This article was originally published by Charles Hugh Smith at Of Two Minds Blog. 

America’s financial system is nothing more than a toxic waste dump of speculation, fraud, collusion, corruption, and rampant profiteering.

What Poisoned America? The list of suspects is long: systemic bias, special interests dominating politics, political polarization, globalization and the offshoring of productive capacity, over-regulation, the rise of rapacious cartels and monopolies, Big Tech’s gulag of the mind, the permanent adolescence of consumerism, permanent global war, to name a few.

The question boils down to this: what problems cannot be addressed by the status quo? Most of the ills listed above can be addressed with existing mechanisms of governance and adaptation. For example, consider systemic bias. The U.S. Armed Forces have demonstrably led the way in dramatically reducing systemic bias via performance-based advancement. The rest of America would do well to copy these organizational improvements.

Many of the other ills could be addressed within current systems of governance–antitrust, etc.

The two that appear impervious to reform are 1) soaring wealth-income-power inequality and 2) the dominance of special interests. In both cases, the corporate foxes are guarding the henhouse, so any reforms with real teeth are watered down to PR by those reaping the vast majority of the financial gains. Corporate profits are in the billions while you can buy elected officials’ cooperation for mere millions. There is no way to get around that asymmetry.

I would propose an even deeper systemic poison: the zero-interest yield on capital. For a variety of reasons, the yield on capital is either zero or less than zero if we factor in inflation. We now earn (heh) 0.1% on our cash while inflation is somewhere between the “official” rate of 3% and more real-world measures between 5% and 10%.

This is a significant change from the days when savings (in savings and loans institutions) earned 5.25% by regulation.

While ordinary capital earns nothing (or less than zero), the capital and income of the top 0.01% has rocketed to unprecedented levels. This vast asymmetry is poisoning America, and the financial system, from the Federal Reserve on down, is incapable of addressing it other than making it even more distorted and destructive by doing more of what’s failed spectacularly.

To understand why yields on capital have fallen to zero while wealth-income has flowed to the top elites, we need to look at wages share of the economy and capital’s share of the economy. Wages share (i.e. labors’ share) has been falling for the past 45 years, while corporate profits and the wealth of America’s top tier has soared. (see chart below)

It is not a coincidence that as interest rates fell to zero the wealth and income of the top 0.01% soared while ordinary wage income fell 10% when adjusted for the purchasing power of the earnings.

A recent report prepared by the RAND Corporation, Trends in Income From 1975 to 2018, documents that $50 trillion in earnings has been transferred to owners of capital from the bottom 90% of American households in the past 45 years.

What happens when the purchasing power of the earnings of the bottom 90% declines for decades? (Even high-earners such as doctors have experienced a decline in the purchasing power of their earnings since 1975.) Households cannot borrow as much money as they once could because their earnings simply don’t go as far; there is less disposable income to support more debt service.

What happens when corporate profits skyrocket as jobs are offshored and corporations arbitrage all the goodies of globalization? The corporations don’t need to borrow as much money as they have trillions in profits to work with.

In other words, demand for credit stagnates while at the same time, the Federal Reserve has flooded the economy with near-zero rate credit. Demand has stagnated along with wages while supply has rocketed into the trillions thanks to unprecedented central bank credit creation.

The reason why central banks have slashed rates to zero is obvious: if the bottom 90% can’t borrow more money at 5% to consume more goods and services, they can certainly borrow more at 1.5% because the interest part of their monthly payment drops significantly.

And sure enough, crushing rates to near-zero has triggered refinancing/housing bubbles and generated high auto-truck sales based on a few dollars down and 1.9% auto financing.

In other words: as the purchasing power of wages has relentlessly declined, the “fix” is to substitute debt for earnings. The fact that eventually stagnating earnings cannot support more debt at any rate of interest is inconvenient, so it’s been ignored.

Zero-interest rates has played out differently in Corporate America: since capital is so cheap to borrow, why not borrow a few billion dollars at 1.5% and use the money to buy back shares of the company’s stock, which generates a hefty 10% annual increase in the share price? Indeed, why not?

And why not use that cheap capital to automate tasks to reduce costly American labor and move even more staff overseas to low-wage nations? Indeed, why not? Maximizing profits demands it, and the near-zero cost of capital incentivizes it.

The net result of near-zero yields on capital? The top 0.1% own more wealth than the bottom 80%. Roughly 75% of all income gains have gone to the top 0.01%.

This extreme asymmetry has poisoned American society and its economy. This immense distortion in the cost of capital can best be understood by asking: what happens when a resource is free?

The answer is that it’s squandered. But the squandering is only part of the problem.

Consider what happened when air and water were “free”. Both the air and water became toxic waste dumps, and American rivers infamously caught on fire. The same is true of “free” capital: America’s financial system is nothing more than a toxic waste dump of extreme speculation, fraud, collusion, corruption, and rampant profiteering.

The rivers are on fire but the Federal Reserve’s plan remains the same: keep the cost of capital at “free” so the extremes of speculation can run to failure. The run to failure will be as extreme as the asymmetries that have poisoned America.

This article was originally published by Jeffrey A. Tucker at the American Institute for Economic Research. 

New York governor Andrew Cuomo, who bears so much responsibility for the mess in his windswept state, last year wrote a book celebrating his role in managing the Covid crises. Now he is facing several investigations and unrelenting media criticism for his management of nursing homes. Not only did he force infected patients back into homes, resulting in many thousands of deaths; he is alleged to have worked to cover up his role and doctor the numbers to make the grim toll look less bad.

And he is not the only lockdown government facing serious problems. Governor Gavin Newsom of California is sinking in popularity and facing a serious effort to recall him – the state’s equivalent of an impeachment. It’s quite the fall from grace for a man who prided himself on his courage in locking his citizens in their homes. Meanwhile, the lockdown state’s Covid numbers look worse than Florida’s, a state with similar weather and demographics that has been fully and beautifully open since September.

At the very time when once-loved heroes of the lockdowns are facing political crises, Florida governor Ron DeSantis is riding a wave of love within his state and around the country. He took a bold stand for science and his gamble seems to be paying off for him. People are pouring into the state in hopes of living a normal life. While commercial and residential real estate are in deep trouble in New York, home prices around Miami are up 25%.

Meanwhile, Texas Gov. Greg Abbott faces his own issues; catastrophic freezing in his state with millions losing water and power, and facing life-threatening conditions. He wants to blame everyone but his own lockdowns that delayed maintenance of power plants and disrupted the normal functioning of the energy sector throughout 2020.

It’s not just political careers that are dropping like stones. The same is happening to Covid cases in the U.S.. The trend seems to defy prediction from January 20, 2021: the new US president said this about Covid-19: “things would get worse before they get better.” Then something very interesting happened. The number of cases of recorded infections of SARS-CoV-2 took a startling dive, falling fully 80% from the daily high on January 8th.

Source: CDC

Deaths have improved too but not at the same rate, yet.

Source: CDC

Keep in mind when you look at all these charts that they must always be viewed with the awareness that they never perfectly reflect reality. They are only as accurate as the inputs. For example, the case numbers are completely off for the first quarter of 2020 simply because there were few if any tests available. It’s entirely possible that cases during this period reached a high in the Northeast of the US that was never seen since, but we cannot know. If that is true, the perception of whether and to what extent we did experience a wicked second wave could be profoundly affected.

Case data are also affected by how many tests are actually administered. Those too are falling dramatically but not enough to account for the drop in cases. Testing can be impacted by people’s willingness to get tests (which in turn reflects the fear of the quarantine) and the extent to which professions are requiring them. The results of the testing are also highly sensitive to the settings of the test itself (the “cycle threshold” used to detect the presence of the virus).

Death data seems more decisively accurate but there are reporting lags that can delay accuracy by many weeks. In addition, there is an error term (how large?) due to misclassification. The CDC itself has made it clear that only in 6% of death cases is SARS-CoV-2 mentioned as the only cause. Those are the easy ones to classify. After that, it gets more complicated. “For deaths with conditions or causes in addition to COVID-19, on average, there were 3.8 additional conditions or causes per death,” says the CDC. Sorting all this out will require years of work in looking at death certificates and weighing factors.

Even given all of this, the drop is so precipitous as to cry out for explanation. It is hard for the politically minded not to notice the timing. It roughly coincides with the inauguration of the new president. If they really are so sensitive to factors like the Cycle Threshold in the PCR tests, would it not be relatively easy to dial-up and dial down the appearance of a pandemic based purely on software settings? The dramatic drop then could in theory be orchestrated. And it is rather amazing that on the day of the inauguration, the World Health Organization released a clarification on tests, urging testers to reduce the number of false positives by paying greater attention to Cycle Thresholds. Anecdotal evidence I’ve encountered suggests that testing labs have responded in kind.

If the WHO and the CDC wanted to avoid conspiracy theories that the pandemic was made to disappear with the incoming administration, they could have better timed this change in the Cycle Threshold.

Another explanation of the drop in cases is not contingent on such a cynical view toward public health. It relies on the tried and true observational truth about the behavior of viruses. Getting them and getting well means acquiring lasting immunities. That combined with vaccines leads to the endemic equilibrium known as herd immunity: the virus finds fewer and fewer hosts in the general population and becomes much more manageable.

This is the view of Professor Marty Makary of Johns Hopkins University. Writing in the Wall Street Journal, he highlights the role of a concept that has almost been absent from public discussion over the course of the last 12 months: natural immunity. He writes:

Why is the number of cases plummeting much faster than experts predicted?

In large part because natural immunity from prior infection is far more common than can be measured by testing. Testing has been capturing only from 10% to 25% of infections, depending on when during the pandemic someone got the virus. Applying a time-weighted case capture average of 1 in 6.5 to the cumulative 28 million confirmed cases would mean about 55% of Americans have natural immunity.

Now add people getting vaccinated. As of this week, 15% of Americans have received the vaccine, and the figure is rising fast. Former Food and Drug Commissioner Scott Gottlieb estimates 250 million doses will have been delivered to some 150 million people by the end of March….

There is reason to think the country is racing toward an extremely low level of infection. As more people have been infected, most of whom have mild or no symptoms, there are fewer Americans left to be infected. At the current trajectory, I expect Covid will be mostly gone by April, allowing Americans to resume normal life.

Many experts, along with politicians and journalists, are afraid to talk about herd immunity. The term has political overtones because some suggested the U.S. simply let Covid rip to achieve herd immunity. That was a reckless idea. But herd immunity is the inevitable result of viral spread and vaccination. When the chain of virus transmission has been broken in multiple places, it’s harder for it to spread—and that includes the new strains…..

Some medical experts privately agreed with my prediction that there may be very little Covid-19 by April but suggested that I not to talk publicly about herd immunity because people might become complacent and fail to take precautions or might decline the vaccine. But scientists shouldn’t try to manipulate the public by hiding the truth. As we encourage everyone to get a vaccine, we also need to reopen schools and society to limit the damage of closures and prolonged isolation. Contingency planning for an open economy by April can deliver hope to those in despair and to those who have made large personal sacrifices.

All of which is to say that we might be in the last days of the pandemic and the early days of seasonal endemicity – which is the natural course of every widespread respiratory virus ever studied. Why anyone imagined that lockdowns, political edicts, coercive controls, and the ruining and wrecking of normal social and economic functioning would change that is beyond comprehension.

Whatever your theory as to why cases are dropping like rocks – natural immunity, PCR testing changes, drops in tests, seasonality – none of it can be credited to political interventions. What the interventions might do, however, is cause dozens if not hundreds of political careers also to drop like rocks.