Month: August 2018

One Big Reason You’re Better Off Today than in 1968: Reason Turns 50 in L.A. on Nov. 3!

What do you think?

About a year ago, Pew Research asked people around the globe whether they thought life in their country was better or worse than it was 50 years ago.

Look to your right and down to see how Americans stack up. There we are, in a sad little grouping of countries, with just 37 percent of us feeling better about the current day than a time when major political figures were being gunned down in the streets, massive race riots convulsed cities that were already hitting the shitter, about 500,000 men were serving overseas involuntarily, and racism and sexism were overt and acceptable. FFS, in 1968, George Wallace won five states and 14 percent of the popular vote on a segregationist platform in a year that saw MLK and RFK get shot and riots erupt everywhere (including the Democratic National Convention in Chicago, the streets of Paris’s Left Bank, and the Olympic Games in Mexico City)!

The upside of 1968? That was the year Reason was born, the product of the late, great Lanny Friedlander.

At Reason, we tend to believe that things are always getting better. Not that all things are always getting better all the time, but as a country and a planet, we’re generally moving in the right direction. There’s a heap of trouble in the world, but you look back a half-century and the things that immediately pop out are the end of Soviet Union and the last vestiges of 19th-century colonialism, the shrinking of the number of people living in what the United Nations considers extreme poverty, the relative lack of major shooting wars, the rise of global trade and movement of people, and the rise to near-equality of women.

As it happens, Reason is celebrating its 50th anniversary this year, in Los Angeles on Saturday, November 3. This is a time where we are calling in all the ships at sea to have a blowout, day-long, day-glo celebration of what’s gotten better during the last half-century. After cranking out issue after issue since 1968, developing Reason.com into the largest source of news, politics, culture, and ideas from a libertarian perspective, and building out Reason TV to be the premier libertarian video and podcast platform online, we’re going to a day off to mix with our tribe of gentle, lovely, beautiful, fun freak-flag-flyers. Please join us!

The day’s events include a morning of panels and conversations packed with past, present, and future Reason luminaries, including Robert W. Poole, Virginia Postrel, Adrian Moore, Nick Gillespie, Matt Welch, Katherine Mangu-Ward, and more; lunch with broadcasting legend John Stossel; and a gala dinner hosted by Fox Business star Kennedy and featuring former Indiana Gov. Mitch Daniels and Nobel Prize-winning economist Vernon Smith.

And the program is still being hashed out, with plenty of very great surprises yet to drop.

Go here for ticket prices and sponsorship opportunities (the latter includes an invite to a special Friday night dinner at L.A.’s incredible Bavel). Prices increase after September 15, so it pays to book early if you’re coming from out of town. The day’s events are at the Ritz-Carlton, but there are plenty of other hotels in the area, too.

The only thing that will make this great day better is your presence! Thanks for the support you’ve shown to Reason in our first 50 years. We can only say with cautious confidence that the next 50 years are really going to be awesome.

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Trump Hints That “Wacky” Omarosa May Be In Legal Jeopardy

President Trump has been busy today – alternating between tweets about just-fired FBI agent Peter Strzok, and former White House aide Omarosa Manigault-Newman who was fired in December over “integrity issues,” and has just released two secret recordings of both her firing by White House chief of staff John Kelly, and a subsequent phone call with Trump. 

Omarosa’s new disclosures have been timed with the release of her new book, Unhinged. The former Apprentice contestant appeared on NBC’s Meet the Press with Chuck Todd on Sunday where she dropped the Kelly recording – only to turn around and released a phone call with Trump in which he says he didn’t know she was fired. 

What’s more – Omarosa was  caught in a lie about whether she heard President Trump use the N-word – claiming in her new book that someone told her pollster Frank Luntz heard Trump say it, which Luntz denied, while later telling NPR that she personally heard Trump say it. 

Following the release of the second recording – Manigault-Newman’s second, President Trump hit back, tweeting: “Wacky Omarosa, who got fired 3 times on the Apprentice, now got fired for the last time. She never made it, never will. She begged me for a job, tears in her eyes, I said Ok,” adding “People in the White House hated her. She was vicious, but not smart.”

“Nasty to people & would constantly miss meetings & work. When Gen. Kelly came on board he told me she was a loser & nothing but problems. I told him to try working it out, if possible, because she only said GREAT things about me – until she got fired!”

Wacky Omarosa, who got fired 3 times on the Apprentice, now got fired for the last time. She never made it, never will. She begged me for a job, tears in her eyes, I said Ok. People in the White House hated her. She was vicious, but not smart. I would rarely see her but heard….

— Donald J. Trump (@realDonaldTrump) August 13, 2018

…really bad things. Nasty to people & would constantly miss meetings & work. When Gen. Kelly came on board he told me she was a loser & nothing but problems. I told him to try working it out, if possible, because she only said GREAT things about me – until she got fired!

— Donald J. Trump (@realDonaldTrump) August 13, 2018

And in his latest tweet on the subject, Trump hinted that Omarosa may have some legal issues, writing “Wacky Omarosa already has a fully signed Non-Disclosure Agreement!”

In response, never-Trump Neoconservative Bill Kristol asked “What legal authority permitted you to direct White House Counsel to try to secure such unprecedented agreements with respect to non-classified information from government employees?“

We assume Kristol made the comment after discussing with an attorney, but who knows. Journalist Michael Warren at the Kristol-co-founded Weekly Standard wrote in March when NDAs were rumored to have been signed in the West Wing: 

But there are reasons to be skeptical of the NDAs—either of their existence entirely or that many in the Trump White House who signed them believed in their enforceability. Marcus herself considers some of these reasons, including the First Amendment violations of White House aides held to any such contracts. And who was party to the NDAs? Trump himself? The office of the president? The federal government? Any answer would be problematic to enforcing the contracts if and when a dispute ended up in court. 

There’s also the fact that unauthorized leaks have more or less continued at the same pace over the last year. People in the White House talk to reporters frequently and without apparent fear of reprisal. The very idea of an NDA in the White House is, as one lawyer interviewed by Marcus said, “crazy.” –Weekly Standard

Speaking with a crowd on Saturday, President Trump called Manigault-Newman a “lowlife” when asked if he felt betrayed by the former aide. White House staff, meanwhile, have slammed Omarosa as a “disgruntled former White House employee” trying to “profit off these false attacks.” 

If the NDA isn’t enforceable, we wonder if Omarosa’s prior statements about Trump will be “exhibit A”?

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Stephen Miller Also Benefitted from ‘NOT ACCEPTABLE’ Chain Migration

|||DAVID SILPA/UPI/NewscomA scathing Monday column in Politico has revealed that yet another member of President Trump’s administration benefitted from chain migration, something the president once called “NOT ACCEPTABLE!”

As Reason previously reported, First Lady Melania Trump’s parents became U.S. citizens last week by using the first lady as a sponsor. The family-based path to citizenship, often referred to as “chain migration,” is the most common form of immigration and relies on a green card holder or a legal U.S. resident to sponsor a foreign family member. Prior to the first lady’s use of the procedure for her parents, the president suggested limiting its use to spouses and minor children. Among his many criticisms of the practice, Trump once asserted that chain migration “cannot be allowed to be part of any legislation on Immigration.”

According to David S. Glosser, uncle of White House policy adviser Stephen Miller, Miller’s family also benefitted from chain migration. On Monday, Glosser wrote in Politico that Miller’s maternal great-grandfather, Sam Glosser, became a U.S. citizen after various ancestors sent enough money to Eastern Europe to pay off debts and sponsor the passage of immediate family members to America. Glosser criticized his nephew, “who is an educated man and well aware of his heritage,” for becoming “the architect of immigration policies that repudiate the very foundation of our family’s life in this country.” He argued that had Miller’s immigration policies been enacted in the 20th century, the family may have become victims of “violent anti-Jewish pogroms and forced childhood conscription in the Czar’s army.”

Similar to Trump, Miller has backed legislation that would end chain migration. When the merit-based Reforming American Immigration for Strong Employment (RAISE) Act was introduced by congressional Republicans in August 2017, Miller explained to the White House pool reporters that the bill sought to eliminate “so-called chain migration.” Like Trump, he said that the bill would limit family-based migration to “spouses and minor children.”

When asked about his ideal number of immigrants to the U.S., Miller told Fox News’ Tucker Carlson in January, “I have my own views on it, but I think the important point is ending chain migration, as the president has called for, is necessary not just for economic security but for national security.” He also confirmed that the administration was not merely looking to limit chain migration, but to eliminate it in favor of merit-based immigration.

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Iran’s Supreme Leader: “No War Nor Negotiations” Ever With This White House

Iran’s supreme leader Ayatollah Ali Khamenei announced in a statement Monday that there would be neither war nor negotiations with the United States.

“Recently, U.S. officials have been talking blatantly about us. Beside sanctions, they are talking about war and negotiations,” the senior cleric wrote via his Twitter account in English.

He added, using all caps to close the statement, “In this regard, let me say a few words to the people: THERE WILL BE NO WAR, NOR WILL WE NEGOTIATE WITH THE U.S.“

It appears Khamenei was referencing President Trump’s surprise words given at a July 31st White House press conference wherein he said, “I would certainly meet with Iran if they wanted to meet. I don’t know if they’re ready yet.” 

The entirely unexpected — though not outside the norm of Trump’s off the cuff style — overture caught Iran’s leadership off guard as a direct response to the idea of direct talks with no preconditions met with no immediate response, only mixed reactions later that week from Iranian lawmakers, the majority of which slammed the idea as “a humiliation” to sit down with Trump at a moment the White House was strangling the Iranian economy with multiple impending rounds of sanctions primarily targeting gold and other metals trading in Iran, and the country’s ability to purchase of dollars and its auto industry.

Khamenei, in his most comprehensive series of English statements since Trump’s offer of face to face talks, slammed the door permanently on the idea of ever sitting down with the Trump administration, saying in a separate tweet Monday morning, “Even if we ever—impossible as it is—negotiated with the U.S., it would never ever be with the current U.S. administration.”

In near simultaneous statements addressed to the Iranian public in a speech aired on state TV, the supreme leader who has the final word over all affairs in the Islamic republic, issued the directive: “I ban holding any talks with America… America never remains loyal to its promises in talks.” 

“America’s withdrawal from the nuclear deal is a clear proof that America cannot be trusted,” state TV quoted Khamenei further. 

As part of his series of tweets, some of which mocked Trump’s policy in the Middle East, Khamenei published an infographic presenting his position on ratcheting tensions with the U.S.

He also slammed the idea that this was the first such offer of talks, saying that Iran has proudly resisted unfair and imbalanced U.S. offers of negotiations for decades, and even cited President Ronald Reagan’s sending his national security advisor, Robert McFarlane to Tehran for failed negotiations.

Notably, he appeared to troll Trump personally as well as his cabinet in the following:

A stupid man tells the Iranian nation that ‘your government spends your money on Syria’. This is while his boss– the U.S. president– has admitted he spent 7 trillion dollars in the Middle East without gaining anything in return!

The top Iranian cleric also briefly referenced Iran’s domestic crisis, which has included sporadic protests and clashes with the police throughout the summer in response to a plummeting rial and inability of people to access imported goods, stating “Today’s livelihood problems do not emerge from outside; they are internal.”

He urged the country to resist sanctions and erect “prudent” ways shielding from their effects. 

It will be interesting to see if Trump responds to this directly in a tweet, or if any official reaction will be forthcoming from the White House.

But in the meantime it appears the possibility of any renegotiation after Trump’s official pullout of the JCPOA last May has just had to the door slammed on it.

developing…

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Judge Rules Chicago Can Keep Its Amazon HQ2 Bid Secret, Rejecting FOIA Lawsuit

An Illinois judge ruled last Thursday that the city of Chicago does not have to reveal the details of its bid to become the site of Amazon’s massive new headquarters, shielding the city’s offer of huge tax breaks and other handouts from public view.

Lucy Parsons Lab, a digital rights and transparency advocacy group, filed a public records lawsuit against Chicago in February after the city refused to disclose its bid, citing a competitive advantage exemption. Since the corporate giant announced in 2017 that it was seeking a site to build a second headquarters, nicknamed HQ2, major cities across the U.S. have been vying for Amazon’s favor, often dangling billions in tax breaks and other incentives to the company.

But the exact details of those offers have often been hidden from the public. Chicago is only one of 30 cities that has refused to disclose its HQ2 bid, according to a public records project by MuckRock.

Chicago reportedly offered Amazon $1.32 billion in “Economic Development for a Growing Economy” tax credits. Lucy Parsons Lab was seeking the city’s bid as well as communications between Chicago Mayor Rahm Emanuel. However, a Cook County circuit judge rejected the group’s effort to pry loose those records.

“The City of Chicago could suffer greatly by this very disappointing ruling,” says Freddy Martinez, director of Lucy Parsons Lab. “We raised this lawsuit to bring transparency to a very critical issue in our city and are outraged that we lost. This raises the potential for a very serious loophole where the city can offer private companies massive tax breaks in secret with virtually no oversight. These tax breaks are being offered to Amazon, one of the richest corporations in the world, which pays no federal tax at all.”

Chicago is “notorious for gaming tax payers and putting them on the hook for decades of awful economic policies,” Martinez continued, pointing to the city’s bizarre deal to lease out its parking meters to Abu Dhabi. “We don’t even know the details of this bid but we expect that taxpayers could end picking up the tab for Jeff Bezos for decades.”

As The New York Times reported last week, places like Newark, Austin, and Miami-Dade County have all refused to disclose their Amazon HQ2 bids—sometimes even city councils are kept in the dark—or released documents that are almost completely redacted:

A primary reason for the information blackout is that, in many cases, the bids were handled by local private Chamber of Commerce affiliates or economic development groups that aren’t required to make their negotiations public. Many of the groups are also not covered by Freedom of Information Act or state open-records requests.

But another reason is gamesmanship. Some cities say they want their Amazon proposals to remain confidential to avoid showing their hand to rivals. And Amazon required the finalists to sign nondisclosure agreements that forbid the local groups to release proprietary information about the company […]

The few bids that have become public are breathtaking financial packages that indicate just how much states are willing to pony up to woo Amazon. Maryland put together an $8.5 billion tax incentive and infrastructure bid, and local and state officials in New Jersey got legislative approval to offer Amazon $7 billion in tax credits and incentives to pick Newark.

Whoever gets the final rose in this unseemly municipal edition of The Bachelor will likely see a big influx of jobs, construction, and housing demand (50,000 jobs and a $5 billion investment in construction, if you believe Amazon’s numbers), but the public should have the opportunity to see exactly what their officials are putting them on the hook for in exchange for those potential jobs.

As Reason columnist Veronique de Rugy, a senior research fellow at the Mercatus Center, wrote in July, the sort of subsidies that cities are throwing at Amazon do little to enrich anyone besides the recipients of them. Take Maryland’s absolute unit of a bid:

My Mercatus Center colleagues Michael Farren and Anne Philpot did the math: The bid, when added to $2 billion in infrastructure spending also being promised, amounts to 3 percent of Maryland’s anticipated tax revenue over the next 10 years.

That should fill residents and businesses in the state with dread. While there’s no doubt Amazon’s HQ2 would add something to the economy, a broad body of economic research has shown that targeted state subsidies to private businesses—while often promoted as a “market-friendly” means to boost growth, jobs, and development—have little to no net positive effects. And as George Mason University’s Christopher Coyne and Lotta Moberg wrote in a 2014 working paper, such subsidies are in fact often damaging, because they misallocate scarce public resources while encouraging rent seeking, regulatory capture, and cronyism.

Bonus: Watch ReasonTV’s parody video of two desperate small-town mayors vying for Amazon’s sweet, sweet jobs. “Alright, bullet train. You want a bullet train? Because I’ll eminent domain this whole fucking town.”

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What We Saw at the Unite the Right II Protest: New at Reason

So what happened at Unite the Right II?

The organizer’s permit application stated that about 400 attendees would gather outside the White House to commemorate last year’s rally in Charlottesville, Virginia. The estimate was later downgraded to about 200, but by the time the rain started falling on Lafayette Square, it was clear that fewer than 30 were showing up amid a significant presence of cops and counterprotesters. Most of downtown Washington, D.C., was shutdown.

Bands of black clad Antifa members came with shields, helmets, and gas masks, and police surrounded far right protesters to protect them from violence. Most counterprotesters never laid eyes on anyone from the group they came to stand against.

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Could an 11-Year-Old Really Hack an Election in 10 Minutes?

An 11-year-old boy apparently needed less than 10 minutes to hack into a replica of Florida’s election website last week and change election results.

The boy was attending DEFCON 26, an annual hackers’ conference in Las Vegas. PBS reports:

The boy, who was identified by DEFCON officials as Emmett Brewer, accessed a replica of the Florida secretary of state’s website. He was one of about 50 children between the ages of 8 and 16 who were taking part in the so-called “DEFCON Voting Machine Hacking Village,” a portion of which allowed kids the chance to manipulate party names, candidate names and vote count totals.

He wasn’t the only young person to have such an easy time with the election website replica. An 11-year-old girl named Audrey was able to accomplish a similar feat in about 15 minutes.

Both 11-year-olds pointed out that the websites they hacked weren’t all that well protected. “Basically what you’re doing is you’re taking advantage of it being not secure,” Audrey tells BuzzFeed News. She was able to make it look like Constitution Party candidate Darrell Castle had won Florida in the 2016 presidential election.

“It’s actually kind of scary,” Brewer tells TechCrunch. “People can easily hack in to websites like these and they can probably do way more harmful things to these types of websites.”

Nico Sell, CEO of the secure communications firm Wickr, thinks the U.S. isn’t taking election security seriously enough. “By showing this with 8-year-old kids we can call attention to the problem in such a way that we can fix the system so our democracy isn’t ruined,” Sell tells TechCrunch.

But while state elections websites are definitely hackable, it’s a bit alarmist to suggest that 11-year-olds can change actual results in a matter of minutes.

For one thing, replica websites aren’t the real thing. As the National Association of Secretaries of State (NASS) notes in a statement, “many states utilize unique networks and custom-built databases with new and updated security protocols.” Thus, “it would be extremely difficult to replicate these system.” Sell might claim the sites the young hackers used are “very accurate replicas.” But unless you’ve actually tried to hack the real thing, you can’t know for sure.

Plus, state election websites are not repositories of actual vote counts. Instead, they’re merely unofficial election night tallies. “[E]lection night reporting websites are only used to publish preliminary, unofficial results for the public and the media,” the NASS says. “The sites are not connected to vote counting equipment and could never change actual election results.”

Americans should be worried about election security, particularly when it comes to Russian agents hacking our voting systems. But are we so vulnerable that an 11-year-old can change results so quickly? Probably not.

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One Bank’s “Emerging Market Crisis Indicator” Is About To Be Triggered

While the market is (finally) paying attention to the accelerating Turkish collapse and specifically the risk of contagion to Europe, Asia, and ultimately, US capital markets, the truth is that this crisis has been a long time in the making. In fact, the first break in the “strong Emerging Market” narrative emerged in late April when as a result of rising US interest rates the dollar surge began in earnest (facilitated by China’s first easing announcement on April 17), which in turn sent the both EM currencies, and EM debt reeling…

… to be followed shortly by the plunge in the biggest EM currency of all: the Chinese Yuan.

And as we highlighted in early May, BofA’s Chief Investment Officer Michael Hartnett observed that higher US rates finally caused a higher US dollar (courtesy of the PBOC), at which point “EM started to crack.” But while many had pointed at the collapse in the Turkish Lira, the Argentine Peso, and the Indonesia Rupiah, as cracks in the EM narrative, the truth is that many of these are idiosyncratic stories.

So how could one decide if the Emerging Market turmoil – whether started by Turkey, Argentina, Russia, China, or any other EM country – was set about to sweep across the entire sector, and result in DM contagion? According to Bank of America the answer was simple. This is what Hartnett said in early May:

“EM FX never lies and a plunge in Brazilian real toward 4 versus US dollar is likely to cause deleveraging and contagion across credit portfolios.”

In other words, to Bank of America, the best indicator of imminent emerging market turmoil is shown in the chart below dated circa three months ago: if and when the BRL starts sliding, and approaches 4, it may be a good time to panic as contagion is about to go global.

Fast forward to today, when in light of the latest emerging market turmoil, the Brazilian real – which plunged as low as 3.9287 vs the dollar after the Brazilian FinMin said he saw “no need to intervene in FX markets” – is now on the verge of crossing this key level that has been a virtually guaranteed predictor of contagion.

And just in case, Hartnett also laid out a secondary “fail safe” EM-stress indicator:

Tremors in the periphery: 3% + rally in US$ has caused EM tremors (ARS, INR) at a time of peak EM debt/equity inflows ($371bn)…EMB <107.50 contagious

This means that once EMB, the JPM Emerging Market Bond ETF, drops to 107.50 – the level it hit right after the Trump election – it will be time to get out of Emerging Dodge.

Where is the EMB today? It just dropped to 105.75, the lowest level since February 2016, and validating the negative signal about to be launched by the BRL.

So while everyone is hypnotized by the Turkish lira, keep a closer eye on the Brazilian Real: once it crosses 4, the real fireworks begin.

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Paul Craig Roberts Blasts Mueller’s ‘Weaponization’ Of The Law

Authored by Paul Craig Roberts,

Robert Mueller is supposed to be investigating Russiagate, which has been shown to be a hoax concocted by former CIA director John Brennan, former FBI director James Comey, and current deputy Attorney General Rod Rosenstein. As Russiagate is a hoax, Mueller has not been able to produce a shred of evidence of the alleged Trump/Putin plot to hack Hillary’s emails and influence the last presidential election.

With his investigation unable to produce any evidence of the alleged Russiagate, Mueller concluded that he had to direct attention away from the failed hoax by bringing some sort of case against someone, knowing that the incompetent and corrupt US media and insouciant public would assume that the case had something to do with Russiagate.

Mueller chose Paul Manafort as a target, hoping that faced with fighting false charges, Manafort would make a deal and make up some lies about Trump and Putin in exchange for the case against him being dropped. But Manafort stood his ground, forcing Mueller to go forward with a false case.

Manafort’s career is involved with Republican political campaigns. He is charged with such crimes as paying for NY Yankee baseball tickets with offshore funds not declared to tax authorities and with attempting to get bank loans on the basis of misrepresentation of his financial condition. In the prosecutors’ case, Manafort doesn’t have to have succeeded in getting a loan based on financial misrepresentation, only to be guilty of trying. Two of the people testifying against him have been paid off with dropped charges.

Mueller’s investigation is restricted to Russiagate. In other words, Mueller has no mandate to investigate or bring charges unrelated to Russiagate. In my opinion, Muller gets away with this only because the deputy Attorney General is in on the Russiagate plot against Trump. Mueller and Rosenstein know that they can count on the presstitutes to continue to deceive the public by presenting the Manafort trial as part of Russiagate.

The trial judge has twice criticized the prosecutors, asking them on one occasion if they had any evidence of successful fraud. In other words, the judge can tell the difference between actual fraud and a failed attempt at fraud, a distinction the prosecutors don’t want the jury to consider.

However, prosecutors can frame a judge, just as they are trying to frame the presidents of the United States and Russia. Realizing that, the judge backed off.

What the Manafort trial should tell you is how utterly and totally corrupt the United States is. In my opinion there is nowhere an organization as corrupt as the US Dept of Justice (sic).

That Russiagate continues on its corrupt course should tell you how powerless President Trump is. Trump cannot even influence his own Department of Justice, which is doing its best to destroy him.

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Chinese Former Central Banker: “Some Disturbing Factors” Have Emerged In The Chinese Market

In a surprisingly candid assessment, a prominent Chinese economist and former central banker warned on Saturday that China should be prepared for a new round of capital outflows and currency depreciation when bracing for the impact of the trade war with the US and other disturbances to the financial markets.

Yu Yongding, a senior researcher with the Chinese Academy of Social Sciences and a former adviser to the People’s Bank of China, said “some disturbing factors” had emerged in the Chinese financial markets, such as the wave of peer-to-peer lending defaults which we discussed over the weekend, as well as renewed concerns about a property bubble and an economic slowdown in the second half of the year.

Yu Yongding

As the SCMP first reported, Yu told a financial forum in northeastern province of Heilongjiang that the trade war with the US will have a negative impact on China’s economy and market sentiment, as will the impact of interest rate increases in the US and the financial crisis in emerging markets.

Yu also warned of the risks of the plunging Turkish lira after US President Donald Trump doubled steel and aluminium tariffs on Turkey amid ongoing political tensions. The lira, which has continued to tumble on Monday, and is the worst performing currency of 2018, also took its toll on the European financial markets, weakening the euro and rouble.

“There have been discussions among investment bankers whether there would be a repeat of the Asian Financial Crisis. The so-called herd effect [like that] in the [1997] Asian financial crisis may affect China,” he said.

Putting these growing adverse factors together, Yu warned that the yuan exchange rate would continue to face “downward pressure which may reinforce the depreciation expectations”.

“I think maybe we should be prepared for a new round of capital outflow and yuan deprecation. This may not happen, but we should prevent the problems before they happen,” he said.

And speaking of devaluation, Saturday marked the 3rd anniversary of the PBOC’s decision to devalue the Yuan in 2015.  The central bank engineered a depreciation of 2% in three consecutive days starting on August 11, 2015, but insufficient communications with the market triggered panic and launched continuous capital outflows amid fears of an economic slowdown.

Then confirming what we recently wrote, namely that China’s Achilles heel is its capital control firewall…

… Yu advised the authorities to check “carefully” any possible channels or loopholes for huge capital outflows and also prevent digital currencies from being leveraged as a new tool for the capital exodus: i.e. prevent bitcoin from once again becoming the preferred medium of capital flight from China’s financial system which at last check had nearly $40 trillion in deposits.

“The government has done quite well and is very sophisticated in managing cross-border capital flow,” said Yu, although that may well change if there is another Chinese economic crisis.

Shifting focus on the ongoing trade war with the US, the PBOC said in its quarterly monetary policy report on Friday that China would not use currency devaluation as a defensive weapon to counter the turmoil of the US trade war, even though many have suggested that China is doing precisely that, if for no other reason than by not intervening to prevent the sharpest monthly slide on record in the Yuan.

The central bank also warned that the trade war would hit exports and possibly market sentiment and could exacerbate turbulence in the financial markets.

As a result of rising trade tensions and slower economic growth, the Chinese currency has continued to test the key 7.0 level against the US dollar since last month when it saw a strong wave of depreciation. Last week the central bank moved to raise the costs of foreign exchange speculation to prevent the yuan’s further sliding, and while the Yuan initially rose on the report, it has since fully faded that move.

But Yu said it was “irrational that everyone is obsessed with a particular number” and said there was no difference whether the dollar exchange rate was 7 or 6.9. Well in that case, the PBOC should have no problems letting the currency drop some more if it is only “round numbers.”

“It seems the central bank could send a signal to the market that it is not its goal to defend the yuan above 7 against the dollar” said Yu, who ruled out the likelihood of a massive depreciation of the yuan.

As the SCMP concludes, Yu suggested the central bank should improve its communications with the market to appease market sentiment but continue to refrain from regular market intervention. Because the one thing that the world needs is more “data dependent” failed forward guidance, this time from China. Although with its economy micro managed and goalseeked to the smallest variable, at least the central bank should have no problems hitting its economic benchmarks.

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