Coronavirus economic stimulus may lead to high inflation

This time central banks have responded to the Coronavirus by injecting trillions of dollars into their economies, which could generate Demand-Pull Inflation because “too many dollars will be chasing too few goods.”

Source: Desperate Actions Can Lead to Desperate Consequences, Including a Debt Spiral | Nasdaq

This is my concern too – the problem right now is that goods are not being manufactured and services are not being delivered as much of the economy is shut down by government mandate.

Throwing more money into this encourages people to purchase goods that are now in scarce or limited supply, thereby driving up their prices.

Plus, where is the cash coming from? I have not looked into that. But if we are just printing money (or the electronic equivalent of printing money), we are devaluing the dollar – which is the same thing as inflation.

If this is the case, then you want to own real things as cash will go down in value. A $100 thingie now will sell for $110 after 10% inflation. But $100 of cash now will be worth the equivalent of about $90 after 10% inflation.

Why a shortage of toilet paper?

Toilet paper, like all paper, is made using a chemical engineering process. That means manufacturing is a continuous process that runs 24 hours per day, 7 days per week. Raw materials go in one end of the manufacturing pipeline and paper comes out the other. In between there is pulp, liquids, hot slurries and hot paper before rolls of paper come out the other end.

When I was a volunteer firefighter, we had a tour of a local paper mill so that we’d have some familiarity with their facility, in case an emergency occurred. At one end of the building, they took in materials such as recycled cardboard and paper, plus wood pulp.

Paper products went through a de-inking process and another process to break up the fibers. Wood pulp went through another process.

These materials were bleached (to make white paper) through vast vats of chemical processing. Eventually the materials were formed into a wet slurry that was gradually compressed into thin sheets and dried, then rolled on to giant spools.

The huge rolls of paper were then removed and went through a slicer to cut to the required lengths.

This process ran 24 hours per day, 7 days per week and was only stopped, rarely, in case of break downs or required maintenance. Unlike manufacturing of widgets with discrete parts, paper is a chemical process where the liquid parts flow continuously through the system.

To accommodate changes in market demand for their paper products, the entire system would be sped up or slowed down – but never stopped.

From my reading, toilet paper manufacturing is pretty much the same process. Since toilet paper consumption does not vary much, industry has built paper factories designed to meet the normal, on going demand. There is little buffer in the system except for toilet paper stored in warehouses, distribution centers and on store shelves. There does not need to be a lot of buffer because ordinarily, demand is near constant. And we’ve built factories to optimally meet ordinary demand.

The Covid-19 epidemic caught many people off guard. Undoubtedly, those who may have bought TP weekly or twice a month now bought larger packages. Very quickly, the entire distribution buffer was drained – inventory moved from the distribution network to homes.

Additionally, the government’s messaging on “Stocking up” was very confused, inconsistent, contradictory, unclear and generally ineffective. Initially, the government said no one should stock up.

But by the 3rd week of March, the CDC’s official recommendation was that older people and those with underlying conditions (which is 40% of the population, combined) should stock up on supplies and avoid contact with all people. Thus, in fact, much of the population absolutely should have stocked up. Consequently, blaming consumers for stocking up is wrong – many may have figured this out well before the government – those at higher risk did indeed have to stock up and many likely did stock up in advance.

TP continues to be made at the same speed it has always been made – in fact, one maker says they’ve been able to ramp up their factory to about 20% more per day. But with TP in short supply, many consumers will launch a second round of buying, purchasing any available toilet paper.

With a limited ability to ramp up production, it may take time to refill the buffer – warehouses, distribution centers and store shelves.

UPDATE: Here is a related explanation of the toilet paper shortage – not caused by hoarding but by shift from industrial/organization use to home usage as businesses shut down.

Short version – there are two markets for toilet paper – industrial/organization and consumer. They have mostly different products in each segment. Consumer products are soft, two-ply, packages in small numbers of rolls. Commercial products sold to industry, restaurants, schools tend to be coarser, sometimes single ply, often sold in large packages and very large roll sizes – completely different products than consumer products.

When everything shut down there was a surplus of non-consumer toilet paper in the industrial segment – just as everyone was now going poo at home. Consumer product purchases increased by +40%, emptying the distribution network. While there may have been some hoarding, it was mostly a shift from industrial usage to consumer usage that caused the shortage.

That also explains why we were able to purchase toilet paper from a restaurant supply/distribution warehouse while all the usual consumer stores were out of stock. This week, most stores are having toilet paper in stock again, or at least during the first few hours of the day!

Health: Who is at risk for novel coronavirus?

The above comes from the Asthma and Allergy Foundation of America, and is sourced to WHO.

Update: On March 12th, the CDC – finally – updated its health conditions list with more detail, albeit, buried in an item about the situation in Santa Clara County, California.

https://www.cdc.gov/coronavirus/2019-ncov/downloads/Santa-Clara_Community_Mitigation.pdf

Appendix A: Underlying medical conditions that may increase the risk of serious COVID-19 for individuals of any age.

•Blood disorders (e.g., sickle cell disease or on blood thinners)

•Chronic kidney disease as defined by your doctor. Patient has been told to avoid or reduce the dose of medications because kidney disease, or is under treatment for kidney disease, including receiving dialysis

•Chronic liver disease as defined by your doctor. (e.g., cirrhosis, chronic hepatitis) Patient has been told to avoid or reduce the dose of medications because liver disease or is under treatment for liver disease.

Compromised immune system (immunosuppression) (e.g., seeing a doctor for cancer and treatment such as chemotherapy or radiation, received an organ or bone marrow transplant, taking high doses of corticosteroids or other immunosuppressant medications, HIV or AIDS)

Current or recent pregnancy in the last two weeks

•Endocrine disorders (e.g., diabetes mellitus)

•Metabolic disorders (such as inherited metabolic disorders and mitochondrial disorders)

•Heart disease (such as congenital heart disease, congestive heart failure and coronary artery disease)

Lung disease including asthma or chronic obstructive pulmonary disease (chronic bronchitis or emphysema) or other chronic conditions associated with impaired lung function or that require home oxygen

•Neurological and neurologic and neurodevelopment conditions [including disorders of the brain, spinal cord, peripheral nerve, and muscle such as cerebral palsy, epilepsy (seizure disorders),stroke, intellectual disability, moderate to severe developmental delay, muscular dystrophy, or spinal cord injury].

Coronavirus: What does “elderly” or “Older” mean?

CDC has, on various pages, defined older as “60+” based on the sharp increase in mortality of SARS-CoV-2 infections that occur at age 60 and up. For those age 50 and up, the curve is also several times higher than below 40,

Unfortunately, there is no clarity on what is meant by officials when they warn us about risks to “older” people or the “elderly”.

CDC seems to imply that with regards to novel coronavirus, “older” is age 60 while some public health districts in California use age 50. Although regarding the warning against traveling on cruise ships, the LA Times says this applies those age 70 or older.

Similarly, there are references to “the elderly” – what does that mean?

  • Social Security says age 65.
  • The U.S. Housing and Urban Development Administration says age 62.
  • This page says the term “senior citizen” applies to those at age 60 or 65.
  • Officially, if you are past “middle age”, you may be considered “older” or “elderly”.
  • Interesting items here suggest it has become associated with “feeble” but the root word is actually “elder”, which describes someone to be respected.

There does not seem to be a precise definition – but it seems to fall somewhere in the 60-65 age range and occasionally in the 65-70 range.

The lack of any definition does not help the CDC’s communication. How do individuals know if they are the target audience for the recommendation when vague terms like “older” or “elderly” are given, but not defined?

Telecom: There’s no killer app for 5G

5G, where it exists, increases network capacity and might deliver a few things faster but other than that, the “killer app” is missing for now:

there’s no “killer app” for 5G right now. And I don’t know what it’s going to be

Source: Is 5G really that fast?

More likely, what 5G delivers is a new competitor for home-based fast Internet service. There will also be some applications involving “Internet of Things” sensors that are logging data.

And for sure, there will be many applications that involve increased surveillance of your life, your neighbors, and so on.

Health: Mixed messages on coronavirus covid-19

F5 today, closed their skyscraper in downtown Seattle to disinfect the entire building because one worker had been in contact with someone that later tested positive for COVID-19.

France canceled an outdoor half marathon and closed all indoor activities having more than 5,000 attendees.

Many tech conferences have been canceled, postponed or moved to online presentations. Amazon canceled warehouse tours. Nvidia just canceled a tech conference. The EU has closed its headquarters to visitors.

In King County, Washington, 11 schools are closed because an associate of a staff member or student has become ill (not even diagnosed with COVID-19). The schools are in process of being sanitized. The entire North Shore School District will close on Tuesday to provide staff training on conducting remote education/telelearning …

Nike’s headquarters in Oregon was closed this past weekend for deep sanitization – even though they said they had no reports of any exposure by anyone.

The Washington State Department of Health urges those with unspecified pre-existing medical conditions or over the age of 60 [1] to avoid public gatherings:

“Persons who are older or who have underlying health conditions are at higher risk to develop complications from this virus. Your health and the health of those you care about are important to us and it may be recommended that you stay at home and away from other people during this time. “

In 24 hours, deaths went from 2 to 4, confirmed cases in Washington increased, and there is community transmission in Oregon, now including Eastern Oregon.

Meanwhile, ReedPop Entertainment announces its Emerald City Comic Con, with 100,000 people confined in close quarters in the Washington State Convention Center, with many visitors from other countries, will go on as planned – in Seattle, which is apparently ground zero in the U.S. for the spread of the COVID-19. They assure us that the health of their guests is their highest priority and they are following government guidelines (except those of the Washington State Department of Health but what ever).

So who do we believe?

There is a lack of leadership and clarity as to what steps the public should take. This leads to companies, like Nike, closing for cleaning – without exposure – while ReedPop plans a 100,000 person event in confined quarters at ground zero of the disease spreading in the U.S. and saying it will be safe for all.

Footnotes

[1] We assume the DoH is referring to people over age 50 or 60 but the State lacks clarity in its communications. They say, for example, that people with “underlying health conditions” should avoid contact with other people – but then provides no explanation of “underlying health conditions”.