30 May, 2020

Blog

The Corona Depression & Some Economic Data

By Kumar David

Prof. Kumar David

The column today targets readers who may not have time to follow up the economic prospects of different countries over the next 12 to 18 months but would like a short update. I have chosen a few countries that matter to Lanka and tried to get what seems to be the most reliable information. I have also provided a few good URLs. The post-2009 finance-capital dominated global economic structure was unstable and defectively constructed; it is no surprise that COVID-19 blew it completely apart. A Minsky Moment merged seamlessly into an Edward Gibbon storyline.

INDIA

Sachchidanand Shukla estimates in India’s Economic Times that a 30-day lockdown (the current lockdown is 21 days) will cost the Indian economy up to $240 billion in output. His estimate for Financial Year 2020 is a fall of the GDP growth rate to about 2-3% as opposed to previous expectations of 6%.

Separately, Jyoti Pande Lavakare the co-founder of Indian environmental organization Care for Air, says: “I have not seen such blue skies in Delhi in 10 years. It is a silver lining that we can step outside and breathe.”

U.S.A.

Goldman Sachs has revised its coronavirus projections. The firm sees the jobless rate topping out at 15%. accompanied by gross domestic product fall 9% in Q1 2020followed by a stunning 34% plunge in Q2. This would be by far the worst in post-WW2 history. Goldman, whistling in the dark and says GDP will rebound 19% in Q3, the highest on record.

The New York Times says that the U.S. economy cannot withstand corona by itself. Ian Goldin responds on 16 March to questions from readers at  

The U.S. Chamber of Commerce examines near and long-term economic impact:

“The spread of the coronavirus is having significant implications around the globe. We are in uncharted territory when it comes to the economy. We have never shutdown the U.S. economy to the extent it is shuttered now. The uniqueness of the current situation makes economic forecasting little better than fancy guesswork, but that has not stopped some from trying”. It estimates the shutdown will drop U.S. GDP by as much as 40% in Q2 in the worst case – average -12.4%. It echoes Goldman in asserting that “The good news is the economy will bounce back once people return to work and consumers start spending”. It hopes that Q3 and Q4 growth will be large after the dramatic collapse in Q2 and imagines, I believe incorrectly, that recent actions by the Federal Reserve, Congress, and the U.S. Administration will help maximize speed and size of recovery.

EUROPEAN UNION

Economists at Deutsche Bank estimate that the eurozone is in line to suffer an 11.4 per cent GDP contraction in the second quarter of 2020. They think that the recovery — should restrictions begin to fall away in the second half of the year — will be a “gradual” return to pre-crisis times. The pace will be dependent on the degree of “scarring” present in the economy. “We judge this on the basis of the rise in unemployment, which differs country by country depending on structural factors and the success of the policy response to keep businesses afloat and workers in jobs. Even by mid-2021, GDP is still expected to be running 3-4% below pre-virus levels in Italy and Spain.”

For a brief country by country write of how EU countries and the US are trying to cope.

CHINA

China’s business and economic activity slowed dramatically and foreshadows what the rest of the world can expect. Global economic losses could reach up to $2 trillion. As factories and shops reopen, China is over the initial supply side shock. However, the country now faces a double-headed demand shock. Domestic demand is slow due to psychological scars, bankruptcies and job losses.  65% plan to restrain spending habits. Overseas demand is down as other countries face outbreaks. With a fast recovery unlikely China’s GDP will shrink in Q1 2020—the first decline since 1976.

Some China data

Nevertheless, with 60% of the global supply chain in hand and up to 90% of critical products like drugs and personal protective equipment manufacturing under its control, China is positioning itself to take control of the global economy, but it must first get out of the rut.

SRI LANKA

The scenario for 2020 and 2021 is very bad. Imports and exports may be down 50%. Garment factories have closed, the tourism/travel/hotel sector has dried up, 3-wheeler buggers can no longer feed their families, daily paid labourers, masons, carpenters, 3-wheeler guys and small contractors are up shit’s-creek. Even if corona disappears tomorrow how much longer for the SL economy to recover in the context of a collapse of the US and European and Indian economies. Frighteningly long.

While there has been public patience and acceptance so far, now there is growing anger. Especially among daily paid people – labourers, carpenters/masons, small contractors, 3-wheeler guys etc. for all of whose families no-work equals no-eat. Income support and emergency food distribution schemes are non-existent.

Bernie Sanders vindicated

What we are seeing is a Bernie Sanders dream-come-true. All of his arguments are being vindicated by, of all people Donald Trump! The govt has taken over paying salaries, mortgages, student loans and rent/mortgages. Throughout Bernie’s campaign his opponents have raised the question and argued, “Who’s gonna pay for all this??” (Universal healthcare, college education etc). 6.6 million people applied for unemployment benefits after the 1982 record of 695,000 was overwhelmed by the 3.3 million the previous week. Now the economic damage to the capitalist system is immeasurable and the country is shutting down; real estate taxes in default, bank loan default, rents delinquent and stock markets suspended. 

Oh, so there was no money for democratic-socialism but now when capitalism is crashing, finance-capital finds itself disoriented system and Trump is deranged, as if by magic the printing press runs and money appears! Anything to save the system! Trump has delivered proof that “Crazy Bernie” is not crazy. (See Philip Gotthelf’s weekly newsletter for more).

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Latest comments

  • 4
    1

    “What we are seeing is a Bernie Sanders dream-come-true. All of his arguments are being vindicated….”
    A new great admirer of Sanders!
    Four years ago he was as dismissive of Sanders as Trump has been.
    Why is the change of heart?
    No Mrs Clinton in the fray this time? But she is busy with the Democratic Party establishment undermining Sanders.

    • 6
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      SJ,

      Sanders has just dropped out. Any depression from the current crisis will come too late for his views to be recognized.

      But his ideas will gain greater popularity among young people in the years to come. Even 10 years ago, no one would have thought that in this country, with a center-right majority, someone like Sanders would go as far as he has gone. He is in his late 70’s, so it is not realistic for him to come back again in 4 years, but other young and diverse leaders will inherit his platform and his movement will grow.

      Imagine the kids graduating from universities this year, into the depression (or at least a deep recession). They are going to struggle a lot, and lean more and more left. But make no mistake, they want the US to be something like Finland, Denmark or Sweden, not China nor Russia.

      • 1
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        Agnos
        Thanks. But as I said earlier I am not pinning my hopes on Sanders, or for that matter any other candidate.
        The US seems to have got the president it deserved. It can have more of the same. It is not my business to save the US.
        *
        My comment was on Kumar David’s 180 degree turn around on Sanders.
        Are you sure that S has dropped out? The news was that he has halted campaigning.
        *
        The US has to define its own socialist model. There is no old coursework to copy.
        And you should know that China and Russia are not socialist.

        • 0
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          “Are you sure that S has dropped out? The news was that he has halted campaigning. “

          So what is your big point out of it? Karumam!

          Did you read that news completely? Did you read it up to he was telling the reason for halting the campaign? Did you notice that there was a line congratulating Biden?

          By which side you were born first? Head or your tail? Why are your turning into this strange Viyathmaga species of Lankawe?

        • 0
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          SJ,

          “Are you sure that S has dropped out? The news was that he has halted campaigning.”
          He has. He is going to support Biden but is keeping his name on the ballot in order to get as many delegates as possible in the remaining states, so that he can exert some pressure within the party for more progressive policies. But it was intended to console his base, and he wasn’t serious about it; the virus crisis is already doing the work for him in that regard.

          • 0
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            Thanks.
            Many of his ardent supporters feel betrayed.

        • 0
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          ….There is no old coursework to copy…
          There are no drawings to glass sheet as well.

  • 1
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    This comment was removed by a moderator because it didn’t abide by our Comment policy.

    For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

  • 3
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    KD, as I had mentioned before world bodies and international Governments are taking legal action ,rightly so, against China for suppressing and distorting facts. The West is already paying the price as in economic down fall, for blindly believing China, not taking initiation to find real facts and failing to take anticipatory precautions. Lanka being the step child is neither in a position to file claims nor expect any more loans. I am sure, lot of our politicians and public are going to be unhappy but then again this is not Silly Lanka to come up with ridiculous claims and excuses. I am not sure which pain will be more excruciating in need of ICU care, the highly contagious Covid or our bleeding economy which is already on death bed.

    • 5
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      For general amusement:
      “American lawyer Larry Klayman, who has filed a $20 trillion lawsuit against the Chinese government, believes that the US intelligence agencies have evidence to prove beyond doubt that Covid-19 is a biological weapon.” (Article in https://www.sundayguardianlive.com/news/covid-19-biological-weapon-alleges-us-lawyer-sued-china)
      Let us await the evidence, like that on WMD in Iraq.
      *
      For serious thought.
      From the time when the first cases of COVID-19 were identified in Wuhan City, China, in December 2019, WHO has been at the forefront of the country’s containment efforts. The WHO Country Office in China, supported by the Regional Office for the Western Pacific and global headquarters, has provided the Government of China with technical advice on detection, testing, isolation and quarantine measures to support a rapid response to contain the outbreak. (Dr Gauden Galea, WHO Representative in China)
      *
      The First possible case in the US was with early symptoms on January 16. What was the response of the Trump regime?
      Absolute neglect.
      In February Trump claimed that the virus will go away on its own.
      Even after 1000+ cases were reported he was pretty much casual about it.
      *
      The US has to point fingers at others for all its failures and punish those who defy its arrogant commands.
      *
      The spread seems to be getting under control here, far better than in the US.

      • 1
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        ” The First possible case in the US was with early symptoms on January 16. What was the response of the Trump regime?”

        Don’t cover up with your stinky tail. How many of the doctors reported the January infection are gone missing in US now? How did the eye surgeon died? Which are the other countries in the world made their doctors missing for finding out the dangerous infection in their country? When did President Xi Jinping became the General Stalin (Sorry Secretary)
        Just go man! Do something suitable for your knowledge.

        • 0
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          This is the result of a deadly combination of unprescribed medication and the new laxative.
          Mallung, talk to a good you know what kind of doctor.

          • 2
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            Savams,

            You are one of the thousands of Mica records Bathiudeen Muhammad created, to keep repeating without understanding. Unfortunately the old one is repeating on the same even not being able change the track.

            • 0
              2

              M
              you know what kind of doctor

              • 2
                0

                Sure I know the doctor. Not the kind of the one like Bathiudeen crowned you with.

  • 8
    0

    “The column today targets readers who may not have time to follow up the economic prospects of different countries over the next 12 to 18 months but would like a short update.”
    }
    Now who would those Words’ Worths be?
    }
    Those yet to get an Internet connection?

  • 1
    4

    Economic recovery seems to be going to start from printing ink manufacturing industry in China. When US announced about 2T recovery package, I thought it was US only going for that green paper solution. But now Japan wants to go for 1T and Germany too. Many countries, which are remaining are going to follow the suit, once after they put the virus rush aside. Certainly there is going to be some demand for ink and paper. But whatever the damn it is, we see the countries interested in restoring their economy, as it was before Covid -19, probably with some protections too.

    CBSL never said anything truth after Cabal took the chair in Old Royals’ Chitanta government. There is very little meaning in measuring Wildlife Sanctuary’s lies with other countries’ right & wrong financial simulations solutions toward recovery.

    Yesterday Old King lied on many things; especially in when he claimed that in every nook & corner of the country, the talk is bringing back Siri Mao’s home gardening. What a lie! While all pilots in the cockpits of other financial management rooms (CBs or FRs) shout “Nose up”, Old King is shouting “Nose down”. While countries want to invest on their industrial expansion, Old King is preaching to return to feudal agrarian society, to show his inability. It is a clear indication the team is forecasting a country wide famine for an extended period, but seeing an easy excuse of “Coronavirus did it”. The exchange has fallen above Rs 200. This is nothing to do with the Coronavirus. This is about 100% of Cabal management of country’s finance. Lankawe is locked down under China. It wasn’t able to stop China’s travelers during Coronavirus Pandemic, a bad signal for FDI inflow. Now, (after the 2019 election- Not the pandemic) every finance manager in the world knows that if they put a penny in Lankawe, it is China’s dictation going to manage it. So they are not going to have any interest in putting in Lankawe, instead of China.

    • 1
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      Mally, Your comment is really interesting. And covers many sides of the impact of this Corona Virus.

      Even US Prez, and Japanese PM are looking at Home grown food and other essentials for their People , by taking Cue from Aussie PM, who is managing the Corona Control the best among the West, to protect his inhabitants .

      That is mainly because Australia produces enough Food not only for its 25 Million mouths. But enough for 75 Million people.

      In comparison Aussies Colonial mates do not have enough Food to go around her own population with imports coming mainly from European countries. .
      And my Elders tell me our South Asians inhabitants there ,haven’t had any rice for a couple of weeks.

      So Mahinda asking the inhabitants to Go Local & grow their own, I think will be one of the best outcomes of this terrible Pandemic…

      Just like Australia , Srilanka is the best in Asia which has taken up the challenge against the Corona to protect her inhabitant population.

      Only 180 infected considering the thousands of Expats sneaking into the Country without informing their health situation is a great credit to Prez Nandasena’s management of the spread of this dreadful decease ..

      Keeping the deaths at at only 8 is also an admirable effort of our Health Carers , who are doing a fantastic service with the limited resources they have at their disposal….

      It looks like our inhabitants will be free of most of the restrictions after the Sinhala New Year.

      So our inhabitants certainly will not need to invite those semi Retired in Kottee to beg the West for Cash to import more Dhall and Mackeral..-

      Mally I don’t know why my mate NV does not read your comments..

    • 0
      1

      Is it again the unprescribed tablets or is it the laxative?

      • 0
        0

        When Moran without any perspective or imagination train, UOJ graduates cannot be hired even by the dobbies.
        Aringnavan Ariya Veanum Ariyalai Pinadduthaddai. Kazhuthai Ariyuma Karuppu Vasani? (That who has the capacity to tastes only knows Ariyalai Palmyra dried jam. Donkeys doesn’t care of the pious holy feeling comes out of camphor smell)
        Why do you comment in Prof.Kumar Economics essay? There is no medicine prescribed for your Vanthi Pethi. (Cholera)

        • 0
          0

          mallung
          Luckily you cannot spread your condition by internet.
          Go easy on the tablets and/or the laxative.

          • 1
            0

            Savams,

            It is not the luck of an imbecile like you, but it is Siri Mao’s Bathiudeen made sure that I will not inspire any one. But you have infected more than the number that would lent for any cure or reversal, joining hand with Vasanthi in her campaign to bring back the war criminals again to power. Sooner or later you may find a bed next to Pillaiyan, for needed rest. That is the prize SLFP-SLPP has been giving to its Tamils servants from Siri Mao’s time. That time the Tamil world will remember you as the last pillar of the Slap Party Criminals. in the North.

            • 0
              0

              M
              You know what kind of doctor.

  • 1
    0

    Prof David,

    As for the USA, the economic devastation caused by the Coronavirus is unprecedented. At the same, the government’s response in terms of stimulus have also been unprecedented. From US$2 Trillion in stimulus and $250 billion in small business loans that turns into non-payable grants the response from the US govt. will help.

    In Mid March when the Dow hit 18,100, stocks have been grossly oversold and all of the bad news you quoted have been priced in. While the world is shivering in fear and uncertainly, if you have a few million dollars, now it is time to make the move.

    Because finally when the virus has peaked and things get back to normal and when pent up demand for goods and services is unleashed, the market will rise and you will be laughing all the way to the bank.

    A few months back some fella here asked for stock recommendations from me.
    So, here are my top holdings for anyone interested.
    7.78% APPLE INC US0378331005 AAPL
    7.44% UNITEDHEALTH GROUP INC US91324P1021 UNH
    5.77% HOME DEPOT INC/THE US4370761029 HD
    5.27% MCDONALD’S CORP US5801351017 MCD
    5.06% VISA INC US92826C8394 V
    4.98% GOLDMAN SACHS GROUP INC/THE US38141G1040 GS
    4.90% MICROSOFT CORP US5949181045 MSFT
    4.34% 3M CO US88579Y1010 MMM
    4.25% BOEING CO/THE US0970231058 BA
    4.12% JOHNSON & JOHNSON US4781601046 JNJ

    • 0
      0

      You forgot Rajapakse Bros

  • 4
    1

    Divine Karma for greedy capitalism..nothing else .

    • 0
      1

      So, you think Sri Lanka will go unscathed from this?

  • 0
    0

    Dr.KD,

    The GDP drop and growth rates are annualized rates. So if Goldman or someone else says GDP will drop 40% in Q2, in actual terms, it is only 10% for that quarter. Likewise, when they it will grow up by 19% in Q3, the actual growth for the quarter is only 4.75%. When explained that way, those numbers won’t seem outlandish.

  • 0
    0

    Regie, for a change you seems to be talking sense. I am not sure about Boeing , but the rest are solid. SJ, everything said by Trump is not true, likewise many things WHO says right now are on Hindsight. Certain facts are true.China did try to suppress initial findings and booked those doctors for anti party activities. They also kept vital information away from WHO until they could not do so. I totally agree about Trump,s ignorance but at one point when Trump was dwelling on censoring Chinese citizens from affected areas, WHO outright rejected it as unwanted and discriminatory. It is not just US which is after China. EU , UK and many others have joined as in class action suit.I believe in Lanka too one group of lawyers are now going through the legal issues , to file a case.

    • 0
      0

      Chiv,

      I don’t think class actions will have any merit in a court of course unless it’s the Federal court of NY which is renowned for being partial to Americans when foreign entities are sued.

      If class actions can be filed for viruses and negligence that cause contagion, then Native Americans, First Nations of Canada and Aborigines of Australia who were wiped out due to infections from Europe might end up being the new richest nations.

  • 0
    0

    Go… take a leaf from what Dr. Shiva Ayyadurai PhD/MIT has to say.
    Scientific Consensus & Lies / Top-Down Rule / Regulations & Capitalists / Proceedure and parasites/ Truth-Freedom & Health…………..

    Chiv……. Turn that Charge Sheet around……………..Intl. Govts will have to swallow the TRUTH.

  • 0
    0

    Regi, now you seems to be talking sense ???? Agree with your picks and economic assessment, except for Boeing,(tried cutting one too many corners) which I am not sure. SJ, it will not be of amusement when it comes to pay back time. I believe it is going to be class action suite where Europe, UK and others will join US in filing action. A group of Lankan lawyers too are working on legal issues. Yes US made a lot of mistakes but they will pay in their own way. That dosent make China innocent or get away scot-free. At one point Trump was mulling of censoring Chinese from affected areas entering US which was outright rejected by WHO as purposeless and discriminatory. Trump sure will harp on it , to get back at them. Certain facts are true beyond doubt. China did warn initial whistle blowers and tried suppressing facts. China deceived WHO in the early stages until they could not do so. WHO blindly trusting China kept releasing statements undermining the severity and as you said the initial cases were detected in end of December and only in mid March WHO declared it as a pandemic. (after two and a half to three months). Any epidemiologist could have predicted it earlier than WHO. When SARS, Ebola or even Nipah (in India) WHO was aware of the breakout at a very early stage and was throughout involved in management and controlling the infection. How come only when thing happen in China , that the world recognizes it as a pandemic after 75 day, hundreds of death and thousands being infected.

    • 0
      0

      Hello chiv,

      What Boeing did was unthinkable.
      The Honeywell Flight Control system with all safety features was made available for an extra cost. Essentially, buyers were a sold a product with a safety feature missing. Such sales were possible because Boeing had been loosely monitored by the Regulator on certification testing. Such is no longer the case although many had to die before due rigor in certification process was re-established.
      So much for corporate responsibility!!

  • 0
    0

    SJ, you may be right in that, if such case is filed it will be one of its kind and will not be an easy task to prove culpability, leave alone getting compensated.. But then again who would have thought Standard Charted could l drag Lanka to international arbitration and make them pay dearly or the British Nurse who was arrested for offensive dressing/tattoo would file for abuse and win in millions as damages. All I am saying is let who ever approach the courts and China will gets its opportunity to clear its name, from any such misdoing. The purpose of taking China is not just for compensation but to bring the truth about suppressing whistle blowers by intimidation and threats , which otherwise will be buried for good (as in Silly Lanka)

    • 0
      0

      C
      The case itself is based on non-facts.
      The rule is innocent until proven guilty, and there isn’t a shred of evidence for the rubbish of a case that you desperately tried to make much of.
      *
      Meanwhile, you forgot the country that notoriously hounds whistle blowers.
      If any has to pay for pandemics and long sustained virus illnesses, the US will be in big trouble.
      Keep fantasizing if it will help to come to terms with the mess the US government has made of the COVID-19 infection. The US has at last become the world leader in something in the past few centuries after losing out on many!
      *
      Next time you want to strike out at China, find something more intelligent than the kind of stuff Trump comes up with..

  • 0
    0

    Thanks for the article!
    Staggering economic data for USA.
    New unemployment claims are 6.6 million. Unemployment is already above 12%. Latest FED stimulus included buying up junk bonds that led to a rally in equities.
    As I previously pointed out, the FED will keep printing ad infinitum until equity prices stabilise.
    It is a matter of time before cash becomes trash. One positive outcome is that Sri Lankan USD denominated debt will not be as daunting as it looks now. Of course, this changes when Ministers start robbing the country.
    Sri Lanka, a country that was behind only Japan HAD so much going for it until the political class (of all hues) plundered the country.
    I am absolutely disgusted when I hear them talk. It is JR who started the rot and others followed him by selling Sri Lankan assets culminating in the day light robbery by the Central Bank.

  • 0
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    Trump in the White House and Gota in Janadipathi Mandiraya has to be our worst nightmare!

    Whatever happens in China, Europe or North America; Sri Lanka is truly stuffed. The best we can expect in the foreseeable future is for them to throw us a few crumbs.

    President Clueless thinks that the answer to Covid-19 is the 200K+ armed forces. (The same armed forces who couldn’t stop a bunch of terrorists after being told when they were going to bomb us).

    The only people who are going to be OK for sometime are those in the Armed Forces and Government ‘service’.

    Mother’s of Sri Lanka: please promise us that you will not allow your children to join the forces.

  • 0
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    Inadvertently or not Dr. PBJ has done the best thing any secy could have done: he has given the “kaduwa” (sword) that Mako was uncertain to take. He and his team can now help to eliminate the parasites from political landscape asap in consultation with the medics by holding the election.

    . The people are coming to the streets to show their displeasure in the way things are happening while the police is announcing how many people are being locked up each day without much concern or regret. PM Modi came on TV and apologized from the citizens for locking them up. We saw their police beating some unruly people there. But our people never behaved that way. Nobody in SL has said even a semblance of sadness so far.
    People will remember when they go to the polling stations.

  • 0
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    SJ, are you expecting a Thank You note from China,s First Lady. Beware buddy, they only sterilized internal mails. You too seems to have lately joined the stupids with the excuse “they did so we did it theory”.

  • 0
    0

    SJ, I guess in your profession you build some thing and a defect appears all you have to do is quote others defects, as an excuse. But FORTUNATELY for us physicians , we just cant do that. When a patient disabled of negligence and we try quoting others as defence, either patient may not be alive to tell his story or the physician will not be practicing medicine there after. So what USA did is for them to answer or pay. That should not give a get out of jail pass , to others to do the same or worse. Got it.

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