This weekend we once again got confirmation that any time the generic narrative spectacularly falls apart, and the “establishment” is caught with its pants down (or, in the case of the DNC, engaging in borderline election fraud leading to what the FT just described as “Democrats in turmoil“) what does it do? Why blame Putin of course, and more specifically his “useful idiots”, and hope the whole thing blows over quickly.
After our trip to Las Vegas, we spent one night in Baltimore and then got on another airplane. Standing in line, unpacking bags, getting zapped by X-ray machines – it has all become so routine we almost forget how absurd it is.
While armies of TSA agents pat down grandmothers and Girl Scouts, ex-soldiers take aim at the police… nutcases run down tourists with delivery trucks… and a fellow with a grudge against gays nearly wipes out an entire nightclub.
We feel so lucky. It is not every generation that gets to witness so many grotesque things at once. Stocks are at an all-time high. Bond yields are at an all-time low. And never have so many people owed so much to so few.
Dear readers may accuse us of “belaboring the subject.” Or of “beating a dead horse.” But in today’s Diary, we’re going to lay on the whip again. This horse isn’t dead at all. He’s got the bit in his teeth – and is running wild. Stick with us here…
According to our friend Richard Duncan’s latest estimate over at Macro Watch, world debt has climbed to $300 trillion. That’s up from roughly $200 trillion before the 2008 financial crisis. In the world’s five major economies, it has doubled since 2002.
Now, the whole shebang depends on debt. All of this debt is calibrated in “money,” which is the most extraordinary thing of all. The key to understanding today’s economy is to realize that money isn’t wealth and today’s dollar isn’t even money.
G-10 distribution of debt as a percentage of GDP (note that a lot of UK debt is financial debt, which is partly a result of London’s importance as a global financial center) – click to enlarge.
Real Limits
Normally, money is just a way of keeping track of wealth. It’s like a clock. A clock isn’t the same as time; it just measures it. The Parasitocracy – led by central banks – pretends that adding more money to the system will make people richer.
That’s why they have lowered interest rates to zero and below: to make it easy for people to borrow money. But adding money is a scam. It’s like slowing down the clock to make the day seem longer.
“There are real limits… real laws, that cannot be modified,” said economist and author George Gilder in Las Vegas over the weekend. “The most important is time.”
Say hello to time… its passage is an extremely important element in human action. As Mises notes: “The concepts of change and of time are inseparably linked together. Action aims at change and is therefore in the temporal order. Human reason is even incapable of conceiving the ideas of timeless existence and of timeless action. He who acts distinguishes between the time before the action, the time absorbed by the action, and the time after the action has been finished. He cannot be neutral with regard to the lapse of time.”
At least, the old, pre-1971 dollar was real money; it was anchored in the reality of time. It takes time to build real wealth. You have to work. Save. Invest. And most important, learn. And it takes time to dig gold out of the ground, too. And gold – like digital currency bitcoin – becomes harder and harder to get as time goes on.
The easy surface deposits are mined first. Then, if you want more gold, you have to go farther and farther, deeper and deeper, at ever greater expense in resources and time. The only real wealth is knowledge, says Gilder. And the only real growth is learning. Anything else is a fraud.
Real Money
In 1971, President Nixon – aided and abetted by economist Milton Friedman – cut the dollar off from its natural limits. No longer tethered to gold, the gate was flung open… and the horse ran off.
“Gold is part of the real world – limited by time,” Gilder explained. Gold is real money. But this new money was different. It was “unmetered,” says Gilder. And it was very popular with the feds, the Deep State, and the world improvers.
Unlike the old money, the feds could control it and decide who gets it. And they could use their cronies in the financial industry to distribute around the economy – as they wanted.
Before 1971, the feds had their hands tied – by real money. They couldn’t create gold. And they couldn’t print too many of their gold-backed dollars. They had promised to redeem foreign central banks every $35 they created with an ounce of gold. They didn’t have an infinite amount of gold. So, they had to be careful.
The former anchor of the monetary system: an image from the Bank of England’s gold vaults.
The system was self-correcting. If Americans spent too much money on foreign goods, too many dollars would travel abroad. This put our gold stock at risk if foreign governments decided they preferred U.S. gold to U.S. paper money.
Gold was the base of the world monetary system, so a reduction in the gold stock was also a reduction in the money supply. Money responds to the law of supply and demand like everything else. As the money supply fell, the price of money (interest rates) rose. Higher interest rates then reduced spending, bringing the economy back in balance.
In the pre-1971 economy, it was Main Street – productive U.S. industry – that produced wealth and accumulated real dollars. After 1971, it was Wall Street that controlled access to the new counterfeit money – and made sure it captured much of it.
The new system gave the feds the “flexibility” they were looking for. But it completely changed the nature of our money and our economy. Instead of rewarding the people who produced wealth, the new economy gave its hugs and kisses to the people who mongered debt and shuffled financial claims.
First The Koch Brothers switch sides and now Michael Bloomberg backs Clinton as it appears America's oligarchy is showing its true colors as 'Billionaires for Billary' emerge from the RNC woodwork…
As The NY Times reports,Michael R. Bloomberg, who bypassed his own run for the presidency this election cycle, will endorse Hillary Clinton in a prime-time address at the Democratic convention and make the case for Mrs. Clinton as the best choice for moderate voters in 2016, an adviser to Mr. Bloomberg said.
The news is an unexpected move from Mr. Bloomberg, who has not been a member of the Democratic Party since 2000; was elected the mayor of New York City as a Republican; and later became an independent.
But it reflects Mr. Bloomberg’s increasing dismay about the rise of Donald J. Trump and a determination to see that the Republican nominee is defeated.
…
Mr. Bloomberg will vouch for Mrs. Clinton “from the perspective of a business leader and an independent,” said Howard Wolfson, a senior adviser to Mr. Bloomberg.
“As the nation’s leading independent and a pragmatic business leader, Mike has supported candidates from both sides of the aisle,” Mr. Wolfson said. “This week in Philadelphia he will make a strong case that the clear choice in this election is Hillary Clinton.”
In the past, Mr. Bloomberg has rebuked Democrats for attacking Wall Street — a part of his record that may sit uneasily with liberal Democrats, and especially with the supporters of Senator Bernie Sanders of Vermont who are already smarting from his defeat.
Mr. Bloomberg has been quiet about the presidential race in recent months. But in the past he has criticized Mr. Trump in stark terms, describing him as a threat to American security.
Mr. Bloomberg, who served for 12 years as the mayor of New York, has never addressed a political convention in a partisan capacity. He appeared at the 2004 Republican convention in New York in his role as mayor of the host city.
He endorsed Mr. Obama for re-election in 2012, writing in a column that his views on climate change had been the decisive factor.
would he sell the government (perhaps at low prices to his friends and at high prices to his enemies) for various prices (as Clinton already has done — sold it to both her friends and her ‘enemies’ — but which sales she now only needs to deliver on);
or would he, instead, refuse to sell it, and actually try to run the U.S. government for and on behalf of the American public?
Crude oil inventories in the U.S. have fallen 23.9 million barrels since the end of April, but, as Bloomberg notes, oil bulls counting on further declines are fighting history. Over the past five years refiners' crude demand has fallen an average of 1.2 million barrels a day from the peak in July to the low in October.
"The rough part will be once refineries start going into maintenance," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management. "We aren’t drawing down inventories very fast and the pressure on prices will increase."
While there is a direct relationship between the steepness of contango in the oil futures curve and the amount of crude siphoned from the market to storage, it is not an immediate one. When crude prices originally collapsed starting in late 2014, twisting the WTI curve from backwardation to so far permanent contango (of varying degrees), it wasn’t until January 2015 that domestic inventories began their surge. And while oil prices rose through spring, flattening out again the futures curve and drastically reducing that contango, the spike in oil stocks didn’t actually end until almost the end of last April.
Given the “dollar’s” explicit seasonality, combined with the usual intra-year swings of crude itself, it isn’t surprising to find the process repeated almost exactly a year later. This time it happened in two separate events, the latter of which was a near replica of the start to 2015. The futures curve was pressed into deep contango after October 2015, and sure enough oil inventories spiked again in early January 2016. And like last year, though the futures curve would begin to flatten out again starting February 12, oil storage levels continued to build until the end of April.
In the latest weekly update from the US EIA, reported crude stocks have fallen again for the ninth consecutive week (and 10 out of the last 11). Last year, starting at the same week, inventories fell for eight straight weeks and 13 out of 15 until mid-August. The shift back toward contango in the WTI curve this year also hasn’t yet forced its way into crude inventories, and if last year’s conditions still apply, as it appears they do, then we shouldn’t expect that to occur until August or perhaps September (whatever natural crude seasonality).
Instead, it is gasoline inventories that are somewhat concerning at the moment. Gasoline stocks remain hugely elevated but in the past few weeks they have increased again perhaps “early” in comparison to the usual seasonal pattern. The summer “driving season” typically finds gasoline inventories falling from levels built up in the winter. This year compared to 2015 finds not only higher overall inventories but a possible suggestion of unseasonably high levels on top of it.
It is difficult to say whether there is any significance in the difference as analyzing seasonality in gasoline or crude is an inexact art, to put it mildly. At the very least, however, the continued high level of gasoline inventory in potentially significant seasonal deviation suggests the very real possibility that (economic) demand remains unusually soft over and above the “rising dollar’s” already soft demand.
The imbalance may correct itself over the coming weeks, or it may continue to suggest more sluggishness where there isn’t supposed to be any. While waiting on crude oil inventory to start reflecting contango in the WTI curve, this might be the only current fundamental element to weigh on crude prices as the futures curve continues to sink.
The front month contract rolled forward to September 2016 as August came off the board, so there is some calendar roll to factor in the chart above that can be visually misleading. In other words, the drop in the curve isn’t as sharp in the past two days as it might appear. But it is still falling with more action at the front, and the steepening since June 8 is still increasing.
The significance of crude and gasoline is the difference in narratives and what is supporting them. Stock prices at record highs, or near them, is likely being driven by renewed hope for monetary policy wherever it may strike, all the while forgetting how patently ineffective past monetary policy has been. The energy sector and the renewed drop in the futures curve (the whole curve, though more so at the front) is remembering the consequences of monetary policy that doesn’t work while at the same time finding still little evidence that anything has changed (and some evidence that if something has changed it is only further in the “wrong” direction). Stocks once more trading, though much less enthusiastically, on what “should be”; energy trading on what actually is. All that is also a replay of last year, specifically last July.
With the S&P500’s relentless surge, once which even Goldman is no longer able to contain its amazement at what it has dubbed an unprecedented multiple expansion (the other two times that saw a comparable increase in forward multiples ended with the Black Monday crash of 1987 and the 2000 dot com crash, respectively), it appears as if nothing matters: fundamentals, technicals, geopolitics, or frankly any newsflow aside from what central banks may (or may not) do in the near future. Still, as Deutsche Bank reminds us, one key risk-event is coming up in the form of the European Banking Authority’s stress test results that will be released on July 29 which “present another near-term risk to markets.”
As Italy’s Il Sole 24 reported earlier today, Monte dei Paschi capital is most “at risk” in the stress tests, citing preliminary indications of tests that will be released on July 29. Perhaps in an attempt to difuse fears of upcoming bank failures, the paper reported that the other 4 Italian banks – Intesa, Banco Popolare, UBI, UniCredit – “show resilient capital level under stressed scenario.”
It’s a different issue entirely whether markets will believe the story, especially since over the past month, there has been a focus on Italian banks as DB’s Dominic Konstam puts it.
But while we are confident that any European stress test will be a joke (as they have been in the past, some riotously so) inquiring minds wonder who is most at risk… just in case the ECB decides that it is finally time for some “contagion.” DB conveniently answers:
As of the end of March 2016, international exposure to the Italian banking sector was $90 billion, according to BIS data. This amount represents a reduction from $120 billion at the end of 2014 and is drastically lower compared to the $300 billion of total exposure in 2008. By country, the amount of exposure to Italian banks owned by the US is just 20%, or $18 billion. France, Germany and Spain own another 60% of that risk, totaling $56 billion. When public and private non-bank sectors are included, aggregate risk to Italy as a whole owned by rest of the world is $660 billion, with nearly half of that amount being concentrated in France.
In other words, after a several years’ hiatus, should Italy “contage” shortly, attention may very soon shift to France once again…
It seem Bernie Sanders has the last laugh… CNN's Jake Sherman is reporting that Debbie Wasserman Schultz is resigning as chair at the end of the Democratic National Convention. The DNC's official statement makes no mention of her involvement in smears and collusion exposed by the Wikileaks emails.
As The Washington Post reports, she had faced growing pressure to resign Sunday in the aftermath of the release of thousands of embarrassing internal email exchanges among Democratic officials, an episode that has pitched the party into turmoil on the eve of a convention that was promised to showcase unity.
"I would ask her to step aside," David Axelrod, a former adviser to President Obama, said on CNN of Debbie Wasserman Schultz. "I would ask her to step aside, because she's a distraction on a week that is Hillary Clinton's week."
Other senior Democrats echoed that sentiment, speaking on condition of anonymity to discuss a sensitive internal matter. These Democrats indicated that the Clinton campaign would like the resignation to come Sunday.
And sure enough…
DNC STATEMENT: Debbie Wasserman Schultz is RESIGNING as chair at the end of the convention.
"Going forward, the best way for me to accomplish those goals is to step down as Party Chair at the end of this convention. As Party Chair, this week I will open and close the Convention and I will address our delegates about the stakes involved in this election not only for Democrats, but for all Americans. We have planned a great and unified Convention this week and I hope and expect that the DNC team that has worked so hard to get us to this point will have the strong support of all Democrats in making sure this is the best convention we have ever had.
"I've been proud to serve as the first woman nominated by a sitting president as Chair of the Democratic National Committee and I am confident that the strong team in place will lead our party effectively through this election to elect Hillary Clinton as our 45th president."
As we detailed at the time,Donald Trump had no doubts about who was to blame for the shocking violence: organized “thugs.”
Trump tweeted on Saturday: "The organized group of people, many of them thugs, who shut down our First Amendment rights in Chicago, have totally energized America!"
Protesters at planned Chicago rally yesterday were “very professionally done,” Donald Trump says in Dayton, Ohio.
…
“When they have organized, professionally staged wise-guys, we have to fight back”
We said at the time that we were sure this would not be the last time "organized" protesters will suddenly appear en masse to provoke reactions and violently protest Trump's freedom of speech.. and it wasn't. But now, as The Daily Caller reports,
In multiple emails, DNC officials signed off and acknowledged the existence of two anti-Donald Trump protests in South Bend, IN and Billings, MT. The release of nearly 20,000 emails is the first in a WikiLeaks “Hillary Leaks” series.
On April 29, a DNC press staffer, Rachel Palermo, alerted Eric Walker, deputy communications director, about a Facebook page for an anti-Trump protest on May 2 in South Bend. “Whoo! Thanks to our interns for finding this out.” Walker replies, “I like it, as long as the students feel safe getting involved. I imagine this demo will be nicer than the one in San Fran today.”
That day in San Francisco protesters blocked off roads to an event Donald Trump was hosting. The Republican nominee ended up having to jump down from the highway and sneak around back to enter.
In another other email chain also on April 29, titled “Week-Ahead Notes & Assignments,” former DNC media booker Pablo Manriquez comments “this should be fun” in reference to the May protest.
University of Notre Dame, located in South Bend, is Manriquez’s alma mater. A DNC official wrote, “Pablo please reach out to any folks you think may be able to help.”
Another protest that’s directly mentioned in emails included one that occurred on May 26 in Billings, MT. The email is from May 20 and features notes on the “week ahead.”
Both the Indiana and Montana protests were non-violent. The South Bend protest had “some expletive laced chants,” and protesters carrying Mexican flags. The Montana one had “only a few” protesters.
Intern involvement with protests is mentioned twice in the leaked emails. DNC communications director Luis Miranda bemoaned photos of an empty anti-Trump protest in Washington, D.C. in one email chain.
Miranda said: “Going forward, when our allies screw up and don’t deliver bodies in time, we either send all our interns out there or we stay away from it.. we don’t want to own a bad picture.”
Miranda was notified of the protests in an email by another DNC email chain titled “Tv coverage of protest great.” The original email notified the DNC communications director of the Indiana protest and a DNC staffer wrote, “thanks to our interns for finding this out.”
DNC officials Brad Marshall, a chief financial officer, and Alan Reed, a compliance officer, also signed off on the use of Black Lives Matter organizer Deray Mckesson as a surrogate for Hillary Clinton.
Mckesson rose to prominence after being active in protests in Ferguson, MO and Baltimore, MD. He has yet to endorse a candidate and said protests are likely to happen at the upcoming Democratic Party convention.
Which makes Hillary Clinton's post-violence email even more controversial…
Violence has no place in our politics. We should use our words and deeds to bring Americans together. http://pic.twitter.com/FofjognpIA
As Fusion reported at the time, several things about the statement left people with a bad taste in their mouths. Chief among them were her invocation of the Charleston massacre and her lack of stated support for the protesters challenging Trump in Chicago
Economist Michael Hudson says Trump's divergence from the conventional Republican platform is generating indignant punditry from neocons and neoliberals alike…
Full Transcript:
SHARMINI PERIES, EXECUTIVE PRODUCER, TRNN: It's the Real News Network. I'm Sharmini Peries coming to you from Baltimore.
On Friday, just after the Republican National Congress wrapped up with its presidential candidate, Donald Trump, Paul Krugman of the New York Times penned an article titled "Donald Trump: The Siberian Candidate." He said in it, if elected, would Donald Trump be Vladimir Putin's man in the White House? Krugman himself is worried as ludicrous and outrageous as the question sounds, the Trump campaign's recent behavior has quite a few foreign policy experts wondering, he says, just what kind of hold Mr. Putin has over the Republican nominee, and whether that influence will continue if he wins.
Well, let's unravel that statement with Michael Hudson. He's joining us from New York. Michael is a distinguished research professor of economics at the University of Missouri Kansas City. His latest book is Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy. Thank you so much for joining us, Michael.
MICHAEL HUDSON: It's good to be here, Sharmini. It's been an exciting week.
PERIES: So let's take a look at this article by Paul Krugman. Where is he going with this analysis about the Siberian candidate?
HUDSON: Well, Krugman has joined the ranks of the neocons, as well as the neoliberals, and they're terrified that they're losing control of the Republican Party. For the last half-century the Republican Party has been pro-Cold War, corporatist. And Trump has actually, is reversing that. Reversing the whole traditional platform. And that really worries the neocons.
Until his speech, the whole Republican Convention, every speaker had avoided dealing with economic policy issues. No one referred to the party platform, which isn't very good. And it was mostly an attack on Hillary. Chants of "lock her up." And Trump children, aimed to try to humanize him and make him look like a loving man.
But finally came Trump's speech, and this was for the first time, policy was there. And he's making a left run around Hillary. He appealed twice to Bernie Sanders supporters, and the two major policies that he outlined in the speech broke radically from the Republican traditional right-wing stance. And that is called destroying the party by the right wing, and Trump said he's not destroying the party, he's building it up and appealing to labor, and appealing to the rational interest that otherwise had been backing Bernie Sanders.
So in terms of national security, he wanted to roll back NATO spending. And he made it clear, roll back military spending. We can spend it on infrastructure, we can spend it on employing American labor. And in the speech, he said, look, we don't need foreign military bases and foreign spending to defend our allies. We can defend them from the United States, because in today's world, the only kind of war we're going to have is atomic war. Nobody's going to invade another country. We're not going to send American troops to invade Russia, if it were to attack. So nobody's even talking about that. So let's be realistic.
Well, being realistic has driven other people crazy. Not only did Krugman say that Trump would, quote, actually follow a pro-Putin foreign policy at the expense of America's allies, and he's referring to the Ukraine, basically, and it's at–he's become a lobbyist for the military-industrial complex. But also, at the Washington Post you had Anne Applebaum call him explicitly the Manchurian candidate, referring to the 1962 movie, and rejecting the neocon craziness. This has just driven them nutty because they're worried of losing the Republican Party under Trump.
In economic policy, Trump also opposes the Trans-Pacific Partnership and the TTIP trade and corporate power grab [inaud.] with Europe to block public regulation. And this was also a major plank of Bernie Sanders' campaign against Hillary, which Trump knows. The corporatist wings of both the Republican and the Democratic Parties fear that Trump's opposition to NAFTA and TPP will lead the Republicans not to push through in the lame duck session after November. The whole plan has been that once the election's over, Obama will then get all the Republicans together and will pass the Republican platform that he's been pushing for the last eight years. The Trans-Pacific Partnership trade agreement with Europe, and the other neoliberal policies.
And now that Trump is trying to rebuild the Republican Party, all of that is threatened. And so on the Republican side of the New York Times page you had David Brooks writing "The death of the Republican Party." So what Trump calls the rebirth of the Republican Party, it means the death of the reactionary, conservative, corporatist, anti-labor Republican Party.
And when he wrote this, quote, Trump is decimating the things Republicans stood for: NATO, entitlement reform, in other words winding back Social Security, and support of the corporatist Trans-Pacific Partnership. So it's almost hilarious to see what happens. And Trump also has reversed the traditional Republican fiscal responsibility austerity policy, that not a word about balanced budgets anymore. And he said he was going to run at policy to employ American labor and put it back to work on infrastructure. Again, he's made a left runaround Hillary. He says he wants to reinstate Glass-Steagall, whereas the Clintons were the people that got rid of it.
And this may be for show, simply to brand Hillary as Wall Street's candidate. But it also seems to actually be an attack on Wall Street. And Trump's genius was to turn around all the attacks on him as being a shady businessman. He said, look, nobody knows the system better than me, which is why I alone can fix it. Now, what that means, basically, as a businessman, he knows the fine print by which they've been screwing the people. So only someone like him knows how to fight against Wall Street. After all, he's been screwing the Wall Street banks for years [inaud.]. And he can now fight for the population fighting against Wall Street, just as he's been able to stiff the banks.
So it's sort of hilarious. On the one hand, leading up to him you had Republicans saying throw Hillary in jail. And Hillary saying throw Trump in the [inaud.]. And so you have the whole election coming up with—.
PERIES: Maybe we should take the lead and lock them all up. Michael, what is becoming very clear is that there's a great deal of inconsistencies on the part of the Republican Party. Various people are talking different things, like if you hear Mike Pence, the vice presidential candidate, speak, and then you heard Donald Trump, and then you heard Ivanka Trump speak yesterday, they're all saying different things. It's like different strokes for different folks. And I guess in marketing and marketeering, which Trump is the master of, that makes perfect sense. Just tap on everybody's shoulder so they feel like they're the ones being represented as spoken about, and they're going to have their issues addressed in some way.
When it comes–he also in that sense appealed to, as you said, the Bernie Sanders people when he talked about the trade deals. You know, he's been talking about NAFTA, TTIP, TTP, and these are areas that really is traditionally been the left of the left issues. And now there's this, that he's anti-these trade deals, and he's going to bring jobs home. What does that mean?
HUDSON: Well, you're right when you say there's a policy confusion within the Republican Party. And I guess if this were marketing, it's the idea that everybody hears what they want to hear. And if they can hear right-wing gay bashing from the Indiana governor, and they can hear Trump talking about hte LGBTQ, everybody will sort of be on the side.
But I listened to what Governor Pence said about defending Trump's views on NATO. And he's so smooth. So slick, that he translated what Trump said in a way that no Republican conservative could really disagree with it. I think he was a very good pick for vice president, because he can, obviously he's agreed to follow what Trump's saying, and he's so smooth, being a lawyer, that he can make it all appear much more reasonable than it would.
I think that the most, the biggest contradiction, was you can look at how the convention began with Governor Christie. Accusing Hillary of being pro-Russian when she's actually threatening war, and criticizing her for not helping the Ukrainians when it was she who brought Victorian Nuland in to push the coup d'etat with the neo-nazis, and gave them $5 billion. And Trump reversed the whole thing and said no, no, no. I'm not anti-Russian, I'm pro-Russian. I'm not going to defend Ukrainians. Just the opposite.
And it's obvious that the Republicans have fallen into line behind them. And no wonder the Democrats want them to lose. All of that–you've had the Koch brothers say we're not going to give money to Trump, the Republicans, now. We're backing Hillary. You've got the Chamber of Commerce saying because Trump isn't for the corporate takeover of foreign trade, we're now supporting the Democrats, not the Reepublicans.
So this is really the class war. And it's the class war of Wall Street and the corporate sector of the Democratic side against Trump on the populist side. And who knows whether he really means what he says when he says he's for the workers and he wants to rebuild the cities, put labor back to work. And when he says he's for the blacks and Hispanics have to get jobs just like white people, maybe he's telling the truth, because that certainly is the way that the country can be rebuilt in a positive way.
And the interesting thing is that all he gets from the Democrats is denunciations. So I can't wait to see how Bernie Sanders is going to handle all this at the Democratic Convention next week.
PERIES: All right, Michael. A lot to continue discussing there. I thank you so much for joining us today and look forward to a report next week.
HUDSON: Yes, good to be here at this exciting time.
PERIES: And thank you for joining us on the Real News Network.
Over the weekend, the Group of 20 convened in yet another meeting in Chengdu, China, where they reiterated a long-running pledge to use all policy tools to help boost confidence and growth, but instead of emphasizing monetary policy the group said they would focus on fiscal and structural measures. Then again, since incremental fiscal stimulus would likely result in additional central bank monetization in order to avoid a steep selloff in government bonds and risk a yield spike, what the G-20 really did is set the stage for even more central bank-funded deficit spending, aka soft helicopter money.
“The global economic recovery continues but remains weaker than desirable,” finance ministers and central bank governors said in a joint communique at the close of a two-day gathering in Chengdu, China Sunday. They clearly did not believe that the S&P at record highs is indicative of a US, or global, economy that is firing on all cylinders. Incidentally, neither does the BIS which a month ago warned about the dangers of overheating asset prices as a result of unprecedented global monetary stimulus.
“We will carefully calibrate and clearly communicate our macroeconomic and structural policy actions to reduce policy uncertainty, minimize negative spillovers and promote transparency.”
“Underscoring the essential role of structural reforms, we emphasize that our fiscal strategies are equally important to support our common growth objectives,” the group said, in slightly modified language from its last communique, issued in April. Three months ago, the group didn’t use the term “essential” for reform, nor the word “emphasize” for its fiscal policy. The April document also didn’t refer to fiscal strategies being “equally” important.
As in the April and February communiques, the G-20 said “monetary policy alone cannot lead to balanced growth.”
Additionally, and as has been the recurring theme for months, the G-20 repeated its pledge to avoid competitive currency devaluations, consult closely on foreign-exchange policy and resist all protectionism. Japan, as in the past, underscored that the communique also reaffirmed warnings against “excess” currency volatility.
* * *
All of the above was largely in keeping the traditionally toothless and diplomatically correct phrasings of G-20 meeting statements.
But while the group traditionally tries to put on a united front, a curious divergence emerged following the latest meeting in China, where as Bloomberg notes Chinese and U.S. officials “showed signs of being at odds on how synchronized efforts to boost global growth need to be, with China stressing the need for improved coordination more than the U.S.”
U.S. Treasury Secretary Jacob J. Lew on Thursday talked down the need for crisis-level coordination as he headed to Chengdu, China, for the meeting. This follows a call by Chinese policy makers on Friday who added urgency to their earlier call to strengthen efforts across the globe to break down a prolonged period of sluggish growth.
“G-20 countries should intensify consultation and coordination, forge policy consensus, and guide market expectation,” Chinese Finance Minister Lou Jiwei said Saturday at a symposium kicking off the meeting. He repeated comments from President Xi Jinping that it’s “vitally” important for the group to enhance how it works together, adding that the “global economy is at a critical conjuncture” as the “impacts of the international financial crisis are still unfolding.”
On Friday, Premier Li Keqiang said that against the backdrop of rising protectionist pressures and increasing challenges in international trade policy, “it is critical to enhance international economic policy coordination.” He was referring to the recent increase in protectionism between China and the US, leading to a surge in new tariffs and duties against Chinese commodity exports, such as a recent 522% spike in duties for Chinese cold-rolled steel exports, as Beijing seeks to quietly flood the world with its excess production.
As Bloomberg adds, it is unclear if China is calling for the same level of policy coordination seen in 2008 and 2009, or what kind of commitment it wants from the G-20. The group isn’t at a stage of heated discussions over how policy coordination should take place, according to a Japanese Finance Ministry official who declined to be named, citing ministry policy. The G-20 agrees on using all available policy tools depending on the economic situation of each nation, the person said.
Perhaps one reason for the dicshord is the US’ intention to keep portraying the US as an “oasis of stability” in an otherwise chaotic world. China faces a transition to lower growth and a shift from an old-model economy fueled by debt and investment, to one led by consumers and services.
There is, of course, a glaring problem with any attempt to showcase China as an economy whose consumer is strong enough to propell its growth to the next level. As Caixin calculatesChina’s average household debt relative to GDP has already reached historic highs, driven by a surge in mortgage loans over the past few years. By the end of 2015, Chinese residents owed banks 27 trillion yuan (US$4 trillion), equivalent to 40 percent of China’s GDP. That puts China significantly above many other emerging economies, such as India, Russia and Brazil, according to data from the Bank of International Settlements. That means there isn’t much more room for households to keep borrowing.
It also puts Chinese consumer debt above that of the US.
The average urban household debt burden may be even higher due to conditions that make it difficult for rural residents, including migrant workers, to obtain bank loans. Each of China’s 172 million urban households owed an average of 156,000 yuan in debt at the end of last year, based on official data that show 40 percent of all Chinese households held urban residence permits in 2015. That’s 1.7 times the average disposable income for urban households. Expanding the definition to include people who live in cities but don’t have official urban residence permits, or hukou, the ratio falls to 1.25 times, still higher than the 1.2 times for the United States.
It appears that even before the Chinese handoff to consumer-led growth happened, Chinese consumers are already tapped out with unprecedented amounts of debt. This is precisely what China is worried about when it seeks greater global coordination, aware that a next debt-driven crisis is just over the horizon.
The U.S., however, is “a bright spot” in a world with a lot of uncertainties, Lew told reporters Saturday in Chengdu. He emphasized the need to “redouble” efforts to use all policy tools available to boost shared growth. At the same time, Lew said ahead of the meeting that he didn’t think “this is a moment that calls for the kind of coordinated action that occurred during the Great Recession in 2008 and 2009.”
Why this unwilingness on behalf of the US to even consider greater coordination – ostensibly in response to future crises? The answer is revealed from the conclusion of the G-7 meeting which took place in May in Sendai, Japan. Recall that following that summit, the Group of 7 most advanced countries refused to warn of a “global economic crisis” for one simple reason: the “sentiment can become self-fulfilling.“
According to Glenn Maguire, Asia-Pacific chief economist at Australia & New Zealand Banking Group, “Asia is feeling the brunt of the Chinese slowdown given its trade exposure, with a more marginal impact so far on the U.S. and Europe.”
“Hence it is not entirely surprising that a coordinated response to an unevenly felt dynamic could not be reached at the G-7 negotiating table,” Maguire said. “Moreover, the G-7 is obviously aware of the ‘announcement effect’ the official communique has,” he said. “In such a situation, warning of negative risks and sentiment can become self-fulfilling.”
Today, the G-20 effectively extended on this logic courtesy of Jack lew who once again was determined to suggest that the global financial system is “stable” despite clear signs to the contrary, including every central bank stepping in in the aftermath of Brexit and assuring the world that “markets” who not be allowed to drop, period.
Perhaps this latest attempt to squash pessimism will succeed, if only for the time being.
A number of countries had already taken steps to bolster growth in the run-up to the Chengdu G-20, which also occurred against a backdrop of diminished currency tensions compared with early this year. China succeeded in stabilizing growth in the first half of 2016 after unleashing easier credit and loosening its fiscal stance, while Japan is in the midst of compiling its own fiscal package. Britain’s new chancellor of the exchequer, Philip Hammond, had indicated openness to a more generous budget on July 22, when he told the BBC the U.K. could “reset fiscal policy” if necessary.
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In addition to the general tone of the communique, and the rising dischord between China and the US, one specific item that did generate attention was recent events in Turkey. As Bloomberg points out, there was no mention in the communique of Turkey, after disagreement among members over whether to include some reference. German Finance Minister Wolfgang Schaeuble Saturday told reporters that there’s great concern “in Germany and everywhere in Europe that what is happening in Turkey is not in line with what we understand as democracy and the rule of law,” amid a crackdown on political opponents in the wake of this month’s coup attempt.
Earlier, Turkish Deputy Prime Minister Mehmet Simsek, in a posting on Twitter, rejected any reference to his country’s political developments in the communique. However, according to Reuters, Turkey wanted the final communique to include an endorsement of the current government after the failed coup attempt last week, but did not succeed, G20 officials said.
Turkey’s Deputy Prime Minister Mehmet Simsek, attending the meeting, denied Ankara had sought such a reference, tweeting: “We have no such initiative.”
But European Commissioner for Economic Affairs confirmed on Sunday that Turkey had sought such a mention.
“It is true that Turkey wanted a line on that, that was debated in the drafting sessions but the minister, after talking to a few of us, estimated that it was wiser not to raise this issue in the G20 session itself. That was wise,” Moscovici told a news conference.
The Turkish government, which introduced a state of emergency on Wednesday after the failed coup and is considering bringing back the death penalty for the plotters, wanted the final communique of the G20, closely watched by markets, to include a paragraph on Turkey.
“Strengthening the rule of law is fundamental for sustainable development and we support the legitimate government of Turkey in its endeavours to enhance economic stability and prosperity,” the additional paragraph of the G20 was to say.
Officials from European Union countries, however, did not support that and the final communique did not mention Turkey.
This implies that tensions between Turkey and Europe continue to rise, although we doubt Erdogan is too nervous, as Turkey still has the upper hand over Germany with a very simple if effective trump card: 2 million Syrian refugees which it can unleash in Europe’s general direction on a moment’s notice. In light of the latest deadly attack in southern Germany by an allegedly insane Syrian refugee documented earlier today, we anticipate Turkey’s leverage will only increase in the coming weeks, and give Erdogan even more international political cover to continue his unprecedented purge of all domestic enemies in any way he sees fit.