Where We Go from Here

By John Mauldin

Predictions are difficult, especially those about the future. That old proverb (often attributed to Yogi Berra) is right but you can’t live without making certain presumptions. You presume your car will start, your refrigerator will stay cold, the lights will turn on when you flip the switch.

In fact, you could argue this “predictability” separates advanced economies from primitive ones. Most of us don’t have to worry about being attacked in our sleep or having food tomorrow. That security frees us to do other things.

Right now, some basic assumptions are no longer safe. The economy will keep suffering until they are reliable again, or we replace them with new assumptions. We can’t travel or even go to a restaurant or visit friends without wondering about our health. Where does that leave us?

Today I’ll defy the proverb, consider what we know and don’t know, and try to tell you where I think we’re going. In the long run (after The Great Reset in the late 2020s), I still foresee a wonderful new world. But we have to get there first.

Economists use the word “recovery” to define a rebound from the previous time period. So if there was a 30% drop, a 10% increase would, for an economist, be a “recovery.” But in the real world, it still means you are 20% below where you started. Recovery doesn’t necessarily mean recovered. Even optimistic projections say we won’t see anything like 2019 GDP until late 2021. Many suggest it will be even longer.

Even then, the changes we will have to put into our operating business models, not to mention the massive amounts of capital that it will take to start new businesses or resupply old ones, will make the “recovered” economy look significantly different than that of 2019.

And just for the record, because I am not optimistic about the speed of economic recovery does not mean that I am necessarily bearish on the stock market. When the Federal Reserve pumps $5 trillion (or whatever) into the system it is going to find a home. While I think earnings will take a severe hit in 2021, the market could hold simply due to massive Fed support.

There have been numerous times when the economy and the stock market were out of sync. Don’t equate the two. The stock market doesn’t necessarily tell us anything about the economy, or vice versa.

Now on to the letter…

Highly Uncertain

Last week the Federal Reserve sent Congress its latest “Monetary Policy Report.” These are usually rather vague, dry documents on everything the Fed is doing right and what could possibly go wrong. This one is more interesting than usual because so many things have gone wrong and may get even worse. Not that the Fed has good answers, of course.

Anyway, my friend Mish Shedlock blogged about the report and particularly the six downside risks it identifies. Kudos to the Fed for actually giving a fairly transparent, coherent, and reasonable list of risks.
Here they are.

1.   The future progression of the pandemic remains highly uncertain.

2.   The collapse in demand may ultimately bankrupt many businesses.

3.   Unlike past recessions, services activity has dropped more sharply than manufacturing—with restrictions on movement severely curtailing expenditures on travel, tourism, restaurants, and recreation. Social-distancing requirements and attitudes may further weigh on the recovery in these sectors.

4.   Disruptions to global trade may result in a costly reconfiguration of global supply chains.

5.   Persistently weak consumer and firm demand may push medium- and longer-term inflation expectations well below central bank targets.

6.   Additional expansionary fiscal policies—possibly in response to future large-scale outbreaks of COVID-19—could significantly increase government debt and add to sovereign risk.

I could write an entire letter on any one of these risks, but let’s start at the beginning: “The future progression of the pandemic remains highly uncertain.”

Here’s what we know. Many of the first countries the virus struck—China, South Korea, Japan, New Zealand, Italy, Spain—brought it under control with aggressive lockdowns, testing, contact tracing, social distancing, and isolation of confirmed cases. Yet little outbreaks keep popping up. Life is still far from normal in those places. Read this Financial Times account of conditions in South Korea to see what I mean.

Here in the US, the national numbers are much improved since March and early April. That’s not the case everywhere, though. Look deeper and you’ll see the New York/New Jersey crisis is easing but cases are rising elsewhere. Testing numbers are up but that’s not the full explanation. Hospitalizations are also up in some states, as is the testing “positivity rate.” Those indicate actual virus spread. This was expected as more people circulate in public but could get out of hand if not handled well.

Former Food and Drug Administration head Dr. Scott Gottlieb said the states hardest hit by the latest coronavirus surge are "on the cusp of losing control.” Ten states, most of them concentrated in the South and West, have recently seen new record-high, seven-day averages of new coronavirus cases. Those states are Alabama, Arizona, California, Florida, Nevada, North Carolina, Oklahoma, Oregon, South Carolina, and Texas. Gottlieb is a serious medical professional and not prone to wild statements. We should pay attention.

To be clear, I believe the initial closures were necessary, given what we knew at the time. They successfully flattened the curve. But they were a brute force strategy with very harmful economic side effects and needed to end quickly.
Scientists have learned a lot in the last three months. We can now attack the problem more precisely, as Mike Roizen and I explained earlier this month.

But even then, we are not going back to normal until late this year, at best.
More likely it will be 2021 before a vaccine can be successfully developed, tested, produced, and widely distributed. That means many more months with masks, social distancing, reduced travel, and no large gatherings, at least like we knew in the past.
It also assumes no more large-scale outbreaks. So the best-case scenario is still disastrous for big parts of the economy.

There was much celebration last week as retail sales showed a rather robust rise.
Talk of a V-shaped recovery was in the air. Except that we have only roughly recovered to ~2015 in terms of GDP. The comments and table below come from Danielle DiMartino of Quill Intelligence (daily must-reading for me).

First, the good news. E-commerce and food are the big winners. Sales in the three months ended May are running well above their prior 12-month average while employment was relatively steady. This should open up short-run opportunities for job growth in these two areas. Anecdotes back this as we’ve seen job hiring announcements in these spaces.

Building materials and recreation, which includes sporting goods, hobby, book and music stores, also have moderately positive sales-to-employment capacity rates. Both sectors focus on DIY, at-home activities—endeavors rendered more attractive to millions of people working from home.

Unfortunately, losers outnumber winners. Clothing, gasoline, electronics, food service & drinking places and autos highlight the sectors at risk for future job cuts should the current sales levels be sustained in coming months. These five red categories represent 11.1 million payroll jobs, more than twice the 5.3 million of the four groups that are in the green.

Source: Quill Intelligence

It is certainly easy to see the restaurant businesses and their brethren are seeing extremely bad data. How soon before we go back to a movie theater? When we can watch from home, generally for less cost, even with a few friends for the human experience? How many other businesses have similar dynamics?

It is going to take several years for the employment situation to sort itself out. If your job is gone, what do you do now?

We can see that in continuing claims for jobless benefits. While off the highs, they have so far been stubbornly flat in June (H/T MishTalk).

Continuing claims are clearly at an all-time high. Only once before, in the middle of the Great Recession, did continuing claims even rise above 5 million.

The economy is currently being sustained by federal government largess.
Those 20 million continuing benefit claimants are all getting at least $600 a week. Ironically, we have set the philosophical stage for Guaranteed Basic Income, at a much higher level than Andrew Yang’s $1,000 a month proposal. Furthermore, many businesses are staying alive only through the Paycheck Protection Program’s forgivable loans.

Let’s jump to an insight from David Rosenberg’s (Rosenberg Research) morning report.

There is nothing in the data, as of yet, to show that personal incomes are rising on their own—the story remains one of cash-flow support from Uncle Sam’s generosity and the ability (and willingness) of millions of Americans to skip their loan payments. Spending premised on such weak underpinnings does not constitute an official recovery. Not to mention the reality of historical data showing that recessions end when jobless claims get closer to 500K, not 1.5 million, which is where we are right now.

Source: Rosenberg Research

This isn’t something governors can easily reverse. They can let businesses open, but they can’t make consumers come back and spend freely. People have to feel safe; the economy can’t “recover” if even a small number don’t.
As I’ve said, recovering even 90% of the previous consumer spending isn’t enough. We need it all, or close to all. We will get there, but it is going to take time.

Reallocation Shock

That brings us to the Fed’s second risk: collapsed demand could bankrupt many businesses. In fact, collapsed demand already bankrupted some businesses. More will surely follow. Nowhere is this more evident than restaurants.

I have a soft spot for independent restaurant owners. I enjoy great meals and appreciate the hard work that goes into them. Those who can actually do it consistently and profitably? They are among humanity’s best. They feed both our bodies and our souls. The tsunami that just hit them is indescribably painful. It hurts me to think of the places I’ve enjoyed wonderful evenings with friends, in dozens of different countries, that are now probably gone forever.

One recent survey of San Francisco restaurant owners found 60% lose money by staying open. They are low-margin even in normal times. Now capacity restrictions, combined with a general desire to stay home, make their prospects bleak indeed. Many won’t survive. The may hang on awhile, helped by PPP and other programs, but their challenge is deeper.

Nor is it just restaurants. The same or similar problems apply to bars, hotels, casinos, nightclubs, theaters, music venues—basically anywhere people gather in crowds. The crowds make them profitable. These businesses often can’t survive at 50% or even 80% capacity. They need to be full and now they can’t be. Can they change their model? Of course. But that will mean fewer employees and lower profits.

Which brings us to the real problem: These businesses employ millions of workers directly, and millions more depend on them indirectly. Many who lost their jobs in the last three months won’t get them back.

Here’s where it gets tough. I talk often about capitalism’s “creative destruction.” We go through times when the world changes. Businesses and workers must adapt. We don’t yet know how this will all develop, but COVID-19 seems likely to permanently change some industries. That could make many of these “temporary” job losses permanent.

Economists call this a “reallocation shock.” Affected workers have no good choices. They can either change careers, which might require expensive and time-consuming education, or move someplace that has jobs matching their skills. Neither is easy. It is similar to the way outsourcing and technology eliminated US manufacturing jobs in recent decades. This time, service industry workers are the unlucky ones, except the shock is happening much faster.

This has important social and political consequences but let’s stick with the economic ones. They are also bad.

Demand Shock

From a US perspective, this crisis began as a “supply shock” back in January/February, when China’s shutdowns threatened global supply chains. Now we have a demand shock, too. The millions who are staying home demand different goods, and their net spending is less. Others who have lost jobs or taken pay cuts or who are just concerned about the future are also spending less. That’s probably wise individually, but in a consumer-led economy it is devastating in the aggregate.

University of Texas economist James Galbraith explained it well in a recent Project Syndicate note. As he says, consumer incentives are to save, not spend.

Faced with radical uncertainty, US consumers will save more and spend less. Even if the government replaces their lost incomes for a time, people know that stimulus is short term. What they do not know is when the next job offer—or layoff—will come along.

Moreover, people do distinguish between needs and wants. Americans need to eat, but they mostly don’t need to eat out. They don’t need to travel. Restaurant owners and airlines therefore have two problems: They can’t cover costs while their capacity is limited for public-health reasons, and demand would be down even if the coronavirus disappeared. This explains why many businesses are not reopening even though they legally can. Others are reopening, but fear they cannot hold out for long. And the many millions of workers in America’s vast services sector are realizing that their jobs are simply not essential.

Meanwhile, US household debts—rent, mortgage, and utility arrears, as well as interest on education and car loans—have continued to mount. True, stimulus checks have helped: Defaults have so far been modest, and many landlords have been accommodating. But as people face long periods with lower incomes, they will continue to hoard funds to ensure that they can repay their fixed debts. As if all this were not enough, falling sales- and income-tax revenues are prompting US state and local governments to cut spending, compounding the loss of jobs and incomes.

These household debt problems eventually become government debt problems. I have argued for years we are on an unsustainable fiscal path. This year it suddenly got much worse.

Note, this doesn’t include the Federal Reserve’s massive loan programs, through which it is transferring money to businesses that may or may not need it, and may or may not use the money productively. The resulting capital misallocations will further depress economic growth and reduce tax revenue.

State and local governments were already a problem, too. Many were over their heads in pension debt and now the crisis is decimating their tax revenue. This, too, may turn into federal debt.

The demand shock is aggravating a sharp decline in freight volumes, which was already in progress before the pandemic. Here’s the latest Cass Freight Index, which I’ve referenced before.

Source: Cass Information Systems

Cass said in its commentary it doesn’t expect freight will return to 2019 levels until 2021 at the earliest. Note this isn’t just international freight. It is about goods and materials being shipped within the US.

Add all this up and we are already in a deep recession and, barring some miraculous COVID-19 cure, not going to recover this year. That will have serious effects that are more than economic. More on that later.

US federal debt is over $26 trillion and rising rapidly. There will likely be at least a $1 trillion additional stimulus package before July 31 that extends the additional unemployment benefits for some period. There is some debate on the amount. I expect a further multi-trillion stimulus/infrastructure bill before the election.

This table from the Economic Policy Institute shows hourly wages of all workers, by wage percentile, for 2000–2018 (in 2018 dollars).
Source: Economic Policy Institute

Current federal unemployment benefits of $600 per week, assuming a 40-hour week, equal $15 an hour (plus the state portion, which varies). That means the bottom 30% of US workers are better off keeping unemployment as long as they can. Especially the bottom 20%. Even the 40th percentile might be better off taking the unemployment benefit as they have no cost of getting to and from work.

I have no idea what the next level of benefits will be or how long they will last. But as I said earlier, we are moving toward a Guaranteed Basic Income which, added to other entitlement spending, would push us closer to $2 trillion-plus annual deficits.

The world will not come to an end with a $30 trillion US debt. How far will future US Congresses push that number? Explaining to the average politician that debt is a drag on future growth is futile. Spending money today helps them get reelected tomorrow. They will worry about the future later. Or at least most of them. Sigh.

This, along with Federal Reserve policy, is going to push us to a very uncomfortable place towards the end of this decade. Stay tuned…

How You Can Help

For now, what can we do? Our immediate problem stems from two sources.

1.   The coronavirus is continuing to spread.

2.   Concerned consumers are spending less money.

One simple thing we can all do will help attack both problems: Wear a mask in public. We can live with the virus risk, but not when a noticeable part of the population acts in ways others perceive as reckless. Walking around in public without a mask is like wearing an “I want a deeper recession” sign.

Note, it doesn’t matter whether you believe the mask really helps, or the virus is really dangerous. Perception is what counts. As long as substantial numbers believe normal life is too risky, the economy can’t recover. It is really that simple.

I’ll go further. Near-universal mask usage would help the economy more than another multi-trillion-dollar stimulus package would—a lot more, and faster, too. And without adding a penny to the national debt. You can see that in other countries.

Puerto Rico and Final Thoughts

First, you should be following me on Twitter @johnfmauldin. I find Twitter useful for news and information, depending of course on whom you follow.

My local gym has opened, sort of. You have to wear a mask, bring your own face towel, and half the air conditioning is down, so it’s kind of like working out in a sauna. But then again, a little sweat never hurt anyone.

I spend a lot of time considering how to find a semblance of certainty for investors in these times. There are opportunities. Progress has not stopped. It just looks different, especially in a world where everything is being repriced. But for now, it’s time to hit the send button. Have a great week!

Your dealing with uncertainty analyst,

John Mauldin
Co-Founder, Mauldin Economics

The Limits of Altruism

A Global Scramble for the Coming Coronavirus Vaccine

A vast rivalry is developing between the U.S. and China in the race to develop a coronavirus vaccine. The health of billions of people depends on the outcome. How can the vaccine be fairly distributed?


By Marco Evers, Georg Fahrion, Veronika Hackenbroch, Laura Höflinger, Kerstin Kullmann, Raniah Salloum, Alexander Sarovic, Cornelia Schmergal and Alexander Smoltczyk

Graves of COVID-19 victims in the Brazilian city of Manaus
Graves of COVID-19 victims in the Brazilian city of Manaus / MICHAEL DANTAS / AFP

They speak almost reverently about it in the laboratories and meeting rooms of Curevac. The call it "the candidate.” It may not have a name yet, but it does exist. It apparently has all the right qualities and exhibits promising values. It just needs a bit more time.

"We call it 'the candidate,’ because CVnCoV isn’t so easy to pronounce,” says Florian von der Mülbe, the man responsible for production on the Curevac board. The biotech firm, which is based in the southern German city of Tübingen, has just moved into its new office buildings on the hills above the university town.

You can see the ridges of the Swabian Alb mountains from the window, and moving boxes still line the hallways. Still, there's no time for dilly-dallying. The world is waiting with growing apprehension, with many fearing that a second wave of the coronavirus pandemic is imminent -- and that the next wave could be deadlier than the first.

The only reliable hope for billions of people around the world that a vaccine will be developed soon.

Inspecting samples at Curevac: A global project
Inspecting samples at Curevac: A global Project / SEBASTIAN GOLLNOW / DPA

"We have invested a large share of our resources in the development of a corona vaccine,” says von der Mülbe, who then goes on to share the questions his neighbors and friends have been asking him for weeks: When will your vaccine be ready? Where’s this candidate?

The candidate was created in part in room C.3.111, "RNA Optimization & Supply,” developed in a robotically automated laboratory workstation that is roughly the size of a refrigerator. A picture of Cinderella is affixed to it. The company says it already has a few million doses of the trial vaccine ready and the first clinical tests on 168 people are expected to start soon.

Germany’s 300-Million-Euro Gambit

The German government is hoping that the vaccine being developed here can be deployed around the world to halt the coronavirus. Berlin announced this week that it would invest 300 million euros in Curevac, putting 23 percent of the company under state ownership, with the government saying it is taking the step to prevent the company from moving abroad if it goes through with a planned IPO on the stock exchange in New York in July.

The German government wants Curevac to stay in Germany because of the ongoing presence of the virus. The number of new infections may be low at the moment, but just as China is currently experiencing a new outbreak, there’s a risk that the disease will flare up again in Germany. Many fear there will be a second wave of infections and no one knows right now what effect the loosening of the lockdowns in Europe will have. The only thing that can really make a decisive difference is a vaccine.

Production manager von der Mülbe spends 10 to 12 hours a day on the phone arranging meetings with supervisory authorities and negotiating with suppliers. The candidate isn’t his only problem. As with all of the company’s competitors, Curevac is already facing the threat of bottlenecks.

The mini vials made of special medical glass that vaccines are transported in are in short supply around the world. Demand is enormous, but the number of suppliers is limited. It’s almost reminiscent of the recent run on toilet paper around the world. In the case of the mini vials, though, this is just the beginning. Hypodermic needles are also becoming scarce around the world and existing manufacturing can’t easily be scaled up.

Unprecedented Demand

Indeed, developing the actual vaccine is only one of the steps necessary toward making it widely available. It will also have to be produced, distributed and administered in quantities that are difficult to fathom - and all of that will have to happen very quickly. But how?

Once a functioning vaccine, or several different vaccines, for the COVID-19 virus is approved worldwide, around 6 billion doses will be necessary. Or twice that if boosters are required to achieve immunity.

You don’t have to be a pessimist to see that it won’t be possible to meet that demand immediately. Even in the best-case scenario, it may take years before enough vaccines can be produced and delivered.

And that means that the question as to when a vaccine will be ready must be followed up with an even more challenging query: Who gets supplies of the life-saving substance first? And who gets to decide? The answers will determine life and death. And the prosperity or poverty of entire nations will also be at stake.

Public officials in Beijing: Fears of a second wave / ROMAN PILIPEY / EPA-EFE / SHUTTERSTOCK

The mysterious rise of the American biotech pioneer Moderna illustrates the problem at hand.

The small Boston-based vaccine company hasn’t launched a single product in its close to 10-year history, but the company is currently worth more than $23 billion on the stock exchange.

When the company recently reported initial success with its experimental mRNA-1273 vaccine in only eight volunteers, it caused not only the company’s share price to spike, but it also boosted the Down Jones index by almost 4 percent and Germany’s DAX index by more than 5 percent. It’s no less than the future of the global economy that is currently being decided in the laboratories of the vaccine manufacturers – and also who will have a share of the wealth and who will not.

The U.S. vs. China and the EU

Rivals in the U.S. and China, in particular, are engaging in a multibillion-dollar race to develop the first vaccine. Both U.S. President Donald Trump and Chinese President Xi Jinping are well aware that whoever gets their hands on it first will be the first to emerge from the crisis, perhaps even stronger than before.

Developing the vaccine means much more than just technological prestige for the two global powers. It could also become a means for applying political pressure, a power factor not unlike the politics of oil. The question of who has this essential resource could put an end to old alliances and create new ones.

Trump and Xi in 2019: China is looking far less selfish than the U.S. in this crisis. / KEVIN LAMARQUE / REUTERS

Trump is also well aware of the powerful battalions he has at his disposal to send into the battle for the vaccine. America is home to the best laboratories and the most powerful pharmaceutical industry in the world. With Pfizer, Johnson & Johnson and Merck & Co., all of which had revenues of more than 40 billion dollars in 2019, three of the six top-selling companies in the industry are American. Four of the world’s top five biotech companies are American, including Amgen (market value: 119 billion euros) and Gilead Sciences (83 billion euros).

But it’s also clear that the powerful U.S. will not be able to defeat the coronavirus on its own. It can only do so with China’s help, because no matter what "Big Pharma” wants to produce, the active pharmaceutical ingredients, the basic ingredients of almost every drug, have been mostly manufactured in China and India for the past decade.

The crisis caused by the coronavirus provides China will the opportunity to finally catch up with America in the strategically important biotech sector. China doesn’t have any pharmaceutical companies yet that are known worldwide for their strength in innovation, but SARS-CoV-2 could change that.

The Coming Conflict

No politician, no society, no state, and neither the European Union nor the United Nations nor the World Health Organization (WHO) is really prepared for the conflicts over distribution and fairness that will arise internationally and within each country from vaccine scarcity.

It seems safe to assume that the rich, the powerful and the selfish will prevail as usual. Unless, that is, the parties involved succeed together in laying down ground rules on who has access to the vaccine, when and why.

Only five and a half months ago, the SARS-CoV-2 pathogen was completely unknown. Today, thousands of researchers in more than 12 countries are working on over 130 vaccine development programs. Around a dozen pharmaceutical companies and government research institutions have already begun conducting human trials in the U.S. and China, but also in Britain, Australia and in Germany.

The Americans have already ordered 300 million doses of a trial vaccine. The Europeans have ordered 400 million.

Never before have scientists, pharmaceutical companies, startups, funders and regulators achieved so much so quickly, although it is still completely uncertain when, how and even if any of these projects will bear fruit.

It’s also still unknown how long the hoped-for immunity will last after vaccination. Experience with other coronaviruses suggests that the vaccine might have to be administered every one, two or three years. This would increase the risk of global scarcity by orders of magnitude and also exacerbate conflicts over distribution.

The development of vaccines has always been a long, exorbitantly expensive and, above all, high-risk process. The substances researchers pin their hopes on can turn out to be nonstarters or even deadly in clinical tests. One Dutch study found that only around 6 percent of all vaccine projects have ever made it to the market.

By joining forces, the countries conducting the research could minimize the risk of eventually being left without a vaccine. But they’re finding it chronically difficult to work together – and this isn’t only a product of the recent escalation in the dispute between Washington and Beijing.

Showing Their Selfish Sides

When pandemics strike entire populations, even friendly states can show their selfish side. When SARS-CoV-2 began spreading around the world in March, dozens of countries closed their borders and banned the export of medicines, protective clothing, disinfectants and ventilators. France even seized masks that were intended for Spain and Italy.

When worse came to worst, there was often no trace of global solidarity, of respect for supply chains or existing contracts. There’s no reason to believe that countries will act any differently when it comes to the vaccine. In March, the news broke that the U.S. had sought to obtain the exclusive rights to the vaccine being developed by Curevac. The Tübingen-based company denied the report, but the incident shows that such brazen attempts aren't completely out of the realm of possibility.

When WHO declared the swine flu a pandemic in 2009, experts also predicted that millions of people could lose their lives (which ultimately didn’t happen). The first new vaccine for the H1N1 virus became available after only seven months – and wealthy countries immediately bought up the global supplies.

The U.S. alone – which was much more engaged with the world under President Barack Obama at the time – signed contracts for 600 million doses of the vaccine. Poor countries and emerging economies, meanwhile, were left empty-handed for quite some time. Many experts agree that the goal this time around should be that of preventing a repeat.

Three Centers of Power

There are essentially three major centers of power for vaccine research around the world: the U.S., China and the EU. And there is blatant distrust and fierce competition between these parties. Currently, the situation situation looks as follows:

• In the U.S., the bombastically named Operation Warp Speed follows the Trumpian logic of "America First": Billions of dollars are raining down on American pharmaceutical companies, and the U.S. military and numerous research institutes are involved in the endeavor. The goal is to develop an effective and safe vaccine by the beginning of 2021, with Americans getting priority access to the substance. To save time, many of the necessary steps in the process – clinical tests, for example – are taking place in parallel rather than one after the other, as is usually the case. The aim is to radically reduce the amount of time it takes to develop a vaccine, from a normal period of several years to just a few months. Many experts have criticized the approach as being too hasty.

• China started work developing a vaccine earlier and is likely more advanced at this point than any other country. Beijing is hoping to begin production of a vaccine by the end of the year. Two highly secure factories – one in Beijing and another in Wuhan – could initially produce 200 million doses of the vaccine a year using deactivated coronaviruses. The Chinese vaccine projects are subject to state control, and the military is also involved. The country’s vaccine development is so secretive that no other country can really assess how risky or successful products will ultimately be.

•The EU's own coordinated vaccine research effort is born out of the realization that Europe won’t be able to rely on the U.S. or China in this crisis. Many EU countries are pushing forward to expand their vaccine production capacities.

Trump, for his part, had long been an anti-vaxxer. He has claimed, for example, that vaccines cause autism in children, which isn’t true.

But now he wants a COVID-19 vaccine, whatever the cost and as fast as possible.

The operation in the U.S. is being led by former pharmaceutical executive Moncef Slaoui and four-star General Gustave Perna of the U.S. Army. A budget of $10 billion has been initially made available.

The basic rules are simple: Whatever happens, American companies have priority. Cooperation with China is out of the question, as is partnering with the EU, WHO or other international bodies.

"Winning Matters”

At the same time, the U.S. Department of Health and Human Services is spending considerable money in an effort to secure vaccines elsewhere. It has agreed to pay the British-Swedish pharmaceutical company AstraZeneca more than a billion dollars for 300 million doses of a vaccine developed for testing in Oxford, England, which will be available in January. That’s a dose for almost every U.S. citizen. Trump hopes to receive the first several million doses by October, in time for the election.

Trump has compared Operation Warp Speed to the legendary Manhattan Project, which developed the nuclear bomb in the 1940s. The comparison is revealing. For him, coming in first is crucial. "Winning matters," says Defense Secretary Mark Esper. At the same time, it would be easy enough for the U.S. to lose, because Operation Warp Speed is focusing its considerable resources on only five vaccine candidates, all of which are extremely ambitious from a technological point of view. What happens if they all fail?

Trump's intention to make the vaccine available to Americans first, no matter what their risk of infection is, testifies to a kind of nationalist thinking that is so menacing in this crisis. Few people are as aware of that as Seth Berkley, the CEO of the Geneva-based vaccine alliance Gavi, which provides vaccine for developing countries. "The pandemic is global," says the epidemiologist. "We need to find global solutions."

On behalf of Gavi, Berkley has recently collected the unimaginable sum of $8 billion in donations - and he has already spent some of it. He placed a huge order with AstraZeneca for 300 million glass vials for vaccine delivery, all of them earmarked for developing and emerging countries. Delivery should commence toward the end of the year.

"This is a difficult challenge for the world," says Berkley. "We won't be able to put an end to the epidemic anywhere if we don't end it everywhere." For as long as the global population hasn’t built up sufficient immunity, he says, the disease can reappear anywhere in a second or third wave, perhaps even more dangerous than it is now.

If countries already begin competing for vaccines and drugs, agrees the U.S. health expert Thomas Bollyky, "then there will only be losers." Even just a well-coordinated global campaign can help, as long as it makes the best research and results available around the world.

Several such initiatives have launched in the shadow of the U.S.-China confrontation. Under the auspices of the WHO, with support from the EU and several other countries, an ACT-accelerator (ACT stands for "access to COVID-19 tools") was launched in Geneva in late April. It is essentially a consortium including Gavi and many other initiatives.

At the donor conference in early May, 7.4 billion euros was raised for the accelerator, with 4 billion of that earmarked for vaccine development. The plan calls for much more money than that to be made available to participating countries in the future.

Germany has thus far pledged 525 million euros, the European Commission a billion, Canada 550 million euros and Australia has promised 200 million euros. There has been no support forthcoming from the U.S., Brazil, Russia or India, the latter of which will likely play a key role in the battle against the coronavirus due to its vaccine production capacities.

"Available to All of Humanity"

The tests, therapeutics and vaccines produced by the accelerator are to be treated as the property of the global community. Depending on the financial resources available to a given country, the products developed could be supplied for free or paid for via loans.

"Once there is a good vaccine, it must be made available to all of humanity, paid for by wealthy countries," Karl Lauterbach, a health expert with the center-left Social Democrats (SPD) in Germany, recently tweeted.

Another participant in the accelerator is CEPI, the second alliance that is investing heavily in the search for a vaccine. Other participants include the Global Fund, the British health foundation Wellcome Trust and the Bill & Melinda Gates Foundation.

At the World Health Assembly in mid-May, the WHO passed a resolution that could be interpreted as a challenge directed at the U.S. and China. It includes a demand that all countries have equal access to vaccines and medicines and also clearly states that international patent rights may be restricted for that purpose.

Should the need arise, countries would be allowed to ignore rules for the protection of intellectual property and clone drugs even without a license. The U.S. was the only country in the world to voice criticism of this passage.
"It is noteworthy that over 140 member states explicitly supported this resolution, including those in which a vaccine may actually be developed," says Olaf Wientzek of the Geneva offices of Germany's Konrad Adenauer Foundation, a think tank aligned with Chanceller Angela Merkel's conservative Christian Democrats.

The resolution is a success for the Europeans since they were the driving force behind it. Even Australia and Japan, both of which have recently been quite critical of the WHO, joined the initiative. Given the vast consensus, China sought to improve its image and announced a pledge of billions more dollars for the global fight against the virus.

Chinese President Xi also promised that vaccines developed in China would be made available as a "global public good," particularly to poorer countries. He did not, however, comment further on what that might actually mean.

"By definition, a global public good" would mean "that everybody should have access to the vaccine," says Yanzhong Huang, a senior fellow for global health at the U.S. think tank Council on Foreign Relations. But because that is essentially a practical impossibility, the pledge cannot be taken at face value, he believes. "It is unrealistic to expect China to have the vaccines provided for free to everybody on this planet."

Naked Selfishness

It is, however, conceivable that China could share the methods and data pertaining to vaccine production with other countries. Developing countries that don't have laboratories to produce the vaccine themselves could be supplied by others that do. The same likely applies to participants in China's Belt and Road Initiative.

Even if China won't likely be able to demonstrate quite as much generosity as Xi's words might suggest, Beijing has staked out a position that is far less self-centered than the naked selfishness of the U.S.

The internationally minded accelerator is a project of hope. "This is the best strategy to get a vaccine, drugs, diagnostics and better public health," says Jeremy Farrar, head of Wellcome Trust.

So, will the world really be able to confront this global catastrophe with a community approach? Yes and no. Important agreements have been reached and fundamental principles for greater fairness have been established, and yet not everybody will be in the same boat in the future. It remains to be seen how much the pledges from wealthy countries will ultimately be worth. The political forces that will be exerted due to the scarcity of the vaccine will be intense.

The German government is supporting international efforts to develop a vaccine with both money and rhetoric, both of which is a welcome relief from the bombast coming from the U.S. Berlin is pursuing several strategies at the same time. And demonstrating solidarity is an important aspect, but not at the price of placing Germany at a disadvantage.

Health Minister Jens Spahn has pushed his European counterparts to establish a response to U.S. unilateralism. The result has been an alliance of Germany, France, the Netherlands and Italy. And they, too, have placed an initial order with AstraZeneca for up to 400 million doses of the experimental vaccine being developed in Oxford. Delivery is scheduled to start in late 2020.

Negotiations with additional producers for the purchase of specific amounts are currently ongoing. Each of the four members of the European vaccine alliance is to pay a quarter of the cost, but the vaccine is to be delivered across the entire EU. The doses are to be divvied up according to size of population, Spahn and his three alliance counterparts wrote. The more inhabitants a country has, the more doses it will get.

The Highest Bidder?

In addition to community efforts, though, some countries are also pursuing a solo approach. The French company Sanofi – which was heavily criticized recently for briefly considering the approach of initially only selling vaccines to the U.S. – is planning to build a new vaccine factory and state-of-the-art research laboratory near Lyon. Neither Paris nor Berlin want to be as dependent on foreign vaccines and medicines as they have been thus far. Moving pharmaceutical production sites back to Europe will be an important priority when Germany takes over the rotating European Council presidency on July 1.

Migrant workers in India stranded by the lockdown: Who will be the first to receive the vaccine?

Germany has also made other preparations. On May 11, the "Corona Cabinet" in Berlin passed a purely national program in which the Education and Research Ministry will provide 750 million euros to support vaccine producers in Germany and secure production capacity at German companies like Biontech in Mainz or Curevac.

The plan calls for these facilities in Germany to be rapidly converted if, for example, the mRNA vaccine from Curevac proves ineffective but the one from the U.S. competitor Moderna succeeds. The German government's investment in Curevac is also intended to guarantee exclusive access to a vaccine.

Article 2 of the German constitution holds that the state is responsible for protecting the health of all people living in the country. But if a pharmaceutical firm in southern Germany, for example, was to produce a vaccine that is desperately needed around the world, who would it go to? The highest bidder or those in greatest need?

CEPI Chair Jane Halton has warned of what she refers to as "vaccine nationalism," a refusal on the part of some countries to share the scarce commodity with other countries. As soon as an effective product comes available, Halton says, political pressure will develop in many countries to ensure that the national population is helped first.

The German government says it will provide 750 million euros in support to companies in the development and production of a COVID-19 vaccine in Germany.
Infectiologist Farrar from the Wellcome Trust has already prepared a solution for this dilemma. Vaccine factories, he says, should be located in countries that are technically advanced, but which have a low population, such as Singapore, Denmark or New Zealand. Such countries could quickly take care of their own needs and could then work on behalf of the rest of the world.

The fundamental problem with the idealistic concept of global public good, however, would still exist. The more countries that must be supplied with the vaccine, the scarcer it will be for all. That would mean that local outbreaks would last longer, and economies would take longer to recover.

It is an "insoluble paradox," says the London-based vaccine expert David Salisbury of the think tank Chatham House. Prior to his current position, Salisbury worked for the British government and was also part of high-level panels at the WHO. He is fully aware of the destructive forces such a situation can produce. "The more equitable you become with access to supply, the less efficient the ability that you will have to protect your population and stop transmission," he says.

Limited Altruism

Salisbury has no illusions. "Much of the outcome will be: Who has got a contract with pharmaceutical manufacturers? And then what decisions the manufacturers come to about how they will prioritize their customers?" In cases of conflict, he fears, the countries in which the production facilities are located may simply pass a ban on the export of vaccines.

The U.S., Salisbury says, has already indicated that it would actively make use of such bans. He doesn't even rule out the EU adopting a "Europe first" policy. The 27 EU member states could act as a bloc for the joint procurement of vaccines. "So would the EU come to a view that an EU producer should serve the European joint procurement first before vaccine leaves the EU?" he wonders.

His conclusion is clear. The altruism of even well-meaning countries is limited. "The depths of your pockets defines how quickly you get vaccine," he says.

Germany has deep pockets and will likely be able to secure significant quantities of a vaccine. How, though, will it be distributed?

It seems likely that health care workers would be the first to receive the vaccine so that medical practices, hospitals and care facilities can continue operations. This approach has a broad consensus in Berlin at the moment. People who belong to high-risk groups would also be vaccinated early on. But then?

All those who yell loud enough and are willing to pay a high price? Police and firefighters? Teachers? People who work in vital industries like automobile manufacturing or workers in places that have been hit hard by the virus, like slaughterhouses?

Tobias Witte, 34, is a medical lawyer in the city of Münster and is well prepared for the legal questions raised by the pandemic. From 2011 to 2013, he wrote his Ph.D. thesis, the first run of which is now sold out. It is called: "Law and Equitableness in a Pandemic: Stockpiling, Distribution and Pricing of Scarce Medicines in the Case of an Epidemic Outbreak."

For Witte, it is clear that when decisions are made about who receives a vaccine first and who is further down the list, it should not be arbitrary and factors such as power or market power cannot be decisive. Law must be applied. "We badly need a federal law on vaccine distribution," he says. That law must ensure, he adds, that every single action is taken to save as many human lives as possible with the limited number of vaccine doses available.

"Veil of Ambiguity"

Nobody yet knows what kind of characteristics the vaccine will ultimately have. Whether it will be suitable for everyone or how risky it will be. Given such doubts, is it not too early to begin establishing the legal framework for the distribution of the vaccine?

Witte actually believes that this lack of detailed knowledge represents an opportunity. "If I don't know where I stand in a catastrophe, then I will make decisions that are less self-interested," he says. Distribution resolutions passed in an atmosphere of uncertainty, he believes, tend to be relatively fair because decision-makers try to do well by everybody. The "veil of ambiguity" is clearly advantageous, the lawyer says.

It is not German parliament, however, that decides on the distribution of scarce goods in the health-care system, particularly when ethically sensitive questions are involved. Health Minister Spahn has commissioned a group of 18 scientists and medical professionals to develop a distribution plan.

The Standing Vaccine Commission (known as STIKO for short) at the Robert Koch Institute is to develop a "risk-oriented prioritization concept" for vaccine distribution, according to a ministry response to a parliamentary inquiry. STIKO has been around for years, deciding which vaccines are necessary for which groups of people – and doctors tend to adhere to their recommendations without the need for cementing them into law.

But will that system withstand the pressures that come along with the COVID-19 pandemic? Or will patients sue their doctors because they were denied the vaccine in favor of a privately insured patient?

Producers, for their part, are preparing for mass production. AstraZeneca has already secured global production capacity of 2 billion vaccine doses of the vaccine from Oxford, despite it not yet having been approved.

The company Serum Institute of India (SII), the world's largest vaccine producer, is a significant part of the massive production expansion. Currently, SII, located in the city of Pune, produces around 1.5 billion doses of various vaccines per year, including those for diseases such as tetanus, measles, polio and mumps.

Preparing for Future Pandemics

SII head Adar Poonawalla, 39, is planning to begin production of a SARS-CoV-2 vaccine now. By autumn, he hopes to have produced 40 million doses, at which time it will become clear if it is granted approval – or not.

If it is approved, Poonawalla intends to make at least half of the doses available to India, with the rest going to countries that don't have their own vaccine. If approval is not forthcoming, it will all be discarded.

Poonawalla's company joined the project at its own risk. In the worst-case scenario, he might lose a few million euros of his multi-billion-euro nest egg. But should everything go well, he'll be a hero by the end of the year – and have the reputation for being a visionary businessman.

Currently, SII sends most of its exports to Africa, South America and Asia, though Poonawalla has long wanted to expand into the North American and European markets. He views this crisis as an opportunity for the Indian pharmaceuticals industry. "The world has always underestimated our capabilities," he says.

It is difficult to see a solution for vaccine scarcity without the participation of India. Vaccine producers in the country cover roughly 60 to 70 percent of global demand. And the prices they command are often merely a fraction of those paid in the West.

In this pandemic, many of the pharmaceutical companies have signed cooperation agreements with Western partners, which could elevate them to a new level. Poonawalla has joined forces with the U.S. biotech company Codagenix and the Austrian firm Themis.

SII is also in the process of building a new, extremely flexible factory, with completion expected within three years. It will have a capacity of 700 million doses of vaccine per year – and not just for COVID-19, but for a variety of illnesses.
"What the world needs is a pandemic-level facility that can ramp up very quickly in case of a pandemic," Poonawalla says. And one thing is certain: There will be other pandemics after COVID-19.

Update COVID-19

Doug Nolan

Can we even attempt a reasonable discussion? Someone’s got this wrong.

June 12 – Reuters (Judy Hua, Cate Cadell, Winni Zhou and Andrew Galbraith): “A Beijing district put itself on a ‘wartime’ footing and the capital banned tourism and sports events on Saturday after a cluster of novel coronavirus infections centred around a major wholesale market sparked fears of a new wave of COVID-19… ‘In accordance with the principle of putting the safety of the masses and health first, we have adopted lockdown measures for the Xinfadi market and surrounding neighbourhoods,’ Chu said.”

June 14 – Financial Times (Don Weinland): “Over the weekend, authorities closed the Xinfadi market, a sprawling complex that provides most of Beijing’s fresh seafood, fruits and vegetables. Several residential compounds on the west side of the city have been locked down and more than 100 people have been put in quarantine… China has adopted a ‘zero tolerance’ stance toward new cases. Areas that present any new cases have been quickly locked down, often trapping millions of people.”

June 19 – CNN (Nectar Gan): “Within a matter of days, the metropolis of more than 20 million people was placed under a partial lockdown. Authorities reintroduced restrictive measures used earlier to fight the initial wave of infections, sealing off residential neighborhoods, closing schools and barring hundreds of thousands of people deemed at risk of contracting the virus from leaving the city.”

China is said to have mobilized its 100,000-strong infection tracing force. More than 1.1 million tests were administered in Beijing over the past week.

From the UK Guardian (Lily Kuo): “Officials have ordered all residents to avoid non-essential travel outside of the capital, and suspended hundreds of flights and all long-distance buses. Other cities and provinces have begun to impose quarantine measures on travellers from Beijing… ‘Everyone is scared. No one wanted this to happen,’ says Zhang, waiting in the queue near Chaoyang park.”

June 19 – CNBC (Berkeley Lovelace Jr.): “White House health advisor Dr. Anthony Fauci said Friday that he is frustrated Americans aren’t following recommended health guidelines to prevent the spread of the coronavirus. ‘Clearly, we have not succeeded in getting the public as a whole uniformly to respond in a way that is a sound scientific, public health and medical situation,’ Fauci, director of the National Institute of Allergy and Infectious Diseases, told CBS News… ‘And it’s unfortunate. And it’s frustrating.’”

Florida positive COVID cases surged to 3,822 Friday – almost 20% ahead of the previous day’s record infections (3,207). From CNBC: “Earlier this week, Republican Gov. Ron DeSantis said the state would not reimplement more restrictions or delay its reopening progress. ‘We’re not shutting down. We’re going to go forward. ... We’re not rolling back,’ the governor said at a news briefing Tuesday. ‘You have to have society function.’” This week marked a notable jump in the percentage of positive test results, with between 10 and 12% returning positive Tuesday, Wednesday and Thursday (versus less than 5% early in the month).

New cases in California jumped three straight days to Friday’s 4,317 – the single-largest increase yet – surpassing 4,000 for the first time (some delayed results were reported Friday). Hospitalizations also rose to a new high. From Politico: “California Gov. Gavin Newsom announced Thursday he will require masks in most public settings statewide in an effort to slow the spread of Covid-19 as the state is still setting daily records for new infections.”

Arizona announced 3,246 new cases Friday – about 30% above Thursday’s previous record 2,519. Prior to June, Arizona only reported two days with new infections above 500. Early this month is had its first 1,000 infection day. From KVOA: “Since June 2, the percentage [of positive results] has spiked back up from 5.7% to 7.8%.” And from Harvard epidemiologist Feigl-Ding (reported by Fox10): “Arizona is currently the worst off. In terms of a per capita basis, on a 7-day average, Arizona has 212 cases per million population and Arizona ranks number one.” Apparently, 20% of Arizona COVID tests came back positive Thursday.

Texas reported 3,516 new infections Thursday, 12% above the previous high on Wednesday (3,129). Total infections surpassed 100,000, as hospitalizations rose for eight straight days. From Community Impact: “In the last two weeks, Texas Medical Center-affiliated hospitals have seen its COVID-19 patient numbers increase to 883 as of June 18, a 41% increase in two weeks… The jump in hospitalizations at the medical center comes as the Greater Houston area has experienced an influx of new COVID cases…” Covid hospitalizations in Dallas County were also up 40% in two weeks.

From the Brownsville Herald: “In Austin and Travis County, health authorities said earlier this week that community transmission is now widespread in the area. The challenge is that many people who have tested positive have visited many different locations, which makes the exact infection site ‘difficult to pin down to one particular location’ where the virus is being spread, said Mark Escott, Austin Public Health’s interim medical director and health authority.”

Friday saw South Carolina new cases surpass Thursday’s record by 5% to 1,018. Total cases reached 22,608. Oklahoma on Thursday reported a record 450 new positive infections.

June 19 – New York Times: “The World Health Organization issued a dire warning on Friday that the coronavirus pandemic is accelerating, and noted that Thursday was a record day for new cases — more than 150,000 globally. ‘The world is in a new and dangerous phase,’ said Dr. Tedros Adhanom Ghebreyesus, the director general of the W.H.O. ‘Many people are understandably fed up with being at home. Countries are understandably eager to open up their societies and their economies. But the virus is still spreading fast. It is still deadly, and most people are still susceptible.’ If the outbreak was defined early on by a series of shifting epicenters — including Wuhan, China; Iran; northern Italy; Spain; and New York — it is now defined by its wide and expanding scope. According to a Times database, 81 nations have seen a growth in new cases over the past two weeks, while only 36 have seen declines. Dr. Tedros said that almost half of the new cases reported on Thursday came from the Americas. Large numbers are also being reported from Africa, South Asia and the Middle East.”

June 19 – Bloomberg: “Brazil exceeded 1 million coronavirus infections, the second nation to reach the mark, as the disease shows no sign of slowing in Latin America’s largest nation months after the first cases were recorded. The country registered a record 54,771 cases on Friday, bringing the total to 1,032,913. The data compiled by Brazilian states also showed 1,206 fatalities, raising the toll to 48,954. In both counts, Brazil trails only the U.S., which had 2,206,333 on Friday… Brazil’s response, plagued by political infighting and mismatched quarantine orders, has made it harder for experts to pinpoint when the disease will peak in the nation of 210 million.”

India reported a record 14,574 new cases Friday.

Beijing goes to “wartime” footing with a 100-case outbreak. The U.S. on Friday reported 33,000 new infections, the largest increase in weeks. Expectations that our outbreak would follow the path of Italy, Spain and Germany were much too optimistic.

The U.S. “curve” not only hasn’t declined as expected, it is turning higher. But there will be no U.S. mobilization. Former FDA Commissioner Dr. Scott Gottlieb asked the pertinent question Thursday on CNBC: “Can we keep this from getting out of control. This is a virus that wants to infect a very large portion of the population.”

The U.S. is more deeply divided today than it has been in decades. Divisions fall along political, ethnic, economic and generational lines. These lines seem to harden by the week. Part of the country will look to Tulsa this weekend with pride and enthusiasm. A segment of society will see the President’s rally as a repulsive display of ignorance and recklessness. Only in this extraordinary environment could masks become a political statement.

The pandemic is worsening – at home and abroad.

Here in the U.S., states will be hesitant to reimpose lockdowns. Yet it’s difficult for me to see how deteriorating conditions in many states – including large ones – don’t come with serious economic ramifications. A return to normalcy will be postponed. Consumers will remain hesitant to venture far from home. Recovery for scores of businesses will be further delayed.

Lockdown or otherwise, a virus resurgence would equate to more business failures, permanent job losses and Credit problems.

Brazil has a population of 210 million. India is approaching 1.4 billion. Both nations are staring at potential health and economic catastrophes. With a record 180,000 new global infections reported Friday, scores of countries are at risk of the pandemic spiraling out of control. When it comes to global recovery prospects, markets are much too complacent.

June 18 – Bloomberg: “China’s central bank wants the total flow of credit to rise by almost a fifth this year, as part of efforts to push the economy out of the coronavirus-induced slump. That’s to be achieved through record special-purpose bond issuance as well as a 19% increase in bank loans, according to People’s Bank of China Governor Yi Gang. In all, total social financing flow should rise to at least 30 trillion yuan ($4.2 trillion) this year, Yi said… That would represent a 17% expansion from 2019’s 25.6 trillion yuan in new credit including government bond issuance… Even so, the depth of China’s first-quarter contraction and the chance that the virus shutdowns will return in earnest imply that the increase may not be enough.”

Beijing is coming to grips with the reality of deteriorating economic recovery prospects.

China’s Bubble is faltering. Inflated consumer confidence has fallen back to earth, portending an extended period of weak domestic demand. Meanwhile, China’s manufacturers remain highly exposed to ongoing weak global demand.

I’m tempted to label markets as “crazy” for downplaying pandemic and myriad risks. But markets are just playing a different game.

In the U.S., a resurgent COVID ensures an extended period of massive fiscal and monetary stimulus.

A weak China guarantees Beijing slams the Credit accelerator. Global weakness ensures the BOJ, ECB and others continue to flood global markets with liquidity. It’s a replay of earlier in the year when manic markets disregarded pandemic risks.

And expect a replay of March dynamics when the latest speculative Bubble iteration ruptures.

How will central banks react – after already flooding the world with Trillions of liquidity?

I wanted to circle back to document the final question and reply from Chairman Powell’s June 10th post-FOMC meeting press conference:

Bloomberg’s Michael McKee: “I came across a statistic the other day that amazed me. Since your March 23rd emergency announcement, every single stock in the S&P 500 has delivered positive returns. I’m wondering, given the levels of the market right now, whether you or your colleagues feel there is a possible bubble blowing that could pop and setback the recovery significantly, or that we might see capital misallocation that will leave us worse off when this is over? Second, inequality is not just about wages, it’s also about wealth, and a number of studies have suggested that by keeping rates low for so long and targeting the markets after the great financial crisis, that the Fed did contribute to wealth inequality in this country. And I’m wondering if you think there is some tweak or some message you could give that would affect that?”

Powell: “What we’ve targeted is broader financial conditions. If you go back to the end of February and early March, you had basically the world markets realized at just about the same time… that there was going to be a global pandemic and that this possibility that it would be contained in one province in China, for all practical purposes, was not going to happen. It was… Iran, Italy, Korea, and then it became clear in markets. From that point forward, investors everywhere in the world for a period of weeks wanted to sell everything that wasn't cash or a short-term Treasury instrument. They didn’t want to have any risk at all. And so, what happened is markets stopped working. They stopped working and companies couldn’t borrow; they couldn’t roll over their debt. People couldn’t borrow. So, that’s the kind of situation that can be -- financial turbulence and malfunction. A financial system that’s not working can greatly amplify the negative effects of what was clearly going to be a major economic shock.

So, what our tools were put to work to do was to restore the markets to function. And I think, some of that has really happened… and that’s a good thing. So, we’re not looking to achieve a particular level of any asset price.

What we want is investors to be pricing in risk, like markets are supposed to do. Borrowers are borrowing, lenders are lending. We want the markets to be working. And again, we’re not looking to a particular level. I think our principal focus, though, is on the state of the economy and on the labor market and on inflation. Now inflation, of course, is low, and we think it’s very likely to remain low for some time below our target. So, really, it’s about getting the labor market back and getting it in shape.

That’s been our major focus. And I would say, if we were to hold back because - we would never do this - but just the concept that we would hold back because we think asset prices are too high, others may not think so, but we just decided that that’s the case, what would happen to those people?

What would happen to the people that we’re actually, legally supposed to be serving? We’re supposed to be pursuing maximum employment and stable prices, and that’s what we’re pursuing.

We’re also pursuing financial stability, but there you have a banking system that is so much better capitalized, so much stronger, better aware of its risks, better at managing its risks, more highly liquid. You have all of those things and they’ve been lending, they’ve been taking in deposits, they’ve been a source of strength in this situation.

So, I would say that we’re tightly focused on our real economy goals. And again, we’re not focused on moving asset prices in a particular direction at all. It’s just, we want markets to be working. And I think partly as a result of what we’ve done, they are working and we hope that continues.”

The Chairman’s rambling (non-answer) reply could be summarized in four words: “The Fed is trapped.” It’s trapped by Bubble Dynamics – a historic Bubble that either inflates or collapses.

What the Fed labels as “markets functioning” is at this point a “functioning” speculative Bubble.

And feeding this dynamic exacerbates inequality, social instability and financial and economic fragility.

The Fed “pursuing financial stability”? It’s difficult to imagine a backdrop with greater instability.

At this faltering Bubble phase, throwing Trillions at efforts to aggressively pursue employment and inflation mandates essentially destroys the prospect for any semblance of financial stability.