The COVID-inspired lockdowns, a worldwide phenomenon, are aptly termed LOCKDOWN COMMUNISM. The people who put the lockdowns in place were state officials, and they used the powers of the state to enforce them. In doing so, they destroyed private property. They violated property rights. They tore up property-based contracts. It is this massive state-led and state-made destruction of all sorts of property rights that places the lockdowns in the category of communism. Communism is a primitive social system that’s characterized by the state-enforced abolition of private property. Communism enforces decrees that shape social, economic and political control. That is precisely what lockdowns have done and continue to do—Professor Michael S. Rozeff
In this issue
The Failed “Living Experiment”: Surging Covid-19 cases! 2Q,1H GDP Collapse! Gold Mining Under the Reflexivity Theory
1. The Failed “Living Experiment”: Surging Covid-19 cases!
2. The Failed “Living Experiment”: the 2Q/1H 2020 GDP Collapse!
3. Gradually, then Suddenly: Public Spending, Fiscal Deficit and Debt Soared, Consumer Spending Plunged!
4. How Will the Big Government Bubble Attract Investments?
5. The Reflexivity Theory and the Gold Mining Industry
The Failed “Living Experiment”: Surging Covid-19 cases! 2Q,1H GDP Collapse! Gold Mining Under the Reflexivity Theory
Presidential spokesman Harry Roque recently called the health policies of Metro Manila a "living experiment". He is partly right.
The National Government (NG) experimented with a lockdown policy, but still see caseloads surging, which justified another lockdown this August.
The other ramification of such rigorous and lengthy lockdown policy is to collapse the Philippine GDP.
Aside from the headline number, the 2Q GDP exhibits the transformation of the economy, first gradually, then suddenly, courtesy of the lockdown policy, towards a centrally planned government.
Under a big government bubble, how will an economic recovery take place? By diktat?
Billionaire investor George Soros proposed a "theory of reflexivity" consisting of reflexive feedback loops between prices and perceptions. Surging prices of gold appear to be reshaping public or political opinion on the mining industry.
1. The Failed “Living Experiment”: Surging Covid-19 cases!
So the medical community got the leadership’s ears, the National Capital Region has reverted to M-ECQ from August 4th until August 18th.
Surging COVID-19 cases leading to the near overwhelming of hospital capacity, and the exhaustion of workers exposed the ill-preparedness of the health system against a pandemic, which justified the reinstitution of the lockdown.
Based on the logarithmic-scaled charts of the total and confirmed cases of the Philippines from Our World in Data, as of August 7th, the spike in the daily rate increases of COVID-19 cases occurred during the ECQ. However, when the economy had partially been reopened under the GCQ from June 1st to August 3rd, sustained increases in the relative growth rate reinforced this trend. (see Figure 1)
That is, the buildup of the momentum of COVID-19 cases transpired during the two and a half months of the ECQ. And that the current surge in caseloads signifies only a reinforcement of this trend.
Partly mimicked from China, the National Government’s ECQ policy, which came without the necessary buildup and use of testing and health facilities, thus, failed to contain COVID-19 cases.
Here is the DoH Chief in his own words last March.
From the Inquirer (March 26): Ten days into the Luzon-wide community quarantine, Health Secretary Francisco Duque III said it is still early to tell if the Philippines is winning its war against the coronavirus disease 2019 (COVID-19) pandemic as new cases are recorded daily. According to the country’s health chief, the country is looking to copy China’s success in battling the respiratory disease, particularly in its handling of Wuhan City, the epicenter of the pandemic which is located in China’s Hubei Province. Duque pointed out that COVID-19 cases in Wuhan dwindled in the first days of March, more than one month since Chinese authorities imposed a lockdown on the city.
The National Government has been groping in the dark in their policy approach against the COVID-19 and for the economy. Not only moving goalposts but making up their policies as they moved along became the principal feature of this increasingly centralized government.
As a result, their policies have boomeranged!
How did we get here? The backstory in the form of news anecdotes presented below. (bold highlights mine)
Here is the President dismissing the risks of Covid-19 back in February.
From the Inquirer (February 3): President Rodrigo Duterte on Monday took a swipe at some quarters for supposedly instilling fear into the minds of Filipinos amid the novel coronavirus (2019-nCoV) scare, as he assured the public that the government is prepared to address the public health emergency. Speaking before local chief executives, Duterte said there are some who are maliciously sounding the alarm that the virus had escalated, and questioned the government’s tact in addressing the health concern that has so far killed over 900 people globally. “There are some kibitzers, idiots if you may na pagputok nito (when this thing blows up), they are asking ‘what is the government of the Republic of the Philippines doing? We do not see any infrastructure to meet this’,” Duterte said. “All pessimistic. All gusto lang talaga magkaroon ng takot (All of them just wants to instill fear),” he added.
When the first cases appeared, the National Government was in steep denial, so they went on to assure the public.
From the Inquirer (March 6): Malacañang on Friday assured the public that there’s no need to be alarmed on the reported two new cases of the 2019 coronavirus disease (COVID-19) in the country, stressing that the government is well-prepared and the handling of the health concern is “transparent.”
And testing was a low priority.
From the Philstar (March 9): From slow diagnosis to understaffed hospitals, the Philippines’ long-struggling healthcare system appears ill-prepared for an escalation of a coronavirus disease 2019 (COVID-19) outbreak. Only “about 200 to 250 people” are getting tested a day at the Research Institute for Tropical Medicine, where the country’s lone diagnostic lab for the coronavirus that causes COVID-19 is located, Health Secretary Francisco Duque III told Philstar.com. With a suspected infection undergoing as much as four tests, RITM was only able to run 2,000 samples since January 31 when the first local case of COVID-19 was confirmed, according to the hospital’s Communication and Engagement Office. After the initial three cases—all of Chinese nationals in the country—it took Filipino health authorities a month before reporting three more confirmed cases.
While there had been initial unconfirmed reports from undeclared sources that COVID-19 cases had been spreading fast, the President initially rejected imposing the lockdown!
From the CNN (March 9): President Rodrigo Duterte rejectedthe proposed Metro Manila lockdown despite a rise in cases of novel coronavirus in the country. Duterte announced Monday that the National Capital Region will not be under lockdown just yet. “We haven't reached that kind of contamination. There will be a time I suppose, I hope not. I hope God will have mercy on the Filipino people. It is too early for that.” he said in a press conference at Malacanang Palace.
Yet, the DoH persistently denied the risks of the escalating outbreak.
From the Inquirer (March 23): The sudden rise in the number of confirmed coronavirus cases in the Philippines does not necessarily mean the bug is spreading fast in the country. According to the Department of Health (DOH), the daily increase in the number of infections may only be an “artificial trend.”
At the first phase of the lockdown, the administration once again bragged about its preparedness.
From the GMA News (April 9): The enhanced community quarantine imposed by the government in Luzon is paying off in the country's fight against the spread of COVID-19, the chief implementer of the national action plan against the disease said on Thursday after midnight. Secretary Carlito Galvez described the Philippine response to the virus threat as sterling compared to other countries.
Not only did the Department of Health deny that the increasing cases signified a trend, but they also refused to acknowledge the importance of testing.
From the Inquirer (April 9): The number of confirmed coronavirus disease 2019 (COVID-19) in the Philippines, despite limited testing, is relatively “low” compared to other countries, Health Secretary Francisco Duque III said on Thursday in a briefing led by President Rodrigo Duterte. According to Duque, the country’s COVID-19 incidence is two for every one million of the population. This is because of the government-imposed travel ban to China, where the novel coronavirus originated, and because of the enhanced community quarantine (ECQ) imposed over the whole island of Luzon, as well as some other areas in the country, he said.
Up until May, or about two months past the lockdown, testing remained a low priority for the DoH.
From the Inquirer (May 21): Health Secretary Francisco Duque III on Thursday admitted that no mass testing has ever been conducted in the country from the time an outbreak of the coronavirus disease occurred. At the House committee on health’s online meeting, Duque was asked if the national government ever implemented — or at least planned to implement — mass testing in the country, as government officials earlier promised. “I do not recall that mass testing was ever done. I think the mass testing, the word ‘mass’ is generic. I understand that even rt-PCR (real-time polymerase chain reaction) can be used under that terminology of mass testing as well as the rapid antibody testing kits,” Duque said. Duque claimed that other countries worldwide only test a percentage of their population, and that there was no such thing as a “one-is-to-one” testing worldwide as of now.
Figure 1
Last week, the Philippines surpassed Indonesia as the Southeast Asian economy with the highest COVID-19 infection caseloads.
For the administration, locking up people in their homes was the antidote to the rapidly spreading pathology. It was easy because it required only brute force to command obedience from a smug and petrified populace.
And yet, science, they claimed, had been the foundation of their policies. But little of their medieval based approach used science.
So their policies backfired spectacularly!
Upon the realization of its mistakes, the NG has belatedly undertaken a swift buildup of testing and healthcare capabilities.
While COVID-19 cases will subside eventually, like all pandemics in history, it will come with an immense socio-economic cost.
Such highlights the grand failure of the big government bubble.
2. The Failed “Living Experiment”: the 2Q/1H 2020 GDP Collapse!
That capricious moving of goalposts functioning as the administration’s economic blueprint, I had earlier discussed last July.
The Failure of the Centrally Planned ECQ Health Policy, Statistical Charades, and 1Q Real Estate Divergences July 12, 2020
The statistical results of their ECQ been devastating, as they have been far deeper than the consensus had expected.
Like the government, consensus estimates have raced downwards. All have based on statistical assumptions that have been plagued by innumeracy.
At the onset of the ECQ, along with the announcement of the second policy rate cut of 2020, the BSP issued their GDP projection for this year.
From the Business World (March 20, 2020): PHILIPPINE central bank Governor Benjamin Diokno said the nation’s economic growth this year could slow to a range of 5% to 5.5% as the world faces the risk of a recession. “The current BSP monetary stance is consistent” with that forecast, Diokno said in a mobile-phone message, referring to Bangko Sentral ng Pilipinas. “In order to achieve a higher growth rate, a massive, well-crafted fiscal stimulus is imperative.” The growth range is the central bank’s estimate and not the government’s, he said.
The NG forced the economy on a standstill and yet still the GDP estimates of 5% to 5.5% growth??? Incredible! It’s only when the damage became so evident that they began slashing down estimates!
Last week, the Philippine Statistics Authority published its 2Q GDP.
From the Reuters (August 6): “The Philippine economy plunged by much more than expected in the second quarter, falling into recession for the first time in 29 years, as economic activity was hammered by one of the world’s longest and strictest coronavirus lockdowns. The Southeast Asian nation’s economy shrank by 16.5% in April-June from the same period last year - the biggest slump in the government’s quarterly GDP data dating back to 1981, the Philippine Statistics Authority said on Thursday. (see Figure 1, lower window)
1H GDP plummeted by 9%.
As an aside, Moody’s joined the race to downgrade 2Q GDP announcing two days before its publication.
From the Inquirer (August 4): The research arm of debt watcher Moody’s Investors Service is projecting an 8-percent dive in the Philippines’ gross domestic product (GDP) during the second quarter of 2020 largely as a result of one of the world’s most stringent COVID-19 lockdowns being enforced in the country. Steven G. Cochrane, Moody’s Analytics chief Asia-Pacific economist, said the debt watcher changed the earlier forecast of 2.5 percent decline in GDP from April to June because “very weak data on manufacturing production, exports and movement indicators have led us to revise our expectations.”
And if such serves as a track record of how they conduct credit rating analysis, then we are supposed to believe the accuracy from their assessments?
That’s mainstream economics for you.
And as a result of the more than expected downturn, the National Government lowered its GDP forecast for the year.
From the Businessworld (August 7, 2020): “THE government now expects gross domestic product (GDP) to contract by 5.5% this year, lowering the outlook amid the widening economic fallout from the coronavirus disease 2019 (COVID-19) pandemic. The Development Budget Coordination Committee (DBCC) on Thursday said it further downgraded its GDP projection to -5.5% this year, from the -2% to -3.4% forecast range penciled in on May 27 “in view of updated indicators on the impact of the COVID-19 pandemic on tourism, trade, and remittances throughout the year.”
So the administration’s GDP target shifted from 5% to 5.5% in mid-March, when the ECQ was first implemented, to the present, a negative 5.5%, or lower by 1,000 bps after the record meltdown in the statistical economy or after more than four months of Community Quarantine.
Yet, the 2H is expected to deliver only a -2.0% contraction to attain the targeted -5.5% annual GDP. With half of August in MECQ anew, good luck with that!
Presidential spokesman Harry Roque recently said that “Metro Manila will be a living experiment” for coming health policies. Sadly, only the “living experiment” description was right on spot.
As I concluded last July,
The point is not that they have been wrong, yes they have been consistently and flagrantly wrong, but rather, their rapidly shifting projections do not even seem to be even driven by data or by context.
The most important lesson, aside from the moving goalpost, has been that the NG subjected the population to a repressive social “health” policy when they were either clueless of its economic implications or had an unstated different agenda in mind.
The so-called “living experiment” produced not only devastatingly wrong series of forecasts but a GDP collapse in the face of still surging COVID-19 cases almost 5-months into a lockdown!
And as guinea pigs of the “living experiment”, the price for their policy miscalculations under an extremely centralized structure of governance is upon us.
3. Gradually, then Suddenly: Public Spending, Fiscal Deficit and Debt Soared, Consumer Spending Plunged!
Consumer spending will rebound in 2021 predicted the mainstream.
But consumer spending has been trending down even before COVID-19. (Figure 2, upmost window)
Figure 2
Based on the PSA’s per capita data, real household spending has peaked in 2Q 2016 at 5.7% and has been sliding incrementally down since. That was until 2020. It was 4.2% in 4Q 2019, -1.2% in 1Q 2020 and -16.67% in 2Q 2020.
To borrow Ernest Hemmingway's two ways to a bankruptcy, "Gradually, then suddenly."
Yes, consumer spending may bounce in 2021, but this is not the same as recovery.
Yet, how will consumer spending recover structurally when production or relative supply remains significantly disrupted, and when sustained losses in revenues, job, wage, earnings, and income as a consequence of such supply dislocation continues to undermine relative demand (Say’s Law)?
How will the sustained depletion of savings and capital, necessary for investments, from sustained political interventions, translate to income, jobs, and wages recovery?
That the surge in public spending mitigated the 2Q GDP meltdown represented the good news from the statistical perspective.
But it revealed an underlying trend that has been building since 2016: the mounting share of public expenditure to GDP or the evolution towards a centrally planned or a neo-socialist/fascist economy.
Though the government share of GDP has been rising from 2013, the acceleration of its growth rate occurred in 2016 and soared to 20.6% in the 2Q 2020. Gradually, then suddenly. (figure 2, middle window)
The massive surge in debt from domestic savers and foreign institutions has financed skyrocketing budget deficits, from spiking expenditures!
Public debt has spiraled higher by Php 1.323 trillion in the 1H to a record Php 9.054 trillion, which represents 52% of the annualized 1H NGDP and counting. Gradually, then suddenly. (figure 2, lower pane)
Remember the BSP’s latest Financial Stability Report? The report seems to have been written by insiders as the BSP chief has been saying seemingly opposite of the report.
The key element now is that NGs are taking on the burden for funding the needed relief program. There is no other entity in place that can absorb the ultimate risks and the corresponding financing. This will certainly mean higher debts, much less fiscal space. Intertemporally, this debt can be bridge-financed with more debt just to sustain liquidity. Ultimately though, taxes will have to adjust intergenerationally to make up for the gap. This is a policy issue that, for the moment, is pushed down the road but is unlikely to be avoided.
Intergenerationally? Spiking debts and deficits translate to higher taxes SOON!
While the administration has been pushing for lower corporate taxes through the CREATE bill (which is supposed to be a good thing), record fiscal deficits and debts will require more taxes.
So the NG has been shifting from income taxes to consumption taxes. By forcing a shift to the digital space, is this not the reason why the administration has been too eager to impose taxes on eCommerce?
From the CNN (July 29): Streaming Netflix shows and shopping online may soon be more costly amid the pandemic. The House Committee on Ways and Means on Tuesday has approved a bill imposing a 12 percent value-added tax on digital transactions in the country.
And that’s a slippery slope towards higher VAT and excise taxes soon.
Figure 3
Since taxes and or inflation finances government spending, how will there be a robust recovery in the economy and consumers when income, savings, and consumption will be taxed significantly or inflated away?
Aside from the intensive credit financed public spending, the tag team of the National Government and the BSP have been forcing a negative real rates regime through the latter’s printing press, thereby subsidizing debt.
From the BSP (August 7): Net borrowings by the central government grew by 53.0 percent in June from 59.7 percent (revised) in the previous month, reflecting in part the government’s higher funding requirement to fight the COVID-19 pandemic.
One-year Treasuries have been lower than the CPI for the second straight month last July. (Figure 3, upmost pane)
Exactly, how will all these political interventions benefit consumers?
4. How Will the Big Government Bubble Attract Investments?
And how will the current centrally planned “health” policies incentivize investments?
Example: From GMA Network (August 6): The Department of Trade and Industry (DTI) is set to implement new and stricter health protocols for businesses that are allowed to operate amid the community quarantine being implemented due to the COVID-19 pandemic. Interviewed on Unang Hirit on Thursday, DIT Secretary Ramon Lopez said that one of the new measures include requiring business establishments to have their own isolation rooms.
Won’t such mandates favor big companies against the MSMEs, thereby representing an anti-competition and redistributive regime in favor of the former? Won’t this promote plutocracy and severe wealth and income inequalities, which may foster prospective political instability?
Won't arbitrary business permit issuances lead to more corruption?
Won’t picking winners and losers lead to more economic imbalances or more resource misallocation and wastage?
And how will raising business costs and heightened policy uncertainty or regime uncertainty “make it easier for foreign businesses to set up shop here”? (Inquirer, August 6)
And we are supposed to believe that Foreign Direct Investments (FDI) will magically stampede into the Philippines when these have been diminishing, before the appearance of COVID-19?
BSP registered FDIs peaked in April 2016, and has headed south since. FDIs recorded a 68% YoY plunge last April!
How many FDIs pulled out of the country? Since there are no statistics on these, we can only account for the actual closings from the news.
Honda Motors is one; it closed before the full impact of the COVID-19 last February. Nokia’s R&D also pulled out in January 2020. US banking behemoth, Wells Fargo Philippines also announced last February, the downsizing of their operations in 2020. Hanjin Shipping declared bankruptcy in January 2019.
And despite the resounding mainstream assertion about the supposed macro stability of the nation, aside from FDIs, the streak of foreign money outflows continued in June 2020.
So aside from the firming peso, which has been a product of BSP derivative operations and National Government borrowings, as well as a shrinking trading volume from the elongated stretch of the community quarantine period, what are the structural competitive and comparative advantages that should entice the appetite of both local and foreign investments?
Lastly, what do you call a political economy whereby the demand side, the supply side, and the operational side have been controlled and determined by the Central Government? Laissez-Faire capitalism?
And a big government bubble, which is averse to private property rights, is an attraction to investments?
5. The Reflexivity Theory and the Gold Mining Industry
US President Trump today signed an Executive Order extending federal unemployment benefits, enacting a payroll tax holiday, preventing evictions and foreclosures, and suspending student loan payments.
Figure 4
Though USD gold prices have been severely overbought, the decreeing of the US equivalent of Bayanihan Law 2 should provide a significant tailwind to it.
The bullmarket of gold mines is just in a state of infancy.
Writing about the Reflexivity theory, George Soros in his book The Alchemy of Finance said that “Markets can influence the events that they anticipate” where in a bull-market “Typically, a self-reinforcing process undergoes orderly corrections in the early stages, and, if it survives them, the bias tends to be reinforced, and is less easily shaken.”
Two recent examples of how prices have changed the perception of mines. From liability, mines have transformed into an asset!
The government, ironically, defends the former ‘evil’ mining industry.
From the MB.com (August 3): The Department of Environment and Natural Resources (DENR) said anti-mining groups should not mix up issues of insurgency and environment and must not irresponsibly tag mining companies in the killings of environmental defenders. This came as a Global Witness report declared the Philippines as the second deadliest country in the world, with killings in the mining sector as one of the main culprits.
Some officials have begun to promote mines as the nation’s economic driver.
From the Manila Standard (August 7): Surigao del Norte Rep. Robert Ace Barbers on Friday urged government policymakers to take advantage of the Philippines' mineral resources to restart the economy that was devastated by the Coronavirus Disease 2019 pandemic. The Duterte administration's eeconomic managers “should reconsider, revisit and reinvigorate mining operations and tap these as funding source for the gloomy post-Covid-19 economic scenario being faced by the country,” said Barbers, a member of the majority bloc of the House committee on economic affairs. In the very near future, Barbers said that the country would start feeling the shockwaves of the humungous debts incurred by the government to combat the Covid-19 pandemic and implement various economic stimulus programs. In a privileged speech, Barbers said: “It is high time that we take a good look at our mines. Mining is the only answer to our economic woes. This is the only source of funding that could pay off all the debts incurred now and stimulate growth in our economy.”
The reflexivity feedback loops have gradually been altering public perception of gold mines through market prices!
