The paths of destruction

How SARS-CoV-2 causes disease and death in covid-19

There are direct routes and indirect ones

THE FIRST SET of lungs felt like rubber, says Rainer Claus, so damaged that it was impossible to imagine how any amount of oxygen could get through them. The lungs in the rest of the ten covid-19 victims that he and his colleagues at the University Medical Centre Augsburg, in Germany, autopsied in early April were in similarly awful condition.

This has been, for the most part, the story around the world. People get infected with SARS-CoV-2, the virus which causes covid-19, by breathing in tiny liquid droplets containing virus particles. Those particles gain entry to the lungs, where they start reproducing themselves. If the immune system does not stop it—which it mostly does—the virus causes so much damage that the lungs can no longer do their job, ending up like those in Augsburg.

But there are other facets to the disease not so easily understood. It robs some of the infected of their sense of smell; in others the toes or fingers darken as if bruised. Hearts swell; blood clots; immune systems cripple organs they are meant to be saving. Doctors around the world are trying to find out how much these various symptoms are attributable to direct effects of the virus, to secondary effects of the damage it does to the lungs, or even, in some cases, to the treatments used against it. The more of the story they can disentangle, the better the standard of care is likely to get.

For the virus to attack a cell, the cell’s surface needs to be adorned with a protein which plays a role in the regulation of blood pressure and inflammation called angiotensin-converting enzyme 2 (ACE2). This is found on plenty of cells in the upper respiratory tract and lungs, as well as the linings of blood vessels and the heart, kidneys and intestines. In some cases the virus may get into those intestinal cells directly, having been swallowed. In other cases it seems to get to the gut, and other susceptible organs, via the blood.

Mostly, though, the virus seems to get no further than the ACE2-rich cells of the nose and throat, and perhaps the lungs, before the body’s defences take care of it so well that its presence is never even noticed. Tests which look for genetic material from SARS-CoV-2 in swabs from the nose and throat frequently find it present in people who show no other sign of it at all: in one British survey 70% of those who tested positive were asymptomatic.
Most of those who do fall ill suffer flu-like symptoms, typically with a fever and a cough, sometimes with diarrhoea, that get better after a week or so. But some suffer for longer, failing to shake the infection before getting badly sick. Many of these people will, after a time, start to feel a shortness of breath as the lungs’ ability to oxygenate the blood weakens. About 10-15% of those who are diagnosed—which may mean less than 5% of those infected—eventually become ill enough to need a hospital.

Almost all of those hospitalised have symptoms of pneumonia—the general name for the response of the lungs to a variety of viral, bacterial and fungal infections. When they get deep into the lungs, the SARS-CoV-2 particles find a target-rich environment in the alveoli, tiny air sacs which hang like bunches of grapes off the lung’s branching network of bronchial tubes and are lined with cells festooned with ACE2. It is in these sacs that oxygen from the air breathed into the lungs passes into the blood stream, and carbon dioxide from the blood passes into the lung to be breathed out. The more the virus damages and kills the cells lining the alveoli, the more difficult this exchange of gases becomes. Hence the shortness of breath.

In some covid-19 cases, though, this shortness of breath—a textbook symptom of pneumonia—does not show up. Doctors have got used to seeing patients with blood-oxygen levels so low that they should be dizzy or unconscious, but who show no sign of respiratory distress.

Daniel Johnson of the University of Nebraska Medical Centre says his theory is that SARS-CoV-2 may be affecting the nervous system. That it can do so in some ways, at least, is hinted at by the fact that some patients report a loss of the sense of smell early on in their infection; there are other signs, too. Perhaps the virus has an effect on the part of the brain which tells the lungs to work harder when carbon dioxide builds up in the blood.

Angles of attack

Another possibility is that the lungs are not the only thing at fault. In some of these atypical patients the perilously low blood-oxygen level “seems to be out of proportion to the overall injury to the lung,” says Joseph Levitt of the Stanford University Medical Centre. The lungs of covid-19 patients feel different, too, he says. Typically, the lungs of patients with severe pneumonia become stiffer, which makes moving air in and out of them increasingly hard. The ventilators on to which such patients are put pump in oxygen under pressure, thus doing some of the lungs’ work for them. The lungs of covid-19 patients with blood-oxygen levels low enough to need a ventilator, though, are not so stiff, says Dr Levitt. They have not exhausted their ability to do their job. But the job is not getting done.

Dr Levitt wonders whether the problem may be in the blood vessels. ACE2’s role in looking after blood pressure depends on its ability to regulate signals that make blood vessels constrict or dilate. The way SARS-CoV-2 binds to ACE2 probably makes it less able to take part in that signalling. Covid-19 may thus reduce the amount of oxygen which gets into tissues not just by damaging the lung, but also by narrowing and damaging blood vessels. If so, drugs to dilate the blood vessels might help, at least in some cases. Finding out what treatment works best along those lines, though, requires clinical trials, says Dr Levitt.

In hospitals the treatment will normally start with extra oxygen supplied through a nasal cannula (a plastic tube with a prong for each nostril) and therapy to combat dehydration: patients have typically had a fever for days and not been drinking enough, leaving their bodies badly short of fluids. Rest, rehydration and extra oxygen, along with drugs for any secondary infections that have taken advantage of the body’s stressed-out state, give the immune system a chance to get the upper hand.

The immune response to a virus starts with infected cells producing a suite of signalling molecules called cytokines. Some of these tell other cells nearby to be on their guard against attack, thus stymying the virus’s ability to replicate itself. Others tell the immune system to come and put some stick about. Thus called to arms, the immune system launches both a prompt all-purpose response—inflammation—and a subsequent targeted counter-attack using antibodies and cells specifically programmed to attack both virus particles and the cells they have infected. Unfortunately SARS-CoV-2 seems able to interfere with the early steps of the immune response. It can apparently counteract the part that dampens replication in nearby cells. It may also enhance inflammation.

Whether the virus helps it along or not, severe inflammation of the lungs often leads to what is known as acute respiratory distress syndrome (ARDS). It is ARDS that sees people rushed to intensive-care units (ICUs) and put on ventilators.

Because it is hard to tolerate having a tube stuck down your throat and into your lungs, patients on ventilators are heavily sedated and unable to do anything for themselves. Nurses must reposition them every few hours to prevent bed sores. Their doctors keep watch for kidney failure, blood clots and heart problems—risks to critically ill patients in ICUs that anecdote has suggested may be more common in covid-19 patients than in others. Those anecdotes are now being backed up by a few studies. However, as Dominic Wichmann of the University Medical Centre Hamburg-Eppendorf points out, this correlation does not necessarily mean SARS-CoV-2 is itself damaging the organs involved.

A quarter of covid-19 patients in British ICUs have had kidney problems severe enough to require dialysis. “It’s all part of the second phase of the illness when people, eight to ten days in, suddenly get worse,” says Claire Sharpe of King’s College London.

A big part of the problem, she says, is just dehydration, always a risk in ICUs, all the more so when patients are feverish. On top of this, the stress caused to the body by having air pumped in and out amounts to “a double hit on the kidneys”.

Chains of command

Early in the pandemic critical-care doctors in various countries added to the problem by flushing fluids from the body in order to keep the patients’ damaged lungs from filling with liquid. They appreciated the risk of crashing the kidneys that this involved. Their thinking in doing it anyway, Dr Johnson says, was “I have to do everything I can to try to help their oxygen levels, because if I don’t win that then the whole game is lost.”

Once doctors began to see high rates of kidney failure in covid-19 patients, though, they stopped “running them dry”. Dr Johnson, whose unit had the benefit of the experience from New York and other early hotspots, says kidney failure is now no more common in his covid-19 patients than in those with other viral pneumonias.

Blood clots are another worry for patients in ICUs—so much so that mild blood thinners are routinely used as a prophylactic. Again, the problem may be worse in covid patients. Autopsies of the first 12 people to die of covid-19 in Hamburg found that four had died from a blood clot in the lungs. Autopsies by other teams have turned up lots of small clots in the blood vessels traversing the lungs.

There are lots of reasons why covid-19 patients might be at higher risk of clots in the lung and elsewhere. Immobility is one: patients on ventilators are essentially paralysed, and those with covid-19 tend to stay on ventilators about twice as long as other ICU patients. Dehydration thickens the blood.

The severe inflammation seen in covid-19 patients has a big role, too, says Jean Marie Connors of the Harvard Medical School, because clotting substances in the blood tend to increase in lockstep with the chemicals that bring on inflammation. There is also some evidence that the cells which line blood vessels are infected by the virus, she adds. These cells regulate substances that prevent clots—if the virus kills them off clotting can run wild.


At this stage of the disease, cardiologists are also on high alert. Some covid-19 patients whose lungs start to improve then see an extreme deterioration in their heart function. This is not likely to be simply the effect of being in an ICU. But no one knows whether the damage comes from the virus itself infecting the heart, or from the inflammation it triggers.

Harlan Krumholz of the Yale School of Medicine thinks both the virus and the immune response can be involved. In some people the antibody-making process can go awry, and their newly developed antibodies may confuse a healthy cell for an infected one, marking it for destruction by the immune system. That seems to be what happens in a rare sort of inflammation of the heart seen in some children with antibodies to SARS-CoV-2.

In most cases, though, it is the generalised immune response, inflammation, that goes into overdrive. Why some patients are prone to this problem remains unclear. But as data piles up from hospitals around the world clues about the biological pathways of the disease are starting to emerge.

Some of the clues come from the conditions which predispose people to the disease. “You’d think underlying lung problems or immune system problems will be the greatest risk,” says Dr Levitt. “But it seems the biggest risk factors have been hypertension, diabetes and obesity.” That has led many scientists to suspect that the profound inflammation seen in severe cases of covid-19 may be yet another problem linked to SARS-CoV-2’s fondness for ACE2. People with diabetes, hypertension and heart disease have more ACE2 on their cells as a response to the higher levels of inflammation that come with their condition; ACE2 has an anti-inflammatory effect. When SARS-CoV-2 sticks to ACE2 and reduces its ability to do its job, the underlying inflammation gets worse.

When inflammation gets completely out of control the body enters what is called a cytokine storm. Such storms drive the most severe outcomes for covid-19, including multi-organ failure.

There is thus an obvious role for anti-inflammatory drugs. But knowing when to administer them is hard. Go too late, and the storm will be unstoppable; go too early, and you may dampen down an immune response that is turning the tide.

A recent article in the Lancet suggests that it would help if covid-19 patients were routinely screened for hyper-inflammation to help identify those who might benefit from anti-inflammatory drugs. But not everyone is convinced today’s drugs have much to offer. “We tried [a range of anti-inflammatory treatment] and it actually didn’t work,” says Rajnish Jaiswal, who has been working on the front line of covid-19 treatment at New York’s Metropolitan Hospital.

All told, just 58% of those who have gone into British ICUs and are not still there have been discharged alive. The rest have died. This mortality rate is double that seen for other viral pneumonias in the past three years.

Many of those who survive a severe bout of covid-19 are likely to have long-term health problems. The Society of Critical Care Medicine based in America has identified a collection of health problems including poor muscle strength and sub-par heart and lung function as “post-intensive care syndrome”; people who have had ARDS get it worse than most. Damaged lungs and kidneys can be expected to make good a lot of the harm done to them once a crisis is over, but for some it will take time, and long-term loss of function is possible.

A big worry is what happens to the brain. Sherry Chou of the University of Pittsburgh says that there is no evidence so far that SARS-COV-2 directly harms the brain or the central nervous system, but in parts of the brain, the spinal cord and the nerves the inflammation associated with the disease can lead to muscle weakness and other problems.

The mere fact of being in an ICU can also lead to cognitive impairment. The effect of more than a week in intensive care is comparable to that of a major head injury. The problems are linked to the delirium people often fall into when severely ill and heavily sedated in an unfamiliar environment. Delirium is a particular problem with covid-19, says Dale Needham of Johns Hopkins University. Patients spend a long time in the ICU during which they see no one they know—and the strangers caring for them in heavy-duty protective wear “look like aliens”.

Patients who have come through ARDS may also suffer from anxiety and post-traumatic stress disorder. It all adds up to a bleak prospect. In 2017 a study in the Baltimore-Washington area found that a third of previously employed patients who survived ARDS were not back at work five years on. Covid-19 will cast as long a shadow over some survivors’ lives as it will over those who mourn the dead.


Why you need to read Jane Austen to appreciate perpetual bonds

It takes a nineteenth-century perspective to see the merit of consols

EVERYBODY AGREES that Jane Austen’s “Pride and Prejudice” is a love story. A truth less universally acknowledged is that it is also about money. When Mr Darcy first enters the Meryton assembly, the stir he causes owes something to his looks and bearing.

But it owes a lot more to the fast-circulating report of his £10,000 a year. Darcy’s money is old money. It comes neither from commerce nor the professions, but from Pemberley, the family pile in Derbyshire.

In Jane Austen’s day, wealth was measured by the yearly income it provided. The reckoning for sovereign debt was similar.

Britain financed the Napoleonic wars by issuing “consols”—bonds that could not be redeemed but which, like Darcy’s estate, promised payments in perpetuity.
There are now demands for consols to be revived as a means to manage the escalating fiscal costs of the coronavirus. Francesco Giavazzi and Guido Tabellini of Bocconi University have called for a perpetual-bond issue to be jointly backed by euro-zone countries. George Soros has echoed this.

Any scheme that adds to fiscal firepower without adding to the measured stock of debt might be especially welcome in euroland. But it is quite wrong to view consols as a means to circumvent fiscal discipline.

Perpetual bonds are an ideal form of debt. Many bondholders care far more about how much income a bond pays than its capital value. You might call this the Darcy doctrine.

To understand it, consider the goals of public-debt management. One is to finance budget deficits at the least cost consistent with steady taxes and spending. Another is to supply safe and liquid financial assets. The more able governments are to meet the demand for securities, the lower and more stable is the long-run cost to the taxpayer.

The need to keep costs down leads them to issue short-term bills, which are usually in high demand and carry the lowest interest rates. The need to keep costs stable and predictable leads them to issue long-term bonds.

These goals can be met at least as well by issuing consols. In a thought-provoking paper in 2015*, John Cochrane of the University of Chicago proposed that the entire stock of American public debt should be made up of two securities. The first would have a fixed value of $1 forever and a coupon payment that is set in line with overnight interest rates.

The second would have a fixed coupon payment of $1 forever and a price that is determined by market forces. The fixed-value, floating-rate bond would meet the need for a safe, trusted and highly liquid security. It would have the same qualities as a Treasury bill. The fixed-coupon security would have the character of long-term debt.

Perpetual bonds have several advantages. A big one is liquidity. America’s sovereign debt is currently divided up into hundreds of distinct securities with different maturities. A 30-year bond that is issued in one year becomes a 29-year bond the next.

The more individual bond issues there are, the less liquid each one is. By contrast, perpetual bonds are identical. A consol issued today is the same as a consol issued last year. And there is never the need to roll it over.

There are advantages for bondholders, too. A floating-rate perpetual would be a super-liquid, super-safe asset. A fixed-rate perpetual, meanwhile, would be in high demand from pension funds with promises to retirees that stretch into the indefinite future. Ideally the coupon would be inflation-protected.

A bond that pays the same in real terms for many years is the quintessential Darcy asset, say Victor Haghani and James White of Elm Partners, a fund-management firm.** Much of people’s wealth—their human capital; their pension benefits; their homes—is akin to an inflation-protected long-lived bond. It is judged by income, just as Austen saw it.

Why, then, is so much debt made up of bonds with a principal that is paid back at a relatively short, set maturity? Credit risk is part of the explanation. In a company bankruptcy or when a country defaults on its foreign-currency debt, bondholders are paid back some fraction of the principal value of the bonds. But consols have no principal. Only countries with pristine reputations might be trusted to stand behind them.

Prejudice is a potential barrier to perpetual bonds. But they should be judged on how well they meet debt-management goals. On that basis, they are useful tools. Why not use them?

* “A New Structure of U.S. Federal Debt” (May 2015).

** “Reviving a 19th Century Perspective on Financial Well-Being” (May 2020).

The EU must retreat to survive

For both pragmatic and democratic reasons, it would be lunacy to sue the German government

Gideon Rachman

EU German Court Chess
© James Ferguson

Anybody who has worked in Brussels will be familiar with the bicycle theory of European integration. The idea is that unless the EU keeps moving forward, it will fall over and crash.But the bicycle theory is dangerously out of date.

To survive, the EU actually needs to find a brake and a reverse gear. The alternative is a potentially fatal collision between the EU’s institutions and its nations.

The chances of conflict have risen dramatically following a German constitutional court ruling that places Germany in direct confrontation with both the European Central Bank and the European Court of Justice.

The German court, based in Karlsruhe, ruled that the ECB’s bond-buying programme — which has helped keep the European single currency afloat — failed a “proportionality test” by not taking into account its broad economic effects. It also stated that the ECJ had been acting beyond its authority, when it declared the ECB’s bond-buying legal.

Ardent supporters of the EU have reacted with horror to the German court’s actions. Some have argued that the Karlsruhe ruling has “put the entire EU legal order in jeopardy” and that the European Commission must respond with “infringement proceedings” — in other words, take Germany to court.

My own view is that, for both pragmatic and democratic reasons, it would be lunacy for the EU to sue the German government. Germany is the biggest country in the EU and the largest contributor to its budget. The EU cannot be built in opposition to its member states — least of all Germany. The club can survive Brexit. But without Germany, there would be no EU.

Opinion polls in Germany suggest that the constitutional court is the most respected institution in the country. The Bundesbank is also traditionally regarded as a key guardian of Germany’s postwar democracy — and a guarantee that the hyperinflation of the Weimar Republic years will never return.

For the EU to humble two of the most important pillars of Germany’s postwar stability would invite a public backlash.

If Germany was behaving in a fundamentally undemocratic manner, then this kind of fatal confrontation might be an unavoidable obligation. But, while it is possible to dispute both the economic and the legal logic behind the Karlsruhe ruling, there is no suggestion that the court has acted in an undemocratic or improper manner.

The EU view is that the ECJ is the higher court and outranks Karlsruhe. But, if the EU starts infringement proceedings, the dispute between the ECJ and Karlsruhe would be arbitrated by the ECJ itself — a circular situation that would instantly undermine the moral force of its ruling. It is true that letting the Karlsruhe court ruling stand is not a trivial matter.

At worst, it poses real risks both to the survival of the euro and to the EU’s efforts to remain a club of liberal democracies. Hungary and Poland — whose governments are rapidly eroding their national democracies — have both seized upon the Karlsruhe ruling to justify their own efforts to ignore EU law.

It was predictable that the Hungarian government, led by Viktor Orban, would react in this way. But Mr Orban is an unscrupulous character who — much like the US’s Donald Trump — will use any argument, however spurious, to justify what he was going to do anyway.

In reality, the Hungarian and Polish cases are very different from that of Germany. The governments in Warsaw and Budapest are genuinely undermining the independence of their courts. By contrast, the Karlsruhe court has demonstrated its freedom from political influence, with a ruling that is highly inconvenient for Berlin.

EU infringement proceedings against Hungary and Poland are justified, given that their democratic institutions are genuinely under threat. But, in the long run, the fate of Hungarian and Polish democracy will be decided within those two countries, not by Brussels.

The Karlsruhe ruling also has dramatic implications for Europe’s single currency.

It is widely believed the economic shock caused by Covid-19 means that continued radical action by the ECB is the only thing that stands between the EU and another debt crisis. If the German courts tie the hands of the ECB (or prevent the Bundesbank participating in ECB programmes), then the survival of the euro might be in question.

But there should be a democratic way out of this.

German opponents of the Karlsruhe decision argue that the judges reflect only a small conservative faction, within their country. If that is true, it is open to Berlin to try to amend the German constitution or the EU treaties, to make it absolutely explicit that the ECB’s actions are legal.

If Berlin cannot win that argument at home — or in the wider EU context — then Germany may have to consider leaving the European single currency. Even raising that issue could provide a helpful clarity. It might persuade the Germans that the ECB’s actions are not so unacceptable, after all.

Or it might persuade Berlin’s European partners that they need to do more to respect German misgivings about the management of the euro.

That kind of fundamental debate is overdue. The EU’s survival cannot be secured simply by pedalling the federalist bicycle ever harder.

The direction of travel also needs to be reassessed, debated and agreed.

When a Nation Goes Nutty

By Bill Bonner

Week 12 of the Quarantine

Sow the wind and reap the whirlwind.                                                                          – Hosea 8:7

SAN MARTIN, ARGENTINA – One country. Two systems.

One financial. One economic.

One for Wall Street. One for Main Street.

One for the elite. One for everyone else.

One fraudulent. The other just a rip-off.

To make a long story precariously short (and deliberately provocative), the “rich” got some of their wealth honestly.

The rest they got by ripping off the poor and middle classes, using their fake-money system.

In effect, after 2008, they had access to an almost unlimited amount of credit priced at artificially low rates, giving them a greater and greater share of the nation’s real wealth.

And who noticed? They said the Federal Reserve was “stimulating” the economy.

But the two-system system is now wreaking havoc on our economy, our society, and our government… and driving the whole kit and kaboodle to a disaster.

To back up…

Sons and Daughters

The two-system system works for us, the top 10% who benefit from it. Many of us are retired.

What’s it to us if there are no jobs?

We have financial assets (stocks, bonds, real estate, cash, gold). We’re happy to see the Fed pumping them up. 

We don’t even mind (for now) that the economy was shut down by the Trump-Fauci duo. We didn’t have to go to work anyway.

But what about the others? The 90%? Our sons and daughters.

The uneducated… the poor… the ones who have nothing… who earn minimum wages… who need jobs… who start families and careers already burdened with hundreds of thousands of dollars’ worth of student debt, mortgages, car payments, and their share of the national debt, too?

And don’t forget the middle-aged, middle classes… Typically, the ones in the middle suffer most when a nation goes nutty.

They have something to lose… but not enough wealth or financial savvy to protect themselves.

And there’s a good chance they will lose everything in the collapsing economy/money-printing lollapalooza/political upheaval ahead.

Built on a Lie

If such a disaster is so obvious (to us), how come others don’t see it? How come they don’t look into an awful future and change it before it happens?

After all, they created the two-system system. They, and only they, could change it.

Well, how about this for a naked reason…

The deciders, the influencers, the economists, columnists, politicians, academics, captains of business, and sergeants of well-meaning nonprofits – almost none of them understands what is really going on.

Why not? Because it’s amazing what you can’t see when your wealth depends on being blind.
All of them – Democrat, Republican, Trump-lovers, Trump-haters – are part of the upper 10%. They all benefit from the fraudulent, fake-money system… and none wants to think about it too hard.

They’ve built their careers, their reputations, their fortunes on a lie. They’re not about to open their eyes now.

Besides, they – like all of us – are caught up in the whirlwind.

Politics… racism… fascism… Keynesianism… MMTism… global warmingism… COVID-19ism… Just read our mail!

We’ve described it previously as “context collapse.” The rules… the traditions… the ideas we thought we could trust… suddenly give way.

The hot air rushes by us so fast, our feet leave the ground… and we are dizzy… and then nauseous.

Context Collapse

Just think about what’s happened in the past few months.

The economy effectively “turned off”… with a 50% drop in GDP… and 20% unemployment.

…The Fed “printed” three trillion in the last three months.

…Between April ’19 and April ’20, the difference in federal tax collections dropped by nearly a trillion dollars.

…Strange new unidentified “defense forces” – kitted out like robocops from a sci-fi movie – appeared on the streets of Washington.

…A U.S. president so afraid of his own people he needs to hide in a bunker? The Washington Post:

The security perimeter around the White House keeps expanding. Tall black fencing is going up seemingly by the hour. Armed guards and sharpshooters and combat troops are omnipresent.

Three months ago, these things would have been considered impossible.

But now, everything is possible… no matter how bizarre, grotesque, un-American and implausible.

And now, as the center of our “normal” beliefs turns to mush, the edges harden.

The “fascists” on the right… the “anti-fascists” (Antifa) on the left.

The fences go up… but the barriers to civilized conduct go down.

Moonstruck Delusions

Some want to destroy what they think is a “capitalist” system.

Some want to protect what they believe is a “conservative” society.

Both groups are moonstruck… seeing new possibilities… with new hope… and even greater delusions. CNN:

The Boogaloos [apparently anarchists] are an emerging incarnation of extremism that seems to defy easy categorization.

They are yet another confounding factor in the ongoing effort among local, state and federal officials to puzzle out the political sympathies of the agitators showing up to the mostly peaceful George Floyd rallies who have destroyed property, looted businesses, or -- in the case of the Boogaloos who descended on Minneapolis -- walked around the streets with assault rifles.

And here’s MSN:

Sen. Tom Cotton, an Arkansas Republican, on Monday pushed for the use of military force against Black Lives Matter demonstrators…

"…let’s see how these anarchists respond when the 101st Airborne is on the other side of the street," Cotton said on Fox News.

After all, paraphrasing former Secretary of State Madeleine Albright…

What good is an army if you can’t use it to protect yourself from the people you stole from?

A new opportunity to tackle climate change

Countries should seize the moment to flatten the climate curve

The pandemic shows how hard it will be to decarbonise—and creates an opportunity

FOLLOWING THE pandemic is like watching the climate crisis with your finger jammed on the fast-forward button. Neither the virus nor greenhouse gases care much for borders, making both scourges global.

Both put the poor and vulnerable at greater risk than wealthy elites and demand government action on a scale hardly ever seen in peacetime.

And with China’s leadership focused only on its own advantage and America’s as scornful of the World Health Organisation as it is of the Paris climate agreement, neither calamity is getting the co-ordinated international response it deserves.

The two crises do not just resemble each other. They interact. Shutting down swathes of the economy has led to huge cuts in greenhouse-gas emissions. In the first week of April, daily emissions worldwide were 17% below what they were last year.

The International Energy Agency expects global industrial greenhouse-gas emissions to be about 8% lower in 2020 than they were in 2019, the largest annual drop since the second world war.

That drop reveals a crucial truth about the climate crisis. It is much too large to be solved by the abandonment of planes, trains and automobiles. Even if people endure huge changes in how they lead their lives, this sad experiment has shown, the world would still have more than 90% of the necessary decarbonisation left to do to get on track for the Paris agreement’s most ambitious goal, of a climate only 1.5°C warmer than it was before the Industrial Revolution.

But as we explain this week the pandemic both reveals the size of the challenge ahead and also creates a unique chance to enact government policies that steer the economy away from carbon at a lower financial, social and political cost than might otherwise have been the case. Rock-bottom energy prices make it easier to cut subsidies for fossil fuels and to introduce a tax on carbon.

The revenues from that tax over the next decade can help repair battered government finances. The businesses at the heart of the fossil-fuel economy—oil and gas firms, steel producers, carmakers—are already going through the agony of shrinking their long-term capacity and employment.

Getting economies in medically induced comas back on their feet is a circumstance tailor-made for investment in climate-friendly infrastructure that boosts growth and creates new jobs. Low interest rates make the bill smaller than ever.

Take carbon-pricing first. Long cherished by economists (and The Economist), such schemes use the power of the market to incentivise consumers and firms to cut their emissions, thus ensuring that the shift from carbon happens in the most efficient way possible.

The timing is particularly propitious because such prices have the most immediate effects when they tip the balance between two already available technologies. In the past it was possible to argue that, although prices might entrench an advantage for cleaner gas over dirtier coal, renewable technologies were too immature to benefit.

But over the past decade the costs of wind and solar power have tumbled. A relatively small push from a carbon price could give renewables a decisive advantage—one which would become permanent as wider deployment made them cheaper still. There may never have been a time when carbon prices could achieve so much so quickly.

Carbon prices are not as popular with politicians as they are with economists, which is why too few of them exist. But even before covid-19 there were hints their time was coming. Europe is planning an expansion of its carbon-pricing scheme, the largest in the world; China is instituting a brand new one.

Joe Biden, who backed carbon prices when he was vice-president, will do so again in the coming election campaign—and at least some on the right will agree with that. The proceeds from a carbon tax could raise over 1% of GDP early on and would then taper away over several decades.

This money could either be paid as a dividend to the public or, as is more likely now, help lower government debts, which are already forecast to reach an average of 122% of GDP in the rich world this year, and will rise further if green investments are debt-financed.

Carbon pricing is only part of the big-bang response now possible. By itself, it is unlikely to create a network of electric-vehicle charging-points, more nuclear power plants to underpin the cheap but intermittent electricity supplied by renewables, programmes to retrofit inefficient buildings and to develop technologies aimed at reducing emissions that cannot simply be electrified away, such as those from large aircraft and some farms.

In these areas subsidies and direct government investment are needed to ensure that tomorrow’s consumers and firms have the technologies which carbon prices will encourage.

Some governments have put their efforts into greening their covid-19 bail-outs. Air France has been told either to scrap domestic routes that compete with high-speed trains, powered by nuclear electricity, or to forfeit taxpayer assistance. But dirigisme disguised as a helping hand could have dangerous consequences: better to focus on insisting that governments must not skew their bail-outs towards fossil fuels.

In other countries the risk is of climate-damaging policies. America has been relaxing its environmental rules further during the pandemic. China—whose stimulus for heavy industry sent global emissions soaring after the global financial crisis—continues to build new coal plants (see article).

Carpe covid

The covid-19 pause is not inherently climate-friendly. Countries must make it so. Their aim should be to show by 2021, when they gather to take stock of progress made since the Paris agreement and commit themselves to raising their game, that the pandemic has been a catalyst for a breakthrough on the environment.

Covid-19 has demonstrated that the foundations of prosperity are precarious. Disasters long talked about, and long ignored, can come upon you with no warning, turning life inside out and shaking all that seemed stable. The harm from climate change will be slower than the pandemic but more massive and longer-lasting.

If there is a moment for leaders to show bravery in heading off that disaster, this is it. They will never have a more attentive audience.

Stocks Could Plunge 50% If We Have a Powerful Second Wave of COVID-19

By Andy Krieger, Editor, Money Trends

The stock market continues to amaze.

Despite a 34% sell-off this year, the S&P 500 is now almost back to where it was last fall.

But consider the dramatic differences between the economic conditions last year and today.

Our economy was growing fast last year. And unemployment was at just 3.5% – a 50-year low.

Now our economy is suffering from the worst downturn in almost 90 years.

Unemployment levels are above 20%, with 40 million people out of jobs. This year’s second-quarter GDP will show a collapse of nearly 40%. Interest rates have been lowered effectively to zero.

Meanwhile, the Federal Reserve has ballooned its balance sheet by $2.5 trillion… and the Treasury has increased its debt by $3 trillion!

These are staggering numbers. The fact that the stock market is anywhere within shouting distance of last year’s levels is mind-boggling.

In fact, as I explain below, I believe we’re in for a 30%-50% sell-off.

But first, we must answer the question: If things are so bad, why are people buying stocks with such abandon?

Bizarre Economic Follies

You may say the market’s performance is driven by gains in the FAANG stocks – Facebook, Amazon, Apple, Netflix, and Google’s parent, Alphabet. But that’s too simplistic.

The FAANGs comprise 17.5% of the total index value. So that still doesn’t explain the overall performance of the market, which flies in the face of logic and sound fundamental analysis.

It used to be that price-to-earnings (P/E) ratios – which measure how much investors are paying for each dollar of a company’s earnings – meant something. The P/E ratios today are flat-out whacky.

Will they ever mean something again? Absolutely.

But as I’ve learned through more than three decades of experience, the true beauty of markets is that they are driven by people. And people have the amazing ability to suspend disbelief… and ignore the warning signs.

People have been swept away in bizarre economic follies and manias for hundreds of years. The dot-com bubble in the U.S. that burst in March 2000 is a great example.

I remember trading stocks during that period. I was astonished by how foolish people were for assigning such crazy values to certain stocks… just because they sounded like something technological and showed a vague promise of future revenues.

Forget profits. They were irrelevant. P/E ratios were also deemed no longer relevant… until they were, and the Nasdaq collapsed. Prices fell by over 83%, and the market didn’t make a new high until August of 2016 – almost two decades later!

I figured that one day the market would wake up and come to its senses. So I only played it from the short side once it finally broke.

Warren Buffett, meanwhile, was heavily criticized for missing out on the Nasdaq boom.

Analysts said he was too old to understand tech stocks, that he was out of touch, and that he was not worth paying attention to any longer.

Well, that same “out of touch” investment genius has liquidated stocks during the current folly and gone even more heavily to cash. Yup, he is waiting for stocks to become attractive again at sensible valuations.

Please note he was a heavy buyer of stocks right after the stock market sell-off in 2008 and 2009. He is not afraid to buy when other people are afraid. He just needs to have a good reason to do so.

He doesn’t have that reason today, and he didn’t have that reason two months ago. That should tell you something.

Vicious Sell-Off Ahead

At this point, you may be wondering: Are we staring at another bubble today, just like the dot-com bubble of the 1990s?

Yes. But while the current irrationality is extreme, that doesn’t mean it can’t persist for a while longer.

It does mean, however, that one day the markets will find a more reasonable valuation.

Reaching that level of valuation will almost certainly lead to great pain for many.

There is a limit to the number of times the U.S. Treasury can issue an extra $3 trillion worth of bonds… which our central bank will dutifully purchase, even though the bonds are paying almost no interest.

Once we hit that limit, interest rates will start rising so fast, you will get whiplash as you watch the yield shooting up. That is the ultimate doomsday scenario, and I pray we can avoid it.

But what about an imminent drop in the stock markets? Am I forecasting that? Not necessarily. The reason is that, as I said, this insanity can persist for a while.

If scientists can miraculously produce an effective COVID-19 vaccine in massive quantities that gets distributed quickly to a large chunk of the global population… we might even have a V-shaped recovery.

The world could go on a wild spending and investment binge, hiring tens of millions of workers and setting in motion a breathtaking economic recovery.

In such a scenario, the stock market’s hyper-optimism could prove to be justified. However, I give this outcome about a 0.1% probability.

More likely, it will take 12-18 months to produce and distribute an effective vaccine. In that scenario, the current stock market valuations will prove unsustainable.

And if we get a nasty second wave of COVID-19 – let alone a third wave – stocks would likely be headed for a 30% to 50% drop from current levels.

That stock market sell-off will be fast and furious. But for traders, it could be the opportunity of a lifetime.