Does a Judge have to recuse if a conflicted party files an amicus brief? Or should the brief be struck?

As a general matter, federal judges will recuse if they have some sort of relationship with one of the named parties. Indeed, most clerks will screen cases, to avoid assigning a matter to a judge that would create a potential recusal. Occasionally, conflicted cases slip through the cracks–even at the Supreme Court. Sometimes the identity of all parties isn’t obvious, and a conflict only becomes clear after the case is assigned. But what happens when the conflict arises based on an amicus brief? Friends of the court may file briefs long after the panels are assigned. And these filings may give rise to conflicts of interest. What should a court do in such a case?

In 2018, the Federal Rules of Appellate Procedure were amended to address this situation. Rule 29(a)(2) provides:

 Any other amicus curiae may file a brief only by leave of court or if the brief states that all parties have consented to its filing, but a court of appeals may prohibit the filing of or may strike an amicus brief that would result in a judge’s disqualification.

In short, if an amicus brief would create a recusal, the court can strike it.

The Fifth Circuit relied on this rule in Texas v. United States, the challenge to the Affordable Care Act. On April 1, 2019, Children’s Partnership and First Focus filed an amicus brief. They were represented by Stuart Delery of Gibson, Dunn & Crutcher. On April 8, 2019, the docket reflected a one-line, unsigned order:

COURT ORDER striking AMICUS BRIEF filed by First Focus and Children’s Partnership.

No explanation was given. But the conventional wisdom was that the brief was struck to avoid Judge Jim Ho’s recusal. (Ho had worked at Gibson, and his wife is currently a partner there). That strike also led some to speculate that Judge Ho might be on the three-judge panel. Ultimately, he was not on that panel. And he eventually recused from the en banc court, even though the Gibson brief was struck. (My uninformed speculation: Judge Ho recused based on his work on the original ACA challenge as Texas Solicitor General.)

Judge Andrew Brasher, a new member of the Eleventh Circuit chose a different approach. Today he recused from en banc consideration of Florida’s felon disenfranchise case. There was no conflict with any of the parties. Rather, he identified a conflict because the Alabama Attorney General, his former employer, filed an amicus brief. He explained:

Before joining the bench last year as a district judge, I worked as a lawyer at the State of Alabama Attorney General’s Office. Upon being nominated and confirmed to the position of district judge, I conferred with staff at the Committee on Codes of Conduct for the Judicial Conference of the United States about recusal-related issues. They recommended that I adopt a general policy of recusing from cases in which lawyers from the Alabama Attorney General’s Office represent a party for about two years. This policy would avoid any appearance of partiality by allowing a reasonable time period between when I worked with these lawyers as a colleague and when I might rule in one of their cases as a judge.

Other judges may reasonably choose different policies or different time periods. Some judges may not feel the need for a blanket recusal policy at all. But I thought the suggestion was a good idea, it was consistent with the recusal policies of other members of the district court on which I served, and I adopted the policy as a district judge.

I intend to continue following this recusal policy as a member of this court. In this case, lawyers from the Alabama Attorney General’s Office filed an amicus brief. Whether and how a judge’s recusal policies should apply to amicus participation is an unsettled area. But, with some exceptions that do not apply here, my policies apply to amici in the same way they apply to parties. For that reason, I am recusing myself from this matter.

Brasher could have asked the clerk to strike the Alabama amicus brief. But he instead chose to recuse. I appreciate this clarity. Judge Brasher explained, with candor, why he was stepping down. Far too often recusal orders are void of reasoning. I agree with his rationale.

As an ethical matter, I think it better for the judge to step down than to strike the unwitting amicus brief. FRAP 29(a)(2) permits that resolution, but it is eminently unfair to the parties. Put yourselves in the shoes of the attorney who spent time and money writing a brief, only for it to be invalidated. However, this practice sends a clear signal to the market: clients who agree with Judge Ho’s general jurisprudence may be hesitant to hire Gibson Dunn to file an amicus brief for the Fifth Circuit, lest their brief force a recusal. For similar reasons, the Alabama Attorney General, may be hesitant to file amicus briefs in Eleventh Circuit. For the next two years, Judge Brasher will be recused from any case in which the Alabama Attorney General’s office is a party, or serves as an amicus. I suspect we will see multi-state coalitions file in the Eleventh Circuit, with Alabama left off the signature block.

There is a unique situation where FRAP 29(a)(2) makes eminent sense: parties may deliberately try to force a specific judge to recuse by hiring her former firm to file an amicus brief. I think this possibility is rare, because most firms would not knowingly take a client who is trying to force the disqualification of their former colleague.

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Dispatch From Portland: A Distinct Lack of Crowbars and Cops

Portland Protest

Portland looks pretty normal the morning I roll into town, birds singing, fresh air. I head downtown to the Federal Building, locus of the narrative we’ve been seeing all over the world: federal forces tear-gassing demonstrators and pummeling the legs of a Navy vet apparently made of brick.

Driving toward the Mark O. Hatfield United States Courthouse yesterday, the city appears relatively intact. Most stores are boarded up, but that’s mostly due to COVID-19, which is on the rise in Oregon. The courthouse, however, looks anything but normal. The building is unrecognizable, its face completely gone—it looks like a building under construction, albeit with no doors, no windows. At noon, workmen are disassembling the temporary fencing that’s been pulled down each night since the feds arrived. Asked whether they’re going to paint over the graffiti, a foreman looks incredulous.

“No,” he says. “They’re only going to be back tonight.”

By “they,” he does not mean the protestors, who’ve been at it 53 nights: the thousands of locals who march while chanting “BLACK LIVES MATTER” and “SAY HER NAME” and “HANDS UP, DON’T SHOOT” and “FUCK THE POLICE.” They are here again by 8 p.m., including a new contingent of women wearing yellow, women who have responded to social-media calls to create a Wall of Moms. There is some question as to whether this call started organically as a mom-group thing or, as a way to create an unimpeachably sympathetic faction, was covertly orchestrated by antifa. And while the question might seem an interesting or provocative one, it’s apparently not to the two moms I ask, they’re caught up in the moment, one goes off to speak with a news crew.

“I think she heard about it on Reddit?” responds one husband, before joining in 30 minutes of call-and-response, “FUCK TED WHEELER” and “FEDS GO HOME” and “ALL COPS ARE BASTARDS,” the last round punctuated by the booms of a drum corps and several thousand people who stream past the federal building, ready for more chanting, more gathering, ready to show the world that they are peaceful protestors.

Meanwhile, one block away on a dark corner, a half-dozen young men on motorcycles and bicycles assemble. These are civilians, self-appointed to block off the street. An overhead camera has been spray-painted so as not to capture, maybe, the groups of two and three walking past. They are dressed in black; their faces are covered; they carry or wear bike helmets; their militia-like garb is meant to impart, one imagines, an air of menace. They do not look menacing. They look young, ungainly, and unsure how to proceed. One problem: The fencing has not been re-erected, so there’s nothing for them to pull down. Instead they dance and skateboard and yell at each other. A burnt-out-looking white dude shouts, “I’ve spoken to a dozen black men! You don’t speak for them! What you are doing is not about Black Lives Matter!” A young Asian woman in full-black garb charges him and shouts, “YOU DON’T SPEAK FOR BLACK PEOPLE! SHUT THE FUCK UP!” The crowd cheers.

This is the “they” the foreman spoke of, the 200 or so that gather every night. They’ve been cooped up for months and now they’re ready to burn, to get some mayhem going, though they don’t see it that way.

“We’re just here to protect people and get their voices heard,” a 22-year-old guy tells me, as he and his crew each grab a plywood shield from a pile someone has dumped on the ground. His friend was here two nights ago and got hit in the legs with pepper bullets.

“This is some fascist shit,” he says. “This is not OK.” 

It’s now 11:30 and the larger group of protestors is making one last sweep through, shouting “FUCK TED WHEELER” over and over as the 200 install a #WallofMoms between themselves and the building. This seems to quell things a bit, neither the group outside or any feds inside seeming to have an appetite for mowing down a bunch of middle-aged women. But then the moms are let go and a new volley is launched at the building, people banging on it with their skateboards and scrabbling at it with their hands.

“Did not one of them think to bring any tools, maybe a hammer or a crowbar?” asks my friend. While one imagines what kind of trouble this might bring from the cops, there’s no reason to worry about the Portland police, not one of whom I’ve seen in three-plus hours. There is zero police presence, the mayor having years ago instructed the police that protesters are not to be arrested, the definition of protestor apparently being fungible. And so the battering, the rave-like mania, carries on.

“What will we do if we do get inside?” a young woman asks her friend. I tell her that I don’t think people have thought that far ahead; that it’s about the show out here, not about carrying forth any particular plan.

“I think you’re right,” she says, looking a little relieved. She’s wearing a jumper and weighs maybe 90 pounds soaking wet; she won’t be ready for any physical confrontation.

But it’s coming for her anyway. Several young men have torn a hole in the plywood, one is banging on it with a fire extinguisher, and the shield-boys are banging on it with their shields. Instantly the air is filled with military-grade CS gas, there are loud flash-bangs, and the crowd is falling back, running, getting out of the way of the first volleys.

“Do you need your eyes rinsed out?” three people ask as we make our way to the car, coughing. It’s 1:45 a.m., and it does not look as though there is going to be the sort of violent direct clashes that happened the previous two nights. Maybe the feds have gleaned that the optics of this aren’t great.

If the lone motorcyclists and bicyclists stationed at intersections downtown, trying to block our way, have an agenda, I don’t know what it is. What I do know is, despite their telling us we can’t drive around them, we do, where we see, for the first time, a Portland police vehicle, driving into the night and away.

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More People Contract COVID-19 From Family Members Than Outside Contacts: CDC

More People Contract COVID-19 From Family Members Than Outside Contacts: CDC

Tyler Durden

Tue, 07/21/2020 – 19:25

A study published by the US Centers for Disease Control found that people are more likely to contract COVID-19 from members of their own households than from those outside the house.

The study, published July 16, looked in detail at 5,706 South Korean “index patients” who tested positive for the virus, and took into account over 59,000 people who came into contact with them, according to Reuters.

The findings showed just two out of 100 infected people had caught the virus from non-household contacts, while one in 10 had contracted the disease from their own families.

By age group, the infection rate within the household was higher when the first confirmed cases were teenagers or people in their 60s and 70s. –Reuters

“This is probably because these age groups are more likely to be in close contact with family members as the group is in more need of protection or support,” said South Korea CDC (KCDC) Director Jeong Eun-kyeong, an author of the study.

Notably, South Korea has been militant about contact tracing – using apps to track and publish the routes of confirmed patients, as well as demographics such as patients’ age, gender, neighborhood, businesses and apartment complexes they’ve visited and other metrics.

According to the study, children under the age of 10 were least likely to be the “index patient” – though children with the virus were also more likely to be asymptomatic than adults, making it harder to identify index cases within the group.

“The difference in age group has no huge significance when it comes to contracting COVID-19. Children could be less likely to transmit the virus, but our data is not enough to confirm this hypothesis,” said Dr. Choe Young-june, a co-author of the study and assistant professor at Hallyum University College of Medicine.

South Korea has had 13,816 cases of coronavirus and 296 deaths.

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Russian Jets Deployed To Southern Syria To Stop Active Israeli Attack: Report

Russian Jets Deployed To Southern Syria To Stop Active Israeli Attack: Report

Tyler Durden

Tue, 07/21/2020 – 19:05

Via AlMasdarNews.com,

The Russian publication Avia.Pro reported on Tuesday that the Russian Air Force intercepted an Israeli warplane during the latter’s attack on Damascus Monday night.

“Despite claims that Russia may not have control over the airspace over the region, it turned out that a few minutes before the IDF strike, Russia had launched its military aircraft from the Khmeimim airbase, which allegedly took off in a southeast direction,” the publication began, pointing out “the rise of Russian aviation assets was recorded at 21 hours 47 minutes, while Israel launched an attack at 21 hours 48 minutes.”

Russian SU-35 fighter

According to Avia.Pro, the Russian Air Force could have stopped the Israeli attack after deploying their jets to southern Syria last night.

“Given the distance from Khmeimim airbase to Damascus, Russian aircraft could have covered it in a matter of minutes, but analysts believe that Russia rather prevented the IDF from continuing its strikes as the attack was carried out from airspace controlled by the Israeli military,” the report says.

While the Kremlin has made no mention of this claim, there have been similar reports about Russian Air Force intercepting Israeli aircraft in the past.

However, despite these claims, the Israeli military was able to hit some sites around the Sahnaya suburb of Damascus.

A report from the Syrian capital said that the Syrian Arab Army (SAA) was able to down some of the Israeli missiles, but a few others managed to hit their intended targets.

via ZeroHedge News https://ift.tt/2E7sBRP Tyler Durden

“The Situation Is Grim” – Hong Kong Dangerously Unprepared For Second Wave Of COVID-19

“The Situation Is Grim” – Hong Kong Dangerously Unprepared For Second Wave Of COVID-19

Tyler Durden

Tue, 07/21/2020 – 18:45

Mirroring a similarly virulent second wave that hammered Singapore in May and June, Hong Kong is suffering from a surprisingly intense second wave of the virus, with the city reporting 58 new local cases on Tuesday, with 24 of those coming from unknown origins.

Worries about the situation in Hong Kong prompted Bloomberg to report that the city state is surprisingly unprepared for the second wave, as its contact-tracers are struggling to track local cases to hot spots that are feeding the outbreak.

Unlike in Japan and the US, where mostly young people are becoming infected now, Hong Kong’s outbreak is affecting more older people than it did during the first round. 

The median age this time is 55 years old, up from 40 in previous waves, and clusters are forming in nursing homes.

As the city scrambles to expand testing access, quarantine facilities and isolation beds, it has become clear that the long stretch of seeming to have dodged the coronavirus bullet (daily local infections never broke above 28 before July) has left its defenses dangerously low.

While the city reacted quickly to stop the spread of the virus by immediately implemented mask-wearing and social distancing, by the spring, complacency had set in and bars filled up as restrictions were relaxed. Hong Kong’s recent uptick in new cases shows that contact tracers have no idea where many of these cases are coming from.

The city’s ability to trace infections to certain hot spots during the first wave of the outbreak was widely credited for its success.

 

 

It’s a phenomenon that’s not unique to Hong Kong.

“Perversely, the more successful you are, you get the impression oh we don’t have the virus, we don’t have to worry about thinking of the basic precautions,” said professor Peter Collignon from the Australian National University Medical School in Canberra.

“The more successful you are, the more you don’t keep on doing the things you need to do and so it comes back.”

Even before the virus crossed into Hong Kong, the international city was in dire straits. Months of disruptive, often violent protests had warded off tourists and business travelers, and the city’s economy was reeling from its worst slump since SARS when COVID-19 arrived in December 2019. Since the start of the outbreak, the political situation has grown even more precarious, as the US has retaliated against Beijing for imposing a new national security law on Hong Kong by ending the region’s special treatment. The White House even considered targeting the HKD peg to the dollar.

Joblessness in HK is now at a 15-year high.

In total, Hong Kong has confirmed only 2,019 cases, far fewer than the numbers in neighbors like South Korea and Singapore. But HK’s medical system is already coming under strain as the city scrambles to try and stop the virus from infiltrating old folks homes and other managed care facilities. So far, 14 deaths have been reported.

Hospitals have warned the situation is already critical as isolation beds and wards in public hospitals have already reached 80% capacity.

“Since there are more elderly patients during this wave of outbreak, isolation beds might be used up much sooner than in March,” said Ian Cheung Tsz-fung, chief manager at the Hospital Authority, in a radio interview on Tuesday. “This week is crucial.”

Because of this, the city’s leaders have warned that HK may need to impose another lockdown, which would crush its already battered economy.

“The government did relatively well in handling the previous two waves of outbreak. But the relaxation of measures was too lenient and gave citizens a false sense of security, causing a huge outbreak this time,” said CUHK’s Hui. “This situation is grim.”

Hong Kong did an admirable job confronting the virus during the early months of the outbreak. But when trying to suppress COVID-19, complacency is a serious danger.

via ZeroHedge News https://ift.tt/3hnpxzb Tyler Durden

Rand Paul: It’s Time To Demilitarize the Police

zumaamericastwentyeight065037

In a free society, citizens should be able to easily distinguish between civilian law enforcement tasked with keeping the peace in our communities and the armed forces tasked with protecting our country from foreign adversaries.

Unfortunately, thanks to the federal government flooding our neighborhoods with billions of dollars of military equipment and property over the years, the line between peace officer and soldier of war has become increasingly blurry.

Police officers have an incredibly difficult and often thankless job where they lay their lives on the line every day. Without the rule of law, a civilized society cannot exist, and our officers deserve our gratitude. The horrific actions of a few bad actors should not erase all the good done by the vast majority of these brave and hardworking men and women.

But as the federal government has enabled our local police to become more and more militarized, it has placed them in greater danger by eroding the community trust crucial to doing their jobs well.

While I respect the determination to preserve law and order, sending in federal forces to quell civil unrest in Portland further distorts the boundaries, results in more aggression (including pepper-spraying and repeatedly striking a Navy veteran whose injured hand will need surgery), and has led to reports we should never hear in a free country: federal officials, dressed in camouflage, snatching protesters away in unmarked vehicles.  

Sending the feds into Chicago won’t make the situation there any better, either.

Nothing you’ll read here excuses the actions of those who have destroyed lives and property in a mockery of peaceful protest—actions I have condemned. But many of us have been inspired by seeing protesters confronting these rioters, making the difference between righteous cause and opportunistic destruction even more stark.

Restoring lost trust is essential to reducing the tension and returning to peace. This means stopping the federal militarization of our local law enforcement and keeping federal agents and troops on the national posts where they best serve our country. 

According to the Defense Logistics Agency (DLA), which operates within the Department of Defense, “More than $7.4 billion worth of property” has been transferred to law enforcement through the Law Enforcement Support Office (LESO) program. DLA also reveals that “as of June 2020, there are around 8,200 federal, state and local law enforcement agencies from 49 states and four U.S. territories participating in the program.”

Back in 2014, NPR reported the federal government had sent out 79,288 assault rifles, 205 grenade launchers, and 11,959 bayonets from 2006–2014. 

Yahoo recently reported that “the California Highway Patrol received what appeared to be a drone worth $22 million in 2016. The Howell Township Police Department in New Jersey received an MRAP [mine-resistant, ambush-protected vehicle] worth $865,000 in 2016. An MRAP provided to the Payne County Sheriff Office in Stillwater, Oklahoma, cost $1.3 million.”

As the Senate debates the latest National Defense Authorization Act, I joined a bipartisan group of senators to introduce an amendment based on my Stop Militarizing Law Enforcement Act, which I originally introduced with Sen. Brian Schatz (D–Hawaii) in 2015 and have reintroduced in each session of Congress since.

Our amendment would have limited the transfer of certain offensive military equipment including bayonets, grenade launchers, and weaponized drones—all without prohibiting the continued distribution of defensive equipment, such as body armor.

It would also have ensured that communities are notified of requests and transfers by posted notices throughout the area and on a public website, and it would have required that a jurisdiction’s governing body approves of the transfers.

Though the Senate voted against these common-sense changes, my standalone legislation goes even further to reform the system, and I will keep working to advance it through Congress. 

Our bipartisan approach takes seriously the idea that cops on the beat can only do their jobs well when they are well-known by their neighbors and trusted by their communities.

The Stop Militarizing Law Enforcement Act will help build that relationship, making our citizens, police, and neighborhoods safer. 

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Leaked Docs Show DHS Is Afraid That Masks Will Make Facial Recognition Useless

Leaked Docs Show DHS Is Afraid That Masks Will Make Facial Recognition Useless

Tyler Durden

Tue, 07/21/2020 – 18:25

Authored by John Vibes via TheMindUnleashed.com,

As the general public in the United States argues about whether or not we should be wearing masks to prevent the spread of the COVID-19 coronavirus, law enforcement officials are concerned that facial recognition software could be thwarted, and possibly even broken by people wearing masks.

In a collection of law enforcement documents released by Blueleaks, researchers found a Department of Homeland Security intelligence memo where the agency expressed concern about the potential problems that mask-wearing could cause for facial recognition technology.

The note, which was published on May 22nd, discussed what the agency described as “the potential impacts that widespread use of protective masks could have on security operations that incorporate face recognition systems — such as video cameras, image processing hardware and software, and image recognition algorithms — to monitor public spaces during the ongoing Covid-19 public health emergency and in the months after the pandemic subsides.”

The memo went on to suggest that, “violent extremists and other criminals who have historically maintained an interest in avoiding face recognition are likely to opportunistically seize upon public safety measures recommending the wearing of face masks to hinder the effectiveness of face recognition systems in public spaces by security partners.”

The agency admitted that its concerns were based on the fact that activists have traditionally expressed desires to thwart facial recognition, and not on any recent events during the ongoing protests. The report concluded that facial recognition could become increasingly worthless if mask-wearing becomes normalized.

“We assess face recognition systems used to support security operations in public spaces will be less effective while widespread public use of facemasks, including partial and full face covering, is practiced by the public to limit the spread of Covid-19,” the report stated.

Homeland Security’s Customs and Border Protection, which uses facial recognition screening on international travelers, has also claimed that its technology works on masked faces.

In recent months, some companies have claimed that they are developing facial recognition technology that will work with masks. However, facial recognition doesn’t even work that well under normal circumstances, so it is hard to imagine a working system for masked faces.

Amazon’s facial recognition technology falsely identified 27 different professional athletes as criminals. While it may be true that professional football players have been known to get in trouble from time to time, this is obviously a failure of the software.

According to a Freedom of Information request filed by Wired, these are actually typical numbers for the facial recognition software used by the South Wales Police. Data from the department showed that there were false-positive rates of 87 percent and 90 percent for different events.

Similar numbers were released by the FBI in 2016, with the agency also admitting that their facial recognition database consisted of mostly innocent people since they use driver’s license and passport photos for their searches, in addition to mug shots. In fact, there is a 50/50 chance that your picture is in a facial recognition database. Also in 2016, another study found that facial recognition software disproportionately targeted people with dark skin.

via ZeroHedge News https://ift.tt/2CtmHKq Tyler Durden

After Slamming Western Media “Hype”, Chinese Officials Issue Highest Flood Alert As Three Gorges Dam Pushed To Limits

After Slamming Western Media “Hype”, Chinese Officials Issue Highest Flood Alert As Three Gorges Dam Pushed To Limits

Tyler Durden

Tue, 07/21/2020 – 18:05

The Huaihe River Commission of the Ministry of Water Resources issued its highest flood alert Monday after the water level on the major river, located between the Yellow and the Yangtze Rivers, reached dangerous levels. 

The water level at the Wangjiaba hydrological station on the Huaihe River reached 29.7 meters on Monday, well above the danger level of 27.5 meters. 

​Wangjiaba hydrological station. h/t China News

Global Times posted a video Monday of Wangjiaba hydrological station.

The 1,000-kilometer river is a major waterway in China, is facing grim flooding risks over the next three days for parts of Shanxi, Henan, Shandong, Anhui, and Jiangsu provinces. 

Massive flooding upstream on the Yangtze River has also caused concern that the Three Gorges Dam, the largest hydroelectric power station in the world, is being pushed to the limit under the strain of massive flows of water. 

Many regions along the Yangtze River have flooded in the past week due to torrential rains this monsoon season. At the moment, at least 400 Yangtze tributary rivers have overflowed, with at least a hundred dead and 15 million people evacuated from their homes in July alone. 

Rainfall totals in China are about 12% higher than the last monsoon season. The economic damage is already in the billions of dollars, according to government estimates the previous week.   

We noted last week rising floodwaters on the Yangtze River had caused fears the Three Gorges Dam has failed to prevent flooding downstream. 

Officials dismissed these accusations on Monday by saying: 

“If flooding occurred via heavy rainfall in the middle and lower reaches of the Yangtze River, the cities surrounding these reaches would have to mainly rely on their own flood drainage facilities,” state-owned Three Gorges Corporation said.

“Under such circumstances, the Three Gorges Dam can still make a contribution by retaining and impounding water to ease the pressure on those cities.”

Some media outlets are claiming the massive damn could collapse. 

Chinese state media has continued to indicate Western media is ‘hyping’ the dam’s collapse. 

Flooding this week is expected to continue on the Huaihe River with no signs of abating. 

A major flooding event could be what the Communist Party of China officials need to scapegoat the coming stall in the world’s second-largest economy.  

via ZeroHedge News https://ift.tt/2CPVlxL Tyler Durden

Daily Briefing – July 21, 2020

Daily Briefing – July 21, 2020


Tyler Durden

Tue, 07/21/2020 – 17:55

Senior editor Ash Bennington joins managing editor Ed Harrison to talk about how EU leaders have closed in on its landmark recovery deal. Ash and Ed examine how European political dynamics have shifted and why this may not really be Europe’s “Hamiltonian moment.” They look at how federalism has played out in the US, how the EU differs in its makeup, and what existential threats the EU faces should their efforts fail. They wrap up their discussion with the unique threats the EU may face with coronavirus should it boomerang back to Europe. In the intro, Nick Correa covers the EU recovery deal’s details and shares some of the difficulties in reaching a deal.

via ZeroHedge News https://ift.tt/3jnMXGJ Tyler Durden

Unprecedented Recession Synchronization And What It Means

Unprecedented Recession Synchronization And What It Means

Tyler Durden

Tue, 07/21/2020 – 17:45

Authored by Mike Shedlock via MishTalk,

The global recession has no precedent in terms of synchronization.

Deflationary Consequences

Lacy Hunt at Hoisington Management explains the deflationary consequences of the current global situation in its Second Quarter 2020 Review.

Hunt commented on the four economic challenges central bankers face as noted below.

Four Economic Challenges

  1. Over 90% of the world’s economies are contracting. The present global recession has no precedent in terms of synchronization. 

  2.  A major slump in world trade volume is taking place. 

  3. Additional debt incurred by all countries, and many private entities, to mitigate the  worst consequences of the pandemic, while humane,politically popular and in many cases essential, has moved debt to GDP ratios to uncharted territory. This insures that a persistent misallocation of resources will be reinforced, constraining growth as productive resources needed for sustained growth will be unavailable.

  4. 2020 global per capita GDP is in the process of registering one of the largest yearly declines in the last century and a half and the largest decline since 1945. The lasting destruction of wealth and income will take time to repair.

Here are ten key ideas (my estimation) condensed from the article.

Ten Key Ideas

  1. Recessions are either deeper or longer lasting when a very high percentage of the world’s economies are contracting rather than when they are centered on a limited number of countries. 

  2. Except for the very short run, the Federal Reserve’s lending operations for the corporate bond market are a negative for economic growth. The BOJ (Bank of Japan), ECB (European Central Bank) and the People’s Bank of China (PBOC) have all been buying corporate debt of failing entities for more than a decade with the BOJ doing so for more than 25 years. These operations have provided a fleeting lift to economic activity, but at the end of the day they resulted in misallocation of credit, poor economic growth and disinflation/deflation. 

  3. By keeping failing players in the game, this prevents the process Joseph Schumpeter called “creative destruction” as well as “moral hazard”, thereby eliminating these critical factors that make free market economies successful. 

  4. The adverse consequences of an unsurpassed increase in new debt will remain for years to come. Four great past economists – Eugen Bohm Bawerk, Irving Fisher, Charles Kindleberger and Hyman Minsky – all captured the two-edged nature of debt being an increase in current spending in exchange for a decline in future spending unless the debt generates an income stream to repay principal and interest. 

  5. The relationship between debt and economic growth is non-linear, just as is the law of diminishing returns. Significant research indicates that the adverse consequences start as low as a 67% gross debt to GDP ratio. 

  6. A recent Brookings Institute study posits the pandemic will lead to 300,000- 500,000 less births next year. For 2019, population growth in the U.S. and the world, was already the slowest since 1918 and 1952.

  7. In the first quarter, corporate debt jumped to a record 48.7% of GDP, more than 300 basis points higher than during the Lehman crisis 

  8. In 1934, Irving Fisher wrote that the velocity of money falls in heavily indebted economies. We believe that Fisher’s finding will be correct because his view is supported by the evidence and the rationale that the huge additional debt added this year will not generate an income stream to repay principal and interest. Accordingly, the reopening rebound in the economy underway will falter, leaving the economy with a huge output gap.

  9. At the end of the three worst recessions since the 1940s, the output gap was 4.8% in 1974, 7.9% in 1982 and 6.4% in 2009. The gap that existed after the recession of 2008-09 took nine years to close. This was the longest amount of time to eliminate a deflationary gap.

  10. Considering the depth of the decline in global GDP, the massive debt accumulation by all countries, the collapse in world trade and the synchronous nature of the contracting world economies the task of closing this output gap will be extremely difficult and time consuming. This situation could easily cause aggregate prices to fall, thus putting persistent downward pressure on inflation which will be reflected in declining long-dated U.S. government bond yields.

Conclusion

Nearly all economists expect a huge jump in inflation associated with the Fed’s massive balance sheet expansion and government fiscal stimulus.

However, I side with Lacy Hunt. 

My Reasons

  • The demand destruction from Covid will last for years.

  • Demand destructuction is greater than Covid stimulus.

  • Buildup up debt is inherently deflationary. 

  • Demographics are deflationary.

  • By bailing out failed corporations, the Fed is creating more and more zombies. 

Unwanted Inflation Easy to Find

Actually, inflation is easy to find. Look no further than the stock and bond markets.

The Fed’s balance sheet expansion coupled with trillions of dollars of fiscal stimulus (both unprecedented) has resulted in stock market speculation also at unprecedented levels exceeding the housing bubble boom in 2008.

Six Related Articles 

  1. Banks Double Loan Loss Reserves ‘Everybody Is Struggling’

  2. Housing Starts and Permits Improve But Not Enough

  3. Cass Transportation Index “Not Good By Any Measure”

  4. China’s Unexpectedly Strong Growth Isn’t What it Seems

  5. All Continued Unemployment Claims Top 32 Million Again

  6. Work-From-Home Will Reduce Driving by 270 Billion Miles Per Year

Conclusion

Inflation is not where the Fed wants it. 

The Fed can print money and Congress can hand it out, but neither can dictate where the money goes.

In 2020, money has found a home in rampant speculation in stocks and bonds. In 2008 money primarily went into a housing bubble.

But bubbles burst. Thus, speculation too is inherently deflationary. 

via ZeroHedge News https://ift.tt/3eRrWAB Tyler Durden