Tuesday, December 19, 2023

 The Great Taking


Book & Documentary by David Rogers Webb,

former Hedge Fund Manger and Investment Banker,

age 63 (born 1960)

Revised on Feb. 1, 2024 (and labeled with "Update (Feb. 1, 2024")
Revised on Feb. 2, 2024 (and labeled with "Update (Feb. 2, 2024")
Revised on Feb. 11, 2024 (and labeled with "Update (Feb. 11, 2024")
Revised on Feb. 13, 2024 (and labeled with "Update (Feb. 13, 2024") -- proofread the whole article
Revised on Feb. 22, 2024 (and labeled with "Update (Feb. 22, 2024")

Interesting Questions


Have you ever thought about the following questions:
  • Why is global debt-to-GDP so high? 
  • Why does it keep rising? 
  • How come no one in leadership positions seems to express concern publicly?
Or the following:
  • Is the 40-year downtrend in interest rates (with the US long Treasury yield bottoming at less than 0.5% in 2020) likely to be followed by an extended uptrend?
  • Is U.S. national debt (now at $33.9 trillion and growing; see usdebtclock) an issue?
  • What does the financial End Game of all this debt look like?
(My answers appear at the end.)


The Great Taking may be applied to answer these questions and more. It suggests a plausible answer to how high debt levels and unsustainable debts can be resolved. It predicts a world of hyperdeflationary collapse as opposed to the more obvious forecast for hyperinflationary collapse.

Primary Sources


I wrote a whole Twitter thread on this on Dec. 19, 2023: https://x.com/haditaheri/status/1737232119947243777

However, if you just wanted to access the book or documentary or other primary sources, here are the links:
Update (Feb. 1, 2024):
If you wanted to spend time on just one single item, I would recommend reading the Open Letter to Legislature. It's the last bullet point above.

If you had one hour to spare, I would recommend watching the Documentary. It's the 2nd bullet point from the top.

(end of update)

Update (Feb. 11, 2024)
Update (Feb. 22, 2024)

Synopsis


Let's begin.

My goal here is to motivate the reader to explore Webb's work. You can think of this article as an overview.

The subject matter is property rights.

On an abstract level, the work explores the disconnect between real-world wealth and paper-based wealth. The difference is that the latter requires no energy input and is fictitious to a great extent. However, the feature common to both is power.

On a practical level, the work explains that the legal ownership of financial securities has been replaced with their beneficial ownership and given the name of "security entitlement". This is a mater of law and pertains to property rights. It went into effect in 1994 in the U.S.; source. 

The process started more than 50 years ago (1970) in the U.S., was foisted onto Europe, and now spans a good portion of the world. (Based on Wikipedia here, here, and here, I'm guessing that excluded countries are comprised of New Zealand, Iceland, UAE, Nepal, Philippines, Myanmar, Vietnam, Cambodia.) When and why does ownership matter?

Ownership matters in the case of insolvency, i.e. when the brokerage firm where you happen to hold your assets (or financial securities) goes bankrupt. Here's what it means. Because the law states that you're not the legal owner of your assets but just their beneficial owner, the secured creditor of that brokerage is entitled to claim your assets in the event of that entity's bankruptcy (but only if such secured creditor also has control of those assets). I repeat, this happens by law and doesn't require judicial review. More on this in my actual Twitter thread. The relevant section of the law is parts (b) and (c) of Article 8 of the UCC (Uniform Commercial Code).

Update (Feb. 1, 2024). A legally more precise restatement of the previous paragraph: Ownership matters in the event of bankruptcy of the brokerage firm or any intermediary in the chain of intermediaries starting with the brokerage going all the way up to the securities' ultimate legal owner.

In the event of bankruptcy of any one of these intermediaries, a secured creditor has precedence over you by law and without requiring judicial review. Your financial securities are serving as collateral. 

Also, in the event of bankruptcy of the brokerage itself, the additional requirement is that the secured creditor have control of your financial securities. If the secured creditor has control of your financial securities, then it will have a higher claim to these securities than their beneficial owner which is you. An example was Lehman's bankruptcy (2008). JPMorgan was the secured creditor of Lehman and also custodian for Lehman client assets. JPMorgan was allowed to keep those assets, as of a 2012 court ruling.

A creditor is someone who has lent money. A secured creditor is someone who has lent money against collateral.

The ultimate legal owner of American stocks and corporate bonds is a company by the name of Cede & Co. The ultimate legal owner of U.S. government bonds is the Federal Reserve (citation needed ...).

(end of update)

Update (Feb. 11, 2024) According to Ch. 7 of the Great Taking, the legal entity sitting at the very top of the ownership hierarchy is DTCC (Deposit Trust & Clearing Corporation). The DTC (Depository Trust Company) is its subsidiary. Cede & Co is owned by "certain employees" of DTC, according to Cede & Co's Wikipedia page.

Financial institutions today have been set up in such a way that magnifies systemic risk. For example, when two parties open a derivative position (e.g. option or futures contract) and each one takes one side of the trade, the party that bears the ultimate risk is neither of them but the central clearing house (also known as Central Clearing Counterparty or CCP). The system has been designed to shift risk from individual parties to the collective. If you think you have hedged your position by having bought insurance (e.g. long puts against a stock market crash), think again because your counterparty is none other than the CCP. The CCP has a very limited amount of funds (a few billion dollars), especially given that it's the sole entity bearing risk for the entire financial system. No extent of governmental insurance protection would be sufficient to bail it out in the extreme case. (This is explained in this ZeroHedge article which is part of my Twitter thread.)

Update (Feb. 1, 2024). The concept of CCP corresponds to a system that's designed to have a single point of failure. This is a no-no in good, fault-tolerant engineering design.

The Great Depression provides a precedent for how things could unfold. In 1933, FDR declared a “Bank Holiday.” By executive order, banks were closed. Later, only those approved by the Fed were allowed to reopen. (Source: same ZeroHedge article as in previous paragraph). If this were to happen again, it means that secured creditors of those financial institutions that remain closed or their intermediaries will have a legal right to client assets held at those institutions (and sometimes depending on whether they have control of those assets)!

The work is called The Great Taking because it refers to the confiscation of private wealth by secured creditors because they have a claim on collateral. The collateral in question is private wealth held in the form of beneficial ownership (as opposed to outright legal ownership). These secured creditors are typically financial intermediaries.

The author believes that the real culprits are the central banks of the world. He says that whenever any national bank has tried to grow roots in some country, central banks of other countries have forced it to shut down. (Note: I haven't verified this independently, but it's worth checking out.) He says that contrary to public opinion, central banks are not owned by their governments, but by entities whose identities are secret. (We can surmise that they're comprised of the largest banks. This is true at least in the U.S. I won't name any names, except for JPMorgan and Blackrock, as they are probably the two financial firms most prominently featured in the media.) The issue is the central banks' secrecy of ownership, rendering them unaccountable to any authority.  

The problem with modern central banking is that central banks can create money out of thin air. Money is power. In the traditional sense, power is acquired by expending energy (as in deploying human labor, capital, and fuel). In the central banking sense, power is acquired by printing money which doesn't cost anything or require real effort, which can then be used to influence everything spanning people, public media, politicians, governments, and corporations. The author believes that the plan for The Great Taking was an intelligent plan and wasn't stupid. It was designed by people who are long gone.

The first phase of the plan was over-financialization and asset inflation. This is mostly behind us and we are probably in its last stages. The second phase which is yet to happen involves systemic financial collapse where financial institutions except for members of the "protected class" (this term was used in Lehman's bankruptcy proceedings) will fail or be shut down by mandate (in the same vein as Silicon Valley Bank and First Republic Bank last March and May, 2023). Secured creditors of the closed financial institutions or their intermediaries will have a legal right to client assets held at those financial institutions (and sometimes depending on whether they have control of those assets).

Because people will suffer a drop in wealth, the general price level will fall for years, claims the author. This will make it more difficult for debt holders (e.g. mortgage holders, corporate debt issuers, etc.) to service their debt, which will in turn lead to more asset confiscations by creditors. And that's where the author ends his story. Or not.

The author's goal in having created this work is to spread the word about this nefarious plan. He doesn't believe that the plan is coincidental, but intentional. It has been methodically carried out and expanded decade after decade for over 50 years, he says.

The author believes that the plan can be hindered and ultimately averted. If not, the consequences are likely to be deprivation on an international scale.

The Great Taking describes an international plan for the legal confiscation of most if not all private wealth, especially wealth that has been unknowingly pledged as collateral.

Postscript Thoughts


p.s. I haven't read Webb's book yet. So the above discourse may be lacking in that sense. For example, Webb also discusses declining velocity of money as being insightful, something on which I've remained silent because I don't fully understand it at this time .... Update (Feb. 1, 2024; Feb. 11, 2024): I have now read the book. It doesn't delve into velocity of money to any great extent, but does mention it as a concerning symptom of the current state of things. See chart below. Velocity has been declining since mid-1990s and in 2020 (Covid pandemic) was as low as in 1946, the lowest level on record. See FRED for more recent readings of velocity based on M1 & M2.



From the Quantity Theory of Money, we have MV = PQ, were M = money supply, V = velocity of money, P = price level, Q = quantity of output, and PQ = nominal GDP. So, by rearranging, we have V = PQ / M. A decline in V means that M is increasing faster than PQ, or that money supply is increasing faster than nominal GDP. Update (Feb. 2, 2024): I think what Webb is really pointing out is the declining "marginal revenue product of debt" (MRPD). MRPD refers to the marginal increase in nominal GDP for a marginal increase in debt, a topic about which I had Tweeted in the past. Declining MRPD suggests that there will come a point when MRPD would hit zero. That's the point were no additional increase in debt causes any increase in GDP. That may be a turning point in Fed policy. That may be the point when the powers-that-be will trigger a financial crisis to enable The Great Taking. 

p.s.2. At the end of my Twitter thread, I provide recommendations for what people can do to protect their wealth. However, this shouldn't be misconstrued as investment advice. Please do your own research or seek professional advice. Update (Feb. 1, 2024): The author's own solution to the problem is somewhat idealistic and has 3 parts: (1) have Congress strengthen ownership rights to financial securities, for example by striking out parts (b) and (c) of Subsection 8-511 of Article 8, (2) convert the Federal Reserve into a public utility, and (3) stop physical warfare. Source: author's interview with Daniela Cambone, linked at the top.

p.s.3. It is clear why Wall St would have an incentive to suppress the price of gold or bash Bitcoin. Update (Feb. 1, 2024): The author implies that these are perceived as threats because they represent alternative systems of money. In 1933, when gold was outlawed and confiscated, the Fed didn't use it as a means of injecting badly needed liquidity into the system. Hence, the author hypothesizes that the real motive for gold confiscation was to prevent an alternative system of money from taking shape. Update (Feb. 13, 2024): Today, gold and Bitcoin would be likely candidates for an alternative system of money.

p.s.4. My answers to the questions at the top. Note that these are all speculation backed by reasoning.

  • Why is global debt-to-GDP so high? It's part of phase 1 of the plan. Webb would say that it's by design.

  • Why does it keep rising? It's part of phase 1 of the plan. Webb would say that it's by design.

  • How come no one in leadership positions seems to express concern publicly? Because they are under direction from their bosses who are behind the central banks and whose identities are kept secret. The method of control is money.

  • Is the 40-year downtrend in interest rates (with the US long Treasury yield bottoming at less than 0.5% in 2020) likely to be followed by an extended uptrend? As phase 1 continues, yields would be driven by a combination of Fed policy (expansionary or contractionary) and fiscal deficits. They could very well follow an uptrend. In phase 2 however, deprivation is likely to depress economic growth while a fall in the price level is likely to eliminate inflation. Hence, yields would be extremely low. This would be a welcome blessing for the U.S. Treasury and Congress because they could issue massive amounts of debt at low yields, or refinance high yield debt with low yield debt.

  • Is U.S. national debt (now at $33.9 trillion and growing; see usdebtclock) an issue? Probably not. (1) To the extent that U.S. government bonds are transferred to secured creditors in phase 2 and to the extent that such secured creditors are friendly to central banks and one with their governments, these bonds need not be repaid. (2) To the extent that phase 2 is completed with success, most private wealth will have been transferred to secured creditors, so they could decide however they wanted. In other words, a U.S. debt default wouldn't matter.

  • What does the financial End Game of all this debt look like? A financial crisis most likely originating in the financial sector, which would lead to insolvency of numerous financial institutions, which would be followed by secured creditors legally confiscating private wealth that's held only beneficially but not legally at those failed financial institutions or at financial intermediaries. For phase 2 of the plan to cause maximum confiscation, all financial institutions except one would have to fail. Expecting massive deflation. Phase 2 would have a second wave which would look like this. Deflation would make it much more difficult for indebted asset holders to service their debts, thereby leading to widespread asset transfers to creditors, which is nothing other than further transfer of private wealth to the surviving financial institutions. The World Economic Forum advertises the future by saying that "you'll own nothing" and makes it lighthearted by saying that "you'll be happy." Update (Feb. 13, 2024) Please see below for a more precise description of the sequence of events triggering The Great Taking.

Update (Feb. 2, 2024) More Q&A.

  • What does the timing of The Great Taking look like? (a) Webb thinks that we are very close. He mentions actions and events that indicate that certain operational tasks were completed in 2022 and 2023, which makes the world more prepared for the event of The Great Taking. I'm not qualified to comment on those events. In his interview with Greg Hunter (linked above), he mentions a no-later-than date of 2030. (b) He also says that we are dealing with a silent, slow ticking bomb; i.e. that there's no hurry for The Great Taking to happen. (c) My own opinion is that it's likely that central bankers will try to keep the current system going for as long as they can. In other words, so long as injecting liquidity and conducting expansionary monetary policy works, they will follow this path as needed to keep the system afloat. However, as pointed out above under p.s. (see declining marginal revenue produce of debt -- MRPD for short), it's likely that the global economy or the U.S. economy will reach a point where MRPD hits zero, meaning that liquidity injections (synonymous with additional debt in this context) become totally and absolutely ineffective. That may be the point when The Great Taking playbook would begin. (d) In the interim, if there is ever the failing of a financial intermediary, The Great Taking can be avoided by simply bailing out that intermediary. The only situation where bailout isn't an option is when the failing is large-scale (i.e. numerous intermediaries failing simultaneously), in which case the timing of The Great Taking would be random even for those in charge. (e) Finally, I should point out that The Great Taking makes the world one of "heads they win, tails they also win" kind of situation for those in charge.

Update (Feb. 13, 2024) More Q&A.

  • Why is the size of the global derivatives market an issue? See below.

  • What is the sequence of events that would trigger The Great Taking? The notional size of this market is officially quoted as $715 trillion and unofficially as high as $7,400 trillion, while David Webb estimates it at $2,000 trillion (see my Tweet). This size ought to be compared to the aggregate market cap of all securities in investors' brokerage accounts because this is what's serving as collateral for the derivatives trades. This equates to the aggregate market cap of all public stocks, corporate bonds, and government bonds, which I've estimated at $242 trillion. Estimation: The aggregate market cap of all US public stocks is currently $51 trillion (via Google search); for all global public stocks it's currently $109 trillion (via Google search); for all US public bonds it's currently $51 trillion (via Google search); for all global bonds it's more than $133 trillion (via Google search). So, the ratio of the two sizes is about 8X (= $2,000 / $242) but could be anywhere in the range of 3-30X. The larger the ratio, the greater the risk. Here's the problem. A large move in the value of the underlying (securities) would cause an even larger move in the value of the derivatives. If the move in the value of the derivatives is large enough, there's the risk that one side of a derivatives trade won't be able to meet its obligation, meaning that it would have to declare insolvency unless there's a government bailout. Once insolvency occurs, the responsibility would lie with the CCP (central clearing counterparty) to make the other side of the trade whole. However, as Webb explains in his book, CCPs are poorly capitalized, i.e. to the tune of no more than a few billion dollars. Therefore, the CCP would fail. Once this happens, the other side of the trade has the legal right, without judicial review, to take securities sitting in investors' brokerage accounts. The intuitive issue is the following: After a certain point, the notional size of the derivatives market stops making sense relative to the underlying collateral, which is none other than the aggregate market cap of public stocks and bonds.


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Saturday, May 27, 2023

 Insights into Federal Reserve Policy


Revisions:
  • Revised on June 9, 2023
  • Revised on June 10, 2023

I reviewed several of John Hussman's monthly newsletters to draw my own conclusions about Federal Reserve policy.

In a Twitter thread from April 10, 2023, I draw the conclusion that what's forefront on the Fed's mind is to signal, through its actions, that it is serious about defending the value of the US dollar. More so than whether recession or unemployment might ensue. The significance of this lies in convincing the world that the US dollar merits remaining the global reserve currency, something which is probably more valuable to the Fed than averting recession or unemployment.

In another more recent Twitter thread from May 24, 2023, I draw the conclusion that it's unlikely that the Fed will ever reduce its balance sheet to pre-2009 levels, meaning that the approximately $8 trillion of liquidity injection since 2008 is going to remain a permanent fixture. 

I also draw the following conclusion. If true inflation reduction requires reducing the money supply (and not just raising interest rates), which is how Paul Volcker fought inflation in the 1980's, then the Fed is unlikely to succeed at combatting inflation. 

This isn't actually that bad because if nominal GDP rises faster because of inflation, then the national debt-to-GDP ratio is going to fall faster, which is itself desirable.

The "liquidity preference curve" which has been constructed from observable data (copied below and sourced from Hussman's April 2023 newsletter) shows that when Fed liabilities are extremely high relative to GDP, it is impossible to maintain a short-term interest rate that's any higher than the interest paid on reserve balances. This means the following.  


First, so long as the Fed is willing to pay interest on reserve balances, the short-term interest rate will track the interest rate that the Fed is paying on reserve balances. It won't be any lower because then no one would be willing to buy short-term Treasury bills. It won't be any higher because the Treasury doesn't want to pay any more interest than it has to.

But then if the Fed keeps paying interest on reserve balances, it could drive itself into bankruptcy! This will happen unless the Fed's assets produce more income than these interest payments. But its assets are nothing other than US Treasuries (probably with medium to long term maturities), meaning that their interest income has to exceed the interest being paid by the Fed. This portends higher rates on medium and long-term Treasuries. But then if these rates are higher, it puts a bigger burden on the fiscal budget ... (Tax hikes coming??? Spending cuts coming???) This story doesn't seem to have a good ending.

Second, if the Fed raises the Fed funds rate further, it will have to pay a higher interest rate on reserve balances. This again puts additional stress on its balance sheet. So, would this mean that the Fed has lower propensity to raise rates further? I wonder.

Third, to the extent that the Fed stops paying interest on reserve balances, the short-term interest rate is likely to fall back toward zero from its current level (of 5%). 

In a nutshell, the problem doesn't seem to be the level of short-term interest rates. The problem is the Fed's bloated balance sheet (i.e. residing at the far right end on the x-axis in the above chart). And, so long as the Fed's balance sheet remains bloated, the general tendency of the economy will be to move toward lower interest rates. Money is abundant, so its price (the interest rate) is low. Its price cannot be kept elevated unless it is artificially elevated through paying interest on reserve balances. 

And then, if the Fed chooses never to reduce its balance sheet to pre-2009 levels (as I alluded to above), then the only hope is for nominal GDP to grow big enough so that the ratio of Fed liabilities to nominal GDP falls to a more reasonable level. (This corresponds to moving to the left along the x-axis in the above chart, at which time the economy could naturally sustain higher short-term interest rates). More productivity helps in this regard (because it raises real GDP). So does inflation (because it raises nominal GDP). In other words, inflation is the Fed's friend.

Here's another issue. Nominal GDP would have to increase by a factor of something close to 3 in order for short-term interest rates to rise above zero, assuming no change in the Fed's liabilities. (See chart; then, imagine moving from 0.33 on the x-axis -- "you are here" -- to something like 0.1, which is a factor of essentially 3.) If this were to happen over 20 years, it would equate to an annual nominal GDP growth rate of 5.6%. (Proof: (1 + 5.6%)^20 = 3) This seems plausible, but 20 years is a very long time. Over 10 years, the growth rate would have to be 11.6%, which is unrealistic. (Proof: (1+ 11.6%)^10 = 3))

To get there in 10 years, one scenario would be for nominal GDP to grow at 5.6% per annum and for Fed liabilities to shrink by 5.3% per annum. (Proof: (1 - 5.3%)^10 / (1 + 5.6%)^10 = 1/3.) Fed liabilities are currently about $8.4 trillion (see here). A 5.3% annual reduction would require shrinkage by $445B annually or $37B monthly. We can monitor the Fed's actions against this benchmark rate (of reducing its balance sheet). For example, over the past 12 months ending June 7th, the Fed has reduced its balance sheet by ... $528B (see previous source). This is good.

Update (June 10, 2023): I think that the "liquidity preference curve" can be thought of as the price of money as a function of the quantity of money. Toward the left end of the x-axis, when the supply of money is tight, its price (i.e. interest rate) can and will be somewhere materially above zero (as determined by market forces of supply and demand). Toward, the right end of the x-axis, when the supply of money is plentiful, its price cannot and won't be anything other than zero (as determined by the market forces of supply and demand).

Second, all the talk about friend-shoring and trade embargoes between US-China can be explained by a desire to move from the right end of the x-axis toward the left.

Third, the 10-year hypothetical plan mentioned above is likely to be derailed if the US were to be hit by another financial crisis requiring yet another multi trillion dollar liquidity injection.

Fourth, I ask myself, why is it preferable for the economy to be residing toward the left end of the x-axis as opposed to the extreme right end, which is where we are today and where we have never been before?



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Sunday, October 31, 2021

Who does Allen Farrington read?


From Farrington's April 2020 article entitled "The Tale of Two Talebs".

Douglas R Hofstadter

a) Book (1979): Gödel, Escher, Bach 
b) Meet Hofstadter on Wikipedia. 

Mark Spitznagel 

a) Book: The Dao of Capital  
b) Blog: Universa website 
c) Meet Spitznagel via Tweet.

Saifedean Ammous 

a) Twitter: @SaifedeanAmmou6
b) Book: The Bitcoin Standard  

Ole Peters 

a) Twitter: @ole_b_peters
b) Paper published in Nature: The ergodicity problem in economics 

Andreas Antonopoulos 

a) Twitter: @aantonop
        b) Website
c) Book: Mastering Bitcoin 

Nick Szabo 

a) Twitter: @NickSzabo4 
b) Blog

Ben Hunt 

a) Twitter: @EpsilonTheory 

Preston Byrne 

a) Twitter: @prestonjbyrne 
b) Blog

Parker Lewis 

a) Twitter: @parkeralewis 
b) Blog: Unchained Capital website

Nassim Taleb

a) Twitter: @nntaleb
b) Book: Incerto (includes Black Swan, AntiFragile, Skin in the Game) 


Author's Tweet about this blogpost

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Tuesday, August 18, 2020

Using Hydroxychloroquine (HCQ) for

Early Treatment 

of Outpatients  


 Editing Notes:

 1. Date of original blogpost: Aug. 18, 2020

 2. Aug. 20, 2020: added Endnotes section in blue font. Any other edits (minor) within the original blogpostalso appear in blue font. 

      a. The point about "high risk" patients is critical. (See Endnote #1.)

      b. I added links to two interviews which may be a quicker way to convey the message. (See Endnote #3, Dr. Risch's follow-on interview to his CNN interview).

 3. Aug. 29, 2020: added Endnote #6.

 Blogpost:
On July 28, 2020, a Tweet and blogpost by Martin Armstong caught my attention. The blogpost contained a controversial video on the so-called America's Frontline Doctors. The doctors in the video claimed that a combination of HCQ taken in low doses and Zinc could help (a) in preventing coronavirus infection and (b) more importantly, in treating the disease in its early stages.

This video was subsequently banned by mainstream media with the reason, according to Fox News, being that it would "hurt the Biden presidential campaign" (i.e. help Trump's presidential campaign had it not been banned). An ER physician who had appeared in the video, Dr. Simone Gold, was fired from her job shortly thereafter. Source. (The implication is that "forces" behind Biden are more powerful than those behind Trump. Time will tell.)

To be clear, their message was that there is a simple and cheap way of treating Covid-19 patients at the early outset of symptoms. This was the message that has been suppressed by mainstream media.

Meanwhile, Dr. Anthony Fauci, the FDA and NIH have taken a hard stance against the use of HCQ for treatment of Covid-19. The say that not until RCTs (randomized controlled trials) are carried out should HCQ be prescribed. The benefit of an RCT is that it would establish without reasonable doubt whether or not HCQ was an effective treatment for the disease. The problem is that an RCT takes time, months or years. Meanwhile, more and more people are getting infected, many have died or continue to die, the health care system has been overloaded, and the global economy has taken an unprecedented hit. A Yale epidemiologist named Dr. Harvey Risch advocates the combined use of HCQ with AZ (azythromycin, an antibiotic) for treatment of early stages of infection in outpatients who are at high risk. I emphasize the words "early stages" and "outpatients". (More on "high risk" in the Endnotes.) His prescription does not apply to inpatients (those hospitalized) nor to those with advanced stages of the disease (i.e with severe respiratory issues). 

(See Endnotes re Dr. Risch's rebuttal of Dr. Fauci's stance on RCTs.)

I asked a few physician friends for their opinion. (I am not a physician.) I thought that their response would settle the matter. However, I received mixed responses. So I decided to investigate for myself by going to the source, which meant reading Dr. Risch's academic paper.

Side note: An article from MedPage Today dated July 31, 2020 is excellent in that covers the issue thoroughly and references many relevant sources including Dr. Risch's paper. If you'd like to get an overview and find links to major articles, this would be the go-to article. However here in this blogpost, my focus is something different. It is to look at Dr. Harvey's analysis directly instead of listening to other people's opinion or interpretation of it.

As a historical note, I started my investigation via this Google search: "dr harvey risch hydroxychloroquine". (If you click on the previous link, you'd be able to see the search results for yourself. The aforementioned article from MedPage Today was the second search result.)

So, let's look at Dr. Risch's academic paper, the one which leads him to recommend HCQ+AZ for early treatment of outpatients with Covid-19. But before we do that, let's check his credentials. They may be found on Yale's website. 

My opinion after checking him out is that he has not only credible but outstanding credentials as an epidemiologist, which is what counts. He is the author of 325 original research publications and has an h-index of 88. But what does an h-index of 88 mean? According to this source, "after 20 years of research, an h-index of 20 is good, 40 is outstanding, and 60 is truly exceptional." Risch obtained his PhD in 1980, so he has had more than 40 years of research under his belt. Second, according this Wikipedia article on the h-index, "among 36 new inductees in the National Academy of Sciences in biological and biomedical sciences in 2005, the median h-index was 57." Dr. Risch's index is higher than this median, and we are talking about the median among a select group of scientists. So far so good.

Dr. Risch's paper may be accessed here. It was published on May 27. (Note that at the top of the PDF file containing this paper, not to be overlooked are 3 critiques of Dr. Risch's paper and 2 rebuttals by him. I don't treat these other works here, but simply mention that Dr. Risch's 2nd response -- file "kwaa152" -- is worth checking out: See Table 1 on p.8 which summarizes 12 studies all with the same conclusion: "reduced risk". )

Excerpts from Dr. Risch's paper, with titles by me.


Is outpatient infection different from inpatient distress?

"Symptomatic outpatient infection is a pathologically and clinically different disease than the life-threatening inpatient acute respiratory distress syndrome caused by SARS-CoV-2, thus there is little reason to think that the same treatment would be useful for both."
What is the purpose of this paper?

 "In reviewing all available evidence, I will show that HCQ+AZ and HCQ+doxycycline are generally safe for short-term use in the early treatment of most symptomatic high-risk outpatients, where not contraindicated, and that they are effective in preventing hospitalization for the overwhelming majority of such patients."

 (HCQ = hydroxychloroquine. AZ = azithromycin)
What is the available evidence on the efficacy of HCQ+AZ?

 "Available evidence of efficacy of HCQ+AZ has been repeatedly described in the media as “anecdotal,” but most certainly is not. The evidence is not perfect either."
Can lack of randomization be a weakness of the First Study (Marseille group, P. Gautret, D. Raoult)?

 "If [this] study had shown a 2-fold or perhaps 3-fold benefit, that magnitude of result could be postulated to have occurred because of subject-group differences from lack of randomization. However, the 25-fold or 50-fold benefit found in this study is not amenable to lack of randomization as the sole reason for such a huge magnitude of benefit."



Side note: Both the first and second studies may be accessed via the above MedPage Today article.

Why is smallness not an issue with the First Study?


"The study has also been described as “small,” but that criticism only applies to studies not finding statistical significance."


What were the results of the Second Study (also Marseille Group)?

"A second study of the Marseilles group involved 1061 patients tested positive for SARS-CoV-2 and treated with HCQ+AZ for at least 3 days and followed for at least 9 days. The authors state “No cardiac toxicity was observed.” Good clinical outcome and virological cure were seen in 973 patients (92%). Five patients died, and the remainder were in various stages of recovery."


What were the results of the Third Study (Dr. Vladimir Zelenko, New York)?

"Of the 1450 patients, 1045 were classified as low-risk and sent home to recuperate without active medications. No deaths or hospitalizations occurred among them. Of the remaining 405 treated with the combined regimen, 6 were ultimately hospitalized and 2 died."


Side note: Dr. Zelenko's prescription may be found here. HCQ+AZ+Zinc, including dosage.


Are FDA, NIH and cardiology society warnings borne out in real-world usage of this treatment?

"This discussion thus shows that the FDA, NIH and cardiology society warnings about cardiac arrhythmia adverse events, while appropriate for theoretical and physiological considerations about use of these medications, are not borne out in mortality in real-world usage of them. Treatment-failure mortality will be much higher, but even that pales in comparison to the lives saved. It would therefore be incumbent upon all three organizations to reevaluate their positions as soon as possible."


Preamble to why differing scientific worldviews might be involved.

"Given that a detailed and dispassionate review of all of the available relevant evidence leads to conclusions about outpatient HCQ+AZ use different than those of the FDA and NIH panels (which comprise wider expertise than the cardiology societies), I address how different underlying scientific worldviews might be involved."


Are we talking about the same disease?

"For Covid-19, inpatient acute respiratory distress syndrome is typically a florid immune-system overreaction, whereas initial outpatient illness is a viral multiplication problem involving the beginnings of immune response. These are different diseases."


What are the facts?

"The fact that epidemiologic data to-date show strong evidence for efficacy of combined HCQ+AZ in early outpatient treatment, even if not “proof” yet at the level of several successful RCTs, is evidence that this medication regimen works in that context."

(RCT = randomized controlled trial)


What is Risch's point?

"It is my point to say ...that HCQ+AZ has been directly studied in actual early high-risk outpatient use with all of its temporal considerations and found empirically to have sufficient epidemiologic evidence for its effective and safe employment that way, and that requiring delay of such general use until availability of additional RCT evidence is untenable because of the ongoing and projected continuing mortality. No studies of Covid-19 outpatient HCQ+AZ use have shown higher mortality with such use than without, cardiac arrhythmias included, thus there is no empirical downside to this combined medication use."


How prevalent is the use of HCQ+AZ in the world for treating Covid-19?

"I strongly urge these panels [(e.g. FDA, NIH)] to reconsider the data and arguments discussed above. Substantial fractions of physicians treating Covid-19 patients in Europe and elsewhere report use of HCQ+AZ: 72% in Spain, 49% in Italy, 41% in Brazil, 39% in Mexico, 28% in France, 23% in the US, 17% in Germany, 16% in Canada, 13% in the UK."


What are Risch's concluding remarks?

"We have a solution, imperfect, to attempt to deal with the disease. We have to let physicians employing good clinical judgement use it and informed patients choose it. There is a small chance that it may not work. But the urgency demands that we at least start to take that risk and evaluate what happens, and if our situation does not improve we can stop it, but we will know that we did everything that we could instead of sitting by and letting hundreds of thousands die because we did not have the courage to act according to our rational calculations." [emphasis mine]


What is the main takeaway from this paper?

"Five studies including two controlled clinical trials, have demonstrated significant major outpatient treatment efficacy of treatment with Hydroxychloroquine + Azithromycin."

This concludes my excerpts from Dr. Risch's paper. You may want to read his paper firsthand or perhaps read the article that he wrote in Newsweek on July 23.


Housekeeping

Dr. Risch's 2nd rebuttal (file "kwaa152") contained an interesting reference ("5") whose headline said, "Media and Big Pharma are in lockstep to suppress a cheap, life-saving Covid-19 therapy in order to reap pandemic-sized profits." Time will tell.
Practical question for the reader

 Would you take HCQ+AZ (+ also Zinc) if you were to develop Covid-19 symptoms? 

 I know I would given that I don't have any existing heart conditions. (Crossed out and modified below during Aug. 20's edits.)

 I would, but only if I was in a high-risk category (above 60, with coexisting conditions, high probability of mortality) but without any existing heart conditions. (Crossed out during Aug. 29's edits. The risk to people with heart conditions was quoted as either 9-in-10,000 or 9-in-100,000 by Dr. Risch. Citation needed.)
Endnotes

1. "High risk". In my original blogpost, I hadn't picked up Dr. Risch's point that his proposed treatment is suitable only for high risk patients. I picked this up from his interview (item #3 below). High risk means high probability of mortality (e.g. 10-15%). People older than 60 who have coexisting conditions are considered high risk.

 2. Dr. Risch's interview on Fox News. Published Aug. 3, 2020

 3. Dr. Risch's follow-on interview to his CNN interview. Published Aug. 3, 2020. Dr. Risch makes his case starting at minute 4:25. 

 4. Dr. Risch mentions that historically many drugs that have been admitted for patient treatment haven't been subjected to RCT (randomized controlled trial). So it is rather strange that Dr. Fauci is now bringing up RCT as the requirement for allowing treatment with HCQ, in my opinion.

 5. Disclosure: I am not a die-hard Trump fan by any means!

 6. Dr. Risch answers questions on Fox News: part 1, part 2. Published Aug. 23, 2020.
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Thursday, July 9, 2020


Remaining Excerpts from 

Lyn Alden's Primer on 

QE, MMT, and Inflation/Deflation


 Lyn Alden had written an article entitled "Quantitative Easing, MMT, and Inflation/Deflation: A Primer". Last updated on June 5, 2020.

I had started writing a series of Tweets to quote various excerpts. (That was a little over 2 weeks ago.) I had collected the remaining excerpts but instead of proceeding to present them as a series of Tweets, figured out that it made more sense to present them as a single document which is what I've done below. If anything in these excerpts doesn't make sense, it means that it's time to read the original article itself.

Recent History of Inflation in US, 2008-2020


“Broad money supply (M2) per capita increased by an annualized rate of about 5.0% [over 2008-2020].

Official consumer price inflation only increased by an annualized rate of about 1.6% during that timeframe.

So, trillions of new dollars were created on an absolute basis and a per-capita basis, with limited effect on many prices. This is unintuitive to many, but there are several reasons for this.

[T]his newly-created money from QE in 2008 to 2014 went up against several deflationary forces.”

What’s inflationary and what’s deflationary?


Increases in money supply are inflationary.

But, all of the following are deflationary:

Technology is deflationary. (E.g. smartphone as a tech Swiss Army knife)

Offshoring is deflationary.

Onshoring is deflationary. (E.g. cheap immigrant workers.)

Unprofitable businesses are deflationary. (E.g. Uber, WeWork)

Cheap commodity prices are deflationary.

Wealth concentration is deflationary.

Lower asset prices are deflationary.

Debt defaults are deflationary.

Aging demographics are deflationary. 

Trade surpluses are deflationary. (Corollary: trade deficits are inflationary.)

“Before monetary policy is factored in, deflation is the natural order of a productive economy.”

“[In the aftermath of the 2008/2009 GFC, t]he $3.6 trillion in totally new dollars for QE that came out of the Fed’s void and injecting into the economy was small compared to this total initial base of existing wealth ($71.3 trillion), and small compared to the amount of paper wealth that had recently been lost ($11 trillion). The new money just offset a part of what was otherwise a large deflationary shock.”

Current Covid-19 Crisis


“We’re currently experiencing another huge deflationary shock from the impact of COVID-19 on a highly-leveraged global financial system, as many people have lost incomes and asset prices have fallen, but large fixed debts remain, expecting payment.”

“The United States went into this crisis with total debt (government, corporate, and household) equal to about 350% of GDP or $75 trillion in absolute terms, which is a very deflationary force. We began the 2008 crisis with about a 350% debt/GDP ratio as well.”

“In the years ahead, the possibility for broad inflation is back on the table.”

“As pandemic lockdowns ease and ongoing government stimulus tries to get the economy back up off the floor, consumer demand can increase while the new money supply remains in the system.”

“Over the multi-year longer-run, if we see a trend towards bringing a portion of our supply chains back to the United States, that could further raise inflationary pressures because it would start to undo one of the major deflationary outlets (offshoring) that has been in place for decades.”

2020 Starting baseline


“At the end of 2019, total U.S. household net worth was over $118 trillion, U.S. GDP was just under $22 trillion, and U.S. broad money supply was about $15 trillion, as reported by the St. Louis Fed with sources to the relevant agencies that collect those statistics. The Fed’s balance sheet ended 2019 a bit over $4 trillion. That’s our starting baseline, rounded.”

(But note $75 trillion in aggregate debt too! That’s government, corporate, and household debt altogether.)


“
Almost $11 trillion in U.S. equity wealth was wiped away from the Wilshire 5000 full-cap U.S. equity market from peak to trough in Q1 of 2020, although as of this writing we’ve partially rebounded from those lows.

For every 5% of the $118 trillion in U.S. household net worth that was or will be lost in this crisis from peak to trough, that would be $5.9 trillion in wealth wiped away.

[T]he Fed’s balance sheet is expected by many estimates to expand from $4 trillion to $10 trillion this year, and is already up to $6.7 trillion within two months of the crisis and is still growing at a swift rate. If we reach a $10 trillion balance sheet this year compared to the $4 trillion that the Fed came into the year with, that will be $6 trillion in new capital injected into the economy ...

Would $6 trillion in new capital lead to massive inflation this year, in the face of such a deflationary shock and wealth destruction? Probably not. This money-printing would counteract some of the deflationary shock of so much debt and lost spending and income, but not necessarily spur a lot of new inflation right away, ...

What if the Fed boosts its balance sheet to $15-$20 trillion by the end of next year or the year after, meaning it injects $11-$16 trillion into the system from its starting balance sheet of $4 trillion, particular [sic] if a significant portion of that is to finance crisis-level helicopter checks, extended unemployment benefits and other Main Street expenditures by the government? Well now we’re talking large numbers, and the possibility for intermediate-term inflation is more on the table. Not hyperinflation, but inflation.

It’s the next few years in the future, where we really need to think about broad inflation after so much aggressive policy response and expansion of the money supply.

[T]he bottom 50% of Americans have very little safeguards against total insolvency. Specifically, the bottom 50% of Americans collectively have only 1.5% of the country’s household net worth, which is down from 4% in the 1990s. Their assets and liabilities are nearly equal, resulting in a very low average net worth, ...

So, the combination of the Treasury and the Federal Reserve is injecting a 5% annualized rate of the country’s GDP of new money into the economy in an MMT-like situation right before we found ourselves in this virus crisis.

Going forward, the United States has a structural rising 5% deficit and then some combination of crisis intervention (already projected to be $2.7-$4 trillion or more this year, or 12-18% of GDP) and potential stimulus (infrastructure renewal and continued checks, and so forth going forward in the years ahead) on top of that 5% baseline. After this year with a deficit of 20%+ of GDP, there is a decent probability of several years of fiscal deficits of 10%+ of GDP, and mostly funded by new money from the Federal Reserve. That’s $4+ trillion this year and $2 trillion+ per following year for a while after that in new money injection into the economy.
“


“The biggest variable in the near-term and intermediate-term to monitor for broad consumer price inflation in my view (outside of targeted areas of supply chain disruptions) is the total amount of QE-funded money that makes it to Main Street, meaning to the public, as well as their ability to come out of quarantine and spend it.”

“Outside of food, healthcare, and other essentials which have inflationary catalysts at the moment, the trend is likely to be disinflationary for many discretionary goods and services until a large amount of helicopter-like money ends up on Main Street.”



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