Zero Covid, Inflation and Interest Rates

Many governments across the world have moved surreptitiously to a zero COVID strategy. They have been able to do so, because from Day One, the emphasis of reporting on the pandemic was on the number of infections, rather than the number of people actually made seriously ill, hospitalised, or dying from the virus. In terms of the latter, the numbers were inflated, by counting anyone who died within 28 days of having had a positive COVID test, whether they actually died from COVID, or as a result of being knocked down by a bus! The data provided by the ONS, which I have discussed previously, shows that, in fact, the number of people dying FROM Covid, rather than WITH Covid, is only a tenth of this latter number. In other words, out of the 130,000 reported deaths, only around 13,000 are people who died FROM Covid, or less than the 18,000 people who die from flu in a bad year.

But, at least, in the period prior to widespread vaccinations, there was some logic to looking at the number of infections, alongside the number suffering serious illness, hospitalisation and death. Because the state failed to lock-down and shield the vulnerable 20% of the population. i.e. mostly the elderly and sick in hospitals and care homes, or receiving health and social care in the home, any increase in the number of infections, inevitably, put all of these unshielded individuals at greater risk, unless they were able to undertake such shielding on their own initiative, as I and my family did. The obvious solution to that was to provide such shielding, rather than trying, or at least pretending to be trying, to lock down the whole of society, including locking out tens of thousands of workers from their jobs.

But, with the majority of the population now vaccinated – and that is the case in most developed economies – even that link between the number of infections, serious illness, hospitalisation and death no longer exists to any relevant degree. Even taking into consideration the Delta variant of the virus, the proportion of people becoming seriously ill, hospitalised or dying to the number of infections has fallen to a small fraction of that prior to widespread vaccination, which itself was not a large number, if the actual number of infections was considered, as against the number of reported infections, i.e. only those who had been tested. From the start of the pandemic, it was known that the number of actual infections was around ten times the number of such reported infections.

Moreover, of those actually vaccinated, the largest proportion is amongst those in the groups actually at serious risk from the virus, i.e. the elderly and those suffering from some underlying condition. So, all of the arguments previously used for justifying lock downs and lockouts no longer stand up, even to the extent they did prior to widespread vaccination. True, some groups of younger people have not been provided with vaccines, but the risk of serious illness amongst these groups is virtually nil anyway, vaccinated or not. The main argument for vaccination amongst those groups today, is that entry to various facilities and so on, is being limited to those who can demonstrate vaccination, an unnecessary measure of itself. Its not those vaccinated at risk, in such cases, but the unvaccinated in the at risk groups. If anyone in such a group – all of which have the ability to get vaccinated – chooses not to do so, then that is their choice, and no reason to close down the rest of society. If someone with a serious nut allergy decides to ignore all the advice and warnings, and eats nuts, that is their choice, and no reason why society should have a zero nut strategy!

Previously, we were told that the reason for lock-downs and lockouts was to stop the number of deaths, serious illness, and hospitalisations from rising “exponentially”. That argument was bogus, as I have set out many times previously. The actual numbers of deaths FROM COVID is no greater than the number of deaths from flu in a bad year, but even if the headline deaths number is taken, we can see that 95% of those deaths are of people over 60, and the majority over 80. The way to have avoided that was not to lock down the rest of society, but to shield those in that section of the population. What is worse, and unforgivable is that, not only was that not done, but a large proportion of those that died were people who were already in hospital or care homes for other reasons. About a quarter of the people the NHS treated for COVID, were people who became infected with it, after they had gone into hospital! Then we had the scandal of the negligence of the NHS in knowingly sending old people infected with COVID back to care homes, where the virus again then spread like wildfire. None of that had anything to do with the number of infections or activity of the general population, but is solely the responsibility of the NHS, and its reckless endangerment of those in its care, including its own workers.

We were told that the reason for lock downs and lockouts was to protect this NHS which was simultaneously not only failing in its function to protect us, but was actively putting us at risk by its reckless actions. The narrative was provided that the NHS was in danger of being overrun by COVID patients. Yet, tens of millions was spent in creating the so called Nightingale Hospitals, like that in the Excel Centre in London, capable of taking in 5,000 patients, but, which, in reality never had more than a couple of dozen patients filling its beds! During 2020, most hospitals across Britain were reduced to just 40% bed occupancy rates, because not only were they not flooded with COVID patients, but those suffering from other serious illnesses like cancer were either told not to come to hospital for treatment, or else chose not to do so for fear of becoming infected there with COVID. The truth is that the NHS in a normal year has 16 millions patients admitted to hospital.  As I wrote a year ago, if then even several tens of thousands of COVID patients were actually to put it at risk that says more about the state of the NHS itself than it does about the threat from COVID.

But, even that spurious argument has less validity now. The number of hospitalisations is about a tenth of what it was when COVID was at its height last year. The number of deaths of people even WITH COVID, as against those dying FROM Covid, is down to an average of less than 100 per day. The arguments for restrictions let alone lockouts and lock-downs have no foundation. The only argument now being presented is that the number of infections is rising, but that metric is even more meaningless than it has always been. The fact that you have been vaccinated, and so have antibodies against COVID – more than 90% of people in Britain are reported to have antibodies either from vaccination or from natural infection – does not mean that you cannot be subsequently infected. That is not how vaccination or immunity works. Immunity works by preventing any subsequent infection from being able to overwhelm your body's resistance to infection. It works, because your body already has the antibodies and other immune methods for the given pathogen, and so is able to mobilise them immediately against the pathogen, stopping it from multiplying inside your body and attacking your cells. So, it is no surprise that the number of infections might rise, in conditions where, as seen with the pingdemic, lots of people are being contacted to go for a test.

What it does not mean is that any of those people are going to become seriously ill, or even moderately ill, let alone place a burden on the NHS, and even less be likely to die. Moreover, we saw last year that the actual COVID tests are not capable of distinguishing between live COVID viruses and dead ones. There are likely to be millions of people walking around with dead COVID virus cells in their nasal and throat cavities, as a result of previous infection. If we are to wait until all such “infections” reach zero, then society would never be free of some kind of restriction.

So, why then has this surreptitious shift to a zero COVID strategy been developed. Part may be that politicians are now wary of doing anything that can be thrown at them as being a danger to the public. The media has gorged at the trough of COVID paranoia for over a year, and has every incentive to want to keep it going for as long as possible, by presenting an ongoing existential threat where none existed, and exists even less today. But, states too have been keen to maintain levels of caution if not paranoia. Again, the medical industrial complex, which is a powerful lobby within the state, has every reason for maintaining that, and, thereby, pushing its own empire building. But, other sections of the state have another motivation, as I also set out some weeks ago.

As soon as restrictions on societies have been lifted, economic activity ramped up extremely quickly. With vast oceans of liquidity pumped into circulation by central banks, that sharp rise in economic activity fed through into rapidly rising inflation that shocked the central bankers, who have been fighting a rear-guard action to convince everyone that it is merely “transitory”. It clearly isn't. Primary product prices, which leapt over the last year, in a similar manner to how they did in 1999, when the new long wave uptrend got underway, began to moderate and fall back slightly over the last month or so. That is because some of those that process those materials were no longer able to pass on the higher prices in their own final output, and so curtailed their demand. Its also because, this is not 1999, and since then huge amounts of additional lower cost production has come on stream. The rise in prices over the last year reflects a short-term imbalance of supply against sharply higher demand, and also the effect of devalued currencies, resulting from QE programmes.

But, its not just supply shortages for materials that is at issue. The rapid increase in monetary demand meant that, in labour-intensive, service based economies the demand for labour rose quickly, and labour shortages began to arise. The inevitable consequence was a rise in wages, particularly in those sectors where these labour shortages were most acute. In Britain that has been exacerbated by the effects of Brexit. Britain has a shortage of 100,000 lorry drivers, a fact that is also impacting supply chains for the rest of the economy. To deal with it, the government is reducing working conditions, so that lorry drivers are expected to work longer hours, driving.  In the longer-term, its likely to speed-up development of self-driving trucks, but with such a shortage, in the immediate future, its going to mean drivers demand higher rates for longer hours, and then firms have to offer higher wages to attract the drivers they need. It has a shortage of 180,000 workers in the hospitality sector, where wages have risen by around 18%. A new report shows shortages in the construction sector, with advertised wages rising by 6.7%. The data for last month showed UK wages rising by 8.8% over the last year, and the forward projections mean even higher levels of inflation and wages.

Higher inflation means that firms, government and households need to borrow more in nominal money terms to cover their expenditures. That higher borrowing means that interest rates must rise unless the supply of money-capital also increases to meet it. But, the supply of new money-capital comes from realised money profits, and, over the last year, they have been crushed, itself one reason why firms have needed to borrow more to cover their own expansion to meet the needs of rising demand. Rising interest rates ultimately impacts the highly manipulated bond markets, where bond prices have been artificially inflated by QE, and encouragement of financial gambling, with guarantees against losses provided by the central bank. Within weeks, of the rising economic activity, and rising interest rates, and inflation, bond prices began to fall sharply, and yields on those bonds rise. The top 0.01% hold a large portion of their wealth in such bonds.

When bond prices fall, part of the reason is that speculators move their money into other assets, particularly shares. With rising inflation, the real value of bonds falls. Because companies money profits tend to rise with inflation, and given rising economic activity, profits themselves are likely to rise, moving from bonds to shares, becomes a rational choice. But, as I've described before, even sharply rising amounts of profit do not mean rising rates of profit, quite often quite the opposite. A company might see the amount of profit it makes double, but if, in order to achieve that, it has had to treble its turnover, its rate of profit will fall. The effect of rising interest rates is to reduce all asset prices, via the process of capitalisation.

In other words, the same conditions that led to the financial crash of 2008 were being constructed, and, with asset prices that much more inflated than in 2008, with yields on assets even more depressed than they were in 2008, and with the amount of liquidity pumped into circulation, by central banks, even greater than it was in 2008, the potential for this causing an even bigger crash than 2008 is fairly obvious. So, the motivation for elements of the state to seek to slow the process of economic expansion, in the same way they did, after 2010, via austerity and other such measures, is just as obvious. Indeed, alongside all of the renewed talk about the pandemic continuing to be a threat to an extent that further restrictions are required, economic activity has slowed, central banks have again used that as justification for more dovish comments, as against the narrative that further QE would have to cease, and policy rates begin to rise. On cue, bond prices rose, as did stock markets.

But, the reality has changed. Both business and households have adapted to the restrictions that have been in place for over a year. It speeded up processes and changes in behaviour that were already underway. In a service based economy, where services take the form not only of fast food, now delivered direct to your door, but also of online gaming and gambling, of video and music streaming, and so on, and where all sorts of purchases can be made online, the effect of continued restrictions was always likely to be that it was supply that ended up being curtailed more than demand, especially in conditions where furlough and other income replacement schemes have muted the revenue effects of lockouts. The consequence now, therefore, is merely to cause money demand to rise further ahead of supply, causing yet further inflationary pressures. That was seen with the pingdemic, which led to the amount of pinging having to be curtailed, and then isolation being cancelled after pinging, because the consequent labour shortages were starting to threaten even vital services.

We have car companies now cutting back production by up to 40%, not because of any lack of demand, or profitability, but simply because of a shortage of computer chips. That is partly a consequence of rising demand for chips itself, not just for cars but for all of the other vast range of products that today use computer chips, but also because restrictions imposed on the grounds of COVID have created labour shortages either in production, or in distribution. In Britain, that means things from the trivial such as McDonalds, and other fast food outlets not being able to supply milk shakes, to the more serious. Retail stocks are said to be at their lowest levels in Britain since 1983, again not just a result of these blockages caused by COVID restrictions, but also by the effects of Brexit.

The attempts to slow economic growth, so as to restrict the demand for labour, and the rise in interest rates, which threatens to crash financial markets are simply delaying the inevitable, and creating even bigger problems, as demand rushes ahead of supply. Firms under pressure of competition, will always seek to capture a bigger share of the market, especially a rapidly expanding market, in conditions of rapidly rising prices. This is again an example of the interests of real industrial capital conflicting with the interests of the owners of fictitious-capital, whose only concern, now is to prevent a sharp crash in asset prices, and so of their paper wealth, which is the basis of their power in society. In the end, the former will always win, because it is on the basis of the real industrial capital that the future of the state itself depends, however, much the delusion of paper wealth from rising asset prices may disguise that.

The argument for continuing restrictions simply on the spurious grounds of infections will not hold. When the dam bursts, and economies open up, holding it back will have simply enhanced the deluge.