Tag: economics

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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There Are No Bank Reserves

Just a reminder that Clown World’s economy is floating on nothing more than clown gas and demon dust:

The pattern really got going with the “bailout” in 2008. Buried in a monster bill that was waived the three day lockdown on votes was a provision that allowed Ben Bernanke to set bank reserves to zero. It was one line in a monstrosity that Hank Paulson insisted on being passed after his “one page” equivalent, which gave him sole authority on $700 billion dollars of public money, went down in defeat a day earlier. I caught it and reported on it but nobody in the Legislature said a single word about it at the time, likely because they didn’t actually read the whole thing and thus other than the snake who put it in there didn’t know it existed.

So, it’s doubtful that the USA’s ability to outspend Russia is going to work the way it did when Ronald Reagan pushed a financial arms race with the Soviet Union.

The US Congress is about to send another $44 billion to Boeing, Raytheon, and the CIA “for the war in Ukraine”. That’s a total of $100 billion sent by the US in 10 months. The entire Russian military budget for the year is $65 billion.

  • Glenn Greenwald

This is the exact opposite of what Jerry Pournelle recommended back in 1986 after contemplating the problem facing the US military.

There is just no way that we’ll respond to the Soviets by building a peacetime military establishment similar to theirs. Unfortunately, although we have rejected matching the Soviet military establishment, we have not seized upon any viable alternative. Instead, we putter about, building some of this and some of that, hoping that our technological superiority will somehow do the trick even though we have no clear cut strategy of technology.

This has not always brought about good results. As Congressman Newt Gingrich, among others, has repeatedly pointed out, simply throwing money at the Pentagon is wasteful. Given money but no marching orders, the Pentagon almost always buys more M-1 tanks for the Army, more carriers for the Navy, wings of F-16’s for the Air Force. They buy “things people can ride on,” as one analyst recently put it.

Left to its own direction, the military is very conservative. Military establishments tend to keep the old, while flirting with the new and glamorous; to buy one or two armored cars, but keep horses for the cavalry. To put catapults and seaplanes on battleships, but reject aircraft carriers as not needed.

The result is a lack of direction… We end up with weapons that no one is trained to use, aircraft with no spare parts and few trained pilots, communications systems that don’t quite work, ships without trained sailors to man them, and missiles that work splendidly in test situations, but have profound problems on the battlefield.

Jerry Pournelle, The Stars At War, 1986

Although it’s even worse now. Instead of funding wasteful and ineffective weapons programs, now the money is being directed into unspeakable trafficking operations and propping up the collapsing Clown World economy.

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Another Warning Signal

A red flag in housing echoes one in the used car market.

Following yesterday’s dismal housing starts and building permits prints (which followed an ugly homebuilder sentiment signal), analysts expected US existing home sales to tumble 5.2% MoM in November. In fact, things were worse with a 7.7% MoM plunge (the biggest drop since Feb 22 and the 10th straight monthly decline). This is the biggest YoY drop since Lehman and the longest streak of sales declines since 1999… This disappointing drop in existing home sales happened despite the fact that mortgage rates have now fallen for 5 straight weeks.

The US economy is not looking great at the moment.

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Debt Bubble Close to Popping

There are serious warning signals coming from a variety of markets, including the used-car loan market.

Every Friday I conduct a team meeting to recap our week.

This morning, one of our General Managers opened up DealerTrack — a portal that dealers use to communicate with auto lenders — and highlighted something very concerning: 9 of our lending partners have started WAIVING “open auto stipulations” for consumers.

Wait, wtf does that even mean? Let me explain using a simple, hypothetical scenario:

1) Consumer takes out an auto loan in 2020/2021 on an overvalued car
2) 2022 comes around and that overvalued car is now rapidly declining in value
3) With the car declining in value, consumer now owes more on the car than it is worth
4) Consumer no longer wants the car. Maybe they outgrew it. Or maybe it keeps breaking. So consumer wants to trade it in.
5) But dealer can’t trade the car in because the consumer owes WAY too much on it.
So dealer asks consumer for lots of money down to cover the difference.
6) But of course, the consumer doesn’t have $1,000s to cover the difference between what they owe on the car and what it’s worth. And here comes the perfect storm…
7) Dealer can’t sell consumer a car, consumer can’t buy a car, and, you guessed it, lender can’t finance a car! Everybody loses! Oh no! So what happens next?
8) Lender knows that most consumers are stuck in this situation, and does the following:

WAIVES THE OPEN AUTO STIPULATION.

Meaning, the lender lets the consumer buy the car KNOWING that they already have an open auto loan with another bank!

It’s becoming apparent that 2023 has the potential to be worse than 2008. How much worse, we will have to wait and see. In the meantime, it’s a very good idea to be prepared to lower your standard of living and focus your spending on a) things you really need, b) things that will last, and c) things that provide high value for the money.

Live well within your means and you’ll be all right. This is not the time to live a champagne lifestyle on a discount beer budget.

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The Economics of Clown World

Michael Hudson explains the basic operation of what passes for Clown World’s economic system in an interview:

MEGA Radio: In your new book The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism you state that the world economy is now fracturing between two parts, the United States and Europe is the dollarized part. And this Western neoliberal unit is driving Eurasia and most of the Global South into a separate group. You just stated this in an interview from November. Could you explain this for our outlet?

Michael Hudson: The split is not only geographic but above all reflects the conflict between Western neoliberalism and the traditional logic of industrial capitalism. The West has deindustrialized its economies by replacing industrial capitalism with finance capitalism, initially in an attempt to keep its wages down by moving abroad to employ foreign labor, and then to try and establish monopoly privileges and captive markets or arms (and now oil) and high-technology essentials, becoming rentier economies.

A century ago, industrial capitalism was expected to evolve into industrial socialism, with governments providing subsidized basic infrastructure services (such as health care, education, communication, research and development) to minimize their cost of living and doing business. That is how the United States, Germany and other countries built up their industrial power, and it also is how China and other Eurasian countries have done so more recently.

But the West’s choice to privatize and financialize its basic infrastructure, dismantling the role of government and shifting planning to Wall Street, London and other financial centers, has left it with little to offer other countries – except or the promise not to bomb them or treat them as enemies if they seek to keep their wealth in their own hands instead of transferring it to U.S. investors and corporations.

The result is that when China and other countries build up their economies in the same way that the United States did from the end of its Civil War to World War II, they are treated as enemies. It is as if U.S. diplomats see that the game is lost, and that their economy has become so debt-ridden, privatized and high-cost that it cannot compete, that it simply hopes to keep making other countries dependent tributaries for as long as it can until the game finally is over.

If the U.S. succeeds in imposing financial neoliberalism on the world, then other countries will end up with the same problems that the United States is experiencing.

Read the whole thing. It’s really good and it even references Crusader Kings. And Hudson points out that the cruelest thing Russia can do to Europe is not to invade it, but rather, to abandon it to the rapacious rule of the US financial elite.

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Drawing Lines in the Sand

Xi makes it abundantly clear that China stands with Palestine.

Chinese President Xi Jinping expressed dissatisfaction Friday with the injustices suffered by Palestinians and affirmed China’s support for an independent Palestinian state. “It is not possible to continue the historical injustice suffered by the Palestinians,” the Chinese president said at the opening of the Riyadh-Gulf-Chinese Summit for Cooperation and Development in Saudi Arabia.

Xi emphasized the necessity for granting Palestine “full membership in the United Nations” and said Beijing “supports the two-state solution and the establishment of a Palestinian state on the 1967 borders, with East Jerusalem as its capital.”

He said he considered the Chinese-Arab summit a “defining event in the history of Chinese-Arab relations.”

Relations between the two “are based on mutual interest in peace and harmony,” he said. “The Chinese and Arab sides should strengthen solidarity and cooperation and build a community for a closer future,” he said as he welcomed Arab participation in the global security initiative.

If Israel is the USA’s “greatest ally’, then it stands to reason that China, which has been engaged in unrestricted warfare against the United States for two decades, would eventually find common cause with that greatest ally’s greatest enemy.

It also explains why Soros and the other architects of Clown World fear Xi even more than they do Putin.

The intriguing question is when the Israelis will abandon the USA and the imperialist neocons in an attempt to appease the Chinese. Because that is probably the right strategic move in the long term; the Israelis are obviously aware that the Diaspora won’t hesitate to sell them out if necessary. And it’s not going to be possible to be the financial masters of both sides of The Great Bifurcation.

Beijing will work to make energy purchases in yuan instead of US dollar signalling another step towards shifting further away from the greenback, China’s President Xi Jinping told Gulf Arab leaders as cited by Reuters.

China’s leader highlighted the necessity of the move while speaking at a Chinese-Arab summit that was hosted by Saudi Arabia earlier this week. Xi had held separate talks with the heads of the Persian Gulf states at the summit that reportedly brought together 30 leaders from across the region.

The world’s biggest crude importer, China in November ramped up purchases of oil by 12% year-on-year, marking the 10-month high despite the severe pandemic-related restrictions.

As the world’s biggest buyer, China now has the ability to dictate how it pays for oil. And it has already begun paying for Arab goods in its own currency, as evidenced by this interview with a spokeswoman for the Chinese Foreign Ministry:

The Paper: We noted that the first RMB cross-border payment transaction between Saudi Arabia and China’s Yiwu city, known as “the world’s supermarket”, was completed ahead of the first China-Arab States Summit. Do you have any comment?

Mao Ning: I also noted this good news. The cross-border RMB payment has played an important role in boosting trade between China and Arab states. This is also a telling snapshot of trade and investment facilitation between both sides. Over the past decade, China-Arab states economic and trade cooperation has scaled new heights. China is Arab states’ biggest trading partner. In 2021, China’s FDI stock in Arab states hit $23 billion, a 2.6 times increase over 10 years. The trade volume topped $330.3 billion, 1.5 times more than 10 years ago. In the first three quarters of 2022, China-Arab states trade reached $319.295 billion, up 35.28 percent year on year and close to the total of the whole year of 2021.

This is precisely what the US invaded Iraq and Libya to prevent. But it’s not going to invade Saudi Arabia and it can’t invade China. It is safe to expect that other countries, particularly Russia and Venezuala, will follow suit in short order.

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Free Trade is Dead

In amidst the economic pain and disruption incumbent in the fall of Clown World, there are some significant silver linings:

The founder of the Taiwan Semiconductor Manufacturing Corporation, Morris Chang, says geopolitics is having profound effects on the semiconductor industry.

Speaking at an event in Phoenix Arizona, where his firm was debuting an ambitious $40 billion upgrade and expansion of its new manufacturing facility in the state, he explained the new constraints being placed on the sector by the changing geopolitical scene.

Speaking of the new facility, which is TSMC’s first advanced chip plant built in the United States in over two decades, Chang said there remained a lot of hard work ahead, if it was to be a success.

The upgrades for the facility will enable the phoenix plant to manufacture the chips for Apple’s iPhone, which can perform almost 17 trillion specialized calculations per second. TMSC is planning an even newer facility in the state which will house even more advanced production technology, capable of producing the microchips for future smartphones, computers, and other smart electronics.

In an interview with Nikkei Asia at the event, Chang likened the plant to the first plant TSMC ever built in the US, in 1995 in Carnas, Washington.

Chang said, “Twenty-seven years have passed and [the semiconductor industry] witnessed a big change in the world, a big geopolitical situation change in the world. Globalization is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don’t think they will be back.”

The death of globalization and free trade is not only a good thing, it is absolutely necessary if Mankind is going to survive, and eventually, thrive. We’ve seen the best that globalism has to offer, and it is nothing more than idiocracy, debt slavery, and a relentlessly ugly monoculture.

It only took 30 years for 300 years of economic theory to be conclusively disproven by reality. But it was always false and totally incompatible with the existence of nations, as my critique of free trade on mathematical grounds demonstrated.

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Excess Deaths Among the Educated

Karl Denninger reviews the unemployment statistics:

The “employment by educational attainment” figures were interesting as well — they showed that degree holders got hammered. One has to wonder if the Twitter firings were in there, but that wasn’t that large and there was a drop of 348,000 in that category and, more-ominously, 316,000 people disappeared out of that bucket entirely. Since you can’t “lose” educational status once you get into that top bucket, that of a Bachelor’s or better, the only way out of that bucket is to die.

I can confirm one of those 316,000 missing degree holders. My late brother was a duly employed individual with a bachelor’s degree when he died. He was also vaccinated and boosted.

And while we don’t know it was the vaxx… it was the vaxx.

UPDATE: The numbers add up. The percentage of the population 25 years and older with at least a bachelor’s degree is 32.1 percent.

The U.S. Centers for Disease Control and Prevention (CDC) has quietly confirmed that at least 1.1 million Americans have “died suddenly” ever since Covid-19 “vaccines” were introduced under Operation Warp Speed.

UPDATE: And this rejection of the vaxx among the most highly educated may explain the 4 percent delta.

People with a PhD are the most hesitant when it comes to getting the Covid-19 vaccine, according to a paper by researchers from Carnegie Mellon University and the University of Pittsburgh. The report showed a surprising U-shaped correlation between willingness to get a Covid vaccine and education level – with the highest hesitancy among those least and most educated. Of those surveyed, 20.8 per cent with a high school education were reluctant to get the shot, and 23.9 per cent with a PhD were against it. But the least skeptical of the shot had a Master’s degree – with only 8.3 per cent of that group being vaccine hesitant.

Translation: Midwits gonna midwit. Literally no one trusts authority more than midwits with credentials.

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EVs Are Not the Answer

Switzerland contemplates banning electric vehicles this winter.

Switzerland may become the first country to limit the use of electric vehicles (EVs) in a bid to ensure energy security this winter, German daily Der Spiegel reported on Thursday. Under the proposed action plan, which is yet to be adopted, the use of EVs in the country could be banned except in cases of “absolutely necessary journeys.” The government also plans a stricter speed limit on the highways. The harsh restrictions are being discussed as the government fears a power shortage in the coming months, due to the country’s high dependence on imports.

And for good reason. Electric vehicles already cost more to operate than internal combustion engines, even though gasoline is heavily taxed in Europe and electric vehicles are subsidized.

“Due to rising energy prices, in some cases, refueling an electric car is more expensive than a traditional one. And if you are recharging not at home but at a public rapid station, the prices would be even higher,” the report stated.

Experts have calculated that the previous cost of charging an electric car in the country was 50-70% lower than for refueling gasoline or diesel models. Now, a full battery of a ‘green car’ can cost more than a full tank of petrol.

The study highlighted that, for small B-segment cars, gasoline for a mileage of 1,000 kilometers would cost the owner €83 ($83). For a diesel car, the cost would be €71 ($71). Meanwhile, with an electric motor, it would cost €85 ($85) to drive the same distance, even though it was only €33 ($33) just a year ago.

It’s time for Europe to surrender to Russia. This is an economic war the EU cannot win.

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