taser? I’m thinking, “Wow, I’m not sure that we’re fully engaged here,” which is where we should just put on the brakes, have a cup of coffee, maybe a glass of wine, sit down with a friend and have a beer, and talk these things through.

So imagine this taking on a life of its own, and I hope this isn’t slippery-slope logic, but I see an MP in the UK, Tobias Ellwood sends a letter to the prime minister, stands up in grand form with all of his colleagues. And yes, they’re seated at an appropriate distance. And no, he’s not wearing a mask when he’s giving this presentation. But this is in the UK, and it’s just illustrates how disturbing this could be. He basically says, “Yes, mandatory inoculations or vaccines, the logistics are easy to manage. The military has the ability to not only handle the distribution but also the implementation. Then all we need is certification of vaccination, and that would, of course, be mandatory and required for mobility. If you’re going to travel, you have to have a vaccine. And if you’re not going to get a vaccine, your life is not returning to normal.”

And I’m listening to his speech saying, “Does this make any sense? Mobility and travel restrictions, even if you can prove you don’t have the virus? And I come back to this issue of, wouldn’t targeted testing be a reasonable alternative? Isn’t there a way to say high-risk, low-risk, medium-risk, and have a flexible, more customized approach instead of one-size-fits all? I’m not 70. That doesn’t mean I can’t get it. There was an endurance athlete here in town, about 35 years old, an ultra marathoner. He got it and he is dead as a doornail.

I’m not saying that anyone is immune or like Superman, but I am saying, isn’t there room for, like the Swedes, who went about it in a risk-aware and risk-segmented fashion. Not everyone has the same medical background or personal profile and should not be put into a one-size-fits-all approach. This goes back to the Financial Times article because we’re talking about the cost, unintended consequences in the developing world, which far outstrip what we’re doing in the developed world to save the few. This is this is really interesting.

Kevin: Well, and that goes to the point that this is an economic crisis. This is not a health crisis, per se. It is a health crisis to a degree, but the economic ramifications are multiples of the threat of actually dying of the disease. So what were the suggestions that the Financial Times article had?

David: Totally disappointing. It was totally disappointing. The conclusion reached in the FT article was very unimpressive. First of all, they said, follow Mackenzie’s advice. Mackenzie had done a study on opening of digital bank accounts and how that was bringing people out of poverty. So it basically said, “Follow Mackenzie’s advice. Make sure that the poor have bank accounts because then they can have savings. And that cushion is the difference between hope and despair.”

Kevin: Stop for a second. Four years ago, when you and your dad went on tour across the nation and you did conferences, three years ago, 2017, we had a little clip of Bill Gates talking about that everyone had the human right to have a bank account.

David: Financial inclusion.

Kevin: Yes, financial inclusion. And we’re sitting here going, “Wow, this isn’t self serving at all, is it? This solves everything to force people into a cashless system.” But about that same time, India made the 1,000 and 500 rupee notes illegal, to force those people into what was their human right, which was bank accounts.

David: I just had to smile and think, “I was really enjoying this article. Now it’s almost a throw-away.” Savings dependent on the ability to have a bank account? Savings have never been dependent on an institution or someone taking in a deposit.

Kevin: Governments just don’t want to see cash out in the system because it’s not something that’s under their control.

David: And I think in a world of negative or near-negative rates, that becomes very relevant in terms of public policy levers that you can pull or not pull.

Kevin: Captive audience. Captive audience.

David: Right. So if you have money that’s circulating outside of the system, you can’t track it, you can’t control it, and you can’t impose a secondary tax on it, which is essentially financial repression. At the end of the day, if you think about the MMT crowd, you have the ability to print. That’s one version of power. But the thing that’s required for you to not lose legitimacy is that you still maintain the power of coercion by taxes. But again, the more you control your audience and control the capital pool, the easier it is to maintain legitimacy if you are in that MMT crowd.

Kevin: So if you give them a bank account, they still don’t have money. Where does the money come from?

David: Well, that was the second solution. Again, kind of unimpressive, there is a book with this title: Just Give Money to the Poor. It’s at the end of the article on Covid, and the economic costs accruing to the poorest of the poor, and they’re rightfully noting that in the developing world it’s not a health crisis, it’s an economic crisis. What they end up with is an unveiled pitch for financial inclusion, where it’s going to be easier to give money to the poor through digital means. And as a reminder, this whole financial inclusion thing is not new. It’s not Covid related.

Kevin: But you have to get rid of that dirty cash.

David: It is dirty cash.

Kevin: Git rid of that dirty cash. Don’t you know that only illegal transactions occur with cash these days? Do you remember reading that? Rogoff? He’s like, “Hey, why in the world would you need cash unless you’re a criminal?”

David: That’s right. Well, it’s not just about Covid. Public policy shifts. Public policy issues morph to take advantage of fear and feelings.

Kevin: Right. Remember the Trading with the Enemy Act of 1917? Just as we started to go into World War I and help Europe, these guys had this act already ready to go. A little bit like the Patriot Act, I guess. Don’t get me started.

David: As a note to ourselves, whenever and wherever it’s the case, public policy taking advantage of fear and feelings, we should at least pause. I’m not saying start a revolution, we should pause. We should discuss the pros and cons of those policy proposals, not just allow for legislative decisions to be ramrodded through. And in some sense, I almost dream of a direct democracy, something that our friends in Switzerland have.

Kevin: Wait a second. Now this is going to raise comments because we have a republic. Okay. Direct democracy has never worked according to the Founding Fathers. Direct democracy leads to problems. Are you saying at this point we don’t have representation in Washington, enough so to the point where the republic itself would be less preferred than a direct democracy?

David: I still like the idea of a republic. I guess what I’m dealing with is, as I’ve reflected with my oldest son, who just finished Frederick Bastiat’s The Law, we’re discussing this issue of the law becoming a tool for the abuse of people. The rule of law is wonderful and in a republican form of government, not as in the party, but as in the old standard form of government, is great, but the law can be used as a tool of repression and abuse, and so having a way to have a direct voice into the legislative process when the law is becoming oppressive. And I guess that’s my concern is if and when the law becomes even more oppressive, do we have a direct voice any longer? At that point, I would wish to have the same kind of voice that my friends in Switzerland do.

Kevin: So maybe you’re not there yet. Because it’s shocking.

David: I know. But I’d settle for civil discourse. I’d settle for a conversation that sorts out which concerns and objectives are being aimed at and which are applicable to us as individuals.

Kevin: So we talked about Covid not being necessarily a health crisis as much as an economic crisis. But when you have fear, you can move the agenda forward. And we have talked for years about the agenda being a closed system.

In fact, I was thinking about this the other day. Dave. You have the zombification of everything when you bail everything out. That requires printing money. That requires lowering interest rates. So then next “ation,” let’s call it devaluation. And then there’s repression, which is having interest rates lower than the inflation. Zombification, devaluation, repression.

The problem is the fourth element. The fourth element is a captive audience or captivity and Covid could be used for that very thing. We talked about mandatory inoculations. What about mandatorily being in the banking system? What the heck does that have to do with Covid?

David: I know. Maybe it was coincidence to get the Financial Times article on, basically, financial inclusion is the conclusion they came to at the end of talking about the economic consequences of Covid. And then you have Cleveland Fed President Loretta Mester pushing a move to digital currency.

Kevin: That’s not surprising.

David: No, this is not Bitcoin. This is not a theory. And this is not like – nothing that you’ve ever heard of. No surprise there, the Federal Reserve is not going to be champion of anything that they don’t control and have monopoly over. But I want to quote from her pandemic speech last week. Again it is an interesting coincidence with the Financial Times article as well.

“Industry participants may need to rethink their payments technology investment strategy once we’re through the pandemic. The spread of Covid-19 heightened the reliance of business and individuals on digital services and faster connectivity as many employees began to work from home and consumers turned to online shopping. Global demand for U.S. currency notes increased at unprecedented rates in March as currency orders from domestic and international banks spiked dramatically. The amount of cash stored at home or elsewhere rose even more, nearly 90% from an average of $250 to over $475.

Legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited as liabilities of the Federal Reserve banks, which could be used for emergency payments. Other proposals would create a new payment instrument, digital cash, which would be just like the physical currency issued by the central banks today, but in a digital form and potentially without the anonymity of physical currency.”

Kevin: Wow, there you have it. There’s the captive audience that Carmen Reinhart told us about a few years ago.

David: So Bill King commented, because he put this into his Daily Report, “This will kill the big Banks.” And he’s right. What is going on here? What is going on here? The commercial banks are already under pressure, and again, I want to talk about that a little bit next week, King’s comment on the big banks, because if you look at the Z-1 report, which we’ll do next week, the changes in the financial markets have not been good for banks. It’s been great for the bond pimps, but not for banks, not for loan officers, not the traditional purveyors of credit.

And Richard Duncan, again, we’re talking through velocity of money, and I think the Z-1 report shines a light on why he said a few weeks back that velocity is irrelevant. He makes a point, but I think it’s incomplete. We’ll cover that more and expand the MV = PT next week.

Kevin: I have to go back to what John Maynard Keynes said about inflation, when he said, “It’s a tax that not one in a million really understands.” Part of the reason we do this program, Dave, is so that we can be educated as we see things move forward. When people say, “Yes, we have Covid so we need to have digital currency.” If there’s a disconnect there, we need to call it, right? Let’s talk about it.

David: Can we just have a beer and talk about it? If nothing else, let’s just pause, because public policy is always in the service of someone, we just need to make sure it’s in the service of the people and not the politicians themselves. Is that a fair conclusion?

Kevin: But what if It’s for the greater good, Dave? What if it’s for the greater good? Now, I’m going Orwellian on you a little bit, but the greater good.

David: A couple of things, just back to Loretta Mester’s comments before we move on, because you’ve got people hoarding, for a worst case, even as they use their credit and debit cards. We’ve talked about that in terms of hurricane syndrome in the past, where if you think something bad is going to happen, you go out and pull from the ATM, you have a little extra cash, but you go ahead and use your credit and debit cards for a long as the lights are still on, the electricity is working.

Kevin: But she says no more cash. We just need more digital currency

David: The solution is a digital bank account directly with the Federal Reserve. That’s fascinating. Why that last mention of it being without the anonymity of physical cash? What’s wrong with anonymity? I’m curious. That, to me, is a discussion point. You don’t get to have that and say, “Well, of course, anonymity is wrong.” No. prove it.

Kevin: Big brother. Big brother. And I know that’s overused, but this goes back to my question on the greater good. This goes to inoculations. This goes to cashless societies.

David: This is an extension of the Covid concerns, you’re right, because it seems we are decided on an ethical standard that judges anything to be legitimate if it is “for the greater good.” There are various ways of looking at ethics. Greater good, I think, is just one version. You have utilitarian ethics, you have a dozen different versions of how you sort through moral and ethical decision-making. That’s a whole study in philosophy.

You have metaphysics, epistemology, ethics and logic. And in ethics, you’re looking at all of the different systems of analyzing what is good and why. The greater good ethic is just one version, it is just one school of thought. It happens to be the one that seems to be operable.

Kevin: Do you like living in a society that is under the rule of law?

David: I do.

Kevin: And so, if you do, is there a time to break the law? The New York Times broke the law when they went after Trump’s tax returns. Was that for the greater good? Was that a worthwhile breaking of the law? Or is this a breach of the system of law that you’re talking about?

David: So that’s worth talking about, isn’t it? Because we will measure the merits of Covid containment strategies on the basis of, for the greater good, or whatever. And you’re right, I don’t hear anybody asking questions about the New York Times’ acquisition of President Trump’s returns. You are talking about something that is in violation of the law, but nobody’s going to worry about it if it is for the greater good. So that’s the question. Have we conceded an ethical area? This is the way we’re going to make all decisions. If so, we need to be aware that there are implications from that. There are trade-offs with each of those schools of thought – philosophical, ethical, schools of thought.

Kevin: I’ll be honest. When Snowden released the information, I realized that if there were laws that were broken, I even yielded to, good for him. It’s about time that we hear this stuff. So I don’t want to act like I’m not a hypocrite. I’m a hypocrite.

David: So back to the president’s tax returns. Why do we focus attention on some issues and turn a blind eye to others? I think it comes back to these few simple words – it’s for the greater good. Now the problem with that approach in ethics is not that you can’t make a case for something on that basis, legitimately, but that in fact you can make a case for almost anything on that basis.

Kevin: That’s when the rule of law starts to break down and people make decisions. It talks about this in the book of Judges in the Bible, when men were just doing whatever they thought was right.

David: So there are legitimate uses for the greater good ethic. There are also illegitimate uses for the greater good ethic, and you have to apply a degree of critical thought and inquiry or you end up adapting this view of ethics and turning it into a weapon which is wieldable by any sort of politician, even to the most egregious of issues. And we forget that the value of the many, as long as we’re counting the greater good as a host of a number of people, we forget that the value of the many is rooted in the value of the one.

Kevin: So let’s talk about the president’s returns, though, for a second, because at this point, I don’t think anybody is saying that he broke the law. He just used the law to not pay taxes. You can make your own judgment call as far as whether that’s ethical, moral, or what have you, but it’s not as if somebody has come out and said that he’s a tax cheat. All it basically is saying is he has figured out, maybe he has hundreds of accountants, but he has figured out how to use the law to the best advantage.

David: Just a kind of public announcement. I don’t listen to Fox News. It drives me up the wall. NPR’s coverage of the tax returns was great. National Public Radio were thoroughly annoyed that wealthy Americans for decades have been taking advantage of legislation that favors property ownership. This was the explanation of this whole tax kerfuffle. Some people have mastered it, and are paying minimal taxes by using the tax codes, write-offs.

Kevin: Not just Trump, General Electric, I don’t think paid taxes for a long time, either.

David: Right. You should see the size of their tax department. They have highly paid CPAs to try to figure out how to interpret “properly” the tax statutes.

Kevin: But they’re not necessarily cheating. They’re just using the law.

David: And there are always biases built in, and that’s by design. If you look at the 1031 exchanges, they used to apply to dozens of assets and as of the last tax code revision, only real estate has a 1031 exchangeable…

Kevin: Why is that? We could certainly use it in precious metals. I would love it.

David: But it’s not art, it’s not collectable coins, it’s not cattle. It’s only real estate. So knowing the code and its many provisions is how – you mentioned GE – a lot of other corporate giants lower their effective tax rates. And frankly, without comparable resources many Americans probably overpay. Or in the case of non-property owners, pay more on a relative basis because of the codes’ internal biases. So the bias is designed to promote a certain behavior. So what are the behaviors that they want? They want homeownership, which is real estate, and so it applies to all real estate.

Kevin: You brought up carbon credits last week for Tesla. Carbon credits are another way that you can play the law and actually gain from the system.

David: Right. You want to buy an electric vehicle, you get a tax benefit from that. How about solar panels on your office or home? You can capture not only a tax credit but also accelerated depreciation. That is a code issue, not a Trump issue. Trump’s real issues concerning debt are really coming up on him fast. He’s got $100 million of debt that he needs to roll over. So either roll it over, repay, whatever. And then he’s got $73 million which is either going to be allowed or disallowed. These are write-offs. These are real issues. But as I listened to the NPR tax analysts – again, this is not Fox News tax analysts, this is NPR’s tax analysts – it wasn’t illegal, they’re just annoyed by it.

Kevin: They’re annoyed, which… Victims again, I’m sorry NPR, victims again, but what he did was not illegal.

David: At least it hasn’t proven to be to this point. We’ll see if he stepped over the line. That’s the point of audits. I’ve criticized Trump’s use of bankruptcy code in the past, and again this comes back to the tax code. But I’ve never criticized it on the grounds of it being illegal, just that it’s not necessarily honorable. When you’re in business and it’s kind of a heads I win, tails you lose, built in strategy, I just don’t like that.

But having said that, if you look at American enterprise, American enterprise is more robust, and entrepreneurial risk-taking is more common because of the bankruptcy sections. So there is a robustness to what we do and how we operate relative to the rest of the world. You just have to look at the trade-offs. And so if you do change the biases that are embedded in the code, there is something to lose at the same time. You may gain a few more tax dollars, but you’re also going to shift behavior in another direction. How many people would be buying solar panels without the tax credits and accelerated depreciations and things of that nature?

All of a sudden, you realize maybe you want to prioritize alternative energy, and that’s why we’re doing it. Incentivized behavior. Prioritize home ownership. No homeowner is complaining today about record high prices in terms of real estate. And yet the tax incentive was one of the things that got that trend and a greater degree of home ownership in America going.

Kevin: I think this is probably an aside, but if you don’t have a good tax advisor, I’m not talking about just sending your taxes every year to H&R Block, but a good tax adviser, you’re probably missing something, legally missing something.

David: What I’ve always told the folks that I work with is keep me well inside the envelope.

Kevin: Yes, don’t take risks.

David: I don’t want to push the envelope because while I appreciate the code has certain biases that are beneficial, and maybe this is a difference in personality. Trump may want to walk the line. I don’t want to step anywhere close to the line because if it slips over, guess what? I just don’t like 8,000-lb gorillas with straight razors. It’s just not my cup of tea. It’s not how I want to spend the afternoon or the rest of my life.

Kevin: Yes, but it’s also not your patriotic duty to be ignorant of the law and not use it. And so there’s this balance and you have to ask yourself, “Who would you rather have to be president?” That’s coming up here in about 35-40 days.

David: So in other news, this is kind of interesting just in front of this week’s debate, and we’ve got something like 30 days before the election. Very fascinating. Trump received a $3.5 million wire from Elena Baturina, the wife of the former mayor of Moscow, and we’re to believe there are no nefarious Russian connections in the political arena. This was Crossfire Hurricane. This was the whole point. We see it. There’s a smoking gun. Of course he’s connected to the Russians. What was it for? $3.5 million. This is unbelievable.

Kevin: Wait. Wait a second here. Trump received the wire or are you mistaken? You’re mistaken.

David: I said that wrong. That was from the Senate report slamming Hunter Biden’s Russian connections.

Kevin: Well, it sounds just like Trump. Hunter Biden sounds just like Trump, David, I can understand your mistake. I quote from the Senate report: “The Treasury records acquired by the chairman show potential criminal activity relating to transactions among and between Hunter Biden, his family, and his associates, with Ukrainian, Russian, Kazakh and Chinese nationals.

The problem is, this was a report that was put together by the GOP. There’s probably no truth to it whatsoever. And I’m sure the Treasury was mistaken about that $3.5 million wire that came in from Elena Baturina, that is, the wife of the former mayor of Moscow. I’m sure that’s not factual. I’m sure they can’t find records of that, and I’m sure it was, in fact, for legitimate reasons and there was nothing nefarious in terms of Hunter Biden’s Russian connections.

Kevin: So just in case the listeners are thinking that we’re sarcastic and cynical, we’re not. But we do ask that we be educated on, when you said it was Trump receiving the wire, you were being tongue in cheek. But the truth of the matter is, most of the public is not educating themselves on what’s actually going on.

So, Dave, going back to Covid, not to talk about the virus, but to talk about the numbers, because we’ve talked about this being an economic problem, and we’re going to see the ramifications of that and a universal diagnosis and a universal inoculation or a universal solution might be exactly the wrong thing, not the right thing.

David: Well, again, the World Bank estimates of 92.9% of all countries being in recession in 2020 – that is an economic crisis. So V, in this case, we’re going to come back to this next week, not for vendetta, V is for velocity. And we need to look at credit creation on a scale that, frankly, has to have the word hyper attached to it. We have a new version of money which includes credit, and it’s exploding, and it has implications for the financial markets. We now have a major issue in terms of a global pandemic and everyone responding to it, which creates its own economic crisis, which, if we’re not careful, can become a nasty political and geopolitical issue. Think about the 71 million people who are unhappy, who really have nothing to do because they cannot do anything because they’re told they cannot work and cannot leave home. This makes for very volatile politics in the years ahead, and desperate people do very desperate things. I want to focus on the Z-1 report next week as one iteration, one expression, of desperation on display. What will we do to maintain the system as it is, to maintain control of some sense of normalcy? And what will we give up for a return to normalcy? The Z-1 actually has a lot to say.

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Will Covid Be The Excuse For A Cashless Society?
September 30, 2020

“At the end of the day, if you think about the MMT [Modern Monetary Theory] crowd, you have the ability to print. That’s one version of power. But the thing that’s required for you to not lose legitimacy is that you still maintain the power of coercion by taxes. But again, the more you control your audience and control the capital pool, the easier it is to maintain legitimacy, if you are in that MMT crowd.”

–David McAlvany

Kevin: Well, I had a new experience this weekend. I’ve done many zoom calls during this period of time, but I wasn’t actually part of a zoom conference until this weekend at Wealth Conference. And I thought, you know, since I can actually use a visual, I’m used to just talking on the phone, I thought I would do that. I took a $20 gold piece, one ounce, St. Gaudens back from 1908, and I held it up with a $20 bill, Dave. I said, originally this $20 bill was just simply a receipt for this $20 gold piece.

Then of course I had prepared fifteen $20 bills, and I counted it out right there on the screen. And I said, when I started in 1987 with Don McAlvany that’s what this $20 gold piece was worth – 15 of these receipts. And then I went on to say, now it’s close to 100 of these $20 bills. So it was interesting to me, I’ve never even done that visual. I’ve talked about it on the phone, but when you visually see that an ounce of gold stays the same, buys the same amount of bread that it did 100 years ago, but it takes one hundred $20 bills to do the same thing, it’s powerful.

David: When I’ve done something similar to that, my experience from that point forward has been a diminished interest in those paper receipts. I look at them with some degree of disdain and I have this compulsive desire to want to get rid of them as quickly as possible. And it could be on anything. I’d rather buy T-shirts.

Frankly, the smarter thing would probably be to buy gold or silver, but it doesn’t matter, I just look at it and I think, “This is a game and this game is being played on a clock, and if the time runs out, then it’s going to go from 1 to 15 to 100. To what’s the next multiple? Is it 200 or 1000? At a certain point, you realize that all we ever were playing with was confetti. And that’s the beauty of the old gold standard.

It’s fascinating, I’ve had this conversation with Richard Duncan offline about velocity of money, the change in the monetary system and why velocity is no longer important. And it’s a good conversation. It’s a healthy exercise.

Kevin: Right, because you’ve said if velocity increases, we’ve created an awful lot of money, so inflation has to hit.

David: And I want to hit this maybe next week, because we have the Z-1 report out. Doug Noland did a great job exploring some of that in last week’s Credit Bubble Bulletin, but I’m going to wait until next week to not only engage some of Doug’s comments, but also look at sort of Rich and my back and forth on that old equation, MV = PT [amount of money times velocity equals price times transactions].

Kevin: One of the things I like about Duncan is, he does raise my blood pressure because I don’t always agree with him, but MV equals PT has been a standard, and that’s being challenged by Richard.

David: Yes, so we agree that we have a new money and it is credit, so the old velocity doesn’t make sense anymore, and I’ll concede that to a certain degree. But I think if we’re saying we have a new M in the equation, we also have to look at a new V in the equation, which captures the growth in credit. And that’s why we will focus on the Z-1 report and say that velocity is not irrelevant, and actually, we have velocity moving into overdrive. We’re just looking for it in the wrong places. So we’ve adjusted our measure of money, but we’ve not adjusted what we’re looking for in terms of a measure of real inflation. Some of those comments next week.

Kevin: One of the questions that came up, Dave, when I showed a chart showing the dollar devaluation, if you go from one $20 bill to one hundred $20 bills for an ounce of gold, it was almost a 100% devaluation. I had a caller come on. They can do that on Zoom, they can ask questions. He said, “Well, if the dollar has lost almost 100% of its value, aren’t we done?” And I said, “No, you can start this chart again. A loaf of bread 100 years ago was six cents a loaf, now it’s close to $6. There’s nothing saying the chart couldn’t start again and go to $60 or $600. I know it sounds crazy, but it happens in every country that prints too much money.

David: And this is one of the conclusions that is arrived at by some of the smarter folks in the bond community who would say MMT will deliver that to you. Ultimately, what you get with MMT is nothing short of Zimbabwe. We’ve been there before. We’ve seen it in Hungary. We’ve seen it in Germany. You can pretend that this is new. You can call it modern, but this is the same old, same old when you start connecting the printing press to the debt which is created. When those two are connected, when those dots are connected, that’s the end game.

Kevin: One of the things that I’m concerned about, Dave, is MMT is something we’ve talked about over the last couple of years as just a euphemistic way of saying printing money. But now, we were talking last night about how Covid isn’t really a health issue at all. I mean, it is to a degree, but Covid is an economic issue, and the economic ramifications that we’re going to experience over the next few years will have little to do with the virus and everything to do with the response.

David: Yes, I think that’s fair to say. When you look at MMT, and its Modern Monetary Theory, but we are ultimately talking about economics and the impact on individuals’ lives. Because that’s – as you read through The Death of Money by Adam Ferguson, what you get is not a picture of money in theory, but people in practice. And this is where it is pain, and it is actual personal narratives that get played out when you start experimenting and doing things that ultimately are nonviable. So Covid – the drama continues. You’ve got the economic costs of shutdown which are piling up, and among those paying the highest costs are those who were in extreme poverty or those recently pushed into that category. I read a great piece in the Financial Times last week where Covid is in the process of lowering or demoting 71 million people worldwide into the extreme poverty category. That is defined as living on less than a dollar and 90 cents a day.

Kevin: 71 million more people living on a dollar-ninety a day.

David: That’s a downward migration. And this year, according to the World Bank economist, will be the first year of increase in global poverty statistics since the 1990s.

Kevin: One of the things that I wonder, too, we’re learning as we go along with this Covid thing, and are we really applying our learning? Because we’re starting to find there are elements of the population that are almost invulnerable to it, and then others that are more vulnerable.

David: This article from the Financial Times highlighted not a health shock but an economic shock. And the CDC report out in the last week also reports the infection fatality rate as follows, and I thought this was absolutely critical to understand. The infection fatality rate from the ages of 0 to 19 years old is 0.00003. That is four zeros and then a three, making the survival rate of people between zero and 19 who have had it and contracted it, 99.997% is the survival rate.

Kevin: You know what’s interesting on that? When you talk about pure gold, when we sell pure gold, we call it four nines fine.

So what we’re saying here…

David: This is virtually no one.

Kevin: This is like pure.

David: Right. So in that 20 to 49 age group, not quite as good. 20 to 49-year-olds, you’re talking about 0.0002, so your survival rate is 99.98%.

Kevin: Still a pretty good chance of living.

David: If you get it, 99.98% survival rate. That’s kind of interesting, 50 points, and this is again the CDC, the Centers for Disease Control. These guys are, I’ve been told, doing reliable science, but 50 to 69 years old, 0.005, so this is a half a percent, with a survival rate then of 99.5%.

Kevin: It’s the older people, isn’t it, that have a higher vulnerability.

David: There you go. Ages 70 and above it’s 0.054, so that’s 5.4% as the fatality rate. So the survival rate, those who contract at 70 and above. 94.6% survival rate. That’s again from the CDC. And I think from this it’s clear what age groups should take the greatest precautions and who, if anyone, should get a vaccine. This is not the flu. The flu picks on the very young and the very old. Covid, at least according to the CDC statistics, is very discriminating. It is picking on the old, at least it would seem.

Kevin: That goes back to what we were talking about. This is more of an economic crisis than it is a health crisis.

David: That was the main point of the Financial Times article. Economic shock, not a health shock, particularly in poor countries where death rates are far below the developed countries when it comes to Covid. That is worth pondering because there are two key factors, and I think these are fairly intuitive. Poor countries have younger populations.

Kevin: And why is that? Because the older have died earlier?

David: Yes, and I think this is one of the things. We look at our health system today, here in the developed world, in the U.S. and in Europe, particularly, but anywhere you want to include in the developed world, and our healthcare has allowed for maintenance of life with existing health conditions. So there are 50 different medications that someone might take to keep them alive. Just go back 50 years ago or 70 years ago or 100 years ago. With any of those conditions, that person would have been dead a long time ago.

But we’ve been figuring out ways to sort of stopgap measure our way to an older life. And now you can have one, but not two. And so again, this issue of co-morbidity, you can have one, but not two – you’re dead. Or you can have two, but not three. You can have five, but not six. So this is kind of like the tipping point with people of older age and pre-existing conditions.

Kevin: I also wonder, culturally, if poorer cultures can – the work at home thing is really for the first world. It’s not for the third world.

David: I think coming back to this issue of pre-existing conditions and our ability with a great health system in place in the developed world, it means that we’ve got a whole group of people that are in that five but not six category. Whereas if you go into the developing world, guess what? They’re already dead. And I don’t mean to say that cavalierly, but you end up with, as a consequence, a younger population. And as it relates to Covid, 99.997%, it means in the sub-50 category you’re pretty well in the clear.

The other thing is that you do have, I think, that second factor which to me is intuitive, is that poor countries have a lot more time spent outdoors. Again, we can work at home, they can’t. Lockdowns have had a disproportionately negative effect on the poor. I’m talking about an economic effect on the poor, because they’re required to get out for a daily hustle and find opportunity.

Kevin: Yes, it’s not Zoom that’s saving their job.

David: No, you can’t work at home. That is a first world solution, not a third world solution. So I would put this in the category of public policy demagoguery steeped in irrational fear, where we basically say, “Look, this is what’s working for us in the West and this is what everyone else needs to do. Shut down, shut down immediately.” And the consequences are very grave. Again, if it works for us, it must work for everyone.

I don’t know, I think that’s where we need to be a little bit more careful, a little bit more discerning in terms of how we apply these things. You’re in essence, for many of these developing countries, resetting economic, educational and health trajectories for the most vulnerable populations around the world, and you’re introducing an economic crisis which did not exist. And yes, I understand, we see through the lens of a health crisis in the West, particularly if you’ve got more gray hairs than anything else. But that’s the problem is that we’re seeing the world through our lens and there is another world out there, and we need to be careful that we don’t cross-apply too much.

Kevin: And what I’ve found, it’s actually a waste of energy trying to convince people whether Covid is a real deal, what these statistics are, because there’s no immunity from the economic outcome of the decisions. That’s the thing, you can waste an awful lot of energy trying to convince people that the policies need to be different. But the policies are not different. And I think we should look at what this is going to look like going forward from an economic standpoint. The financial markets have exploded to the upside, but that’s just because of printed money. You’ll talk about that next week.

David: And I think the economic departments of universities around the world will study this for decades to come, the economic devastation created by these broad-based closure measures, that’s what’s going to be analyzed. You have a decline in GDP growth, the growth rate record. This is record breaking. And so that in itself will stand out.

Kevin: Nothing like this in the world has ever occurred, including the Great Depression.

David: Right. So it will be discussed. It has to be discussed, at least as an anomaly, but particularly in development economics, and those development groups and NGOs are being set back decades, not as a result of Covid, but by the measures taken to mitigate the health risk. And that’s kind of the interesting irony here is we’re trying to solve one problem, and we’re actually creating one that may have far greater – I’m not insensitive to the fact that we have now a million global deaths. But what is it to push 71 million people into extreme poverty? What risk is it that we have multiples of 10 or 20 times the number of people who have died of Covid from the unintended consequences of shutdown? Does that make sense?

Kevin: Well, it does. And the world has never been so interrelated. I’m wondering if the reason the economic turn-down is going to be so devastating is because there’s really virtually no one that’s exempt worldwide.

David: That’s right. So you have the synchronicity of economic decline globally, which has never been on this scale before. Even go back to 1931 and it was a global depression. 83.8% of the world experienced recession or depression in that timeframe. 83.8% of the world was experiencing economic chaos.

Kevin: How about 1918 when we had a health crisis? Let’s tie that in with 1918.

David: Yes, so a flu far worse than what we have now, talking about claiming multiples in terms of the population, global population, 1918, was as bad as it got. It was probably the worst global health crisis ever recorded. So that’s 70% of – and I guess you could go back to the black plague if you wanted to use something comparably worse. So go back 500-600 years. 70% of countries experienced recession or depression in 1918.

Kevin: So fast forward.

David: 83.8% in 1931, 70% in 1918.

Kevin: How about 2020? Fast forward to now.

David: The estimates by the World Bank are that in 2020 92.9% of all countries will have experienced recession.

Kevin: And that’s not 2021, 2022, 2023. We’re just talking about now.

David: You could well argue that keeping economies open, which was an option, would have further exacerbated the case numbers and maybe even the total death. That’s possible. And to what degree we will never know.

Kevin: So what are we learning? The thing is, when you proceed forward in time, what you do is you say, “Now we know this. This is what we need to change.” Are we doing that, or are we still proceeding as if it’s the unknown disease we didn’t understand in March?

David: I think we’re still proceeding as if it’s an unknown disease that we still don’t understand. And the math suggests that smart engagement and risk segmentation would have been a far better approach. I realize that this is in retrospect. We could all construct a perfect response in retrospect, but going forward, it is still imperative to keep the math in mind as arguments are made for anything that is sort of broad-based, that is, across societal segments, and mandatory. Because you have groups like the CDC compiling numbers, and from that it’s clear what population groups are most at risk. Again, if you’re 0 to 19, your survival rate, if you contract it, is 99.997%. Let’s scoot up to the close to, while this could really be negative, 50 to 69 years old, you still have a survival rate of 99.5%. It’s only that category of ages 70 and above where you bump into 5%.

You remember weeks ago we talked about the fact that, and again, these are, I forget if it was the World Health Organization or CDC on those other statistics we were looking at, but co-morbidity where it was a high percent of those over 70 who may have had Covid, but they also had one, two, or three other things in addition to it. And so what was really responsible? It’s kind of like the straw that broke the camel’s back. That’s the point. It wasn’t Covid alone, it was a whole host of other things. And of course that, I think, is sort of out of the conversation today. But we are dealing with knowns versus unknowns at this point.

And so again, you look at the CDC’s compiled numbers, and it is clear what population groups are most at risk. And if we have knowns today that we didn’t have in March or February, then they should be informing health policies. They should reflect what we now know, particularly as we transition to a phase in the pandemic where vaccines are the crux for opening up economies again.

Kevin: Well see, that’s my concern, too, though, Dave, because I’ll be honest with you, I don’t trust the people sometimes that make decisions, whether it’s central bankers or whether it’s people who benefit from a cashless system or whether it’s people who benefit from possibly making inoculations mandatory.

I’ll give you an example. We have a family member right now who is 81 years old and he’s in a VA home, and he has not been able to be visited for months. We got a call because his life is on the line now. So when the life is on the line, my wife has been able to go in and spend time with him.

It’s a very difficult situation, but what we found out when we got there was compliance. I’m talking about mask, not associating with anybody who had had Covid in the last few weeks, making sure that we had not been in crowds. They took our temperature. All of those things. It was like going through, actually, the difference between East Germany and West Germany. Remember the wall, to get through? That’s what it felt like.

And so compliance. I have no problem wearing a mask, I will tell you, just out of consideration for others. But compliance was mandatory for participation. Does that move, Dave, to a mandatory inoculation? I’m worried about that, to be honest with you.

David: Well, it raises some interesting questions about choice. Where does choice get to play a role in this? An argument can be made of physical sovereignty where you are moving inside the body and need permission, if you’re talking about mandatory vaccines. And again, I don’t mean to sidetrack this with the whole vaccine, non-vaccine thing with children.

Kevin: But the question is, where do you draw the line?

David: One of the grand experiments embedded in this Covid saga is the issue of who and how a social convention defined.

Kevin: It’s the line. Where is the line?

David: Right. So that that’s one thing that I think is kind of a fun conversation. How are we defining social conventions and who is defining them? And then secondarily, what consequences are attached to being defined as compliant or noncompliant?

Kevin: Right. If you are noncompliant, you can’t participate.

David: If you’re non-compliant, are you viewed as a threat, again, according to that convention? These are things that are happening in real time, and because there’s fear attached to them, there’s not a lot of open conversation. It’s a lot easier to bifurcate and say, “I’m a mask-wearer,” or “I’m not a mask-wearer.” That’s really not my interest, and forgive me, I studied philosophy in college and that’s been a curse for 20-odd years.

But in the case of non-compliance of masks, it’s now denial of access. What about a vaccine? Make it mandatory once it’s available? And how do you deal with the burden of proof in terms of who has it, and how do you prove that you have it? These are significant practical and, I think, somewhat philosophical questions to consider, even his public policymakers push for a very simplistic, one-size-fits-all solution.

And I come back to these CDC numbers and say, “Do we need a one-size-fits-all solution when, actually, there is one particular segment in society which is at risk? And we should care for them. We should do everything that we can to preserve life for them. What does that mean, and how do we do that in a thoughtful fashion?

Kevin: Well, you’re not anti-vaccine. Let’s face it, that’s one of the great inventions of the 21st century.

David: It’s one of the greatest achievements of the 21st century. It has saved tens of millions of lives, maybe hundreds of millions of lives. But it’s worth noting that progress has had a price. And this is where, again, I look at what we’re doing with the vaccine today. There are adverse events, and these are the things that doctors are looking for in the process of doing multiple trials to see what’s going to happen? Are you going to have your eye lens delaminate from your eye? Are you going to melt down inside? What’s going to happen of a negative nature?

Adverse events are part of the routine trials that the original animals, literally animals, and then human guinea pigs, experience as a new protocol is rolled out? And so you have a 30-day look at, you have a 42-day look at, and even some after-studies where you might look at 60 or 90 days. But we haven’t had anything that has been promoted as the solution. And as soon as we do, there’s still going to be the question of adverse effects which may not show up until you’re outside of the trial periods. So we are, in that sense, dealing with the unknowns.

And then there is, of course, my body, your body, body-specific immune responses, which are very critical, and individuals need to be making decisions on the basis of what they know about their health. I remember going in at age 40 to a heart specialist in Houston. I was referred by one of her clients who was a heart surgeon in his eighties. I remember he was still literally doing these public presentations, this heart surgeon, about longevity and age. He was 75 years old and the first thing he would do standing on a stage in front of people is do a back flip. And it kind of gets your attention when a 75-year-old sticks a back flip on a stage.

Kevin: It reminds me of Jack Palance when he went out and he did one-armed pushups when he was close to 80 years old, I think.

David: And so this was a client of ours and he referred me to his heart specialist. So I go down to Houston, go to this heart specialist, and he starts looking at my blood work. I just wanted a baseline for sort of heart health moving forward, and I thought 40 would be a good time to do it. And he says, “You’re fine.” He gives me those weird decimals that go 0.0000000…. He said, “You’re fine in terms of heart disease, he says. But when you turn 50 you have a 50% chance of getting heart disease. And I said, “Wait a minute. Are you dealing with my numbers, or are you dealing with national averages?” And he said, “Oh, well, all we have to work on is national averages.”

Kevin: Talk about a disconnect.

David: The disconnect is that there is a solution which is good for everyone but might not be good for me. And the nurse marched in and said, “On the basis of where we see you at age 50, we recommend that you take these cholesterol meds.” And I thought to myself, “I have no problem now, but you’re prescribing something on the basis that’s hypothetical and applies to “everyman.”

Kevin: So this is your point today on Covid because if you think about it, if you look at the statistics, are we learning anything? Can we be clearer as far as who should be quarantined or who should be cared for? I don’t think mandatory inoculations makes sense for any age group, personally. They have no right to tell us that. But on the other side of things, just like this heart specialist, why would you be treated like the masses if it doesn’t affect you?

David: We’ve come so far. Think about what it costs to sequence the human genome today. We can have specialized tests done such that medicine is customizable to the individual. And yet we’re still dealing with medicine which is 30 years old, 50 years old, 100 years old, where we’re just basically dealing with statistics and bell curves instead of individuals. And I’m not sure that that’s how I want to be treated, because I know that I have particular health needs, and I’m very sensitive to what those health needs are.

I’ll never forget the bedside manner of the man who worked with my wife when she was diagnosed with cancer. We went to yet another. It was comparison and contrast. We went to M. D. Anderson and the doctor was 2½ hours late. So that kind of sets the tone for the meeting. Walks in, never makes eye contact, looks at the chart the whole time, says schedule surgery for Tuesday at 3:00 in the afternoon, and so and so will take care of postop, and walks out. We waited for 2½ hours for the guy to be a jerk. What my kids would call a Richard, and I think you can do the translation on that.

And so I think what I experienced coming back to Durango and sitting with the surgeon that we chose, he hops up on the countertop, sets her file aside and says, “Let’s talk. I want to know your story. I want to know about you. What’s been going on?” It was like, all right, he cares about her health. This is not just a procedure which is going to be done universally. It really, really meant something to me.

Kevin: I might have had that same surgeon because I was scheduled for surgery for a thyroid.

David: Dr. Deaver.

Kevin: Yes! And he looked at things and he did the same thing and he said, “Wait a second. I’ve got a buddy over in radiology. Let me check something.”

David: This is a New York City – he was trained at the best schools, decided that he wanted to live in a small town as sort of like a soft retirement, and he’s one of the best surgeons I’ve ever met. But his bedside manner meant everything because medicine was down to the individual. He cared about my wife, and I cared about that.

Kevin: And I ended up not having surgery, too, so that’s interesting. I’m learning this while we’re recording. It’s fascinating.

David: Well, she did have surgery and he was the one that did it, but it was such a better experience.

Kevin: Well, he thwarted that. So let’s go back to the Covid then for a second. If you’re saying this is not a universal application, what age group would you go for? Obviously you’d go for the older age group.

David: Yes. Going back to the CDC stats, should everyone get a vaccine? Not a chance. We’re moving at breakneck speed to solve a problem that is tapering already. I have a family member. He spent years at Mackenzie and then was very successful in his own business, happy to provide a link to his 77-page math study. His area of expertise is big data. That’s what he did.

Kevin: I read through that. It was all statistics, but they were good statistics. He showed that this is not a problem that should be solved as if it was just a universal Band-Aid.

David: Yes, a 77-page math study on Covid that I found helpful. Do we have, and will we continue to have, an increase in cases? Sure, in some places. What groups are actually at risk of mortality? Listen, I’m not trying to be callous or insensitive. I’ve noted previously, I’ve had nearly 10 family members and friends test positive, and it’s a very uncomfortable thing because you are faced with that question of mortality.

Now the math would suggest that odds are in your favor, but let’s be thoughtful about how we mitigate that risk. As vaccine trials are sped up and the normal clinical observation times are compressed, what are we doing? We are fitting an existential timeline, and it’s the existential timeline of politicians and panicked people. It would be worth segmenting risk according to age, sex, race and ethnicity, medical co-morbidity. And again, you factor all of those things into an appraisal of concurrent medications and all the relevant factors that go into saying, “We have to elevate your risk and the care that we give for you, and over here we don’t have the risk, we don’t have to apply it the same way.

Kevin: I can just say right now, from a business perspective, you don’t mind wearing a mask. There are certain rules and guidelines that Colorado has that you are basically requiring or asking for here at the office. So the mask-wearing is not the issue, and I don’t know that necessarily taking a mask off is making that great of a statement. I think that the issue that we’re coming into doesn’t have to do with masks. It has to do with privacy rights. What’s mandatory on a worldwide basis?

David: You’re right. I don’t mind wearing a mask. I think there are people all around me with medical conditions and friends that are of an age that fit the highest risk profiles. I have a lot of friends that are 70 and over. Out of respect for them and to reduce the risks of further spreading Covid, if I did have it and were asymptomatic, I’d choose to wear one. That is my expression of kindness. I don’t think it’s unreasonable. I’m happy to defer to clients or employees if they have a particular level of concern that exceeds mine, and again, just demonstrate kindness through that. But the non-compliance and therefore sort of access denied social conventions that have emerged out of Covid are frankly disturbing to me.

Kevin: And you can really feel it. When you get into anything where there’s a government operation or something, they don’t ask you what your opinion on Covid is, by the way.

David: No. I watched this YouTube video of a mother in Ohio getting tased at a 7th grade or 8th grade football game. Everybody is sitting far, far away on the bleachers, it’s outdoors, it’s not an indoor arena. And she’s not wearing a mask. Cop walks up to her and says, either put on a mask or leave. And she says, “I can’t wear a mask, I have asthma.” And he says, “Put on a mask or leave.” And she says, “I’m not leaving, this is my kid’s football game.” And he says, “Leave.” And now all of a sudden charges her with trespassing and tases her. And it’s like, wait a minute. What is this? What? And again, I’m just looking at the social conventions and this is the real issue for me, and again, set aside Covid, if you can do that.

Kevin: You’re questioning groupthink right now.

David: How are we coming to the conclusions we’re coming to in terms of constructing a social convention, defining it, attaching a value to it in terms of compliance, non-compliance, threat, non-threat, and then dealing with that socially through ostracism, shame, what have you? Or in this case, a Taser? I’m thinking, “Wow, I’m not sure that we’re fully engaged here,” which is where we should just put on the brakes, have a cup of coffee, maybe a glass of wine, sit down with a friend and have a beer, and talk these things through.

So imagine this taking on a life of its own, and I hope this isn’t slippery-slope logic, but I see an MP in the UK, Tobias Ellwood sends a letter to the prime minister, stands up in grand form with all of his colleagues. And yes, they’re seated at an appropriate distance. And no, he’s not wearing a mask when he’s giving this presentation. But this is in the UK, and it’s just illustrates how disturbing this could be. He basically says, “Yes, mandatory inoculations or vaccines, the logistics are easy to manage. The military has the ability to not only handle the distribution but also the implementation. Then all we need is certification of vaccination, and that would, of course, be mandatory and required for mobility. If you’re going to travel, you have to have a vaccine. And if you’re not going to get a vaccine, your life is not returning to normal.”

And I’m listening to his speech saying, “Does this make any sense? Mobility and travel restrictions, even if you can prove you don’t have the virus? And I come back to this issue of, wouldn’t targeted testing be a reasonable alternative? Isn’t there a way to say high-risk, low-risk, medium-risk, and have a flexible, more customized approach instead of one-size-fits all? I’m not 70. That doesn’t mean I can’t get it. There was an endurance athlete here in town, about 35 years old, an ultra marathoner. He got it and he is dead as a doornail.

I’m not saying that anyone is immune or like Superman, but I am saying, isn’t there room for, like the Swedes, who went about it in a risk-aware and risk-segmented fashion. Not everyone has the same medical background or personal profile and should not be put into a one-size-fits-all approach. This goes back to the Financial Times article because we’re talking about the cost, unintended consequences in the developing world, which far outstrip what we’re doing in the developed world to save the few. This is this is really interesting.

Kevin: Well, and that goes to the point that this is an economic crisis. This is not a health crisis, per se. It is a health crisis to a degree, but the economic ramifications are multiples of the threat of actually dying of the disease. So what were the suggestions that the Financial Times article had?

David: Totally disappointing. It was totally disappointing. The conclusion reached in the FT article was very unimpressive. First of all, they said, follow Mackenzie’s advice. Mackenzie had done a study on opening of digital bank accounts and how that was bringing people out of poverty. So it basically said, “Follow Mackenzie’s advice. Make sure that the poor have bank accounts because then they can have savings. And that cushion is the difference between hope and despair.”

Kevin: Stop for a second. Four years ago, when you and your dad went on tour across the nation and you did conferences, three years ago, 2017, we had a little clip of Bill Gates talking about that everyone had the human right to have a bank account.

David: Financial inclusion.

Kevin: Yes, financial inclusion. And we’re sitting here going, “Wow, this isn’t self serving at all, is it? This solves everything to force people into a cashless system.” But about that same time, India made the 1,000 and 500 rupee notes illegal, to force those people into what was their human right, which was bank accounts.

David: I just had to smile and think, “I was really enjoying this article. Now it’s almost a throw-away.” Savings dependent on the ability to have a bank account? Savings have never been dependent on an institution or someone taking in a deposit.

Kevin: Governments just don’t want to see cash out in the system because it’s not something that’s under their control.

David: And I think in a world of negative or near-negative rates, that becomes very relevant in terms of public policy levers that you can pull or not pull.

Kevin: Captive audience. Captive audience.

David: Right. So if you have money that’s circulating outside of the system, you can’t track it, you can’t control it, and you can’t impose a secondary tax on it, which is essentially financial repression. At the end of the day, if you think about the MMT crowd, you have the ability to print. That’s one version of power. But the thing that’s required for you to not lose legitimacy is that you still maintain the power of coercion by taxes. But again, the more you control your audience and control the capital pool, the easier it is to maintain legitimacy if you are in that MMT crowd.

Kevin: So if you give them a bank account, they still don’t have money. Where does the money come from?

David: Well, that was the second solution. Again, kind of unimpressive, there is a book with this title: Just Give Money to the Poor. It’s at the end of the article on Covid, and the economic costs accruing to the poorest of the poor, and they’re rightfully noting that in the developing world it’s not a health crisis, it’s an economic crisis. What they end up with is an unveiled pitch for financial inclusion, where it’s going to be easier to give money to the poor through digital means. And as a reminder, this whole financial inclusion thing is not new. It’s not Covid related.

Kevin: But you have to get rid of that dirty cash.

David: It is dirty cash.

Kevin: Git rid of that dirty cash. Don’t you know that only illegal transactions occur with cash these days? Do you remember reading that? Rogoff? He’s like, “Hey, why in the world would you need cash unless you’re a criminal?”

David: That’s right. Well, it’s not just about Covid. Public policy shifts. Public policy issues morph to take advantage of fear and feelings.

Kevin: Right. Remember the Trading with the Enemy Act of 1917? Just as we started to go into World War I and help Europe, these guys had this act already ready to go. A little bit like the Patriot Act, I guess. Don’t get me started.

David: As a note to ourselves, whenever and wherever it’s the case, public policy taking advantage of fear and feelings, we should at least pause. I’m not saying start a revolution, we should pause. We should discuss the pros and cons of those policy proposals, not just allow for legislative decisions to be ramrodded through. And in some sense, I almost dream of a direct democracy, something that our friends in Switzerland have.

Kevin: Wait a second. Now this is going to raise comments because we have a republic. Okay. Direct democracy has never worked according to the Founding Fathers. Direct democracy leads to problems. Are you saying at this point we don’t have representation in Washington, enough so to the point where the republic itself would be less preferred than a direct democracy?

David: I still like the idea of a republic. I guess what I’m dealing with is, as I’ve reflected with my oldest son, who just finished Frederick Bastiat’s The Law, we’re discussing this issue of the law becoming a tool for the abuse of people. The rule of law is wonderful and in a republican form of government, not as in the party, but as in the old standard form of government, is great, but the law can be used as a tool of repression and abuse, and so having a way to have a direct voice into the legislative process when the law is becoming oppressive. And I guess that’s my concern is if and when the law becomes even more oppressive, do we have a direct voice any longer? At that point, I would wish to have the same kind of voice that my friends in Switzerland do.

Kevin: So maybe you’re not there yet. Because it’s shocking.

David: I know. But I’d settle for civil discourse. I’d settle for a conversation that sorts out which concerns and objectives are being aimed at and which are applicable to us as individuals.

Kevin: So we talked about Covid not being necessarily a health crisis as much as an economic crisis. But when you have fear, you can move the agenda forward. And we have talked for years about the agenda being a closed system.

In fact, I was thinking about this the other day. Dave. You have the zombification of everything when you bail everything out. That requires printing money. That requires lowering interest rates. So then next “ation,” let’s call it devaluation. And then there’s repression, which is having interest rates lower than the inflation. Zombification, devaluation, repression.

The problem is the fourth element. The fourth element is a captive audience or captivity and Covid could be used for that very thing. We talked about mandatory inoculations. What about mandatorily being in the banking system? What the heck does that have to do with Covid?

David: I know. Maybe it was coincidence to get the Financial Times article on, basically, financial inclusion is the conclusion they came to at the end of talking about the economic consequences of Covid. And then you have Cleveland Fed President Loretta Mester pushing a move to digital currency.

Kevin: That’s not surprising.

David: No, this is not Bitcoin. This is not a theory. And this is not like – nothing that you’ve ever heard of. No surprise there, the Federal Reserve is not going to be champion of anything that they don’t control and have monopoly over. But I want to quote from her pandemic speech last week. Again it is an interesting coincidence with the Financial Times article as well.

“Industry participants may need to rethink their payments technology investment strategy once we’re through the pandemic. The spread of Covid-19 heightened the reliance of business and individuals on digital services and faster connectivity as many employees began to work from home and consumers turned to online shopping. Global demand for U.S. currency notes increased at unprecedented rates in March as currency orders from domestic and international banks spiked dramatically. The amount of cash stored at home or elsewhere rose even more, nearly 90% from an average of $250 to over $475.

Legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited as liabilities of the Federal Reserve banks, which could be used for emergency payments. Other proposals would create a new payment instrument, digital cash, which would be just like the physical currency issued by the central banks today, but in a digital form and potentially without the anonymity of physical currency.”

Kevin: Wow, there you have it. There’s the captive audience that Carmen Reinhart told us about a few years ago.

David: So Bill King commented, because he put this into his Daily Report, “This will kill the big Banks.” And he’s right. What is going on here? What is going on here? The commercial banks are already under pressure, and again, I want to talk about that a little bit next week, King’s comment on the big banks, because if you look at the Z-1 report, which we’ll do next week, the changes in the financial markets have not been good for banks. It’s been great for the bond pimps, but not for banks, not for loan officers, not the traditional purveyors of credit.

And Richard Duncan, again, we’re talking through velocity of money, and I think the Z-1 report shines a light on why he said a few weeks back that velocity is irrelevant. He makes a point, but I think it’s incomplete. We’ll cover that more and expand the MV = PT next week.

Kevin: I have to go back to what John Maynard Keynes said about inflation, when he said, “It’s a tax that not one in a million really understands.” Part of the reason we do this program, Dave, is so that we can be educated as we see things move forward. When people say, “Yes, we have Covid so we need to have digital currency.” If there’s a disconnect there, we need to call it, right? Let’s talk about it.

David: Can we just have a beer and talk about it? If nothing else, let’s just pause, because public policy is always in the service of someone, we just need to make sure it’s in the service of the people and not the politicians themselves. Is that a fair conclusion?

Kevin: But what if It’s for the greater good, Dave? What if it’s for the greater good? Now, I’m going Orwellian on you a little bit, but the greater good.

David: A couple of things, just back to Loretta Mester’s comments before we move on, because you’ve got people hoarding, for a worst case, even as they use their credit and debit cards. We’ve talked about that in terms of hurricane syndrome in the past, where if you think something bad is going to happen, you go out and pull from the ATM, you have a little extra cash, but you go ahead and use your credit and debit cards for a long as the lights are still on, the electricity is working.

Kevin: But she says no more cash. We just need more digital currency

David: The solution is a digital bank account directly with the Federal Reserve. That’s fascinating. Why that last mention of it being without the anonymity of physical cash? What’s wrong with anonymity? I’m curious. That, to me, is a discussion point. You don’t get to have that and say, “Well, of course, anonymity is wrong.” No. prove it.

Kevin: Big brother. Big brother. And I know that’s overused, but this goes back to my question on the greater good. This goes to inoculations. This goes to cashless societies.

David: This is an extension of the Covid concerns, you’re right, because it seems we are decided on an ethical standard that judges anything to be legitimate if it is “for the greater good.” There are various ways of looking at ethics. Greater good, I think, is just one version. You have utilitarian ethics, you have a dozen different versions of how you sort through moral and ethical decision-making. That’s a whole study in philosophy.

You have metaphysics, epistemology, ethics and logic. And in ethics, you’re looking at all of the different systems of analyzing what is good and why. The greater good ethic is just one version, it is just one school of thought. It happens to be the one that seems to be operable.

Kevin: Do you like living in a society that is under the rule of law?

David: I do.

Kevin: And so, if you do, is there a time to break the law? The New York Times broke the law when they went after Trump’s tax returns. Was that for the greater good? Was that a worthwhile breaking of the law? Or is this a breach of the system of law that you’re talking about?

David: So that’s worth talking about, isn’t it? Because we will measure the merits of Covid containment strategies on the basis of, for the greater good, or whatever. And you’re right, I don’t hear anybody asking questions about the New York Times’ acquisition of President Trump’s returns. You are talking about something that is in violation of the law, but nobody’s going to worry about it if it is for the greater good. So that’s the question. Have we conceded an ethical area? This is the way we’re going to make all decisions. If so, we need to be aware that there are implications from that. There are trade-offs with each of those schools of thought – philosophical, ethical, schools of thought.

Kevin: I’ll be honest. When Snowden released the information, I realized that if there were laws that were broken, I even yielded to, good for him. It’s about time that we hear this stuff. So I don’t want to act like I’m not a hypocrite. I’m a hypocrite.

David: So back to the president’s tax returns. Why do we focus attention on some issues and turn a blind eye to others? I think it comes back to these few simple words – it’s for the greater good. Now the problem with that approach in ethics is not that you can’t make a case for something on that basis, legitimately, but that in fact you can make a case for almost anything on that basis.

Kevin: That’s when the rule of law starts to break down and people make decisions. It talks about this in the book of Judges in the Bible, when men were just doing whatever they thought was right.

David: So there are legitimate uses for the greater good ethic. There are also illegitimate uses for the greater good ethic, and you have to apply a degree of critical thought and inquiry or you end up adapting this view of ethics and turning it into a weapon which is wieldable by any sort of politician, even to the most egregious of issues. And we forget that the value of the many, as long as we’re counting the greater good as a host of a number of people, we forget that the value of the many is rooted in the value of the one.

Kevin: So let’s talk about the president’s returns, though, for a second, because at this point, I don’t think anybody is saying that he broke the law. He just used the law to not pay taxes. You can make your own judgment call as far as whether that’s ethical, moral, or what have you, but it’s not as if somebody has come out and said that he’s a tax cheat. All it basically is saying is he has figured out, maybe he has hundreds of accountants, but he has figured out how to use the law to the best advantage.

David: Just a kind of public announcement. I don’t listen to Fox News. It drives me up the wall. NPR’s coverage of the tax returns was great. National Public Radio were thoroughly annoyed that wealthy Americans for decades have been taking advantage of legislation that favors property ownership. This was the explanation of this whole tax kerfuffle. Some people have mastered it, and are paying minimal taxes by using the tax codes, write-offs.

Kevin: Not just Trump, General Electric, I don’t think paid taxes for a long time, either.

David: Right. You should see the size of their tax department. They have highly paid CPAs to try to figure out how to interpret “properly” the tax statutes.

Kevin: But they’re not necessarily cheating. They’re just using the law.

David: And there are always biases built in, and that’s by design. If you look at the 1031 exchanges, they used to apply to dozens of assets and as of the last tax code revision, only real estate has a 1031 exchangeable…

Kevin: Why is that? We could certainly use it in precious metals. I would love it.

David: But it’s not art, it’s not collectable coins, it’s not cattle. It’s only real estate. So knowing the code and its many provisions is how – you mentioned GE – a lot of other corporate giants lower their effective tax rates. And frankly, without comparable resources many Americans probably overpay. Or in the case of non-property owners, pay more on a relative basis because of the codes’ internal biases. So the bias is designed to promote a certain behavior. So what are the behaviors that they want? They want homeownership, which is real estate, and so it applies to all real estate.

Kevin: You brought up carbon credits last week for Tesla. Carbon credits are another way that you can play the law and actually gain from the system.

David: Right. You want to buy an electric vehicle, you get a tax benefit from that. How about solar panels on your office or home? You can capture not only a tax credit but also accelerated depreciation. That is a code issue, not a Trump issue. Trump’s real issues concerning debt are really coming up on him fast. He’s got $100 million of debt that he needs to roll over. So either roll it over, repay, whatever. And then he’s got $73 million which is either going to be allowed or disallowed. These are write-offs. These are real issues. But as I listened to the NPR tax analysts – again, this is not Fox News tax analysts, this is NPR’s tax analysts – it wasn’t illegal, they’re just annoyed by it.

Kevin: They’re annoyed, which… Victims again, I’m sorry NPR, victims again, but what he did was not illegal.

David: At least it hasn’t proven to be to this point. We’ll see if he stepped over the line. That’s the point of audits. I’ve criticized Trump’s use of bankruptcy code in the past, and again this comes back to the tax code. But I’ve never criticized it on the grounds of it being illegal, just that it’s not necessarily honorable. When you’re in business and it’s kind of a heads I win, tails you lose, built in strategy, I just don’t like that.

But having said that, if you look at American enterprise, American enterprise is more robust, and entrepreneurial risk-taking is more common because of the bankruptcy sections. So there is a robustness to what we do and how we operate relative to the rest of the world. You just have to look at the trade-offs. And so if you do change the biases that are embedded in the code, there is something to lose at the same time. You may gain a few more tax dollars, but you’re also going to shift behavior in another direction. How many people would be buying solar panels without the tax credits and accelerated depreciations and things of that nature?

All of a sudden, you realize maybe you want to prioritize alternative energy, and that’s why we’re doing it. Incentivized behavior. Prioritize home ownership. No homeowner is complaining today about record high prices in terms of real estate. And yet the tax incentive was one of the things that got that trend and a greater degree of home ownership in America going.

Kevin: I think this is probably an aside, but if you don’t have a good tax advisor, I’m not talking about just sending your taxes every year to H&R Block, but a good tax adviser, you’re probably missing something, legally missing something.

David: What I’ve always told the folks that I work with is keep me well inside the envelope.

Kevin: Yes, don’t take risks.

David: I don’t want to push the envelope because while I appreciate the code has certain biases that are beneficial, and maybe this is a difference in personality. Trump may want to walk the line. I don’t want to step anywhere close to the line because if it slips over, guess what? I just don’t like 8,000-lb gorillas with straight razors. It’s just not my cup of tea. It’s not how I want to spend the afternoon or the rest of my life.

Kevin: Yes, but it’s also not your patriotic duty to be ignorant of the law and not use it. And so there’s this balance and you have to ask yourself, “Who would you rather have to be president?” That’s coming up here in about 35-40 days.

David: So in other news, this is kind of interesting just in front of this week’s debate, and we’ve got something like 30 days before the election. Very fascinating. Trump received a $3.5 million wire from Elena Baturina, the wife of the former mayor of Moscow, and we’re to believe there are no nefarious Russian connections in the political arena. This was Crossfire Hurricane. This was the whole point. We see it. There’s a smoking gun. Of course he’s connected to the Russians. What was it for? $3.5 million. This is unbelievable.

Kevin: Wait. Wait a second here. Trump received the wire or are you mistaken? You’re mistaken.

David: I said that wrong. That was from the Senate report slamming Hunter Biden’s Russian connections.

Kevin: Well, it sounds just like Trump. Hunter Biden sounds just like Trump, David, I can understand your mistake. I quote from the Senate report: “The Treasury records acquired by the chairman show potential criminal activity relating to transactions among and between Hunter Biden, his family, and his associates, with Ukrainian, Russian, Kazakh and Chinese nationals.

The problem is, this was a report that was put together by the GOP. There’s probably no truth to it whatsoever. And I’m sure the Treasury was mistaken about that $3.5 million wire that came in from Elena Baturina, that is, the wife of the former mayor of Moscow. I’m sure that’s not factual. I’m sure they can’t find records of that, and I’m sure it was, in fact, for legitimate reasons and there was nothing nefarious in terms of Hunter Biden’s Russian connections.

Kevin: So just in case the listeners are thinking that we’re sarcastic and cynical, we’re not. But we do ask that we be educated on, when you said it was Trump receiving the wire, you were being tongue in cheek. But the truth of the matter is, most of the public is not educating themselves on what’s actually going on.

So, Dave, going back to Covid, not to talk about the virus, but to talk about the numbers, because we’ve talked about this being an economic problem, and we’re going to see the ramifications of that and a universal diagnosis and a universal inoculation or a universal solution might be exactly the wrong thing, not the right thing.

David: Well, again, the World Bank estimates of 92.9% of all countries being in recession in 2020 – that is an economic crisis. So V, in this case, we’re going to come back to this next week, not for vendetta, V is for velocity. And we need to look at credit creation on a scale that, frankly, has to have the word hyper attached to it. We have a new version of money which includes credit, and it’s exploding, and it has implications for the financial markets. We now have a major issue in terms of a global pandemic and everyone responding to it, which creates its own economic crisis, which, if we’re not careful, can become a nasty political and geopolitical issue. Think about the 71 million people who are unhappy, who really have nothing to do because they cannot do anything because they’re told they cannot work and cannot leave home. This makes for very volatile politics in the years ahead, and desperate people do very desperate things. I want to focus on the Z-1 report next week as one iteration, one expression, of desperation on display. What will we do to maintain the system as it is, to maintain control of some sense of normalcy? And what will we give up for a return to normalcy? The Z-1 actually has a lot to say.

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