Tag: economics

Switzerland’s Return to Poverty

The once-neutral country chooses a course that will inevitably lead it toward economic and geopolitical irrelevance if it is not abandoned:

The Swiss government has adopted the latest set of European Union sanctions against Russia and Belarus over the war in Ukraine, including an embargo on crude oil imports and certain refined petroleum products from Russia.

The Federal Council on Friday decided to adopt the sixth package of sanctions agreed by EU countries on June 3. It includes an embargo that will be introduced progressively on all Russian crude oil delivered by sea to Europe from early December; a ban on all Russian refined oil products will be introduced two months later.

This is really unbelievable from a historical perspective. The Federal Council appears to have forgotten that for centuries, Switzerland was a very poor country that had virtually nothing to offer anyone except Alpine transit routes and its young men’s service as mercenaries. To this day, its national cuisine involves little more than bread and cheese.

Switzerland became wealthy as a result of two things: banking secrecy, and neutrality. It gave up the former under US pressure in 2010, and formally abandoned the latter in 2022. (One could reasonably make a case for it technically having done so when it joined the UN in 2002, but the more recent action is the more conclusive one.) Compounding the self-destructive effects of nuking its political neutrality, it actually did so on behalf of the losing party, which now almost guarantees that instead of serving as a central business connection between whatever replaces the declining neoliberal order in the former West and the rising Silk Road order in the North, South, and East, Switzerland’s current leaders have foolishly chosen to follow the lead of the increasingly irrelevant West European Co-Prosperity Sphere and taken the risk of rendering their country a very small and uncompetitive node on the wrong side of the Great Bifurcation.

This isn’t a prediction. This is an observation of a process that is already taking place.

For the past 200 years, Switzerland has been the number one financial center to attract wealth from other countries. Yet, it will unlikely be able to hang on to its pole position, as wealth increasingly flows to other places. And this isn’t the only area where Switzerland is falling behind.

Although Switzerland reaped the gains from 2021’s buoyant financial markets, growing 5.5 percent, the report points to more challenging years ahead for the financial center.

A big blow will come in the next four years when Switzerland falls out of the world’s top three financial centers, into fourth position behind the U.S., Hong Kong, and the U.K. in terms of onshore, cross-border and financial assets held. While Swiss financial assets are expected to grow 2.8 percent by 2026, the report says assets in the U.K. will rise by 3.3 percent (see below).

Switzerland will take another hit next year when Hong Kong overtakes it as the top financial center for cross-border wealth, ending Switzerland’s 200-dominance as the world’s strongest magnet for foreign wealth.

Switzerland Losing Ground Among Top Financial Centers, FINews

Going from neutral to reverse is no way forward.

DISCUSS ON SG

The Collapsing Tripod

The Atlantic is not exactly a publication in which I have any trust whatsoever. But it is informative to note that even some of the most-hallowed mainstream media institutions are beginning to attempt to come to grips with the ineluctable fact that the economic order is on the verge of collapsing because the foundational principles upon which it rests have proven to be false.

The Anglo-American system of politics and economics, like any system, rests on certain principles and beliefs. But rather than acting as if these are the best principles, or the ones their societies prefer, Britons and Americans often act as if these were the only possible principles and no one, except in error, could choose any others. Political economics becomes an essentially religious question, subject to the standard drawback of any religion—the failure to understand why people outside the faith might act as they do.

To make this more specific: Today’s Anglo-American world view rests on the shoulders of three men. One is Isaac Newton, the father of modern science. One is Jean-Jacques Rousseau, the father of liberal political theory. (If we want to keep this purely Anglo-American, John Locke can serve in his place.) And one is Adam Smith, the father of laissez-faire economics. From these founding titans come the principles by which advanced society, in the Anglo-American view, is supposed to work. A society is supposed to understand the laws of nature as Newton outlined them. It is supposed to recognize the paramount dignity of the individual, thanks to Rousseau, Locke, and their followers. And it is supposed to recognize that the most prosperous future for the greatest number of people comes from the free workings of the market. So Adam Smith taught, with axioms that were enriched by David Ricardo, Alfred Marshall, and the other giants of neoclassical economics.

The most important thing about this summary is the moral equivalence of the various principles. Isaac Newton worked in the realm of fundamental science. Without saying so explicitly, today’s British and American economists act as if the economic principles they follow had a similar hard, provable, undebatable basis. If you don’t believe in the laws of physics—actions create reactions, the universe tends toward greater entropy—you are by definition irrational. And so with economics. If you don’t accept the views derived from Adam Smith—that free competition is ultimately best for all participants, that protection and interference are inherently wrong—then you are a flat-earther.

Outside the United States and Britain the matter looks quite different. About science there is no dispute. “Western” physics is the physics of the world. About politics there is more debate: with the rise of Asian economies some Asian political leaders, notably Lee Kuan Yew, of Singapore, and several cautious figures in Japan, have in effect been saying that Rousseau’s political philosophy is not necessarily the world’s philosophy. Societies may work best, Lee and others have said, if they pay less attention to the individual and more to the welfare of the group.

But the difference is largest when it comes to economics. In the non-Anglophone world Adam Smith is merely one of several theorists who had important ideas about organizing economies. In most of East Asia and continental Europe the study of economics is less theoretical than in England and America (which is why English-speakers monopolize Nobel Prizes) and more geared toward solving business problems.

First, Rousseau was always an absurd and nonsensical joke. Second, Steve Keen has mathematically proven the fundamental incorrectness of Adam Smith due to the unreliable nature of the collective demand curve. Third, List is not the solution to Smith, and for the same reason.

The hardest thing for even many of the people on the so-called ideological Right to accept – so-called because Left-Right ideology is incoherent, irrelevant, and entirely outmoded – is that the Enlightenment has proven to be an intellectual and philosophical dead end. Reason, at least in its human embodiment, has turned out to be irrational; all of the models and creeds and policies that rely upon the basic concept of human rationality have not only failed, but have been conclusively proven to be false.

It was simply inertia from Christendom that allowed the Enlightenment to pass itself off as progress. But the systematic eradication of Christianity from intellectual, professional, and public life combined with the adulteration of the European nations is finally overcoming that centuries-old inertia, to disastrous effect.

DISCUSS ON SG

Forever Swept Away

Alastair Crooke points out that we are witnessing the end to what he describes as the neoliberal cosmopolitan economic order upon which globalization was constructed.

The First World War signalled the end to a mercantilist order that had evolved under the aegis of European powers. One hundred years later, a very different economic order was in place (neoliberal cosmopolitanism). Believed by its architects to be universal and everlasting, globalisation transfixed the world for an extended moment, but then started the subsidence from its zenith – precisely at the moment the West was giving vent to its triumphalism at the fall of the Berlin Wall. NATO – as the order’s regulatory system – addressed its attendant ‘identity crisis’ by pushing for eastward expansion toward Russia’s western borders, disregarding the guarantees it had given, and Moscow’s virulent objections.

This radical alienation of Russia triggered its pivot to China. Europe and the U.S. however, declined to consider issues of due ‘balance’ within global structures, and simply glossed over the realities of a world order in momentous metamorphosis: with the steady decline of the U.S. already apparent; with a European faux ‘unity’ that masked its own inherent imbalances; and in the context of a hyper-financialised economic structure which lethally sucked out the juice from the real economy.

The present war in Ukraine therefore simply is an adjunct – the accelerant to this existing process of ‘liberal order’ decomposition. It is not its centre. Fundamentally geo-strategic in their origin, the explosive dynamics to today’s disintegration can be seen as blowback from the mismatch from diverse peoples’ looking now to solutions tailored to suit their non-western civilisations, and from the western insistence on its ‘one size fits all’ Order. Ukraine thus is a symptom, but is not per se, the deeper disorder itself.

Tom Luongo has remarked – in connection with the ‘messy’, confusing events of today – that that which he fears most, is so many people analysing the intersection of geopolitics, markets and ideology, and doing so with such striking complacency. “There is a stunning amount of normalcy bias in the punditocracy, too much ‘cooler heads will prevail’ and not enough ‘everyone’s got a plan until they’re punched in the mouth’”.

What Luongo’s retort doesn’t fully explain is the shrillness, the outrage, with which any doubting of the accredited ‘punditocracy’ of the moment is met. Plainly, there is a deeper fear stalking the lower depths of western psyche that is not being made fully explicit.

Wolfgang Münchau, formerly at the Financial Times, now authoring EuroIntelligence, describes how such a canonised Zeitgeist implicitly has imprisoned Europe in a cage of adverse dynamics which threaten its economy, its autonomy, its globalism and its being.

Münchau relates how both the pandemic and Ukraine had taught him that it was one thing to proclaim an interconnected globalism ‘as cliché’, but “It is quite another to observe what actually happens on the ground when those connections get torn apart … Western sanctions were based on a formally correct, but misleading premise – one that I believed myself – at least up to a point: That Russia is more dependent on us than we are on Russia … Russia however is a provider of primary and secondary commodities, on which the world has become dependent. But when the largest exporter of those commodities disappears, the rest of the world experiences physical shortages and rising prices”. He continues:

“Did we think this through? Did the foreign ministries that drew up the sanctions discuss at any point what we would do if Russia were to blockade the Black Sea and not allow Ukrainian wheat to leave the ports?… Or, did we think we can adequately address a global starvation crisis by pointing the finger at Putin”?

“The lockdown taught us a lot about our vulnerability to supply chain shocks. It has reminded Europeans that there have only two routes to ship goods en masse to Asia and back: either by container, or by rail through Russia. We had no plan for a pandemic, no plan for a war, and no plan for when both are happening at the same time. The containers are stuck in Shanghai. The railways closed because of the war.

“I am not sure the west is ready to confront the consequences of its actions: persistent inflation, reduced industrial output, lower growth, and higher unemployment. To me, economic sanctions look like the last hurrah of a dysfunctional concept known as The West. The Ukraine war is a catalyst of massive de-globalisation”.

Münchau’s response is that unless we cut a deal with Putin, with the removal of sanctions as a component, he sees “a danger of the world becoming subject to two trading blocs: the west and the rest. Supply chains will be reorganised to stay within them. Russia’s energy, wheat, metals, and rare earths will still be consumed, but not here – We [just] keep with the Big Macs”.

So again, ‘one’ searches for an answer: Why are the Euro-élites so shrill, so passionate in their support for Ukraine? And risk heart-attack from the sheer vehemence of their hatred for Putin? After all, most Europeans and Americans until this year knew next-to-nought about Ukraine.

We know the answer: the deeper fear is that all the landmarks to liberal life – for reasons they do not understand – are about to be forever swept away.

The World Doesn’t Work That Way Anymore, Alastair Crooke

Note that this is not a prediction. This is an observation of what is already happening, of what is already in progress. It is the actualization of what I have been predicting since 2004. And it is now readily apparent that the 2033 scenario originally articulated 18 years ago remains very much in play. Cooke summarizes his observations in a single cogent paragraph.

“Here is the point: The fixation with Ukraine essentially is but a gloss pasted over the realities of a global order in decomposition. The latter is the source of the wider disorder. Ukraine is but one small piece on the chess board, and its outcome will not fundamentally change that ‘reality’. Even a ‘win’ in Ukraine would not grant ‘immortality’ to the neoliberal rules-based order. The noxious fumes emanating from the global financial system are wholly unconnected to Ukraine – but are that much more significant for they go to the heart of the ‘disorder’ within the western ‘liberal order’.“

And while I, like everyone else, remain uncertain about what will eventually replace the failing current order, I nevertheless anticipate the inevitable change due to the fact that lords of the neoliberal order have, in its incipient death throes, helpfully clarified for us precisely how wicked and awful and terrible it truly was while producing the fattest, most licentious, most solipsistic, and most credulous populations in human history.

Whatever difficulties and challenges the collapse of the neoliberal rules-based order poses us, we can be confident that they will not be worse than the horrors that were intended for us in a Clown World without end. It’s an unusually astute article, so read the whole thing, which tends to explain the panic implicit in the recent statement

DISCUSS ON SG

The Downhill Slide

The owner of a trucking company explains why the USA is rapidly sliding into the worst recession it has ever seen.

I own a small trucking company, and this is what the fuel crisis is doing to our country… Today I filled up my truck to deliver products that help keep our country fed. When I filled up my truck, it cost me $1,149.50. This is ONE truck, for ONE day of fuel. I own three. So for one day of operation, it’s costing me $3,448.50. (Yes, we use a full tank of fuel every single day, sometimes more than 1 tank per day).

My trucks generally run 5-6 days a week, so we’ll just estimate on the low side and say five. That’s $17,242.50. Last week was over $20k for ONE week, that I have to pay out of my pocket to try and keep not only my children fed, but those of my employees, and our country.

Mark my words, we are on a downhill slide to the worst recession our country has ever seen. Trucking companies are going under left and right. (Literally hundreds weekly.) If you’re not aware, what you’re wearing, what you’re eating, what you’re living in, what you’re driving, what you’re reading this on, was delivered by a truck.

If something drastic doesn’t change in the next few weeks/months, I promise you, you’ll see empty shelves everywhere you look. You’ll see chaos as people fight for the basic necessities of everyday life. Food, medicine, etc…

I pray that all of you have the ability, knowledge, and skills to fend for yourselves. Not only against those who would do you or your family harm, but to be able to find sustainable food and water.

Fortunately, Russia is about to surrender any day now due to the brave Ukrainian military forces that are already within sight of Moscow, so fuel prices should rapidly decline to affordable levels before people actually start to starve.

Even so, it would be foolish to rely upon military outcomes, no matter how certain we are. So, why not just convert the entire US truck fleet to electric engines? Or – and let’s face it, this is thinking well outside the box – what about powering each truck with its own windmill? Since driving generates wind, a wind-powered vehicle should be able to operate for pennies on the diesel dollar!

It’s becoming increasingly apparent that Ukraine is Poland, Europe is Japan, and the USA is Germany in this upsized cartoon remake of WWII. Which, of course, makes Russia England and China the Soviet Union.

Russia ramps up gas supply to China. Gazprom intends to become China’s biggest natural gas supplier, accounting for more than 25% of Chinese imports by 2035.

DISCUSS ON SG

World War Clown

WWIII is WWC. In which Ishmael examines the next two years of Clown World’s manufactured crises, out of which the globalists hope their new-and-improved New World Order will be born like a phoenix rising from the ashes of its previous iteration:

The past 2+ years have been an example of evil’s influence increasing. Or more accurately, the past two years have made evil obvious to more people.

This war goes by several names. Vox Day refers to it as the war against the good, the beautiful and true. I call it the War on America, but we are not the only country targeted. Widespread clown world is proof of that.

The purebloods lost the Coof War decisively. The War on America accelerated because of that defeat. Many of us are demoralized which makes victory harder this time. There are fewer soldiers available, the stakes are higher, and it involves the rest of the world. I don’t know if it can be won without a legitimate leader arising. If one doesn’t, there could be civil unrest in the United States that makes previous summers’ riot seasons look like vacations.

Satanic minions are sabotaging America from within. We know who they are, no need to belabor that point here. Instead, I want to provide a roadmap for the next battlefield: Manufactured Crisis 2022 – 2023. My goal is not to be right. It is to provide tools so you know what to watch for and prepare yourselves as best you can.

The War on America’s battle plan has three milestones:

1. Negate America’s purchasing power

2. Remove things they can buy

3. Eliminate Americans themselves. This is also a victory condition.

How can such a nasty, complicated operation be broken down into three goals?

We are all broke now. Purchasing power eroded steadily over time and accelerated these past two years. Rent, groceries, and fuel are all pounding people’s wallets. As long as diesel remains high, so will every good in America.

The Russian sanctions are exacerbating the situation. Every other foreign company sees that and will demand payment in their local currency. All those US dollars sequestered overseas will flow back into the American money supply, deflating our purchasing power more.

Milestone number one is accomplished. If an individual hasn’t experienced yet, it’s only a matter of time.

This isn’t something that you’re going to be able to avoid or escape, no matter where you are in the world. Not even the elites building their bunkers in New Zealand will be able to avoid the inevitable consequences of the Great Bifurcation. And if you want to survive the turmoil, you’re only going to be able to do so by standing strong with others who refuse to submit to the madness of Clown World. The time for laying low and sitting silently on fences is over.

DISCUSS ON SG

The Great Bifurcation Continues

ITEM: Russia is now SWIFT-free.

Russian banking giant Sberbank has been disconnected from the SWIFT global financial messaging system under a new set of sanctions approved by European Union leaders on Monday. “This sanctions package includes other hard-hitting measures: de-Swifting the largest Russian bank Sberbank,” European Council chief Charles Michel announced following the EU summit.

ITEM: The European Union has largely stopped importing Russian oil.

After weeks of deliberation, EU member states have agreed in principle on a sixth round of anti-Russia sanctions, the bloc’s leadership announced after a meeting on Monday. Hungary and Bulgaria will keep buying Russian oil, but most other import routes will be blocked. EU Council President Charles Michel said the watered-down embargo will affect about 75% of Russian oil imports, with the percentage growing to 90% by the end of the year.

ITEM: India has replaced the USA as a primary customer for Russian oil. In 2021, the USA imported 6 million barrels of Russian crude per month.

More than 24 million barrels of Russian crude were supplied this month, up from 7.2 million barrels in April, and from about three million barrels in March. The South Asian nation is set to receive about 28 million barrels in June, data shows. Last year, Russian crude exports to India averaged just 960,000 barrels per month, roughly 25 times less than this month’s total.

ITEM: China has publicly denounced the “rules-based international order” as a “US rules-based international order”.

The “rules-based international order” it touts is actually the “US rules-based international order”, a hegemonic order to dominate the world with the house rules of its clique… The US places its domestic law above international law and international rules and willfully resorts to illegal unilateral sanctions and long-arm jurisdiction. Since the outbreak of COVID-19, Venezuela, Syria and Iran have been grappling with severe difficulties with a struggling economy and strained medical resources due to prolonged US sanctions. Under such circumstances, the US, rather than halting those sanctions, redoubled them, making things even worse for these countries. The international community sees with increasing clarity that the US only complies with the market competition principle and international trade rules it claims to champion when it suits US interests.

On the basis of these developments, I suspect that we are going to see China voluntarily and preemptively disconnect from the SWIFT and global trade systems later this year. China will likely be followed in this by India and a number of other anti-Clown World nations. This will not only trigger a serious financial crisis, if not a comprehensive banking collapse, but will likely lead to regime changes across Clown World.

DISCUSS ON SG

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