Tag: economics

Europe’s Economic Suicide

This is not an accident. It’s not as if everyone with an economics degree didn’t see the economic meltdown coming when the EU decided to prevent its member states from using Russian gas:

The European Union decided to analyze why their economy is collapsing. They commissioned the former head of the European Central Bank, Mario Draghi, to figure this out.

It is noteworthy that the study was commissioned by the European Commission, but the conclusions were still disappointing. Draghi came to the conclusion that the basis of Europe’s economic problems is the cost of energy for industry – electricity is 158% more expensive than in the US, natural gas – 345%.

Thus, in fact, Ursula von der Leyen’s department confirmed its own professional incompetence with statistics and research, because thanks to anti-Russian sanctions, there was a vast jump in energy prices and, as a result, a decline in the economy.

The wicked and self-destructive nature of the EU can be seen in its embrace of migrants – who are supposed to help the economy, but are massive net economic and social negatives – combined with its rejection of Russian energy – which was always going to destroy the economy. There are only two reasons for member states to continue to stay in the EU: 1) transfer payments to the member state and 2) corrupt politicians working against the interests of the nation.

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They Always Kill the Golden Goose

It’s truly amazing that more than 100 years after economists formally discovered the concept of declining marginal returns, the rulers of Clown World continue to insist on driving a nation’s most successful entrepreneurs out of the country.

Britain’s richest plumber has put his £12million London penthouse on the market as he prepares to flee Britain ahead of a mooted Labour tax raid. Charlie Mullins, who founded Pimlico Plumbers, has said he wants to have ‘no assets in the UK whatsoever’ and intends on not paying tax next year as he leaves the country.

The 71-year-old, who made £145million when he sold his firm in 2021, had moved into the property the same year after falling in love with the view over the River Thames. But now he wants to get rid of the flat, which neighbours an apartment owned by Tom Jones, insisting that his family would ‘go mad’ if they had to pay inheritance tax because of it.

The businessman said he is concerned the new chancellor Rachel Reeves will increase death taxes and is instead ploughing his money into property in Spain and Dubai… Henley & Partners, which helps wealthy investors to move overseas, estimates that Britain is on track to lose a record 9,500 millionaires this year

Of course, this seeming stupidity is probably much more accurately attributed to economically-informed malice. If destroying the nation is the objective, then impoverishing it and driving out the nation’s most successful entrepreneurs away is going to be viewed as a positive.

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Reading the Economic Winds

Turkiye has asked to join BRICS.

Turkiye has formally requested to join the BRICS group of emerging economies, Bloomberg cited informed sources as saying on 2 September.

Ankara “seeks to bolster its global influence and forge new ties beyond its traditional Western allies,” the sources said. President Recep Tayyip Erdogan believes “that the geopolitical center of gravity is shifting away from developed economies” and that the push to join BRICS “reflects its aspirations to cultivate ties with all sides in a multipolar world, while still fulfilling its obligations as a key member of NATO.”

Turkish Foreign Minister Hakan Fidan said in early June that BRICS serves as a good alternative to the EU. Later that month, he confirmed that dialogue between Ankara and BRICS nations was ongoing – coming as Turkish frustration continued to grow due to stalled efforts to join the EU.

It wouldn’t be surprising if China and Russia inform Turkiye that before it can join BRICS, it has to leave NATO. With both the leading powers at de facto war with the USA, I don’t see how they can permit a country with an Article 5 obligation – however flimsy and easily-evaded – to go to war with them to join the organization. Of course, this may be part of the process that Erdogan anticipates; since BRICS is clearly of far more value to Turkiye than NATO, he might simply want the excuse of reacting to a BRICSian demand rather than proactively leaving NATO of his own accord.

But one way or another, I expect Turkiye to join BRICS and leave NATO. I also suspect that Macron’s brief and bizarre expression of interest in having France join BRICS was a test to see if BRICS would potentially consider accepting a NATO member, in order to see if it would be necessary to try forestalling Turkiye’s application.

And considering that Switzerland is still foolishly wandering down the path toward taking sides with NATO and the EU, Turkiye may well find themselves in an optimal geopolitical position, filling the very profitable space between BRICS and Clown World that Switzerland played in the 20th century during both World Wars and the Cold War.

UPDATE: Turkish President Recep Tayyip Erdogan has accepted the Kremlin’s invitation to attend the BRICS summit in the Russian city of Kazan next month, Russian presidential aide Yury Ushakov said on Tuesday.

It looks like the Turks are changing sides. As I’ve mentioned before, we’ll know the total collapse of Clown World is upon us when Japan does the same.

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Weimar Britain

And no, this isn’t a result of Brexit. Germany is in even worse shape. But regardless, it is clear that the decision to back Ukraine has been a fatal one for the British economy, the coming collapse of which is becoming increasingly obvious in the wake of Ukraine’s recent defaulting on its massive debt:

22 July 2024: we have a deal!
Almost as soon as Zelensky’s visit in London concluded, the Government of Ukraine announced that a deal was reached with its main bondholders to restructure the country’s near-$20 billion worth of bonds, including a 37% reduction of the amounts owed. But this was only “an agreement, in principle,” reached with an “ad-hoc creditor committee,” and it wasn’t binding on all the bondholders. Instead, it imposed on Ukraine’s government “the Restructuring as soon as practicable,” to be implemented through a “consent solicitation.” In other words, Ukraine was expected to chase after its creditors and beg them to accept the deal, even offering them a 1.25% “consent fee.” Well, things were about to take a sharp turn for the worse…

24 July 2024: Ukraine strikes the Fitch iceberg
Only two days after Ukraine announced the deal with their bondholders, Fitch downgraded Ukraine’s credit rating from CC to C, reflecting extreme credit risk reserved for countries that “entered default or default-like process.” Significantly, Fitch made it explicit that “the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule…”

31 July 2024: Zelensky ‘temporarily’ suspends debt repayments
Zelensky signed a law enabling Ukraine to suspend payments of external debts for two months (or longer).

Thursday, August 1 2024: debt repayments freeze takes effect
Bondholders’ grace period expires; Zelensky’s unilateral debt repayments freeze takes effect.

What’s peculiar about the British financial system is that the taxpayers are obliged to reimburse the Bank of England for any losses it sustains on its balance sheet assets. If the price of gilts on the bank’s balance sheet collapses, British taxpayers must cover those losses and make the bank whole. So, what kind of money are we talking about? As the the FT reported last July, the BOE has estimated it will require the Treasury to transfer a total of £150 billion by 2033 to cover expected losses on the central bank’s quantitative easing program.

So how much is £150 billion? Provided that things haven’t deteriorated since July 2023 (they have), we’re talking £2,240 per man, woman and child in Britain. Stand and deliver: that’s the ransom that the BOE is claiming from them! But given that the British workforce is only about half the population, and that private enterprise accounts for less than 55% of the British GDP, this sum represents nearly £10,000 per employee working in the private sector.

In all, the situation is impossible and all the cabinet reshuffles and cosmetic patches changed nothing of substance in the UK; they amounted to a sort of rearranging the deck-chairs on the Titanic as the ship is already sinking.

Translation: Ukraine is bankrupt and can’t even pretend that it’s going to repay all of its massive war-related debts after defeating the Russians. The economic collapse of the Ukrainian government will lead to a political collapse and the military collapse of its armed forces; Russia’s increasingly rapid advances in the Donbass are in part due to the beginning stages of the latter. And the surrender of Ukraine may lead directly to the economic collapse of Britain as well as several countries inside the EU, most likely those most deeply invested in Ukraine, which includes the Baltics, Germany, and Poland.

28 August 2024: Game Over? Ukraine Announces Partial Halt to Payments on Its Gargantuan Debt

This is the genius of Putin’s patient multi-front attritional strategy and why he has an economist running the Russian Ministry of Defense. He never needed to bomb Britain or Berlin in order to comprehensively defeat them. And as for the USA, well, China and Iran are taking the lead with regards to the Clown World’s major stronghold.

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Mailvox: A Bad Case Against Free Trade

I was asked to consider Paul Craig Roberts’s case against free trade, which he describes as follows:

In 2004 NY Democrat Senator Chuck Schumer and I opened a New Year with a jointly authored column in the New York Times. We raised the offshoring issue. American manufacturing jobs and the tech jobs of American professionals were being sent to Asia. We posed the question that if jobs offshoring was free trade, as economists claimed, was free trade any longer in America’s interest? My position was that jobs offshoring is a contradiction of free trade–more later–and Schumer was still in his idealistic period when he was concerned about the displacement of American labor by foreign labor in the production of goods and services that Americans consumed.

Our article caused a firestorm. The Brookings Institution in Washington called a conference and asked us to come and defend our position. C-Span broadcast the conference live and rebroadcast it a number of times. Schumer and I carried the day.

Delighted with the publicity, Schumer suggested a follow-up article. The NY Times was eager. We began a draft, and then it went cold. My explanation is that Wall Street, which was committed to jobs offshoring, got to Schumer and explained campaign contributions to him.

I continued on. Conservatives, free market economists, and libertarians, who are indoctrinated with free trade, but who do not comprehend the theory, called me a heretic. Nevertheless, both the Wall Street Journal and the Washington Post were intrigued that the “most ardent” of the “Reagan policymakers” had taken a position against the policy that Wall Street was imposing on the country.

The Wall Street Journal assigned Timothy Aeppel to arrange a series of debates to be published in the Wall Street Journal between me and Columbia University Professor Jagdish Bhagwati. The question was: Is jobs offshoring really free trade?

Adam Smith and David Ricardo’s theory of free trade rests on the principle of comparative advantage. What this means is that a country’s capital remains employed at home and is employed in areas in which the capital is best used. If all countries do this, there are gains from trade, and all countries will be better off than if they are self-sufficient. I have wondered if the free trade theory was used as a stratagem to repeal the British Corn Laws and reduce the income and power of the landed aristocracy.

Both Smith and Ricardo made it completely clear that if a country’s capital left the country, it was pursuing absolute advantage, not comparative advantage, and free trade theory is vitiated. This is the point I made. Without comparative advantage, there is no case for free trade.

This is trivial and irrelevant Econ 103-level criticism of free trade. No one has ever denied it, and it permits the discussion to be transformed from “is free trade good for the nation” to “is the current situation one in which absolute advantage or comparative advantage applies”.

Political matters are intrinsically rhetorical, so building a circumstantial case on what most people will see as a minor technical point is never going to be very convincing. It’s no surprise that despite the fact that he and Schumer “carried the day”, they ended up completely losing the political battle.

The point is not that “free trade is sometimes bad”, the point is that free trade is bad even in the case of comparative advantage that supposedly provides for mutual benefit, but destroys both nations in the process.

And yes, the free trade theory was never more than an excuse to repeal the Corn Laws. Ricardo was an an investor and politician, not an economist, and the arguments he presented were dishonest, incomplete, and wrong, which is why Joseph Schumpeter labled the structure of Ricardo’s arguments “the Ricardian vice”.

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The Markets Sink

I stay very, very far away from the stock markets, since they are a rigged game. But they are useful indicators of social mood, and so it’s informative that Tokyo just saw the worst day on the Nikkei since the end of the Heisei Boom in 1988.

Japan’s benchmark Nikkei 225 stock index plunged 12.4% on Monday, resuming sell-offs that are shaking world markets as investors fret over the state of the U.S. economy. The Nikkei closed down 4,451.28 points at 31,458.42. The market’s broader TOPIX index fell 12.8% as selling picked up in the afternoon.

Darkening the outlook for trading on Wall Street, early Monday the future for the S&P 500 was 2.4% lower and that for the Dow Jones Industrial Average was down 2.6%.

The Nikkei 225 dropped 5.8% on Friday, making this its worst two-day decline ever. Its worst single-day rout was a plunge of 3,836 points, or 14.9%, on Oct. 20, 1987, a day that was dubbed “Black Monday.” This Monday was gloomy enough: at one point, the benchmark sank as much as 13.4%.

In any event, it’s clear that the central banks have kicked the can, locked things down, and pulled every rabbit out of their hat that they can imagine. This leaves war as the only available panacea, so I suppose it’s useful in this regard that WWIII already began two years ago; it would be an interesting historical echo if the USA gets directly involved again precisely two years after the global conflict began.

1914-1917, 1939-1941, 2022-2024?

The other thing that strikes me is that by sending four carriers to the Middle East, we may – MAY – be witnessing the anticipated Sicilian Expedition Moment in the making. Nothing would more profoundly exemplify the end of Pax Americana and the imperial USA than the simultaneous sinking of all four carriers.

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Antagonizing China

Since sanctions and seizures have worked so well against Russia, Clown World’s brilliant strategists are planning to utilize the same effective economic weapons against China.

NATO officials are discussing taking action to reclaim some Chinese-owned infrastructure projects in Europe should a wider conflict with Russia break out in the east of the continent, three officials involved in the discussions told CNN.

A decade ago, when Europe was still crawling out of the economic crater caused by the global financial crisis, the promise of infrastructure funding from Chinese-owned investment firms seemed like a major windfall.

Now, with the largest land war being waged in Europe since World War II – and the West warning of Beijing’s support of Russia’s invasion of Ukraine – NATO countries now see those investments as a liability, with allies beginning to discuss ways to reclaim some of those projects, the officials said. The fear, according to one US official, is that Beijing could use the infrastructure it owns in Europe to provide material assistance to Russia if the conflict were to expand. The goal, officials said, is to figure out a path forward well in advance of any potential conflict…

From rail lines connecting Eastern Europe to China, to ports located in the North Sea and the Baltic Sea, China has funded tens of billions of dollars in infrastructure investments under its Belt & Road Initiative, which European nations began signing onto in 2013.

So, this should end well… It goes without saying that this is an economic catastrophe, and probably a military catastrophe as well, in the making. The sooner Americans and Europeans throw off their disastrous, destructive, and wicked ruling elites, the better chance they will have of seeing their nations survive to the 22nd Century.

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Mailvox: Debt Deflation in Action

A reader notices that the credit card companies are rapidly reducing the amount of credit available to their more conservative cardholders.

My husband and I run a small business and have noticed an unusual practice by credit card companies over the last 4-5 months.

Our business is seasonal, and during our ramp up in from February to April, we usually max out 6 cards on supplies and improvements for the coming season. And then the profits from May and June pay those down, before we start making real profits July-October. We’ve been doing this for over ten years, and typically the result of the max-out and quick pay down has been an increased credit limit. 

This year, as we have started the pay down, each large pay down amount, say $2000 on a $10,000 card for example, has come with a credit limit reduction of 50% – 100% of the amount paid. One card, upon paying it off in whole dropped from $2500 to $350 as the limit. 

We have no personal reasons that our limits in particular would be getting slashed after so many years of increases. So I am wondering if this is a systemic attempt to use debt deflation to slow the rate of inflation without further interest rate increases. 

More generally, if what I’m seeing is systemic, is this a correct understanding of debt deflation? 

This is 100 percent debt deflation. And in some ways, it’s more worrisome than the leadup to the 2008 contraction. Whereas in 2008, there was a dearth of people willing to borrow, now it is apparent that the banks simply can’t afford to offer the credit if there isn’t a sufficient amount of interest to be gained.

Which suggests that the 2024 credit cruch and subsequent financial institution failures will be bigger and more consequential than we witnessed in 2008. It’s even possible that the federal government will not be able to bail out most of the failing institutions.

UPDATE: An SG reader adds another indicator worth noting.

We had a different scenario but still deflationary. Our credit card had a 55-day interest free period which we have never paid interest on in 30+ years. Two months ago, we noticed in the fine print at the back page that it was reducing from 55 days to 44 days. It was hidden away and was only announces on the two previous bills. It had been 55 days for 30+ years.

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The Fourth Front

It appears the fourth front of WWIII will not be Africa, but the Korean Peninsula:

South Korea said Thursday that it would consider sending arms to Ukraine, a major policy change that was suggested after Russia and North Korea rattled the region and beyond by signing a pact to come to each other’s defense in the event of war.

The comments from a senior presidential official came hours after North Korea’s state media released the details of the agreement, which observers said could mark the strongest connection between Moscow and Pyongyang since the end of the Cold War. It comes at a time when Russia faces growing isolation over the war in Ukraine and both countries face escalating standoffs with the West.

According to the text of the deal published by North Korea’s official Korean Central News Agency, or KCNA, if either country gets invaded and is pushed into a state of war, the other must deploy “all means at its disposal without delay” to provide “military and other assistance.”

I had my suspicions about things heating up on the Korean Peninsula once it became obvious that the USA was going to try to substitute South Korean and Japanese ship-building for its own lack of ship-building capacity. The amount of Clown World interest and investment in both countries has noticeably appreciated (see the previous post on investments into the comics industry) and therefore a counter-move by the BRICSIA alliance was inevitable.

I was a little surprised that it was Russia that made the overtures to the North Koreans and not the Chinese, except that it’s now clear that Russia is playing bad cop while China whistles innocently and pretends to not be directly involved. What will truly shake things up, however, is if an invitation to join BRICSIA is offered to North Korea, as that would truly be a formidable gauntlet to cast before the G7.

It shouldn’t be too long before Clown World realizes that it is no position to sanction anyone, and to the contrary, the rest of the world is effectively sanctioning it.

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The USA Already Lost WWIII

As I’ve been banging repeatedly on since 2004, warfare since 1940 has primarily concerned industrial capacity. Of course, the Clown World establishment doesn’t listen to me, so they’re genuinely confused and afraid now that it’s clear that both China and North Korea are formally allied with Russia, giving the sovereign nations a 100x advantage over the post-industrial financialized economies of Clown World.

Remember when the narrative was that it was Russia totally reliant on Western-supplied parts in its weaponry? Here an American general literally admits the entire U.S. military structure would collapse in a day if China issued an embargo against them:

‘If we were in a war with China and it stopped providing parts, we wouldn’t be able to build the planes and weapons we needed,’ he said.

A startling report released earlier this year revealed Chinese firms have a stranglehold across 12 critical technologies that are vital to US national security, including nuclear modernization, hypersonic and space technologies.

The study, which was carried out by defense software firm Govini, delivered a damning indictment on the American armaments industry.

‘U.S. domestic production capacity is a shriveled shadow of its former self,’ the report said. ‘Crucial categories of industry for U.S. national defense are no longer built in any of the 50 states.’

Remember when it was Russia using Western chips in all of its missiles?

Perhaps most worryingly, Govini found that more than 40 per cent of the semiconductors that sustain Department of Defense (DoD) weapons systems are now sourced from China.

How the tides have turned.

It seems the West is slowly coming to its awakening moment: it stands no chance in a long term conflict against the manufacturing powerhouse of the Russia-China-North Korea-Iran bloc.

The central problem is that the strategic geniuses of Clown World are neocons like the Kagan clan, who understand nothing of military history. Their expertise is in subjective rhetoric and subversion, not objective logic and reality. They’re like the bad guys in a Hollywood horror flick, where all that is necessary to defeat them is to refuse to believe in them and proceed as if they don’t even exist.

The astonishing thing is that the corpocracy is still exporting manufacturing capacity abroad. Just yesterday, John Deere announced that it was moving its factories to Mexico. So US manufacturing capacity is actually shrinking, just as European energy production is shrinking, while Russia, China, and North Korea are all ramping up their production of everything from ammunition to tanks.

Clown World should surrender now. But they won’t, because they don’t deal in objective reality. They never have.

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