Wait one cotton pickin’ minute. The Dow Jones Industrial Average cratered more than 800 points, the S&P 500 fell 125 points, and the Nasdaq Composite Index plunged 600 points. Are we back in March or something? That was what the September 3 trading session was like, leaving many armchair traders stumped as to what triggered such a massive crash. Considering the trillions of dollars of liquidity pumped into the financial markets, were the leading stock indexes not supposed to climb forever?
A Bloody Correction
It was a horrific day for anyone who decided to leap in from the sidelines and take a bite out of Apple or take a test drive in Tesla. In addition to the broader decline, here were the biggest market capitalization losses on that day of bloodshed.
- Apple: -$179.92 billion
- Microsoft: -$108.6 billion
- Amazon: -$81.88 billion
- Alphabet: -$58.61 billion
- Tesla: -$37.62 billion
And that is not all. The technology industry’s ten wealthiest people, including Jeff Bezos and Elon Musk, saw their collective net worth slide $44 billion. Of course, that is nothing for gentlemen like Bezos and Musk, but it is still a noteworthy reversal of fortunes.
It was probably bad news for anyone who purchased shares in any of the power players over the last month. However, if you scooped up stocks a few months ago, then this was potentially an anomaly that presented an opportunity to take advantage of some discounts. The asset inflation since the market bottom on March 23 has been so enormous that the September 3 correction brought the tech-heavy Nasdaq to a one-week low.
China Nukes the Bond Market?
China and Japan continually swap first place for the world’s top holder of U.S. debt, with both countries holding more than $1 trillion in Treasurys. A few months ago, there had been speculation that Beijing would consider unloading all its bond holdings, which would be devastating for the federal government. Although China has liquidated tens of billions since 2013, these moves have never shocked the market.
There is talk again of President Xi Jinping and his Communist government dumping U.S. Treasurys, according to a state-run publication that cited “state-linked experts.” Here is what Global Times wrote:
“China may gradually reduce its holdings of US Treasury bonds to about $800 billion from the current level of more than $1 trillion, as the ballooning US federal deficit increases default risks and the Trump administration continues its blistering attack on China.”
The article added that China could reduce its Treasury holdings on something drastic, like a “military conflict” or if the “US moves to sanction the country financially.”
That said, Beijing’s consternation is justified, considering that America’s debt is forecast to exceed the size of the world’s biggest economy by next year. All projections – public and private – show the U.S. falling off a fiscal cliff, which was a certainty with or without the Coronavirus pandemic. The administration might present the case that China has no right to do this because it unleashed COVID-19 on the rest of the world, but this argument would never convince anyone. It has also been said that China needs the United States, but the world is in the beginning stages of no longer relying on America as the primary market for demand. While it is unlikely to happen anytime soon, we could be in the infancy period of the U.S. dollar losing its global reserve currency status, too.
Eat Your Landlord
If you listened to the latest edition of The Uprising with Liberty Nation’s Legal Affairs Editor Scott Cosenza, then you might have been aware that the U.S. government is instituting a moratorium on evictions across the land of the free.
The Center for Disease Control and Prevention published a new regulation that prohibits the evictions of millions of residential tenants across the country. While it might face legal challenges, the new public policy is likely here to stay, and it could spell bad news for private property rights and even federalism. According to the CDC, the policy will apply to any tenant who makes a sworn declaration to at least one of the following:
- Used best efforts to receive all available government assistance.
- Expect to earn $99,000 or less in 2020.
- The individual cannot pay the full rent due to a substantial loss of household income (layoff or out-of-pocket medical expenses).
- The tenant is making partial payments that are close to the full payment.
- Eviction could force the person to become homeless.
For free-market proponents, this could be troubling since it dictates what landlords can or cannot do with their property. For Tenth Amendment advocates, what would stop the next president from imposing a nationwide mandate for, let’s say, face masks or another lockdown? Plus, considering the state of economic disrepair, the next president might be incentivized to expand the moratorium while compensating property owners with money the government does not have.
From a pure economics perspective, there are many unintended consequences to this Sanders-esque concept. Who would want to be a landlord, especially if you are a smaller one, in this type of environment? What happens to contracts moving forward? Will future transactions come with greater financial costs? Could we see fewer units for rent in the next few years? Will the power players have more market share? If rent controls were not bad enough for the U.S. rental market, the sector must now contend with this abomination.
Libertarian economists quip that the most effective way to destroy a city, except for bombing, is to impose rent controls. But you may need to add a new socialist mechanism: suspend rent. Cosenza was right on six months’ worth of rent when he said on his fabulous podcast: “It sells people the notion that we can have something for free in society.” Indeed, the White House might have good intentions with this eviction ban, but you know what they say about good intentions and the road to hell – a place that might actually possess better rental housing than a rent-controlled inner city!
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Read more from Andrew Moran.
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