The Wages of Fear In Distrustful Times

Financial FAQs


Goldman Sachs

The Wages of Fear is a famous 1950s French film starring Yves Montand about four men that agree to carry a very dangerous cargo of nitroglycerine, the main dynamite ingredient, through a remote South American jungle track.

Is the U.S. economy facing such a dangerous journey through this outbreak of the coronavirus that CNN Doctor Sanjay Gupta said has 20 times the death rate of the ordinary flu based on initial studies?

What could be worse should the coronavirus outbreak become a worldwide pandemic—this from a federal government and White House that has sowed distrust and disinformation in almost every American and world institution over the past three years; from the Federal Reserve, to financial markets, the intelligence services, as well as with our allies that could help to protect Americans in the event of a pandemic?

There are now 60 cases of COVID-19 in the U.S., including among 45 people who were repatriated from the Diamond Princess and from Wuhan, China, the city that first detected the virus in December. Six people are counted as recovered in the U.S. Worldwide, there are now 82,549 cases of COVID-19, at least 2,810 deaths, and about 33,252 people, primarily in China’s Hubei Province, have recovered, according to the latest figures.

Goldman Sachs strategist David Kostin has warned that S&P 500 companies could see no earnings growth at all this year if the coronavirus spread becomes a pandemic.

In a worst-case scenario, with the virus spreading rapidly, supply-chain delays persisting, consumer demand tumbling and companies having to lay off workers to maintain margins, it could spark a recession, Kostin wrote yesterday. In that scenario, history suggests S&P 500 earnings per share could slide by 13 percent peak to trough—roughly over four quarters—before rebounding 10 percent in the next four quarters.

Not only are American institutions unprepared for anything more than a mild epidemic, but the Trump administration dissolved several of the health departments set up by the Obama administration to combat and prepare the U.S. for such outbreaks, such as the earlier SARs and Swine Flu outbreaks.

The greatest danger to the U.S. economy is a sharp cutback in consumer confidence and spending, since it is consumers that are now keeping economic growth at 2.1 percent with the smaller manufacturing sector already in recession, mainly due to supply disruptions from the ongoing trade wars.



Personal Consumption Expenditures haven’t yet been affected. Americans spent more on new cars and trucks in the first month of 2020. They also spent more on takeout or dining out and stayed more frequently at hotels.

The burst in income from minimum wage hikes and social security inflation adjustments, and a smaller increase in January spending pushed the savings rate up to a nine-month high of 7.9 percent from 7.5 percent in December.

The high rate of savings suggests consumers are becoming more cautious as they spend less and save more. The core PCE inflation rate without food and energy prices that is most watched by the Fed has risen just 1.6 percent in the past 12 months vs. a 1.5 percent rate in December.

And now a whistleblower alleges that some federal employees were sent to work at coronavirus quarantine locations in California without adequate safety protocols and then flew back home on commercial airplanes, says the Associated Press, and according to a person familiar with the complaint against the Department of Health and Human Services.

“The Dow Jones Index has now shed more than 4,200 points on the week, poised to mark worst weekly slide since 2008 as coronavirus routs confidence,” said one headline today. And the World Health Organisation has just warned that the coronavirus could spread to every country.

Perhaps the Trump administration is about to reap what it has sowed—fear from an almost total ignorance about what is happening, or about to happen, in a world that cannot be shut out with empty rhetoric and ongoing trade wars.

Harlan Green © 2020

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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