Great Reset Update: $50 Trillion Debt Coming

By John Mauldin 

Amid all 2020’s new problems, it’s easy to overlook the old ones. Yet they are still there and, like a silently spreading virus, silently getting worse.

One such problem is debt, and specifically government debt. All debt shares one common characteristic. A bill comes due at some point and, if the borrower doesn’t pay, the lender either loses their money or finds someone else to pay. Governments often do this.

I’ve warned for several years now that our growing global debt load is unpayable and we will eventually “reorganize” it in what I call The Great Reset. I believe this event is still coming, likely later in this decade. Recent developments suggest it will be even bigger than I expected. You could even say I’ve been too optimistic.

Today we will see how the federal debt problem has grown considerably worse than my admittedly somewhat gloomy 2020 forecast said to expect It will get even worse. But I end the letter telling you why I’m still optimistic and you should be, too.

Absurd Assumptions

Way back in June 2019, I wrote a series of letters responding to Ray Dalio on government debt and related issues. In one of them I showed a series of spending and revenue charts my associate Patrick Watson prepared from Congressional Budget Office projections. Here is the primary one, exactly as published in June 2019.

Again, the underlying spending and revenue numbers came straight from CBO. 

They make numerous unrealistic assumptions yet still show a bleak picture. I noted at the time:

Under these projections, total federal debt will rise to $25 trillion sometime in 2021. If there is a new president, he or she will not have enough time to change that. Total debt by the end of the decade will rise to the mid-$30-trillion range. Note that these projections do not include off-budget spending (more on that later) which is significant.

The CBO also assumes the bond market can and will absorb almost $35 trillion worth of US government debt. When combined with state and local debt it will easily exceed $35 trillion. (State and local debt is already over $3 trillion. It will certainly rise in the next 10 years.)

I also asked what would happen if we had a recession in 2022. 

I assumed revenue and spending numbers would look similar to the Great Recession in the following chart, demonstrating that the deficit would rise to over $2 trillion annually and pretty much stay that way for the rest of the decade. 

It turns out we had a much deeper recession this year in 2020. I was such an optimist… Anyway, this was my forecast in January 2020:

Now let’s fast-forward. The CBO just published its latest review. We updated the chart with CBO’s new numbers. It looks a little different now.

The most obvious change is a big spike in the blue “Mandatory Spending” area. 

That’s the unemployment and other benefits triggered by the recession. Less obvious is a small dip in tax revenue, after which the line continues upward as before. 

Even with the optimistic V-shaped recovery assumption, revenues barely cover mandatory spending (basically entitlements and social programs), defense, and only a little of the actual interest costs.

Let’s dig into that a little more. Here is a table summarizing federal revenue. 

The 2019 line is actual, the rest are CBO projections

We see that in this severe recession year, CBO expects federal revenue will drop 4.8%, then fall another 1.2% in FY 2021, followed by a 14.8% surge in 2022. Definitely a rocket-fueled V-shape recovery. Realistic? I don’t think so. In 2008 federal revenue fell 1.7% and then plunged 16.6% in 2009. It didn’t fully recover until 2013, three years after the recession ended. And that recession was mild compared to this one.

Even more absurdly, CBO projects payroll taxes will actually rise this year despite record-high unemployment. Now, it’s true that the unemployed population tends to be lower-income workers (so far) with smaller tax liabilities. 

And payrolls were normal until almost halfway through the fiscal year. But for revenue to actually rise seems unlikely. It stretches credulity to think total US worker income will be slightly larger in 2021 than in 2019. But that’s what CBO forecasts.

This matters because these revenue assumptions go into the deficit estimates, which tell us how much federal debt will grow. (Spending assumptions are also absurd but set them aside for now.) Note, also, the substantial and uninterrupted revenue growth they project from 2022 through 2030. The last remotely comparable period was the 1990s.

It projects this revenue growth because it projects uninterrupted GDP growth, and especially high GDP growth in the next few years. These assumptions will be important at the conclusion of this letter.

Is CBO all wet? I think not. I think the very smart wonks who make these forecasts try their best. 

CBO is mandated by law to make the projections under current law as written and forced to make (within guidelines) positive projections. They don’t have the luxury of assuming there might be a recession in the future.

You wouldn’t hire a financial planner who used software that was guaranteed to give you an unrealistic projection with nothing but positive assumptions. 

Yet that’s what we do with the CBO numbers.

Breaching $50 Trillion

In my 2020 forecast letters, published in January as the pandemic was just gaining attention, I revisited the charts above and noted this:

When we do have a recession, which again I point out is likely to be after the election (the only meaningful data point between now and the end of next year), the deficit will explode to over $2 trillion per year and, without meaningful reform, never look back. That puts US debt at $35 trillion+ by the end of 2029.

According to CBO, this deficit which I gloomily said would be over $2 trillion in a recession year will be more like $3.3 trillion. I was an optimist.

What does this do to the national debt? First, we have to define some terms. You’ll often see numbers for “debt held by the public” or something similar. These exclude amounts the government owes to internal entities like the Social Security trust funds, military pensions, and other “we owe it to ourselves”-type funds. Those trust funds are running down at some point and those bonds will have to be repaid or sold into the market just like any other form of government debt. There is no such thing as owing it to ourselves. Not in the real world. It sounds good if you’re a politician trying to ignore or minimize debt. This ostrich-like head in the sand approach courts disaster.

“Total Public Debt” is more inclusive, and at the end of FY 2019 it was approximately $23.2 trillion. If the latest CBO estimate is correct, it will be well over $26 trillion when FY 2020 ends on September 30.

If we plug that into CBO’s revenue and spending estimates through 2030, we get something like this.

Note again, this is the official CBO data. You don’t often see it this way because they usually express it as a percentage of GDP instead of raw dollars. Their own numbers now show an almost $38 trillion debt at the end of 2029, far more than the also-alarming $35 trillion I estimated earlier this year. Again, I was an optimist.

But CBO is optimistic, too. Some very slight and quite reasonable adjustments show the debt will be trillions higher by 2030. Below is the same table again with these changes:

  • We reset revenue to change by the same annual percentages it did in 2008 and the following recession and post-recession years. That actually raises 2020 revenue a bit, after which it drops considerably lower than the CBO estimates.
  • We take CBO’s spending projections and add 2% to each year, which I think is a fair and maybe even conservative expectation.
  • We add $269 billion in yearly off-budget spending, which is the average since 2000. (You can take almost any 10-year period out of the last 20 and get close to that $269 billion average. Some years it has over $500 billion and some years it is negative. But the average is eerily consistent.)

Everything other than the above three changes is the same. When I asked Patrick to make those assumptions for the next table, we both knew that it would increase the total debt. I still admit to being quite surprised when I saw the final number. 

Here is the result:

Under these (more likely) assumptions, the debt will breach $50 trillion in 2030. 

I bet it happens even sooner, because we probably won’t get through the 2020s without some other event blowing out the numbers—another recession or pandemic, an expensive war, who knows. But history suggests something will occur, with significant fiscal effect.

For those who prefer cool graphs, here is that $50 trillion in a simple line graph:

“Turning Japanese, I think we’re turning Japanese, I really think so.” (The Vapors)

But Wait, There’s More!

The CBO projections follow the government’s fiscal year, running from October 1 to the end of September. It is projecting a deficit of a little over $3.3 trillion for fiscal 2020.

Note that the CBO can only project current law. I expect House Speaker Nancy Pelosi and President Trump will agree to a “Phase IV” economic relief package well north of $2 trillion. My Twitter reading last night (follow me here) told me Pelosi expects to be negotiating with Trump in the next few days. Another tweet said her office and Mnuchin’s office are talking.

As I wrote last week, without another relief package the economy will fall into a depression by the end of the year. Neither party wants that. But that means adding another $2 trillion to the 2021 deficit, pushing it over $4 trillion.

Here is where the wonderful says we are today:

You can click on any of the numbers at that website for an explanation and sometimes deeper links. This is just a small section. It tracks almost everything. 

On the left-hand side of the visual above, the third set of boxes show actual US federal spending and the budget deficit. When you click on the box labeled “US Federal Budget Deficit (Actual)” the definition includes off-budget spending. 

They project over $1 trillion in off-budget spending this year. Ouch! And they are not including the $2 trillion Phase IV relief package either.

We are so going to blow through $30 trillion total debt sometime early next year, making my milder projections wildly wrong. Just a year ago, I naïvely expected it would be 2025 before we got to $30 trillion, and we would be short of $40 trillion by 2030.

Add an additional $2 trillion in Phase IV and the debt will easily be $40 trillion by 2025, and $50 trillion before the end of the decade.

MMT Coming

The next question is how will we finance all that debt. Americans and a shrinking group of foreign investors have been surprisingly willing to buy as much paper as Washington can print, even at near zero (or below zero, adjusted for inflation) interest rates. But there are limits, at least in theory, and they may draw closer if the global recession drags on.

The most obvious solution is for the Fed to buy whatever amount of bonds Treasury needs to sell using quantitative easing. Powell is definitely willing. 

Depending on how the Fed disposes of its bonds, it might be the practical equivalent of MMT. And the Fed’s willingness will not be lost on a future Congress, which could easily decide to test the limit. $50 trillion could just be the start.

The other question is what effect all this federal debt will have on private markets. Will it have a “crowding out” effect that reduces private lending? How will it affect legitimate business and investment activity? We’ll see the result in lower growth.

Remember, we aren’t just talking about federal debt. States and local governments owe over $3 trillion more, plus trillions more in unfunded state pension liabilities, some of which could easily end up at the Fed or Treasury. Then there are the wildly underfunded pensions (both government and corporate) that could easily default and force some kind of federal takeover. Plus corporate bonds, mortgages, student loans, auto loans, SBA loans…

I will probably be referring to this letter in five years when it becomes clear that the debt will be hitting $60 trillion or more as the US government takes on state and local liabilities and we find ourselves in another recession. I will be admitting that my $50 trillion projection was way too optimistic. Sigh. Double sigh.

You may be a debt-free, prudent investor but the fact remains, you are also a citizen and taxpayer. We are collectively in hock up to our ears. Some of this will end up on your shoulders and mine. Not a pleasant thought? Exactly. Which is why I expect a Great Reset. A real economist would probably call it Debt Rationalization. We will reach a point where it becomes the least-bad alternative.

The Consequences of $50 Trillion of US Debt

1.   Raising taxes will not solve the problem. Of course, it could help reduce the deficit some but it would be more of a token. That is just the reality. From the Tax Foundation here are the real numbers as of 2017.

If we double taxes on the top 25% it would only bring in another $1.3 trillion, assuming people didn’t change their behavior. (A 75% marginal rate plus 4% Medicare for a 79% top rate certainly will change behavior.) A less-shocking 20–25% increase would only bring in about $3-400 billion, and would have to raise rates on incomes above $83,000. Not exactly the rich. They already think they pay their fair share.

If we raise taxes next year in the teeth of a recession it will only make the recession worse. If we raise taxes but they don’t actually take effect until 2023 and then get phased in? That would probably avoid creating a double-dip recession.

One reason we cut corporate taxes was to make US companies more competitive. It worked. Do we really want to lose that? 

Not to mention what it will likely do to the stock market. Just saying…

2.   I know I keep saying this, but debt is future income brought forward. There is a point at which debt becomes a drag on US economic growth, and we have likely reached it. GDP growth in the US is going to increasingly look like Japan and/or Europe, i.e. almost nil. So, the CBO’s continued 2% average growth forecasts will simply get thrown out the window and the deficits will get worse. Ceteris paribus, ipso facto, QED and FUBAR. Don’t shoot me, I’m just the messenger.

3.   It is possible I’m being overly pessimistic about the need for a Great Reset which would include national debt. Japan reached 250% debt to GDP a few years ago, since which the Bank of Japan bought around half of total government debt (back of the napkin numbers) and Japan is doing just fine. The European Central Bank is buying anything not nailed down and is muddling through.

4.   Let me point out that while the practical results of quantitative easing look similar to MMT (modern monetary theory) the actual results and practice are completely different. I am not persuaded that the US Congress can understand the difference. Dear gods, I hope they can.

I was explaining this to a friend last night. He asked me what we should do, somehow believing that there has to be an answer. There isn’t one. We have no good choices left. It is as if we are on a trip through a desert and know for certain we don’t have enough water to go back. We don’t know where the desert ends, but we have to go forward.

That’s the reality. Unless you want to cut Social Security and Medicare, ignore military pensions, sell the national parks, abolish departments like State and Treasury, cut the defense budget in half along with Homeland Security, Education, Labor, the Justice Department and the FBI, etc. we are going to have to live with the $2 trillion deficits. In good years. There are no better choices.

We are going to learn how much the US can borrow before it all collapses around our ears. I have no idea where that point is. It’s probably a lot more than any of us currently believe. Japan is continuing to borrow, as is Italy and the rest of Europe. And China, etc. Sigh.

5.   While all of this is happening, we will continue to see accelerating technological transformation. I believe within five years we will have something that looks like the Fountain of Middle Age, and within 10 to 15 years actually make you younger, while at the same time beating cancer, heart disease, and so on. It will truly be the age of technological marvels.

There are going to be phenomenal investment opportunities. We will have to be very conscious of how we handle our portfolios, especially towards the latter half of this decade. That being said, I am currently making the largest percentage-wise single investment that I’ve ever made in a company (which is private so I can’t mention it) that I believe will have phenomenal dominance in its market within 10 years. It is one of the biggest markets in the world. Things like that are going to be happening more and more and more.

So yes, I fully understand that $50 or $60 trillion of US debt is a problem, but I’m not going to ignore the opportunities in front of me. I fully believe that the 100,000+ entrepreneurs who have lost their businesses are not simply going to sit on their derrieres and do nothing. It is in their DNA to launch new ideas. They will keep creating opportunities and jobs.

I think of myself as a realistic, rational optimist. I can admit the problems that we have with our government, debt, and political partisanship and still want to be long humanity and believe in a powerful future. You should too.

I’m going to close here, and apologize for not having enough room for my banana nut cake recipe so many of you have asked for. I will get it in a future letter. But we really do try to limit the words, and this letter is already overly long so let me just say have a great week!

Your wondering why the weights in my gym are heavier this time around analyst,

John Mauldin
Co-Founder, Mauldin Economics

Sweden’s Covid-19 experiment holds a worldwide warning

Do not jump to conclusions about lockdowns before all the data is in and analysed

Wolfgang Münchau

Sweden did not follow the same strict lockdown measures that much of Europe adopted © Jonathan Nackstrand/AFP/Getty

Only a fool would draw strong conclusions from sketchy data. The biggest fools this year were those who prematurely declared the spike in Swedish infections from April until June as evidence that the Swedish decision not to lock down their economy was wrong. I recall many armchair epidemiologists hyperventilating about Sweden’s obstinate refusal to follow the rest of the world.

Over the summer, Sweden took other steps to control the virus, including local lockdowns, and cases started to rise again in other parts of Europe. Now, Sweden’s new infection statistics look better than much of the EU. But we shouldn’t draw any conclusions yet. It was wrong two months ago to condemn the Swedish strategy based on that data, and it would be equally wrong to draw the opposite conclusion now.

It took many years for epidemiologists and biostatisticians to understand the infection rate and progression of the 2003 Sars outbreak. It will not be different this time. 

Experts are most at risk of error when they go beyond their narrow field of expertise — and particularly when they venture into the world of statistics. In some cases, they get the maths wrong. But often they fail to see subtleties.

Years ago, when I was researching the asset bubble that later gave rise to the 2008 financial crisis, I studied value-at-risk data for banks. These statistics are the way bankers measure their risk exposure on a day-to-day basis. Back then, senior bank executives treated VAR like football scores, looking for winners and losers.

I found that the tiniest shifts in a measurement parameter had massive implications on the final result. The obvious conclusion is that you cannot reduce something as complex as a bank’s risk exposure to a single number. Today’s equivalent fallacy is the idea that you can compare the infection rate of one country with that of another and draw policy conclusions in real time.

It is a more profitable use of time to look behind the data. In Sweden, it is now clear that a major reason for the spike in infection rates in the early stages of the crisis was the failure to protect care homes. Protecting the elderly is where Germany, for example, did really well.

Chart showing that the profile of Sweden’s pandemic differs radically from those of its neighbours

The infection rate in Sweden also showed strong geographical variation. Most of the Swedish cases were concentrated in two regions, including Stockholm. Meanwhile, the southern Swedish city Malmö is close to the Danish capital, Copenhagen, separated by the narrow Oresund Strait. Malmö’s rates look good by comparison with Copenhagen, even though the two operated under different lockdown regimes.

I don’t know why regional gaps were so strong, and my interlocutors in Sweden do not either.

If you want to make grand pronouncements about Swedish lockdown policies and infection rates, you should probably make an effort to understand this first.

Policy in times of Covid-19 amounts to decision-making under extreme uncertainty. The latest Swedish numbers do not prove or disprove anything. But before policymakers order something as extreme as another lockdown, they should have had incontrovertible statistical evidence, not just a bunch of numbers that feed their confirmation bias. As long as statistical doubt persists, we certainly do not want to do this twice.
A lockdown is an extreme policy measure and its consequences will not become apparent for some time. I have no doubt that it will end up increasing inequality. Unemployment and corporate insolvencies will rise once the support measures are withdrawn. Although stock market indices have fallen and recovered, these are just averages.

Behind them stand huge shifts of capital from old to new sectors. If people continue to work from home, this will boost residential and rural areas at the expense of city centres and shift resources from commercial to residential property.

I consider the lockdown reflex as currently the biggest threat to western capitalist democracies. The data at this point do not tell us what we need to know, but they inject useful uncertainty into the consensus that a lockdown is the only way to respond to a global pandemic.

To put it another way, next time we had better make sure that the data justify such actions beyond reasonable doubt and put policies in place to deal with the consequences. We did not do that the first time.

It is my hope that Sweden’s experiment will eventually provide us with enough data to make a valid cross-country comparison. Until then, we should keep watching closely.


What can be learnt from Chinese futures trading?

If you love eggs, this is the market for you

“So long as you think about what others are thinking about, and stick to your trading strategy, you can always be successful.” This encouraging, if dubious, sliver of market wisdom was proffered on September 3rd by Zhou Chengji, a Chinese investment adviser, during a two-hour online tutorial.

China is hardly alone in having a raucous community of would-be market gurus and day traders. But Mr Zhou’s focus was on an asset that makes China look rather unusual: egg futures, the only ones of their kind in the world nowadays.

For punters with strong views about whether hens will be productive this autumn and whether people will crave egg-fried noodles and the like, China is the place to be. All they need do is contact local brokerages and put down a 4,000 yuan ($585) deposit.

Going long eggs (ie, betting prices will rise) was, briefly, one of the trades of the summer, with futures soaring 65% from late May to late July. Since then the market has cracked, prices tumbling more than 20%.

Turnover is extraordinarily high. Investors buy and sell roughly 3m tonnes in egg futures every day, about a tenth of the total that China actually consumes in a full year. The rights to a single egg may, in effect, pass through a few dozen hands before it lands in boiling water.

All this makes it tempting to dismiss Chinese futures as a hotbed of speculative excess. Retail traders do play a much bigger role on the country’s commodity exchanges—in Shanghai, Dalian and Zhengzhou—than in Chicago or London, which have long been the world leaders in, respectively, agriculture and metals.

Officials estimated that in 2016 about 85% of open positions on Chinese exchanges were held by individuals, compared with less than 15% in America, where institutions dominate trading.

Nevertheless, the very immaturity of the Chinese market also reveals some enduring truths about futures that are obscured by the smoother functioning of century-old exchanges.

Start with the most basic, the need to hedge. Futures are a tool for producers to guard against prices plunging and for consumers to guard against them soaring. In the West this can look quite straightforward because market power is so concentrated.

The top four steel companies accounted for about 80% of production in America in 2017 versus just 20% or so in China. Fragmented spot markets make it harder for futures to serve as a benchmark.

Yet it is dangerous to operate without a pricing backstop. So China has been rushing to expand its universe of futures. In the past two years alone it has launched more than ten new contracts, from crude oil and stainless steel to apples and red dates. It will take time to establish their credibility.

If China still has much to learn about futures, there is something to be said for its trading intensity. Of the 20 most active contracts in the world last year, 14 were on Chinese exchanges, according to the Futures Industry Association, a global trade body. Some of that is because of double counting.

It can also reflect the swirling pool of money trapped in China by capital controls. Nevertheless, there are limits to the potential irrationality in futures trading because ultimately the underlying commodities are due for physical delivery. Futures contracts thus converge with spot prices as they near expiry. Two other factors help explain China’s trading volumen.

Lot sizes are generally small (for example, five tonnes for copper futures in Shanghai, compared with 25 tonnes in London). And ordinary investors have easy access through their brokerage accounts.

Institutional traders in China love the liquidity that results from this. It eliminates the risk of being unable to enter or exit a position because of a lack of trading.

There is another reason why institutional traders like China. They can profit with relative ease.

Commodity futures illustrate how cloistering a financial system from the rest of the world leads to distortions. Darin Friedrichs of StoneX, a commodities brokerage, says that easily disprovable rumours can cause price swings; unfounded reports of a Brazilian port closure recently drove up soyabean futures.

Traders relish their “import-arb” windows, when prices of Chinese futures exceed those of their global counterparts, making it worthwhile to arbitrage by buying abroad and selling onshore.

Slowly, regulators are dismantling the walls, allowing more international firms to trade in China. Futures with international counterparts such as oil and corn are starting to align more with global prices. For the adventurous, though, there are always eggs. 

Stop Expecting Life to Go Back to Normal Next Year

Americans will need to take pandemic precautions well into 2021 — yes, even after a vaccine arrives.

By Aaron E. Carroll
Contributing Opinion Writer

Mike Segar/Reuters

Anthony Fauci warned us last week that Covid-19 is likely to be hanging over our lives well into 2021. He’s right, of course. We need to accept this reality and take steps to meet it rather than deny his message.

Many Americans are resistant to this possibility. They’re hoping to restart postponed sports seasons, attend schools more easily, enjoy rescheduled vacations and participate in delayed parties and gatherings.

It is completely understandable that many are tiring of restrictions due to Covid-19. Unfortunately, their resolve is weakening right when we need it to harden. This could cost us dearly.

The unrealistic optimism stems in part from the fact that people have started pinning their hopes on a medical breakthrough. There have been promising developments. Remdesivir holds potential for those who are hospitalized. Convalescent plasma might do the same. Antibody treatments might improve outcomes for some or prevent infections in those at highest risk.

But most cases don’t benefit from these treatments. Further, none of these therapies can prevent infections or hospitalizations on a broad scale. The concern over an unflattened curve isn’t just about death, although that’s certainly a concern. 

It’s also about an overwhelmed health care system where so many beds are filled that we can’t get care for the many other conditions people experience. Untreated or undertreated heart attacks, strokes, cancer and more will also cause a spike in morbidity and mortality.

Americans are also overestimating what a vaccine might do. Many are focusing on whether approval is being rushed as a campaign ploy, but that’s almost beside the point. It seems likely that a vaccine will be approved this fall and that it will be “effective.” But it’s very unlikely that this vaccine will be a game changer.

All immunizations are not the same. Some, like the measles, mumps and rubella vaccine, provide strong, nearly lifelong benefits after a few doses. Others, like the influenza vaccine, produce limited benefits that last for a season. 

We don’t know yet where a coronavirus vaccine will fall, although something along the lines of a flu shot seems more probable. We don’t know how long whatever immunity it provides will last. We don’t know whether there will be populations that derive more or less benefit.

Because of all these unknowns, we will need to continue to be exceedingly careful even as we immunize. Until we see convincing evidence that a vaccine has a large population-level effect, we will still need to mask and distance and restrain ourselves. Too many of us won’t. Too many will believe that the vaccine has saved them, and they will throw themselves back into more normal activities.

That could lead to big outbreaks, just as winter hits at its hardest.

Even this assumes, of course, that we can distribute the vaccine widely and quickly (which is doubtful), that most people will get it (many won’t) and that we will succeed in prioritizing distribution so that those most at risk will get it first (flying in the face of decades of disparities in the way health care is distributed).

The approval of a vaccine may be the beginning of a real coronavirus response; it certainly won’t be the end.

It is much more likely that life in 2021, especially in the first half of the year, will need to look much like life does now. Those who think that we have just a few more months of pain to endure will need to adjust their expectations. Those thinking that school this fall will be a one-off, that we will be back to normal next year, let alone next semester, may be in for a rude awakening.

As Dr. Fauci told MSNBC’s Andrea Mitchell, “If you’re talking about getting back to a degree of normality which resembles where we were prior to Covid, it’s going to be well into 2021, maybe even towards the end of 2021.”

We wasted our chance to get a better summer in the spring. We wasted our chance to plan for the fall in the summer. We’re wasting time again now. Next year isn’t that far away.

We still need to figure out how to live in this new world, now, and that means embracing, finally, all the strategies for fighting the virus that many of us have resisted.

It’s not too late to invest in testing both symptomatic and asymptomatic people. Back in the spring, I estimated that we might need a million tests a week to manage the virus. That estimate assumed that America would drive the prevalence rate of the disease into the ground, much as other countries did. We failed in that respect. We left shelter-in-place too early, letting cases grow once again.

Because of this, we can no longer rely on just symptomatic testing and contact tracing. We need much more than a million tests a week. The only way to get there is through ubiquitous, cheap, fast tests that can be distributed widely to identify those at risk who don’t even know it.

Identifying cases is only the first step. Those who are infected need to isolate, and their close contacts need to quarantine. Too many Americans cannot do so adequately because they need to work, or their housing is inadequate, or they need food and supplies delivered to them. We have failed to address these gaps. 

Those who need the most assistance are often those at highest risk for getting and spreading the coronavirus and for having the worst outcomes, and our government has not provided for them.

We need to normalize mask-wearing. It’s a tragedy that this has become politicized and that this simple, safe and effective measure is in dispute. It’s about protecting others even more than ourselves. That such an action is now viewed as weakness is horrific.

Finally, we need a functioning scientific infrastructure to provide detailed and specific plans on how schools, businesses and institutions can open and operate safely. We also need a functioning Congress to fund whatever it takes to put those plans into practice. That may cost a lot of money; it’s likely to be still less than what continuing to flail about will cost.

None of these ideas is a complete solution, but just because they’re individually insufficient alone doesn’t mean they aren’t necessary.

Colder weather will force us indoors, closer together, removing the benefits of being outside. Influenza is coming. Those drawing comfort from the fact that many countries in the Southern Hemisphere had mild flu seasons need to recognize that those countries were also engaging in the behaviors that controlled the spread of the coronavirus. It’s a mistake to assume that we will reap the same rewards without committing to the same sacrifices.

Too many are relaxing because they think that salvation is just around the corner. That’s possible, but certainly not probable. It would be better to prepare for a difficult 2021 and be surprised by its being easier than to assume things will be easier and find life is still hard.

This is a marathon, not a sprint. Both, though, require running.

Aaron E. Carroll is a contributing opinion writer for The New York Times. He is a professor of pediatrics at Indiana University School of Medicine and the Regenstrief Institute who blogs on health research and policy at The Incidental Economist and makes videos at Healthcare Triage. He is the author of “The Bad Food Bible: How and Why to Eat Sinfully.” @aaronecarroll

Citigroup Gives Wall Street a Sobering Message

The bank’s need to spend to upgrade risk systems make it hard to bet on a turnaround

By Telis Demos

Citigroup was recently more downbeat about economic trends than some peers. / PHOTO: PETER FOLEY/BLOOMBERG NEWS

Incoming Chief Executive Jane Fraser’s historic appointment last week shed a light on Citigroup’s C -3.94% upside potential. But investors hoping that might spark a rebound were greeted instead by news Monday that “the next phase” of the bank’s investment will be “strengthening” and “transforming” its risk and control environment—and a subsequent 8% correction in the shares over Monday and early Tuesday.

A presentation by the bank detailed $1 billion in investments in 2020. That is roughly 2% of analysts’ forecast for 2020 operating expenses. However, the bank also noted that prior tech enhancements were generating productivity savings to fund more investment spend. This “should create capacity for these investments while holding expenses more or less flat,” Chief Financial Officer Mark Mason said at the Barclays Global Financial Services Conference. 

This week’s stock move is perhaps an overreaction to that level of overall spending. But there is context to consider: The investment comes as Citigroup is in the midst of dealing with a breakdown that led to an erroneous $900 million bond payment. The Wall Street Journal also reported that federal regulators are preparing to reprimand Citigroup for failing to improve risk systems.

Trading at one of the steepest discounts to book value among its peers, Citigroup has huge potential for a sharp turnaround. Yet the timing of any rebound is increasingly hard to figure.

For one, the pandemic’s ongoing effect on banks’ overall expense plans is still murky. Banks have had to spend to accommodate employees and customers and to make emergency small-business loans.

Wells Fargo, in the midst of an even wider cost overhaul, said on Monday that it paused layoffs at the start of the pandemic. Yet at the same time, Fifth Third Bancorp on Monday noted the trend toward digital banking was accelerating its tech-investment returns and its ability to rationalize its branch network.

Also notably, Citigroup was more downbeat about recent economic trends than some peers. A big question is what that means for credit, particularly cards. Mr. Mason said on Monday that the bank’s latest forecast “contemplates a somewhat slower pace of economic recovery, particularly in the U.S.,” noting slower rehiring and less pickup in travel spend than the bank initially expected.

Citigroup anticipates making further reserve builds in the third quarter, though “meaningfully lower” than so far this year. Mr. Mason said that “we also see strong payment trends” for card borrowers, and that the bank wasn’t yet seeing signs of outsize losses.

Meanwhile, Fifth Third said that “indicators are moving in a more favorable direction” and says based on that, “a further reserve build appears to be unlikely.” Wells Fargo was a bit more ambivalent, saying “it’s probably a little too soon to say that things are better than previously forecast,” but also that “they’re probably not worse than previously forecast.”

Beaten up bank stocks like Citigroup remain tempting turnaround bets. But with the rest of the market hitting new highs, the cost of waiting for banking’s turn is steep.