tag:blogger.com,1999:blog-91821332323078087952024-03-19T03:47:24.361-05:00Gonzalo Raffo InfoNewsGonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.comBlogger30640125tag:blogger.com,1999:blog-9182133232307808795.post-72964719948045782742024-03-18T16:18:00.000-05:002024-03-18T16:18:00.137-05:00WHAT´S BEHIND THE U.S. STOCK MARKET DISCONNECT? / PROJECT SYNDICATE<p><b><span style="font-size: x-large;">What’s Behind the US Stock-Market Disconnect?</span></b></p><p><b><i><span style="font-size: large;">Buoyed by the artificial-intelligence boom, the US stock market is breaking records with no apparent end in sight. But given the significant challenges and uncertainties facing the American economy regardless of who occupies the White House in 2025, there is little reason to believe that the current rally can last.</span></i></b></p><p><b>Kenneth Rogoff</b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgijPpIMWks6P4nBJlBB6WQqkExxiYGn8Bw1cM0ctopKRokNFvhZwm-inz5fAXXi6WzAI1A5CL19fSE-nKGRoOK9TWgNd-LTExLGONPqwYbv5AUpH8ZKh1rAYukHkU_F5AzHPTWuzQM4U0_oZRP5z9-pMcNEujh7bVXItyk9bRcSvFK5jD-5uyHM_W8mZxd/s1360/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="680" data-original-width="1360" height="346" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgijPpIMWks6P4nBJlBB6WQqkExxiYGn8Bw1cM0ctopKRokNFvhZwm-inz5fAXXi6WzAI1A5CL19fSE-nKGRoOK9TWgNd-LTExLGONPqwYbv5AUpH8ZKh1rAYukHkU_F5AzHPTWuzQM4U0_oZRP5z9-pMcNEujh7bVXItyk9bRcSvFK5jD-5uyHM_W8mZxd/w665-h346/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="665" /></a></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">CAMBRIDGE – There seems to be a bizarre disconnect between the surging US stock market and the sad state of American politics. </span></b></p><p><b><span style="font-size: medium;">Winston Churchill supposedly quipped, “Americans always do the right thing, after they have tried everything else.” </span></b></p><p><b><span style="font-size: medium;">But in light of the impending rematch between Joe Biden and Donald Trump in this year’s US presidential election, Churchill’s observation needs adjusting: Americans, apparently, do the right thing only after they have tried everything else twice.</span></b></p><p><b><span style="font-size: medium;">What explains this disconnect between the stock market’s buoyancy and the crisis facing American democracy? </span></b></p><p><b><span style="font-size: medium;">The market may simply believe that the president of the United States has limited influence over the domestic economy, at least in the short term. </span></b></p><p><b><span style="font-size: medium;">Or perhaps investors believe that artificial intelligence conquers all.</span></b></p><p><b><span style="font-size: medium;">But this interpretation overlooks the long-term consequences of possible policy decisions such as retreating from free trade (an area where Biden and Trump seem determined to outdo each other), urging the Federal Reserve to shift its focus away from inflation, and continuing on an unsustainable debt trajectory. </span></b></p><p><b><span style="font-size: medium;">When it comes to immigration, a top concern for voters, Trump’s restrictions would impede high-skilled immigration, while Biden’s open-border policy makes little sense.</span></b></p><p><b><span style="font-size: medium;">Alternatively, perhaps investors understand that the US electorate has become so deeply divided that no president is likely to control both houses of Congress for more than a couple of years. </span></b></p><p><b><span style="font-size: medium;">With political gridlock becoming the norm in Washington, the Big Tech firms accounting for a large share of the stock market’s recent gains, owing to an AI boom, are less likely to face anti-monopoly regulation.</span></b></p><p><b><span style="font-size: medium;">To be sure, with Nvidia on track to rival Apple’s market capitalization, Biden has issued a sweeping executive order aimed at “managing the risks” posed by the rise of AI. </span></b></p><p><b><span style="font-size: medium;">But given the administration’s lackluster efforts to rein in the tech industry, it remains unclear how it intends to manage these risks. </span></b></p><p><b><span style="font-size: medium;">Federal Trade Commission Chair Lina Khan, one of the few people trying to revitalize US antitrust policy, has been heavily scrutinized and criticized by the media, and her aggressive approach has produced mixed results.</span></b></p><p><b><span style="font-size: medium;">Meanwhile, the Supreme Court could soon strike down or limit state laws in Texas and Florida that seek to prevent social-media companies from making certain editorial judgments about the posts shared on their platforms. </span></b></p><p><b><span style="font-size: medium;">While most justices seem wary of regulating online content, there is little doubt that unregulated social-media platforms and information echo chambers have exacerbated many of America’s problems, particularly political polarization and the mental-health crisis.</span></b></p><p><b><span style="font-size: medium;">Given that the risks posed by AI far exceed those associated with social media, we must not repeat the same mistake. </span></b></p><p><b><span style="font-size: medium;">While these emerging technologies hold the promise of improving our legal, ethical, economic, and political systems, they could just as easily disrupt them in the absence of regulatory oversight.</span></b></p><p><b><span style="font-size: medium;">The evolution of financial regulation offers valuable insights into how to regulate AI without sacrificing innovation. </span></b></p><p><b><span style="font-size: medium;">Regulators, who tend to lag behind innovators, often struggle to balance efficiency and risk. </span></b></p><p><b><span style="font-size: medium;">Following the 2008 financial crisis, however, regulators managed to implement stringent measures that hampered market efficiency but also enabled banks to withstand the COVID-19 shock and subsequent inflationary pressures.</span></b></p><p><b><span style="font-size: medium;">The current stock-market rally is partly fueled by the expectation that AI will remain unregulated, despite the potential displacement of tens of millions of workers, the threat of political instability, and the distortion of public discourse. </span></b></p><p><b><span style="font-size: medium;">The AI industry could eventually amass enough political power to quash any attempt to regulate it, mirroring the strategies used by banks before the global financial crisis and social-media platforms today. </span></b></p><p><b><span style="font-size: medium;">Essentially, the market is operating under the assumption that AI companies will thrive, regardless of the outcome of the US presidential election.</span></b></p><p><b><span style="font-size: medium;">But a Trump victory would be bad for everyone. </span></b></p><p><b><span style="font-size: medium;">A second Trump term could trigger an escalation in the Sino-American trade war or lead to a US withdrawal from NATO and a subsequent military conflict. </span></b></p><p><b><span style="font-size: medium;">Neither scenario is expected to benefit the domestic economy in the long term. </span></b></p><p><b><span style="font-size: medium;">Trump’s planned 10% tariff on almost all imported goods, which could prompt America’s trading partners to impose tariffs of their own, would undoubtedly make things worse.</span></b></p><p><b><span style="font-size: medium;">Moreover, Russia’s expansionist ambitions will not stop at Ukraine, and European countries will need years to shore up their military and technological capabilities, even if they manage to boost their defense spending to 2% of GDP this year. </span></b></p><p><b><span style="font-size: medium;">Allowing the world’s largest economy to be governed by Trump’s arbitrary and impulsive policies would weaken the institutions that underpin America’s economic strength.</span></b></p><p><b><span style="font-size: medium;">Conversely, the consequences of a Biden victory would be far more predictable, especially if the Democrats hold on to the Senate and take back control of the House of Representatives. </span></b></p><p><b><span style="font-size: medium;">Regrettably, this would likely result in significantly higher interest rates that constrain private demand, coupled with subtle pressures on the Fed to take greater risks with inflation.</span></b></p><p><b><span style="font-size: medium;">But given the challenges and uncertainties facing both the US and global economies, it is difficult to see how the current stock-market boom can last, no matter who wins in November.</span></b></p><p><br /></p><p><b><span style="font-size: medium;"><i>Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly (Princeton University Press, 2011) and author of The Curse of Cash (Princeton University Press, 2016).</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-2220535373378649382024-03-18T04:25:00.000-05:002024-03-18T04:25:00.129-05:00FAILED / CREDIT BUBBLE BULLETIN<p><b><span style="font-size: x-large;">Failed</span></b></p><p><b>Doug Nolan </b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilRcMALdO1yGLbCD13GPR67L64OhISsb2pkmGuNNKzWJFNYTyGsej70hmK6Bd0K2rW4ogHjaeqC8n5COvfJyrd5r6i3doD-KZp7j9L4jC7J_-IyBM2YAKYqNK-e6z6rk1NqJ_b0tlZvYdm3uAGzcSgJYNZtyXrJA_cPm2FkXQHA_tfpXDWAhyphenhyphenn8_CtsXoe/s685/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzcbb.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="153" data-original-width="685" height="132" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilRcMALdO1yGLbCD13GPR67L64OhISsb2pkmGuNNKzWJFNYTyGsej70hmK6Bd0K2rW4ogHjaeqC8n5COvfJyrd5r6i3doD-KZp7j9L4jC7J_-IyBM2YAKYqNK-e6z6rk1NqJ_b0tlZvYdm3uAGzcSgJYNZtyXrJA_cPm2FkXQHA_tfpXDWAhyphenhyphenn8_CtsXoe/w738-h132/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzcbb.png" width="738" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">I often find my thoughts returning to the great German economist, Dr. Kurt Richebacher. </span></b></p><p><b><span style="font-size: medium;">This week, it was his analysis that inflation comes in various forms, with his argument that asset inflation was the most pernicious. </span></b></p><p><b><span style="font-size: medium;">It was such a minority view, seemingly unique. </span></b></p><p><b><span style="font-size: medium;">As he would explain, consumer price inflation is commonly recognized as destructive. </span></b></p><p><b><span style="font-size: medium;">Rising consumer prices will invariably upset the public, business community, politicians, and central bankers. </span></b></p><p><b><span style="font-size: medium;">Sure enough, there was overwhelming support for the Fed’s effort to rein in consumer price pressures.</span></b></p><p><b><span style="font-size: medium;">Meanwhile, asset inflation is universally relished, viewed generally as validation of sound underlying fundamentals. </span></b></p><p><b><span style="font-size: medium;">There is no anti-asset inflation constituency to exert influence over policy. </span></b></p><p><b><span style="font-size: medium;">Especially these days, there is nothing to suggest the Fed would adopt tighter monetary policy to thwart assets inflation, speculation, and Bubbles. </span></b></p><p><b><span style="font-size: medium;">Indeed, at this last cycle stage, it’s assumed that supporting rising market prices is a primary responsibility of the Federal Reserve and global central bank community.</span></b></p><p><b><span style="font-size: medium;">History teaches that the greatest crises unfold after the bursting of major asset and speculative Bubbles. </span></b></p><p><b><span style="font-size: medium;">The bursting mortgage finance Bubble and “great financial crisis” are not yet distant history. </span></b></p><p><b><span style="font-size: medium;">Even greater Credit and financial excess - and resulting deep structural maladjustment - were responsible for the Great Depression.</span></b></p><p><b><span style="font-size: medium;">Another historic asset Bubble calamity is top of mind. </span></b></p><p><b><span style="font-size: medium;">The Bank of Japan (BOJ) meets next Tuesday. </span></b></p><p><b><span style="font-size: medium;">The market has a 56% probability of the BOJ boosting rates above zero, effectively ending the negative rate experiment with the first rate increase since 2007.</span></b></p><p><b><span style="font-size: medium;">Japan’s deep structural issues can be traced directly back to the nation’s spectacular eighties asset Bubble. </span></b></p><p><b><span style="font-size: medium;">As is typically the case, Japanese asset inflation and speculative Bubbles unfolded in a low policy rate environment, with tame consumer price inflation having deluded central bankers into a false sense of prowess and control.</span></b></p><p><b><span style="font-size: medium;">After 25 years of post-Bubble stagnation, the BOJ in 2013, under the leadership of Governor Haruhiko Kuroda (and Ben Bernanke prodding), adopted an experimental policy course of radical inflationism. </span></b></p><p><b><span style="font-size: medium;">Having ended 2012 at 158 TN yen, Bank of Japan assets inflated 379% to 759 TN yen, or $5.162 TN. </span></b></p><p><b><span style="font-size: medium;">If negative rates weren’t enough, the Kuroda BOJ also imposed a yield curve control (YCC) regime that pegged government bond yields to near zero percent.</span></b></p><p><b><span style="font-size: medium;">March 15 – Bloomberg (Erica Yokoyama and Yoshiaki Nohara): </span></b></p><p><b><span style="font-size: medium;"><i>“Japan’s largest union group announced stronger-than-expected annual wage deals Friday, a result that will fuel already intense speculation that the central bank will next week raise interest rates for the first time since 2007. </i></span></b></p><p><b><span style="font-size: medium;"><i>Rengo, a federation of unions, said its members have so far secured deals averaging 5.28%, a figure that far outpaces the initial 3.8% tally from a year ago — itself the biggest in 30 years. </i></span></b></p><p><b><span style="font-size: medium;"><i>Many of Rengo’s affiliated groups had already announced agreements to hike wages by 5% or more.”</i></span></b></p><p><b><span style="font-size: medium;">With 5% wage boost labor contracts and a yen near lows back to 1990, I guess Governor Kazuo Ueda can soon declare mission accomplished. </span></b></p><p><b><span style="font-size: medium;">Meanwhile, the Nikkei 225 Index has inflated about 50% since the end of 2022, trading to record highs for the first time since Bubble year 1989. </span></b></p><p><b><span style="font-size: medium;">Reminiscent of the late eighties, spectacular Tokyo condo price inflation has made housing unaffordable for most. </span></b></p><p><b><span style="font-size: medium;">The IIF places Japanese government debt at 230% of GDP.</span></b></p><p><b><span style="font-size: medium;">It should be incontrovertible that central banks must remain conservative and principled institutions. </span></b></p><p><b><span style="font-size: medium;">Too much is at stake to ever play fast and loose. </span></b></p><p><b><span style="font-size: medium;">Major policy errors are not only destructive, they predictably lead to only more momentous blunders. </span></b></p><p><b><span style="font-size: medium;">Drifts or shifts into experimental and radical policymaking signal something has gone wrong. </span></b></p><p><b><span style="font-size: medium;">I’ve always had issues with the likes of Bernanke, Draghi, and Kuroda. </span></b></p><p><b><span style="font-size: medium;">They never seemed interested in exploring the root causes behind the bursting Bubbles that provoked their radical monetary inflationism.</span></b></p><p><b><span style="font-size: medium;">Today, at manic peak Bubble bullishness, most everyone (if they were familiar with my analysis) would see my efforts as a comical foul’s errand. </span></b></p><p><b><span style="font-size: medium;">Lunatic fringe fear-mongering. </span></b></p><p><b><span style="font-size: medium;">Yet I remain convinced that inflationism is the fool’s errand. </span></b></p><p><b><span style="font-size: medium;">The inflation of non-productive “money” and Credit is definitely the problem, not the solution. </span></b></p><p><b><span style="font-size: medium;">Zero and negative rates, Trillions of “money printing,” and epic market manipulation only inflated history’s greatest Bubbles - while exacerbating epic global structural maladjustment. </span></b></p><p><b><span style="font-size: medium;">The scope of China’s policy failures is coming into clearer focus. </span></b></p><p><b><span style="font-size: medium;">The failure of BOJ’s foray into radical inflationism will be revealed as Japan begins a process of normalization fraught with peril.</span></b></p><p><b><span style="font-size: medium;">Federal Reserve policymaking is these days celebrated as pure brilliance. </span></b></p><p><b><span style="font-size: medium;">They’ve reined in inflation, while asset prices have continued to rise. </span></b></p><p><b><span style="font-size: medium;">Stocks have surged to record highs, home price inflation has been ongoing, and corporate bond returns have been solid. </span></b></p><p><b><span style="font-size: medium;">The Fed has accomplished monetary tightening without imposing costs on labor or the economy. </span></b></p><p><b><span style="font-size: medium;">If it seems too good to be true…</span></b></p><p><b><span style="font-size: medium;">The Fed has failed. </span></b></p><p><b><span style="font-size: medium;">This dreadful reality is masked by a facade forged from loose conditions, asset inflation, and speculative Bubbles. </span></b></p><p><b><span style="font-size: medium;">And this sounds so lunatic fringe for a simple reason: I don’t share today’s universal adoration for loose financial conditions.</span></b></p><p><b><span style="font-size: medium;">Recalling William McChesney Martin’s great insight: “It’s the job of the Federal Reserve to take the punch bowl away before the party gets going.” </span></b></p><p><b><span style="font-size: medium;">There is profound wisdom in this witty quote, one whose resonance has diminished over the decades of central bank largesse. </span></b></p><p><b><span style="font-size: medium;">Get control early or face debilitating societal consequences.</span></b></p><p><b><span style="font-size: medium;">To assert Fed failure today is to beckon for lunatic designation. </span></b></p><p><b><span style="font-size: medium;">But I’ve seen it all before. </span></b></p><p><b><span style="font-size: medium;">Mark my words. </span></b></p><p><b><span style="font-size: medium;">After the Bubble bursts, it will have been apparent to all.</span></b></p><p><b><span style="font-size: medium;">The Fed has Failed thesis can be boiled down to a few key points. </span></b></p><p><b><span style="font-size: medium;">Our markets, financial system, and economy have been at extraordinary risk, acutely susceptible to late-cycle Credit excess, asset inflation, and extreme speculation. </span></b></p><p><b><span style="font-size: medium;">Yet the Fed is negligently impotent. </span></b></p><p><b><span style="font-size: medium;">Instead of “leaning against the wind” with tighter monetary policy, the Federal Reserve signaled a “dovish pivot” to rate cuts with the highly speculative markets in the throes of blowoff excess.</span></b></p><p><b><span style="font-size: medium;">In short, the Fed is today incapable of tightening financial conditions in an environment where tighter conditions are fundamental to monetary stability, sound assets markets, and stable price levels across the economy. </span></b></p><p><b><span style="font-size: medium;">And I am familiar with the arguments against tightening: it would further boost debt service costs and federal debt, harm market function, hit over-levered households and businesses, and unleash recessionary forces.</span></b></p><p><b><span style="font-size: medium;">I certainly appreciate today’s late-cycle fragilities. </span></b></p><p><b><span style="font-size: medium;">Yet they are the inevitable consequence of years of monetary mismanagement. </span></b></p><p><b><span style="font-size: medium;">Perpetual loose conditions progressively subverted market discipline. </span></b></p><p><b><span style="font-size: medium;">Only the bond market could have forced a semblance of fiscal prudence out of Washington. </span></b></p><p><b><span style="font-size: medium;">Instead, years of artificially low rates and massive QE programs accommodated a drift toward reckless deficit spending. </span></b></p><p><b><span style="font-size: medium;">Despite booming markets and solid economic growth, intractable Washington profligacy will ensure a 2024 fiscal deficit of around 7% of GDP.</span></b></p><p><b><span style="font-size: medium;">Tighter conditions would be problematic for highly levered bond markets. </span></b></p><p><b><span style="font-size: medium;">It would be painful for government, business, and household sectors. </span></b></p><p><b><span style="font-size: medium;">It would force much needed and inevitable deleveraging, in highly speculative markets and throughout the real economy. </span></b></p><p><b><span style="font-size: medium;">Unfortunately, pain would be inflicted upon over-levered speculators, business enterprises, and households.</span></b></p><p><b><span style="font-size: medium;">A regretful amount of pain is the comeuppance for years of central bank subversion of market forces. </span></b></p><p><b><span style="font-size: medium;">Importantly, thwarting adjustment in a capitalistic system ensures greater future pain. </span></b></p><p><b><span style="font-size: medium;">As Dr. Richebacher used to say: there is no cure for a Bubble, only not to let it inflate. </span></b></p><p><b><span style="font-size: medium;">Years of accommodating and resuscitating Bubble excess got us to where we are today: a Fed that completely disavows responsibility for containing financial excess and Bubbles.</span></b></p><p><b><span style="font-size: medium;">When I ponder the essence of the Fed’s failure, my thoughts return to analysis of the success of gold standard monetary regimes. </span></b></p><p><b><span style="font-size: medium;">An environment of relative stability was not simply the fruit of pegging the money supply to a somewhat fixed quantity of gold. </span></b></p><p><b><span style="font-size: medium;">Policy makers, bankers and industrialists were both committed to the system and understood that prudent behavior was fundamental to its sustainability.</span></b></p><p><b><span style="font-size: medium;">Importantly, financial operators and speculators understood that policymakers would respond to fledgling excess with the resolve necessary to safeguard the stability of the monetary regime. </span></b></p><p><b><span style="font-size: medium;">This mindset and value system worked to restrain the self-reinforcing dynamics inherent in Credit and speculative excess. </span></b></p><p><b><span style="font-size: medium;">When things began to get overheated, players showed restraint with the knowledge that policymakers were prepared to impose painful tightening measures. </span></b></p><p><b><span style="font-size: medium;">The gold standard system had inherent mechanisms that disincentivized pro-Bubble behavior.</span></b></p><p><b><span style="font-size: medium;">The contemporary central bank policy regime failed specifically because it incentivized myriad excesses. </span></b></p><p><b><span style="font-size: medium;">There is only upside for Washington politicians to spend lavishly and run up massive deficits. </span></b></p><p><b><span style="font-size: medium;">Businesses and households borrow irresponsibly, knowing that the Fed will ensure that the economy quickly recovers from any shock or downturn. </span></b></p><p><b><span style="font-size: medium;">Bankers and lenders lend aggressively, knowing the Fed (and GSEs) have their backs. </span></b></p><p><b><span style="font-size: medium;">Households can speculate in stocks and options, confident that the Fed backstop ensures ever higher equities prices. </span></b></p><p><b><span style="font-size: medium;">And, importantly, the enterprising leveraged speculating community pushes the envelope with leverage and risk-taking, enticed by incredible fortunes for the taking - and confident that the greater the degree of excess (and resulting fragility), the more zealously the Fed (and central bank community) will ensure liquid and inflating markets. </span></b></p><p><b><span style="font-size: medium;">In short, self-reinforcing Credit and speculative excess are powerfully incentivized, ensuring ever deeper financial and economic structural maladjustment.</span></b></p><p><b><span style="font-size: medium;">It's a monetary regime doomed to fail. </span></b></p><p><b><span style="font-size: medium;">That policymakers resorted over the years to zero/negative rates, Trillions of “printing,” and egregious market interventions is at the heart of why my world view diverges so diametrically from others.</span></b></p><p><b><span style="font-size: medium;">Two-year yields jumped 25 basis points this week. </span></b></p><p><b><span style="font-size: medium;">The market closed Friday pricing a 4.61% policy rate at the Fed’s December 18th meeting, up 23 bps on the week. </span></b></p><p><b><span style="font-size: medium;">This implies almost three rate cuts (72bps) by year-end, with the market now seeing only a 61% probability of a cut by the June 12th FOMC meeting.</span></b></p><p><b><span style="font-size: medium;">Basically, the market is aligned with the median three cuts signaled by the December “dot plot.” </span></b></p><p><b><span style="font-size: medium;">A new “Summary of Economic Projections” will be forthcoming Wednesday. </span></b></p><p><b><span style="font-size: medium;">And it’s becoming a habit. </span></b></p><p><b><span style="font-size: medium;">This week saw CPI and PPI reports with higher-than-expected inflation. </span></b></p><p><b><span style="font-size: medium;">One might expect some FOMC members to adjust inflation and growth expectations higher, while reducing the number of projected 2024 cuts.</span></b></p><p><b><span style="font-size: medium;">March 11 – Reuters (Lewis Jackson and Stella Qiu): </span></b></p><p><b><span style="font-size: medium;"><i>“JPMorgan… CEO Jamie Dimon… urged the Federal Reserve to wait until after June before cutting interest rates, arguing the central bank needs to shore up its inflation-fighting credibility. </i></span></b></p><p><b><span style="font-size: medium;"><i>‘I think they have to be data-dependent. </i></span></b></p><p><b><span style="font-size: medium;"><i>If I were them, I would wait,’ Dimon said… ‘You can always cut it quickly and dramatically. </i></span></b></p><p><b><span style="font-size: medium;"><i>Their credibility is a little bit at stake here. </i></span></b></p><p><b><span style="font-size: medium;"><i>I would even wait past June and let it all sort it out.’ </i></span></b></p><p><b><span style="font-size: medium;"><i>Dimon said the U.S. economy was doing so well it could almost be characterised as a boom, but cautioned against the wholesale embrace of the soft landing narrative by markets… </i></span></b></p><p><b><span style="font-size: medium;"><i>Dimon said the surge in debt and equity markets since late 2023 had some bubble-like characteristics and linked it in part to the legacy of the pandemic-era fiscal and monetary stimulus, which was ‘still in the system, you can’t say that they’re gone’.”</i></span></b></p><p><b><span style="font-size: medium;">March 12 – Bloomberg (Katherine Doherty): </span></b></p><p><b><span style="font-size: medium;"><i>“Citadel founder Ken Griffin said the Federal Reserve should move slowly in lowering interest rates to avoid the possibility of having to reverse course later. </i></span></b></p><p><b><span style="font-size: medium;"><i>‘Pausing and then changing direction back toward higher rates quickly, that would, in my opinion, be the most devastating course of action to pursue,’ Griffin said… at the Futures Industry Association conference... </i></span></b></p><p><b><span style="font-size: medium;"><i>‘So I think they’re going to be a bit slower than people were expecting.’”</i></span></b></p><p><b><span style="font-size: medium;">We’ll pay close attention to Jamie Dimon and Ken Griffin. </span></b></p><p><b><span style="font-size: medium;">They are two of this extraordinary era’s preeminent financial operators, successfully operating their financial alchemy from the most advantageous of catbird seats. </span></b></p><p><b><span style="font-size: medium;">I suspect they’re concerned that things could become unhinged with rate cuts. </span></b></p><p><b><span style="font-size: medium;">The Fed’s credibility is at stake.</span></b></p><p><b><span style="font-size: medium;">Powell’s press conference should be interesting. </span></b></p><p><b><span style="font-size: medium;">It would be appropriate for “Balanced Powell” to rectify his recent dovish lean. </span></b></p><p><b><span style="font-size: medium;">Stocks and bonds appear increasingly vulnerable. </span></b></p><p><b><span style="font-size: medium;">The holes in the bullish narrative are increasingly difficult to deny. </span></b></p><p><b><span style="font-size: medium;">Curious to see commodities start to perk up. </span></b></p><p><b><span style="font-size: medium;">And didn’t Nasdaq trade to highs around the March 2000 quarterly options expiration, a record high that held for 15 years.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-44670094272214866022024-03-18T04:19:00.001-05:002024-03-18T04:19:00.127-05:00OIL´S ENDGAME COULD BE HIGHLY DISRUPTIVE / THE ECONOMIST<p><b><span style="font-size: medium;">Crude awakenings</span></b></p><p><b><span style="font-size: x-large;">Oil’s endgame could be highly disruptive</span></b></p><p><b><i><span style="font-size: large;">The oil shocks of the future will be driven by demand, not supply</span></i></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5qdrtxP-oyMRzS5xAjTnseDRXSLZOXzEaoVwiMgx2fJHmFGN0884uOi2eGafiWPDLAEeiqlzuGdyFdzOgih7zwlg2_3QuxctMnXLxQrhyRTZ38EU7lT6SFebY0ekqPP44ekd3Ii2zHGDWaLp7Q5f80w1VyxwtQIGzWY_wYOR6rb-iqwv5mSHMAnLp_uxd/s1280/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="1280" height="358" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5qdrtxP-oyMRzS5xAjTnseDRXSLZOXzEaoVwiMgx2fJHmFGN0884uOi2eGafiWPDLAEeiqlzuGdyFdzOgih7zwlg2_3QuxctMnXLxQrhyRTZ38EU7lT6SFebY0ekqPP44ekd3Ii2zHGDWaLp7Q5f80w1VyxwtQIGzWY_wYOR6rb-iqwv5mSHMAnLp_uxd/w672-h358/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="672" /></a></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">For decades, the biggest fears about oil centred on its supply. </span></b></p><p><b><span style="font-size: medium;">The lesson was first learnt half a century ago, when the Arab members of opec banned exports to America and other supporters of Israel in the Arab-Israeli war. </span></b></p><p><b><span style="font-size: medium;">Today you might think that the link between energy and geopolitics has been mercifully severed. </span></b></p><p><b><span style="font-size: medium;">Even as war has returned to the Middle East and Russia’s invasion of Ukraine has made it a pariah to the West, oil markets have been largely quiescent. </span></b></p><p><b><span style="font-size: medium;">In fact, however, a new phase is beginning—one in which oil demand, not supply, will be the primary influence on energy markets. </span></b></p><p><b><span style="font-size: medium;">This shift will bring with it profound geopolitical consequences.</span></b></p><p><b><span style="font-size: medium;">Governments everywhere are designing policies to reduce the demand for oil and boost alternative sources of energy, as they seek to fight climate change. </span></b></p><p><b><span style="font-size: medium;">Technologies such as those behind electric vehicles are only becoming cheaper and more advanced. </span></b></p><p><b><span style="font-size: medium;">As our special report argues this week, the coming peak and subsequent decline of global demand for oil will determine prices and production over the decades to come.</span></b></p><p><b><span style="font-size: medium;">Perversely, this shift will grant some producers more market power. </span></b></p><p><b><span style="font-size: medium;">The biggest, least carbon-intensive and cheapest reserves of petroleum by far are found in Saudi Arabia and its immediate OPEC neighbours in the Persian Gulf. </span></b></p><p><b><span style="font-size: medium;">As the market for oil shrinks, their share of production will soar. </span></b></p><p><b><span style="font-size: medium;">Depending on the pace of the energy transition, this cabal could command a market share of half or even two-thirds of global output by 2050, according to bp, an oil firm, compared with less than 40% today. </span></b></p><p><b><span style="font-size: medium;">Already places such as Kuwait, Saudi Arabia and the United Arab Emirates are home to some of the world’s largest sovereign wealth funds and are busily deploying capital and influence in their neighbourhood and beyond. </span></b></p><p><b><span style="font-size: medium;">Their piles of capital, and their desire to project their strength abroad, will only intensify.</span></b></p><p><b><span style="font-size: medium;">Meanwhile, other oil powers will be left behind. </span></b></p><p><b><span style="font-size: medium;">Today national oil firms in several dozen countries in Africa, Latin America and Asia are pumping oil that is higher-cost and more carbon-intensive than the oil in the Gulf. </span></b></p><p><b><span style="font-size: medium;">By one measure, some $1.2trn of the $1.8trn in investments planned for the next decade by national oil companies could turn out to be unprofitable if countries make good on their official pledges to achieve net-zero emissions by 2050. </span></b></p><p><b><span style="font-size: medium;">Nigeria’s nnpc, Mexico’s Pemex and Indonesia’s Pertamina are among those most at risk of being stuck with stranded assets. </span></b></p><p><b><span style="font-size: medium;">Because governments in many producing countries are often unduly reliant on commodity revenues, the failure of some national oil firms could lead to debt crises, bankruptcies and a decade of lost development. </span></b></p><p><b><span style="font-size: medium;">This would be a mirror-image of the debt crises that engulfed Latin America in the 1980s, after rising oil prices widened importing countries’ trade deficits and crippled their ability to repay their debts.</span></b></p><p><b><span style="font-size: medium;">How to manage this disruption? </span></b></p><p><b><span style="font-size: medium;">Speeding up the energy transition is necessary to tackle climate change, but the faster the transition, the worse the concentration of market power, and the greater the shock to high-cost producers. </span></b></p><p><b><span style="font-size: medium;">In the meantime coping mechanisms such as governments’ strategic petroleum reserves could help to reduce volatility for oil consumers. </span></b></p><p><b><span style="font-size: medium;">These should be expanded to include the big developing countries in Asia and Africa, which will soon surpass China to become the biggest contributors to oil demand growth. </span></b></p><p><b><span style="font-size: medium;">The International Energy Agency, an official body created in the wake of the first oil shock, already co-ordinates strategic stocks kept by advanced economies. </span></b></p><p><b><span style="font-size: medium;">Its new negotiations with India should be expanded to include other big emerging economies, too.</span></b></p><p><b><span style="font-size: large;">Crude awakenings</span></b></p><p><b><span style="font-size: medium;">For the unlucky producers, meanwhile, the priority must be to diversify while oil prices are relatively high and demand still strong. </span></b></p><p><b><span style="font-size: medium;">A few, ranging from Colombia’s Ecopetrol to Malaysia’s Petronas, are already spending a hefty share of their capital budgets on low-carbon technologies including renewables, hydrogen and carbon capture that could provide a hedge against an oil collapse. </span></b></p><p><b><span style="font-size: medium;">On average, however, national oil firms allocate barely 5% of their capital spending towards diversification; the West’s oil majors, by contrast, spend 15%. </span></b></p><p><b><span style="font-size: medium;">Governments, too, must seek to ensure that economies can diversify away from oil, by setting business-friendly rules and spending on things like infrastructure and education, to allow private enterprise to thrive. </span></b></p><p><b><span style="font-size: medium;">Even so, some countries may nonetheless eventually require bail-outs, putting multilateral institutions under further strain. </span></b></p><p><b><span style="font-size: medium;">The supply-led oil shocks of the past half-century were a frequent source of geopolitical tumult. </span></b></p><p><b><span style="font-size: medium;">Unless the coming transition is approached with more foresight, the next-half century will be no less fraught.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-3628483150631122402024-03-18T04:19:00.000-05:002024-03-18T04:19:00.127-05:00THE RADICAL CHANGES COMING TO THE WORLD´S BIGGEST BOND MARKET / THE FINANCIAL TIMES BIG READ<p><b><span style="font-size: x-large;">The radical changes coming to the world’s biggest bond market</span></b></p><p><b><i><span style="font-size: large;">America’s regulators say new rules will help maintain the dominance of US Treasuries, but others fear higher costs and lower liquidity</span></i></b></p><p><b>Kate Duguid in New York, Nikou Asgari and Costas Mourselas in London</b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiL_v5MGtuqiboGX7-KIYTWSrvgMbiAJMTtTWRRnviYVyHR0zME-4y9WGcZTYEC1IsyfDDfT9ZF-JseVtcdx6V_k7-3bvmsK4wjf9yRSg9QDdUslF_XLem9ePUXhyN_ZJkpTUmuFcKpdef-bYrsL3HiOcuyi0SHtV3RlG_ir3SnyzBmXLjFw-xt0PHrTM_0" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="813" data-original-width="2440" height="296" src="https://blogger.googleusercontent.com/img/a/AVvXsEiL_v5MGtuqiboGX7-KIYTWSrvgMbiAJMTtTWRRnviYVyHR0zME-4y9WGcZTYEC1IsyfDDfT9ZF-JseVtcdx6V_k7-3bvmsK4wjf9yRSg9QDdUslF_XLem9ePUXhyN_ZJkpTUmuFcKpdef-bYrsL3HiOcuyi0SHtV3RlG_ir3SnyzBmXLjFw-xt0PHrTM_0=w654-h296" width="654" /></a><b style="text-align: left;"><i>© FT montage/Getty Images</i></b></div><p></p><p><br /></p><p><b><span style="font-size: medium;">One of Bill Clinton’s top advisers memorably said that he would like to be reincarnated as the bond market “because you can intimidate everyone”. </span></b></p><p><b><span style="font-size: medium;">But in recent years, the most powerful fixed-income market of all has been scaring its own regulators.</span></b></p><p><b><span style="font-size: medium;">The $26.5tn US Treasury market is the biggest and most liquid in the world and Treasury securities are held by investors and central banks across the globe. </span></b></p><p><b><span style="font-size: medium;">The market is the mechanism by which the Federal Reserve executes monetary policy and through which the US government borrows. </span></b></p><p><b><span style="font-size: medium;">Yields on Treasuries are the risk-free rate against which assets around the world are priced.</span></b></p><p><b><span style="font-size: medium;">But growing problems could threaten the asset’s supremacy in the financial world. </span></b></p><p><b><span style="font-size: medium;">On three occasions in the past decade, crises have precipitated a dysfunction in the market. </span></b></p><p><b><span style="font-size: medium;">The 2019 repo crisis and the March 2020 market meltdown required emergency intervention from the Federal Reserve and the New York Fed. </span></b></p><p><b><span style="font-size: medium;">Such strains have pushed the five main government entities that regulate the Treasury market to discuss big changes. </span></b></p><p><b><span style="font-size: medium;">The Federal Reserve has enacted programmes to reduce the chances of another repo crisis while the Treasury department has made changes to increase market transparency. </span></b></p><p><b><span style="font-size: medium;">But no other major reforms to the market’s structure had been passed until the Securities and Exchange Commission recently finalised two rules that promise to reshape the market.</span></b></p><p><b><span style="font-size: medium;">“The US Treasury market is . . . a really important feature to promoting the dollar’s continued leadership around the globe,” Gary Gensler, the chair of the SEC and the architect of the reforms, tells the FT.</span></b></p><p><b><span style="font-size: medium;">“Having that reliable, safe and readily accessible and tradeable asset is critical. </span></b></p><p><b><span style="font-size: medium;">It was critical to the British in their time as the leaders in currency. </span></b></p><p><b><span style="font-size: medium;">It was critical to the Dutch before that. </span></b></p><p><b><span style="font-size: medium;">This is an important piece of what the Fed, the Treasury and we are doing here,” Gensler adds.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFFbL10SbP0kriVk_Bv0CqEamHEYLC9f-X-vHuZlDT9nUEXIUHcPqUCGV8FDxM5zpA4ti2pjkmMnAk8NmY3_WfzqgktSc-LiNzkTOElx9m0gBG0mcuOc0bKxxdVdCDim3jz4_acUQF2v3owJVMKihKTmFT0SLkQAZdXRrWKN8vOEWI0nvaTxspDK0mtEuB/s1159/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="896" data-original-width="1159" height="516" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFFbL10SbP0kriVk_Bv0CqEamHEYLC9f-X-vHuZlDT9nUEXIUHcPqUCGV8FDxM5zpA4ti2pjkmMnAk8NmY3_WfzqgktSc-LiNzkTOElx9m0gBG0mcuOc0bKxxdVdCDim3jz4_acUQF2v3owJVMKihKTmFT0SLkQAZdXRrWKN8vOEWI0nvaTxspDK0mtEuB/w655-h516/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="655" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">The most consequential of the rules, passed in December, will remodel the Treasury market’s plumbing by forcing more trades through a clearing house. </span></b></p><p><b><span style="font-size: medium;">Having a third party behind every deal promises greater oversight and protection for investors and ensures that trades are backed by cash. </span></b></p><p><b><span style="font-size: medium;">This collateral aims to prevent cascading defaults during a crisis.</span></b></p><p><b><span style="font-size: medium;">Kevin McPartland, head of market structure at Coalition Greenwich, says the central clearing proposal was “definitely a monumental change for the Treasury market”, adding that enacting it will be a “big accomplishment” for the SEC.</span></b></p><p><b><span style="font-size: medium;">In February the SEC passed its so-called dealer rule, which will bring high-speed traders and potentially some hedge funds under regulatory scrutiny. </span></b></p><p><b><span style="font-size: medium;">“All of these developments are significant steps to make the Treasury market more resilient and ensure it remains the deepest and most liquid market in the world,” says Josh Frost, assistant secretary for financial markets at the Treasury department.</span></b></p><p><b><span style="font-size: medium;">Nate Wuerffel, head of market structure at BNY Mellon and a former head of domestic markets at the New York Fed, says that if the reforms are well executed, “we could be in a world where 10 years from now the Treasury market is even more efficient and liquid than it is today”.</span></b></p><p><b><span style="font-size: medium;">Critics argue that the new rules will impose additional costs, reduce trading volume and concentrate risk in a central clearing house. </span></b></p><p><b><span style="font-size: medium;">How exactly the change will be enacted, who will benefit and whether it will bring a host of secondary problems is still unclear.</span></b></p><p><b><span style="font-size: medium;">“If everyone who is subject to the mandate has a workable clearing solution that doesn’t limit who they can trade with or add significant costs that change the economics of trading and reduce liquidity, then it’ll probably be fine,” says Graham Harper, head of public policy and market structure at trading firm DRW.</span></b></p><p><b><span style="font-size: medium;">“But those are big ‘ifs’ and if they’re not solved, it could have serious negative ramifications for the market.”</span></b></p><p><b><span style="font-size: medium;">Clearing houses are a low-profile but vital piece of financial market plumbing. </span></b></p><p><b><span style="font-size: medium;">They stand in the middle of a trade, between a buyer and seller, and take collateral from both parties to help guarantee they will deliver the cash or securities they owe. </span></b></p><p><b><span style="font-size: medium;">Without a central clearing house, if a bank or big hedge fund fails, the traders that have transacted with them have little recourse to recover their assets. </span></b></p><p><b><span style="font-size: medium;">The new rule will mandate that from December 2025, all purchase or sale trades of Treasuries with broker-dealers or interdealer brokers must be routed through a clearing house, while most repo trades must be cleared from June 2026.</span></b></p><p><b><span style="font-size: medium;">Repo trades entail traders borrowing money using their Treasury holdings as collateral. </span></b></p><p><b><span style="font-size: medium;">They give traders access to cash at short notice without having to liquidate their holdings outright. </span></b></p><p><b><span style="font-size: medium;">The outstanding US repo trades held by primary dealers were worth $5.7tn in January, according to data from the Securities Industry and Financial Markets Association.</span></b></p><p><b><span style="font-size: medium;">Central clearing is intended to protect investors during crises like those that have affected the market in recent years. </span></b></p><p><b><span style="font-size: medium;">It could also help in the event of a cyber attack on a major market player; the FT reported last year that a hack of the financial services arm of China’s biggest bank, ICBC, affected trading in Treasuries and raised concerns that traders might not receive the bonds they were owed.</span></b></p><p><b><span style="font-size: medium;">But market participants say this monumental change to the Treasury market must be managed well, or it risks damaging liquidity and even operational security. </span></b></p><p><b><span style="font-size: medium;">They will have to set up new systems in order to be able to clear their trades. </span></b></p><p><b><span style="font-size: medium;">“There are lots of operational hurdles, technological and frankly legal burdens that our members are going to have to undertake,” says Nhan Nguyen, assistant general counsel at the Investment Company Institute, which represents investment funds. </span></b></p><p><b><span style="font-size: medium;">He adds that there is “a bit of a feeling of the cart before the horse”, about the rule.</span></b></p><p><b><span style="font-size: medium;">Many traders’ costs will increase, as they will need to post cash as collateral to protect against defaults and pay fees to the clearing house. </span></b></p><p><b><span style="font-size: medium;">Banks may shield their largest clients from some of these costs, but one way or another they will filter through. </span></b></p><p><b><span style="font-size: medium;">The requirement to post collateral can also be viewed as a cap on leverage. </span></b></p><p><b><span style="font-size: medium;">Currently, over 70 per cent of non-cleared Treasury repo trades with just two parties occur with zero margin to cover the risk of the trade, according to the Office of Financial Research.</span></b></p><p><b><span style="font-size: medium;">This means that if a bank lends cash to a hedge fund in exchange for temporary ownership of a Treasury bond, and the value of the bond decreases just as the hedge fund defaults on the trade, the bank loses the cash it has lent and takes a loss when it sells the collateral.</span></b></p><p><b><span style="font-size: medium;"></span></b></p><div class="separator" style="clear: both; text-align: center;"><b><span style="font-size: medium;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhz151mD_VmfB9BE3-wN1ZUszHbdvL1ntyBlyGaA68LmNUfxHySLq8A58d3NGRDfzIxj6w8WU8KzmJkhwnTJmfdndBqjqIp-rcQLwcSinV9zjmkBG9ebiZDhrcnjTfSKIXi5AhFsmOCXu3k9NTZSDzGfT4nU-wxCpMnzZ5kAOmkDMY788xWVECtsAjBGWVS" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="770" data-original-width="1186" height="522" src="https://blogger.googleusercontent.com/img/a/AVvXsEhz151mD_VmfB9BE3-wN1ZUszHbdvL1ntyBlyGaA68LmNUfxHySLq8A58d3NGRDfzIxj6w8WU8KzmJkhwnTJmfdndBqjqIp-rcQLwcSinV9zjmkBG9ebiZDhrcnjTfSKIXi5AhFsmOCXu3k9NTZSDzGfT4nU-wxCpMnzZ5kAOmkDMY788xWVECtsAjBGWVS=w653-h522" width="653" /></a></span></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">Introducing some cash margin into repo trades will help protect banks and other counterparties who lend in this way, but reduces the amounts hedge funds can borrow.</span></b></p><p><b><span style="font-size: medium;">“The cost of that risk management will get embedded in the . . . price at which the market trades and the liquidity of the market,” says BNY Mellon’s Wuerffel. </span></b></p><p><b><span style="font-size: medium;">“And it will mean that those costs are slightly higher and liquidity is slightly lower in normal times, in order to create the capital and the risk management systems that are necessary in times of stress.”</span></b></p><p><b><span style="font-size: medium;">This will affect strategies such as the controversial basis trade, where hedge funds bet on the price differential between Treasury futures and cash Treasuries narrowing using borrowed money. </span></b></p><p><b><span style="font-size: medium;">The leverage deployed can be enormous — in some cases more than 100 times — and regulators fret that it could result in a flash crash in prices if multiple hedge funds were forced to close out their positions simultaneously. </span></b></p><p><b><span style="font-size: medium;">In the final central clearing rule, the SEC flagged worries over hedge fund leverage in the market and how it could impact their banking counterparties if these bets go wrong. </span></b></p><p><b><span style="font-size: medium;">An executive in prime brokerage at a large US bank says he is relieved margin will now be baked into every trade as without a de facto limit on leverage, banks can only reduce their risk profile by forsaking business. </span></b></p><p><b><span style="font-size: medium;">“It’s very hard to move away from [zero margin] unilaterally,” the executive says.</span></b></p><p><b><span style="font-size: medium;">Regulators hope that by making markets safer, traders will transact with greater confidence, generating additional interest in the Treasury market and improving liquidity. </span></b></p><p><b><span style="font-size: medium;">Cleared trades backed by collateral would also be lighter on a bank’s balance sheet, theoretically lowering the cost for banks to facilitate this kind of business.</span></b></p><p><b><span style="font-size: medium;">While introducing a central counterparty to guarantee trading brings lots of benefits, including efficiency and reliability, it also introduces a huge single point of potential failure.</span></b></p><p><b><span style="font-size: medium;">Clearing houses might help contain the effects of a cyber attack on a market participant, but if the clearer itself is targeted it could bring the Treasury market to a standstill. </span></b></p><p><b><span style="font-size: medium;">The main body for clearing Treasury trades is the Fixed Income Clearing Corporation. </span></b></p><p><b><span style="font-size: medium;">But currently just 13 per cent of cash Treasury trades pass through it, according to the Treasury Market Practices Group, while 19 per cent involve one side of the trade being centrally cleared and the other bilaterally cleared. </span></b></p><p><b><span style="font-size: medium;">Only 20 per cent of repo transactions are cleared through the FICC, according to the Federal Reserve. </span></b></p><p><b><span style="font-size: medium;">Mandatory central clearing will push trillions of dollars worth of daily trades through the FICC, which is owned by the Depository Trust and Clearing Corporation. </span></b></p><p><b><span style="font-size: medium;">For DTCC, which also clears equities, the move will greatly increase its current business, cementing its position at the heart of the debt market and earning it juicy fees. </span></b></p><p><b><span style="font-size: medium;">“It’s a single point of failure . . . that’s obviously always a concern,” says Nguyen of the Investment Company Institute, who is worried about the FICC’s ability to handle the increased trade flow.</span></b></p><p><b><span style="font-size: medium;">“The biggest obvious winner is the clearing house and at this point it’s only DTCC through FICC,” McPartland adds.</span></b></p><p><b><span style="font-size: medium;">But the FICC is unfazed by the challenge ahead.</span></b></p><p><b><span style="font-size: medium;">Laura Kimpel, general manager of the FICC, says the venue is preparing for an “incremental ramp up as opposed to a massive transformation of what we do today”.</span></b></p><p><b><span style="font-size: medium;">The clearing house is scaling up its systems by adding extra hardware and making some processes more streamlined. </span></b></p><p><b><span style="font-size: medium;">Kimpel adds that she recognises the “sacred duty” of the venue to protect the market “and do whatever we can to ensure its smooth functioning”.</span></b></p><p><b><span style="font-size: medium;"></span></b></p><div class="separator" style="clear: both; text-align: center;"><b><span style="font-size: medium;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgYxNXXdki2dGidYGkd-E7tQbgRa_EK2Jetv03T5kob50Nx6HoCzXKL0s45Bxi0R-K3AtG9XZfHT9HR81xWbEaG6jYceGdJMrBzKW2OA5efBTDraotfW4sOn0XJqnSRHkCcnLriPGodCUMQoCaWDt8T_N1wUWRGdVUG-_AyM02iUTO3h-_SkO9PSwN7iRIP" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="774" data-original-width="1160" height="471" src="https://blogger.googleusercontent.com/img/a/AVvXsEgYxNXXdki2dGidYGkd-E7tQbgRa_EK2Jetv03T5kob50Nx6HoCzXKL0s45Bxi0R-K3AtG9XZfHT9HR81xWbEaG6jYceGdJMrBzKW2OA5efBTDraotfW4sOn0XJqnSRHkCcnLriPGodCUMQoCaWDt8T_N1wUWRGdVUG-_AyM02iUTO3h-_SkO9PSwN7iRIP=w654-h471" width="654" /></a></span></b></div><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">The SEC has given the FICC until mid-March to fully flesh out how it will deal with the overhaul and the trillions of dollars of debt trading business set to head its way.</span></b></p><p><b><span style="font-size: medium;">But the FICC’s own dominance may be shortlived. </span></b></p><p><b><span style="font-size: medium;">Many participants expect a fiercely competitive battle to begin for the lucrative business of clearing in such a vast market. </span></b></p><p><b><span style="font-size: medium;">Competition would also help address concerns about the outsized importance of New Jersey-based DTCC in clearing.</span></b></p><p><b><span style="font-size: medium;">“Their role is going to be pivotal until there’s some competition in that space,” says one senior exchange executive. </span></b></p><p><b><span style="font-size: medium;">“All of the equities clear at the NSCC division of DTCC, now they want to be the default utility and win everything in the world of government securities and repo,” the executive adds, leaving the company’s domination of US markets “too great.”</span></b></p><p><b><span style="font-size: medium;">Exchanges such as Chicago’s CME Group and New York Stock Exchange owner Intercontinental Exchange, which both run derivatives clearing houses, are considering entering the fray, according to people familiar with the matter. </span></b></p><p><b><span style="font-size: medium;">ICE is “in active dialogue” about a potential move, one senior exchange executive says, adding that the venue has a platform it “would be able to lever [if they] can do it in the right way”.</span></b></p><p><b><span style="font-size: medium;">CME and ICE declined to comment.</span></b></p><p><b><span style="font-size: medium;">Traders hope that competition will push down costs and reduce the risk of funnelling all deals through one venue. </span></b></p><p><b><span style="font-size: medium;">“Ideally, it wouldn’t fall on just one clearing house,” says DRW’s Harper. </span></b></p><p><b><span style="font-size: medium;">“I think there is a good chance that at least one competing clearing offering could show up between now [and 2025],” he adds.</span></b></p><p><b><span style="font-size: medium;">Gensler says the SEC is “open to competition.”</span></b></p><p><b><span style="font-size: medium;">The SEC’s efforts to introduce central clearing come as the agency faces a slew of legal challenges over some of its other reforms. </span></b></p><p><b><span style="font-size: medium;">It is unclear whether the Treasury market proposals will attract lawsuits in the same way as the rules over private funds and short selling.</span></b></p><p><b><span style="font-size: medium;">The industry has not yet telegraphed any intention to go to court, but many details will not be determined until FICC outlines its own policies next month.</span></b></p><p><b><span style="font-size: medium;">Opposition may be more focused on the SEC’s “dealer rule”. </span></b></p><p><b><span style="font-size: medium;">This will force high-speed trading firms and potentially some hedge funds to register with the agency as dealers, obliging them to be more transparent about their positions and trading activity, hold more capital and join a self-regulatory organisation such as the Financial Industry Regulatory Association.</span></b></p><p><b><span style="font-size: medium;">Bryan Corbett, president of the Managed Funds Association, a hedge fund industry group, said the two rules “will change incentives for private fund ownership and trading of Treasuries — the foundation of the global financial system.”</span></b></p><p><b><span style="font-size: medium;">The rules will change incentives for private fund ownership and trading of Treasuries — the foundation of the global financial system</span></b></p><p><b><span style="font-size: medium;">He described them as “ambiguous” and predicts they will “discourage investment, harm liquidity and market efficiency, while increasing market volatility”.</span></b></p><p><b><span style="font-size: medium;">But Gensler stressed that the dealer rule is “primarily about principal trading firms”, rather than hedge funds.</span></b></p><p><b><span style="font-size: medium;">He noted that the SEC had been challenged on just six of 34 rules adopted during his tenure.</span></b></p><p><b><span style="font-size: medium;">“Now on the other 28, maybe we’ll get a challenge or two,” he says. </span></b></p><p><b><span style="font-size: medium;">“But, we’ve been very conscious and attentive to what is the law and how are the courts are interpreting the law.”</span></b></p><p><b><span style="font-size: medium;">Gensler adds that he feels “very confident” about the specifics of the Treasury market rules, while acknowledging that “part of our democracy is people can go into court and take these in front of a judge”.</span></b></p><p><b><span style="font-size: medium;">“If something gets remanded, we adjust and we pivot and we move forward.”</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-42741881480605918822024-03-18T04:18:00.000-05:002024-03-18T04:18:00.128-05:00SHRINKFLATION 101: THE ECONOMICS OF SMALLER GROCERIES / THE NEW YORK TIMES<p><b><span style="font-size: x-large;">Shrinkflation 101: The Economics of Smaller Groceries</span></b></p><p><b><i><span style="font-size: large;">Have you noticed your grocery products shrinking? Here’s how that gets counted — and what gets missed — in inflation data.</span></i></b></p><p><b>By Jeanna Smialek</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcecPkIFkSCNXUOHuiKBHaJPyeYaFWCihxQEkrp3phMbA0wTieTLmMbBG9pP1WM1oa0GTgXlpr9mUb8m5S63SEX3Eo2pNWu9ZWCAEmebyFNe7ZD6lJXkNFE3y-yLfIcpEpyXVJAX1ge_JxUIWs-qz9Ey_eKaLw2RQG7zaWiro_uIu8MRC69mSffAeKW8zM/s819/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="819" data-original-width="600" height="502" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcecPkIFkSCNXUOHuiKBHaJPyeYaFWCihxQEkrp3phMbA0wTieTLmMbBG9pP1WM1oa0GTgXlpr9mUb8m5S63SEX3Eo2pNWu9ZWCAEmebyFNe7ZD6lJXkNFE3y-yLfIcpEpyXVJAX1ge_JxUIWs-qz9Ey_eKaLw2RQG7zaWiro_uIu8MRC69mSffAeKW8zM/w675-h502/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="675" /></a></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><br /></p><p><b><span style="font-size: medium;">Grocery store shoppers are noticing something amiss. </span></b></p><p><b><span style="font-size: medium;">Air-filled bags of chips. </span></b></p><p><b><span style="font-size: medium;">Shrunken soup cans. </span></b></p><p><b><span style="font-size: medium;">Diminished detergent packages.</span></b></p><p><b><span style="font-size: medium;">Companies are downsizing products without downsizing prices, and consumer posts from Reddit to TikTok to the New York Times comments section drip with indignation at the trend, widely known as “shrinkflation.”</span></b></p><p><b><span style="font-size: medium;">The practice isn’t new. </span></b></p><p><b><span style="font-size: medium;">Sellers have been quietly shrinking products to avoid raising prices for centuries, and experts think it has been an obvious corporate strategy since at least 1988, when Chock Full o’Nuts cut its one-pound coffee canister to 13 ounces and its competitors followed suit.</span></b></p><p><b><span style="font-size: medium;">But outrage today is acute. </span></b></p><p><b><span style="font-size: medium;">President Biden tapped into the angst in a recent video. </span></b></p><p><b><span style="font-size: medium;">(“What makes me the most angry is that ice cream cartons have actually shrunk in size, but not in price,” he lamented.) </span></b></p><p><b><span style="font-size: medium;">Companies themselves are blasting the practice in marketing gimmicks. </span></b></p><p><b><span style="font-size: medium;">One Canadian chain unveiled a growflation pizza. </span></b></p><p><b><span style="font-size: medium;">(“In pizza terms,” the company’s news release quipped, “a larger slice of the pie.”)</span></b></p><p><b><span style="font-size: medium;">But how does shrinkflation work, economically? </span></b></p><p><b><span style="font-size: medium;">Is it happening more often in the United States, and if so, does that mean official data are failing to capture the true extent of inflation? </span></b></p><p><b><span style="font-size: medium;">Below is an explainer of the trend — and what it means for your wallet.</span></b></p><p><b><span style="font-size: large;">Shrinkflation was rampant in 2016.</span></b></p><p><b><span style="font-size: medium;">It might be hard to believe, but shrinkflation appears to be happening less often today than it was a few years ago.</span></b></p><p><b><span style="font-size: medium;">The government adjusts official inflation data to account for product downsizing, and the data collectors who monitor for size adjustments caught fewer instances of shrinking household goods and groceries in 2023 than a few years earlier.</span></b></p><p><b><span style="font-size: medium;">Downsizing was frequent back in 2016, when overall inflation was low. </span></b></p><p><b><span style="font-size: medium;">It became rarer after the start of the pandemic in 2020, and more recently it has begun returning to prepandemic levels, analysts from the Bureau of Labor Statistics said.</span></b></p><p><b><span style="font-size: medium;"> (The economists noted that the set of products being measured changed somewhat over the years, making comparisons across time more a rough approximation than an exact science.)</span></b></p><p><b><span style="font-size: large;">But the magnitude for some products is more extreme now.</span></b></p><p><b><span style="font-size: medium;">Even if downsizing is not happening as often, shrinkflation today is having a big impact in a few key categories, including sweets, detergent and toilet paper.</span></b></p><p><b><span style="font-size: medium;">From 2019 to 2023, shrinkage added about 3.6 percentage points to inflation for products like paper towels and toilet paper, up from 1.2 percentage points from 2015 to 2019. </span></b></p><p><b><span style="font-size: medium;">Shrinkflation has also contributed more heavily to price increases in both candy and cleaning products in recent years.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL8DjlbDk7RUPRUHLYQ6AezkRo6MMna6omFZRq7wypL5TEUCkmD0pyV4ImVmS2Jb0gUOiXonfw0EqSW2FOUFHyAHPFtdg09LWEFux2c5e57oAhRwRTL4EVj6cY-uX9PuovoGWOmuTnnIUcWNMIvhBPk5t-6ZJojMNX69_fJBob5SfVPiOFyqYTMNP0hdoX/s1229/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="658" data-original-width="1229" height="453" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL8DjlbDk7RUPRUHLYQ6AezkRo6MMna6omFZRq7wypL5TEUCkmD0pyV4ImVmS2Jb0gUOiXonfw0EqSW2FOUFHyAHPFtdg09LWEFux2c5e57oAhRwRTL4EVj6cY-uX9PuovoGWOmuTnnIUcWNMIvhBPk5t-6ZJojMNX69_fJBob5SfVPiOFyqYTMNP0hdoX/w649-h453/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.png" width="649" /></a></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">For snacks, shrinking sizes added 2.6 percentage points to inflation, roughly in line with how much they contributed from 2015 to 2019. </span></b></p><p><b><span style="font-size: medium;">The government has not yet released an analysis on how much shrinkflation contributed to overall inflation from 2019 to 2023.</span></b></p><p><b><span style="font-size: large;">While ‘shrinkflation’ gets measured, ‘skimpflation’ does not.</span></b></p><p><b><span style="font-size: medium;">Shrinking itself is captured in official inflation data, but another sneaky force that costs consumers is getting missed in the statistics. </span></b></p><p><b><span style="font-size: medium;">Companies sometimes use cheaper materials to save on costs in a practice some call “skimpflation.” </span></b></p><p><b><span style="font-size: medium;">That is much harder for the government to measure.</span></b></p><p><b><span style="font-size: medium;">If your paper towel roll costs the same but you’re getting fewer sheets — shrinkflation — that shows up clearly as a unit cost increase that is added to official inflation. </span></b></p><p><b><span style="font-size: medium;">If your paper towels are the same size but are suddenly made of worse material — skimpflation — the government does not record that as inflation.</span></b></p><p><b><span style="font-size: medium;">In fact, food and household products broadly are not directly adjusted for quality changes other than size and weight, government statisticians said. </span></b></p><p><b><span style="font-size: medium;">So if your microwave dinner brand starts using vegetable instead of olive oil, or if your formerly resealable package loses its zipper, that won’t show up.</span></b></p><p><b><span style="font-size: large;">Companies do this because it works.</span></b></p><p><b><span style="font-size: medium;">Companies choose to shrink their products rather than charge more for a simple reason: Consumers often pay more attention to prices than sizes.</span></b></p><p><b><span style="font-size: medium;">When quantity goes down, “people might notice, but often, they don’t,” said John Gourville, a professor at Harvard Business School. </span></b></p><p><b><span style="font-size: medium;">“You don’t get sticker shock.”</span></b></p><p><b><span style="font-size: medium;">In one famous example, Dannon used to sell yogurts in larger containers than its competitor Yoplait — eight ounces versus six. Consumers were convinced that Dannon’s yogurt was more expensive, not picking up on the fact that it was simply bigger. </span></b></p><p><b><span style="font-size: medium;">Eventually, Mr. Gourville said, the company caved and shrank its packaging.</span></b></p><p><b><span style="font-size: medium;">“Sales of Dannon’s yogurt, which declined immediately after the size reduction, have since rebounded,” The Times reported in 2003. </span></b></p><p><b><span style="font-size: medium;">“And Dannon is now pocketing a larger profit on every cup of yogurt it sells.”</span></b></p><p><b><span style="font-size: medium;">Not all size changes are created equal. </span></b></p><p><b><span style="font-size: medium;">Some can be surreptitious, like increasing the size of an indentation in the bottom of a jar or shaving the corners from a bar of soap. </span></b></p><p><b><span style="font-size: medium;">Consumers have a particularly difficult time recognizing size changes when they happen along three dimensions, said Nailya Ordabayeva, an associate professor at Dartmouth’s Tuck School of Business who has studied consumer responses.</span></b></p><p><b><span style="font-size: medium;">“The brain is hard-wired to do simpler heuristics,” she explained.</span></b></p><p><b><span style="font-size: medium;">Plus, she noted, consumers might be willing to accept smaller quantities or even prefer them in some cases. </span></b></p><p><b><span style="font-size: medium;">Junk food products have at times shrunk to get down calorie counts, for example.</span></b></p><p><b><span style="font-size: large;">Still, consumers might push back.</span></b></p><p><b><span style="font-size: medium;">When companies are merely looking after their profits — not their consumers — some pricing experts worry that persistent shrinkflation could drive shoppers away.</span></b></p><p><b><span style="font-size: medium;">When raw material costs were climbing and inflation was in the headlines, consumers most likely understood that companies needed to pass some of those increases along. </span></b></p><p><b><span style="font-size: medium;">They may even have preferred smaller products to bigger price tags, several experts said.</span></b></p><p><b><span style="font-size: medium;">But now, overall inflation has been cooling: After peaking at 9.1 percent in July 2022, it had eased to 3.1 percent as of January. </span></b></p><p><b><span style="font-size: medium;">And consumers might be less willing to accept shrinkflation now that firms are facing less severe cost pressures, especially because food company profits have been — and in many cases remain — high.</span></b></p><p><b><span style="font-size: medium;">They may simply feel ripped off.</span></b></p><p><b><span style="font-size: medium;">“I can see consumers becoming more and more aware of the existence of shrinkflation,” said Jun Yao, a marketing lecturer at Macquarie University in Australia who has studied the trend.</span></b></p><p><b><span style="font-size: medium;">And as more chains and online retailers post unit costs, shoppers may be more attuned to size changes, Mr. Yao said, an awareness that could beat back against future shrinkage.</span></b></p><p><b><span style="font-size: medium;">The practice, he said, “can backfire — and damage the brand image.”</span></b></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;"><i>Jeanna Smialek covers the Federal Reserve and the economy for The Times from Washington. </i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-90685250225668576862024-03-17T04:25:00.000-05:002024-03-17T04:25:00.130-05:00IS THERE A WAY OUT OF THE ISRAELI-PALESTINIAN TRAP? / THE FINANCIAL TIMES OP EDIOTRIAL<p><b><span style="font-size: x-large;">Is there a way out of the Israeli-Palestinian trap?</span></b></p><p><b><i><span style="font-size: large;">Both sides are right to fear destruction, but change is not impossible</span></i></b></p><p><b>Yuval Noah Harari </b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgwpdTC9CdtbSBh8TfXC_2hX4kyK-HwHkQfLvvXziPldvNt_h7cxxNOwh4nxmkqxOILaBqzz-FMFD5dV244XxibU1L35uhNeSkz5nJvIrtDvZ7dVHxxH9AmabiQCMIwVvnljvgQAD-pdK9SuF3h4azz3F4YMSMVfBQeN3LYgUE4g0IdkiALLL2l7fFuFMsL" style="font-size: large; margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="787" data-original-width="1400" height="357" src="https://blogger.googleusercontent.com/img/a/AVvXsEgwpdTC9CdtbSBh8TfXC_2hX4kyK-HwHkQfLvvXziPldvNt_h7cxxNOwh4nxmkqxOILaBqzz-FMFD5dV244XxibU1L35uhNeSkz5nJvIrtDvZ7dVHxxH9AmabiQCMIwVvnljvgQAD-pdK9SuF3h4azz3F4YMSMVfBQeN3LYgUE4g0IdkiALLL2l7fFuFMsL=w661-h357" width="661" /></a><b style="text-align: left;"><i>© Ann Kiernan</i></b></b></div><p></p><p><br /></p><p><b><span style="font-size: medium;">The Israeli-Palestinian conflict is fuelled by the mutual horror of destruction. </span></b></p><p><b><span style="font-size: medium;">Each side fears the other wishes to kill or expel it, and terminate its existence as a national collective. </span></b></p><p><b><span style="font-size: medium;">Unfortunately, these are not irrational fears born out of paranoia, but reasonable fears based on recent historical memories and a relatively sound analysis of the other side’s intentions. </span></b></p><p><b><span style="font-size: medium;">The founding event of modern Palestinian identity is the Nakba of 1948, when the nascent state of Israel destroyed the chance of establishing a Palestinian state, and drove about 750,000 Palestinians out from their ancestral homes. </span></b></p><p><b><span style="font-size: medium;">In the following decades, Palestinians experienced repeated massacres and expulsions at the hands of Israelis and other regional powers. </span></b></p><p><b><span style="font-size: medium;">In 1982, for example, between 800 and 3,000 were massacred in the Sabra and Shatila refugee camps by a Lebanese Christian militia, allied with Israel, and in 1991 about 300,000 were expelled from Kuwait.</span></b></p><p><b><span style="font-size: medium;">The Palestinian fear of being killed or displaced is not just the result of such historical memories. </span></b></p><p><b><span style="font-size: medium;">It is an experience accompanying every moment of their lives. </span></b></p><p><b><span style="font-size: medium;">Each and every Palestinian in the occupied Palestinian territories knows that they could any day be killed, imprisoned or driven from their land by Israeli settlers or security forces. </span></b></p><p><b><span style="font-size: medium;">When Palestinians analyse the intentions of Israelis, they conclude that if not for the international community, there is a high probability that Israel will opt to expel most or all of them from the land between the Jordan River and Mediterranean Sea and establish a country only for Jews. </span></b></p><p><b><span style="font-size: medium;">Over the years, numerous Israeli politicians and parties — including Benjamin Netanyahu’s Likud — have expressed hopes of creating “Greater Israel”, with Palestinians dispossessed, expelled or reduced to serf status. </span></b></p><p><b><span style="font-size: medium;">Even at the height of the Oslo peace process in the 1990s, Israel looked askance at the prospect of a viable Palestinian state. </span></b></p><p><b><span style="font-size: medium;">Instead, it continued to expand its settlements in the West Bank, indicating its abiding wish to dispossess Palestinians of every part of the land. </span></b></p><p><b><span style="font-size: medium;">The current war has confirmed Palestinians’ deepest fears. </span></b></p><p><b><span style="font-size: medium;">After the Hamas attack on October 7 2023, calls for the utter destruction of the Gaza Strip and their mass killing and expulsion have become routine in the Israeli media and among some members of Israel’s ruling coalition. </span></b></p><p><b><span style="font-size: medium;">On October 7, the deputy Speaker of parliament, Nissim Vaturi, tweeted “Now we all have one common goal — erasing the Gaza Strip from the face of the earth.” </span></b></p><p><b><span style="font-size: medium;">On November 1, Israel’s minister of heritage, Amichai Eliyahu, posted “The North of the Gaza Strip, more beautiful than ever. </span></b></p><p><b><span style="font-size: medium;">Everything is blown up and flattened, simply a pleasure for the eyes.” </span></b></p><p><b><span style="font-size: medium;">And on November 11, Israel’s minister of agriculture, Avi Dichter, said that “we are now actually rolling out the Gaza Nakba”.</span></b></p><p><b><span style="font-size: medium;">If it wasn’t for Egyptian resistance and international pressure, it is not unreasonable to believe that Israel would have attempted to drive the Palestinian population of the Gaza Strip into the Sinai desert. </span></b></p><p><b><span style="font-size: medium;">As it is, according to Palestinian health officials, Israeli forces have so far killed more than 31,000, including combatants but largely civilians, and have forced more than 85 per cent of the civilian population of the Gaza Strip — almost 2mn people — out of their homes. </span></b></p><p><b><span style="font-size: medium;">Israelis carry their own historical traumas. </span></b></p><p><b><span style="font-size: medium;">The founding event of modern Jewish and Israeli identity is the Holocaust, when the Nazis exterminated about 6mn Jews, and wiped out most of Europe’s Jewish communities. </span></b></p><p><b><span style="font-size: medium;">Then in 1948, the Palestinians and their Arab allies made a concerted effort to annihilate the nascent state of Israel, and to kill or expel all its Jewish inhabitants. </span></b></p><p><b><span style="font-size: medium;">In the wake of their defeat and subsequent Arab defeats in the 1956 and 1967 wars, Arab countries took revenge by destroying their own defenceless Jewish communities. </span></b></p><p><b><span style="font-size: medium;">About 800,000 Jews were driven out of their ancestral homes in countries such as Egypt, Iraq, Syria, Yemen and Libya. </span></b></p><p><b><span style="font-size: medium;">At least half of Israeli Jews are the descendants of these Middle Eastern refugees.</span></b></p><p><b><span style="font-size: medium;">Jewish fears of murder and expulsion are not just the outcome of such historical memories. </span></b></p><p><b><span style="font-size: medium;">They are also lived experiences that constitute part of the daily routines of Israelis. </span></b></p><p><b><span style="font-size: medium;">Each and every Israeli knows that they personally might be murdered or abducted any day by Palestinian or Islamist terrorists, whether in their homes or while travelling anywhere in the world.</span></b></p><p><b><span style="font-size: medium;">When Israelis analyse the intentions of Palestinians, they conclude that if they are ever given the chance, Palestinians will probably kill or expel the 7mn Jews currently living between the Jordan River and Mediterranean Sea. </span></b></p><p><b><span style="font-size: medium;">Palestinian leaders and their allies from Tehran to New York have repeatedly argued that the Jewish presence in the land between the river and the sea is a colonial injustice that sooner or later must be “made right”. </span></b></p><p><b><span style="font-size: medium;">The Israeli wish to remove the Palestinian existential threat poses an existential threat to Palestinians and vice versa</span></b></p><p><b><span style="font-size: medium;">Some may argue that “righting the injustice” doesn’t mean killing or expelling all Israeli Jews, but rather establishing a democratic Palestinian state in which Jews will be welcomed as citizens. </span></b></p><p><b><span style="font-size: medium;">However, Israelis find this extremely difficult to believe, especially given the absence of any lasting Arab democracies and the fate of the Jewish communities in countries like Egypt and Iraq.</span></b></p><p><b><span style="font-size: medium;">Jews arrived on the banks of the Nile and Euphrates at least 1,000 years before the Arabs conquered Egypt and Iraq in the 7th century CE. </span></b></p><p><b><span style="font-size: medium;">No one could argue that the Jewish communities of Cairo or Baghdad were a recent colonialist implant. </span></b></p><p><b><span style="font-size: medium;">Yet after 1948 these communities were totally wiped out. </span></b></p><p><b><span style="font-size: medium;">There are virtually none left in any Arab country, other than the 2,000 Jews of Morocco and the 1,000 of Tunisia. </span></b></p><p><b><span style="font-size: medium;">Considering the recent violent history of Jews and Arabs, what basis is there to believe that Jewish communities will be able to survive under Palestinian rule? </span></b></p><p><b><span style="font-size: medium;">The current war has confirmed Israelis’ deepest fears. </span></b></p><p><b><span style="font-size: medium;">After Israel withdrew from the Gaza Strip, Hamas and other militants turned it into an armed base to attack Israel. </span></b></p><p><b><span style="font-size: medium;">On October 7, Hamas terrorists killed, raped and took hostage more than 1,000 Israeli civilians. </span></b></p><p><b><span style="font-size: medium;">Entire communities were systematically destroyed, and hundreds of thousands of Israelis had to flee their homes. </span></b></p><p><b><span style="font-size: medium;">If any Jews harboured hopes that they could live in a Palestinian state, what happened to Jewish villages such as Be’eri and Kfar Aza and to Nova music festival attendees proved that Jewish communities cannot survive under Palestinian rule for even a single day. </span></b></p><p><b><span style="font-size: medium;">Reactions to the massacre in the Muslim world and elsewhere fed Israeli fears of extermination. </span></b></p><p><b><span style="font-size: medium;">Even before Israel began its bombardment and invasion of Gaza, numerous voices justified and even celebrated the murder and abduction of Israeli civilians as a step towards righting historical injustices. </span></b></p><p><b><span style="font-size: medium;">Every time demonstrators in London or New York chant “From the river to the sea, Palestine will be free”, Israelis conclude that “they really do want to exterminate us”. </span></b></p><p><b><span style="font-size: medium;">Of course, Hamas by itself lacks the military capabilities to defeat and destroy Israel. </span></b></p><p><b><span style="font-size: medium;">But the war has demonstrated that an alliance of powerful regional forces that back it, including Hizbollah, the Houthis and Iran, poses an existential threat to Israel.</span></b></p><p><b><span style="font-size: medium;">It would be wrong to equate the situation of Israelis and Palestinians. </span></b></p><p><b><span style="font-size: medium;">They have different histories, live under different conditions and face different threats. </span></b></p><p><b><span style="font-size: medium;">The point this article makes is only that both have good reasons to believe that the other side wishes to kill or expel all of them. </span></b></p><p><b><span style="font-size: medium;">They consequently see each other not just as run-of-the-mill enemies, but as an existential threat constantly hovering overhead. </span></b></p><p><b><span style="font-size: medium;">Unsurprisingly, both sides wish to remove this. </span></b></p><p><b><span style="font-size: medium;">However, the Israeli wish to remove the Palestinian existential threat poses an existential threat to the Palestinians — and vice versa. </span></b></p><p><b><span style="font-size: medium;">For the only way to completely remove it seems to be to get rid of the other side. </span></b></p><p><b><span style="font-size: medium;">The tragedy of this conflict is that the problem arises not from unjustified paranoia, but rather from a sound analysis of the situation, and from each side knowing only too well its own intentions and fantasies. </span></b></p><p><b><span style="font-size: medium;">When Israelis and Palestinians take a good look at their own dark wishes, they conclude that the other has ample reason to fear and hate them. It is a devilish logic. </span></b></p><p><b><span style="font-size: medium;">Every side says to itself: “Given what we wish to do to them, it makes sense that they will want to get rid of us — which is precisely why we have no choice but to get rid of them first.” </span></b></p><p><b><span style="font-size: medium;">Is there a way out of this trap? </span></b></p><p><b><span style="font-size: medium;">Ideally, each side should give up its fantasy of getting rid of the other. A peaceful solution to the conflict is technically feasible. </span></b></p><p><b><span style="font-size: medium;">There is enough land between the Jordan and Mediterranean to build houses, schools, roads and hospitals for everyone. </span></b></p><p><b><span style="font-size: medium;">But it can be realised only if each side can honestly say that, even if it had unlimited power and zero restrictions, it would not wish to expel the other. </span></b></p><p><b><span style="font-size: medium;">“No matter what injustices they committed against us and what threats they still pose, we nevertheless respect their right to live dignified lives in their country of birth.” </span></b></p><p><b><span style="font-size: medium;">Such a profound change in intentions is bound to manifest itself in action, and eventually ease the fear and hatred, creating space for genuine peace. </span></b></p><p><b><span style="font-size: medium;">We have little control over the intentions of others, but we should be able to change our own minds</span></b></p><p><b><span style="font-size: medium;">Of course, accomplishing such a change is extremely hard. </span></b></p><p><b><span style="font-size: medium;">But it is not impossible. </span></b></p><p><b><span style="font-size: medium;">There are already numerous individuals on both sides who wish well for the other. </span></b></p><p><b><span style="font-size: medium;">If their number increases, eventually it should change collective policies. </span></b></p><p><b><span style="font-size: medium;">There is also one important group in the region that collectively feels a part of both sides, and doesn’t wish to see either disappear: the close to 2mn Arab citizens of Israel, who are usually referred to as either Arab Israelis or Palestinian Israelis.</span></b></p><p><b><span style="font-size: medium;">When Hamas launched its attack, it hoped these Palestinian-Israelis would rise up against their Jewish neighbours. </span></b></p><p><b><span style="font-size: medium;">Many Jews were terrified that this was indeed about to happen. </span></b></p><p><b><span style="font-size: medium;">In fact, on the day of the massacre, numerous Arab citizens rushed to help their Jewish neighbours. Some were even murdered by Hamas for doing so. </span></b></p><p><b><span style="font-size: medium;">For example, Abed al-Rahman Alnasarah of Kuseife was murdered while trying to rescue survivors from the Nova festival, and Awad Darawshe of Iksal was killed while taking care of injured victims. </span></b></p><p><b><span style="font-size: medium;">Every day since, despite hostility from many Jews including government ministers, Arab-Israelis have gone on serving in Israeli institutions from hospitals to government offices. </span></b></p><p><b><span style="font-size: medium;">The two most prominent Palestinian-Israeli politicians, Ayman Odeh of the Hadash party and Mansour Abbas of the Islamist United Arab List party, roundly condemned the massacre and called on all sides to lay down their arms and seek peace. </span></b></p><p><b><span style="font-size: medium;">Jews should know by now that Arab-Israelis do not fantasise about the day when they can finally kill or expel all Jews living between the Jordan and the Mediterranean. </span></b></p><p><b><span style="font-size: medium;">No matter how hard it is for the rest of us to change our intentions, the good news is that this is something each side — even each person — is capable of achieving by themselves. </span></b></p><p><b><span style="font-size: medium;">We have little control over the intentions of others, but we should be able to change our own minds. </span></b></p><p><b><span style="font-size: medium;">Even readers who are neither Israeli nor Palestinian can contemplate whether they wish well for both sides, or whether they cherish the hope that one of these groups would simply disappear from the face of the Earth. </span></b></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;"><i>The writer is a historian, philosopher and author</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-52634372041610632562024-03-17T04:19:00.000-05:002024-03-17T04:19:00.141-05:00WHEN TENSIONS ARE HIGH, POLITICIANS CANNOT AFFORD TO STOKE THE FLAMES / THE FINANCIAL TIMES OP EDITORIAL<p><b><span style="font-size: x-large;">When tensions are high, politicians cannot afford to stoke the flames</span></b></p><p><b><i><span style="font-size: large;">The posturing, the fantasies, the claim and counterclaim serve only to muddle when what is needed is clarity</span></i></b></p><p><b>Camilla Cavendish</b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8jBPhMmbCtgA9QkOfN11-qu2hMFE4Htwh_7UVW7PigvZq3ZitOiBqDba2ha1E7BPh-nVAqOjfmuFPnJ30Jr8KXnlUffQy2QXxovOEP_EAJ9BEqDyLsg2tj3MwQaAb4i1O27q5C_L7N17G6KRduhlEOYF-onLb1QcoeKs_Ic8Rn7cWFgj_i6XDK6sjshV0/s700/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="394" data-original-width="700" height="372" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8jBPhMmbCtgA9QkOfN11-qu2hMFE4Htwh_7UVW7PigvZq3ZitOiBqDba2ha1E7BPh-nVAqOjfmuFPnJ30Jr8KXnlUffQy2QXxovOEP_EAJ9BEqDyLsg2tj3MwQaAb4i1O27q5C_L7N17G6KRduhlEOYF-onLb1QcoeKs_Ic8Rn7cWFgj_i6XDK6sjshV0/w664-h372/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="664" /></a><b style="text-align: left;"><i>© Jonathan McHugh</i></b></div><p></p><p><br /></p><p><b><span style="font-size: medium;">Would you risk your life to stand for parliament? </span></b></p><p><b><span style="font-size: medium;">That is now as serious a question as it was when the IRA bombed Margaret Thatcher’s cabinet. </span></b></p><p><b><span style="font-size: medium;">The fact that Britain has its first prime minister of Indian heritage is a welcome sign of the country’s success at integration. </span></b></p><p><b><span style="font-size: medium;">But when Rishi Sunak addressed the nation last night, it was to try and calm forces of extremism which, he warned, “are trying to tear us apart”.</span></b></p><p><b><span style="font-size: medium;">It is eight years since Labour’s Jo Cox was murdered by the white supremacist Thomas Mair; two and a half since the Conservative MP David Amess was killed by the Islamist Ali Harbi Ali. </span></b></p><p><b><span style="font-size: medium;">Mike Freer, who was also on Harbi’s hit list and who represents a large Jewish community, has announced he is quitting politics after his constituency office was set on fire. </span></b></p><p><b><span style="font-size: medium;">Tobias Ellwood, the former soldier, has been forced to keep his family away from their home after pro-Palestinian demonstrators massed outside. </span></b></p><p><b><span style="font-size: medium;">We British are a phlegmatic bunch. </span></b></p><p><b><span style="font-size: medium;">We have overcome extremism before. </span></b></p><p><b><span style="font-size: medium;">But to do so requires being precise about the threats. </span></b></p><p><b><span style="font-size: medium;">White supremacy, English nationalism, Islamist extremism are all political ideologies which resist strict definition. </span></b></p><p><b><span style="font-size: medium;">Party leaders need to be clearer in calling out behaviour that crosses the line to protect both their colleagues and calm what threatens to become an ever more inflammatory national debate.</span></b></p><p><b><span style="font-size: medium;">Those who stoke division for political advantage don’t help. </span></b></p><p><b><span style="font-size: medium;">The claim by the Conservative MP Lee Anderson that Islamists have “got control” of the mayor of London was repugnant and bizarre. </span></b></p><p><b><span style="font-size: medium;">Similarly weird and equally disgraceful was the statement by Azhar Ali, Labour’s candidate in Rochdale, that Israel permitted the Hamas atrocities on October 7 as a pretext to invade Gaza. </span></b></p><p><b><span style="font-size: medium;">Keir Starmer rightly withdrew support for Ali, and Labour duly lost the seat. </span></b></p><p><b><span style="font-size: medium;">Sunak rightly suspended Anderson, despite pressure from rightwingers who seem to think crazed paranoia is popular. </span></b></p><p><b><span style="font-size: medium;">Politicians who pander to the basest instincts end up narrowing the space for mature discussion. </span></b></p><p><b><span style="font-size: medium;">The posturing, claim and counterclaim only muddle when what is needed is clarity. </span></b></p><p><b><span style="font-size: medium;">There is a world of difference between well-meaning youngsters horrified by the deaths in Gaza and elements stirring up hatred for more sinister purposes, including against MPs.</span></b></p><p><b><span style="font-size: medium;">I was a vocal opponent of attempts by Priti Patel and Suella Braverman to curb the right to protest. </span></b></p><p><b><span style="font-size: medium;">But I have had to acknowledge that some of what started out as legitimate protest has turned into intimidation. </span></b></p><p><b><span style="font-size: medium;">The Speaker made a mistake in suspending normal procedure during the Gaza debate — politicians should never be shown to be cowed by threats — but it was understandable, given that he feared for the safety of individual members of the House. </span></b></p><p><b><span style="font-size: medium;">This week it emerged that three female MPs have been given taxpayer-funded bodyguards following concerns about their safety.</span></b></p><p><b><span style="font-size: medium;">Extremists thrive on ambiguity. </span></b></p><p><b><span style="font-size: medium;">If caught out, they claim that they are misunderstood. </span></b></p><p><b><span style="font-size: medium;">The fascist Oswald Mosley said he had never been antisemitic but accused “certain Jews” of having provoked the second world war. </span></b></p><p><b><span style="font-size: medium;">In November, the far-right leader Tommy Robinson turned up at London’s march against antisemitism, claiming he was there as a “journalist”.</span></b></p><p><b><span style="font-size: medium;">Many of those who chant, “From the river to the sea” are not advocating ethnic cleansing but it is increasingly hard to plead ignorance of how that slogan terrorises Jews in this country. </span></b></p><p><b><span style="font-size: medium;">Many decent people fear that Israel’s government is perpetrating a genocide in Gaza; the bloodshed there is appalling. </span></b></p><p><b><span style="font-size: medium;">But that does not justify making British Jews feel afraid. </span></b></p><p><b><span style="font-size: medium;">Deconstructing what constitutes extremism is hard, but it can be done. </span></b></p><p><b><span style="font-size: medium;">In 2016, an imam called Shakeel Begg sued the BBC for libel after it had described him as an extremist who promoted violence. </span></b></p><p><b><span style="font-size: medium;">The court deconstructed nine of Begg’s speeches and the judge concluded, with forensic clarity, that Begg had espoused extremist Islamic positions. </span></b></p><p><b><span style="font-size: medium;">A new definition of “hateful extremism”, as proposed by the Commission for Countering Extremism, would stop both far-right and Islamist groups from glorifying violence and circulating false claims.</span></b></p><p><b><span style="font-size: medium;">Meanwhile, a row is brewing over the term islamophobia, which some Conservatives are reluctant to use because it conflates anti-Muslim hatred with criticism of the religion and could usher in a blasphemy law by accident. </span></b></p><p><b><span style="font-size: medium;">Labour and the Liberal Democrats have adopted the definition of islamophobia proposed by the All-Party Parliamentary Group on British Muslims. </span></b></p><p><b><span style="font-size: medium;">But this definition implies it could be racist to criticise a dress code, for example, or gender segregation.</span></b></p><p><b><span style="font-size: medium;">Every society can fall prey to fear of “the other”. </span></b></p><p><b><span style="font-size: medium;">One way to tackle this is to boost contact between communities. </span></b></p><p><b><span style="font-size: medium;">In England, the National Citizen Service brings together teenagers from different backgrounds and ethnicities. </span></b></p><p><b><span style="font-size: medium;">In Northern Ireland after the Troubles, the Royal Ulster Constabulary aspired to half its officers being Catholic. </span></b></p><p><b><span style="font-size: medium;">Ending anonymity on social media would leave the sinister forces with fewer places to hide, and protect public figures.</span></b></p><p><b><span style="font-size: medium;">If we fail, who benefits? George Galloway, savouring his landslide victory in Rochdale, having warned last week that Labour MPs were “dripping in blood” after the party’s ceasefire amendment fell short of what pro-Palestinian sympathisers wanted. </span></b></p><p><b><span style="font-size: medium;">Nigel Farage, deliberating another tilt at parliament, hoping to force the Conservative party rightward. </span></b></p><p><b><span style="font-size: medium;">Both Sunak and Starmer have a reason to hold firm against such politicisation of divisive issues and not to use it to score points. </span></b></p><p><b><span style="font-size: medium;">The vast majority of MPs that I meet have gone into politics to improve the world. </span></b></p><p><b><span style="font-size: medium;">If too many of them were to give up, amid the trolling, the abuse, the relentless questioning of their motives, we will be left with something ugly.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-37177170054198106932024-03-17T04:18:00.001-05:002024-03-17T04:18:00.244-05:00TRADERS ARE BETTING MORE AGRESSIVELY AHEAD OF ECONOMIC DATA / THE WALL STREET JOURNAL<p><b><span style="font-size: x-large;">Traders Are Betting More Aggressively Ahead of Economic Data</span></b></p><p><b><i><span style="font-size: large;">A data-dependent Fed has Wall Street ramping up bond bets ahead of major reports</span></i></b></p><p><b>By Eric Wallerstein</b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7ttIfJGlvYSyBA8W5r2QoEAMUDWzcMjDtSDNvrzyF1yWEBwf7ONR1B8as0kMM06WMBCh9RJEueVorhW139NQI2VN3RqIdD6WE_YYxEodTfvH7l-Z0zlz5KOtHJH34KXsb2u8BLLPcazIjirR93Iy6WImRLWAKj7mhkoOzHS9797S_ptqn4it2IE5y9j2p/s1278/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1278" data-original-width="1278" height="424" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7ttIfJGlvYSyBA8W5r2QoEAMUDWzcMjDtSDNvrzyF1yWEBwf7ONR1B8as0kMM06WMBCh9RJEueVorhW139NQI2VN3RqIdD6WE_YYxEodTfvH7l-Z0zlz5KOtHJH34KXsb2u8BLLPcazIjirR93Iy6WImRLWAKj7mhkoOzHS9797S_ptqn4it2IE5y9j2p/w661-h424/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="661" /></a><b style="text-align: left;"><i>Screens at the New York Stock Exchange displayed Fed Chair Jerome Powell’s press conference on Jan. 31. BRENDAN MCDERMID/REUTERS</i></b></div><p></p><p><br /></p><p><b><span style="font-size: medium;">Bond traders are laying down wagers hours ahead of key readings on the U.S. economy, a sign of confidence that they know how new data will shift markets.</span></b></p><p><b><span style="font-size: medium;">After the pandemic’s disruptions and the Federal Reserve’s fastest interest-rate hiking campaign in decades, many now feel like they know which way the central bank and the economy are generally headed. </span></b></p><p><b><span style="font-size: medium;">Investors expect the Fed to begin trimming interest rates later this year, so the data mostly shifts their expectations for when.</span></b></p><p><b><span style="font-size: medium;">Highly traded futures markets tied to U.S. Treasurys are posting sharp moves leading up to major reports on jobs, inflation and economic growth, according to an analysis of trading since the start of 2022 prepared for The Wall Street Journal by Alexander Kurov, professor of finance at West Virginia University.</span></b></p><p><b><span style="font-size: medium;">Bond futures typically swing 0.14 percentage point in reaction to seven key economic releases, Kurov found. </span></b></p><p><b><span style="font-size: medium;">Nearly half of that move has already happened before the data comes out, kicking off up to six hours ahead of the scheduled announcement. </span></b></p><p><b><span style="font-size: medium;">That marks a shift from earlier years, when preliminary moves tended to concentrate in the half-hour or so before the data.</span></b></p><p><b><span style="font-size: medium;">“The price drift starts much earlier than we found in our previous research,” said Kurov. </span></b></p><p><b><span style="font-size: medium;">“Traders know if they start betting five minutes before an announcement, it’s kind of too late.”</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRksTO1rSMZt2iaqLzzKtTPOYmyD6jYquRKZrk3KjivedQ94cK8CrdTO_ZmTOmhK6bfYPVcYaufYX3iLtdrDA8oyP0-mFLPaEsDxG80Hn5wECMKNtdgzdrWe2b5rPX0TJNIdJRemSctNjuSQKQd4GjHHijX83Hay_EQ7foHI7Mp5A9Gs9_FWGf6z6bvqMJ/s1120/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1074" data-original-width="1120" height="563" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRksTO1rSMZt2iaqLzzKtTPOYmyD6jYquRKZrk3KjivedQ94cK8CrdTO_ZmTOmhK6bfYPVcYaufYX3iLtdrDA8oyP0-mFLPaEsDxG80Hn5wECMKNtdgzdrWe2b5rPX0TJNIdJRemSctNjuSQKQd4GjHHijX83Hay_EQ7foHI7Mp5A9Gs9_FWGf6z6bvqMJ/w651-h563/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="651" /></a></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Aggressive positioning threatens to rattle an already unsteady market. </span></b></p><p><b><span style="font-size: medium;">Bonds have been volatile since the Fed started tightening roughly two years ago. </span></b></p><p><b><span style="font-size: medium;">The 10-year Treasury yield, a benchmark for lending rates that rises when bond prices fall, is nearing two years of relatively sharp daily swings.</span></b></p><p><b><span style="font-size: medium;">Few think anyone is cheating. </span></b></p><p><b><span style="font-size: medium;">Research from Kurov and others previously suggested early trading could stem from data leaks, but the Labor Department then stopped sending early results to the media in 2020. </span></b></p><p><b><span style="font-size: medium;">Suspicious trading in the U.K. several years ago spurred policymakers to make changes to their early-distribution policies. </span></b></p><p><b><span style="font-size: medium;">There is also a timing component—futures often begin moving around the opening of European markets.</span></b></p><p><b><span style="font-size: medium;">Instead, analysts said the moves show traders are growing more convinced that they can guess both what the data will show and which direction markets will head afterward.</span></b></p><p><b><span style="font-size: medium;">Trying to anticipate a move is still no easy task, said Lundy Wright, portfolio manager at Weiss Multi-Strategy Advisers, a New York-based hedge fund. </span></b></p><p><b><span style="font-size: medium;">Releases are muddy, overlap, or coincide with other market-moving events. </span></b></p><p><b><span style="font-size: medium;">Even when traders think they know what the data will show, they also have to consider whether that aligns with their overall view of the economy.</span></b></p><p><b><span style="font-size: medium;">And one danger is that the early trading results in sharper-than-expected moves when data surprises investors, who must race to adjust. </span></b></p><p><b><span style="font-size: medium;">On Thursday, bond yields climbed in the hours ahead of the release of the personal-consumption expenditures price index, the Fed’s preferred inflation gauge. </span></b></p><p><b><span style="font-size: medium;">Traders were betting the data would come in hot, similar to the consumer- and producer-price indexes earlier in the month. </span></b></p><p><b><span style="font-size: medium;">When the results were in line with forecasters’ projections, yields sank immediately after the report.</span></b></p><p><b><span style="font-size: medium;">But investors these days can conduct sophisticated analysis ahead of time, using new tools such as artificial intelligence. </span></b></p><p><b><span style="font-size: medium;">The broad availability of such information increases the incentive to make an early bet. </span></b></p><p><b><span style="font-size: medium;">Wait too long, and the market might already have moved. </span></b></p><p><b><span style="font-size: medium;">“We monitor who has the hot hands—what forecasters have the best predictability over the past three and six months,” said Wright. </span></b></p><p><b><span style="font-size: medium;">“It’s sort of like betting alongside a betting expert.”</span></b></p><p><b><span style="font-size: medium;">The hedge fund Weiss, which managed $4.2 billion of client assets at the end of last year, told investors on Friday that it is winding down, according to a memo viewed by The Wall Street Journal.</span></b></p><p><b><span style="font-size: medium;">Of the 30 major economic indicators, Kurov found 12 that significantly move the Treasury market, seven of which show traders betting correctly ahead of time. </span></b></p><p><b><span style="font-size: medium;">One area that has worked is jobless claims, where advanced trading captures more than one-third of the overall move, according to Kurov. </span></b></p><p><b><span style="font-size: medium;">A weaker-than-expected report Thursday helped spur the market recovery after the PCE data.</span></b></p><p><b><span style="font-size: medium;">Traders seem to struggle with wagering ahead of a few of the most-watched releases, however, particularly the biggest reports on jobs and inflation: nonfarm payrolls and the consumer-price index. </span></b></p><p><b><span style="font-size: medium;">Those still spark big moves in bond yields, but the advanced moves don’t tend to prove prescient. </span></b></p><p><b><span style="font-size: medium;">Those two reports provide investors with their most-direct look at the potential course of interest rates, which play a determining role in setting bond prices. </span></b></p><p><b><span style="font-size: medium;">They can also be noisy. Analysts said that increases the risk of posting big bets ahead of time, which may boost traders’ patience. </span></b></p><p><b><span style="font-size: medium;">And some warn that the path of rates is likely more winding than it seems. </span></b></p><p><b><span style="font-size: medium;">The pandemic era has upended a lot of Wall Street predictions about the economy’s direction. </span></b></p><p><b><span style="font-size: medium;">Traders that are overly confident that they know the future could be in for surprises. </span></b></p><p><b><span style="font-size: medium;">“The Fed has been data-dependent many times, but I don’t think the data has ever been as difficult and volatile for them to read,” said Chris McAlister, global head of derivatives trading at Prudential.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-47616834293925690202024-03-17T04:18:00.000-05:002024-03-17T04:18:00.244-05:00IT´S ME, HI, I´M THE PROBLEM. I´M 33 / THE NEW YORK TIMES <p><b><span style="font-size: medium;"> </span><span style="font-size: x-large;">It’s Me, Hi, I’m the Problem. I’m 33.</span></b></p><p><b><i><span style="font-size: large;">Meet the 1990 and 1991 babies, a massive microgeneration in lifelong competition for America’s economic resources, reshaping the world around them.</span></i></b></p><p><b>By Jeanna Smialek</b></p><p><b><span style="font-size: medium;"></span></b></p><div class="separator" style="clear: both; text-align: center;"><b><span style="font-size: medium;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEihM7aZz2RU5Jhf1gv2IQy-cZVQKMeRKqocDL2yzMlSyOJNXNuzuNhDtIi_d73uPcNxDI53nAn6S7h0P3xqTwiZPK73Yczi4eYljPwwFjfg0sC5T7XHx35dYLnHcwmc4H_I-JmoFXB5QtKtS-PPsOXYTjorPrIs2TKzcE2cSg4K3CyGwfRwrGGqeqsp6zVY" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="2048" data-original-width="1634" height="425" src="https://blogger.googleusercontent.com/img/a/AVvXsEihM7aZz2RU5Jhf1gv2IQy-cZVQKMeRKqocDL2yzMlSyOJNXNuzuNhDtIi_d73uPcNxDI53nAn6S7h0P3xqTwiZPK73Yczi4eYljPwwFjfg0sC5T7XHx35dYLnHcwmc4H_I-JmoFXB5QtKtS-PPsOXYTjorPrIs2TKzcE2cSg4K3CyGwfRwrGGqeqsp6zVY=w641-h425" width="641" /></a></span></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">I have covered economics for 11 years now, and in that time, I have come to the realization that I am a statistic. </span></b></p><p><b><span style="font-size: medium;">Every time I make a major life choice, I promptly watch it become the thing that everyone is doing that year.</span></b></p><p><b><span style="font-size: medium;">I started college in 2009, in the era of all-time-high matriculation rates. </span></b></p><p><b><span style="font-size: medium;">When I moved to a big coastal city after graduation, so did a huge crowd of people: It was the age of millennial urbanization. </span></b></p><p><b><span style="font-size: medium;">When I lived in a walk-in closet so that I could pay off my student loans (“The yellow paint makes it cheerful!”, Craigslist promised), student debt had recently overtaken auto loans and credit cards as the biggest source of borrowing outside of housing in America.</span></b></p><p><b><span style="font-size: medium;">My partner and I bought a house in 2021, along with (seemingly and actually) a huge chunk of the rest of the country. </span></b></p><p><b><span style="font-size: medium;">We married in 2022, the year of many, many weddings. </span></b></p><p><b><span style="font-size: medium;">The list goes on.</span></b></p><p><b><span style="font-size: medium;">I am no simple crowd follower. </span></b></p><p><b><span style="font-size: medium;">What I am is 32, about to be 33 in a few weeks.</span></b></p><p><b><span style="font-size: medium;">And there are so many of us.</span></b></p><p><b><span style="font-size: medium;">If demographics are destiny, the demographic born in 1990 and 1991 was destined to compete for housing, jobs and other resources. </span></b></p><p><b><span style="font-size: medium;">Those two birth years, the people set to turn 33 and 34 in 2024, make up the peak of America’s population.</span></b></p><p><b><span style="font-size: medium;">As the biggest part of the biggest generation, this hyper-specific age group — call us what you will, but I like “peak millennials” — has moved through the economy like a person squeezing into a too-small sweater. </span></b></p><p><b><span style="font-size: medium;">At every life stage, it has stretched a system that was often too small to accommodate it, leaving it somewhat flabby and misshapen in its wake. </span></b></p><p><b><span style="font-size: medium;">My cohort has an outsized amount of economic power, but that has sometimes made life harder for us.</span></b></p><p><b><span style="font-size: medium;">When millennials gripe that they get blamed for everything, in other words, the accusers might be onto something.</span></b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgH5VsfCw0dqDcP92VJtgZHE0KqZNOmosEg0T0BDZJCzxaBcWQAB0pwyZ0NHN66VIo78Vnz_214zvI0S-gFzfCJW5iMCtkHlm02fI6vJLbPfi5E1CjvEZPQDzQ8XbNW6b6ggP9JF8LnDGecTYdKD60xvEvTENC1eDzpNN_wwUo4etrm5zIrtr0kpLa4HS2P" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1193" data-original-width="1328" height="576" src="https://blogger.googleusercontent.com/img/a/AVvXsEgH5VsfCw0dqDcP92VJtgZHE0KqZNOmosEg0T0BDZJCzxaBcWQAB0pwyZ0NHN66VIo78Vnz_214zvI0S-gFzfCJW5iMCtkHlm02fI6vJLbPfi5E1CjvEZPQDzQ8XbNW6b6ggP9JF8LnDGecTYdKD60xvEvTENC1eDzpNN_wwUo4etrm5zIrtr0kpLa4HS2P=w647-h576" width="647" /></a></div><br /><p></p><p><b><span style="font-size: medium;">While it is difficult to pinpoint the spending habits of just two birth years, this group makes up a sizable chunk — about 13 percent — of the generation that marketers have been trying to woo for more than a decade. </span></b></p><p><b><span style="font-size: medium;">Millennial vacationing and dining-out habits caused research firms to endlessly tout the rise of the “experience economy.” </span></b></p><p><b><span style="font-size: medium;">We’ve been accused of killing McMansions and formal dress codes, but we helped to fuel the rise of tiny homes and athleisure.</span></b></p><p><b><span style="font-size: medium;">“There are a lot of them — their parents may have said they’re very special, but there were a lot of these very special babies,” said Neil Howe, who coined the term “millennial.” </span></b></p><p><b><span style="font-size: medium;">“They create a lot of pressure. </span></b></p><p><b><span style="font-size: medium;">Whatever they are buying, a lot of people are buying it.”</span></b></p><p><b><span style="font-size: medium;">That economic influence extends well beyond day-to-day consumption. </span></b></p><p><b><span style="font-size: medium;">When peak millennials went to college in 2009, the enrollment spike was so significant that community colleges that had once prided themselves on welcoming all students started to turn away applicants.</span></b></p><p><b><span style="font-size: medium;">When that group began to graduate and moved for jobs, the population of metro areas like New York City, San Antonio and San Francisco jumped to new highs, leading to a fierce contest for a limited supply of apartments in some places — the Bay Area in particular.</span></b></p><p><b><span style="font-size: medium;">That re-urbanization boom came “when those millennials were coming of age, getting their first jobs, looking for housing, looking for roommates,” said Igor Popov, chief economist at Apartment List.</span></b></p><p><b><span style="font-size: medium;">Now, the people who will turn 33 and 34 this year are at another crucial juncture in their financial lives: They are leaving cities, starting families, and buying houses. </span></b></p><p><b><span style="font-size: medium;">And while some of those changes have been sped up by the pandemic, the demographics alone help to explain why today’s economy is performing in often surprising ways.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/a/AVvXsEipM314_tu5Fdg29XlJ9u8BhcIdvVFWRoZur9-6YXJIvuhlIWlj2EUjMlS3UoZfmLCSyjAs6mhE9vb39Voibl7GU8E-sYphY7mbEVaCp5iToerDMcbYVHYYfzgj0G1Ef9EnZG-I0fG7ktWiISWiN9sgGhg9uvrmPuNODRQy1Fc_BypOOdHG_WX1aQd4GL9W" style="font-size: large; margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1024" data-original-width="820" height="803" src="https://blogger.googleusercontent.com/img/a/AVvXsEipM314_tu5Fdg29XlJ9u8BhcIdvVFWRoZur9-6YXJIvuhlIWlj2EUjMlS3UoZfmLCSyjAs6mhE9vb39Voibl7GU8E-sYphY7mbEVaCp5iToerDMcbYVHYYfzgj0G1Ef9EnZG-I0fG7ktWiISWiN9sgGhg9uvrmPuNODRQy1Fc_BypOOdHG_WX1aQd4GL9W=w669-h803" width="669" /></a><i style="text-align: left;"><b>Credit...Nick Hagen for The New York Times / </b><b>Jen Vos, 33, of Grand Rapids, Mich., is a university archivist in a full-time role with benefits. She still has student loans. She bought a 10-year-old car in 2021, which wiped out a lot of her savings. She said that a lot of her peers are starting to buy houses and have kids, but “a lot of my generation has had to put that all on hold.”</b></i></b></div><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: large;">Housing Shift</span></b></p><p><b><span style="font-size: medium;">In 2017, a real-estate mogul birthed a meme when he suggested that millennials were failing to buy homes because they were squandering their money on avocado toast and fancy coffee. </span></b></p><p><b><span style="font-size: medium;">Outrage ensued. </span></b></p><p><b><span style="font-size: medium;">The New York Times published a fact check.</span></b></p><p><b><span style="font-size: medium;">But like many a flip statement that strikes a deep societal nerve, the toast comment took off for a reason. </span></b></p><p><b><span style="font-size: medium;">People really were wondering why millennials weren’t buying houses in greater numbers.</span></b></p><p><b><span style="font-size: medium;">Much of the answer was unquestionably that the generation had just experienced a grueling entry into the labor market in the aftermath of the worst recession since the Great Depression. </span></b></p><p><b><span style="font-size: medium;">But at least a small part was likely simpler. </span></b></p><p><b><span style="font-size: medium;">While we often talk about millennials as one monolithic group, the biggest part of the generation — peak millennial — was still in its mid-20s in 2016 and 2017. That’s on the young side for homeownership.</span></b></p><p><b><span style="font-size: medium;">Today’s population of 30- to 34-year-olds is about 700,000 people larger than the group between ages 35 and 39.</span></b></p><p><b><span style="font-size: medium;">Now, those people are increasingly ready to buy.</span></b></p><p><b><span style="font-size: medium;">Millennials snapped up houses in 2020 and in 2021 as the Federal Reserve cut interest rates to near-zero. </span></b></p><p><b><span style="font-size: medium;">That was partly about the pandemic: People wanted space amid lockdowns. </span></b></p><p><b><span style="font-size: medium;">But it also reflected that a big group of people were finally far enough along in their economic lives to buy property.</span></b></p><p><b><span style="font-size: medium;">“Just the demographic story is a big one to explain why homeownership went down in the 2010s, bottomed out in 2016, and now we’re seeing this boom in suburban demand that the housing market is grappling with,” said Mr. Popov of Apartment List.</span></b></p><p><b><span style="font-size: medium;">And the wave of millennials now trying to buy could contribute to a topsy-turvy housing market for years to come.</span></b></p><p><b><span style="font-size: medium;">The median age for first-time home buying is typically in the mid-30s, according to the National Association of Realtors. </span></b></p><p><b><span style="font-size: medium;">Peak millennials are only now approaching that age range.</span></b></p><p><b><span style="font-size: medium;">Given the sheer generational numbers, “the demand for entry-level single-family homes should remain high for the rest of the decade,” economists at Fannie Mae noted in a recent analysis.</span></b></p><p><b><span style="font-size: medium;">But hot demographic demand is colliding with very limited housing supply, following years of under-building after the 2009 recession. </span></b></p><p><b><span style="font-size: medium;">That has helped to push prices to record levels — where they are hovering even as the Fed tries to slow the economy with higher borrowing costs. </span></b></p><p><b><span style="font-size: medium;">And steep prices are combining with elevated mortgage rates to make the market painfully unaffordable, including for the starter homes many peak millennials would love to buy.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgIne2lZ5TDwdxEHTcvfQo70Vr9Nc7FoHUWX2ChqKa0vrDTI3TuA6ri-NOwfSrvBMA7xPKnKYfcDvL4AwDvuoc12BZ9piwRtsRhmbKXNq9XTlElmy3lldzQ2MvtkjUk68Gv8Blcr9dECWpdL_pncA6H-dCVoNhyTRKE-Cpxm4zutEkIjQHmZkfdXYVgKNEO" style="font-size: large; margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1024" data-original-width="820" height="650" src="https://blogger.googleusercontent.com/img/a/AVvXsEgIne2lZ5TDwdxEHTcvfQo70Vr9Nc7FoHUWX2ChqKa0vrDTI3TuA6ri-NOwfSrvBMA7xPKnKYfcDvL4AwDvuoc12BZ9piwRtsRhmbKXNq9XTlElmy3lldzQ2MvtkjUk68Gv8Blcr9dECWpdL_pncA6H-dCVoNhyTRKE-Cpxm4zutEkIjQHmZkfdXYVgKNEO=w637-h650" width="637" /></a><i style="text-align: left;"><b>Credit...Mark Abramson for The New York Times / </b><b>Spencer Holbrook, 32, lives with his wife Rebeccah’s parents in a four bedroom in Corona, Calif. With mortgage rates and home prices high, their dream of owning seems distant. But while his and his wife’s household income is between $80,000 and $85,000 per year and they don’t pay rent, it is difficult to save enough, between paying graduate school costs and raising two kids. “I hope in 4 to 5 years,” he said.</b></i></b></div><p></p><p><b><span style="font-size: large;">College Echoes</span></b></p><p><b><span style="font-size: medium;">Today’s crazy housing market is not the first time 32- and 33-year-olds have found themselves forced to compete with one another for resources — nor will it be the first time they helped to reshape a market with lasting consequences.</span></b></p><p><b><span style="font-size: medium;">The sub-generation faced its first real economic scramble in 2008 and 2009, when they graduated from high school and, in many cases, tried to go to college.</span></b></p><p><b><span style="font-size: medium;">The group made up a huge entering class in its own right, but thanks to the Great Recession, older people with few job opportunities were also flooding into college classrooms to weather the downturn.</span></b></p><p><b><span style="font-size: medium;">Enrollment rates spiked. </span></b></p><p><b><span style="font-size: medium;">The population of people in college peaked in 2010, the year after my class matriculated.</span></b></p><p><b><span style="font-size: medium;">“The big strain that the students felt was to get classes and to get resources,” said Robert Kelchen, a professor who studies higher education at the University of Tennessee.</span></b></p><p><b><span style="font-size: medium;">Tuition rates climbed sharply at public schools as state support waned during the downturn, though they also nudged steadily higher at private colleges. </span></b></p><p><b><span style="font-size: medium;">The ratio between student debt burdens and starting salaries got worse.</span></b></p><p><b><span style="font-size: medium;">But demand for college seats has begun to reverse as demographic trends pair with a cultural shift away from higher education. </span></b></p><p><b><span style="font-size: medium;">Less selective colleges, which couldn’t add seats fast enough in the late 2000s, are now closing and merging.</span></b></p><p><b><span style="font-size: medium;">It’s not just colleges. </span></b></p><p><b><span style="font-size: medium;">Another age-old institution could struggle as peak millennials age: wedding venues. </span></b></p><p><b><span style="font-size: medium;">The millennial generation’s sheer numbers have managed to prop up demand in the wedding industry even at a time when marriage rates overall have been steadily falling, said Shane McMurray at the Wedding Report.</span></b></p><p><b><span style="font-size: medium;">But a post-lockdown wedding boom from 2022 is already fading, and will likely recede further as my agemates move past top marriage years. </span></b></p><p><b><span style="font-size: medium;">Mr. McMurray thinks business will stay steady for some time, but eventually, “it’s going to impact the industry pretty significantly.”</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjc2p9hjt15VMNygqX3fQ7CNm4sMhbidqwjCKs7Pue7r6yIDmoZ5TUMyVoByk7hcTIfqMenquX3xX4mDDbobWmMwOvnGe5wSr2CTcw24Km0U0P3meSXPEm3U9LDKO4rQs_GQ_q9ocXoR8GQlv0awIpcmuidG9ToZT5z_J8PfmS45-3RoxZL-b-tsXKiBpcl" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1024" data-original-width="683" height="645" src="https://blogger.googleusercontent.com/img/a/AVvXsEjc2p9hjt15VMNygqX3fQ7CNm4sMhbidqwjCKs7Pue7r6yIDmoZ5TUMyVoByk7hcTIfqMenquX3xX4mDDbobWmMwOvnGe5wSr2CTcw24Km0U0P3meSXPEm3U9LDKO4rQs_GQ_q9ocXoR8GQlv0awIpcmuidG9ToZT5z_J8PfmS45-3RoxZL-b-tsXKiBpcl=w628-h645" width="628" /></a><i style="text-align: left;"><b>Credit...Audra Melton for The New York Times / </b><b>Kimberly Cherrell, 33, graduated college with a little over $10,000 in student debt. In 2018, she turned a side hustle in YouTube content creation into a full-time job making between $100,000 and $300,000 per year. She was able to buy a home in 2016, when she was making just $35,000, before rates and prices began to take off, and in 2020 she sold it at a huge gain and moved into a 5-bedroom.</b></i></b></div><p></p><p><b><span style="font-size: large;">Baby Boom Precedent</span></b></p><p><b><span style="font-size: medium;">Thirty-three-year-olds could also whipsaw the job market.</span></b></p><p><b><span style="font-size: medium;">Throughout much of the 2010s, employers had more entry-level applicants than they knew what to do with. </span></b></p><p><b><span style="font-size: medium;">When peak millennials graduated from high school in and around 2009, they were a flood of potential workers pouring into a labor market rocked by recession. </span></b></p><p><b><span style="font-size: medium;">The unemployment rate hovered at a near-record 16 percent for 18- and 19-year-olds that year.</span></b></p><p><b><span style="font-size: medium;">The labor market remained weak even when those who went to college began to graduate, and employers had their pick of hires for years on end. </span></b></p><p><b><span style="font-size: medium;">Remember the rise of baristas with bachelor’s degrees?</span></b></p><p><b><span style="font-size: medium;">Now, that tide is turning.</span></b></p><p><b><span style="font-size: medium;">The economic backdrop has changed, for one thing. </span></b></p><p><b><span style="font-size: medium;">Companies have been clamoring for hires ever since letting workers go at the start of the pandemic. </span></b></p><p><b><span style="font-size: medium;">Demographics could be part of that story. </span></b></p><p><b><span style="font-size: medium;">A lot of people were born in 2001, albeit not quite as many as the millennial peak, which had helped to keep entry-level employees available. </span></b></p><p><b><span style="font-size: medium;">But that early 20s group is mostly in the labor market these days, and noticeably fewer people are now aging into adulthood with each passing year.</span></b></p><p><b><span style="font-size: medium;">The question is whether the drop-off is significant enough for employers and workers to feel it.</span></b></p><p><b><span style="font-size: medium;">If it is, there would be precedent. </span></b></p><p><b><span style="font-size: medium;">Economic research has suggested that the Baby Boom generation (which included a peak birth cohort born in the early 1960s) faced a tough entry into the labor market as its members competed for a limited supply of jobs. </span></b></p><p><b><span style="font-size: medium;">Generation X, or the so-called “Baby Bust,” was smaller — and experienced better outcomes.</span></b></p><p><b><span style="font-size: medium;">“There seemed to be a real advantage in the labor market to the baby busters,” said Ronald Lee, a demographer at the University of California Berkeley, noting that they saw good wage growth and rapid advancement.</span></b></p><p><b><span style="font-size: medium;">“That might be true for Gen Z-ers as well,” he said.</span></b></p><p><b><span style="font-size: medium;">In fact, late baby boomers offer a template for the way a big sub-generation moves through the economy. </span></b></p><p><b><span style="font-size: medium;">They were the largest population group in history until millennials came along, and they were much bigger than the Silent Generation, the group that came before them.</span></b></p><p><b><span style="font-size: medium;">That gap meant that the economy had to stretch out even more rapidly to accommodate boomers when they were hitting their adult years in the early 1980s. </span></b></p><p><b><span style="font-size: medium;">And they too entered a challenging economy: Inflation had spiked, so the Fed had raised interest rates to double-digit levels, forcing the economy into a punishing recession right as late baby boomers were looking for jobs.</span></b></p><p><b><span style="font-size: medium;">“The market was flooded,” said Richard Easterlin, an economist at the University of Southern California who is behind a lot of the research into how generation size affects labor outcomes.</span></b></p><p><b><span style="font-size: medium;">Because they were forced to compete in crowded job and housing markets, some peak-birth-year baby boomers have been left with permanent economic scars compared to the rest of their generation: Research suggests that they remain at a heightened risk for homelessness.</span></b></p><p><b><span style="font-size: medium;">So are peak millennials destined for a similar fate?</span></b></p><p><i><b></b></i></p><div class="separator" style="clear: both; text-align: center;"><i><b><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj7qMo9_P23lRJL6I8_gL7z7NXjLPZcRQXRTHJpDIkyjHAatTqY5Re4t7Io2bVJCD6iLD9NUq6m8k0-E_CqrWoylnDv7O9v6203uGG_PDDDuqW9LYU9y4MoIq7jPlgrJ5jGH5wrHUAAuBDWomYGTz_ZoVr3-vEPb0puq5IV5ea86rkv0tqmaCyjpLUJgSbg" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1024" data-original-width="820" height="733" src="https://blogger.googleusercontent.com/img/a/AVvXsEj7qMo9_P23lRJL6I8_gL7z7NXjLPZcRQXRTHJpDIkyjHAatTqY5Re4t7Io2bVJCD6iLD9NUq6m8k0-E_CqrWoylnDv7O9v6203uGG_PDDDuqW9LYU9y4MoIq7jPlgrJ5jGH5wrHUAAuBDWomYGTz_ZoVr3-vEPb0puq5IV5ea86rkv0tqmaCyjpLUJgSbg=w639-h733" width="639" /></a><i style="text-align: left;"><b>Credit...Carolyn Fong for The New York Times / </b><b>Claudia Chee, 32, graduated from college in 2012 with no student debt — and moved back in with her parents while working at Google. When she burned out from her corporate job, it gave her the flexibility to quit. Now she teaches piano and has a social media presence as “Costco Claudia,” where she films herself trying out products at the bulk retailer. She moved into her own apartment in late 2023.</b></i></b></i></div><p></p><p><b><span style="font-size: large;">Silver Lining</span></b></p><p><b><span style="font-size: medium;">Mr. Easterlin thinks that my peers are likely to be better off.</span></b></p><p><b><span style="font-size: medium;">“It is the change in generation size that is important for outcomes, not just the generation size,” Mr. Easterlin told me.</span></b></p><p><b><span style="font-size: medium;">While there are roughly 1.5 boomers for every one person who had been in the generation before, that ratio is more like 1.1 for millennials. </span></b></p><p><b><span style="font-size: medium;">It’s as if baby boomers were a giant trying to fit into an extra small sweater, and millennials are a giant squeezing themselves into a large.</span></b></p><p><b><span style="font-size: medium;">It is not that millennials have had a painless ride. </span></b></p><p><b><span style="font-size: medium;">Dennis Culhane, a University of Pennsylvania social researcher who has tracked homelessness among baby boomers, noted that millennial homelessness in New York City was high after the 2008 recession, for instance. </span></b></p><p><b><span style="font-size: medium;">But since competition isn’t as fierce as it was for younger boomers, the bumpy start should fade with time.</span></b></p><p><b><span style="font-size: medium;">In recent years, millennials do seem to be finding their economic and financial footing.</span></b></p><p><b><span style="font-size: medium;">After high initial unemployment, today’s early-30 adults now work at very high levels, with about 8.1 in 10 holding jobs. </span></b></p><p><b><span style="font-size: medium;">Wealth holdings for people under the age of 35 have recently begun to pick up notably, helped along by rising home values and higher stock prices.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgGTBq93KxRmy6GwW9Hten54zC8956mk_5HPzQ6yn5PyO8oSYbzGd9WR0bb1S-MxxNRW17mn7vhk6jHuY5KDoNt1EL4PU78fblEmhZBeasJcbF2PWWB4EQwvmDT5h6ihebqljJwuNZeAE5lxQ_7I-rKM_N8xjDg8No4OX3mXig24JYJQ_3Vzw4PEm1D1WiE" style="font-size: large; margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1024" data-original-width="820" height="793" src="https://blogger.googleusercontent.com/img/a/AVvXsEgGTBq93KxRmy6GwW9Hten54zC8956mk_5HPzQ6yn5PyO8oSYbzGd9WR0bb1S-MxxNRW17mn7vhk6jHuY5KDoNt1EL4PU78fblEmhZBeasJcbF2PWWB4EQwvmDT5h6ihebqljJwuNZeAE5lxQ_7I-rKM_N8xjDg8No4OX3mXig24JYJQ_3Vzw4PEm1D1WiE=w633-h793" width="633" /></a><i style="text-align: left;"><b>Credit...Juan Diego Reyes for The New York Times / </b><b>Fielding Russell, 34, works as a party bike guide in Asheville, N.C., and is now trying to start his own vegan international tour business. He makes decent money leading groups during the summer (about $21.50 per hour, plus tips), and he has recently booked his first two trips through his fledgling business. “It’s the first glimpse at financial security I’ve had in a very long time,” he said.</b></i></b></div><p></p><p><b><span style="font-size: large;">And What About Kids?</span></b></p><p><b><span style="font-size: medium;">Still, evidence of a struggle lingers under the surface. </span></b></p><p><b><span style="font-size: medium;">Men in the early 30-something group are employed at much lower rates than 30-something men were in previous generations, part of a long-running trend. </span></b></p><p><b><span style="font-size: medium;">Debt delinquencies for auto loans and credit cards are picking up sharply for people aged 30 to 39 as student loan repayments restart after a pandemic hiatus and put the generation under financial pressure. </span></b></p><p><b><span style="font-size: medium;">And today’s 30-somethings are having historically fewer kids.</span></b></p><p><b><span style="font-size: medium;">While that last one can be chalked up to a wide array of societal factors, people cite financial concerns as one of the top reasons they are not procreating.</span></b></p><p><b><span style="font-size: medium;">That decline in childbearing itself could create big economic changes and challenges ahead — specifically, around 2055, when people my age will be nearing retirement.</span></b></p><p><b><span style="font-size: medium;">If today’s 32-year-olds become a huge wave of retirees when they hit their mid-60s, they will be drawing money out of a retirement system that is poised to have far fewer active taxpayers to support it, assuming today’s demographic trends do not change.</span></b></p><p><b><span style="font-size: medium;">Peak millennials will also be filling up nursing homes with fewer young nurses to staff them, eating at restaurants with fewer servers and cooks to choose from, and in general taxing an economy with far fewer young people to support them.</span></b></p><p><b><span style="font-size: medium;">And that will be a problem not just for the early ’90s kids, but for everyone who follows.</span></b></p><p><b><span style="font-size: medium;">The question is whether fertility trends for the generation turn out to be a permanent state — or just another sign that millennials are doing things later, and that the peak of the generation is still aging into the years when those crucial decisions get made.</span></b></p><p><b><span style="font-size: medium;">On that, I can only tell you what I tell my mother when she wonders (gently, hintingly) if and when she’ll ever be a grandmother.</span></b></p><p><b><span style="font-size: medium;">Thirty-three isn’t all that old in the grand scheme of things. </span></b></p><p><b><span style="font-size: medium;">We’ll have to wait and see.</span></b></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;"><i>Jeanna Smialek covers the Federal Reserve and the economy for The Times from Washington.</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-25561392341922810022024-03-16T04:20:00.009-05:002024-03-16T04:20:00.139-05:00HOW LARRY CULP SAVED GE BY BREAKING IT UP / BARRON´S MAGAZINE<p><b><span style="font-size: x-large;">How Larry Culp Saved GE by Breaking It Up</span></b></p><p><b><i><span style="font-size: large;">General Electric will soon be no more, but shares of the three new companies look attractive.</span></i></b></p><p><b>By Al Root</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi49V3vvtS25M3kCgrBwhn7-B_mG4QGL0Nc6D-V2FGhB-o4A5ZBiPNhTLKXCBrBqL3gV2dxXZ-rm-O0TPWcM8BvRVTiv52r8xEwBdlZdCsO2UwQlEO-WimD9nm-gOOra4vr3fXDl5CgB2QYupwZaRP3Xo_nDSesVslkTCfbGLbxo7YPJnhDh3-SIYKqrT1b/s1260/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1260" height="391" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi49V3vvtS25M3kCgrBwhn7-B_mG4QGL0Nc6D-V2FGhB-o4A5ZBiPNhTLKXCBrBqL3gV2dxXZ-rm-O0TPWcM8BvRVTiv52r8xEwBdlZdCsO2UwQlEO-WimD9nm-gOOra4vr3fXDl5CgB2QYupwZaRP3Xo_nDSesVslkTCfbGLbxo7YPJnhDh3-SIYKqrT1b/w666-h391/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="666" /></a></b></div><span><b><span style="font-size: x-small;"> </span> GE CEO Larry Culp ILLUSTRATION BY MICHAEL DUNBABIN</b><br /></span><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">General Electric is nearing the end of its five-year journey back from the brink. </span></b></p><p><b><span style="font-size: medium;">For investors, a looming corporate breakup is only the beginning.</span></b></p><p><b><span style="font-size: medium;">The future looked bleak for GE in October 2018. </span></b></p><p><b><span style="font-size: medium;">John Flannery had just been removed as CEO after a year at the helm. </span></b></p><p><b><span style="font-size: medium;">Profitability was declining. </span></b></p><p><b><span style="font-size: medium;">GE Capital was losing money. </span></b></p><p><b><span style="font-size: medium;">The acquisition of Alstom’s power business had proven disastrous. </span></b></p><p><b><span style="font-size: medium;">And investors were forced to sift through dozens of pages of disclosures to gain a coherent picture of the company’s financial condition.</span></b></p><p><b><span style="font-size: medium;">Worse still, its massive debt load—some $112 billion, excluding cash and insurance liabilities—was growing more unwieldy as free cash flow deteriorated, resulting in downgrades from the major credit-rating firms and a slashing of its dividend to a penny per quarter.</span></b></p><p><b><span style="font-size: medium;">By the end of the year, GE stock had fallen 80% from its 2000 peak and was trading for less than it had during the depths of the financial crisis in 2009.</span></b></p><p><b><span style="font-size: medium;">Into this mess stepped Larry Culp, the retired CEO of Danaher</span></b><b><span style="font-size: medium;">. </span></b></p><p><b><span style="font-size: medium;">Culp had joined GE’s board in April 2018, but now, five months later, he was being asked to do the seemingly impossible—save General Electric, the company founded by Thomas Edison in 1892. </span></b></p><p><b><span style="font-size: medium;">Culp immediately set about selling businesses and paying down debt, before announcing in 2021 that GE would split into three separate companies.</span></b></p><p><b><span style="font-size: medium;">So far the breakup plan is working brilliantly. Since the early 2023 spinoff of GE HealthCare Technologies</span></b><b><span style="font-size: medium;">, which makes medical imaging products, shares of General Electric have gained about 120%, while GE HealthCare has gained 50%. </span></b></p><p><b><span style="font-size: medium;">Both have outperformed the S&P 500</span></b><b><span style="font-size: medium;">S</span></b><b><span style="font-size: medium;"> index, which has advanced 30% over the same span.</span></b></p><p><b><span style="font-size: medium;">The final move is due on April 2, with General Electric splitting itself into two. </span></b></p><p><b><span style="font-size: medium;">The parent company will be renamed GE Aerospace, and will be a maker of airplane engines; and the power business will be spun off and named GE Vernova. </span></b></p><p><b><span style="font-size: medium;">Shareholders will receive one GE Vernova share for every four GE shares.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKvWF2_8JN9d3CkkZsGT8gOLBv_bc26gRSKZ0w8ZmdFd2pbA8Jvlj1LZdNz6NeSndIilZyEGs9qWkkb-IOHWlDROQeRBjlDBfVTEFGZofTZI9HkVjJMAEhVdECIbIGimYBAsOt5klw9CFkiemhkeT2xpi2EPi6U9FlWpqtlI1oq6BGV1sb-8I_tRHrxAjE/s1298/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="807" data-original-width="1298" height="413" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKvWF2_8JN9d3CkkZsGT8gOLBv_bc26gRSKZ0w8ZmdFd2pbA8Jvlj1LZdNz6NeSndIilZyEGs9qWkkb-IOHWlDROQeRBjlDBfVTEFGZofTZI9HkVjJMAEhVdECIbIGimYBAsOt5klw9CFkiemhkeT2xpi2EPi6U9FlWpqtlI1oq6BGV1sb-8I_tRHrxAjE/w654-h413/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="654" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">Buying General Electric stock ahead of that split could well pay off handsomely. </span></b></p><p><b><span style="font-size: medium;">There’s a strong case that the two new stocks together will be worth more than the existing shares. </span></b></p><p><b><span style="font-size: medium;">Expect to hear more on that when GE management makes the cases for the new companies during its investor days on March 6 and 7.</span></b></p><p><b><span style="font-size: medium;">The truth is, all three of the new companies will be dominant players in their respective industries and, remarkably, all three will have investment-grade credit ratings.</span></b></p><p><b><span style="font-size: medium;">“With Culp’s visionary guidance, GE began one of the most amazing turnarounds I’ve ever seen,” says Jim Osman, founder of the Edge, which provides research and recommendations about special situations such as corporate breakups and spinoffs.</span></b></p><p><b><span style="font-size: medium;">Getting here hasn’t been easy. GE was a darling of the 1980s and 1990s, at one point becoming the world’s most valuable company. </span></b></p><p><b><span style="font-size: medium;">By 2000, it was worth some $600 billion, but cracks were appearing, such as a growing reliance on financial earnings. </span></b></p><p><b><span style="font-size: medium;">The expansion of GE Capital, whose assets peaked at more than $600 billion in 2008, happened just in time for the 2008-09 financial crisis, and its problems didn’t end there. </span></b></p><p><b><span style="font-size: medium;">“I recall not sleeping a lot,” says Culp about his early days as CEO. </span></b></p><p><b><span style="font-size: medium;">“There was just so much to do, so much to learn.”</span></b></p><p><b><span style="font-size: medium;">Fixing GE also has meant a smaller GE. </span></b></p><p><b><span style="font-size: medium;">Culp aggressively sold off assets to pay down debt. </span></b></p><p><b><span style="font-size: medium;">GE’s biopharma business was offloaded to Danaher for $21 billion in March 2020. </span></b></p><p><b><span style="font-size: medium;">GE’s aircraft leasing business was sold to AerCap Holdings in 2021 for $30 billion. </span></b></p><p><b><span style="font-size: medium;">GE also exited its transportation business, merging it with Wabtec in 2019, while a lighting unit was sold in 2020. </span></b></p><p><b><span style="font-size: medium;">GE exited energy services, and GE Capital is no more—the unit has been effectively shut down.</span></b></p><p><b><span style="font-size: medium;">The results have been impressive. </span></b></p><p><b><span style="font-size: medium;">GE has repaid some $100 billion in debt since the end of 2018, bringing its debt load down to just $21 billion. </span></b></p><p><b><span style="font-size: medium;">What’s more, free cash flow, which had dropped from $5.6 billion in 2017 to $2.3 billion in 2019, has started growing again: GE generated $5.2 billion in 2023 and should produce more than $6 billion in 2024.</span></b></p><p><b><span style="font-size: medium;">The free cash won’t accrue to General Electric, at least not as we once knew it. </span></b></p><p><b><span style="font-size: medium;">Instead, it will go to the two new companies, while all three will bear the GE logo. </span></b></p><p><b><span style="font-size: medium;">GE HealthCare, which has some 50,000 workers, is already independent. </span></b></p><p><b><span style="font-size: medium;">It generated 2023 sales of $19.6 billion, up 7% year over year, and operating profit of $3 billion, up $100 million. </span></b></p><p><b><span style="font-size: medium;">The stock, at a recent $91.92, has been a winner since it started trading on a when-issued basis in 2022 and since Barron’s recommended it in March 2023.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcDG4kKVNCK06vbT4JrC4_OM7MHbQ_wyzQIYubBp2IYbmf4J44woe3Pae5wiA5NWHwHiHMIfAHQF2sSS0wy6kD0rAIH-nRDSreRK_xD9XfTj7Yl6QVoRz_bDZKDT09kibYyNGy_JUTclYcPD8eV9RXOXR9nPdsUhLqaB_l1k-tUrNiRqaqknkPNMhgZ_zP/s940/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="627" data-original-width="940" height="494" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcDG4kKVNCK06vbT4JrC4_OM7MHbQ_wyzQIYubBp2IYbmf4J44woe3Pae5wiA5NWHwHiHMIfAHQF2sSS0wy6kD0rAIH-nRDSreRK_xD9XfTj7Yl6QVoRz_bDZKDT09kibYyNGy_JUTclYcPD8eV9RXOXR9nPdsUhLqaB_l1k-tUrNiRqaqknkPNMhgZ_zP/w655-h494/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="655" /></a><i style="text-align: left;"><b>GE’s LEAP engine. COURTESY OF GE</b><b>GE </b></i></b></div><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Aerospace, though, is the crown jewel. </span></b></p><p><b><span style="font-size: medium;">Three-quarters of new single-aisle jets made by Boeing</span></b><b><span style="font-size: medium;"> and Airbus carry GE engines, and they’re also found on twin-aisle jetliners like the 787 Dreamliner and jet fighters like the F-18 Hornet. </span></b></p><p><b><span style="font-size: medium;">In total, there are more than 40,000 GE engines in commercial airliners and 26,000 in military aircraft.</span></b></p><p><b><span style="font-size: medium;">The aerospace business shows no signs of slowing down. </span></b></p><p><b><span style="font-size: medium;">Global air travel has nearly returned to prepandemic levels, and growth will require new planes. </span></b></p><p><b><span style="font-size: medium;">Both Boeing and Airbus expect the global airline fleet to grow to some 50,000 planes over the coming 20 years, up from about 25,000 today. </span></b></p><p><b><span style="font-size: medium;">GE’s aerospace sales and orders both grew about 22% in 2023 compared with 2022.</span></b></p><p><b><span style="font-size: medium;">What’s more, every engine GE sells needs to be serviced and cared for. </span></b></p><p><b><span style="font-size: medium;">That aftermarket business accounted for 70% of Aerospace’s $32 billion in sales in 2023, and is more profitable than selling new equipment. </span></b></p><p><b><span style="font-size: medium;">Wall Street expects operating profit margins to expand by about two percentage points over the coming few years, up from about 19% in 2023, as new engines start to hit the shop for scheduled maintenance. </span></b></p><p><b><span style="font-size: medium;">That business should help Ebitda, or earnings before interest, taxes, depreciation, and amortization, hit about $8 billion in 2024, up from $7.2 billion in 2023; it could reach $9 billion in 2025.</span></b></p><p><b><span style="font-size: medium;">“Phenomenally strong aftermarket franchise,” says RBC analyst Ken Herbert. “Massive upside on the horizon.”</span></b></p><p><b><span style="font-size: medium;">Aerospace is so strong that it accounts for most of General Electric’s current value. </span></b></p><p><b><span style="font-size: medium;">While it could be compared with RTX, which makes jet engines, flight controls, and a host of defense products, and trades for 12 times Ebitda, or Safran, a GE partner on the single-aisle jet engines, which trades for about 16 times, a better multiple might be that of aftermarket parts supplier TransDigm Group, which changes hands at 18 times. </span></b></p><p><b><span style="font-size: medium;">Herbert argues that’s the valuation GE Aerospace deserves, which implies a value of about $160 billion based on Ebitda estimates for the coming two years, or about $140 of current General Electric’s share price.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_xK1n5tInWhaEwrwjy1Z-grwr5nFkAbewrnh3bf0UXsebV_mZrXajrzseEtpTfWOo7yEbFPyriD56Nmr0C-_Gfkv29j8sl6bEDquKMuM19ROTJYthIRiSpCGU6Vl6rtBnixbz17GZorT-eQXUE1iDOnoC8iY7xk2fei3oPs0P2NcNT9ss7oCRuFGYtGVZ/s1327/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1041" data-original-width="1327" height="609" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_xK1n5tInWhaEwrwjy1Z-grwr5nFkAbewrnh3bf0UXsebV_mZrXajrzseEtpTfWOo7yEbFPyriD56Nmr0C-_Gfkv29j8sl6bEDquKMuM19ROTJYthIRiSpCGU6Vl6rtBnixbz17GZorT-eQXUE1iDOnoC8iY7xk2fei3oPs0P2NcNT9ss7oCRuFGYtGVZ/w651-h609/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="651" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">With GE shares trading at $155, that leaves about $15 for GE Vernova. </span></b></p><p><b><span style="font-size: medium;">That could significantly undervalue the company. </span></b></p><p><b><span style="font-size: medium;">Vernova didn’t earn a profit in 2023—it reported a bottom-line loss of $540 million—and likely won’t again in 2024. </span></b></p><p><b><span style="font-size: medium;">Still, that’s an improvement. </span></b></p><p><b><span style="font-size: medium;">In 2018, when Scott Strazik took over the power unit, it posted sales of some $27 billion and an operating loss of more than $800 million. </span></b></p><p><b><span style="font-size: medium;">Operating profit margins improved from minus 3% to about 8% in 2023, as the company exited coal businesses.</span></b></p><p><b><span style="font-size: medium;">The big issue at Vernova has been its wind business. </span></b></p><p><b><span style="font-size: medium;">While Vernova’s power and electrification businesses turn a profit, the renewable-power group, which builds turbines for giant windmills, is losing between $300 million to $400 million a quarter. </span></b></p><p><b><span style="font-size: medium;">The wind business hasn’t been great for anyone. </span></b></p><p><b><span style="font-size: medium;">Vestas Wind Systems (VWS.Denmark) posted single-digit Ebitda margins in 2023 after losing money in 2022. </span></b></p><p><b><span style="font-size: medium;">Inflation and fixed-price contracts, combined with fluctuating energy prices, have made the wind business tough in recent years.</span></b></p><p><b><span style="font-size: medium;">“In theory, [wind] is a business that long ago should have reached some kind of acceptable level of profit margins,” says Neuberger Berman portfolio manager Evelyn Chow. </span></b></p><p><b><span style="font-size: medium;">That hasn’t happened. </span></b></p><p><b><span style="font-size: medium;">What’s worse, the new turbines tend to come with a host of warranty issues as well.</span></b></p><p><b><span style="font-size: medium;">Vernova, though, is more than just wind. </span></b></p><p><b><span style="font-size: medium;">Heading into the investor event, management has provided more financial details, including the fact that it will report in three segments instead of two: renewable wind power, gas power turbines, and the new grid business, which includes transformers, software, and other products for utilities. </span></b></p><p><b><span style="font-size: medium;">Solving for wind should be a big part of the event—cost-cutting and product rationalization are likely to be part of the turnaround strategy—but so should the strength in the other two segments.</span></b></p><p><b><span style="font-size: medium;">In 2023, Vernova’s total sales came in at $33.2 billion, up about 11% from 2022. </span></b></p><p><b><span style="font-size: medium;">The gas-turbine power business generated sales of about $17.4 billion, for Ebitda of $1.7 billion, while the grid business notched $6.4 billion in sales and Ebitda of about $230 million. </span></b></p><p><b><span style="font-size: medium;">While wind had revenue of $9.8 billion, it produced an Ebitda loss of $1 billion, though that was an improvement from 2022’s negative $1.7 billion.</span></b></p><p><b><span style="font-size: medium;">Finding the right comparisons isn’t easy. Tokyo-based Mitsubishi Heavy Industries (7011.Japan) makes natural-gas-powered turbines, just like Vernova, but it also builds carbon capture, hydrogen projects, and warehouses, and its sales have been flat for the past five years. </span></b></p><p><b><span style="font-size: medium;">It currently trades at 11 times Ebitda. </span></b></p><p><b><span style="font-size: medium;">Paris-based Schneider Electric (SU.France) makes transformers and software for the grid, and trades at 16 times. </span></b></p><p><b><span style="font-size: medium;">Siemens Energy (ENR.Germany), which has a wind, gas, and grid business similar to Vernova’s, trades at just five times.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOKLd8DSEEmBY5AfSlm6jxr7c5JolTYlHH_p4JGPA6Stn4aFta4DetShn93P9yqIM5PtuPRXhUL02X_mHBxwMbgH92pVe6qbH21Hf8IDUFnD6IIlywY4NIzSoaHWboss_pV_I3hD1CJ1yNbyH7bnz8juuSpjDHIaPqMjKZg1_uH5-oCav-Jl8m3zDtOLyp/s940/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="627" data-original-width="940" height="473" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOKLd8DSEEmBY5AfSlm6jxr7c5JolTYlHH_p4JGPA6Stn4aFta4DetShn93P9yqIM5PtuPRXhUL02X_mHBxwMbgH92pVe6qbH21Hf8IDUFnD6IIlywY4NIzSoaHWboss_pV_I3hD1CJ1yNbyH7bnz8juuSpjDHIaPqMjKZg1_uH5-oCav-Jl8m3zDtOLyp/w665-h473/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="665" /></a><b style="text-align: left;"><i>Haliade 150-6MW offshore wind turbines at Block Island Offshore Wind Farm, Rhode Island. REUBEN WU/GE</i></b></b></div><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Mashing up those three stocks can yield a valuation for Vernova anywhere between $20 billion to $50 billion. </span></b></p><p><b><span style="font-size: medium;">One way to gauge early trading in the stock is to think of anything near the low end of that range as a good deal and near the high end as fully valued.</span></b></p><p><b><span style="font-size: medium;">Another option is to think about the story Vernova will try to tell—that of an American company building big machines, focused on improving profit margins while growing its service and aftermarket business. </span></b></p><p><b><span style="font-size: medium;">That’s not unlike the stories other cyclical manufacturers tell, whether the cream of the crop like Deere and Caterpillar or stragglers like Ford Motor. </span></b></p><p><b><span style="font-size: medium;">The main difference is the operating margins they’re able to produce—17% for the former group and closer to 6% for the latter.</span></b></p><p><b><span style="font-size: medium;">Those differences show up in valuations as well, with Deere and Caterpillar fetching between 12 and 18 times Ebitda, depending on where they are in the cycle, and a range of eight to 12 for the less-profitable, slower growing, companies. </span></b></p><p><b><span style="font-size: medium;">Vernova won’t be at the top, but should grow faster than companies at the bottom.</span></b></p><p><b><span style="font-size: medium;">Putting a multiple of 10 times on expected 2025 Ebitda of $3 billion would yield $30 billion, and adding in Vernova’s expected cash balance of $4.2 billion would give a market value of around $34 billion, or about $31 a GE share. </span></b></p><p><b><span style="font-size: medium;">Continued improvement in wind combined with more demand for wind power could lead to even better margins—and perhaps a higher valuation. </span></b></p><p><b><span style="font-size: medium;">“The future outlook is good,” says the Edge’s Osman. </span></b></p><p><b><span style="font-size: medium;">“Vernova will emerge as a stronger and more focused energy player in the upcoming years.”</span></b></p><p><b><span style="font-size: medium;">Osman is a fan of holding GE stock into the spinoff, which should be completed early in the second quarter, and then owning both Aerospace and Vernova. </span></b></p><p><b><span style="font-size: medium;">Though there won’t be a company calling itself General Electric for the first time since it was incorporated more than 130 years ago, the results should speak for themselves. </span></b></p><p><b><span style="font-size: medium;">A couple of years of improving margins at Vernova and continued strength at GE Aerospace could make the combined companies worth $200, up 30% from the current $154.</span></b></p><p><b><span style="font-size: medium;">“We feel pretty good about [the breakup],” Culp says. </span></b></p><p><b><span style="font-size: medium;">“I’m pretty sure Thomas Edison is looking down and saying this is the right thing.”</span></b></p><p><b><span style="font-size: medium;">The financial markets certainly are.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-11435858109358062612024-03-16T04:20:00.000-05:002024-03-16T04:20:00.138-05:00AS IRAN SCARES THE MIDDLE EAST, AT HOME ITS REGIME ROTS / THE ECONOMIST<p><b><span style="font-size: large;">The beginning of the end</span></b></p><p><b><span style="font-size: x-large;">As Iran scares the Middle East, at home its regime rots</span></b></p><p><b><i><span style="font-size: large;">Iran’s phoney elections show how the clerics have lost public support</span></i></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg29SVKZXDgHg5HwE-1QcrINAxx2hFkEciO4MvrBOBvQ4zWKxX5b513N01hhnhxel_d0L0vkfjPyBHrNMajZMJKmZC-4p23H5BBgrLJpfkjf1nWyBNw02ek6uR7eqnicrpCzx17lCQIbSjR5q6_NbfN_E584OB-uk5jklsn4h3PYB-BXZReEvO65M0WOSnz/s1280/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="1280" height="414" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg29SVKZXDgHg5HwE-1QcrINAxx2hFkEciO4MvrBOBvQ4zWKxX5b513N01hhnhxel_d0L0vkfjPyBHrNMajZMJKmZC-4p23H5BBgrLJpfkjf1nWyBNw02ek6uR7eqnicrpCzx17lCQIbSjR5q6_NbfN_E584OB-uk5jklsn4h3PYB-BXZReEvO65M0WOSnz/w654-h414/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="654" /></a></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">The results of the shah’s last election were a triumph. </span></b></p><p><b><span style="font-size: medium;">His party won all 268 seats. </span></b></p><p><b><span style="font-size: medium;">Officially, nearly half of the electorate voted in 1975. </span></b></p><p><b><span style="font-size: medium;">But when revolution erupted in 1979 his party melted away. </span></b></p><p><b><span style="font-size: medium;">The elections on March 1st for Iran’s parliament and assembly of experts, which selects the supreme leader, share similar traits. </span></b></p><p><b><span style="font-size: medium;">Unlike previous polls, when pragmatists and reformists could stand, all but ardent hardliners have been disqualified, including a former president, Hassan Rouhani. Hence loyalists will sweep the board.</span></b></p><p><b><span style="font-size: medium;">But as the regime purges its reformists, it shrinks to its inner core. </span></b></p><p><b><span style="font-size: medium;">In its hunger to monopolise power, it hollows out the state. </span></b></p><p><b><span style="font-size: medium;">Once a hybrid theocracy-cum-democracy, Iran is morphing into an absolute dictatorship with a wobbly base. </span></b></p><p><b><span style="font-size: medium;">Clerical quangos increasingly override parliament, reducing the latter to a talking-shop. </span></b></p><p><b><span style="font-size: medium;">A recent government survey leaked to the BBC Persian service shows haemorrhaging support for the theocrats. </span></b></p><p><b><span style="font-size: medium;">According to the poll, support for a separation of religion and state has jumped from 31% in 2015 to 73% today. </span></b></p><p><b><span style="font-size: medium;">“Yes-men are wonderful when things are calm, but they’re useless under crisis,” says a political analyst frequently in Iran. </span></b></p><p><b><span style="font-size: medium;">“Without an opposition you lose the bridge to the people.”</span></b></p><p><b><span style="font-size: medium;">Previously, the mullahs strove to get out the vote. </span></b></p><p><b><span style="font-size: medium;">Now they are so resigned to their unpopularity that they hardly bother. </span></b></p><p><b><span style="font-size: medium;">The election campaign has been Iran’s most lacklustre since 1979. </span></b></p><p><b><span style="font-size: medium;">According to a poll by the state broadcaster, more than half of Iranians are unaware of the date. </span></b></p><p><b><span style="font-size: medium;">Many are expected to boycott it. </span></b></p><p><b><span style="font-size: medium;">Fearing a fiasco, the regime has denied foreign journalists visas. </span></b></p><p><b><span style="font-size: medium;">Rather than assuaging popular anger, last year the government executed demonstrators who had protested in 2022. </span></b></p><p><b><span style="font-size: medium;">A popular song is “Strange Times” by Alireza Ghorbani. </span></b></p><p><b><span style="font-size: medium;">“The one who knocks on the door at night has come to kill the light,” he sings.</span></b></p><p><b><span style="font-size: medium;">Faced with civil disobedience against their rules on modesty, the clerics are scuttling back to the seminaries. </span></b></p><p><b><span style="font-size: medium;">An Iranian visitor to Britain notes with surprise there are more veils on London’s underground than Tehran’s. </span></b></p><p><b><span style="font-size: medium;">So resolute is the unveiling that some draw comparisons with the last years of the shah, when women took the veil in defiance of his ban. </span></b></p><p><b><span style="font-size: medium;">“As with the shah at the end of its regime, the system is culturally bankrupt and can no longer control people’s bodies,” says Yaser Mirdamadi, a dissident cleric in northern England.</span></b></p><p><b><span style="font-size: medium;">Economics drives grievances. </span></b></p><p><b><span style="font-size: medium;">Iran’s hardline but ineffectual president, Ebrahim Raisi, has struggled to overcome American sanctions. </span></b></p><p><b><span style="font-size: medium;">Unlike the worldly cabinet of his reformist predecessor, Mr Rouhani, his ministers come from the barracks of the Islamic Revolutionary Guard Corps (IRGC) or Imam Sadiq, a private religious college in Tehran. </span></b></p><p><b><span style="font-size: medium;">Years of high inflation and a depreciating currency have eroded the value of savings. </span></b></p><p><b><span style="font-size: medium;">Prices of basics are soaring and subsidies are eating up the budget, leaving little for capital expenditure. </span></b></p><p><b><span style="font-size: medium;">Without funding for water management, lakes and rivers are drying up. </span></b></p><p><b><span style="font-size: medium;">Welfare payments come late.</span></b></p><p><b><span style="font-size: medium;">Mr Raisi’s foreign policy makes matters worse. </span></b></p><p><b><span style="font-size: medium;">The morning after a drone fired by an Iran-backed militia in Iraq killed three Americans, the rial tumbled. </span></b></p><p><b><span style="font-size: medium;">It is unclear whether Iran can rein in the militias that make up its axis of resistance: Hizbullah in Lebanon; the Hashd in Iraq; and the Houthis in Yemen. </span></b></p><p><b><span style="font-size: medium;">On paper these are assets. </span></b></p><p><b><span style="font-size: medium;">But they have proven to be liabilities. </span></b></p><p><b><span style="font-size: medium;">Iranians worry that their lobbing of missiles at Israel, American soldiers and shipping will bring hellfire down on Iran.</span></b></p><p><b><span style="font-size: medium;">Abroad, as at home, the clerics talk tough but then compromise. </span></b></p><p><b><span style="font-size: medium;">Iran has continued its rapprochement with the United Arab Emirates and Saudi Arabia, even though both are getting closer to Israel, which Iran calls a “cancerous tumour”. </span></b></p><p><b><span style="font-size: medium;">After failing to persuade Muhammad bin Salman (MBS), the Saudi crown prince, to come to Tehran, Mr Raisi visited the Saudi capital, Riyadh, in November. </span></b></p><p><b><span style="font-size: medium;">Iran has also signalled a readiness to change its line on Israel in the event of a peace deal with the Palestinians. </span></b></p><p><b><span style="font-size: medium;">In recent months its mullahs have voted (at the UN and at a meeting of the Organisation of Islamic Conference in Riyadh) in favour of a two-state settlement, implicitly recognising Israel. </span></b></p><p><b><span style="font-size: medium;">Interlocutors say Iran is committed to reining in its allied militias should Israel and the Palestinians make peace.</span></b></p><p><b><span style="font-size: large;">That’s me in the corner</span></b></p><p><b><span style="font-size: medium;">The interlocutors are floating other balloons, too. </span></b></p><p><b><span style="font-size: medium;">When America and the Soviet Union convened an Arab-Israeli peace conference in Madrid three decades ago, they left Iran out in the cold, despite the wishes of its then president, Ali Akbar Rafsanjani, to participate. </span></b></p><p><b><span style="font-size: medium;">Snubbed, Iran’s new supreme leader, Mr Khamenei, convened his own conference for resistance against Israel instead. </span></b></p><p><b><span style="font-size: medium;">Hamas’s bus-bombings in Israel followed, undermining the peace process between Israel and the Palestinians.</span></b></p><p><b><span style="font-size: medium;">With talk of a peace settlement again in the air, Badr Albusaidi, Oman’s foreign minister, in an opinion piece in The Economist, called for another Madrid-like conference, this time with Iran at the table. </span></b></p><p><b><span style="font-size: medium;">Although Israelis and Americans frame Israeli-Gulf normalisation as a common front against Iran, the Islamic Republic is signalling that it wants to be part of a new order.</span></b></p><p><b><span style="font-size: medium;">Constructive diplomacy jars, given the hardliners’ history as spoilers. </span></b></p><p><b><span style="font-size: medium;">But it is a measure of their desperation that they are adopting policies at home and abroad that they had previously derided. </span></b></p><p><b><span style="font-size: medium;">“Everything that the hardliners opposed under Rouhani, they’re now doing themselves,” says Mr Mirdamadi. </span></b></p><p><b><span style="font-size: medium;">A place at an international conference (and de facto recognition of Israel) could throw the clerics the lifeline of international legitimacy and grant them a reprieve from sanctions.</span></b></p><p><b><span style="font-size: medium;">It is not for want of trying alternatives. </span></b></p><p><b><span style="font-size: medium;">Mr Khamenei had tried reaching out to China. </span></b></p><p><b><span style="font-size: medium;">But it has at least partly complied with America’s sanctions on dollar flows. </span></b></p><p><b><span style="font-size: medium;">The $400bn in infrastructure projects over 25 years that China had promised in 2021 have had a slow start</span></b><b><span style="font-size: medium;">. </span></b></p><p><b><span style="font-size: medium;">Iranian officials now regret their foot-dragging over a new deal with America for sanctions relief in exchange for nuclear curbs.</span></b></p><p><b><span style="font-size: medium;">Short of a fresh start with America, Iranians wonder how long the uneasy stand-off between the clerics and their people will hold. </span></b></p><p><b><span style="font-size: medium;">Mr Khamenei’s age (84) and poor health have left a vacuum. </span></b></p><p><b><span style="font-size: medium;">Unlike his predecessor, Mr Khamenei shies from filling it by appointing a deputy. </span></b></p><p><b><span style="font-size: medium;">Hardliners look to the elections, particularly of the assembly of experts, to cement their grip on the succession. </span></b></p><p><b><span style="font-size: medium;">But they are hardly a united bunch. </span></b></p><p><b><span style="font-size: medium;">Conservatives want to shoehorn Mr Raisi into the job, though he lacks the credentials. </span></b></p><p><b><span style="font-size: medium;">Others propose Mojtaba, Mr Khamenei’s second son.</span></b></p><p><b><span style="font-size: medium;">Meanwhile, opposition forces are gathering against them. </span></b></p><p><b><span style="font-size: medium;">A circle of aggrieved, sidelined reformists hover in the wings, waiting for the hardliners to fail. </span></b></p><p><b><span style="font-size: medium;">Normally tight-lipped officials now brief foreigners about the hardliners’ abuses of power. </span></b></p><p><b><span style="font-size: medium;">Mohammad Zarif, who had been Mr Rouhani’s amicable foreign minister, is being kept under guard and has been stripped of his passport, some say.</span></b></p><p><b><span style="font-size: medium;">Yet those who want change also disagree about how to achieve it. </span></b></p><p><b><span style="font-size: medium;">Ambitious irgc commanders aspire to the Pakistani model of a pseudo-democracy under the military’s thumb. </span></b></p><p><b><span style="font-size: medium;">Democrats hope for a new constitution, which would vest sovereignty in parliament. Some seek a reform-minded strongman. </span></b></p><p><b><span style="font-size: medium;">They all seem to agree that Iran’s wilayat al-faqih, or rule of the religious jurist, has run its course.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-28731604032986585552024-03-16T04:19:00.000-05:002024-03-16T04:19:00.136-05:00IT´S NOT TOO LATE TO REVERSE AMERICA´S POLITICAL DECAY / THE FINANCIAL TIMES OP EDITORIAL<p><b><span style="font-size: x-large;">It’s not too late to reverse America’s political decay</span></b></p><p><b><i><span style="font-size: large;">When a society’s institutions fail to adapt to changing circumstances, sclerosis follows</span></i></b></p><p><b>Francis Fukuyama</b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0jsNj0nI3tEXCFwjJvdTnIybahLqpnddMjm9qfQenp6ZvTnp4ieixM1bMzZLC2BHQO-uwjMB_ATNtsnTJQhnQP8SND2ANAeHtq1qcb7y_MQ0L8GBDfegZaPVs6_SqA8oCd4PpyPC9iovYKhWAP7DqCY_bJUNUnKSZFCGKV2uouP8rlbqZtpvhN7Qk_S6j/s700/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="394" data-original-width="700" height="325" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0jsNj0nI3tEXCFwjJvdTnIybahLqpnddMjm9qfQenp6ZvTnp4ieixM1bMzZLC2BHQO-uwjMB_ATNtsnTJQhnQP8SND2ANAeHtq1qcb7y_MQ0L8GBDfegZaPVs6_SqA8oCd4PpyPC9iovYKhWAP7DqCY_bJUNUnKSZFCGKV2uouP8rlbqZtpvhN7Qk_S6j/w662-h325/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="662" /></a><b style="text-align: left;"><i>© Ann Kiernan</i></b></div><p></p><p><br /></p><p><b><span style="font-size: medium;">According to the non-profit Freedom House, there has been a steady decline in the quantity and quality of liberal democracies around the world for the past 18 years. </span></b></p><p><b><span style="font-size: medium;">Among the backsliders, there is no case more serious than that of the United States. </span></b></p><p><b><span style="font-size: medium;">American institutions have been decaying steadily for some time, and are now at a major crisis point. </span></b></p><p><b><span style="font-size: medium;">Nearly a third of the electorate believes the falsehood that President Joe Biden stole the 2020 election. </span></b></p><p><b><span style="font-size: medium;">Polls suggest that voters would be prepared to re-elect Donald Trump, the former president who propagated this lie among supporters, resulting in an assault on the Capitol on January 6 2021 in a bid to keep him in power. </span></b></p><p><b><span style="font-size: medium;">That same Trump refuses to support Ukraine and recently invited Russia to attack any Nato ally that did not pay an imaginary debt for US protection. </span></b></p><p><b><span style="font-size: medium;">With five primary victories under his belt, and more to come on Super Tuesday next week, he is poised to be the Republican candidate. </span></b></p><p><b><span style="font-size: medium;">The consequences that would flow from his November re-election will affect every part of the globe.</span></b></p><p><b><span style="font-size: medium;">Political decay occurs when a society’s institutions fail to adapt to changing circumstances. </span></b></p><p><b><span style="font-size: medium;">This has been going on for a generation, and is now culminating in an enormous crisis that will play out over the next eight months. </span></b></p><p><b><span style="font-size: medium;">The US system is built around a complex set of check-and-balance institutions that make it easy for minorities in politics to thwart the will of majorities. </span></b></p><p><b><span style="font-size: medium;">When these institutions are combined with extreme political polarisation, they create governmental paralysis and an inability to perform basic functions like passing a yearly budget. </span></b></p><p><b><span style="font-size: medium;">Some of these rigidities are built into the US constitution. </span></b></p><p><b><span style="font-size: medium;">The electoral college dramatically over-represents inhabitants of smaller states while the Senate is a huge source of unequal representation. </span></b></p><p><b><span style="font-size: medium;">Wyoming, with a population of less than a million, gets two senators, as does California with almost 40mn residents. </span></b></p><p><b><span style="font-size: medium;">Routine legislation requires supermajorities to pass, meaning that 40 out of 100 senators can block anything they don’t like.</span></b></p><p><b><span style="font-size: medium;">What is particularly infuriating about the deadlock over funding for Ukraine, for example, is that a majority of members of both the House and Senate, as well as a large part of the public, favour such a measure. </span></b></p><p><b><span style="font-size: medium;">They cannot get a bill passed, however, because a diehard conservative faction within the Republican House membership is steadfastly opposed — not just to Ukraine funding but to any bipartisan deal involving Democrats.</span></b></p><p><b><span style="font-size: medium;">In today’s polarised America, Maga Republicans are inclined to veto simply for the sake of undermining the other side. </span></b></p><p><b><span style="font-size: medium;">They have been pushing for stronger security measures on the southern border for months. </span></b></p><p><b><span style="font-size: medium;">Biden essentially gave in to their demands in order to get funding for Ukraine, Israel and Taiwan through, at which point Trump, still only a candidate, intervened to veto the deal because he didn’t want the president to get any credit. </span></b></p><p><b><span style="font-size: medium;">Several other aspects of the American political order have contributed to polarisation. </span></b></p><p><b><span style="font-size: medium;">Presidentialism locks in the winner for an unalterable four-year term, and that person can be turned out only through impeachment, which is an extraordinarily difficult process. </span></b></p><p><b><span style="font-size: medium;">One of Trump’s biggest advantages today is Biden’s age and general unpopularity. </span></b></p><p><b><span style="font-size: medium;">In a parliamentary system, the party elite could move to replace a failing leader with someone more electable, but this can’t happen in the US.</span></b></p><p><b><span style="font-size: medium;">This is related in turn to America’s agonisingly long process for selecting party candidates. </span></b></p><p><b><span style="font-size: medium;">The first-past-the-post voting system, when combined with popular primaries, favours candidates at either extreme. </span></b></p><p><b><span style="font-size: medium;">Due to a Supreme Court ruling that equates campaign spending with free speech, money makes an inordinate difference in US elections.</span></b></p><p><b><span style="font-size: medium;">All of these problems could be solved through reform. </span></b></p><p><b><span style="font-size: medium;">States could require electoral votes be allocated on a proportional basis. </span></b></p><p><b><span style="font-size: medium;">Plurality voting could be replaced by rank-choice voting that would require voters to specify second- and third-place preferences and facilitate the emergence of third parties. </span></b></p><p><b><span style="font-size: medium;">The country could place stronger restrictions on campaign finance, and the requirement for 60-vote supermajorities in the Senate could be abolished. </span></b></p><p><b><span style="font-size: medium;">This list doesn’t even touch on major constitutional reforms, such as abolition of the electoral college or changes to the power of the Senate. </span></b></p><p><b><span style="font-size: medium;">For now, these lie in the realm of fantasy.</span></b></p><p><b><span style="font-size: medium;">Frustrating as these problems are, they are only the tip of a much larger iceberg. </span></b></p><p><b><span style="font-size: medium;">While Trump has been an extraordinarily skilful demagogue, what is driving this turn to the hard right are the voters themselves. </span></b></p><p><b><span style="font-size: medium;">There are many “normal” Republican leaders who understand why populist policies are bad for the country, but they nonetheless support them because they live in fear of their own base.</span></b></p><p><b><span style="font-size: medium;">Any democracy depends on an electorate that is well-informed and supportive of the norms on which the system rests. </span></b></p><p><b><span style="font-size: medium;">But an astonishing number of Americans have bought into bizarre conspiracy theories and alternative realities. </span></b></p><p><b><span style="font-size: medium;">Polls show that 17 per cent support QAnon, whose narratives include Democrats drinking the blood of children in hidden tunnels under Washington. </span></b></p><p><b><span style="font-size: medium;">Over half of Republicans believe that vaccines are more harmful than helpful, while many evangelicals think that church closures during the pandemic were the first shot in a campaign by liberals to close their churches permanently. </span></b></p><p><b><span style="font-size: medium;">One of the biggest transformations that has occurred in US society over the past decade has been a revolution in the moral evaluation of the country itself. </span></b></p><p><b><span style="font-size: medium;">For most of the country’s history, its people believed in some version of American exceptionalism according to which the country would be an inspiration to oppressed peoples around the world.</span></b></p><p><b><span style="font-size: medium;">This used to be particularly true for conservatives, but today Maga Republicans believe that their country is pervaded by moral corruption. </span></b></p><p><b><span style="font-size: medium;">Belief in US democracy has been replaced by admiration for strong men and authoritarian governments overseas. </span></b></p><p><b><span style="font-size: medium;">Trump praises China’s Xi Jinping and North Korea’s Kim Jong Un for ruling their people with an iron hand. </span></b></p><p><b><span style="font-size: medium;">The Republican party has returned to its pre-1941 isolationism, but it is isolationism with a difference. </span></b></p><p><b><span style="font-size: medium;">Back then, isolationists believed that America was pure and shouldn’t be tainted by association with foreign countries. </span></b></p><p><b><span style="font-size: medium;">Today, they believe their own country needs purification.</span></b></p><p><b><span style="font-size: medium;">Needless to say, this migration of anti-Americanism from left to right has huge implications for world order. </span></b></p><p><b><span style="font-size: medium;">A victory for Trump in November will mean a decisive end to US support for Ukraine. </span></b></p><p><b><span style="font-size: medium;">In time, we may have to witness the fall of Kyiv to Russian forces. </span></b></p><p><b><span style="font-size: medium;">But Vladimir Putin will not stop there and Trump has made clear he has no intention of fighting to protect Nato allies. </span></b></p><p><b><span style="font-size: medium;">In his interview with Tucker Carlson, Putin said he would not attack Poland or Lithuania, but he didn’t mention Estonia, which like Ukraine hosts a Russian-speaking minority. </span></b></p><p><b><span style="font-size: medium;">It will be next on the chopping block.</span></b></p><p><b><span style="font-size: medium;">A similar logic would apply to Asian allies such as South Korea and Japan. </span></b></p><p><b><span style="font-size: medium;">Anyone who thinks that Trump would defend Taiwan against a Chinese invasion needs to think again. </span></b></p><p><b><span style="font-size: medium;">It is not too late to reverse this process of decay, however. </span></b></p><p><b><span style="font-size: medium;">Most Americans don’t understand the depth of the fundamental threat that Trump poses to their democracy, but regard him as a normal politician with somewhat different policy preferences. </span></b></p><p><b><span style="font-size: medium;">Anyone who imagines that a second Trump term will simply reprise the first hasn’t been paying attention to what he has been saying and doing.</span></b></p><p><b><span style="font-size: medium;">The Democrats have a lot of work to do to wake people up to the magnitude of the challenge the country faces. </span></b></p><p><b><span style="font-size: medium;">If that happens, there is a possibility that, rather than eking out another narrow victory, they will win decisively. </span></b></p><p><b><span style="font-size: medium;">If that happens, they can begin to think about reforms that will reverse the process of decay. </span></b></p><p><b><span style="font-size: medium;">Believers in a classically liberal America need to reduce the ability of political minorities to stymie majorities, and streamline our impossibly complex processes and procedures to make government more effective. </span></b></p><p><b><span style="font-size: medium;">But first, they need to win.</span></b></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;"><i>The writer is author of ‘Liberalism and Its Discontents’</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-58156002307956446402024-03-15T04:20:00.003-05:002024-03-15T04:20:00.139-05:00HOW VLADIMIR PUTIN CONTROLS THE RUSSIANS / DER SPIEGEL<p><b><span style="font-size: large;">Everyday Repression and Resignation</span></b></p><p><b><span style="font-size: x-large;">How Vladimir Putin Controls the Russians</span></b></p><p><b><i><span style="font-size: large;">Russia has reverted to a dictatorship under President Vladimir Putin. Most people in the country seem to be accepting the war against Ukraine as well as the death of opposition activist Alexei Navalny. Why?</span></i></b></p><p><b>By Benjamin Bidder, Ann-Dorit Boy und Christina Hebel in Hamburg and Moscow</b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgv_UfUOqnamyvo4dmQxGyUaS6zLXZYhcydoc6m1LlqVzIQhRwFVA6Jrbw7zSW-e5P4f4zIyuuTx3GD6Q_RjFRcqz4B0aUM4x3GQQDfAt0RMvM-xsJtxaNHTm9FuYbhxE_g_hmtipVMJ57JbBl1uo4W25XQBMZ_9WtdVFByJH0OJ6kqIBEw1EG2yYy9NiDS/s1024/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="576" data-original-width="1024" height="340" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgv_UfUOqnamyvo4dmQxGyUaS6zLXZYhcydoc6m1LlqVzIQhRwFVA6Jrbw7zSW-e5P4f4zIyuuTx3GD6Q_RjFRcqz4B0aUM4x3GQQDfAt0RMvM-xsJtxaNHTm9FuYbhxE_g_hmtipVMJ57JbBl1uo4W25XQBMZ_9WtdVFByJH0OJ6kqIBEw1EG2yYy9NiDS/w660-h340/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="660" /></a></div><b><i>Vladimir Putin has been in power in Russia for 24 years. Foto: Louise Delmotte / picture alliance / AP</i></b><br /><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Pedestrians walk past Yaroslav Smolev with his placard as if he doesn't even exist. The 24-year-old with the long hair is standing in the slush on the famous Nevsky Prospekt in the center of St. Petersburg. </span></b></p><p><b><span style="font-size: medium;">The news of Alexei Navalny's death is only one day old. </span></b></p><p><b><span style="font-size: medium;">Smolev holds a sheet of paper in front of his chest. </span></b></p><p><b><span style="font-size: medium;">In red letters, he has written: "They killed Navalny because we didn't care."</span></b></p><p><b><span style="font-size: medium;">He quickly realizes just how apt this sentence is, how little the death of the imprisoned Kremlin critic moves most of his fellow people. </span></b></p><p><b><span style="font-size: medium;">"The faces of most people who pass by are motionless," the young Russian later recounts in an agitated video call. </span></b></p><p><b><span style="font-size: medium;">Two Russian tourists even asked him to step aside so that they could take "more beautiful photos" of Kazan Cathedral.</span></b></p><p><b><span style="font-size: medium;">Smolev remains on the sidewalk with his sign for less than five minutes before three police officers come and take him away, as video footage shows. </span></b></p><p><b><span style="font-size: medium;">They would go on to initiate legal proceedings against him. </span></b></p><p><b><span style="font-size: medium;">The flimsy justification used is an alleged violation of coronavirus regulations, which no one else in Russia has paid much attention to for quite some time.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZZfr3M-Gl18U5pwmXgKPicx1sX4RF0wspTUEfs6HJ2zV2SQkecsiR8WLktQN5r90fCgMUv7s7cXy6Y36ktdwpNJ0F3k9ZccRJfUoYMmrpi9hCG6gx4lyU6iI743TuBIKfJ7OGlRht7xRIPtr-dm3ZgfHy6FmRGhYAI1NeETn9RTqzazk4la3_k-l2TJCj/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="520" height="364" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZZfr3M-Gl18U5pwmXgKPicx1sX4RF0wspTUEfs6HJ2zV2SQkecsiR8WLktQN5r90fCgMUv7s7cXy6Y36ktdwpNJ0F3k9ZccRJfUoYMmrpi9hCG6gx4lyU6iI743TuBIKfJ7OGlRht7xRIPtr-dm3ZgfHy6FmRGhYAI1NeETn9RTqzazk4la3_k-l2TJCj/w667-h364/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="667" /></a><b style="text-align: left;"><span><i>A woman mourns the death of Alexei Navalny in St. Petersburg. Foto: Dmitri Lovetsky / dpa</i></span></b></b></div><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUqmYchvK6oOWJ6UpaM-fl2ayYRE1d9yFUtwq8wVNZtXSSUpOVtyMXHkjaJXs1jyEmz9FaS1xvDuX27DNh32akFABb1U6_DICZJ1TWbhWyRaXwBToqoAcbnwpgGAcRGJxIf1l6ar3e9z7bvQnevLTqfoP81ECNuhF6QFi-LI30P4A5FmizBAp5ThIP_ytp/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="520" height="358" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUqmYchvK6oOWJ6UpaM-fl2ayYRE1d9yFUtwq8wVNZtXSSUpOVtyMXHkjaJXs1jyEmz9FaS1xvDuX27DNh32akFABb1U6_DICZJ1TWbhWyRaXwBToqoAcbnwpgGAcRGJxIf1l6ar3e9z7bvQnevLTqfoP81ECNuhF6QFi-LI30P4A5FmizBAp5ThIP_ytp/w648-h358/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="648" /></a><b style="text-align: left;"><span><i>A brutal arrest in St. Petersburg Foto: AP</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">The death of Vladimir Putin's best-known political opponent in a prison camp hasn't triggered any new wave of protests in Russia. </span></b></p><p><b><span style="font-size: medium;">At most, there are small, quiet actions held by a few thousand people, among them a conspicuously large number of women.</span></b></p><p><b><span style="font-size: medium;">Only a few dare to carry signs like Smolev. </span></b></p><p><b><span style="font-size: medium;">Most lay flowers at memorials to the victims of Stalinism, cry or kneel down. </span></b></p><p><b><span style="font-size: medium;">But even that is risky in today's Russia. </span></b></p><p><b><span style="font-size: medium;">Hundreds were taken away within a few days.</span></b></p><p><b><span style="font-size: medium;">Vladimir Putin is fighting two wars, one externally against Ukraine and one internally against dissidents – and right now, he seems to have the upper hand on both fronts. </span></b></p><p><b><span style="font-size: medium;">The first Russian president, Boris Yeltsin, placed a fragile democracy in Putin's hands 24 years ago. </span></b></p><p><b><span style="font-size: medium;">And Putin has turned it into an autocracy that strikes ever more brutally. </span></b></p><p><b><span style="font-size: medium;">If it wasn't already a dictatorship before, Russia became one when it invaded Ukraine precisely two years ago. </span></b></p><p><b><span style="font-size: medium;">Even the tiny niches that had remained for independent media and members of the opposition were abolished, and almost all opponents of the regime and the war were driven abroad or imprisoned.</span></b></p><p><b><span style="font-size: medium;">This is the backdrop against which Putin's re-election is to set take place on March 17. </span></b></p><p><b><span style="font-size: medium;">An election whose result has already been decided – and which the autocrat still wants to celebrate like a triumph of democracy. </span></b></p><p><b><span style="font-size: medium;">Alexei Navalny's plan had been for millions of people to disrupt that staging by turning out en masse to the polling stations at 12 p.m. </span></b></p><p><b><span style="font-size: medium;">The liberal opposition in exile has also been calling for such an action. </span></b></p><p><b><span style="font-size: medium;">It is the only form of protest that still seems reasonably safe. </span></b></p><p><b><span style="font-size: medium;">But even before Navalny's death, it was already foreseeable that few Russians would take the risk.</span></b></p><p><b><span style="font-size: medium;">Did Putin have his opponent murdered deliberately so as not to disrupt the election spectacle, or is Navalny's death more of an inconvenience for him? </span></b></p><p><b><span style="font-size: medium;">Perhaps it wasn't enough for Putin that Navalny was suffering in a prison camp in the Arctic Circle, where he could only meddle in politics through messages delivered by lawyers. </span></b></p><p><b><span style="font-size: medium;">Perhaps he had to die in order to erase the last hope for a different, free Russia. </span></b></p><p><b><span style="font-size: medium;">The fact that Russia kept the Kremlin critic's body under lock and key for several days after his death points to the former.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHt31bAG3TzhZl07DcfjGYykZJHuUbVkUewvvZq6WgetUQM76UrK69Ceru2auCVYaOG8pNNWDHdANGYC2fFO5zeP1skprL7gS_lWDvrwcQqwHtapHjgw3KnwK-ZX34h7TZKfB4WLIanCq9sHIKpq_OkLxd2xzi32sga8ahjvfaNUdv9UdQtHayGCn32jr5/s488/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="319" data-original-width="488" height="416" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHt31bAG3TzhZl07DcfjGYykZJHuUbVkUewvvZq6WgetUQM76UrK69Ceru2auCVYaOG8pNNWDHdANGYC2fFO5zeP1skprL7gS_lWDvrwcQqwHtapHjgw3KnwK-ZX34h7TZKfB4WLIanCq9sHIKpq_OkLxd2xzi32sga8ahjvfaNUdv9UdQtHayGCn32jr5/w657-h416/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="657" /></a><b style="text-align: left;"><span><i>Flowers laid for Navalny in St. Petersburg and elsewhere are quickly removed by the authorities. Foto: REUTERS</i></span></b></b></div><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Whatever the case may be, the regime has blood on its hands. </span></b></p><p><b><span style="font-size: medium;">Navalny isn't the first Kremlin critic to die – many have, from journalist Anna Politkovskaya to opposition politician Boris Nemtsov. </span></b></p><p><b><span style="font-size: medium;">The regime has been particularly hard on those it deems to be "traitors," like the former agent Alexander Litvinenko, who was poisoned with polonium. </span></b></p><p><b><span style="font-size: medium;">Most recently, a Russian army helicopter pilot who had defected to Ukraine was murdered in Spain, presumably by Russian henchmen.</span></b></p><p><b><span style="font-size: medium;">Putin has no reason to fear an uprising in the country. </span></b></p><p><b><span style="font-size: medium;">The regime has proven to be terribly stable. </span></b></p><p><b><span style="font-size: medium;">Most people have simply surrendered to those in power – and that doesn't have to mean that they are doing badly.</span></b></p><p><b><span style="font-size: medium;">Although the majority of Russians would probably have preferred that the war never started, most of them silently support it. </span></b></p><p><b><span style="font-size: medium;">The mobilization in autumn 2022 drove hundreds of thousands out of the country, but many have since returned. </span></b></p><p><b><span style="font-size: medium;">After eight months, the mini mutiny of mercenary leader Yevgeny Prigozhin seems almost forgotten. </span></b></p><p><b><span style="font-size: medium;">And the fact that Putin is now responsible for the death of his critic Navalny seems not to have created many waves, or even ripples.</span></b></p><p><b><span style="font-size: medium;">The stability of the regime cannot be explained by repression alone. </span></b></p><p><b><span style="font-size: medium;">Added to this is the resilience of this system, which has cleverly cushioned the sanctions. </span></b></p><p><b><span style="font-size: medium;">Indeed, the economy is growing, and the standard of living enjoyed by most people has only been slightly affected by the war. </span></b></p><p><b><span style="font-size: medium;">Hundreds of thousands of state employees in particular continue to live almost as before and see no need to question the autocrat.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8eziBbXLBxfCR0JPMu9Bal4-XJCnk7T0EvtwLhADfJbPVTwHd3Q1gKs7b78-exfa_ZmTIVuFgewc86vNs6VUnok1DFIM2tNVVCsq-83S9cNZkiL3MfSi93xbsuTQMC5BvSK3xoGgEvmgdjkH4bdVX8oVdADs9g8a463Igh6lAsZ9PfmpwJsW-b0Htq-zT/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="520" height="422" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8eziBbXLBxfCR0JPMu9Bal4-XJCnk7T0EvtwLhADfJbPVTwHd3Q1gKs7b78-exfa_ZmTIVuFgewc86vNs6VUnok1DFIM2tNVVCsq-83S9cNZkiL3MfSi93xbsuTQMC5BvSK3xoGgEvmgdjkH4bdVX8oVdADs9g8a463Igh6lAsZ9PfmpwJsW-b0Htq-zT/w660-h422/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="660" /></a><b style="text-align: left;"><span><i>Yaroslav Smolev in Saint Petersburg: "They killed Navalny because we didn't care." Foto: Andrey Bok</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Yaroslav Smolev, the man with the sign, has never known another Russia. </span></b></p><p><b><span style="font-size: medium;">At 24 years old, he has been alive for the same amount of time that Putin has ruled. </span></b></p><p><b><span style="font-size: medium;">And it's not just on Nevsky Prospect that Smolev is standing alone against the autocrat – that's also the case with his family. </span></b></p><p><b><span style="font-size: medium;">Smolev says on his mobile phone that he called his grandmother to share his grief over Navalny's death. </span></b></p><p><b><span style="font-size: medium;">But he says his grandmother, with whom he had always been able to talk about everything, reacted harshly. </span></b></p><p><b><span style="font-size: medium;">She responded that she didn't know anything about this Navalny. </span></b></p><p><b><span style="font-size: medium;">And that either way, she would still vote for Putin in March.</span></b></p><p><b><span style="font-size: medium;">Smolev believes his grandmother is speaking out of fear. </span></b></p><p><b><span style="font-size: medium;">She's 70 years old and lives in Khabarovsk in the far east of the country. </span></b></p><p><b><span style="font-size: medium;">"Fear has been etched in my family's memory since Stalin's time," says Smolev. </span></b></p><p><b><span style="font-size: medium;">And yet it hurts him that his grandmother's fear is stronger than her love for her own grandson.</span></b></p><p><b><span style="font-size: medium;">After his Navalny protest, police threatened Smolev at the station. </span></b></p><p><b><span style="font-size: medium;">He secretly recorded the interrogation on his mobile phone and is now playing back the recording. </span></b></p><p><b><span style="font-size: medium;">"You don't want to give your fingerprints, do you?" says a male voice. </span></b></p><p><b><span style="font-size: medium;">"Then we'll grab you by the legs and hold you upside down. </span></b></p><p><b><span style="font-size: medium;">That way we get all the prints from your face to your heels." </span></b></p><p><b><span style="font-size: medium;">A second voice threatens: "Then come to the cell now, the boys there like beauties like you."</span></b></p><p><b><span></span></b></p><div class="separator" style="clear: both; text-align: center;"><b><span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4j3w_KA0uE-BXKpcqVhbDHAykGO6bd9R_iK1s3WVyfgmenN04lLM34nvc9nO5VTFBu5Vz7T2fA1CDJWq4-iC4FQVk8btfaKjsxJfHUiLWqiQS2AlnbdGtC7_38oxpmiwnT9vwnPd-qi71Utt6KrXnDNs1GXEr563t-omgZ-jKBnZH7i5zaVNwwOlplcIS/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="355" data-original-width="520" height="425" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4j3w_KA0uE-BXKpcqVhbDHAykGO6bd9R_iK1s3WVyfgmenN04lLM34nvc9nO5VTFBu5Vz7T2fA1CDJWq4-iC4FQVk8btfaKjsxJfHUiLWqiQS2AlnbdGtC7_38oxpmiwnT9vwnPd-qi71Utt6KrXnDNs1GXEr563t-omgZ-jKBnZH7i5zaVNwwOlplcIS/w661-h425/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="661" /></a></span></b></div><b><span><i>Police offers press a Navalny supporter's face into the snow as they detain him in Moscow. Foto: REUTERS</i></span></b><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Smolev also told his grandmother about it. </span></b></p><p><b><span style="font-size: medium;">Her answer was curt: "Have you forgotten how you hid from the police in Khabarovsk? </span></b></p><p><b><span style="font-size: medium;">Too bad you didn't learn your lesson from that." </span></b></p><p><b><span style="font-size: medium;">Smolev had protested against the attack on Ukraine in his old home town in 2022.</span></b></p><p><b><span style="font-size: medium;">The truth, says the young man, is that his family's view of the ruler isn't much different from his own. </span></b></p><p><b><span style="font-size: medium;">"But they never said anything against it, they just put up with everything. </span></b></p><p><b><span style="font-size: medium;">Out of fear."</span></b></p><p><b><span style="font-size: medium;">Back then in Khabarovsk, he was given a fine, and now he's facing another one. </span></b></p><p><b><span style="font-size: medium;">If he gets arrested again, he could also face jail time. And yet he still doesn't want to stop standing up for freedom in his country. </span></b></p><p><b><span style="font-size: medium;">"Navalny fought, so I will do the same," he says.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKYcAuY_0DI0CkJP2_CWw-0e4J4aDX1GwAGr9prom5-v-xrT0a2PzsQtOU0yRCYNA4GWXGmC22b5ma6u8pzTreXz3CyjhNGL0lBrWVSLQfMjmvy4fgAEe9tP_soCpSiHCfP7T4iIy7vQUUk2KddxThCvh2ZFOu6hPa0K-S94Ega90YM-bum6sjH05UYPTF/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="520" height="376" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKYcAuY_0DI0CkJP2_CWw-0e4J4aDX1GwAGr9prom5-v-xrT0a2PzsQtOU0yRCYNA4GWXGmC22b5ma6u8pzTreXz3CyjhNGL0lBrWVSLQfMjmvy4fgAEe9tP_soCpSiHCfP7T4iIy7vQUUk2KddxThCvh2ZFOu6hPa0K-S94Ega90YM-bum6sjH05UYPTF/w653-h376/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="653" /></a><b style="text-align: left;"><span><i>Ekaterina Schulman during a vigil for Navalny in Munich. Foto: Johannes Simon / Getty Images</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Around 1,700 kilometers away in Berlin, Ekaterina Schulman takes a seat in an old-fashioned café on the outskirts of the city. </span></b></p><p><b><span style="font-size: medium;">"In autocracies, there is hardly any connection between what people want and what the state does," says the Russian political scientist, a star of the liberal intelligentsia. </span></b></p><p><b><span style="font-size: medium;">The 45-year-old speaks quickly, with ready delivery and manages to inject an ironic wit into even the darkest of topics. </span></b></p><p><b><span style="font-size: medium;">Like many Russian liberals, Schulman went abroad after the invasion of Ukraine. </span></b></p><p><b><span style="font-size: medium;">She is considered a "foreign agent" in her home country and is thus subject to a de facto ban on practicing her profession. </span></b></p><p><b><span style="font-size: medium;">However, around 68 percent of the more than 1.2 million subscribers to her YouTube channel still live in Russia.</span></b></p><p><b><span style="font-size: medium;">It's important for Schulman to emphasize that most Russians are not enthusiastic about Putin's war or about Russia's aspirations to be a superpower. </span></b></p><p><b><span style="font-size: medium;">Fewer than 15 percent offered their enthusiastic support for the war, the political scientist says. </span></b></p><p><b><span style="font-size: medium;">Under no circumstances should the political opinion and world view of people in Russia be conceived in the way the Kremlin conveys it, she says. </span></b></p><p><b><span style="font-size: medium;">"Prior to the war, people were not militarized, quite the opposite," says Schulman. </span></b></p><p><b><span style="font-size: medium;">"Since the 2018 FIFA World Cup in Russia, more Russians have taken a positive view of the European Union, the United States, the West and Ukraine than negative."</span></b></p><p><b><span style="font-size: large;">Vague Censorship Laws</span></b></p><p><b><span style="font-size: medium;">But why do people accept that Putin is attacking the neighboring country, isolating Russia from the West and declaring it his arch-enemy?</span></b></p><p><b><span style="font-size: medium;">"It's quite simple," says Schulman. Putin claimed that Ukraine had to be de-Nazified, she says. </span></b></p><p><b><span style="font-size: medium;">"The autocrat's word is the official Russian position. </span></b></p><p><b><span style="font-size: medium;">There is pressure to be loyal and there is punishment for those who publicly deviate from this narrative."</span></b></p><p><b><span style="font-size: medium;">Putin has imposed wartime censorship. </span></b></p><p><b><span style="font-size: medium;">According to the regime, anyone who criticizes the attack on the neighboring country is slandering the army and is subject to prosecution. </span></b></p><p><b><span style="font-size: medium;">The censorship laws are so vaguely formulated that the security authorities can take action against just about anyone. </span></b></p><p><b><span style="font-size: medium;">Just wearing blue and yellow sneakers, the colors of Ukraine, can be enough to land a person in hot water. </span></b></p><p><b><span style="font-size: medium;">One Moscow man who did that got fined the equivalent of 100 euros. </span></b></p><p><b><span style="font-size: medium;">Meanwhile, a woman in Krasnodar was talking to her husband about the war in a restaurant. </span></b></p><p><b><span style="font-size: medium;">A restaurant employee reported her to the police and she had to pay the equivalent of 400 euros in fines; her husband went to jail for 15 days for "rioting." </span></b></p><p><b><span style="font-size: medium;">People are snitching on others all over the place in Russia right now. </span></b></p><p><b><span style="font-size: medium;">Compliant helpers have denounced tens of thousands of fellow citizens to the security authorities – also because of critical posts on the internet.</span></b></p><p><b><span style="font-size: medium;">According to the civil rights organization OWD-Info, the regime has arrested around 20,000 people for criticizing the war since the beginning of the invasion. </span></b></p><p><b><span style="font-size: medium;">Officials opened criminal proceedings against hundreds of people. </span></b></p><p><b><span style="font-size: medium;">And all this has been deduced only from the information that is available publicly. </span></b></p><p><b><span style="font-size: medium;">The number of unreported cases is likely to be much higher. </span></b></p><p><b><span style="font-size: medium;">Dozens of opponents of the regime are put on trial every day. </span></b></p><p><b><span style="font-size: medium;">Last week alone, civil rights activists listed 176 trials they classified as being political.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxMbUoJG3WkRDbq35bor1zgTTaYn4xYDXLG9rfVy7jetmO3n8XkPg7ES_N8swR61LBZEOQKjFPIFSDadKZopgud4MUDKkp9BLy_BVH2SmpAz0LEDTU9BTWHZkNZjf9XHz39RpUoW6rPmhMDt71Oihqrqw05MvYiN8R350h3qWrld8gIHmMGRJXa7XxgQKu/s488/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="325" data-original-width="488" height="402" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxMbUoJG3WkRDbq35bor1zgTTaYn4xYDXLG9rfVy7jetmO3n8XkPg7ES_N8swR61LBZEOQKjFPIFSDadKZopgud4MUDKkp9BLy_BVH2SmpAz0LEDTU9BTWHZkNZjf9XHz39RpUoW6rPmhMDt71Oihqrqw05MvYiN8R350h3qWrld8gIHmMGRJXa7XxgQKu/w645-h402/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="645" /></a><b style="text-align: left;"><span><i>Russian President Vladimir Putin, center, Russian Chief of General Staff Gen. Valery Gerasimov, left, and Russian Defense Minister Sergei Shoigu. Foto: Mikhail Klimentyev / Sputnik / AP</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Only those who keep their mouths shut or parrot the Kremlin's propaganda narratives can lull themselves into a sense of security. </span></b></p><p><b><span style="font-size: medium;">But not even the ruler himself believes in his own propaganda, says political scientist Schulman. </span></b></p><p><b><span style="font-size: medium;">For Putin, she says, the grand narratives of the superior Russian civilization are merely a means to an end. </span></b></p><p><b><span style="font-size: medium;">"For Putin, this is about retaining power, everything else is window dressing."</span></b></p><p><b><span style="font-size: medium;">Most Russians learned how to survive in a repressive regime during the Soviet era: "You think what you want, say what people expect you to say and do whatever you have to do to survive." </span></b></p><p><b><span style="font-size: medium;">Some people internalize the changing official narratives because they find it harder to lie and feel more comfortable. </span></b></p><p><b><span style="font-size: medium;">And yet others suffered from feelings of guilt and despair. </span></b></p><p><b><span style="font-size: medium;">Sales of tranquilizers and antidepressants have risen sharply in Russia. </span></b></p><p><b><span style="font-size: medium;">Alcohol consumption, which Putin had successfully combated for years, is also becoming a problem again.</span></b></p><p><b><span style="font-size: medium;">In Schulman's opinion, Navalny was deliberately murdered to spread terror, to demonstrate that resistance is impossible. </span></b></p><p><b><span style="font-size: medium;">"But fear as a means of domination has its disadvantages/downsides," says the Putin opponent, "because it doesn't last forever and it does not make people love you."</span></b></p><p><b><span style="font-size: medium;">Putin therefore has something even more important to offer in addition to the rod: the sausage. </span></b></p><p><b><span style="font-size: medium;">It has become a kind of catchphrase in Russia. </span></b></p><p><b><span style="font-size: medium;">A few years ago, experts summed up Russia's unwritten social contract as "sausage for freedom." </span></b></p><p><b><span style="font-size: medium;">The Russians don't get upset as long as they are doing reasonably well. </span></b></p><p><b><span style="font-size: medium;">And although the Kremlin is having to pump more and more money into the arms industry in the third year of the war, the standard of living of most Russian people has not deteriorated drastically.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQCV1STdekhj-yaaAIPXgIFi8ZoCgDBG8pr8m2kNQW1k3K9DK6btHogk7BsLhahHM2llxyWHZMAe2BydynKuWIttNAnluno5XYYuXij2CExeZnq-w6kX4iuLUmVdiqG9hdc5ve8TSnxU0ibN13Lcn6f9cLaB-bbqnhaK-vuUrWM7FMEv-4tntsb1Irn6XM/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="520" height="394" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQCV1STdekhj-yaaAIPXgIFi8ZoCgDBG8pr8m2kNQW1k3K9DK6btHogk7BsLhahHM2llxyWHZMAe2BydynKuWIttNAnluno5XYYuXij2CExeZnq-w6kX4iuLUmVdiqG9hdc5ve8TSnxU0ibN13Lcn6f9cLaB-bbqnhaK-vuUrWM7FMEv-4tntsb1Irn6XM/w654-h394/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="654" /></a><b style="text-align: left;"><span><i>Putin supporter Slyshchenko in Nizhny Novgorod. Foto: Dmitry Serebryakov / DER SPIEGEL</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Daniil Slyshchenko, who lives in the central Russian city of Nizhny Novgorod and works in the IT sector, can tell you all about it. </span></b></p><p><b><span style="font-size: medium;">Slyshchenko, 28, is a man to the Kremlin's taste. </span></b></p><p><b><span style="font-size: medium;">He's conservative, religious, married, has two children and says things like: "Putin loves his country." </span></b></p><p><b><span style="font-size: medium;">Slyshchenko correctly calls the war against Ukraine a "special operation" and, like the ruler, claims that it serves to protect the Russian-speaking population of Ukraine.</span></b></p><p><b><span style="font-size: medium;">The Kremlin is trying to keep as much of the brutality of the war from the public as possible. </span></b></p><p><b><span style="font-size: medium;">Russian city dwellers often see heroic soldiers in uniform on billboards. </span></b></p><p><b><span style="font-size: medium;">Only those who have to bury a family member or friend find out about the dead. </span></b></p><p><b><span style="font-size: medium;">Those maimed by war hardly play a role in the media and the public. </span></b></p><p><b><span style="font-size: medium;">The "special operation" is to be a success story.</span></b></p><p><b><span style="font-size: medium;">In Nizhny Novgorod, Slyshchenko doesn't want to hear that his country has become a dictatorship. </span></b></p><p><b><span style="font-size: medium;">"I live in a free country, I can talk to you," the young Russian says. </span></b></p><p><b><span style="font-size: medium;">Anyone who gathers on the street unannounced simply has to reckon with the consequences, he says. </span></b></p><p><b><span style="font-size: medium;">And Navalny was a troublemaker and a "puppet of the West" in Slyshchenko's eyes.</span></b></p><p><b><span style="font-size: medium;">If you walk through his hometown with Slyshchenko, he talks about how life has improved, shows you a new playground, the beautiful promenade along the Volga River and the stadium that was built for the football World Cup. </span></b></p><p><b><span style="font-size: medium;">Right next to it, cranes rise into the gray sky where a new ice rink is being built. </span></b></p><p><b><span style="font-size: medium;">"Things are moving forward here in the city," Slyshchenko says with satisfaction.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx-EyPniKC4nSc_bZIex-gSDHu96vGlJAgpgmZYTsNF7IsJpW_dRbtfJ5bWgCxLUo8hi8hESkVgAda1jGkBW2FrbfigT0DYRjIKEhFgIQESEqMbGP-epEBcDMAHZuADUuRFf-3LU1MlEEAkma40_ptCzfpt2k2RJMXBKuPXUcHlNRoEDdjoAxl3FjJ-weO/s488/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="325" data-original-width="488" height="401" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx-EyPniKC4nSc_bZIex-gSDHu96vGlJAgpgmZYTsNF7IsJpW_dRbtfJ5bWgCxLUo8hi8hESkVgAda1jGkBW2FrbfigT0DYRjIKEhFgIQESEqMbGP-epEBcDMAHZuADUuRFf-3LU1MlEEAkma40_ptCzfpt2k2RJMXBKuPXUcHlNRoEDdjoAxl3FjJ-weO/w651-h401/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="651" /></a><b style="text-align: left;"><span><i>Historic buildings in Nizhny Novgorod, a city with a population of over a million. Foto: Natalia Kolesnikova / AFP</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">He says he has indeed noticed that things have become more expensive, but he has come to terms with it. </span></b></p><p><b><span style="font-size: medium;">A meal at the Russian successor to the U.S. fast food chain McDonald's no longer costs 1,000 rubles, but 1,500, the equivalent of 15 euros, for the whole family. </span></b></p><p><b><span style="font-size: medium;">They have just moved into a larger apartment and Slyshchenko has taken on a second job so that he and his family can continue to enjoy a good standard of living. </span></b></p><p><b><span style="font-size: medium;">He needs around 200,000 rubles, about 2,000 euros, per month for that.</span></b></p><p><b><span style="font-size: medium;">Apart from the fact that their favorite burger at the Russian McDonald's successor no longer tastes as good, Slyshchenko and his wife Valeriya believe that little has changed as a result of the war and sanctions. </span></b></p><p><b><span style="font-size: medium;">They continue to buy products from Western companies conveniently online. </span></b></p><p><b><span style="font-size: medium;">It can take up to three weeks for a pair of Zara jeans to arrive, but the selection hasn't diminished, reports Valeriya.</span></b></p><p><b><span style="font-size: medium;">Only the spare parts for her white Mercedes ML, built in 2011, have now become expensive, admits Slyshchenko. </span></b></p><p><b><span style="font-size: medium;">They had to be imported from abroad with surcharges and often cost more than twice as much as before. </span></b></p><p><b><span style="font-size: medium;">"I don't want to switch to a Chinese car," says Slyshchenko. </span></b></p><p><b><span style="font-size: medium;">China's car brands have largely taken over the market in Russia.</span></b></p><p><b><span style="font-size: medium;">Are these people closing both eyes to the reality or allowing themselves to be blinded by the success stories of Russian propaganda? </span></b></p><p><b><span style="font-size: medium;">The truth is more complicated.</span></b></p><p><b><span style="font-size: medium;">After the invasion of Ukraine, many in the West consoled themselves with the idea that Russia's economy, which despite having more than 140 million inhabitants, generates less than the German states of North Rhine-Westphalia, Baden-Württemberg and Bavaria combined, would probably soon collapse. </span></b></p><p><b><span style="font-size: medium;">"The totality of our sanctions and export controls is crushing the Russian economy," U.S. President Joe Biden was certain.</span></b></p><p><b><span style="font-size: medium;">Two years later, there can be no talk of a collapse. </span></b></p><p><b><span style="font-size: medium;">According to official statistics, real wages in Russia rose by 7.6 percent last year, far outstripping inflation. </span></b></p><p><b><span style="font-size: medium;">In an initial forecast, the statistics authority Rosstat estimated economic growth at 3.6 percent, which is also being fueled by massive government investment in arms production.</span></b></p><p><b><span style="font-size: medium;">Doubts about the official statistics are justified in Russia, but the country's economic stability isn't a propaganda ploy. </span></b></p><p><b><span style="font-size: medium;">Satellite data measuring air pollution above factories, search queries and advertisements on job portals lead to the conclusion that there is almost full employment in the country. </span></b></p><p><b><span style="font-size: medium;">Russia is experiencing a boom. </span></b></p><p><b><span style="font-size: medium;">The country is suffering from a shortage of skilled workers, with some employees receiving significantly higher wages than before. </span></b></p><p><b><span style="font-size: medium;">And the Russian middle class is growing, despite the war. </span></b></p><p><b><span style="font-size: medium;">How is such a thing even possible?</span></b></p><p><b><span style="font-size: medium;">The ministries of industry, finance and economic development are central to economic success, but above all, its the Russian Central Bank, with its more than 40,000 employees, and its head Elvira Nabiullina. </span></b></p><p><b><span style="font-size: medium;">T</span></b><b><span style="font-size: medium;">ogether, they have ensured that the country has survived the shock of the sanctions almost unscathed – and that its citizens still feel little of the war and trade restrictions.</span></b></p><p><b><span style="font-size: medium;">Putin's economic policymakers have been preparing Russia for conflict with Europe and the United States for years now. </span></b></p><p><b><span style="font-size: medium;">They reduced foreign debt and accumulated huge currency reserves to avoid becoming dependent on the international financial markets. </span></b></p><p><b><span style="font-size: medium;">They installed their own credit card system and remedied weaknesses in the banking system.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjc4mLxblvckDRgrJ8uXv_1KHoJ98ojIIkFFvVnI4_EMw6-o1kwYy4r7P36-Ztp5qCtFp1kpTRdtCweS7qBsddtM_50ube3rN46Yw36qj_PvDrb8G-GJfxbqaORtY1kUNs86NtjBNO5FhAaq220BLeRrcFollRIAsExF3Xmw-Ek6sUbo9_QvGZLquAee-16/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="520" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjc4mLxblvckDRgrJ8uXv_1KHoJ98ojIIkFFvVnI4_EMw6-o1kwYy4r7P36-Ztp5qCtFp1kpTRdtCweS7qBsddtM_50ube3rN46Yw36qj_PvDrb8G-GJfxbqaORtY1kUNs86NtjBNO5FhAaq220BLeRrcFollRIAsExF3Xmw-Ek6sUbo9_QvGZLquAee-16/w672-h434/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="672" /></a><b style="text-align: left;"><span><i>A family in Moscow: preventing massive losses in the prosperity of Russian citizens. Foto: Valery Sharifulin / ITAR-TASS / IMAGO</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">When Putin actually launched a major war, the damage to the economy was minor. </span></b></p><p><b><span style="font-size: medium;">"The economists have proven to be more capable and reliable than the generals on the battlefield," says Alexandra Prokopenko. </span></b></p><p><b><span style="font-size: medium;">The economist knows what she's talking about. </span></b></p><p><b><span style="font-size: medium;">She herself worked as a consultant at the central bank in Moscow until March 2022, when she left her post and the country.</span></b></p><p><b><span style="font-size: medium;">Prokopenko sits, somewhat tired, in a meeting room at Potsdamer Platz in Berlin. </span></b></p><p><b><span style="font-size: medium;">She now conducts research at two Berlin think tanks, the Carnegie Russia Eurasia Center and the Center for East European and International Studies, and is a sought-after expert. </span></b></p><p><b><span style="font-size: medium;">The Russian writes analyses on the actual state of the Russian economy – and why Moscow has coped quite well with the sanctions so far.</span></b></p><p><b><span style="font-size: medium;">According to Prokopenko, this is primarily thanks to her former boss. </span></b></p><p><b><span style="font-size: medium;">Nabiullina, 60, has headed the Russia's central bank since 2013 and sees her task as preventing massive losses in the prosperity of Russian citizens.</span></b></p><p><b><span style="font-size: medium;">One of the peculiarities of Putin's regime is that its decision-making centers are much less monolithic than they sometimes appear to be to the West. </span></b></p><p><b><span style="font-size: medium;">Since he first took office as president in 2000, Putin has entrusted the management of the Russian economy to the experts. </span></b></p><p><b><span style="font-size: medium;">He even shielded them from attempts by his secret service friends and oligarchs to influence them. </span></b></p><p><b><span style="font-size: medium;">Russia's economic policy has therefore remained non-ideological and pragmatic in recent years. </span></b></p><p><b><span style="font-size: medium;">"Putin trusts his economics professionals and doesn't interfere in the operational business," says Prokopenko.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhK7VMtxDFxjHSA-Hk0I2ECX3oI93KUkAbJIkApYUZaaEpFabOawT2mHH4DJcqfaOJI7BUQrOwJWgHf0ZkJSORwT46y-xplPkKVBFWZSDB5kwHIfqcjp_-sIBlDEY0t7kf1F_eYGR9-NkwBPnA_s5b-9CKGPwCGuK33M1SF0h2ESdp_vxuab7ANS61BvNbG/s520/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="520" height="383" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhK7VMtxDFxjHSA-Hk0I2ECX3oI93KUkAbJIkApYUZaaEpFabOawT2mHH4DJcqfaOJI7BUQrOwJWgHf0ZkJSORwT46y-xplPkKVBFWZSDB5kwHIfqcjp_-sIBlDEY0t7kf1F_eYGR9-NkwBPnA_s5b-9CKGPwCGuK33M1SF0h2ESdp_vxuab7ANS61BvNbG/w654-h383/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="654" /></a><b style="text-align: left;"><span><i>Putin during a visit to industrial enterprises in Chelyabinsk. Foto: SPUTNIK / REUTERS</i></span></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">And yet Russia's economy is facing long-term problems that cannot be solved so easily. </span></b></p><p><b><span style="font-size: medium;">Prokopenko calls this "Putin's trilemma." </span></b></p><p><b><span style="font-size: medium;">The president has not just two almost incompatible goals to reconcile, but three. </span></b></p><p><b><span style="font-size: medium;">The population must be satisfied, but the losses caused by the war must also be felt as little as possible in the future. </span></b></p><p><b><span style="font-size: medium;">At the same time, the military campaign is devouring billions of rubles. </span></b></p><p><b><span style="font-size: medium;">And the president and his economists must prevent the flood of orders for defense companies from causing the Russian economy to overheat.</span></b></p><p><b><span style="font-size: medium;">As long as the West doesn't arm Ukraine more comprehensively, that calculation will likely work. </span></b></p><p><b><span style="font-size: medium;">However, the more weapons the West supplies, the greater the risk that Russia will become economically unstable. </span></b></p><p><b><span style="font-size: medium;">According to an analysis by the Finnish central bank, 60 percent of industrial growth in the first nine months of last year was solely due to the expansion of defense production, which was also responsible for 40 percent of economic growth in the first half of 2023. </span></b></p><p><b><span style="font-size: medium;">The production of goods essential to the war effort is increasing sharply, but fewer and fewer household appliances, cars and machines are being produced.</span></b></p><p><b><span style="font-size: medium;">Most normal Russians aren't even noticing. </span></b></p><p><b><span style="font-size: medium;">Instead of buying Volkswagens built in Kaluga, they're now buying cars imported from China. </span></b></p><p><b><span style="font-size: medium;">Instead of Coca-Cola, there are now "parallel imports" from Iran, Kazakhstan and Turkey. </span></b></p><p><b><span style="font-size: medium;">This makes no difference to customers, but it does to the Russian economy. </span></b></p><p><b><span style="font-size: medium;">The added value and thus the profits are generated abroad.</span></b></p><p><b><span style="font-size: medium;">Most Russians likewise don't realize that the civilian economy is shrinking, partly because new restaurants are opening in many regions at the same time. </span></b></p><p><b><span style="font-size: medium;">This is because disposable incomes have risen sharply and people are now spending their money in the country instead of going on summer vacation to Spain. </span></b></p><p><b><span style="font-size: medium;">Or they buy real estate, which is why lending is booming so strongly that the central bank had to put the brakes on last year.</span></b></p><p><b><span style="font-size: medium;">But even those who provide the sausage are now increasingly feeling the pinch.</span></b></p><p><b><span style="font-size: medium;">Alexandra Prokopenko believes that few of her former colleagues at the central bank are in favor of the war against Ukraine. </span></b></p><p><b><span style="font-size: medium;">She thinks they stayed at their jobs for other reasons. </span></b></p><p><b><span style="font-size: medium;">According to Prokopenko, pressure from the security authorities plays a role, and the FSB secret service is also conducting preventative talks. </span></b></p><p><b><span style="font-size: medium;">Many state employees are no longer allowed to travel abroad or have to obtain permission to do so.</span></b></p><p><b><span style="font-size: medium;">Others see no future for themselves outside Putin's system. </span></b></p><p><b><span style="font-size: medium;">"Anyone who has worked for the Russian state will never find a job outside Russia again, even if they resign demonstratively," says Prokopenko. </span></b></p><p><b><span style="font-size: medium;">Perhaps more people would make a different decision if the West offered them a hand, a way out.</span></b></p><p><b><span style="font-size: medium;">"But no one is showing them a way out," says Prokopenko. </span></b></p><p><b><span style="font-size: medium;">"There's only Putin, and he says: You stay with me." </span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-55846938302712321422024-03-15T04:19:00.001-05:002024-03-15T04:19:00.124-05:00THE TOOLS EXIST TO RESCUE CHINA´S ECONOMY AND IT´S TIME TO USE THEM / THE FINANCIAL TIMES OP EDITORIAL<p><b><span style="font-size: x-large;">The tools exist to rescue China’s economy and it’s time to use them</span></b></p><p><b><i><span style="font-size: large;">Short-term macro policies and medium-term structural changes are urgently needed to restore confidence</span></i></b></p><p><b>Tao Wang</b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirtW5rT7LugbI84ZdyOW17LPeCOEuVpvBmgbIUXFBKsMdTH7dErMc5XSy8frW8R7i2APzhmOaYSTF6xWDErCg_eLUIwoIfaVQPVSytdCHklWlhamAQH3eNhaOvaz9FaTQ_ccSXCoOQuFwNUYepQyypJu6RMbuihoqaPGMUbdJn9cFb3yJvnDv01hWUwAVD/s700/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="394" data-original-width="700" height="372" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirtW5rT7LugbI84ZdyOW17LPeCOEuVpvBmgbIUXFBKsMdTH7dErMc5XSy8frW8R7i2APzhmOaYSTF6xWDErCg_eLUIwoIfaVQPVSytdCHklWlhamAQH3eNhaOvaz9FaTQ_ccSXCoOQuFwNUYepQyypJu6RMbuihoqaPGMUbdJn9cFb3yJvnDv01hWUwAVD/w657-h372/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="657" /></a><b style="text-align: left;"><i>People walk through Yuyuan Bazaar in Shanghai. To encourage domestic spending, the government may need to deploy a fiscal stimulus of 2% of GDP or more © Raul Ariano/Bloomberg</i></b></div><p></p><p><br /></p><p><b><span style="font-size: medium;">In January, China reported official real gross domestic product growth of 5.2 per cent for 2023, but the Shanghai Composite index fell to its lowest level in five years. </span></b></p><p><b><span style="font-size: medium;">China’s property market has continued to fall and consumer spending is still lacklustre (notwithstanding record holiday travel and movie box office takings during the lunar new year holiday). </span></b></p><p><b><span style="font-size: medium;">Business confidence remains low and foreign direct investment has shrunk sharply. </span></b></p><p><b><span style="font-size: medium;">What can China do to boost confidence? </span></b></p><p><b><span style="font-size: medium;">While using national funds to buy blue-chip stocks might support equity markets in the short term, what is really needed are measures to revive the economy, raise corporate earnings and restore business and household spending. </span></b></p><p><b><span style="font-size: medium;">Next week’s National People’s Congress would be a good time to announce such measures.</span></b></p><p><b><span style="font-size: medium;">However, there is a lack of consensus in Beijing on the key factors behind the current weakness. </span></b></p><p><b><span style="font-size: medium;">Most think that China’s economy is in transition, moving from a growth model that relied heavily on property and debt-fuelled local government investment to one that will rely more on innovation and domestic consumption. </span></b></p><p><b><span style="font-size: medium;">This will be painful and slow, given the weight of the property sector, high local government debt, a falling population and the tech restrictions imposed by the US and its allies. </span></b></p><p><b><span style="font-size: medium;">There are also deeper causes of weak confidence: Chinese officials point to the decoupling pressures, while investors highlight earlier regulatory tightening and an uncertain policy environment.</span></b></p><p><b><span style="font-size: medium;">Market economists also point to shorter-term factors and the lack of macro stimulus. </span></b></p><p><b><span style="font-size: medium;">The property policy tightening in 2020-21 and Covid-19 helped trigger the property market downturn from its unsustainable levels of construction and debt. </span></b></p><p><b><span style="font-size: medium;">Fiscal policy tightened in most of 2023 as local governments cut general spending and were unable to increase debt to fund investment. </span></b></p><p><b><span style="font-size: medium;">Weak demand exacerbated excess capacity issues, leading to declines in price and earnings, which in turn weakened corporate investment.</span></b></p><p><b><span style="font-size: medium;">Both short-term macro policy support and medium-term structural policies are now needed to boost the economy and confidence. </span></b></p><p><b><span style="font-size: medium;">Stabilising the property market is key to restoring confidence and preventing more menacing spillover effects on the economy and financial system. </span></b></p><p><b><span style="font-size: medium;">Credit support to property developers will improve buyer confidence, as well as allaying defaults.</span></b></p><p><b><span style="font-size: medium;">A more co-ordinated, government-led property debt restructuring effort could also help limit the damage of the downturn. </span></b></p><p><b><span style="font-size: medium;">Further easing home purchase restrictions in mega cities, additional cuts in mortgage rates and minimum down payments, and further relaxation of the hukou system (household registration) in cities with more than 3mn people will help boost housing demand. </span></b></p><p><b><span style="font-size: medium;">To encourage domestic spending, the government may need to deploy a fiscal stimulus of 2 per cent of GDP or more to subsidise household consumption, increase social spending, and fund infrastructure investment. </span></b></p><p><b><span style="font-size: medium;">Further interest rate cuts and liquidity injections would help lower the mortgage and corporate debt service burden and, together with looser credit policies, drive credit demand. </span></b></p><p><b><span style="font-size: medium;">The Chinese authorities have been tentative in easing monetary policy due to the rise in US rates and depreciation pressures on the renminbi. But lowering rates together with a convincing economic support package would boost currency confidence. </span></b></p><p><b><span style="font-size: medium;">The benefit of rate cuts is likely to far outweigh the negative impact of modestly widening the US-China rate gap. </span></b></p><p><b><span style="font-size: medium;">Given China’s transition away from its old growth model, the property market is unlikely to recover its past form and macro stimulus alone will not generate sustained growth. </span></b></p><p><b><span style="font-size: medium;">A successful transition to a new growth model will require structural reforms. </span></b></p><p><b><span style="font-size: medium;">Even if Beijing is hesitant to directly subsidise consumption, it could structurally increase healthcare spending to boost long-term confidence and household consumption. </span></b></p><p><b><span style="font-size: medium;">A deepening of hukou reform would increase labour mobility and rural migrants’ access to public services, increasing their spending power and housing demand. </span></b></p><p><b><span style="font-size: medium;">On the local government side, monetising state assets and finding sustainable financing for long-term spending, including on infrastructure, should be implemented together with debt restructuring. </span></b></p><p><b><span style="font-size: medium;">A more stable and transparent regulatory environment, lower barriers to entry and better legal protections for investors would also boost private sector involvement.</span></b></p><p><b><span style="font-size: medium;">China’s government has the tools at its disposal to overturn the current downturn, but its success will depend on timely action, policy co-ordination and political will. </span></b></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;"><i>The writer is chief China economist at UBS Investment Research and author of ‘Making Sense of China’s Economy’</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-65552557567541590322024-03-15T04:18:00.001-05:002024-03-15T04:18:00.158-05:00MAKING SENSE OF SOCIETY / PROJECT SYNDICATE<p><b><span style="font-size: x-large;">Making Sense of Society</span></b></p><p><b><i><span style="font-size: large;">A 2022 book argues that the only effective responses to government or market deficiencies come from civil society. When society is “malfunctioning” – for example, owing to deep polarization or fragmentation – that response mechanism is disrupted, and can even stop working altogether.</span></i></b></p><p><b>Michael Spence</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjt4O4V5VynuxiN5gVKwZiUlrti-OarE5jM8iSROhXzyl4PvfwzVe6QqLOEzvCNMzBEr6NmzZxZ0loWHmJGyJT-wDt81YBElGx0BONVGIzfshEkzxFA7BzIC2fIuZi2LyaxY3Zf74QiklbCHK6JZMl4ydFChAvSQ15BVic0Ops7dEWXQd62EOL4YRam8Juo/s1360/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="680" data-original-width="1360" height="375" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjt4O4V5VynuxiN5gVKwZiUlrti-OarE5jM8iSROhXzyl4PvfwzVe6QqLOEzvCNMzBEr6NmzZxZ0loWHmJGyJT-wDt81YBElGx0BONVGIzfshEkzxFA7BzIC2fIuZi2LyaxY3Zf74QiklbCHK6JZMl4ydFChAvSQ15BVic0Ops7dEWXQd62EOL4YRam8Juo/w663-h375/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="663" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">MILAN – How to strike the right balance between the state and the market, and ensure the proper functioning of both, has been debated for centuries. </span></b></p><p><b><span style="font-size: medium;">But Indian author and philanthropist Rohini Nilekani offers an answer that focuses on neither. </span></b></p><p><b><span style="font-size: medium;">As the title of her 2022 book, Samaaj, Sarkaar, Bazaar (Society, State, Markets): A Citizen-First Approach, suggests, society comes first.</span></b></p><p><b><span style="font-size: medium;">For Nilekani, a stable, well-functioning, and inclusive society is essential, first, as an end in itself. </span></b></p><p><b><span style="font-size: medium;">But it is also crucial for another reason: a healthy civil society is a prerequisite to effective governance and beneficial market outcomes. </span></b></p><p><b><span style="font-size: medium;">As she explains, the state and markets carry out important functions but are vulnerable to errors, imbalances, inefficiencies, and failures, such as capture by special interests. </span></b></p><p><b><span style="font-size: medium;">This can result in myriad problems, from rising inequality to shortfalls in the provision of public goods.</span></b></p><p><b><span style="font-size: medium;">That is where society comes in. </span></b></p><p><b><span style="font-size: medium;">According to Nilekani, the only effective responses to government or market deficiencies come from civil society, including the values, relationships, and organizations that underpin it. </span></b></p><p><b><span style="font-size: medium;">When society is “malfunctioning” – for example, owing to deep polarization or fragmentation – that response mechanism is disrupted, and can even stop working altogether.</span></b></p><p><b><span style="font-size: medium;">Nilekani’s argument evokes insights from two other thinkers: the economist Albert O. Hirschman and the political scientist Robert D. Putnam. </span></b></p><p><b><span style="font-size: medium;">Hirschman’s influential 1970 book Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States argued that actors express their dissatisfaction with underperformance in two main ways. </span></b></p><p><b><span style="font-size: medium;">They can “exit” (in favor of an alternative) or use their “voice” to apply pressure for change (such as by highlighting their concerns, proposing solutions, or even threatening to take action that would undermine performance further).</span></b></p><p><b><span style="font-size: medium;">But while it is probably relatively easy to “exit” a firm that is not meeting one’s needs as a consumer – especially if alternatives are readily available – exiting a country is not always a realistic or attractive option, nor equally available to all. </span></b></p><p><b><span style="font-size: medium;">More affluent or educated citizens generally have an easier time leaving their country and entering another. </span></b></p><p><b><span style="font-size: medium;">People without such advantages might also try to exit a bad situation, but it is likely to be much more difficult; in certain cases, they might even have to risk their lives.</span></b></p><p><b><span style="font-size: medium;">This might help to explain Nilekani’s focus on the fine detail of the institutions whereby civil society exercises its influence over the state and markets. </span></b></p><p><b><span style="font-size: medium;">In her view, one can assume, voice is a more powerful, effective, and broadly accessible response to organizational underperformance than exit.</span></b></p><p><b><span style="font-size: medium;">Likewise, Putnam focuses on civil society and community in America. </span></b></p><p><b><span style="font-size: medium;">In Bowling Alone: The Collapse and Revival of American Community and The Upswing: How America Came Together a Century Ago and How We Can Do It Again, he analyzes the multidimensional decline of community in the United States, providing a detailed account of the deterioration of civil-society institutions in the Gilded Age (from the late 1800s to the early 1900s), their reconstruction in the interwar period, and their decline again 2-3 decades after World War II. </span></b></p><p><b><span style="font-size: medium;">These institutions, Putnam argues, must be built from the ground up yet again.</span></b></p><p><b><span style="font-size: medium;">Despite their differences, Nilekani, Hirschman, and Putnam all seem to share the belief that a healthy and cohesive civil society, supported by effective institutions, is a prerequisite for effective governance, market regulation, and necessary reforms to the state and the economy. </span></b></p><p><b><span style="font-size: medium;">For this mechanism to produce truly effective governance, however, citizens must also understand their own civic responsibility, as well as what it takes for the state (or other organizations) to deliver on their priorities. </span></b></p><p><b><span style="font-size: medium;">And, as Nilekani’s work shows, this is far from guaranteed.</span></b></p><p><b><span style="font-size: medium;">When Nilekani surveyed Indian voters about what they wanted from their elected representatives, their responses always focused on local-level outcomes, especially with regard to reform and service delivery. </span></b></p><p><b><span style="font-size: medium;">Not one person mentioned anything about legislation. </span></b></p><p><b><span style="font-size: medium;">But well-crafted, forward-thinking legislation is essential to promote the kind of long-term inclusive growth that benefits all citizens.</span></b></p><p><b><span style="font-size: medium;">Indians, in particular, should recognize this. India’s activist Supreme Court has used its authority to enforce citizens’ rights to advance consequential environmental and other reforms. </span></b></p><p><b><span style="font-size: medium;">Moreover, its public sector has created what many (including me) regard as the world’s best digital financial architecture, comprising a biometric identification system and a “unified payments interface,” administered by the National Payments Corporation of India.</span></b></p><p><b><span style="font-size: medium;">This architecture – accessible to all citizens – enables not only instant payments, but also direct financial transfers from the government to poorer segments of the population in real time with no intermediaries and thus no “leakage.” </span></b></p><p><b><span style="font-size: medium;">It also provides for data mobility across multiple entities, from banks to digital wallets. </span></b></p><p><b><span style="font-size: medium;">This process is guided by legislation dictating that all data flows require permission from individuals who are the subjects of the data. </span></b></p><p><b><span style="font-size: medium;">Once permission is given, all data must flow, by law, directly from their location to their intended destination. </span></b></p><p><b><span style="font-size: medium;">This explains why there are no significant monopolies in India based on control over data.</span></b></p><p><b><span style="font-size: medium;">The lesson is that laws and regulatory structures are critical to state activities that produce local-level benefits. </span></b></p><p><b><span style="font-size: medium;">If citizens are to push for reforms and interventions that increase efficiency, promote inclusion, and enable entrepreneurship, innovation, and long-term growth, they need to recognize this. </span></b></p><p><b><span style="font-size: medium;">The kind of effective civil society Nilekani envisions thus requires civic engagement, empowerment, and education, including an understanding of the rights and responsibilities implied by citizenship.</span></b></p><p><b><span style="font-size: medium;">In a world that is becoming fragmented within and across countries, it is easy to lose hope for social and economic progress. </span></b></p><p><b><span style="font-size: medium;">Nilekani does not, and her thoughtful, realistic, and cautiously optimistic blueprint for a healthy society is worthy of attention, reflection, and debate.</span></b></p><p><br /></p><p><b><span style="font-size: medium;"><i>Michael Spence, a Nobel laureate in economics, is Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University. He is Senior Fellow at the Hoover Institution, Senior Adviser to General Atlantic, and Chairman of the firm’s Global Growth Institute. He is Chair of the Advisory Board of the Asia Global Institute and serves on the Academic Committee at Luohan Academy. He is a former chair of the Commission on Growth and Development and the author of The Next Convergence: The Future of Economic Growth in a Multispeed World (Macmillan Publishers, 2012).</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-43864989226297907322024-03-14T04:20:00.000-05:002024-03-14T04:20:00.138-05:00AI MODELS MAKE STUFF UP. HOW CAN HALLUCINATIONS BE CONTROLLED? / THE ECONOMIST<p><b><span style="font-size: medium;">Silicon dreamin’</span></b></p><p><b><span style="font-size: x-large;">AI models make stuff up. How can hallucinations be controlled?</span></b></p><p><b><i><span style="font-size: large;">It is hard to do so without also limiting models’ power</span></i></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhch6kIfEhgHfIAbcaGnQz1RN_fnBgaxl2lvuwwvAzzwk8bhzAR4P6-oHkqBazLuNCPUBza849y8q1nAPZgoNOOpjiwJt3FLOyCMFkVMLp2Xv5xe65fZTRDrW2Pj1SeFWnCOwcMHslrLYW0iYQxAB0hTwMT9k1T1nqr0VMo2sk5ei_bsH90TFnBmuQSBdix/s1280/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="1280" height="421" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhch6kIfEhgHfIAbcaGnQz1RN_fnBgaxl2lvuwwvAzzwk8bhzAR4P6-oHkqBazLuNCPUBza849y8q1nAPZgoNOOpjiwJt3FLOyCMFkVMLp2Xv5xe65fZTRDrW2Pj1SeFWnCOwcMHslrLYW0iYQxAB0hTwMT9k1T1nqr0VMo2sk5ei_bsH90TFnBmuQSBdix/w653-h421/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="653" /></a></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">It is an increasingly familiar experience. </span></b></p><p><b><span style="font-size: medium;">A request for help to a large language model (LLM) such as Openai’s Chatgpt is promptly met by a response that is confident, coherent and just plain wrong. </span></b></p><p><b><span style="font-size: medium;">In an AI model, such tendencies are usually described as hallucinations. </span></b></p><p><b><span style="font-size: medium;">A more informal word exists, however: these are the qualities of a great bullshitter.</span></b></p><p><b><span style="font-size: medium;">There are kinder ways to put it. </span></b></p><p><b><span style="font-size: medium;">In its instructions to users, Openai warns that Chatgpt “can make mistakes”. </span></b></p><p><b><span style="font-size: medium;">Anthropic, an American ai company, says that its LLM Claude “may display incorrect or harmful information”; Google’s Gemini warns users to “double-check its responses”. </span></b></p><p><b><span style="font-size: medium;">The throughline is this: no matter how fluent and confident AI-generated text sounds, it still cannot be trusted.</span></b></p><p><b><span style="font-size: medium;">Hallucinations make it hard to rely on ai systems in the real world. </span></b></p><p><b><span style="font-size: medium;">Mistakes in news-generating algorithms can spread misinformation. </span></b></p><p><b><span style="font-size: medium;">Image generators can produce art that infringes on copyright, even when told not to. </span></b></p><p><b><span style="font-size: medium;">Customer-service chatbots can promise refunds they shouldn’t. </span></b></p><p><b><span style="font-size: medium;">(In 2022 Air Canada’s chatbot concocted a bereavement policy, and this February a Canadian court has confirmed that the airline must foot the bill.) </span></b></p><p><b><span style="font-size: medium;">And hallucinations in AI systems that are used for diagnosis or prescription can kill.</span></b></p><p><b><span style="font-size: large;">All the leaves are brown</span></b></p><p><b><span style="font-size: medium;">The trouble is that the same abilities that allow models to hallucinate are also what make them so useful. </span></b></p><p><b><span style="font-size: medium;">For one, llms are a form of “generative” AI, which, taken literally, means they make things up to solve new problems. </span></b></p><p><b><span style="font-size: medium;">They do this by producing probability distributions for chunks of characters, or tokens, laying out how likely it is for each possible token in its vocabulary to come next. </span></b></p><p><b><span style="font-size: medium;">The mathematics dictate that each token must have a non-zero chance of being chosen, giving the model flexibility to learn new patterns, as well as the capacity to generate statements that are incorrect. </span></b></p><p><b><span style="font-size: medium;">The fundamental problem is that language models are probabilistic, while truth is not.</span></b></p><p><b><span style="font-size: medium;">This tension manifests itself in a number of ways. </span></b></p><p><b><span style="font-size: medium;">One is that LLMS are not built to have perfect recall in the way a search engine or encyclopedia might. </span></b></p><p><b><span style="font-size: medium;">Instead, because the size of a model is much smaller than the size of its training data, it learns by compressing. </span></b></p><p><b><span style="font-size: medium;">The model becomes a blurry picture of its training data, retaining key features but at much lower resolution. </span></b></p><p><b><span style="font-size: medium;">Some facts resist blurring—“Paris”, for example, may always be the highest-probability token following the words “The capital of France is”. </span></b></p><p><b><span style="font-size: medium;">But many more facts that are less statistically obvious may be smudged away.</span></b></p><p><b><span style="font-size: medium;">Further distortions are possible when a pretrained LLM is “fine-tuned”. </span></b></p><p><b><span style="font-size: medium;">This is a later stage of training in which the model’s weights, which encode statistical relationships between the words and phrases in the training data, are updated for a specific task. </span></b></p><p><b><span style="font-size: medium;">Hallucinations can increase if the LLM is fine-tuned, for example, on transcripts of conversations, because the model might make things up to try to be interesting, just as a chatty human might. </span></b></p><p><b><span style="font-size: medium;">(Simply including fine-tuning examples where the model says “I don’t know” seems to keep hallucination levels down.)</span></b></p><p><b><span style="font-size: medium;">Tinkering with a model’s weights can reduce hallucinations. </span></b></p><p><b><span style="font-size: medium;">One method involves creating a deliberately flawed model trained on data that contradict the prompt or contain information it lacks. </span></b></p><p><b><span style="font-size: medium;">Researchers can then subtract the weights of the flawed model, which are in part responsible for its output, from those of the original to create a model which hallucinates less.</span></b></p><p><b><span style="font-size: medium;">It is also possible to change a model’s “temperature”. </span></b></p><p><b><span style="font-size: medium;">Lower temperatures make a model more conservative, encouraging it to sample the most likely word. </span></b></p><p><b><span style="font-size: medium;">Higher temperatures make it more creative, by increasing the randomness of this selection. </span></b></p><p><b><span style="font-size: medium;">If the goal is to reduce hallucinations, the temperature should be set to zero. </span></b></p><p><b><span style="font-size: medium;">Another trick is to limit the choice to the top-ranked tokens alone. </span></b></p><p><b><span style="font-size: medium;">This reduces the likelihood of poor responses, while also allowing for some randomness and, therefore, variety.</span></b></p><p><b><span style="font-size: medium;">Clever prompting can also reduce hallucinations. </span></b></p><p><b><span style="font-size: medium;">Researchers at Google DeepMind found that telling an llm to “take a deep breath and work on this problem step-by-step” reduced hallucinations and improved problem solving, especially of maths problems. </span></b></p><p><b><span style="font-size: medium;">One theory for why this works is that ai models learn patterns. </span></b></p><p><b><span style="font-size: medium;">By breaking a problem down into smaller ones, it is more likely that the model will be able to recognise and apply the right one. </span></b></p><p><b><span style="font-size: medium;">But, says Edoardo Ponti at the University of Edinburgh, such prompt engineering amounts to treating a symptom, rather than curing the disease.</span></b></p><p><b><span style="font-size: medium;">Perhaps, then, the problem is that accuracy is too much to ask of LLMS alone. </span></b></p><p><b><span style="font-size: medium;">Instead, they should be part of a larger system—an engine, rather than the whole car. </span></b></p><p><b><span style="font-size: medium;">One solution is retrieval augmented generation (RAG), which splits the job of the AI model into two parts: retrieval and generation. </span></b></p><p><b><span style="font-size: medium;">Once a prompt is received, a retriever model bustles around an external source of information, like a newspaper archive, to extract relevant contextual information. </span></b></p><p><b><span style="font-size: medium;">This is fed to the generator model alongside the original prompt, prefaced with instructions not to rely on prior knowledge. </span></b></p><p><b><span style="font-size: medium;">The generator then acts like a normal LLM and answers. </span></b></p><p><b><span style="font-size: medium;">This reduces hallucinations by letting the LLM play to its strengths—summarising and paraphrasing rather than researching. </span></b></p><p><b><span style="font-size: medium;">Other external tools, from calculators to search engines, can also be bolted onto an LLM in this way, effectively building it a support system to enhance those skills it lacks.</span></b></p><p><b><span style="font-size: medium;">Even with the best algorithmic and architectural antipsychotics available, however, llms still hallucinate. </span></b></p><p><b><span style="font-size: medium;">One leaderboard, run by Vectara, an American software company, tracks how often such errors arise. </span></b></p><p><b><span style="font-size: medium;">Its data shows that gpt-4 still hallucinates in 3% of its summaries, Claude 2 in 8.5% and Gemini Pro in 4.8%. </span></b></p><p><b><span style="font-size: medium;">This has prompted programmers to try detecting, rather than preventing, hallucinations. </span></b></p><p><b><span style="font-size: medium;">One clue that a hallucination is under way lies in how an llm picks words. </span></b></p><p><b><span style="font-size: medium;">If the probability distribution of the words is flat, ie many words have similar likelihoods of being chosen, this means that there is less certainty as to which is most likely. </span></b></p><p><b><span style="font-size: medium;">That is a clue that it might be guessing, rather than using information it has been prompted with and therefore “knows” to be true.</span></b></p><p><b><span style="font-size: medium;">Another way to detect hallucination is to train a second LLM to fact-check the first. </span></b></p><p><b><span style="font-size: medium;">The fact-checker can be given the “ground truth” along with the LLM’s response, and asked whether or not they agree. </span></b></p><p><b><span style="font-size: medium;">Alternatively, the fact-checker can be given several versions of the LLM’s answer to the same question, and asked whether they are all consistent. </span></b></p><p><b><span style="font-size: medium;">If not, it is more likely to be a hallucination. </span></b></p><p><b><span style="font-size: medium;">Nvidia, a chipmaker, has developed an open-source framework for building guardrails that sit around an LLM to make it more reliable. </span></b></p><p><b><span style="font-size: medium;">One of these aims to prevent hallucinations by deploying this fact-checking when needed.</span></b></p><p><b><span style="font-size: medium;">Although such approaches can decrease the hallucination rate, says Ece Kamar, head of the AI frontiers lab at Microsoft, “it is unclear whether any of these techniques is going to completely get rid of hallucinations.” </span></b></p><p><b><span style="font-size: medium;">In many cases, that would be akin to self-sabotage. </span></b></p><p><b><span style="font-size: medium;">If an LLM is asked to generate ideas for a fantasy novel, for example, its output would be disappointing if limited to the world as it is. </span></b></p><p><b><span style="font-size: medium;">Consequently, says Dr Kamar, her research aims not to get rid of all hallucinations, but rather to stop the model from hallucinating when it would be unhelpful.</span></b></p><p><b><span style="font-size: large;">Safe and warm</span></b></p><p><b><span style="font-size: medium;">The hallucination problem is one facet of the larger “alignment” problem in the field of AI: how do you get ai systems to reliably do what their human users intend and nothing else? </span></b></p><p><b><span style="font-size: medium;">Many researchers believe the answer will come in training bigger LLMS on more and better data. </span></b></p><p><b><span style="font-size: medium;">Others believe that LLMS, as generative and probabilistic models, will never be completely rid of unwanted hallucinations.</span></b></p><p><b><span style="font-size: medium;">Or, the real problem might be not with the models but with its human users. </span></b></p><p><b><span style="font-size: medium;">Producing language used to be a uniquely human capability. </span></b></p><p><b><span style="font-size: medium;">LLMS’ convincing textual outputs make it all too easy to anthropomorphise them, to assume that LLMS also operate, reason and understand like humans do. </span></b></p><p><b><span style="font-size: medium;">There is still no conclusive evidence that this is the case. </span></b></p><p><b><span style="font-size: medium;">LLMS do not learn self-consistent models of the world. </span></b></p><p><b><span style="font-size: medium;">And even as models improve and the outputs become more aligned with what humans produce and expect, it is not clear that the insides will become any more human. </span></b></p><p><b><span style="font-size: medium;">Any successful real-world deployment of these models will probably require training humans how to use and view AI models as much as it will require training the models themselves.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-43456362626427440262024-03-14T04:18:00.001-05:002024-03-14T04:18:00.138-05:00WHIRLPOOL, MAKER OF BIG HOME APPLIANCES, FOCUSES ON ITS SMALL ONES / THE WALL STREET JOURNAL<p><b><span style="font-size: x-large;">Whirlpool, Maker of Big Home Appliances, Focuses On Its Small Ones</span></b></p><p><b><i><span style="font-size: large;">The company is pinning its hopes on espresso machines, stand mixers and other high-margin small appliances as it slashes costs and transforms itself, CFO says</span></i></b></p><p><b>By Jennifer Williams</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnanysGfiN5F1dO6_-1LC6V41CWIRV-ESSOC5cZYsqr5K_758O9RSap5yJChj4McrJ3bbh90HepfNN4hLaF2Rc7e4Rh4YWdCtm737D4KVdpgL4ZE10I4pN_wwHLlEkXFzAa5kYJO_ds6Inl60Gl7w_e9i51CD2bKa-wi0YEBpXONTTwlS-LxlG6CZ33uJj/s700/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="467" data-original-width="700" height="366" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnanysGfiN5F1dO6_-1LC6V41CWIRV-ESSOC5cZYsqr5K_758O9RSap5yJChj4McrJ3bbh90HepfNN4hLaF2Rc7e4Rh4YWdCtm737D4KVdpgL4ZE10I4pN_wwHLlEkXFzAa5kYJO_ds6Inl60Gl7w_e9i51CD2bKa-wi0YEBpXONTTwlS-LxlG6CZ33uJj/w662-h366/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="662" /></a><b style="text-align: left;"><i>Mixers by KitchenAid, a Whirlpool brand. The company will be separating out results for its small appliance business when it next reports earnings. PHOTO: CHRISTOPHER DILTS/BLOOMBERG NEWS</i></b></b></div><div class="separator" style="clear: both; text-align: center;"><b><b style="text-align: left;"><i><br /></i></b></b></div><p></p><p><b><span style="font-size: medium;">Whirlpool, a name often associated with home-appliance bruisers like washing machines and refrigerators, is looking to cut costs and focus on selling blenders and coffee makers, its latest effort to overhaul its more than century-old business as consumers pull back on large purchases. </span></b></p><p><b><span style="font-size: medium;">The company behind its namesake brand as well as KitchenAid and Maytag products is going small, pinning its hopes on its popular stand mixers, espresso machines and other high-margin small kitchen appliances, after recently navigating dramatic swings in demand for high-ticket refrigerators and other home appliances as inflation weighs on shoppers’ willingness to spend on those larger items.</span></b></p><p><b><span style="font-size: medium;">“We’re in the middle of transforming the company,” Chief Financial Officer Jim Peters said. </span></b></p><p><b><span style="font-size: medium;">“A big part of that is focusing it more on our higher-growth and higher-margin businesses.” </span></b></p><p><b><span style="font-size: medium;">In 2023, net earnings available to Whirlpool rose to $481 million, a turnaround from a $1.5 billion loss the previous year as the company dealt with softening demand and a significant supply-chain problem. </span></b></p><p><b><span style="font-size: medium;">Sales for 2023 slipped 1.4% to $19.5 billion.</span></b></p><p><b><span style="font-size: medium;">Sales of food processors, blenders and other small appliances were fairly steady at Whirlpool in 2023 after significant growth during the pandemic as people spent more time cooking at home. </span></b></p><p><b><span style="font-size: medium;">Whirlpool aims to lure more shoppers with new offerings such as fully automatic espresso makers and two or three new cordless kitchen gadgets, the company told investors on Tuesday.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYMpVL8tr1R-J2M1VtoqLuHZEdk9fcmU1f5NO-ZVbGC6SpapeWiIHTQuDHcXLwj_UwQcVCI7PsvlLfUdluaxwxCl4hnqWK1h6PBP8PUehHJrurUE6cVqWpbQqMQJQBnoS-I94NKgMbgwK6_nn9UEYgTL8zMTaJh1SwsCN-x2Fle8z8wyKbD66vvSF18UqI/s713/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="713" data-original-width="576" height="593" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYMpVL8tr1R-J2M1VtoqLuHZEdk9fcmU1f5NO-ZVbGC6SpapeWiIHTQuDHcXLwj_UwQcVCI7PsvlLfUdluaxwxCl4hnqWK1h6PBP8PUehHJrurUE6cVqWpbQqMQJQBnoS-I94NKgMbgwK6_nn9UEYgTL8zMTaJh1SwsCN-x2Fle8z8wyKbD66vvSF18UqI/w643-h593/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="643" /></a></b></div><b><br /><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">Whirlpool projects that small appliances will be a roughly $1.3 billion business in 2026, up from around $1 billion last year. </span></b></p><p><b><span style="font-size: medium;">The Benton Harbor, Mich.-based company expects double-digit margins for its small appliance business in 2026, with growth in the range of 10% for some of the new products, executives said this week. </span></b></p><p><b><span style="font-size: medium;">Whirlpool executives spent the better part of last year separating out small appliances in the company’s financials, which analysts and investors will first see when the company releases first-quarter results in April. </span></b></p><p><b><span style="font-size: medium;">At the same time, the appliance maker is aiming to cut hundreds of millions of dollars in costs this year, in part with head count reductions, while also divesting its appliance business in the Europe, Middle East and North Africa (EMEA) region, which accounts for about 20% of revenue.</span></b></p><p><b><span style="font-size: medium;">Like others in the industry, Whirlpool, which gets more than half its revenue from North America, has been stymied by a depressed U.S. housing market. </span></b></p><p><b><span style="font-size: medium;">Americans have been skipping appliance purchases as existing-home sales plummeted to a nearly three-decade low last year as homeowners grew reluctant to give up their low mortgage rates. </span></b></p><p><b><span style="font-size: medium;">Whirlpool’s shift also comes as consumer confidence unexpectedly slipped in February, with the Conference Board index dropping for the first time since November.</span></b></p><p><b><span style="font-size: medium;">Peters is optimistic that existing-homes sales, the primary driver of about a quarter of Whirlpool’s sales, will pick up later this year or next. </span></b></p><p><b><span style="font-size: medium;">“Like many folks in our space, we’re waiting for [it,]” he said. </span></b></p><p><b><span style="font-size: medium;">The company isn’t waiting to put its plan in motion. </span></b></p><p><b><span style="font-size: medium;">Along with its emphasis on small appliances, Whirlpool’s refresh includes divestment of its European major appliances business, likely in April, to focus on businesses with higher growth and margins. </span></b></p><p><b><span style="font-size: medium;">Exiting the EMEA region, where Whirlpool does business in more than 30 countries, will tighten Whirlpool’s structure and may unlock up to $300 million annually that would have been invested to grow that business, Peters said. </span></b></p><p><b><span style="font-size: medium;">All told, Whirlpool this year aims to cut between $300 million and $400 million in costs. </span></b></p><p><b><span style="font-size: medium;">That comes after roughly $800 million clipped in 2023, partly achieved by bringing down head count through attrition and not backfilling roles. </span></b></p><p><b><span style="font-size: medium;">Roughly a quarter of the cuts this year will carry over from cost-reduction efforts set in motion in 2023, with another 50% coming from annual assessments of things like suppliers and how products are made.</span></b></p><p><b><span style="font-size: medium;">The rest of the reductions this year will come from a simpler company structure once the European business is divested, Peters said, which will mean more cuts to staff. </span></b></p><p><b><span style="font-size: medium;">“Obviously as we go through and simplify, that will affect over time the number of heads and jobs that you need,” he said.</span></b></p><p><b><span style="font-size: medium;">Moreover, Whirlpool is carving out its small appliance business as a stand-alone global segment.</span></b></p><p><b><span style="font-size: medium;">Investors and analysts previously would see reporting by four regions—North America; Latin America; EMEA; and Asia—which included both small and major appliances for each.</span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrXh3MlDKonKB_hYokVZTGwOyqclw4gy43OXRh-1BAKl9EkWcrxxCCNeA6KGJlzS43LZz3B6vegXuYmg8fNlQ-XqMku_URzs0iTVvM2LJTu1GkysXeyPDlxIU9739nRwbpddgDjvOsAIhJStQiTIlC1uwqrRPI9ZA9AVQMuPrYVDr6MNAP8WEyiSg-_ASA/s639/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="426" data-original-width="639" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrXh3MlDKonKB_hYokVZTGwOyqclw4gy43OXRh-1BAKl9EkWcrxxCCNeA6KGJlzS43LZz3B6vegXuYmg8fNlQ-XqMku_URzs0iTVvM2LJTu1GkysXeyPDlxIU9739nRwbpddgDjvOsAIhJStQiTIlC1uwqrRPI9ZA9AVQMuPrYVDr6MNAP8WEyiSg-_ASA/w656-h438/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="656" /></a><b style="text-align: left;"><i>Whirlpool washing machines. PHOTO: GEORGE FREY/BLOOMBERG NEWS</i></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Beginning with the current quarter, Whirlpool will report on small appliances separately on a global basis, while keeping region-specific reporting for major appliances. </span></b></p><p><b><span style="font-size: medium;">This will include the EMEA region for a temporary period, but only until Whirlpool unloads that part of the business.</span></b></p><p><b><span style="font-size: medium;">The rationale behind the reporting change is to provide more insight into how the small appliances business is doing, which Peters said investors and analysts have wanted for years.</span></b></p><p><b><span style="font-size: medium;">“This is helping them to better understand the size of this business, the scale,” he said. </span></b></p><p><b><span style="font-size: medium;">It is also, according to the CFO, a logical step to report on small appliances separately and on a global basis because those products, unlike the large appliances, are largely common in terms of what they offer and where they are manufactured. </span></b></p><p><b><span style="font-size: medium;">Whirlpool will continue reporting the same metrics, such as sales growth, asset bases and earnings before interest and taxes, for the new business segments.</span></b></p><p><b><span style="font-size: medium;">Analysts seem to welcome the changes, including the reporting one. </span></b></p><p><b><span style="font-size: medium;">“If we’re talking about it as an important growth driver, people want to be able to connect the dots from quarter to quarter to quarter and gauge the progress,” said David MacGregor, an analyst at Longbow Research who expects the shifts may help turn around sales. </span></b></p><p><b><span style="font-size: medium;">Besides the drop in Whirlpool’s 2023 net sales, its shares, at around $107, are off around 21% from a year ago. </span></b></p><p><b><span style="font-size: medium;">For now, Whirlpool is somewhat capital-constrained: free cash flow is down and the company will pay down at least $500 million in debt this year, MacGregor said. </span></b></p><p><b><span style="font-size: medium;">“It makes a lot of sense,” he said of the plan. </span></b></p><p><b><span style="font-size: medium;">“But it’s going to take some time to unfold.”</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-29615400654455227642024-03-14T04:18:00.000-05:002024-03-14T04:18:00.138-05:00A GLOBAL CASH-TRANSFER FUND COULD END EXTREME POVERTY / PROJECT SYNDICATE<p><b><span style="font-size: x-large;">A Global Cash-Transfer Fund Could End Extreme Poverty</span></b></p><p><b><i><span style="font-size: large;">Cash transfers offer a transformative solution to multidimensional poverty, by enhancing dozens of outcomes simultaneously. They have already proven effective, adaptable, and replicable, and now they are becoming more attainable every year with growing mobile coverage and improved digital infrastructure.</span></i></b></p><p><b>Cina Lawson, Rory Stewart</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhD1GOGTZwoNtKlBmlOTDNieb1Ux3nFJKbWqkQe6zhBzViTcPjJjlGmfcVD2blf3RGKcE9ydwtP6lX0WlX4wLh5_RkjvFnW_i4HQo5nKIcWikjUiNrMYfdXP3Dk6kiObi2w4YpE-d4aORJSeSSTMMAxo1wOpJRq_uaEFFSyauJqCVecpBTcyN-6ICYl9oRY/s1360/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="680" data-original-width="1360" height="378" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhD1GOGTZwoNtKlBmlOTDNieb1Ux3nFJKbWqkQe6zhBzViTcPjJjlGmfcVD2blf3RGKcE9ydwtP6lX0WlX4wLh5_RkjvFnW_i4HQo5nKIcWikjUiNrMYfdXP3Dk6kiObi2w4YpE-d4aORJSeSSTMMAxo1wOpJRq_uaEFFSyauJqCVecpBTcyN-6ICYl9oRY/w657-h378/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="657" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">LOMÉ – For decades, the international community has grappled with the challenge of ending extreme poverty, which is the leading Sustainable Development Goal for 2030. </span></b></p><p><b><span style="font-size: medium;">Despite some progress, we remain far off track, with an estimated 700 million people still struggling to survive on less than $2.15 per day. </span></b></p><p><b><span style="font-size: medium;">Unlike in previous decades, however, we now have a solution that can be scaled up rapidly to accelerate the end of extreme poverty: direct cash transfers to the poorest households.</span></b></p><p><b><span style="font-size: medium;">The concept itself is not new. </span></b></p><p><b><span style="font-size: medium;">Cash aid has proven effective, especially in the face of emergencies. </span></b></p><p><b><span style="font-size: medium;">During the COVID-19 pandemic, one of every six people in the world received some cash assistance. </span></b></p><p><b><span style="font-size: medium;">Direct transfers are powerful tools for helping individuals to take control of their lives and invest in their families’ well-being. </span></b></p><p><b><span style="font-size: medium;">That is why high- and middle-income countries are increasingly incorporating cash aid as a central part of their social safety nets. </span></b></p><p><b><span style="font-size: medium;">Still, it is estimated that less than 5% of the $200 billion spent annually on international development is allocated to cash transfers.</span></b></p><p><b><span style="font-size: medium;">The positive impact of cash transfers is well-documented and undeniable. </span></b></p><p><b><span style="font-size: medium;">The upshot from more than 300 randomized control trials is that transfers can boost incomes more than twofold; increase school enrollment and entrepreneurship; decrease skipped meals, illness, and depression; and reduce domestic violence. </span></b></p><p><b><span style="font-size: medium;">Importantly, they neither reduce hours worked nor increase spending on temptation goods like tobacco and alcohol. </span></b></p><p><b><span style="font-size: medium;">Better still, every $1 transfer has a spillover effect of around $2.50 in the local economy. </span></b></p><p><b><span style="font-size: medium;">Three years after the transfer, recipients are still earning more and are better educated. </span></b></p><p><b><span style="font-size: medium;">Recent research from Kenya showed that a $500 lump-sum cash transfer was particularly effective in empowering families to make income-generating investments.</span></b></p><p><b><span style="font-size: medium;">Equally important, we now have the technology to reach the world’s poorest people en masse with direct transfers. </span></b></p><p><b><span style="font-size: medium;">New digital technologies have dramatically lowered the cost and expanded our capacity to deliver money safely to the poorest parts of the world. </span></b></p><p><b><span style="font-size: medium;">During the pandemic, Togo used mobile-phone data and satellite imagery to identify and target people in need of relief. </span></b></p><p><b><span style="font-size: medium;">Its NOVISSI program leveraged the basic USSD technology on all mobile devices (similar to SMS text messaging) to reach and validate recipients, distributing $34 million to 920,000 beneficiaries.</span></b></p><p><b><span style="font-size: medium;">Having been carefully studied, Togo’s successful pilot is now being scaled up to a $100 million program, with World Bank support. </span></b></p><p><b><span style="font-size: medium;">Similarly, India enrolled 1.3 billion people in its digital ID system in the space of just six years, facilitating rapid growth in digital payments and enabling seamless cash transfers to the country’s remotest areas.</span></b></p><p><b><span style="font-size: medium;">Now that these and many other programs have demonstrated the effectiveness of cash transfers, the question is how to globalize this solution. </span></b></p><p><b><span style="font-size: medium;">Building on the insights of an international working group we recently co-chaired, we propose establishing a new global fund dedicated to eradicating extreme poverty through lump-sum direct cash transfers. </span></b></p><p><b><span style="font-size: medium;">This solution would help countries expand their use of digital cash transfers by expanding existing social-protection programs or starting new ones. </span></b></p><p><b><span style="font-size: medium;">The money required would come from a mix of philanthropists, institutions, and governments, similar to how the Global Fund to Fight AIDS, Tuberculosis, and Malaria raises its funds. </span></b></p><p><b><span style="font-size: medium;">Crucially, these transfers would be offered not as a substitute for other interventions, but rather as a complement.</span></b></p><p><b><span style="font-size: medium;">After all, if families still lack access to health care, education, and employment opportunities, additional cash will not help as much as it could. </span></b></p><p><b><span style="font-size: medium;">As a complementary measure, however, the benefits of that cash would extend beyond the initial payment. </span></b></p><p><b><span style="font-size: medium;">Individuals and families equipped with mobile money accounts would gain access to a financial lifeline, enabling them to save, start businesses, or receive remittances from abroad. </span></b></p><p><b><span style="font-size: medium;">At scale, this infrastructure accelerates underserved communities’ financial inclusion, and empowers national governments to provide emergency cash support during disasters and to offer long-term benefits to vulnerable populations.</span></b></p><p><b><span style="font-size: medium;">While direct transfers alone will not end extreme poverty, they represent a concrete first step toward catalyzing wider action. </span></b></p><p><b><span style="font-size: medium;">As with the strategy for tackling HIV – whereby an agreement to distribute anti-retroviral treatment preceded larger reforms to health systems and measures to encourage behavioral changes – a swift, unified initial step can make a daunting problem more manageable than we thought.</span></b></p><p><b><span style="font-size: medium;">It should be unacceptable in today’s world that hundreds of millions of families still struggle for food and adequate shelter. </span></b></p><p><b><span style="font-size: medium;">Children shouldn’t face stunted growth and development, or be unable to complete their education. </span></b></p><p><b><span style="font-size: medium;">This type of poverty isn’t just painful; it is a tragic waste of human potential.</span></b></p><p><b><span style="font-size: medium;">By improving dozens of outcomes simultaneously, cash transfers offer a transformative solution to multidimensional poverty. </span></b></p><p><b><span style="font-size: medium;">They have already proven effective, adaptable, and replicable, and now they are becoming more attainable every year with growing mobile coverage and improved digital infrastructure. </span></b></p><p><b><span style="font-size: medium;">This technological diffusion offers a historic opportunity to break the cycle of extreme poverty and desperation. </span></b></p><p><b><span style="font-size: medium;">For the first time, the world has both the money and the methods to succeed. </span></b></p><p><b><span style="font-size: medium;">What are we waiting for?</span></b></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;"><i>Cina Lawson is Minister of Digital Economy and Digital Transformation of Togo.</i></span></b></p><p><b><span style="font-size: medium;"><i>Rory Stewart, a former foreign aid minister of the United Kingdom, is a senior adviser at GiveDirectly.</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-11733366309339420372024-03-13T04:19:00.001-05:002024-03-13T04:19:00.137-05:00THE THREAT TO CURRENCIES FROM BANKING FAILURES / MACLEOD FINANCE<p><b><span style="font-size: x-large;">The threat to currencies from banking failures</span></b></p><p><b><i><span style="font-size: large;">This article points out the dangers to the value of credit from a rickety global banking system. This will almost certainly become the primary driver in the gold to credit relationship.</span></i></b></p><p><b>MACLEODFINANCE</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNLbJ_QmqeodfFBcF8Mdzmb6l3qG1gpskP9alaGNMtZfyjFN7beFTpQaqHTyVQQeZnJ2r9yfZJflJB0Q8bDYwGg3JUbEby_qtpwAnF7vERz7qUPRMxKg-Gnn6FKSAqddqKyasska-P-TAsX_dSqcZ4-0GvlMQf_8X9fUZjMrKuWogVCh9S9hT5B9O_nDfF/s554/GOLD%20200.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="311" data-original-width="554" height="358" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNLbJ_QmqeodfFBcF8Mdzmb6l3qG1gpskP9alaGNMtZfyjFN7beFTpQaqHTyVQQeZnJ2r9yfZJflJB0Q8bDYwGg3JUbEby_qtpwAnF7vERz7qUPRMxKg-Gnn6FKSAqddqKyasska-P-TAsX_dSqcZ4-0GvlMQf_8X9fUZjMrKuWogVCh9S9hT5B9O_nDfF/w658-h358/GOLD%20200.jpg" width="658" /></a></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">This article points out the dangers to the value of credit from a rickety global banking system. </span></b></p><p><b><span style="font-size: medium;">This will almost certainly become the primary driver in the gold to credit relationship, replacing the so far relatively benign downwards long-term drift in currency purchasing powers. </span></b></p><p><b><span style="font-size: medium;">In other words, it is increasing awareness of systemic risk and debt traps that will drive the relationship, not false theories about interest rate differentials.</span></b></p><p><b><span style="font-size: large;">The entire western banking system is close to collapse</span></b></p><p><b><span style="font-size: medium;">Because there is an apparent lull in the banking crisis, it has disappeared from the headlines. </span></b></p><p><b><span style="font-size: medium;">But that doesn’t mean it has gone away. </span></b></p><p><b><span style="font-size: medium;">A further deterioration in bank balance sheets will undoubtedly call into question the values of individual bank counterparty credit, entire banking systems, central banks, and currencies themselves. </span></b></p><p><b><span style="font-size: medium;">Let us remind ourselves of where we are in the bank lending cycle by looking at the relationship between bank equity capital and their balance sheets. </span></b></p><p><b><span style="font-size: medium;">The chart below shows the aggregate position for the entire US banking system.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgy39KF0LPtVVsvdsqxorZL9JRcUUEXcHgwpX9Os4C18ZtksGbrdsel3Z2-2BcTUs__pviYTxwlmx1qoTGWoioH8xEdMskHSouR1DQWvaRfT9VgOh6K3dWFnJHN2pvmFYtI_qdXpxYm_i4CBbVocE0-RzAN5f1ih6LAN0CDyXWsKn9MzpMo_JucfMtcElvd/s902/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="484" data-original-width="902" height="351" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgy39KF0LPtVVsvdsqxorZL9JRcUUEXcHgwpX9Os4C18ZtksGbrdsel3Z2-2BcTUs__pviYTxwlmx1qoTGWoioH8xEdMskHSouR1DQWvaRfT9VgOh6K3dWFnJHN2pvmFYtI_qdXpxYm_i4CBbVocE0-RzAN5f1ih6LAN0CDyXWsKn9MzpMo_JucfMtcElvd/w660-h351/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="660" /></a></b></div><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">It is as plain as a pikestaff that this ratio has been rising for as long as the Federal Deposit Insurance Corporation has been collecting these statistics — 34 years. </span></b></p><p><b><span style="font-size: medium;">The point about high balance sheet leverage is that it doesn’t take much in the way of loan losses to bankrupt a bank.</span></b></p><p><b><span style="font-size: medium;">The chart tells us that the banks have responded to the trend for ever lower interest rates by increasing their balance sheet leverage to grow their profits at a time when credit margins became increasingly compressed. </span></b></p><p><b><span style="font-size: medium;">To describe the condition as a lending bubble is not an exaggeration, and we know that all bubbles burst eventually. </span></b></p><p><b><span style="font-size: medium;">Unfortunately, the US banking system is the best of a bad bunch. </span></b></p><p><b><span style="font-size: medium;">The balance sheet leverage in the large international banks in the Eurozone and Japan is considerably higher, close to twenty times. </span></b></p><p><b><span style="font-size: medium;">Undoubtedly these excesses can be linked to the negative interest rate regimes imposed formerly by the ECB’s euro system and still by the Bank of Japan.</span></b></p><p><b><span style="font-size: medium;">Some vitally important questions arise: what will pop these lending bubbles, how will they be dealt with, and what are the consequences for the value of credit expressed in the gold to credit price relationship?</span></b></p><p><b><span style="font-size: large;">The consequences for interest rates</span></b></p><p><b><span style="font-size: medium;">The undoubted threat to the entire credit system arises from the inflationary consequences of covid in particular and how the massive expansion of central bank balance sheets from the first covid lockdowns fed into consumer price inflation. </span></b></p><p><b><span style="font-size: medium;">Exacerbated by sanctions against Russia, this inflation shock led to a sharp rise in dollar interest rates, catching some regional US banks unawares. </span></b></p><p><b><span style="font-size: medium;">While few in official circles will openly admit it, the subsequent reduction in central bank base money through quantitative tightening was more responsible than anything else for reducing headline inflation. </span></b></p><p><b><span style="font-size: medium;">The chart below shows how the combined balance sheets of the Fed, ECB, Bank of Japan, and Bank of England have contracted since Q1 in 2022.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQrJ0qEBRtcRaovOFrQ3AVIe55cuvDZU_xfKNN7tdZk6elsLWgHL6w-B-_60zYxTqpZHnU8G6R1sEKRtlm9g53gceHj46c7bdPjTOlI-GtgIpROMUceQSRhDQNLIQYC9j6ke6ucFQMGu8AN86CrI5HF8obkZ1NNUreIDLIrhWYs06S3MbwVfWw8ZZVtTRU/s902/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="902" height="378" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQrJ0qEBRtcRaovOFrQ3AVIe55cuvDZU_xfKNN7tdZk6elsLWgHL6w-B-_60zYxTqpZHnU8G6R1sEKRtlm9g53gceHj46c7bdPjTOlI-GtgIpROMUceQSRhDQNLIQYC9j6ke6ucFQMGu8AN86CrI5HF8obkZ1NNUreIDLIrhWYs06S3MbwVfWw8ZZVtTRU/w653-h378/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="653" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">It is wasteful expansion of central bank credit which has most impact on a currency’s purchasing power. </span></b></p><p><b><span style="font-size: medium;">But quantitative tightening from early 2022 is now over, and we can expect QE to return to ease national debt traps. </span></b></p><p><b><span style="font-size: medium;">Debt management must be prioritised over inflation.</span></b></p><p><b><span style="font-size: medium;">Even with a return to QE, the funding of government debt, particularly that of the US, can only be achieved at higher rates of interest. </span></b></p><p><b><span style="font-size: medium;">Other than perhaps a token dip in the Fed Funds Rate, it simply cannot fall to the extent discounted in financial markets. </span></b></p><p><b><span style="font-size: medium;">It is only a matter of not much time before this reality informs investors’ expectations.</span></b></p><p><b><span style="font-size: medium;">That the US faces a debt trap crisis is best shown by the chart below.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcOvGnnrq8HctYc5KpC8zRja6CAzPcR3uoQXw7Tvd6gLV_tKuuz1B0FFiCp5fcpfi98UXIE_iLpk8JvgnbtaEfUDnhlcSq527GtjUqVLmjxl85rC0rJBDGcUCHqkjwTkguXhmf2wx9gd-V739BxMG96Zd9s7ISOvZ4jvyM_FUPTe7kptzcbT6q2Galsmj9/s902/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="472" data-original-width="902" height="486" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcOvGnnrq8HctYc5KpC8zRja6CAzPcR3uoQXw7Tvd6gLV_tKuuz1B0FFiCp5fcpfi98UXIE_iLpk8JvgnbtaEfUDnhlcSq527GtjUqVLmjxl85rC0rJBDGcUCHqkjwTkguXhmf2wx9gd-V739BxMG96Zd9s7ISOvZ4jvyM_FUPTe7kptzcbT6q2Galsmj9/w656-h486/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="656" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">The pecked line shows that in real terms (adjusted logarithmically) the growth of gross Federal debt was steady until fiscal 2019, since when it has accelerated. </span></b></p><p><b><span style="font-size: medium;">When the economy was effectively shut down during the covid crisis, the jump above this trend came as no surprise. </span></b></p><p><b><span style="font-size: medium;">But what is not generally appreciated is that the gap between debt growth and the pre-covid trend is still widening. </span></b></p><p><b><span style="font-size: medium;">Furthermore, the chart does not include post-2023 September debt, which has increased by $1.3 trillion representing a further acceleration of trend to a $3+ trillion budget deficit for the current fiscal year.</span></b></p><p><b><span style="font-size: medium;">Funding this accelerating debt includes rolling in a compounding interest element because the US Treasury doesn’t pay for the interest: it is simply rolled into tomorrow’s debt. </span></b></p><p><b><span style="font-size: medium;">The rising cost of funding being rolled into future debt is a classic feature of a debt trap as anyone who accumulates credit card debt will attest. </span></b></p><p><b><span style="font-size: medium;">The position is made worse by declining involvement of foreign investors, illustrated next.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXUn-QnvyrKwvxIWcrnWd_Zgh0ON29T59XEoWb7K-7HHAxFHQlh6-J7r9CM4et2AdUKSHYUmxtmIOInCdzmjsNYbA0sGR-g9Qcpm0SduiUGK5Aik6TRSJF6VLtlH3Qr5aAwur08-Zp4BmJT_SH95xYMkRBdO8WR45ABuyfyzHS7Vlv-qWNWpXUwcUPDBW4/s902/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="260" data-original-width="902" height="374" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXUn-QnvyrKwvxIWcrnWd_Zgh0ON29T59XEoWb7K-7HHAxFHQlh6-J7r9CM4et2AdUKSHYUmxtmIOInCdzmjsNYbA0sGR-g9Qcpm0SduiUGK5Aik6TRSJF6VLtlH3Qr5aAwur08-Zp4BmJT_SH95xYMkRBdO8WR45ABuyfyzHS7Vlv-qWNWpXUwcUPDBW4/w671-h374/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="671" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">In less than four years, foreign owned Federal Government debt has declined from 35% to 27.5% of GDP. </span></b></p><p><b><span style="font-size: medium;">And with China and Japan, the two largest holders actively reducing their exposure the ratio will continue to fall. </span></b></p><p><b><span style="font-size: medium;">The point is that at the margin it is foreign demand which will play an important role in determining the financing cost of the nearly $11 trillion of new and to be refinanced Treasury debt this year.</span></b></p><p><b><span style="font-size: medium;">The evidence is clear, that with the US Government’s finances caught in an intractable debt trap and foreign buyers not adding to their positions US bond yields will continue to rise. </span></b></p><p><b><span style="font-size: medium;">The basic implications are as follows:</span></b></p><p><b><span style="font-size: medium;">· Interest rates must continue rising in order to fund the Federal debt.</span></b></p><p><b><span style="font-size: medium;">· Private sector debt will be destabilised, with malinvestments meeting their inevitable fate. Even formally profitable enterprises will be made insolvent by rising interest rates and their consequences for the financial and economic outlook.</span></b></p><p><b><span style="font-size: medium;">· Accordingly, the economic slump has only started. It is set to become considerably deeper as interest rates continue to rise.</span></b></p><p><b><span style="font-size: medium;">· Financial and property asset values will collapse along with rising bond yields.</span></b></p><p><b><span style="font-size: medium;">· Financial asset values act as collateral for the entire system of over the counter and regulated derivative markets, which will require additional support. Will your stocks be mobilised for this purpose without your knowledge and consent? Legally, it is possible.</span></b></p><p><b><span style="font-size: medium;">· A systemic banking crisis is bound to ensue, potentially far greater than the so-called Great Financial Crisis, which by comparison will be like a distant pimple on an expansive landscape.</span></b></p><p><b><span style="font-size: medium;">As these problems unfold, in order to survive commercial banks will call in loans where they can, panicked by the high degree of leverage on their balance sheets. </span></b></p><p><b><span style="font-size: medium;">Part of the loan liquidation, currently totalling nearly $702 billion according to FINRA will be from declining equity markets. </span></b></p><p><b><span style="font-size: medium;">The current loan position overhanging US equities is our next chart.</span></b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_-6hXwiHxJwk5G9irFwxyu994cp5wwXBJXZs5zZkHuDUcsLsh7LZzdn5pKl9kvx-s5JpZOA2CRWVFaUkxb5Ifym_wiMSjbrtejdoqmDEw5DyB_TA61lVgnkvZxcFiARPZbQvXv6RiW7eOB8kuD2vbIre-nhGAli9DfltAKU88NRs9gfB6dkSCuPKcuJzD/s902/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="444" data-original-width="902" height="383" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_-6hXwiHxJwk5G9irFwxyu994cp5wwXBJXZs5zZkHuDUcsLsh7LZzdn5pKl9kvx-s5JpZOA2CRWVFaUkxb5Ifym_wiMSjbrtejdoqmDEw5DyB_TA61lVgnkvZxcFiARPZbQvXv6RiW7eOB8kuD2vbIre-nhGAli9DfltAKU88NRs9gfB6dkSCuPKcuJzD/w654-h383/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="654" /></a></b></div><b><br /></b><p></p><p><b><span style="font-size: medium;">Having declined from all-time highs of $936bn, these loans are on a rising trend again, doubtless driving the tech bubble on Wall Street. </span></b></p><p><b><span style="font-size: medium;">We should not forget that it was collateral liquidation which fuelled the Wall Street Crash of 1929—1932, leading through a ripple effect to the collapse of an estimated 9,000 banks.</span></b></p><p><b><span style="font-size: medium;">Given today’s high bank balance sheet leverage, it will take very little in the form of non-performing loans to collapse the entire commercial banking system. </span></b></p><p><b><span style="font-size: medium;">Of course, that cannot be allowed to happen and the burden of supporting all commercial banks will be the backstop responsibility of central banks and their controlling treasury ministries — just like when Lehman failed.</span></b></p><p><b><span style="font-size: large;">The backstop for a banking crisis is bust as well</span></b></p><p><b><span style="font-size: medium;">A primary function of a central bank is to act as lender of last resort, a duty discharged by the Fed only last year under the Bank Term Funding Programme. </span></b></p><p><b><span style="font-size: medium;">But with government debt traps driving bond yields higher and collapsing collateral values, the entire burden of a massive systemic crisis in the commercial banking network from further increases in interest rates bankrupting their borrowers will have to be shared between the major central banks. </span></b></p><p><b><span style="font-size: medium;">But without massive capital injections, they themselves are technically bankrupt, concealing massive losses through their purchases of government bonds through QE. </span></b></p><p><b><span style="font-size: medium;">The only exception is the Bank of England which extracted a guarantee from the UK Treasury to take the losses.</span></b></p><p><b><span style="font-size: medium;">In the case of the Bank of Japan, it has been doing QE for the last twenty-four years and its capital is wiped out thousands of times over. </span></b></p><p><b><span style="font-size: medium;">The entire euro system is riddled with balance sheet losses not only at the ECB but also among the national central banks.</span></b></p><p><b><span style="font-size: medium;">Not only are their balance sheets in a mess, but their profit and loss accounts are taking a bad hit as well. </span></b></p><p><b><span style="font-size: medium;">All the major central banks doing QE ended up with bonds as assets sporting very low, or even negative yields. </span></b></p><p><b><span style="font-size: medium;">Now that interest rates have risen, the cost of financing these bonds is considerably greater than their coupon payments. </span></b></p><p><b><span style="font-size: medium;">In the euro system, the ECB recently unveiled losses of €1.3 billion, and the Bundesbank burned through provisions and reserves of over €20 billion last year — and there’s talk of a state bailout for the latter. </span></b></p><p><b><span style="font-size: medium;">Morgan Stanley estimates that the entire euro system faces P&L losses of €62 billion this year, after losing €56.6 billion last year. </span></b></p><p><b><span style="font-size: medium;">Note that these figures don’t include additional mark to market losses on bond holdings acquired through QE, which are being ignored.</span></b></p><p><b><span style="font-size: medium;">One can understand why the Bank of Japan has refused to raise its deposit rate. </span></b></p><p><b><span style="font-size: medium;">With its massive holdings of bonds and even equity ETFs, the losses on its P&L account from higher interest rates would be simply horrendous, making a recapitalisation effort beyond the pale.</span></b></p><p><b><span style="font-size: medium;">With all the west’s financial system backstopped by technically bankrupt central banks, a credibility crisis for the entire fiat currency system can be added into the mix. </span></b></p><p><b><span style="font-size: medium;">Investors will be staring down the barrel of not just the loss of value in their financial and other assets due to higher interest rates and bond yields, but the faith in the value of their fiat currencies, which are also credit, will be undermined as well.</span></b></p><p><b><span style="font-size: large;">Geopolitics and the consequences for investors</span></b></p><p><b><span style="font-size: medium;">The threat from the dollar’s debt crisis to the entire global credit system has been long foreseen by both China and more recently Russia as well. </span></b></p><p><b><span style="font-size: medium;">In recent years, it is also seen as an increasing threat to their survival by Asian central banks and others in the Global South. </span></b></p><p><b><span style="font-size: medium;">This is why China, Russia, and their allies have been accumulating gold bullion, not just as declared by their central banks, but in sovereign wealth funds and other accounts to conceal the true scale of ownership. </span></b></p><p><b><span style="font-size: medium;">Furthermore, both these nations have invested in gold mine output and together now dominate global goldmine output.</span></b></p><p><b><span style="font-size: medium;">At some stage, both Russia and China are bound to protect their currencies from a western credit crisis. </span></b></p><p><b><span style="font-size: medium;">They can only do this by establishing credible gold standards for the rouble and yuan. </span></b></p><p><b><span style="font-size: medium;">Indeed, for Russia it may even be in her strategic interests to do so deliberately to destabilise the dollar-based global credit system before it fails of its own accord. </span></b></p><p><b><span style="font-size: medium;">But she is currently restrained from doing so by China and India, evidenced by Russia’s proposal for a gold-backed trade settlement medium which failed to make the BRICS agenda last August.</span></b></p><p><b><span style="font-size: medium;">American, British, European, and Japanese investors being almost entirely exposed to credit in the form of fiat currencies, bonds, and equities face the prospect of a total wipe-out. </span></b></p><p><b><span style="font-size: medium;">It is estimated that their exposure to gold and gold substitutes is less than one per cent of their financial assets.</span></b></p><p><b><span style="font-size: medium;">While it is our own governments which have made this crisis, the entire Russia-China axis and their economic allies in the Shanghai Cooperation Organisation and BRICS+ form the silent majority of the world by both population and GDP. </span></b></p><p><b><span style="font-size: medium;">Therefore, while the impact of a western financial collapse will be extremely unpleasent, fortunately for us all there is a global majority capable of reintroducing gold standards to back their credit.</span></b></p><p><b><span style="font-size: medium;">Meanwhile, the now inevitable collapse of the dollar, euro, pound, and yen will be reflected in far higher values for gold measured in these collapsing currencies. </span></b></p><p><b><span style="font-size: medium;">So far, it has not been gold rising, but these currencies declining. </span></b></p><p><b><span style="font-size: medium;">But at some stage there will be a currency to gold version of a crack-up boom, whereby desperate holders of fiat credit will dispose of it just to get their hands on bullion and gold coin irrespective of cost. </span></b></p><p><b><span style="font-size: medium;">It is now possible to discern this outcome, thanks to the final collapse of the rotten fiat currency system hoving into view.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-19989645540859907362024-03-13T04:19:00.000-05:002024-03-13T04:19:00.138-05:00THE SQUAWKUS ABOUT AUKUS IS GETTING LOUDER / THE FINANCIAL TIMES OP EDITORIAL<p><b><span style="font-size: x-large;">The squawkus about Aukus is getting louder</span></b></p><p><b><i><span style="font-size: large;">The strategic case for the Australia-UK-US pact is sound. But technical and political doubts are growing</span></i></b></p><p><b>Gideon Rachman</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKJV7zKi_aN1y0TERPqIVJJOLjTzw7Y8AV-00NxCC-6ayU6HDsSguYB_m6jGcH_1ec1YfDJZkOt0w27FUIpm8OcpEISRfHPtKNjAyRgcZ8dugPI6Ff8RZ5zCCh04hSRL8bnu8iqRUHkCoi0I2mbSb_VatP2zuJ5JQTyrhF2VqpuV5_UJ0NH-4RvoAwnJca/s700/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="394" data-original-width="700" height="294" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKJV7zKi_aN1y0TERPqIVJJOLjTzw7Y8AV-00NxCC-6ayU6HDsSguYB_m6jGcH_1ec1YfDJZkOt0w27FUIpm8OcpEISRfHPtKNjAyRgcZ8dugPI6Ff8RZ5zCCh04hSRL8bnu8iqRUHkCoi0I2mbSb_VatP2zuJ5JQTyrhF2VqpuV5_UJ0NH-4RvoAwnJca/w656-h294/zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.jpg" width="656" /></a><b style="text-align: left;"><i>© James Ferguson</i></b></b></div><div class="separator" style="clear: both; text-align: center;"><b><b style="text-align: left;"><i><br /></i></b></b></div><p></p><p><b><span style="font-size: medium;">Aukus continues to make waves across the Pacific. </span></b></p><p><b><span style="font-size: medium;">Unveiled in 2021, the tripartite pact centres around Australia’s acquisition of nuclear-powered submarines from the US and the UK.</span></b></p><p><b><span style="font-size: medium;">For the Biden administration, Aukus has rapidly become a centrepiece of its efforts to contain Chinese power. </span></b></p><p><b><span style="font-size: medium;">For Australia, it is a far-reaching choice to tighten its military ties with the US. </span></b></p><p><b><span style="font-size: medium;">For the UK, it is a symbol of the country’s renewed global ambitions.</span></b></p><p><b><span style="font-size: medium;">China has repeatedly attacked Aukus as dangerous and confrontational. </span></b></p><p><b><span style="font-size: medium;">Shortly after it was launched, Boris Johnson, Britain’s prime minister at the time, gleefully lampooned the “raucous squawkus from the anti-Aukus caucus”.</span></b></p><p><b><span style="font-size: medium;">Three years on, that squawkus is not dying down. </span></b></p><p><b><span style="font-size: medium;">Last week, China’s Global Times ran an article that simultaneously speculated that Japan might join the pact, while proclaiming hopefully that “Aukus is crumbling”. </span></b></p><p><b><span style="font-size: medium;">That is a serious overstatement. </span></b></p><p><b><span style="font-size: medium;">But it is true that there are growing suspicions that the initial sales pitch covered over some serious problems with the detail.</span></b></p><p><b><span style="font-size: medium;">The debate is fiercest in Australia, since Aukus is intended to be the heart of its strategic posture for decades to come. </span></b></p><p><b><span style="font-size: medium;">The government and both major political parties still stand squarely behind the pact. </span></b></p><p><b><span style="font-size: medium;">But two influential former prime ministers — Paul Keating and Malcolm Turnbull — have made scathing criticisms.</span></b></p><p><b><span style="font-size: medium;">Concerns about the viability of Aukus fall into three main baskets: strategic, political and technical.</span></b></p><p><b><span style="font-size: medium;">On a strategic level, critics charge that Australia has made an unsustainable bet on continued American primacy in the Pacific. </span></b></p><p><b><span style="font-size: medium;">Hugh White, an influential academic, argues that: “The massive shift in power and wealth since 1980 makes it impossible to perpetuate the old US-led order.” </span></b></p><p><b><span style="font-size: medium;">White also worries that Australia is now tacitly committed to fighting alongside the US in a future war with China.</span></b></p><p><b><span style="font-size: medium;">On a political level, there is growing anxiety about whether the US is still a reliable ally. </span></b></p><p><b><span style="font-size: medium;">If Donald Trump wins a second term, the assumption that America can sustain stable support for its global strategic commitments looks much more questionable. </span></b></p><p><b><span style="font-size: medium;">And yet the commitment will have to be sustained, since Aukus is a multi-decade project.</span></b></p><p><b><span style="font-size: medium;">On a technical level, acquiring and maintaining nuclear-powered submarines involves a big and very costly technological leap for Australia. </span></b></p><p><b><span style="font-size: medium;">Aukus will be done in three complicated stages. </span></b></p><p><b><span style="font-size: medium;">First, Australia will overhaul its current conventional submarines. </span></b></p><p><b><span style="font-size: medium;">Then, in the early 2030s, it will take delivery of some second-hand Virginia-class nuclear subs from the US. </span></b></p><p><b><span style="font-size: medium;">A decade later, the first Aukus-class subs — designed in Britain, featuring US technology and built in the UK and Australia — will be deployed.</span></b></p><p><b><span style="font-size: medium;">There is some quiet dismay in the Australian defence establishment at the large British role in the building of SSN-Aukus. </span></b></p><p><b><span style="font-size: medium;">There is much less confidence in the UK’s military-industrial base than in US capabilities. </span></b></p><p><b><span style="font-size: medium;">Those doubts will have grown following the difficulties of British aircraft carriers and the failure of a recent test of a UK Trident nuclear missile. </span></b></p><p><b><span style="font-size: medium;">Elizabeth Buchanan of West Point Military Academy argues bluntly that: “SSN-Aukus probably won’t materialise.” </span></b></p><p><b><span style="font-size: medium;">Australian critics of Aukus fear the country is setting off down a long and costly road to nowhere.</span></b></p><p><b><span style="font-size: medium;">The strategic arguments against Aukus are the weakest ones. </span></b></p><p><b><span style="font-size: medium;">The Australian government, like the Japanese and the Indians, is justifiably concerned by China’s military and territorial ambitions. </span></b></p><p><b><span style="font-size: medium;">It understands that if Beijing successfully invaded Taiwan — or managed to enforce its claims over the South China Sea — China would become the dominant power in the Indo-Pacific, with profound consequences for Australian security.</span></b></p><p><b><span style="font-size: medium;">Aukus is a classic effort to strengthen deterrence by increasing the risks to China of any potential aggression. </span></b></p><p><b><span style="font-size: medium;">As one Australian security official puts it: “The goal is to prevent a war, not to fight one.”</span></b></p><p><b><span style="font-size: medium;">Fears about relying on America would clearly increase if a volatile Trump returned to power. </span></b></p><p><b><span style="font-size: medium;">But Michael Green, a former White House official now at the University of Sydney, argues that he would be likely to appoint anti-China hawks to key positions and they will maintain the commitment to Aukus. </span></b></p><p><b><span style="font-size: medium;">“I’m very confident that Australia will get the Virginia-class subs,” he asserts.</span></b></p><p><b><span style="font-size: medium;">Even some Aukus defenders agree that there are real doubts about the final piece of the puzzle — the construction of the new nuclear submarines. </span></b></p><p><b><span style="font-size: medium;">It is not just the capacity of the British to build them that is in question. </span></b></p><p><b><span style="font-size: medium;">It is also the evolution of military technology. </span></b></p><p><b><span style="font-size: medium;">It is entirely possible that manned nuclear submarines will have lost their utility in 30 years’ time and will be replaced by unmanned vehicles.</span></b></p><p><b><span style="font-size: medium;">But the merit of a decades-long alliance is that it can adapt. </span></b></p><p><b><span style="font-size: medium;">Aukus is not just about submarines. </span></b></p><p><b><span style="font-size: medium;">Pillar two of the pact is about sharing advanced military technology in areas such as hypersonics, cyber and artificial intelligence. </span></b></p><p><b><span style="font-size: medium;">As military technology evolves, Aukus can evolve along with it.</span></b></p><p><b><span style="font-size: medium;">The pact is ultimately a statement of resolve and long-term commitment. </span></b></p><p><b><span style="font-size: medium;">It is based on a shared perception of the growing strategic threat from China and Russia as they work together to overturn the current international order. </span></b></p><p><b><span style="font-size: medium;">That perception seems more pressing and valid than ever.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-62167299315192757422024-03-13T04:18:00.000-05:002024-03-13T04:18:00.134-05:00THE DRUMS OF U.S.- CHINA CYBER WAR / PROJECT SYNDICATE<p><b><span style="font-size: x-large;">The Drums of US-China Cyber War</span></b></p><p><b><i><span style="font-size: large;">With his recent testimony warning of the dire threat that China supposedly poses to US infrastructure, FBI Director Christopher Wray was telling congressional Republicans and Democrats exactly what they wanted to hear. A dangerous anti-China agenda has become the one thing that unites America's political class.</span></i></b></p><p><b>Stephen S. Roach</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQV3cFJcu5cu83Jm-n1iG9Ed0SnQYzibJMhVTJiaTxdIdcSnGttPpEHHEu5krW-Hdl5-T-8uLstytelhYq6sVMsIkvzK_ca9G9z4ED9TEHVhyP4cbAGvXIYlo18QgyCnVCaTn9nCIT4Eaj-sHmrhqMe9WVvPZscgEL0_GFbFYdJi0NHAdgWNbMCilTWRzl/s1360/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="680" data-original-width="1360" height="375" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQV3cFJcu5cu83Jm-n1iG9Ed0SnQYzibJMhVTJiaTxdIdcSnGttPpEHHEu5krW-Hdl5-T-8uLstytelhYq6sVMsIkvzK_ca9G9z4ED9TEHVhyP4cbAGvXIYlo18QgyCnVCaTn9nCIT4Eaj-sHmrhqMe9WVvPZscgEL0_GFbFYdJi0NHAdgWNbMCilTWRzl/w665-h375/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="665" /></a></b></div><p></p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">NEW HAVEN – FBI Director Christopher Wray recently upped the ante in America’s anti-China campaign. </span></b></p><p><b><span style="font-size: medium;">In congressional testimony on January 31, he sounded the alarm over intensified Chinese hacking activity and warned that US infrastructure – telecommunications, energy, transportation, and water – is acutely vulnerable to the Chinese state-sponsored hacker group Volt Typhoon. </span></b></p><p><b><span style="font-size: medium;">Front-page coverage by the New York Times added to the sense of urgency.</span></b></p><p><b><span style="font-size: medium;">A few days after Wray’s testimony, a joint report from the FBI, the Cybersecurity and Infrastructure Security Agency (CISA), and the National Security Agency (NSA) provided detailed documentation of the Volt Typhoon threat. </span></b></p><p><b><span style="font-size: medium;">More front-page coverage by the Times duly followed. </span></b></p><p><b><span style="font-size: medium;">And then came the outage of a major cellular network on February 22. </span></b></p><p><b><span style="font-size: medium;">Suddenly, cyber fears have taken on a life of their own.</span></b></p><p><b><span style="font-size: medium;">Largely ignored in this frenzy is an important conditionality to Wray’s warning. </span></b></p><p><b><span style="font-size: medium;">China, he alleged, was “prepositioning” for future conflict. </span></b></p><p><b><span style="font-size: medium;">That is not the same as Russian President Vladimir Putin massing troops on Ukraine’s border in late 2021 and early 2022. </span></b></p><p><b><span style="font-size: medium;">In Wray’s words, Volt Typhoon could be expected to attack US critical infrastructure, “If or when China decides the time has come to strike” (my emphasis).</span></b></p><p><b><span style="font-size: medium;">Thus, the FBI, in concurrence with CISA and the NSA, is basing its very public alarm purely on conjecture about China’s future intent, not on any concrete information of an imminent cyberattack. </span></b></p><p><b><span style="font-size: medium;">Far be it for me to doubt the veracity of the US intelligence community’s evidence on Volt Typhoon; I would merely point out that this is circumstantial evidence that has revealed absolutely nothing about the likelihood of action. </span></b></p><p><b><span style="font-size: medium;">For those who remember the dire, but erroneous, warnings about Saddam Hussein’s supposed weapons of mass destruction, which the United States used to justify the invasion of Iraq in 2003, this is no small concern.</span></b></p><p><b><span style="font-size: medium;">Having recently written a book about the potential of false narratives to trigger an accidental conflict between the US and China, I worry a lot about over-zealous emphasis on circumstantial evidence. </span></b></p><p><b><span style="font-size: medium;">I also worry about the hypocrisy of the allegations of Chinese cyber prepositioning. </span></b></p><p><b><span style="font-size: medium;">Recall that the US deployed the Stuxnet computer virus against Iranian nuclear centrifuges back in 2010.</span></b></p><p><b><span style="font-size: medium;">In a remarkable new book, The Politics of Language, David Beaver and Jason Stanley describe such leaps of faith as cases of “presuppositional resonance”: unsubstantiated projections of tangential (circumstantial) information that are marshaled to justify a politically expedient course of action. </span></b></p><p><b><span style="font-size: medium;">The current US political agenda vis-à-vis China is a classic example of this tendency.</span></b></p><p><b><span style="font-size: medium;">Wray’s presuppositional warnings do not come out of thin air. </span></b></p><p><b><span style="font-size: medium;">He has a long history of anti-China fearmongering. </span></b></p><p><b><span style="font-size: medium;">In the summer of 2020, as that year’s presidential election campaign was heating up, Wray joined three other senior officials from Donald Trump’s administration (Secretary of State Mike Pompeo, Attorney General William Barr, and National Security Adviser Robert O’Brien) in a succession of carefully orchestrated anti-China tirades. </span></b></p><p><b><span style="font-size: medium;">Once a lead actor in Trump’s political theater, Wray has been unwavering in his strident Sinophobic views ever since.</span></b></p><p><b><span style="font-size: medium;">The FBI director’s fixation on Chinese cyber threats has an unfortunate historical precedent that harks back to the first Cold War. </span></b></p><p><b><span style="font-size: medium;">The “red baiting” that targeted the Soviet Union and alleged Communist sympathizers back then is aimed at China today.</span></b></p><p><b><span style="font-size: medium;">The bipartisan anti-China campaign in Washington seems dead set on backing the Chinese into a corner. </span></b></p><p><b><span style="font-size: medium;">That has become increasingly evident in the past three years, as the Biden administration has continued to prosecute the trade and tech wars that Trump started. </span></b></p><p><b><span style="font-size: medium;">Former Speaker of the House Nancy Pelosi compounded the pressure campaign with her 2022 visit to Taiwan, which poured salt on one of China’s most sensitive open wounds.</span></b></p><p><b><span style="font-size: medium;">Similarly, under the leadership of US Representative Mike Gallagher – a soon-to-be retiring Republican from Wisconsin – a new bipartisan House Select Committee on China has used a combination of carefully staged hearings, threatening letters to US companies, and multimedia stagecraft to lead a crusade against China. </span></b></p><p><b><span style="font-size: medium;">It was hardly surprising to see the committee welcome Wray with open arms to its hearing on January 31.</span></b></p><p><b><span style="font-size: medium;">Countless other US politicians have jumped on the bandwagon. </span></b></p><p><b><span style="font-size: medium;">There probably is not a single member of the US Congress – Democrat or Republican – who is willing to take a principled stand in favor of US re-engagement with China. </span></b></p><p><b><span style="font-size: medium;">Anyone tempted to do so will be accused of Munich-like appeasement. </span></b></p><p><b><span style="font-size: medium;">Although President Joe Biden came close to re-engagement at the Woodside Summit with Chinese President Xi Jinping last November, his administration remains unwavering in imposing escalating restrictions on Chinese access to advanced technology.</span></b></p><p><b><span style="font-size: medium;">To be sure, China hasn’t made it easy. </span></b></p><p><b><span style="font-size: medium;">The surveillance balloon incident early last year – to say nothing of a “no limits” partnership with Russia, a country prosecuting a barbaric, illegal war of aggression – feeds America’s China-bashing politics. </span></b></p><p><b><span style="font-size: medium;">Wray’s cyber alarms amplify these presumed threats. </span></b></p><p><b><span style="font-size: medium;">In the end, however, this pressure campaign could backfire. Increasingly aggressive US actions have been stoking precisely the kind of hostile Chinese intentions that paranoid US politicians fear most. </span></b></p><p><b><span style="font-size: medium;">That is true regarding Taiwan and is also the case now with cyber security. </span></b></p><p><b><span style="font-size: medium;">America needs to be very careful of what it asks for.</span></b></p><p><b><span style="font-size: medium;">All this points to a new chapter in the US-China conflict – trade and tech wars now reinforced by a cyberwar. </span></b></p><p><b><span style="font-size: medium;">Notwithstanding Biden and Xi’s denials, this conflict has cold war written all over it. </span></b></p><p><b><span style="font-size: medium;">The original Cold War came dangerously close to being hot, especially during the Berlin Crisis and the Cuban Missile Crisis. </span></b></p><p><b><span style="font-size: medium;">Could the risks of cyberwar take us that close again? </span></b></p><p><b><span style="font-size: medium;">Do we have the trust-based capacity to temper those risks? </span></b></p><p><b><span style="font-size: medium;">Wray’s fearmongering provides worrying answers to those questions. </span></b></p><p><b><span style="font-size: medium;">Grave danger lies ahead in the growing drumbeat of US-China cyberwar.</span></b></p><p><br /></p><p><b><span style="font-size: medium;"><i>Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China (Yale University Press, 2014) and Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, 2022).</i></span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-11210082885877978542024-03-12T04:25:00.000-05:002024-03-12T04:25:00.131-05:00HIGHER FOR LONGER? / JOHN MAULDIN´S WEEKLY NEWSLETTER<p><span style="font-size: 25.5pt;"><b><span style="font-family: georgia;">Higher for Longer?</span></b></span></p>
<p style="line-height: 21.0pt; margin-bottom: 11.25pt; margin-left: 0cm; margin-right: 0cm; margin-top: 3.75pt;"><span style="font-size: 12pt;"><span style="font-family: georgia;"><b>By John Mauldin </b></span></span></p><p style="line-height: 21.0pt; margin-bottom: 11.25pt; margin-left: 0cm; margin-right: 0cm; margin-top: 3.75pt;"><span style="font-size: 12pt;"><span style="font-family: georgia;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: georgia;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijSOWtGHdXilKcEJqaWW0-euELofMNlYvllw4I80Wt-ZM9VJLM_jWOfcNdsMcNdkXopk5BnlidijkQ2iJEZZzJLbPT6FxPBHPLooh9cJNAgU5Yu8319mSCUP9x6lOomC-LHwX_JPXn0PIiypnD-rSKR4gMgDHoy4VkWs1lbVYm0BEWbZDVIaShxvbEKqe_/s825/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="413" data-original-width="825" height="335" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijSOWtGHdXilKcEJqaWW0-euELofMNlYvllw4I80Wt-ZM9VJLM_jWOfcNdsMcNdkXopk5BnlidijkQ2iJEZZzJLbPT6FxPBHPLooh9cJNAgU5Yu8319mSCUP9x6lOomC-LHwX_JPXn0PIiypnD-rSKR4gMgDHoy4VkWs1lbVYm0BEWbZDVIaShxvbEKqe_/w649-h335/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="649" /></a></span></div><span style="font-family: georgia;"><br /><b><br /></b></span><p></p><p style="line-height: 21.0pt; margin-bottom: 11.25pt; margin-left: 0cm; margin-right: 0cm; margin-top: 3.75pt;"><span style="color: #999999; font-family: "Arial",sans-serif; font-size: 12.0pt;"><br /><br /></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“There is a difference between you
and me. We both looked into the abyss, but when it looked back at us, you
blinked.”</i><o:p></o:p></b></span></p>
<p style="line-height: 21.0pt; margin-left: 72.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>- Batman, referencing Nietzsche in
2010’s Justice League: Crisis on Two Earths<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt; margin-left: 72.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>- My first thought on the quote: Think
Jerome Powell and the FOMC</i><o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><br /></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The idea that “market expectations” tell us anything about the
economy’s future is – or should be – in serious doubt. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That’s not to say the
market is <em><span style="font-family: "Arial",sans-serif;">wrong</span></em>. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It just changes its mind so often as to be useless. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>And most of the time, it
changes its mind after the fact.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Currently we see this in the outlook for interest rate cuts. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Futures prices implied as many as six cuts early this year even though the FOMC
members who will actually make that choice were signaling nothing of the sort
in their dot plots. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The last round in January showed an average of three cuts
expected, with two committee members wanting to hold rates steady all year.</b><o:p></o:p></span></p>
<p align="center" style="line-height: 21.0pt; text-align: center;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><img border="0" class="img-responsive fr-fil fr-dib" height="719" id="_x0000_i1029" src="https://images.mauldineconomics.com/uploads/newsletters/IMAGE_5_20240308_TFTF.png" width="662" /><br />
</span><span style="color: black; font-family: Arial, sans-serif;"><b><i><span style="font-size: x-small;">Source: <a href="https://email.mauldineconomics.com/ss/c/u001.2nsImDLk0WzSNsBKUFAajk9BoOMl0f9sFzZvFh07tC1oJxCHqq_j_tW8wW-vjxavu-gLKiH65i_tqjMmhzBS19cZc7vNBREuLQChs3xgTK9rM597NtgrzBNM3xEUVj-GF85uahKca8GgOpmcb_QeAU9fXFEeyUk_aHRy6DnxIxdEoXB8Z9ZzkcFsPy1TQqWatZm0pmqWvNCF_2JD5W3oGbucOcILE0L7lweU_06-Dph3KaSF3vYu9juQZkNdLWYsq3EXwPC6nnxyEBg47nE_6MKxYqcllGDgcLkRMP-Hah0iWD-tnxXLTiaIMt89fbqCqjZINE-mpS32mzo2_35blCWrkeYIZNVJ0hQ10hvhVGgRHMH74NS13qfJtKG-ogtAYgh6XKf2gZ0y_g_B6fuZkEsllbWCXoH7FgT5S8AZppQ/44i/0CcZtUw4RUKCd8I5CZrCxA/h35/h001.znxVVSgReAD0f1QA4mMTyrHSPeFKFsDwldsMcWr9JZM">The
Fed’s New Dot Plot — And What It Says About Interest Rates | Bankrate</a></span></i></b></span><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><o:p></o:p></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><br /></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The market is <span style="font-family: "Arial",sans-serif;">still</span>
telling us they expect the Fed to cut 4 times this year. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Here is the market
projections for rate cuts after the NFP release. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The market will be wrong.</b><o:p></o:p></span></p>
<p align="center" style="line-height: 21.0pt; text-align: center;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><img border="0" class="img-responsive fr-fil fr-dib" id="_x0000_i1030" src="https://images.mauldineconomics.com/uploads/newsletters/IMAGE_6_20240308_TFTF.png" /><br />
</span><em><span style="color: black; font-family: Arial, sans-serif;"><b><span style="font-size: x-small;">Source: Samuel Rines, CORBU Research</span></b></span></em><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><o:p></o:p></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><br /></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Cue Mick Jagger: <i>“You can’t always get what you want, but…
sometimes you get what you need.”</i><o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>We’ll get another round of dot plots later this month, so it’s
possible Fed leaders will move closer to market expectations. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>More likely, in
my opinion, is they will go the other way, throwing cold water on the notion
rates will “normalize” this year. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Aside from the fact no one knows what
“normal” should be, the economic data simply doesn’t show a compelling need to
cut rates.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>For this letter, I want you to put yourself in the position of an
FOMC member. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Since you are not a political hack, you want to do what you think
is best for the overall economy and Main Street while recognizing some sectors
may not be happy.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>As we will see, your fellow FOMC members are worried about
inflation coming back if they cut rates too fast. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That would be a far worse
outcome than simply waiting a few more months. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Cutting rates only to have
renewed inflation force another hike is more than just an embarrassment. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It
would have serious implications for almost all sectors of the economy.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Inflation isn’t yet close enough to the Fed’s 2% target to declare
victory. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It’s improving, yes. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But 2.6% isn’t the same as 2%. And 2% is still
too high for retirees.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>As I have for several years, I think rates will stay “high” for a
long time. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That’s bad news if, for example, you are a highly leveraged business
or you are looking for a new home. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It’s also bad news for interest expense on
government debt. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But, at least in theory, those aren’t the Fed’s mandate. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Its
two concerns are price stability and maximum employment. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The second of those is
in a good place but the first one is still in progress.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Not so long ago, these rates we now consider painfully high
weren’t unusual. The economy was actually better in many ways, too. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>“Higher for
longer” may sound scary if you have a lot of debt, but to Fed officials, it’s
not necessarily so bad. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>And savers/retirees love higher rates.</b></span></p><p style="line-height: 21.0pt;"><span style="font-family: georgia; font-size: x-large;"><b>Ticking Higher</b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I want to review something that used to be obvious, but no longer
is. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><em><span style="font-family: "Arial",sans-serif;">Why</span></em> does the
Fed raise and lower interest rates?<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The answer is in that dual mandate. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The Fed tightens when it wants
to encourage price stability (i.e., control inflation) and loosens when
necessary to promote maximum employment or economic growth generally.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>(Which is why stagflation is so bad. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>High inflation and rising
unemployment? </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>No policy “works” because whatever you do will cause severe pain. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>See Volcker as a reference.)<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Because policy changes take so long (the lag effect) to show the
desired effects, the Fed tends to overshoot in both directions. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>They loosen too
much and start inflationary booms, then tighten too much and send the economy
into recession. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Those are avoidable in theory. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>In practice, not so much, which
is why the “soft landing” scenario seemed unlikely this time two years ago.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Now we are in a weird situation: Inflation has diminished but the
boom is still going. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It’s not like the expansions we saw before 2008. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Nevertheless, GDP growth, employment, and other indicators are generally
positive. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Inflation, while higher than targeted, is much lower than it was.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Can you point to signs of weakness? </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Sure. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Plenty of cracks in the
armor. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>There are always weak data points in any economy. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>We all read them every
day. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But they aren’t yet popping wide open, and it could be a long time before
they do. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><span style="font-family: "Arial",sans-serif;">The Fed responds
to data, not hints, and for now the data shows no urgent need to stimulate more
growth. </span></b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Again, the FOMC members also know looser policy
will involve some risk of stimulating <em><span style="font-family: "Arial",sans-serif;">too
much</span></em> growth and bringing inflation back.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That view, while not universal, is compelling some serious
observers to predict little or no loosening ahead. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Apollo Global Management’s
Torsten Slok made headlines last week by saying the Fed won’t cut rates at all
in 2024. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>He says it in a kind of “emperor has no clothes” way, like Wall Street
simply refuses to see reality.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Here’s Slok:<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“The market came into 2023
expecting a recession. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>The market went into 2024 expecting six Fed cuts. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i><span style="font-family: "Arial",sans-serif;">The reality is that the US economy is
simply not slowing down, and the Fed pivot has provided a strong tailwind to
growth since December.</span><o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“As a result, the Fed will not cut
rates this year, and rates are going to stay higher for longer.”</i><o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>(Yes, yes, DR, I know that <em><span style="font-family: "Arial",sans-serif;">some</span></em>
GDP forecasts for Q1 are coming down, but they are still quite positive.)<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Things move fast so let’s recall this “December pivot” he
mentions. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That month’s FOMC statement implied the committee believed rates had
gone high enough. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>They had paused six months earlier, inflation had not
returned, and the Fed suddenly seemed more concerned that high rates were
slowing growth. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That meant rate cuts were back on the table.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Now, we don’t know exactly what was said in the committee room. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But whatever it was, the Fed seems to have enticed a lot of money off the
sidelines and into various investments, both stocks and corporate CapEx. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It is
visible in the GDP growth forecasts.</b><o:p></o:p></span></p>
<p align="center" style="line-height: 21.0pt; text-align: center;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><img border="0" class="img-responsive fr-fil fr-dib" id="_x0000_i1031" src="https://images.mauldineconomics.com/uploads/newsletters/IMAGE_1_20240308_TFTF.png" /><br />
</span><em><span style="color: black; font-family: Arial, sans-serif;"><b><span style="font-size: x-small;">Source: Apollo Global</span></b></span></em><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><o:p></o:p></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><br /></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Lower bond yields after the December FOMC provided what Slok calls
a “tailwind to growth” which he thinks pushed the Fed back into
inflation-fighting mode. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>They look at charts like the one below and don’t like
it at all. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>(Note this chart shows <em><span style="font-family: "Arial",sans-serif;">month-over-month </span></em>inflation
trends, not annual.)</b><o:p></o:p></span></p>
<p align="center" style="line-height: 21.0pt; text-align: center;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><img border="0" class="img-responsive fr-fil fr-dib" height="465" id="_x0000_i1032" src="https://images.mauldineconomics.com/uploads/newsletters/IMAGE_2_20240308_TFTF.png" width="667" /><br />
</span><em><span style="color: black; font-family: Arial, sans-serif;"><b><span style="font-size: x-small;">Source: Apollo Global</span></b></span></em></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Zoom in on the right side there. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Note the lines all began trending
downward in mid-2022 as the Fed finally got serious about inflation. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>They
flattened after the tightening paused in mid-2023. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Now they’re ticking higher
again. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Since you are a FOMC member, this is hard to tolerate. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It makes 5.5%
rates look about right, certainly not too high, and certainly shows no need for
rate cuts.</b></span></p>
<h2><a name="i"><span style="color: black;"><span style="font-family: georgia; font-size: x-large;">“I Need to See More Progress”</span></span></a><span style="color: black; font-family: "Arial",sans-serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></h2>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The FOMC dot plots are anonymous so we can’t connect the dots’
forecasts to specific members. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Some are more open than others. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Atlanta Fed
President Raphael Bostic said back in December he expected two rate cuts in
2024 if inflation stayed under control. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Last week he changed that to just one
cut, which he thinks will come in the third quarter and be followed by a pause. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That’s a bit less hawkish than Torsten Slok, but not much.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Bostic expanded on his views in a remarkably clear and
non-technical <a href="https://email.mauldineconomics.com/ss/c/u001.2nsImDLk0WzSNsBKUFAajk9BoOMl0f9sFzZvFh07tC14phIPY5O6i8VhepA5lt1Igoh_ch_s92_lf0O8-m4gZdUd0-QKx4BuOX1uxwBdpR7v-XFZ5pnjT-O1LCE-aUI74hNXtgCWlD7HCSDapc17Lx1j5R4aLADgxUe-v6LOb82w71hrwh2TZ8v3j9wwfuRnJs8BioAavAiHOFFzsUEPjTSNqoWRFGBo6kjrjBes-40CiDBKTWXHVFr19CIjXOPD01zn0SIopapY5GCYEByQdgsj5gteiUEgEhsphDdmgWLHPH4Mlqr2YYP4oubd8VkuaG9Qz9IQhB2Gs5DCrjKsizuzo06uJYfW8FnarzS38kNH1j7tjRmFseJuV9A7ilIiurYGGqVZjbOCgoWqHU2RdQ71ntC9B2FHfkLVEeHLDf4/44i/0CcZtUw4RUKCd8I5CZrCxA/h37/h001.fckOAFCLvyVuZQe_ca-AaNregJUT06p2EIdbU7lh9Ow" target="_blank">letter</a> posted this week to the Atlanta Fed’s website. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I
highly recommend you read it. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Bostic is a PhD economist but doesn’t sound like
one.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“I believe inflation is on track to
slowly return to the Committee's 2 percent objective, alongside a strong labor
market and expanding economic activity. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>That's unusual. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Typically, unemployment
rises when the Fed tightens monetary policy to subdue outbreaks of inflation
like the one we experienced beginning in 2021. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>So, a return to price stability
without deep economic pain would constitute a resounding success by historical
standards.<o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“Just how different is this
episode? </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Research tells us that when the Fed tightened policy aggressively in
previous cycles, the unemployment rate rose by about 1.5 percentage points, on
average. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>That hasn't happened this time, so far at least. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>When the Committee
began raising the federal funds rate in March 2022, unemployment was 3.6
percent. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>After 11 rate hikes, January's unemployment rate stood at 3.7 percent.<o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“The unemployment rate has remained
benign as monthly employment growth has held up remarkably well. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Revisions from
the Bureau of Labor Statistics bumped up the job growth numbers for late 2023,
and the original report for January exceeded all expectations. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Importantly,
data also showed that job creation in January broadened beyond the small number
of sectors—notably, health care—that had accounted for an outsize share of
growth in the second half of 2023. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>I don't overreact to one month's data, to be
sure. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>But a job market that had been cooling—effectively slowing to a normal
state—has shown fresh signs of strength.<o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“The story is similar for economic
growth. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Econometric evidence suggests that past tightening cycles led to about
a half-percentage-point decline in real gross domestic product over two to
two-and-a-half years—a recession, basically. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Bucking that history, real GDP
grew at a 3.3 percent annual rate in the fourth quarter of 2023 by the Bureau
of Economic Analysis's initial estimate, and at a 3.1 percent clip for all of
2023. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>That's a more robust performance than private sector forecasts
anticipated and, quite frankly, more robust than what we at the Atlanta Fed
expected.”</i><o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>John here. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>What you just read was Bostic’s optimistic argument. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Next comes the “But…” portion. </b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“As promising as that all sounds,
the resounding success I mentioned—a return to price stability without economic
pain—is hardly assured. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>That is largely thanks to the second of my three
points: Because uncertainty is rampant in the domestic and global economies, it
is <span style="font-family: "Arial",sans-serif;">premature </span>to
claim victory in the fight against inflation.<o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“January inflation readings came in
surprisingly high, the latest reminder that the path to price stability is not
a straight line. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i><span style="font-family: "Arial",sans-serif;">I need to
see more progress to feel fully confident that inflation is on a sure path to
averaging 2 percent over time. </span></i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i><span style="font-family: "Arial",sans-serif;">Only when I gain that confidence will I feel the
time is right to begin lowering the federal funds rate to dial back restrictive
monetary policy…</span><o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“There is another upside risk I'll
highlight. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>As my staff and I have talked to business decision-makers in recent
weeks, <span style="font-family: "Arial",sans-serif;">the theme we've
heard rings of expectant optimism</span>. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Despite business activity
broadly moderating, firms are not distressed. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>Instead, many executives tell us
they are on pause, ready to deploy assets and ramp up hiring when the time is
right.<o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“I asked one gathering of business
leaders if they were ready to pounce at the first hint of an interest rate cut. </i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>The response was an overwhelming "yes."<o:p></o:p></i></b></span></p>
<p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i>“<span style="font-family: "Arial",sans-serif;">If that scenario were to unfold on a large scale, it holds
the potential to unleash a burst of new demand that could reverse the progress
toward rebalancing supply and demand. </span></i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i><span style="font-family: "Arial",sans-serif;">That would create upward pressure on
prices. </span></i></b></span></p><p style="line-height: 21.0pt; margin-left: 36.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b><i><span style="font-family: "Arial",sans-serif;">This threat of what I'll call pent-up exuberance is a new upside risk
that I think bears scrutiny in coming months.</span>”</i><o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>John here again. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I’m pretty sure Bostic chose his words carefully. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>He wants to be “<em><span style="font-family: "Arial",sans-serif;">fully</span></em>
confident inflation is on a <em><span style="font-family: "Arial",sans-serif;">sure</span></em>
path to averaging 2 percent <em><span style="font-family: "Arial",sans-serif;">over
time</span></em>” before he would be comfortable cutting rates. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>His language
sets a high bar.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>(I am more and more a fan of Bostic. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Quite the opposite of Alan
Greenspan who once said: “I know you think you understand what you thought I
said but I'm not sure you realize that what you heard is not what I meant.”)<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But Bostic’s biggest concern is what he calls “expectant optimism”
and “pent-up exuberance.” </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Business leaders, at least in his region, say they
will leap into action as soon as they see interest rates start falling. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>He
worries this would mean a “burst of new demand” that produces more inflation
pressure.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Bostic is just one voter, but I suspect others have similar
leanings. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>And they all, whatever their views, know the next easing will be a
critical decision. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I think they will want to make it unanimous. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Achieving that
consensus could easily take longer than current market expectations (see
below), if not all year.</b></span></p><p style="line-height: 21.0pt;"><b><span style="font-family: georgia; font-size: x-large;">Potential Sparks</span></b></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>If the FOMC really wants to see inflation consistently at 2%
before it cuts, then housing prices are the main barrier. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Most other spending
categories are either in range or on track to be there soon.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>By many non-government measures, housing prices are indeed
softening. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>This has been slow to affect the official inflation benchmarks
because they’re intentionally designed not to react quickly. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Here’s a good
illustration (via good friend David Bahnsen).</b><o:p></o:p></span></p>
<p align="center" style="line-height: 21.0pt; text-align: center;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><img border="0" class="img-responsive fr-fil fr-dib" id="_x0000_i1033" src="https://images.mauldineconomics.com/uploads/newsletters/IMAGE_3_20240308_TFTF.png" /><br />
</span><em><span style="color: black; font-family: Arial, sans-serif;"><b><span style="font-size: x-small;">Source: David Bahnsen of TBG</span></b></span></em><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><o:p></o:p></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><br /></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Note that recent Zillow rent growth has been stabilized well above
3%. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Nonetheless, the housing portions of CPI and PCE were gradually improving
until some unexpected strength in the January data. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Now it seems that may have
been a data glitch. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>We know this only because a bunch of analysts pestered the
Bureau of Labor Statistics to explain how owners’ equivalent rent could
increase 0.6% when rent rose only 0.4%.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>After weeks of awkward silence, the agency finally <a href="https://email.mauldineconomics.com/ss/c/u001.2nsImDLk0WzSNsBKUFAajk9BoOMl0f9sFzZvFh07tC0DksJnv8ej5twsKmIpLN88eemtOWb9S8gEN4y0IpURuzdETrg86yLG7k5iopB2xvR5MuVwOXrLeAu_7tRBMXbk7hdyaFAHekVZ087lW6FuQCGGh5iCuo1II0G1dXkyYjZ0S6A93sKj-iUC6JjTHTi1To3y0H13K3u7oPP1B3d7O11ACTs3I1OtW971uxeBPy21X5FTMu6eLEme6LCZft5g_MzKxpFC7srXCVABQJhKaivXkEzireRonci3RAUH42E80UvuooodZtDyLz9zEhfy1fRsYX1x83lIlhzNA7WMSzG1tuvRS7tdixNnFUNPtbwDw7DEzI9t6H3KHzh4W9YJVhupk5WsYQNVj-_KY5_PxniamxJEcEEoUmmXKNYm-Dw/44i/0CcZtUw4RUKCd8I5CZrCxA/h38/h001.Dym6zERVRpaDakmEMDXHhUGSw7EX12aS6udP6OTrykw" target="_blank">explained</a> it had “refined the weighting method” for the OER
part of CPI. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It had to do with the proportion of single-family homes to
“non-detached” homes like townhouses and condos. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>They do this every year but,
in this case, it seems to have made an unusually big difference.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>If we assume that was a one-time event, then maybe housing prices
will keep moderating. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I should note, since I mention Torsten Slok, he sees both
rental rates and home prices rising, and has some data to prove it. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Others have
quite contradictory data. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>They could all be right; all real estate is local, as
the saying goes. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But on a national average?<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The broader point in almost any scenario is that housing
inflation, if it improves, will improve only slowly. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>That’s hard to square with
the high level of confidence FOMC members like Bostic say they want to see.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Nor is housing the only potential inflation spark. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Here’s a
gasoline chart from Jim Bianco, showing a recent surge in gasoline prices.</b><o:p></o:p></span></p>
<p align="center" style="line-height: 21.0pt; text-align: center;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><img border="0" class="img-responsive fr-fil fr-dib" id="_x0000_i1034" src="https://images.mauldineconomics.com/uploads/newsletters/IMAGE_4_20240308_TFTF.png" /><br />
</span><em><span style="color: black; font-family: Arial, sans-serif;"><b><span style="font-size: x-small;">Source: Jim Bianco</span></b></span></em><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><o:p></o:p></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><br /></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The Fed’s 2% inflation goal looks at core indexes which exclude
energy, so this isn’t directly part of it. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But it will eventually seep into the
core if fuel prices keep rising.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Where does this leave the rate cut prospects? </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>As of now, I think
Bostic’s “one cut and a pause” is probably the best case scenario for those who
want lower rates. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>No cuts at all are a non-trivial possibility. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>We’ll know more
with the next dot plots on March 20.</b><o:p></o:p></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>A few economists, notably Larry Summers, see a small chance the
Fed will <em><span style="font-family: "Arial",sans-serif;">raise</span></em>
rates this year if inflation starts climbing again. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I don’t know about that but,
barring a deep and sudden economic downturn or a real problem in bond markets,
rates don’t seem likely to fall all that much.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>A man hears what he wants to hear and disregards the rest. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>We all
have our biases. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>You can find a LOT of cracks in the economic data. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Enough to
fill your bearish economic heart.</b><o:p></o:p></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>But again, imagine you are on the FOMC. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Your colleague Bostic and
others are surprised and pleased to see the economy doing well after a quick,
steep tightening cycle. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>You really want to keep it going. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The dilemma you face
is two parts:<o:p></o:p></b></span></p>
<ol start="1" style="margin-top: 0cm;" type="1">
<li style="color: black; line-height: 21.0pt; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt;"><span style="font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>If
you cut too soon and inflation comes back, it could seriously create
stagflation, the worst of all worlds for the Fed.<o:p></o:p></b></span></li>
<li style="color: black; line-height: 21.0pt; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt;"><span style="font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>If
you wait too long, the economy could roll over into recession. That means
you might have to cut deeper and faster than you would like.<o:p></o:p></b></span></li>
</ol>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Plus, just to make life harder, this is an election year. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>You will
be accused of political mischief no matter what you do. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Traditionally, you try
not to make major monetary policy changes a few months before an election. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>If
you are going to cut rates, maybe the best thing to do is cut in June and then
signal a “Bostic Pause” until November. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Then you can assess the need for more
cuts.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>The only way you act is if the data overwhelmingly calls for rate
cuts. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>What could that be? </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Turmoil in the bond market? </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>A surprising downturn in
employment? </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>You really have to ignore the stock market. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>As an FOMC member, you
aren’t responsible for maintaining historically high valuations.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Powell said this week it’s time to consider rate cuts, but steered
clear of saying when. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>You can read into his masterfully vague but hopeful
comments whatever you wanted to hear. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Greenspan would approve. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>We will see
who blinks….</b></span></p>
<h2><a name="new"><span style="color: black;"><span style="font-family: georgia; font-size: x-large;">New York, DC, and Tiffani</span></span></a><span style="color: black; font-family: "Arial",sans-serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></h2>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I need to get to New York sometime in early April and will be in
Washington, DC, in mid-April. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It would be great if we could combine the two. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>I
will be back in Dorado for the SIC.<o:p></o:p></b></span></p>
<p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>My daughter Tiffani will be here next week. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>We are working
together on some projects. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>It is good to be working with her, hopefully not
briefly. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>Her birthday is this week. </b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>How can I have multiples kids in their 40s
or almost?</b></span></p><p style="line-height: 21.0pt;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 13.5pt;"><b>
Your not even thinking about slowing down analyst,</b><o:p></o:p></span></p>
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<p class="MsoNormal" style="line-height: 15.0pt;"><b><span style="font-family: "Arial",sans-serif; font-size: 14.5pt; mso-fareast-font-family: "Times New Roman";">John
Mauldin</span><span style="font-family: "Arial",sans-serif; font-size: 14.5pt; mso-fareast-font-family: "Times New Roman";"><br />
</span><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Co-Founder, <em><span style="font-family: "Arial",sans-serif;">Mauldin Economics</span></em></span><span style="font-family: "Arial",sans-serif; font-size: 14.5pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></b></p>
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</tbody></table>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-86670119502786067792024-03-12T04:19:00.001-05:002024-03-12T04:19:00.122-05:00HOW INVESTORS GET RISK WRONG / THE ECONOMIST<p><b><span style="font-size: x-large;">How investors get risk wrong</span></b></p><p><b><i><span style="font-size: large;">Contrary to popular wisdom, more volatile stocks do not outperform</span></i></b></p><p><b><span style="font-size: medium;"></span></b></p><div class="separator" style="clear: both; text-align: center;"><b><span style="font-size: medium;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiW9q0Xh4PbLD6bRhrlc3yyat0BHVr5Bi9O0C7XqBAS8uPzUcijswNTrz06LIL7SJVIroRvy9jWSWdNxopAO-p4GKrPQs8LMQxAlH8PFXcLhORokgoaWehJnCY1ywDwgRurZm7SPi_1fOUJgS8t15LTWWD0nQcARNO34ffqfw0lQyFZIM-kihRVk9Ec3g6b" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="616" data-original-width="1096" height="347" src="https://blogger.googleusercontent.com/img/a/AVvXsEiW9q0Xh4PbLD6bRhrlc3yyat0BHVr5Bi9O0C7XqBAS8uPzUcijswNTrz06LIL7SJVIroRvy9jWSWdNxopAO-p4GKrPQs8LMQxAlH8PFXcLhORokgoaWehJnCY1ywDwgRurZm7SPi_1fOUJgS8t15LTWWD0nQcARNO34ffqfw0lQyFZIM-kihRVk9Ec3g6b=w661-h347" width="661" /></a></span></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">Hire a wealth manager, and one of their first tasks will be to work out your attitude to risk. </span></b></p><p><b><span style="font-size: medium;">If you are not sure exactly what this means, the questions are unlikely to help. </span></b></p><p><b><span style="font-size: medium;">They range from the inane (“How do you think a friend who knows you well would describe your attitude to taking financial risks?”) to the baffling (“Many television programmes now have a welter of fast whizzing images. </span></b></p><p><b><span style="font-size: medium;">Do you find these a) interesting; b) irritating; or c) amusing but they distract from the message of the programme?”). </span></b></p><p><b><span style="font-size: medium;">This is not necessarily a sign that your new adviser is destined to annoy you. </span></b></p><p><b><span style="font-size: medium;">Instead, it hints at something fundamental. </span></b></p><p><b><span style="font-size: medium;">Risk sits at the heart of financial markets. </span></b></p><p><b><span style="font-size: medium;">But trying to pin down precisely what it is, let alone how much of it you want and which investment choices should follow, can be maddening.</span></b></p><p><b><span style="font-size: medium;">To get around this, most investors instead think about volatility, which has the advantage of being much easier to define and measure. </span></b></p><p><b><span style="font-size: medium;">Volatility describes the spread of outcomes in a bell-curve-like probability distribution. </span></b></p><p><b><span style="font-size: medium;">Outcomes close to the centre are always the most likely; volatility determines how wide a range counts as “close”. </span></b></p><p><b><span style="font-size: medium;">High volatility also raises the chances of getting an extreme result: in investment terms, an enormous gain or a crushing loss. </span></b></p><p><b><span style="font-size: medium;">You can gauge a stock’s volatility by looking at how wildly it has moved in the past or, alternatively, how expensive it is to insure it against big jumps in the future.</span></b></p><p><b><span style="font-size: medium;">All this feels pretty risk-like, even if a nagging doubt remains that real-life worries lack the symmetry of a bell curve: cross the road carelessly and you risk getting run over; there is no equally probable and correspondingly wonderful upside. </span></b></p><p><b><span style="font-size: medium;">But set such qualms aside, pretend volatility is risk and you can construct an entire theory of investment allowing everyone to build portfolios that maximise their returns according to their neuroticism. </span></b></p><p><b><span style="font-size: medium;">In 1952 Harry Markowitz did just this, and later won a Nobel prize for it. </span></b></p><p><b><span style="font-size: medium;">His Modern Portfolio Theory (MPT) is almost certainly the framework your new wealth manager is using to translate your attitude to risk into a set of investments. </span></b></p><p><b><span style="font-size: medium;">The trouble is that it is broken. </span></b></p><p><b><span style="font-size: medium;">For it turns out that a crucial tenet of MPT—that taking more risk rewards you with a higher expected return—is not true at all.</span></b></p><p><b><span style="font-size: medium;">Elroy Dimson, Paul Marsh and Mike Staunton, a trio of academics, demonstrate this in ubs’s Global Investment Returns Yearbook, an update to which has just been released. </span></b></p><p><b><span style="font-size: medium;">They examine the prices of American shares since 1963 and British ones since 1984, ordering them by volatility and then calculating how those in each part of the distribution actually performed. </span></b></p><p><b><span style="font-size: medium;">For medium and low volatilities, the results are disappointing for adherents of MPT: returns are clustered, with volatility having barely any discernible effect. </span></b></p><p><b><span style="font-size: medium;">Among the riskiest stocks, things are even worse. </span></b></p><p><b><span style="font-size: medium;">Far from offering outsized returns, they dramatically underperformed the rest.</span></b></p><p><b><span style="font-size: medium;">The Yearbook’s authors are too thorough to present such results without caveats. </span></b></p><p><b><span style="font-size: medium;">For both countries, the riskiest stocks tended to also be those of corporate minnows, accounting for just 7% of total market value on average. </span></b></p><p><b><span style="font-size: medium;">Conversely, the least risky companies were disproportionately likely to be giants, accounting for 41% and 58% of market value in America and Britain respectively. </span></b></p><p><b><span style="font-size: medium;">This scuppers the chances of pairing a big long position in low-volatility stocks with a matching short position in high-volatility ones, which would be the obvious trading strategy for profiting from the anomaly and arbitraging it away. </span></b></p><p><b><span style="font-size: medium;">In any case, short positions are inherently riskier than long ones, so shorting the market’s jumpiest stocks would be a tough sell to clients.</span></b></p><p><b><span style="font-size: medium;">Yet it is now clear that no rational investor ought to be buying such stocks, given they can expect to be punished, not rewarded, for taking more risk. </span></b></p><p><b><span style="font-size: medium;">Nor is the fact that they were risky only obvious in hindsight: it is unlikely that the illiquid shares of small firms vulnerable to competition and economic headwinds ever looked a great deal safer. </span></b></p><p><b><span style="font-size: medium;">Meanwhile, lower down the risk spectrum, the surprise is that more people do not realise that the least volatile stocks yield similar returns for less risk, and seek them out.</span></b></p><p><b><span style="font-size: medium;">Readers may not be flabbergasted by the conclusion—that investors are not entirely rational after all. </span></b></p><p><b><span style="font-size: medium;">They might still wish to take another look at the racier bits of their portfolios. </span></b></p><p><b><span style="font-size: medium;">Perhaps those are the positions that will lead to a gilded retirement. </span></b></p><p><b><span style="font-size: medium;">History, though, suggests that they might be speculation for speculation’s sake. </span></b></p><p><b><span style="font-size: medium;">Call it return-free risk.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-13680667701348115882024-03-12T04:19:00.000-05:002024-03-12T04:19:00.122-05:00SPIRALLING U.S. PUBLIC DEBT RISKS ACTION FROM BOND VIGILANTES / THE FINANCIAL TIMES MARKETS INSIGHT<p><b><span style="font-size: x-large;">Spiralling US public debt risks action from bond vigilantes</span></b></p><p><b><i><span style="font-size: large;">Policymakers should start making contingency plans now</span></i></b></p><p><b>John Plender </b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSzj6abE0gbsrhne1fsbweonNsfXW3OWMgUPd2syRuv-9n-npZKiELF-lJWqHoQknj4ZW4MoXHYJb5kf3yNE4gbo7aWh2U1XrhK7bGRszB-SJdI-wuwU8FDc000yEVlkSRmIgX9f5N0eGHkOD3vv_VspPm3xOYRD374een-Uqp3iNAYVgeGHktHRzQoB32/s700/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="394" data-original-width="700" height="395" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSzj6abE0gbsrhne1fsbweonNsfXW3OWMgUPd2syRuv-9n-npZKiELF-lJWqHoQknj4ZW4MoXHYJb5kf3yNE4gbo7aWh2U1XrhK7bGRszB-SJdI-wuwU8FDc000yEVlkSRmIgX9f5N0eGHkOD3vv_VspPm3xOYRD374een-Uqp3iNAYVgeGHktHRzQoB32/w660-h395/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.jpg" width="660" /></a><b style="text-align: left;"><i>Even the US Treasury has declared the public debt burden unsustainable © Valerie Plesch/Bloomberg</i></b></div><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">Bond vigilantism is resurgent in the market for sovereign debt. </span></b></p><p><b><span style="font-size: medium;">That emerged with remorseless clarity from the brutal sell-off of UK gilts that toppled hapless British prime minister Liz Truss. </span></b></p><p><b><span style="font-size: medium;">Could the fiscal disciplinarians of the global investment community now turn their disruptive talents to the US Treasury market?</span></b></p><p><b><span style="font-size: medium;">As well as savaging the president of the day, such a challenge could devastate the US’s role as the world’s chief provider of safe assets during global crises, while simultaneously threatening the dollar’s status as the pre-eminent reserve currency.</span></b></p><p><b><span style="font-size: medium;">For many, the idea is simply unimaginable. </span></b></p><p><b><span style="font-size: medium;">In a recent speech, Federal Reserve governor Christopher Waller declared that flights to the dollar in the financial crises of 2008 and 2020 were “the ultimate vindication that the US dollar is the world’s reserve currency and is likely to remain so”.</span></b></p><p><b><span style="font-size: medium;">Well, yes. </span></b></p><p><b><span style="font-size: medium;">The dollar is, after all, backed by the world’s biggest, most liquid debt market. </span></b></p><p><b><span style="font-size: medium;">It enjoys what economists call network externalities: widespread acceptance engendering wider use. </span></b></p><p><b><span style="font-size: medium;">Supported by the world’s largest economy, the currency is a magnet for nearly 60 per cent of all central banks’ foreign exchange reserves.</span></b></p><p><b><span style="font-size: medium;">Note, too, that despite the US economy’s shrinking share of global output, the outcome has merely been a genteel decline in the dollar’s relative share of global reserves. </span></b></p><p><b><span style="font-size: medium;">That said, governor Waller conspicuously failed to mention the biggest reason for thinking Treasuries are no longer an ultra-safe store of value.</span></b></p><p><b><span style="font-size: medium;">This is not the US’s appallingly dysfunctional politics. </span></b></p><p><b><span style="font-size: medium;">Nor the weaponisation of the dollar thanks to geopolitics. </span></b></p><p><b><span style="font-size: medium;">Nor again the possible competitive threat from other central banks’ digital currency plans. </span></b></p><p><b><span style="font-size: medium;">Rather, it is a spiralling public debt now exceeding 97 per cent of gross domestic product, a level not seen since the second world war.</span></b></p><p><b><span style="font-size: medium;">The parallel with the immediate postwar period is instructive. </span></b></p><p><b><span style="font-size: medium;">The US succeeded in reducing the debt-to-GDP ratio from 106 per cent in 1946 to 23 per cent by 1974. </span></b></p><p><b><span style="font-size: medium;">But the debt was mainly domestic, whereas today nearly a quarter is in foreign hands. </span></b></p><p><b><span style="font-size: medium;">For about half the time to 1980, real interest rates in the advanced economies were negative. </span></b></p><p><b><span style="font-size: medium;">Carmen Reinhart and Belen Sbrancia have estimated that for the US and UK the annual liquidation of debt thanks to those negative interest rates averaged 3 per cent to 4 per cent of GDP a year.</span></b></p><p><b><span style="font-size: medium;">That arose from a policy of financial repression involving direct lending by captive investment institutions and banks to government, interest rate caps and capital controls. </span></b></p><p><b><span style="font-size: medium;">In the three decades after the war, the growth rate of national output also exceeded the interest rate on government debt for most of the time. </span></b></p><p><b><span style="font-size: medium;">Result: phenomenal debt shrinkage.</span></b></p><p><b><span style="font-size: medium;">With today’s global capital flows and deregulated markets financial repression would be unenforceable. </span></b></p><p><b><span style="font-size: medium;">The Fed has levered up interest rates to help meet a 2 per cent inflation target and ultra-low interest rates are gone. </span></b></p><p><b><span style="font-size: medium;">Meantime, the Congressional Budget Office predicts the US deficit will soar by nearly two-thirds in the next decade, with interest payments accounting for three-quarters of the increase. </span></b></p><p><b><span style="font-size: medium;">That stems from the morally hazardous debt binge induced by years of ultra-loose monetary policy.</span></b></p><p><b><span style="font-size: medium;">Even the Treasury has declared the public debt burden unsustainable. </span></b></p><p><b><span style="font-size: medium;">That means its own supposedly safe IOUs — the linchpin of global markets — are potentially unsafe. </span></b></p><p><b><span style="font-size: medium;">To remedy that would require fiscal consolidation, meaning debt reduction. </span></b></p><p><b><span style="font-size: medium;">S</span></b><b><span style="font-size: medium;">ome hope in a polarised US, whether under Joe Biden, Donald Trump or whoever.</span></b></p><p><b><span style="font-size: medium;">The demise of dollar dominance has long been predicted, but never happens because other countries cannot match the supposed safety and liquidity of US Treasuries. </span></b></p><p><b><span style="font-size: medium;">Yet that logic may fracture in the face of a deep seated problem identified by economists Ethan Ilzetzki, Reinhart and Kenneth Rogoff. </span></b></p><p><b><span style="font-size: medium;">They argue the demand for safe dollar debt risks overwhelming the US government’s capacity to back it when the tax base is diminishing. </span></b></p><p><b><span style="font-size: medium;">In which case we are in similar territory to the collapse of the Bretton Woods exchange rate regime in the early 1970s, which unleashed two decades of high inflation and enduring financial instability.</span></b></p><p><b><span style="font-size: medium;">It is thus safe to predict that the relative fiscal probity of sovereign borrowers will become a more pressing concern of official reserve managers. </span></b></p><p><b><span style="font-size: medium;">And, if the vigilantes strike, the nature of a flight to quality will, in the ensuing firestorm, be redefined as fiscally profligate countries are beset by financial crises. </span></b></p><p><b><span style="font-size: medium;">Meantime, fiscal conservatives that generate few safe assets will be hit by uncontrollable bond market bubbles. </span></b></p><p><b><span style="font-size: medium;">Policymakers should start contingency planning now.</span></b></p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0tag:blogger.com,1999:blog-9182133232307808795.post-49122212295035188982024-03-12T04:18:00.001-05:002024-03-12T04:18:00.143-05:00MAOIST METHODS ARE MAKING A COMEBACK IN XI´S CHINA / GEOPOLITICAL FUTURES<p><b><span style="font-size: x-large;">Maoist Methods Are Making a Comeback in Xi’s China</span></b></p><p><b><i><span style="font-size: large;">Beijing is tightening control over the housing market and rebuilding volunteer corporate armies.</span></i></b></p><p><b>By: Victoria Herczegh</b></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_tdkhF1htcY21cEFAinVxAeMS43hh7QFEq6f-lArgBHYEWunPQDZZphjgMRcXZwWyAcc92XLzo-tdABkhLzrIzVFaeC-YrU4vSWrjcG3iNsnjEoFzL1YFaVsDapDALQhoSXJvs00sIc9Cpg3f3YkESf6EBwSvwXWUkpDDjzMpNY6ZvblGzMFSvjXpNiUr/s680/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="47" data-original-width="680" height="74" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_tdkhF1htcY21cEFAinVxAeMS43hh7QFEq6f-lArgBHYEWunPQDZZphjgMRcXZwWyAcc92XLzo-tdABkhLzrIzVFaeC-YrU4vSWrjcG3iNsnjEoFzL1YFaVsDapDALQhoSXJvs00sIc9Cpg3f3YkESf6EBwSvwXWUkpDDjzMpNY6ZvblGzMFSvjXpNiUr/w683-h74/ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.png" width="683" /></a></b></div><b><span style="font-size: medium;"><br /></span></b><p></p><p><b><span style="font-size: medium;">Chinese leaders are reverting to Maoist-era socialist policies to support the country’s crumbling economy and strengthen social control. </span></b></p><p><b><span style="font-size: medium;">Specifically, the government is reassuming control of the housing market and directing major companies to form volunteer armies, which were common under Mao Zedong but faded in the late 1970s following his death. </span></b></p><p><b><span style="font-size: medium;">These actions, coupled with updates overhauling discipline inspection to prioritize President Xi Jinping's directives, highlight an urgent drive to consolidate control over China's economy and society.</span></b></p><p><b><span style="font-size: medium;">China's real estate sector has captured global attention for several years. </span></b></p><p><b><span style="font-size: medium;">Despite several rounds of mortgage lending reforms, urban renovation projects and construction of cheap housing, Beijing has struggled to stabilize housing investment and prevent major real estate firms from defaulting. </span></b></p><p><b><span style="font-size: medium;">Frustrated with ineffective reforms, Xi plans to enhance state control over the sector. </span></b></p><p><b><span style="font-size: medium;">Last week, he announced a new strategy for the Communist Party of China to take over a larger share of the market. </span></b></p><p><b><span style="font-size: medium;">This strategy includes purchasing distressed properties to convert into government housing and constructing more subsidized housing for low- and middle-income families. </span></b></p><p><b><span style="font-size: medium;">The objective, according to policy advisers, is to raise the share of state-built affordable housing available for rent or purchase under certain conditions from about 5 percent to at least 30 percent of China's total housing stock.</span></b></p><p><b><span style="font-size: medium;">A team of economists trusted by Xi is still developing the plan, but it represents a significant escalation compared to last year's initiatives, which included easing home-buying restrictions and removing price caps in certain cities. </span></b></p><p><b><span style="font-size: medium;">Those measures failed to improve the sentiment of wary investors and developers and so were not extended to other areas.</span></b></p><p><b><span style="font-size: medium;">The Maoist idea of state dominance may seem extreme, but given the origins of the real estate crisis, it could be an effective solution. </span></b></p><p><b><span style="font-size: medium;">After moving from state to private ownership in the early 1990s, China's real estate sector flourished. </span></b></p><p><b><span style="font-size: medium;">In fact, it performed a little too well. </span></b></p><p><b><span style="font-size: medium;">Worried that soaring property prices and debt could destabilize the financial sector, the government moved to curb excessive borrowing for real estate. </span></b></p><p><b><span style="font-size: medium;">But the crackdown worsened a liquidity crisis for developers like Evergrande, culminating in its December 2021 default and sparking an industry-wide crisis.</span></b></p><p><b><span style="font-size: medium;">The new approach is more comprehensive and supports Xi's "common prosperity" initiative by transforming private properties into state-subsidized housing, thus making affordable homes available to lower-income groups. </span></b></p><p><b><span style="font-size: medium;">Essentially, reasserting state power over the housing market reflects Xi's broader efforts to tighten economic control, rein in the private sector and channel more investment to state-owned enterprises in leading-edge industries like semiconductors and batteries.</span></b></p><p><b><span style="font-size: medium;">However, even though implementation has not started, the constraints are evident. </span></b></p><p><b><span style="font-size: medium;">Early estimates suggest the program could cost up to $280 billion annually over the next five years. </span></b></p><p><b><span style="font-size: medium;">To fund this new program, the government would need to redirect funds from other sectors, possibly leading to new financial issues. </span></b></p><p><b><span style="font-size: medium;">Nonetheless, Xi appears committed to this shift toward socialist policies and prepared to do whatever it takes to maintain his power.</span></b></p><p><b><span style="font-size: medium;">In another policy shift reminiscent of Mao, the Chinese government is pushing state-owned companies to establish their own volunteer armies, known as People’s Armed Forces Departments. </span></b></p><p><b><span style="font-size: medium;">Officially, these forces, made up of civilians with regular jobs, are intended to merge economic growth with national security. </span></b></p><p><b><span style="font-size: medium;">However, their true purpose mirrors that of 1970s corporate militias: to quickly and effectively suppress social unrest, including consumer protests and labor strikes.</span></b></p><p><b><span style="font-size: medium;">Recent reports show these volunteer armies, already formed by at least 16 state-owned enterprises, will be busy. </span></b></p><p><b><span style="font-size: medium;">Data from the Hong Kong-based China Labour Bulletin indicates labor strikes and demonstrations in mainland China jumped to 1,794 in 2023, a significant increase from 830 in 2022. </span></b></p><p><b><span style="font-size: medium;">More than half of these protests involved migrant workers and minorities, the most vulnerable groups in Chinese society, and over 1,000 demonstrations occurred in the poorer western provinces, the most dissent-prone areas. </span></b></p><p><b><span style="font-size: medium;">The majority of last year's protests centered on wage disputes and occupational safety, but with local governments’ budgets already extremely tight – especially in less affluent provinces – protesters’ demands were largely unmet.</span></b></p><p><b><span style="font-size: medium;">Like a true "troubled emperor," Xi is seemingly placing his trust solely in himself and the foundational principles of Chinese socialism as established by Mao Zedong. </span></b></p><p><b><span style="font-size: medium;">He hopes to integrate the successful aspects of 1970s socialism into his current policies. </span></b></p><p><b><span style="font-size: medium;">Recent legal revisions emphasizing Xi's authority and the implementation of his directives mark a shift toward greater centralization of power. </span></b></p><p><b><span style="font-size: medium;">Xi's tactics signal a return to Maoist-era socialist ideologies, encompassing total state control over the economy and society and building a cult of personality to affirm his position as China's paramount leader.</span></b></p><p><b><span style="font-size: medium;">But today's China faces very different challenges from the Maoist era. </span></b></p><p><b><span style="font-size: medium;">And the persistence of China’s issues under Xi's leadership suggests that this return to strict socialism may reflect the government's vulnerability and even desperation rather than strength and authority. </span></b></p><p><b><span style="font-size: medium;">Furthermore, by the end of Mao’s reign, China’s economy needed reform and modernization. </span></b></p><p><b><span style="font-size: medium;">It took Deng Xiaoping’s “reform and opening” to kick-start China’s economic miracle. </span></b></p><p><b><span style="font-size: medium;">But Xi seems determined to go the other direction, resisting pressure to take tangible steps to attract foreign investment while tightening his grip on the country.<span style="white-space: pre;"> </span></span></b> </p>Gonzalo Raffo de Lavallehttp://www.blogger.com/profile/12645613439118095949noreply@blogger.com0