The New Berlin Wall

An interview with Michael Hudson addressing the economic aspects of the unrestricted war between the Imperial USA and the Sino-Russian alliance.

PS: Let’s say all these European programmes like the REPOWER Programme come into effect, how do you expect the EU standing to be on the stage after that?

MH: Well, the EU standing will be squeezed economically. It was trying to be a powerhouse in the world economy but in the last month the euro has been declining steadily against the dollar and it’s on the way to one dollar per euro. That’s because it’s having to pay much foreign exchange for energy, for food, for weapons. It’s shrinking in terms of other economies.

PS: Where do you think the EU’s standing will be in relation to powerhouses such as China?

MH: Well, it’s obviously out of the game. Instead of putting its own interests first, it’s really putting the US interests first. It’s acting more like a satellite of the United States thank trying to its own destiny. The whole plan of the EU 20 years ago was to get rich by investing in Russia, investing in China and a mutual exchange. And now it’s decided to stop that. The US has absorbed Europe. The war in Ukraine is a war by the US primarily to pull Europe into the US orbit, prevent European transactions with Russia or China. So Western Europe is being left out, while Russia, China and Eurasia are going with the rest of Asia. Europe is simply going to be left behind. It’s losing its export markets, it’s being squeezed and -as you just mentioned- it’s pushed up the retirement age because it’s spending its budget on replenishing American military arms instead of investing in industry as it had been doing since 1945.

PS: You did indeed write that Europe has ceased to be an independent state. You’ve almost mentioned that the United States wanted to sever EU trade ties with Russia and China. How exactly did you get to that conclusion and do you think that this alleged US plan is succeeding?

MH: Well, I simply read the speeches of President Biden and his team. They’ve said that China is America’s number one enemy. If you’re going to call a country your number one existential enemy, you’re not going to be increasing your trade and mutual dependency with it. And it’s already insisted that its allies sanction -meaning boycott- Russian sports not only of oil and agriculture but of titanium, helium and all of the other exports that Russia has been making. Europe is been following US directions not to have contact with Russia and without contact with Russia it’s not going to have contact with China because China sees that Europe is going to do to it exactly what it’s been doing to Russia.

PS: Obviously as a result of this current situation, for many years now, Russia and China have been growing closer diplomatically and economically. How do you see a global shift in power evolving over the next 5, 10 years or so?

MH: The current war is dividing the world into two parts. There’s going to be a US dollar area of the US, Europe and its satellites. And there’ll be a multipolarity; there’ll be a group of Russia, China together and basically they will be making their proposal of a different way of organising the world economic affairs to Africa, Latin America and other Asian countries. And other Asian countries, Latin America and the global south will see that it can get a better deal with Russia and China than it can get with the United States.

PS: On the flip side of that coin, one could argue that the existing situation, world order, has only been cemented by this war. You see NATO more aligned than ever, you see Europe more aligned than ever. You see Finland and Sweden on the brink, perhaps, of joining NATO. What would your response to this be, Michael?

MH: This integration of Europe into the United States sphere is like the new Berlin Wall. It’s isolated the US from the whole rest of the world. So instead of a victory for the United States it’s self-isolated itself because US strategists have realised that they’re losing the economic war with China, Russia and the whole group of emerging nations. All they can try to do is hold on to Europe as their one source of income to exploit from Europe what it can no longer get from any other country.

The Great Bifurcation between the economy of Clown World and the economy of Sovereign World is becoming increasingly obvious to the more intelligent observers. No wonder the smarter globalists such as Henry Kissinger are urging a Ukrainian surrender in order to try to preserve the failing status quo.

DISCUSS ON SG


The Fed Can’t Do What It Must

Karl Denninger sees the proximate problem, but not the structural impediment to solving it:

Either Hike 200bps Today and 100 Each Mtg Until PPI Cools. or watch the economy literally burn to the ground.

At the same time all inhibitions on energy production here in the US must be lifted immediately. All of them. All coal plants shut down but still operational and those intended to be retired must have those orders rescinded immediately. Further, all refined product exports must be banned.

If you didn’t get the hint from WalMart and Target’s earnings announcements you’re deaf, blind, stupid and might be starving and homeless within months. Fuel prices continue to ramp, in no small part not because of oil but because we’re exporting products to other nations, specifically Europe. This must end now.

There is no instant solution but if we do not put a stop to the transportation cost and fertilizer problems now by this fall and winter the lower 50% of the economic strata in this nation will be hard-pressed to both feed their families and heat their homes. That is the combination that leads to riots and worse. Witness Sri Lanka where its already happening and politician homes are being set on fire.

Stocks? Who cares. The entire ramp from roughly 2011 onward likely will and should come back off. If you believed that said price advances of roughly a triple over that period of time were reasonable you’re nuts. If you predicated your future or present on it there’s nothing we can do to help you at this point; you ridiculously overpromised to yourself and overspent behind that.

Ditto for real estate. There’s nothing to be done other than let prices go back to where they should be. They will, by the way.

The Fed absolutely should be raising interest rates and raising them very steeply. The last time the USA saw this sort of inflation, it was the 1970s and interest rates went as high as 20 percent. However, there was considerably less debt then, and both consumers and corporations were able to service the debt payments even at those higher rates because the prices were so much lower.

Now that debt-consumption has raised prices by artificially stimulating demand, consumers can’t even make their payments on very low, historically low, interest rates. The level of defaults would be astronomical, and would essentially amount to a debt jubilee that would utterly destroy every single federally-regulated financial institution in the country. So, the Fed cannot, and will not, do what the laws of economics require of it.

My expectation is that there will either be some sort of federalization of the entire US economy, possibly on a neo-global scale that includes the NATO countries, or a recurrent series of defaults in which rates are raised slightly, allowing the weakest institutions to fail first in the hopes that the stronger institutions can survive on the strength of the assets previously held by the failing ones.

Neither option will work, of course, but the Fed has successfully kicked the can down the road for more than a decade already, so perhaps they might be able to buy themselves another year or three.

DISCUSS ON SG


Deflation Cometh

The sudden, rampant inflation that we’re seeing is the result of the neo-liberal rules-based world order’s attempt to preserve its hegemony. It’s not the usual excess money supply caused by low interest rates creating more debt money; if it were, interest rates could simply be raised to keep inflation under control. But with the first sovereign default of the next wave, which comes from an unexpected source, it’s clear that the deflationary forces are going to rapidly overwhelm the government spending meant to substitute for new loan creation.

Sri Lanka has defaulted on its debt for the first time in its history as the country struggles with its worst financial crisis in more than 70 years.

A 30-day grace period to come up with $78m (£63m) of unpaid debt interest payments expired on Wednesday.

The governor of the South Asian nation’s central bank said the country was now in a “pre-emptive default”. Later on Thursday, two of the world’s biggest credit rating agencies also said Sri Lanka had defaulted.

Defaults happen when governments are unable to meet some or all of their debt payments to creditors. It can damage a country’s reputation with investors, making it harder for it to borrow the money it needs on international markets, which can further harm confidence in its currency and economy.

Asked on Thursday whether the country was now in default, central bank governor P Nandalal Weerasinghe said: “Our position is very clear, we said that until they come to the restructure [of our debts], we will not be able to pay. So that’s what you call pre-emptive default. There can be technical definitions… from their side they can consider it a default. Our position is very clear, until there is a debt restructure, we cannot repay,” he added.Sri Lanka is seeking to restructure debts of more than $50bn it owes to foreign creditors, to make it more manageable to repay.

When even relatively small economies vanish $50 billion from the money supply at a shot, it should be easy to understand how it will be impossible to salvage the global financial system when the massive corporate institutions start defaulting.

DISCUSS ON SG


The Consumer Costs of War

Karl Denninger points out a few uncomfortable realities about the US military interventions in Europe:

Folks, understand one thing about the US getting involved in an actual shooting war with anyone.

You immediately will have no semi-conductor anything, zero lithium batteries for anything at all from electric cars to cellphones, 75% or better of the pharmaceuticals in common use will disappear instantly, finding tires will be nearly impossible, automotive and machine parts, specifically wear parts such as bearings will all become unobtanium and more. Even something as simple as a circuit breaker for your house will not be able to be sourced. ALL of the large transformers used to distribute electrical power in the United States, never mind nearly all of the switchgear, are made overseas in whole or part and thus if they fail, whether due to natural or man-made cause they cannot be replaced in such an event either. Within a few months spares for critical parts that are considered wear items and thus must be replaced on a schedule will run out in our energy generation and distribution system and failures will begin to occur with impact from local areas to entire regions.

Your local gas station and supermarket cash register (never mind most modern refrigerators, HVAC systems and similar) all have chips in them that are only made overseas; there is no replacement available made in the United States. Your much-vaunted heat pump that is so “green” has a defrost control board in it without which it will not function — if you bypass it (which you can in some cases) once the temperatures get below about 40 degrees outside the unit will fail or be destroyed without it, and there won’t be a replacement available at any cost. Even the contactor (relay) in that outdoor unit has no US supply and without it the unit doesn’t work. Your gas furnace has an ignitor and control board without which you have no heat, they do fail and, again, there is no US supply. We did this to ourselves with our decades-long stupidity offshoring everything and by doing so made it possible for any nation that can sink even a single container ship to break the United States economy and perhaps even a few million people’s survival within minutes.

Commercial shipping will go to zero basically immediately as anything that floats and is big is easy to sink and without insurance, which nobody will write, nobody will ship anything because someone is going to eat the entire cost if the ship ends up on the bottom of the ocean and there is nobody in their right mind who will take that risk.

This isn’t just a theoretical prediction. Car dealers and auto repair shops are already seeing these issues in the automotive industry at the consumer level.

DISCUSS ON SG


Global NATO Threatens China

This proposal floated by the Foreign Secretary of the United Kingdom may be one of the most shortsighted, suicidal geopolitical visions ever articulated in the written history of Man, as the West is rapidly being replaced by the growing power of the NorthEast.

The world order created after the Second World War and the Cold War isn’t working anymore, so the West needs “a global NATO” to pursue geopolitics anew, UK Foreign Secretary Liz Truss argued, in a major foreign policy speech on Wednesday. Truss also urged the US-led bloc to send more “heavy weapons, tanks” and airplanes to Ukraine, and said China would face the same treatment as Russia if it doesn’t “play by the rules.”

“My vision is a world where free nations are assertive and in the ascendant. Where freedom and democracy are strengthened through a network of economic and security partnerships,” Truss said in a speech at a Mansion House banquet in London.

Dubbing this arrangement “the Network of Liberty,” Truss argued it was necessary because the economic and security structures developed after 1945 – such as the UN Security Council – “have been bent out of shape so far, they have enabled rather than contained aggression.”

“Geopolitics is back,” she announced.

The collective West and its allies need to supply Kiev with “heavy weapons, tanks, aeroplanes – digging deep into our inventories, ramping up production,” Truss said, because the objective is to “push Russia out of the whole of Ukraine” and rebuild the country along the lines of a new Marshall Plan.

“The war in Ukraine is our war – it is everyone’s war because Ukraine’s victory is a strategic imperative for all of us. Beyond that, NATO must ensure that “the Western Balkans and countries like Moldova and Georgia have the resilience and the capabilities to maintain their sovereignty and freedom,” and uphold the “sacrosanct” open-door policy, Truss said.

Her ambitions went beyond Europe, though, as Truss denounced the “false choice between Euro-Atlantic security and Indo-Pacific security. In the modern world we need both. We need a global NATO,” she said. “And we must ensure that democracies like Taiwan are able to defend themselves.” Pointing to London’s unprecedented effort to embargo Russia, Truss insisted that “economic access is no longer a given. It has to be earned,” and that countries who wish to earn it “must play by the rules. And that includes China.”

In other worlds, the New World Order aka the neo-liberal rules-based world order aka Globohomo has failed, so naturally what is needed is more of that which has failed. This response isn’t even remotely surprising in the abstract, as doubling down is what idiots and fools always do instead of examining the reasons for their failure and rethinking both their assumptions and their approach.

But it is surprising in the particular, as Russia, China, Iran, Saudi Arabia, and now Algeria have made it clear that they will not submit to the globalists’ demands that they deliver natural resources to their Western customers on demand while simultaneously being subject to having their economic access to those same customers controlled by the globalists.

Indeed, if they are given a choice, many in the West will choose the growing economic system of the NorthEast over the collapsing system of the West. But they will not be given a choice if the globalists have anything to say about it.

This tends to strongly support something I have repeatedly pointed out, the Russian Special Military Operation has very little to do with Ukraine per se; it is merely the opening battle in the NorthEast’s war with the globalists who rule over the West. This will be confirmed when the second battle begins, though whether that will be in Taiwan, Western Europe, Russia, or somewhere in the Middle East is yet to be seen.

DISCUSS ON SG


Russia Cuts Off Poland, Bulgaria

In response to Russia refusing to ship natural gas to countries that refuse to pay in a currency deemed acceptable to Russia, European leaders are threatening to utilize even harsher rhetoric in response.

Russian energy giant Gazprom today halted gas supplies to Bulgaria and Poland for failing to pay for its gas in roubles, as Vladimir Putin ordered last month, pushing European gas prices up by 24 percent.

The decision is the Kremlin’s toughest response yet to crippling Western sanctions imposed over Moscow’s brutal on-going invasion of Ukraine, that have sent the Russian economy and the value of the rouble into a nosedive.

In response, the UK warned President Putin that Russia’s move will only add to its status as an economic and political pariah, while Poland and Bulgaria both accused Moscow of blackmailing them, and said they will end their dependencies on Russian gas.

European Union Commission President Ursula von der Leyen also called the move ‘yet another attempt by Russia to use gas as an instrument of blackmail. This is unjustified and unacceptable.’

The European Union could impose a crude oil embargo on Russia, with the two having been locked in a stand-off for weeks after the EU rejected Putin’s demands for payment in roubles from so-called ‘unfriendly’ buyers.

The market reacted quickly to the decision by state-owned Gazprom. Benchmark European gas prices jumped by up to 24 per cent to €121 (£102) per megawatt-hour today, to hit their highest level this month and almost seven times higher than they were a year ago. The UK equivalent increased by 14 per cent to 180 pence per therm.

The two EU countries are the first to have their gas cut off by Europe’s main supplier since the Kremlin launched what it calls a ‘special military operation’ in Ukraine on February 24, and after it threatened to turn off the taps to the West in response to mounting sanctions.

Europe is being taught a hard, but necessary lesson in the difference between hard power and soft power, which is the difference between actual power and empty words. And it is paying a steep price for being the lapdog’s lapdog, which is another word for chew toy.

Russia’s move raised wider concerns that other countries could be targeted next.

COULD BE? Without question WILL BE is the much more certain bet. Many of these countries, including Germany, France, and the UK, are fortunate that they aren’t already being actively bombed for their overt belligerence in supplying Ukraine with military weapons. And their leaders appear to have no idea just how bad the collapse of the neo-liberal world order will be for them, even as the first domino is falling.

Meanwhile, the awful truth is gradually dawning, even on the left wing of the globalist media.

The broader, negative political impact of the war, should it rage on indefinitely, is almost incalculable. The UN’s future as an authoritative global forum, lawmaker and peacekeeper is in jeopardy, as more than 200 former officials warned Guterres last week. At risk, too, is the credibility of the international court of justice, whose injunction to withdraw was scorned by Putin, and the entire system of war crimes prosecutions. In terms of democratic norms and human rights, the full or partial subjugation of Ukraine would spell disaster for the international rules-based order.

Exactly. Amen and hallelujah. This is about as close to a good war as it gets.

DISCUSS ON SG


Testing the Hypotheses

Over the last decade, a lot of theoretical hypotheses have been subjected to real-world practical tests and failed. Unfortunately, this hypothesis appears to be holding up over time as the evidence comes in:

Hypothesis: The jabs not only don’t work they ruin immunity, and the more of them you take the worse the odds (by some factor, either linear or exponential — but with an unknown exponent) of one of the following outcomes:

Immediate death or serious disability due to clotting disorders or other serious systemic dysregulation.
OAS imprinting, such that each new insult confers and strengthens an incorrect antibody response (that increasingly fails to neutralize the infection.)
OAS imprinting as above coupled with evolutionary pressure that results in ADE (binding antibodies overwhelm neutralizing), and the infection kills you outright as your body is unable to fight off the acute phase at all.
OAS imprinting as above which results in an inability to entirely clear the infection. This is a nightmare scenario as low-level damage continues to accrue from the virus itself, much as occurs with AIDS. It’s not AIDS and those claiming it is are wrong on the facts, but it bears a resemblance to it and so will the outcomes (nasty infections that ordinarily don’t bother someone become ugly to the point of serious or even lethal results.)

There is evidence for this already, and its getting stronger over time. We knew this might happen too because the first three have occurred with every single attempt to vaccinate against a coronavirus in history, no matter the mechanism used to deliver the antigen production and as a result of same showing up in animal trials, given enough time, they were halted before humans got ****ed.

This time we didn’t bother with the animal trials which require a year or two to find out. We’re finding out in animals — human animal trials — that the evidence is emerging for exactly the same outcomes.

Yes, that’s bad.

It’s not Case Nightmare Kitty, but it’s looking a little worse in the long run than I had hoped after the worst scenarios were quickly ruled out. That being said, it will be necessary to keep an eye on a) all-cause death rates and b) birth rates over the next five years to understand the full extent of the ongoing damage to the populace.

As Karl Denninger says: “The nature of this sort of issue is that it is likely to reveal the boundary of the horror slowly rather than rapidly.”


The End of International Capital

In addition to triggering the Great Bifurcation of the world into two economic blocs, the US response to the Russo-NATO war in Ukraine is likely to bring an end to the age of the free movement of capital.

Washington is not planning to return the assets confiscated from Russian businessmen as part of the latest sanctions imposed on Moscow over the military operation in Ukraine, US National Security Advisor Jake Sullivan said on Thursday.

“Our goal is not to give them back,” Sullivan said at the Economic Club of Washington, adding that the US authorities would use the seized assets “in a better way.”

“There are authorities we have, and there are further authorities that maybe we could develop, and that’s something we’re actively looking at,” the official added.

The White House has introduced several rounds of sanctions against Moscow since February 24, when Russia’s military operation in Ukraine began. As part of the penalties, the US authorities arrested Russian foreign assets along with those belonging to the country’s businesses and high-profile individuals.

How good do your project returns in a given jurisdiction have to be in order to justify the risk of having all of your property seized simply because the politicians in that jurisdiction don’t approve of the actions of your government?

It’s a little bizarre that we’re not hearing any neoclassical economists or libertarians talking about this, when it’s quite possibly one of the most significant developments to take place. And this isn’t just a theoretical observation, as a major Chinese oil company is already selling off its assets in Australia, Canada, and the USA as it terminates its operations in the West.

DISCUSS ON SG


Deflation on the Horizon

Sri Lanka just defaulted on its debts for the first time since independence in 1948:

The Government yesterday signaled Sri Lanka was bankrupt, announcing a temporary suspension of repayment of all external debt as of yesterday, saying the country can no longer honour its commitment owing to poorer financial position caused by external and internal shocks.

The move puts an end to Sri Lanka’s outstanding track record of servicing its external debt obligations since the independence but a “negotiated or soft default” is viewed as more respectable as opposed to a disastrous “hard default”.

Treasury Secretary Mahinda Siriwardena told journalists yesterday that the “orderly and consensual” restructuring of external debt obligations will be buttressed by an economic assistance program supported by the International Monetary Fund.

He recalled that Sri Lanka has had an unblemished record of external debt servicing since independence in 1948.

“However recent events including the COVID-19 pandemic and fallout from the hostilities in Ukraine, eroded Sri Lanka’s fiscal position,” he said.

It’s not a secret that the Neoliberal World Order is collapsing. And this is how it happens, with defaults on the periphery gradually having an impact on the banks that make up the heart of the foundation. That’s up to $51 billion that just disappeared from the money stock, which is the equivalent of $165 for each US citizen.

As more and more of the most intelligent part of the commentariat are beginning to understand, money is no longer printed. It is created through loans, and when debtors cannot service their debt – Sri Lanka could not repay the $6 billion it presently owed – or when debtors elect to borrow money in other currencies as will increasingly happen in the wake of the recent US sanctions – the money supply contracts.

This process has already begun, despite the higher food and gas prices that are the result of war-related supply shortages.

DISCUSS ON SG


The Failure of Capitalism

Capitalism and Contract Law are like pretty much everything else, which is to say, beneficial in moderation. While it’s true that two of the reasons for retarded economic development are a) a lack of capital and b) unreliability, having no labor force is even more detrimental and having no viable population growth is a downright showstopper.

Furious locals at a Yorkshire fishing village are ‘heartbroken’ as they accuse city-dwelling staycationers of ‘killing’ their community by snapping up ‘all but five’ properties to use as second homes and holiday lets while house prices ‘go through the roof’.

Robin Hood’s Bay, an idyllic seaside spot around six miles south of Whitby in the North York Moors National Park, surged in popularity among locked-down Britons who were discouraged from taking foreign holidays during the Covid crisis.

Most properties have since been gobbled up as second homes or holiday lets by urban outsiders ‘within hours of being listed’, with rocketing prices – in some cases, almost doubling in the past eight years – now preventing many families from getting their foot on the housing ladder.

Angry residents have blasted the ‘absolute nightmare’ trend of staycationers buying local homes, and are now calling for ‘more balance’, warning that those who have lived in Robin Hood’s Bay for decades are seeing the community dwindle.

Now that theory has been put into practice for several decades, globalism is rapidly proving to be less economically viable then communism and less societally sustainable than feminism.

Boris Johnson has been warned of a ballot box backlash amid anger that English villages are being ‘swallowed up’ by sprawling towns.

Planning reforms designed to help the government hit its target of 340,000 new homes a year are still expected to be a significant factor at local elections next month, despite desperate efforts to defuse the issue.

Countryside advocates claim that villages particularly in southern England are losing their identity as they become part of a wider sprawl from towns with profit-hungry developers building on green belt land to reduce their costs.

Concerns are also mounting over a so-called ‘rural flight’ of young people who are being forced to leave villages because of a lack of housing and job opportunities which is ‘hollowing out’ small communities around the UK.

Developments are said to be being passed more easily by councils keen to hit Government targets, which is also resulting in a lack of affordable housing being built in these areas because it is less lucrative for developers.

It’s also becoming obvious why the globalists see human depopulation as necessary. Their system simply doesn’t work anywhere nearly as well as it was advertised.

DISCUSS ON SG