Tag: economics

China Attacks USD

The largest foreign holder of the US dollar openly calls for other nations to stop enabling the USA’s debt-speding:

The world’s two largest foreign holders of US treasuries, Japan and China, continued to pare down their holdings of US debt in December, data from the US Treasury Department showed on Wednesday. Foreign holdings of US treasuries declined in 2022. Japan’s holdings also dropped by $224.5 billion specifically, while China’s holdings were down by $173.2 billion to $867.1 billion, the lowest since May 2010.

For a long time, changes in China’s holdings of US debt have been a topic of great concern, which is seen by some as a measure of the state of China-US relations. Yet, there is no need to complicate China-US relations with China’s reduced holdings of US treasuries. The reasons behind China’s recent reduction of its holdings of US debt are mainly economic considerations, as the problems in the US economy and the changes in bilateral economic and trade relations have increased the need for China to pursue diversification of its foreign exchange reserves.

To be clear, while China has reduced its holdings of US debt, it doesn’t change the fact that US treasuries remain an important part of China’s foreign exchange reserves. China is still the world’s second-largest non-US holder of US treasuries, because the US dollar remains the world’s most important currency for trade settlement and a safe-haven for investors seeking security amid the changeable markets. Besides, US sovereign debt has the highest and the most stable credit rating.

But nowadays these factors are changing.

US economy, debt mean other nations must diversify reserves, Global Times, 17 February 2023

Make no mistake. This public call to the BRICSIA nations to reduce their dollar reserves is a form of unrestricted warfare in action. China is in the process of doing to the US economy what the IMF has repeatedly done to third world governments since the 1960s, which is encourage them to enter a debt trap, become dependent on the IMF, and then seize the national assets used as collateral.

(NB: Before the smart boys jump in to make an erroneous “correction”, note that while Japan holds more US treasuries than China, China’s total dollar holdings are nearly four times greater than Japan’s. The former is a subset of the latter.)

While there is no actual collateral at risk here, what China has done is made the US economy dependent upon the Chinese willingness to subsidize it. This is why the USA can’t afford to financially sanction China the way it has sanctioned Russia, and why China has a financial gun to the US federal government’s head that is distinct from whatever control it directly exerts over politicians it has managed to buy or otherwise corrupt in various ways.

Live by the debt-dollar, die by the debt-dollar. Once an empire loses its reserve currency status, imperial decline tends to come swiftly. Consider the examples of the Venetian ducato, the Dutch guilder and the British pound if you want to contemplate likely timeframes and outcomes.

This appears to be another sign that China is getting closer to opening the Asian front of World War III.

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More Sanctions on China

I think we all know how this is going to end:

The US announced new sanctions against China on Friday, targeting six companies linked to Beijing’s suspected surveillance program. The move comes after a Chinese “spy balloon” was spotted and shot down in US airspace.

In a statement, the US Commerce Department said the entities were being blacklisted for supporting China’s “military modernization efforts, specifically those related to aerospace programs.” These included airships, balloons and related materials used by Beijing for intelligence and reconnaissance.

The new restrictions will make it harder for the sanctioned companies to obtain US technologies.

I’m sure the Chinese are quaking in their boots. Where will they ever get advanced technology that they don’t already possess? If only there was an island within 100 miles that possessed all the very latest and greatest in semiconductor technology!

At this point, the only question is whether the neoclowns are intentionally pushing the USA and Europe into defeat by the Sino-Russian alliance or if they are still hoping that the US military can defeat both China and Russia before they completely lose their influence in the USA.

My assumption is the latter, because if there is one useful piece of counterintuitive information that we have learned about Clown World over the years, it is that it is more tactically than strategically oriented, and its preferences are much more short term than one would tend to imagine. Keep in mind that a tactic blindly repeated and ultimately successful is, in hindsight, indistinguishable from a strategy.

And also remember that the seeds of future failure are sown by past success.

UPDATE: Yeah, so this wasn’t at all a foreseeable consequence of all the “hey, let’s fight China as soon as we’re done with Russia” talk from the neoclowns.

China is aiming to increase the number of itsnuclear warheads to 900 by 2035 as a deterrent against the US, Chinese sources have told Kyodo news agency. According to people familiar with the matter, President Xi Jinping has already approved the plan to double the country’s nuclear arsenal, the Korean agency reported on Saturday.

The number of China’s warheads is likely to grow from around 400 to 550 by 2027 and reach 900 in 2035, Kyodo’s interlocutors claimed.

Here’s my prediction. By 2035, both China’s and Russia’s nuclear arsenals will each be larger than the US nuclear arsenal, even in the event the USA still exists as a single, unitary political entity. Industrial capacity is the primary determinant of who wins global wars.

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Puzzled by the Productivity Slump

Clown World’s economists are perplexed by the “strange and awful” 50-year decline in US construction productivity.

Measurement error alone cannot explain the decline in US construction productivity over the last 50 years, with evidence pointing to the sector’s deteriorating ability to transform intermediates into finished products, and to the allocative inefficiency of construction inputs.

Despite aggregate productivity for the US economy having doubled over the past 50 years, the country’s construction sector has diverged considerably, trending downward throughout that period. And this is no slight decrease. Raw BEA data suggest that the value added per worker in the construction sector was about 40 percent lower in 2020 than in 1970 (see Figure 1).

How can a sector like construction, with average value-added of 4.3 percent of GDP between 1950 and 2020, experience such a precipitous decline in productivity relative to the rest of the economy? To answer this question, researchers have focused on issues relating to data measurement, hypothesizing that measurement errors largely explain this phenomenon. This new research updates some of those efforts and, importantly, extends them to investigate other hypotheses to find the following:

Using measures of physical productivity in housing construction (i.e., number of houses or total square footage built per employee), the authors confirm that productivity is indeed falling or, at best, stagnant over multiple decades. Importantly, these facts are not explained by the incidence of price measurement problems. Instead of data error, the authors investigate two other possible explanations. First, they find that the construction sector’s ability to transform intermediate goods into finished products has deteriorated.

And second, the authors describe the curious fact that producers located in more-productive areas do not grow at expected rates. Indeed, rather than construction inputs flowing to areas where they are more productive, the activity share of these areas either stagnates or even falls. The authors suggest that this problem with allocative efficiency may accentuate the aggregate productivity problem for the industry.

Interestingly enough, US hourly wages have also been stagnant since 1972. Now, whatever could possibly have happened to the labor force that would make it less productive?

It couldn’t possibly be immigration effecting a qualitative change in the workforce, could it? It’s not possible that a predominantly white male work force might be more productive than a sexually diverse, nationally diverse work force, right? No, surely not, because we are reliably informed that immigration is always good for the economy. Just maybe not for wages and productivity and per capita wealth.

But the resultant growth in debt and spending makes up for it, so it’s all good, right?

Even while Clown World is collapsing and burning before their eyes, these wicked morons will be convinced that everything is fine because their spreadsheets produce the expected numbers.

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Troisième Guerre Mondiale

A French analyst is one of the few quasi-mainstream thinkers who appears to understand the true scope of the current conflict.

Emmanuel Todd was not at Davos. But it was the French anthropologist, historian, demographer and geopolitical analyst who ended up ruffling all the appropriate feathers across the collective West these past few days with a fascinating anthropological object: a reality-based interview. So here’s Todd’s concise Greatest Hits.

  • A new World War is on: By “switching from a limited territorial war to a global economic clash, between the collective West on one side and Russia linked to China on the other side, this became a World War”.
  • The Kremlin, says Todd, made a mistake, calculating that a decomposed Ukraine society would collapse right away. Of course he does not get into detail on how Ukraine had been weaponized to the hilt by the NATO military alliance.
  • Todd is spot on when he stresses how Germany and France had become minor partners at NATO and were not aware of what was being plotted in Ukraine militarily: “They did not know that the Americans, British and Poles could allow Ukraine to fight an extended war. NATO’s fundamental axis now is Washington-London-Warsaw-Kiev.”
  • Todd’s major give away is a killer: “The resistance of Russia’s economy is leading the imperial American system to the precipice. Nobody had foreseen that the Russian economy would hold facing NATO’s ‘economic power’”.
  • Consequently, “monetary and financial American controls over the world may collapse, and with them the possibility for the US of financing for nothing their enormous trade deficit”.
  • “The fundamental dilemma of the American economy: it cannot face Chinese competition without importing a qualified Chinese work force.”
  • And that bring us, once again, to globalization, in a manner that Davos roundtables were incapable of understanding: “We have delocalized so much of our industrial activity that we don’t know whether our war production may be sustained”.

Of course he wasn’t at Davos. Davos isn’t listening to anyone who is capable of seeing the situation with clear eyes. Todd is not even remotely wrong. But if he’s selling 100,000 books in Japan based on those entirely obvious conclusions, I should really consider finding myself a Japanese publisher.

Anyhow, if you’re wondering why some of the more historically perspicacious intellectuals appear to be so wildly off-base with regards to their observations of the current situation, a recent conversation I had with one individual proved very illuminating. My impression is that it mostly comes down to the elder generation not being able yet to comprehend any sort of conflict between a) a regional war of the US and its allies against a single regional power, and, b) mutually assured nuclear destruction.

As a general rule, they believe that the USA of 2022 is still, more or less, the USA of 1950, only with momentarily ascendant leftists and better ethnic food. They see the qualitative problems very well, but don’t recognize the scale of the quantitative and issues, which is why their analyses, and their solutions, tend to rely upon some sort of 1980s Reagan-style renaissance that isn’t even a possibility anymore.

From centenarian clowns like Kissinger to twenty-something Republicans who read Victor Davis Hanson, all of the proposed “solutions” to the global war between Clown World and the other 80 percent of the planet led by the Sino-Russian alliance are comically irrelevant. Failing to understand either the nature or the scope of the conflict, it is their reliance upon their familiar axioms and the continuation of the current global infrastructure that is leading them astray.

But very important structural things, have fundamentally changed, as I pointed out on Monday’s Darkstream following a highly unusual statement by the Saudi Finance Minister.

Andy told me back in September 2022: “The dollar hegemony is right about ready to break when you realize that Saudi Arabia is about to join the BRIC nations. Do you think Biden is going to fly there to ask for more oil? He went there to beg them not to join BRIC.”

“The dollar was made reserve currency only because of our protection of the Saudi kingdom,” Andy continued. He then noted astutely that Saudi Arabia had signed new protection agreements with Russia. “All of the Eastern European countries that have repatriated their gold. They’re all part of the EU but they all trade their own currency. They’re all going to break away from the Western system,” he added.

And now it looks like Andy was right: it appears Saudi Arabia has just issued a death knell to the exclusivity of the petrodollar as we once knew it – the first of several dominoes that needs to fall before the U.S. is exposed financially as an emperor with no clothes.

Saudi Arabia Just Killed The Petrodollar, 18 January 2023

It may be worth noting here that my original prediction of 2033 for the end of the political entity known as the USA was predicated on the expected lifespan of the post-Bretton Woods dollar. I don’t recall anyone taking that timeframe very seriously at the time, but if it was an option, it would probably be considered in the money now.

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World Evil Forum

I don’t often agree with Greenpeace, but they’re absolutely right to call out the massive Clown World hypocrites who are flying in hundreds of private jets to their mountain temple of evil next week in order to tell everyone else in the world to stop using heat, water, and air.

A few days ahead of the WEF’s annual meeting from January 16-20, Greenpeace has warned of the damage caused by the number of private jets shuttling to and from Davos. According to an analysis by the Dutch consulting firm CE Delft and Greenpeace, the number of private jets to and from airports serving Davos doubled during WEF 2022, which took place in May. This amounted to 1,040 private jet flights during the annual meeting week.

Whatever happened to Zoom meetings? If they can afford private jets, can’t they afford web cams? But I suppose Satan is probably a real stickler for physical attendance at the annual Black Mass.

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Germany Implodes

The economic engine of Europe is rapidly approaching crisis and economics depression:

The real estate sector in Germany dropped in the last three months of 2022 due to the surging costs of financing and to record inflation in Europe’s largest economy, a report published on Monday by BNP Paribas showed.

Investments in the country’s commercial property sector slumped by 50% from October to December, compared to the five-year average for the period, and reached just €9.9 billion ($10.6 billion).

The sector took a strong hit as investors shied away from deals due to rising interest rates and an overall worsening economic environment in Germany, the survey results revealed.

One of the fascinating things about Clown World is the way that it simultaneously manages to destroy economies while placing a nominal emphasis on economic growth uber alles. The collapse of the Germany economy should be followed, in relatively short order, by the collapse of the European Union.

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Winning by Losing

Since 2013, Russia has been keeping most of the weapons that it previously manufactured for export:

On the World Bank’s website, the data on “arms exports” show that since 2001 Russian exports in this field have not only approached those of the United States, but in some years (2002, 2013) have even exceeded the value exported by the United States.

It is not curious that the last year in which there was real value competition between the two countries was 2013. Between November 2013 and February 2014 Euromaidan took place, and in that very year a huge package of sanctions against the Russian federation (which had been in place at least since 2008) was passed, focusing especially on technologies imported by Russia for its largely public military industrial complex. As early as 2014, data from the World Bank show the sharp decline in Russian arms exports, which now account for a little more than 1/3 of US sales.

This data is not only relevant for us to understand the reason for Euromaidan, the imposition of a Russophobic regime and an entire escalation of weaponry that is well evidenced in the preparation that, for 8 years, was initiated by the neo-Nazi regime, building a totally disproportionate army and a network of fortifications in the Donbass reminiscent of Albanian bunkers. This data, together with others, confirms a number of premises that will shape our near future.

The problem is not just a “commercial substitution” problem. Not by a long shot. Martyanov explains to us, in three very important books, part of the problem. Under Putin’s reign, there was a reuse, modernization and optimization of all the installed potential left by the USSR and present in Russian society, not totally destroyed in the 90s, which allowed to offer to the world market more effective options from the military point of view, and, above all, much cheaper, considering the cost/benefit binomial. Today, the conflict between the two Slavic nations, has shown that US weaponry not only brings no substantial difference, but is outdated, especially in the field of artillery (long, short and medium distances) and air defense.

What Martyanov allowed us to foresee is that the U.S. could not allow an enormous number of world countries (from Algeria, to Saudi Arabia, to Turkey, India, Indonesia, Egypt, Venezuela, Argentina, Brazil, or even NATO countries such as Greece…) to start buying technologies superior to theirs (such as the case of the S-400 bought by Turkey, which he says is superior to any American air defense system), but which, even when they are not superior, are incompatible with the NATO standard, which in itself raises two problems: 1. If the country joins or remains in the military allies, the fact of having different weapons systems raises interconnection problems taking away defensive and offensive effectiveness; 2. If it becomes an enemy country, it will rely on offensive systems against which NATO defensive systems are not experienced or tuned, and vice versa.

Given the way in which the USA has shown itself to be a wildly untrustworthy partner, to say nothing of the way that the Russian weapons systems have generally shown themselves to be superior, I expect that the export delta is going to decrease considerably, if not disappear entirely, once the NATO-Russian war finally comes to an end.

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The Coming Big Tech Implosion

It appears that government support and near-monopolies aren’t going to be enough to keep some of the tech giants afloat when the economy collapses:

Amazon is burning billions on Alexa because voice assistants need massive infrastructure but can’t be monetized. Google Cloud is $700 million in the red as of last earnings and heading south to a state of madness like a New Jersey retiree. These are mature products in saturated markets. You don’t need an MBA to know what will happen. But even the dean of Harvard Business School can’t say when.

The big confounding factor is reputation. Take Alexa, which, as has been noted, is overwhelmingly used for a few simple tasks: playing music, setting timers, doing quick queries, switching lights. Shopping and advertising? Not so much. The issue for Amazon over those few popular use cases is that they are very popular. For some demographics among the elderly and disabled they’re now part of their daily life. Millions more are habituated, with Alexa just being quietly useful when hands are full or pulling up a calculator app is just too much hassle.

Amazon’s model was to sell the hardware at or below cost and make the revenue from content and services. It’s a perfectly good model, if those services and content are as engaging as video games, or user data can be folded into ad targeting. None of this is true for Alexa, and it never will be. But if Amazon cuts and runs, hundreds of millions of users have had an intimate part of their life ripped out. One, furthermore, they considered paid for when they bought the gadget in the first place. How badly does Amazon want not to do that? It costs billions. It can’t keep paying. But it can’t just let it go.

Google is in an even worse position, not from the amount of red ink currently bleeding from its Cloud division, but because of its room to manoeuver is far less. There are around 4 billion email accounts in the world, and around 1.8 billion of those are Gmail. When you run a service for that many users, they run you.

Amazon is also getting absolutely hammered by the increase in transportation costs. Given that its core business runs on very thin margins, there is no way it’s not running in the red now. While both companies are being propped up by the US federal government, it’s doubtful that this support will continue once WWIII begins to seriously draw down the resources available to the government.

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Predictions From the Tree of Woe

Just one prediction for 2023, but it’s a grave one about the petrodollar, its fate, and the consequences therefrom:

The petrodollar is the centerpiece of American hegemony. I predict that in 2023, at the latest 2024, that system will end. Its demise may be disguised by the mainstream and financial press, but it will be self-evident in the transactions themselves, and its aftershocks will be mighty.

Now, the end of the petrodollar system has been a long time coming, of course. It’s been a major goal of America’s strategic competitors for years. In 2017, China and Russia created the petroyuan so that its partners could trade for oil without using dollars. However, the petroyuan did not unseat the petrodollar in the six intervening years. 80% of oil transactions remained in USD. Why?

  • Saudi Arabia, the linchpin of the petrodollar system, continued to insist on using dollars in its transactions.
  • The Chinese continued to be reliant on trade with the US to fuel their economy, and thus could not risk destroying the system that made the US dollar valuable.
  • The US has a proven track record of using military force to support the petrodollar, and with Donald Trump in charge — known to Chinese citizens as “Emperor Trump” for his vigorous policies — the Chinese were reluctant to “fuck around and find out.”

Now those conditions have changed.

Read the whole thing there, keeping in mind that while timings are always uncertain, trends are often clear.

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Globalization Taketh Away

A small town in Switzerland discovers the downside of going global, as a profitable local business is shut down after more than a century in operation:

British American Tobacco (BAT) will close a cigarette manufacturing factory in north-western Switzerland next year and lay off the 220 employees working there, it has been confirmed. This decision will have a major impact on the region, the Jura government said on Wednesday. In a statement, BAT confirmed that cigarette production would be transferred from Boncourt to bigger factories in Europe and that Boncourt would be closed.

Following the closure of the factory, the commune of Boncourt (1,200 residents) will lose its biggest taxpayer – around CHF 2 million in annual tax – from its yearly budget of CHF 9 million.

The Boncourt factory was founded by the Burrus family in 1814 and was taken over by Rothmans International in 1996, before merging with tobacco multinational BAT three years later. The site has produced Parisienne cigarettes since 1887, the second best-selling brand in Switzerland.

I’m sure the little town that has lost nearly one-quarter of its tax revenue and more than half of its jobs will be reassured by the knowledge that the cigarettes that it formerly manufactured will henceforth be produced more efficiently elsewhere in Europe.

Homo economus is not human, but vampire.

Strangely enough, it may be the NFL that provides one potential solution to the economic problem of Clown World. Green Bay is one of the oldest and most successful franchises in the NFL, and it not only survives, but thrives, in a small town because it is not owned by rent-seeking pirates, but by the community. The team cannot be sold or moved without the consent of the public.

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