Twitter Ditches “Offensive” Non-Inclusive Terms Such As “Whitelist”, “Man Hours” And “He, Him, His” Tyler Durden
Fri, 07/03/2020 – 14:20
Twitter on Friday announced a list of words and phrases that their engineering team will begin using in place of ‘problematic’ language which “does not reflect our values as a company or represent the people we serve.”
Now, “man hours” will be “person hours” or “engineer hours,” the word “Blacklist” will become “Denylist,” and Whitelist will be the “Allowlist.”
Don’t even think about misgendering – the ultimate microaggression.
We’re starting with a set of words we want to move away from using in favor of more inclusive language, such as: pic.twitter.com/6SMGd9celn
Twitter’s new rules apply to source code, documentation, FAQs, technical design docs, “and more,” while the company is also “implementing a browser extension that will help our teams identify words in documents and web pages, and suggest alternative inclusive words.”
The reactions have been telling:
@TwitterEng , we don’t trust you. We don’t trust a small group of people who think it’s up to them to decide for the rest of us what words we can or cannot use. You don’t have the wisdom for it. You’re not smart enough. No one is. You have no idea how dangerous this is.
Twitter’s new rules are similar to changes at JPMorgan, which has eliminated terms such as “blacklist” and “master / slave” as well from its internal technology materials and code, according to Reuters.
The terms had appeared in some of the bank’s technology policies, standards and control procedures, as well in the programming code that runs some of its processes, one of the sources said.
Other companies like Twitter Inc (TWTR.K) and GitHub Inc adopted similar changes, prompted by the renewed spotlight on racism after the death of George Floyd, a Black man who died in police custody in Minneapolis in May. here
The phrases “master” and “slave” code or drive are used in some programming languages and computer hardware to describe one part of a device or process that controls another. –Reuters
Who will be the next company to signal their virtue in the wokelympics?
via ZeroHedge News https://ift.tt/3glpZ0o Tyler Durden
Abandoned Malls Are Now Being Turned Into Hybrid Apartment Housing Tyler Durden
Fri, 07/03/2020 – 14:10
Over the last couple of years, we have been extensively documenting the hastening trend of abandoned malls around the country. As brick and mortar unceremoniously gives way to e-commerce, one shopping mall after the next has been left for dead, with some even starting to be reclaimed by the Earth, complete with flora and fauna.
via ZeroHedge News https://ift.tt/3dVuld1 Tyler Durden
Canada Suspends Extradition Treaty With Hong Kong, Slams “Secretive” New Law Tyler Durden
Fri, 07/03/2020 – 13:47
In massive new fallout two days after China’s new Hong Kong national security law went into effect, Canada announced Friday it will suspend its extradition treaty with Hong Kong. This effectively opens the door for Hong Kong democracy activists, who might potentially find themselves “wanted” by pro-Beijing authorities and accused of crimes, to seek out Canada as a safe-haven. No longer will Canada agree to extradite ‘criminals’ back to Hong Kong.
But the drastic Canada move – also coming at a time of rapidly worsening US-China and UK-China relations – has further implications touching on trade and military ties, as Reuters reports of the latest government statements:
In a statement, Foreign Minister Francois-Philippe Champagne also said Ottawa would not permit the export of sensitive military items to Hong Kong, which is home to around 300,000 Canadians.
…Champagne condemned the “secretive” way the legislation had been enacted and said Canada had been forced to reassess existing arrangements.
This includes “closed trials” and lack of independent review or appeal, with the potential for life in prison for certain egregious crimes deemed motivated by terrorism or separatism. In his statement Champagne announced: “Canada will treat exports of sensitive goods to Hong Kong in the same way as those destined for China.Canada will not permit the export of sensitive military items to Hong Kong.”
“Canada is also suspending the Canada-Hong Kong extradition treaty,” he added. And on the day the law went into effect, Wednesday, Canada took this action:
US Auto Sales Plunged In Q2 With GM, Toyota, & Fiat Suffering 30% Drops In Sales Tyler Durden
Fri, 07/03/2020 – 13:20
U.S. vehicle sales for major manufacturers like Toyota, General Motors and Fiat were all slaughtered in the second quarter of 2020 as the U.S. deals with the brunt of the economic impact from Covid-19 – while already in the midst of an auto recession that we had written extensively about heading into 2020.
Sales for all three of those manufacturers were down more than 30% in the second quarter, mostly in-line with Wall Street’s predictions. Nissan, Hyundai and Porsche also suffered major drops in sales between April and June, according to CNBC.
Edmunds had predicted a 34% drop in sales for the second quarter, which is expected to be the worst quarter of the year due to the pandemic. GM’s sales fell 34% on the nose, Fiat’s sales fell 38.6% and Toyota’s numbers fell 34.6%.
Nissan’s reported Q2 sales plunged 49.5% and Hyundai’s sales fell 23.7%, including a 21.9% plunge in June. Volkswagen posted a 29% decline in sales and sold under 70,000 vehicles in the quarter. Porsche sales fell 19.9%.
Pickup trucks were a silver lining for both GM and Fiat in the quarter. Kurt McNeil, GM’s U.S. vice president, sales operations, said: “GM entered the quarter with very lean inventories and our dealers did a great job meeting customer demand, especially for pickups. Now, we are refilling the pipeline by quickly and safely returning production to pre-pandemic levels.”
Jeff Kommor, head of U.S. sales for Fiat Chrysler, cited fleet sales as being a problem. Many of those sales have been “canceled or delayed” he said.
Similarly, Bob Carter, executive vice president of sales for Toyota Motor North America, also spoke to CNBC about fleet sales being a problem: “Retail consumers are coming out looking for cars and trucks. What hasn’t yet returned to the auto industry is the fleet commercial buyer, particularly rental car. Those sales continue to be suppressed at about 20%.”
Zero Hedge readers likely already know that we had reported on the drought in fleet sales just days ago. “Weak fleet orders for June are making it seem as though a recovery is still far away,” we wrote. “Cox Automotive is forecasting that fleet sales will fall 56% to 1.3 million vehicles in June, after plunging 83% in May and 77% in April.”
In the same piece, we noted that Cox was also predicting that further job cuts could occur if production at U.S. automakers doesn’t eventually ramp back up. Zohaib Rahim, economic and industry insights manager at Cox Automotive, said: “If we don’t see a rebound in 2021, this will be a problem for automakers. But right now they’re using all their production to supply dealers.”
While fleet sales aren’t a main concern for automakers – higher margin sales to customers are – they can still put pressure on the industry as a whole. And with rental companies like Hertz now in the midst of bankruptcy, there is sure to be a profound effect not only on dealer sales, but the used car aftermarket. 62% of vehicles sold to fleet buyers in 2019 went to rental car companies.
In 2019, fleet sales accounted for about 22% of GM’s sales, with about half going to rental fleets and the other half going to corporations and government agencies.
Fleet sales made up about 28% of Nissan’s 2019 sales, with 93% of those going to rental car companies.
via ZeroHedge News https://ift.tt/2ZtJXiM Tyler Durden
Representative Sheila Jackson Lee (D-TX) on Wednesday called for the passage of a bill to study slave reparations and how distribution would occur. Originally proposed in Jan. 2019, the bill has gained traction since the killing of George Floyd.
Jackson Lee saidthere is “no better time” for the bill to be in the national conversation.
“We now have an opportunity, through H.R. 40, to have the highest level of discussion about systemic racism and race,” Jackson Lee said on Tuesday according to The Hill.
“And we are able to do it in a manner that is bringing people together; that acknowledges that Black lives matter; and acknowledges that there has to be a response.”
Since the May 25 killing of Floyd, the House has passed bills to address racial disparities and a large number — 131 Democratic representatives — have signed on to the Reparations Bill.
“The key question here is that as the slaves were free, there was no tangible wealth given for their work of over 200 years,” Jackson Lee said in a Tuesday press conference with the Congressional Black Caucus.
“That lack of wealth, reflected in the anger and anguish of those who received them, that led into a broken reconstruction, Jim Crowism, 4,000 African Americans lynched and then a period of attempt at civil rights and the loss of the civil rights battlers, in essence on the civil rights battlefield.”
House Majority Leader Steny Hoyer said on Wednesday the slave reparations bill is under consideration for a vote by the House.
“The purpose of this Act is to establish a commission to study and develop Reparation proposals for African-Americans,” the bill reads.
“To address the fundamental injustice, cruelty, brutality, and inhumanity of slavery in the United States and the 13 American colonies between 1619 and 1865 and to establish a commission to study and consider a national apology and proposal for reparations for the institution of slavery.”
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A press release via Walmart on Wednesday (July 1) said, “Walmart is transforming 160 of its store parking lots into contact-free drive-in movie theaters where customers can safely gather to watch movies programmed by the Tribeca Drive-in team.”
Beginning in August, Walmart will roll out this red carpet experience in towns across the country for a combined 320 showings. This family-friendly night will include hit movies, special appearances from filmmakers and celebrities and concessions delivered right to customer vehicles.
Walmart’s drive-in tour will run through October. Additional details will be announced closer to the start of the tour. More information can be found here: walmartdrive-in.com.
Ahead of each screening, Walmart will make it easy for families to fill their picnic baskets by ordering their drive-in essentials online for curbside pickup on the way to their movie. For families itching for the big screen now, Walmart is also partnering with the Tribeca Drive-in to serve as a presenting partner for its Tribeca Drive-In movie series, which begins this Thursday, July 2. – Walmart press release
“Drive-Ins have been a signature program for Tribeca since we started the Tribeca Film Festival 19 years ago after 9/11,” Jane Rosenthal, CEO and co-founder of Tribeca Enterprises and Tribeca Film Festival said in a statement Wednesday.
“But now, the Tribeca Drive-In is much more than a fun, retro way to see movies — it’s one of the safest ways for communities to gather. We are thrilled to partner with Walmart to bring more people together around the shared cinematic experiences that Tribeca is known for.”
Walmart said stores in Arlington, Texas, Pasadena, California, Nassau County, New York, and Orchard Beach in the Bronx, New York would offer the new drive-in movie service.
As we noted several months back, more than half a century ago, there were nearly 4,000 drive-in movie theaters across the US. Now there’s less than 300 – but that’s all expected to change in a post-corona, contactless world.
Google search trend “drive-in movie theater near me” has erupted to a near multi-decade high.
It’s clear that Americans have little intentions in returning to a traditional movie theater as virus cases surge and states pause or reverse reopenings, have now opted for the second-best thing, that is, a drive-in movie theater, soon to be featured in Walmart parking lots.
via ZeroHedge News https://ift.tt/31CkwOK Tyler Durden
Rabobank: If 500,000 Rich Hong Kongers Leave The City, The HKD Peg Would Surely Collapse Tyler Durden
Fri, 07/03/2020 – 12:01
Submitted by Michael Every of Rabobank
Brawn on the Fourth of July
The US is on holiday today to celebrate Independence Day, which actually falls tomorrow. This 4 July it can do so with some big, brawny numbers to focus on. First of all, jobs. US payrolls yesterday smashed expectations (which consistently have proved not to mean anything in this crisis), rising 4.8 million. Put another steak on the BBQ! Unfortunately, weekly initial claims out the same day showed no sign of any improvement and new unemployment filings were once again 1.4 million. Let’s swap the steak for potato salad. Indeed, with re-openings on pause or being rolled back, and the cut-off point for June payrolls data sampling being around the middle of the month, the likelihood is that things are already stalling even though we are millions of jobs away from getting back to where we were on 4 July 2019.
Of course, the other big number is the virus. New cases in the US continue to surge, with 55,000 in a single day being the latest snapshot. As the Fed keeps saying, if that number does not come down, the other economic numbers are not going to hold up.
Not that this matters for financial markets in any way. They are guaranteed to be alright regardless. More virus equals more free money; less virus means more growth; and if it also means less free money it must therefore shortly after mean more free money. Otherwise markets will go down – and as markets cannot go down, appropriate measures will of course be taken. (The latest being the German Bundestag voting to support ECB QE to end-run the German constitutional court’s questioning of that policy’s validity.) Ray Dalio makes a similar point forcefully today, but isn’t saying anything this Daily(o) has not been saying for a long time. Indeed, I mention what is happening in the real world purely for those who are interested in current affairs rather than markets.
Where these two do intersect are a few key stress points which have the ability to make central banks look as impotent and irrelevant as they actually still are. (Have they sorted out inflation yet? How about climate change? Or inequality? Or curing the virus?)
Primary among these is still the US-China issue. The US Senate has just re-passed the latest Hong Kong bill and so President Trump has ten days to sign it or it becomes law anyway, unless he tries to veto it, risking a Congressional over-ride. Very soon, the clock starts ticking. As Bloomberg notes: “The law gives banks a kind of year-long grace period to stop doing business with entities and individuals the State Department determines to be “primary offenders” when it comes to undermining Hong Kong’s autonomy. After that period, the Treasury Department can impose a variety of penalties on those institutions, including barring top executives from entering the US and restricting the ability to engage in US dollar-denominated transactions. The sanctions would apply to Chinese banks as well as Chinese subsidiaries of US banks…[and will] mostly affect the largest Chinese lenders that do business with the US.”
So no USD for the largest Chinese lenders. How do they help Chinese firms transfer USD to repay external debt? How do Chinese importers transfer funds to those all round the world who sell to them? Simple questions: no simple answers to how China can avoid such US financial brawn.
Naturally, we can expect ‘markets’ to shrug at locking-in a 12-month countdown to a USD “nuclear option” because a constant over the past few decades has been the ‘Hollywood ending’ – as typified by Tom Cruise, an A-list star back in 1989’s “Born on the Fourth of July”, and amazingly still one today. (He seems to have his own personal central bank.) Yet how is that working out as regards Brexit, which is now similarly time-delimited? “EU-UK trade talks break up early over ‘serious’ disagreements” says the pro-EU Guardian as “EU Brexit negotiator Michel Barnier complained of lack of respect and engagement by UK”. The anti-EU Daily Express says “Boris Johnson blames EU for missing crucial deadline -as trade talks collapse” adding BoJo “has furiously hit back the at EU, blaming Brussels for missing a key deadline in post-Brexit trade talks as the two sides continue to trade vicious blows amid increasing fears of a no deal conclusion.” Tick-Tock.
Coincidentally, the UK is set for its own feeble independence day celebration tomorrow as pubs finally re-open (in the same way that its recently-flagged New Deal amounts to 0.2% of GDP in public spending vs. 40% for the US original). Let’s just hope this does not flag what has been seen in the US and Israel: that four weeks from now virus numbers will ‘mysteriously’ be surging again.
But back to areas where central banks can’t help. Yesterday the Daily presented the simple maths that if 500,000 Hong Kongers were to leave the city and take USD1m equivalent with them then ceteris paribus, the HKD peg would surely have to go as all FX reserves evaporated. In recent weeks we have seen the HK authorities publicly state they will not impose capital controls – which as a key global financial centre should always be unthinkable. Yesterday, after a Chinese official response strongly opposing the UK government making clear it will offer 2.9m Hong Kongers a path to citizenship, the HK authorities had to publicly disavow rumours of a travel ban on its citizens. Yes, that’s where we stand. What does monetary policy have to offer here?
One other one: Jeffrey Epstein confidante (and alleged co-offender) Ghislaine Maxwell has just been arrested by the FBI after mysteriously not being findable despite living in a tiny New Hampshire hamlet of just 1,600 people all along. The book has been thrown at her already, and questions are being asked about how many influential names are going to be named as she goes down. As social media is full of pictures of Presidents Trump and Clinton, and Prince Andrew all openly socialising with Maxwell, some are also remarking: “Ghislaine Maxwell committed suicide tomorrow” or that perhaps it will be a sudden case of Covid-19 instead.
Happy 4 July, America, and British pub-goers!
via ZeroHedge News https://ift.tt/3ggqVTQ Tyler Durden
Heat Wave To Bake Significant Parts Of US Through Mid-July Tyler Durden
Fri, 07/03/2020 – 11:40
Extreme temperatures, mostly in the mid/the high 90s, are expected for the first half of July for much of the U.S., reported The Weather Channel.
These hotter-than-usual temperatures have already begun this week and will bake a significant part of the country this holiday weekend, with elevated temperatures forecasted through the midpoint of the month.
Current weather models show a heat dome is expected for much of the country:
A broad ridge of high pressure and a jet stream that will remain well to the north will allow heat to spread across large sections of the Plains, Midwest, Northeast, and Rockies.
This pattern will be supported by two domes of high pressure – one over the East and a second, stronger dome over the Southwest – that will cause air to sink and warm over their respective regions. The domes will also bring warmer air northward on their western and northern sides and diminish rain chances. – The Weather Channel
North America Temperature Anomalies: 4-Week Average
The epicenter of the heat will be centered initially around the Great Lakes area, then spread to much of the Midwest, Southeast, Mid-Atlantic, and Northeast. Temperatures will be 20 degrees above average in the Upper Midwest on July 4.
“The first half of July looks to have well-above-normal temperatures, at pretty high probabilities, beginning around the Fourth of July or slightly before,” Jon Gottschalck, chief of the Operational Prediction Branch at the National Weather Service’s Climate Prediction Center, told NBC News.
Many large metropolitan areas in the Midwest and Northeast will be +10 degrees above average through the holiday weekend – an indication that energy demand will surge.
The most common use of degree days is for tracking energy usage – so we will examine cooling degree days (CDD) in several U.S. regions to determine a spike in energy usage is imminent.
Now looking at energy load forecasts – the New York Independent System Operator Inc (NYISO) shows energy demand is set to move higher this weekend.
Load forecasts for all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia (via PJM East Load E.C.) shows electricity usage set to surge on July 4.
The ag-commodity team at Reuters notes the extent of the heat wave in July and how the Midwest should expect “dryness risks:”
Over the last couple of days, weather forecasts for key crop areas continue to imply a warm bias, with relatively extensive warmth through the next 10-15 days. The most anomalous heat will be centered across the Great Lakes, where temperatures could be up to 10 °F above normal on average over the next 10 days. More muted heat is expected in most other areas, with temperatures nearing normal across portions of the Plains based on the latest E.C. guidance in particular. With climatological temperatures peaks on the way during July, even ‘average’ conditions in parts should produce widespread 90 °F high temperatures across a majority of crucial crop regions.
On rainfall, recent model guidance has continued to show signs of a very dry period across the Midwest, consistently between GFS & E.C. guidance. This dry stretch appears to encompass Nebraska across to Indiana most significantly, across some of the densest corn and soybean production areas of the Midwest, with less than 1 inch (~25 mm) of rainfall through the next 10 days. This pattern could manifest in a summerlike “ring of fire” pattern, where portions of the Upper Midwest and northern Great Lakes receive clusters of rain and thunderstorms. While it currently looks like the key ‘I-states’ will miss out on adequate rainfall, this pattern should be watched closely as such patterns are typically suspect of these thunderstorm clusters sinking south.
Even moderate heat in conjunction with very dry conditions (sometimes referred to as a ‘flash drought’ situation) as crops approach critical grain and pod fill stages in the next several weeks could diminish conditions and should be watched closely. A warm bias in the forecast has been fairly consistent for several days now, but acute dryness does appear more severe than it did early in the week. Across the border into Canada, the lack of moisture in portions of the southern Prairies might pose serious yield risks, as most of Canada’s spring crops are now entering the prime growing season. Deteriorating U.S. spring wheat conditions should be monitored closely as well, although healthy rains main align nicely across the Dakotas and Minnesota through 10 days (as shown in the map below).
In addition to short-term GFS & E.C. guidance, the next 4-week outlook from the E.C. Extended model will be released later this afternoon (U.S. time) and should also be monitored for trends as well. The last update from Monday (29 Jun) featured widespread warm and dry conditions to most key crop areas during July overall.
As for now – enjoy the dog days of summer as a surge in energy usage will likely lead to higher electricity bills – knowing that, along with the employment situation – how many broke Americans will have to move up their thermostat this summer as they simply can not afford to cool their home during the recession?
via ZeroHedge News https://ift.tt/2AszqMn Tyler Durden
Are you ready for this week’s absurdity? Here’s our Friday roll-up of the most ridiculous stories from around the world that are threats to your liberty, risks to your prosperity… and on occasion, inspiring poetic justice.
A million dead people received stimulus checks totalling $1.4 billion
In response to coronavirus lockdowns, a tanking economy, and millions out of work, the US government sent $1,200 stimulus checks to most Americans.
Over 1.1 million of those checks ended up going to people who had already passed away.
The total amount of money which was sent to dead people came to about $1.4 billion, according to a report from the Government Accountability Office.
That’s because, in an effort to rush the checks out the door, the IRS used old data that did not include information from the Social Security office about recently deceased.
Currently the government has no plan in place to recover the money, other than simply saying anyone who receives one of these checks meant for dead people should return them.
But they have no plans to tell anyone how to return the checks.
Federal Judge forced to resign for calling his clerk “street smart”
The chief judge of the 9th U.S. District Court for the Central District of California held a webinar with attorneys in California recently to discuss new Covid procedures and provide general updates about the court.
It should have been a pretty mundane webinar.
At one point, the judge praised his clerk, saying “we have just a fabulous clerk of the court in Kiry Gray. She’s so street-smart and really knows her job.”
Yes, apparently describing someone as “street smart” is a demeaning, racist comment. And the Twitter mob piled on the heat, calling out the judge’s obvious white supremacy.
Cambridge promotes professor after “White lives don’t matter” tweet
Priyamvada Gopal, a professor at Cambridge University in Great Britain went on Twitter to declare that “white lives don’t matter” and “abolish whiteness”.
That sounds pretty hateful and perhaps even borderline violent.
Twitter agreed, and actually banned Gopal initially. But Twitter backtracked once the mob came out in defense of the professor.
When confronted with a petition against her comments, Gopal did not back down, but doubled down, defending her position.
And Cambridge University not only stood by the professor; they promoted her!
Cambridge then issued a statement which said, “The University defends the right of its academics to express their own lawful opinions which others might find controversial.”
As many people have pointed out, Cambridge does not always defend the right of academics to express their views freely.
That’s why they revoked a visiting professorship from Jordan Peterson when the Twitter mob came for him.
Academia only cares about protecting certain types of controversial free speech– and it isn’t the ones based on science or research. They punish calls for academic freedom, and reward race-baiting with no academic value.
This is the education people go into debt for– at a prestigious university like Cambridge, no less.
Meanwhile. . . college dean fired for suggesting that all lives matter
Ms. Leslie Neal-Boyan, the dean of the nursing school at a Massachusetts university, sent an email to her colleagues at the nursing school recently, condemning “acts of violence against people of color.”
The email went on to say “Recent events recall a tragic history of racism and bias that continue to thrive in this country. I despair for our future as a nation if we do not stand up against violence against anyone. BLACK LIVES MATTER.”
So wait, you might be thinking, what’s the issue? Why did she get fired?
Because after writing “BLACK LIVES MATTER,” Leslie then committed a heinous crime by stating, “but also, EVERYONE’S LIFE MATTERS.”
Even still, the email continued, saying “No one should have to live in fear that they will be targeted for how they look or what they believe.” Except, of course, if you believe that everyone’s life matters.
Leslie concluded by asking the students to “care for everyone regardless of race, creed, color, religion, ethnicity, ability or gender preference.”
But it didn’t matter, the damage was done. Three words. Everyone’s. Life. Matters.
It only took one student to say that she was upset by Leslie’s comment… and poof, Leslie was fired.
With stock-markets barely ruffled, few are thinking beyond the very short-term and they are mostly guessing anyway. Other than possibly the very short-term as we emerge from lockdowns, the economic situation is actually dire, and any hope of a V-shaped recovery is wishful thinking or just brokers’ propaganda. But for now, monetary policy is to buy off all reality by printing money without limit and almost no one is thinking about the consequences.
Transmitting money into the real economy is proving difficult, with banks wanting to reduce their balance sheets, and very reluctant to expand credit. Furthermore, banks are weaker today than ahead of the last credit crisis, and payment failures on the June quarter-day just passed could trigger a systemic crisis before this month is out.
Sooner or later bank failures are inevitable and will be a wake-up call for markets. Monetary inflation will then become an obvious issue as central banks and government treasury departments become desperate to prevent an economic slump by doing the only thing they know; inflate or die.
Foreigners, who are incredibly long of dollars and dollar assets will almost certainly start a chain of events leading to significant falls in the dollar’s purchasing power. And when ordinary Americans finally begin to discard their dollars in favour of goods, the dollar will be finished along with all fiat currencies that are tied to it.
Introduction – monetary transmission problems
Between different schools of economics there is much confusion over the link between changes in the quantity of money and prices, exposed afresh by the collapse in GDP due to COVID-19 and the aggressive monetary response from the authorities to contain the economic consequences.
Neo-Keynesians appear to understand the link exists, but for them inflation is always of prices which can be managed by adjusting monetary policy subsequently.
Monetarists follow a mechanical quantity theory leading to a relatively straightforward relationship between changes in the quantity of money and of prices after a time lag of a year or so. The principal difference with the neo-Keynesians is in the timing: monetarists see monetary inflation occurring long before the price effect, and neo-Keynesians in charge of central bank monetary policy assume rising prices can be controlled subsequently by varying interest rates.
The Austrian school, which is banished from these proceedings, explains that inflation is of money and nothing else, and the effect on the general price level is determined by a combination of changes in the money quantity and of consumers’ relative preferences for holding money relative to goods.
But central banks operate exclusively on neo-Keynesian lines. They feel free to expand the money quantity so long as the general level of prices does not exceed a targeted 2%; except when it does there is usually an excuse not to restrict money supply growth immediately. Keynesian Inflationism offers problems on so many levels, not least being it is rather like driving a vehicle using a rear-view mirror for guidance. But importantly for our analysis, central banks do not seem to realise current monetary policies guarantee the death of their currencies.
Central bankers act as if money supply increases after prices, which is what monetary policy amounts to. They have other nonsensical beliefs, such as through an inflation tax despite robbing consumers of their wealth, it stimulates them to buy. Whoever thought that one up as a lasting policy beyond short-term distortions deserves an Ignoble prize for idiocy.
Ah! That was Lord Keynes. And perversely, his disciples are today’s main recipients of the Nobel prize for economics. We are now seeing central banks, like some latter-day Aztec priests, trying to appease their gods with human sacrifices. We are the sacrifices, lesser mortals trying to do the best for our families and ourselves, being slaughtered by monetary means.
Figure 1 indicates the alarming debasement of our savings, earnings, and pensions so far through monetary expansion and explains why the dollar’s purchasing power has been declining faster than the CPI suggests.
The fiat money quantity reflects not only money in circulation, that is to say true money as defined by Austrian economists, but additionally the banks’ deposit reserves held at the Fed, the last data being for 1 May. It captures fiat money both in circulation and theoretically available for circulation.
From 2009 it shows the excess monetary inflation that followed the Lehman crisis in 2008, which until 1 February this year grew at an annualised monthly compound rate of 9.5%, compared with the pre-Lehman average long-run rate of about 5.9%.
No wonder independent analysts calculating the rate of price inflation tell us that it is running at 8%—10% (Shadowstats.com and Chapwood Index), instead of the CPI’s 1.5—2.0%. And if that was not bad enough, the recent sharp increase at an annualised rate of 98% since March comes on top of it, putting FMQ at more than double where it would be if Lehman had not happened. FMQ now also exceeds GDP, telling us there is more fiat money than US output, and yet more liquidity is demanded through the banks by failing businesses.
The Fed has increased base money at an unprecedented rate to provide liquidity, allegedly for the non-financial sector. For this to get to businesses banks must be prepared to increase their lending to non-financials and bank credit must not contract. But as Figure 2 shows, bank balance sheets have stopped growing and even contracted since the end of April.
Between 26 February and 29 April bank balance sheets increased by $2,489bn. These figures include the uplift in total reserves held at the Fed and not in public circulation, which over the same period increased by $1,083bn. Therefore, banks increased their other assets by $1,406bn between these dates. Those other assets are split between financials and non-financials, the evidence of rising financial asset prices relative to commercial business’s decline strongly suggesting Wall Street has been favoured over Main Street
Subsequently, up to 17 June bank balance sheets contracted by $169bn. The extent to which banks are increasing financial activities will be balanced by an even sharper contraction in bank credit for non-financials than indicated by the overall balance sheet.
Central banks with their reliance on inflation now have a problem: the banks are failing to pass on extra money to the non-financial sector by expanding their balance sheets. Yet, the disruptions to supply chains, the onshore component totalling some $38 trillion and an unquantifiable offshore component feeding into it, are still there and their problems are growing by the day. In short, we face a continuing liquidity crisis with limited means of relieving it.
Economic prospects for the next few months
Before we proceed in our analysis of the price effects of inflation, we must assess the economic outlook,as the backdrop to the likely consequences for the scale of monetary inflation, and then we can have a stab at evaluating the effect on prices.
The first clue is in Figure 2 above, which shows that bank lending is contracting, and it is important to understand why. At this stage of the credit cycle, which began expanding following the aftermath of the Lehman crisis over a decade ago, a sharp contraction of bank credit to non-financials is normal. It is what drives periodic recessions slumps and depressions, and monetary stimulus by central banks is intended to help commercial bankers recover their mojo and resume lending.
The relevant history of central bankers’ attitudes to bank credit goes back to Irving Fisher’s description of how contracting bank credit intensified the 1930s depression by the liquidation of debt, forcing collateral values down and leading to bank runs and the bankruptcy of thousands of banks. Ever since, monetary policy is guided by the fear of a repeat performance. But the Keynesian stimulus at the start of the credit cycle only increases the destabilising nature of bankers’ behaviour, consisting of long periods of growing greed for profitable loan business, interspersed by sudden reversions to fear of loan risk. It results in a cycle of credit expansion and contraction, which in recent cycles have been resolved temporarily by increasingly aggressive expansions of base money along with government actions to support ailing industries.
It is a sticking-plaster approach which allows the wound to fester out of sight.
Following Lehman’s failure, a similar pattern to the one unfolding today of a rapid increase in bank assets through the newly invented QE was followed by a contraction of bank credit which lasted about fifteen months. But that crisis was about financial assets in the mortgage market, which had knock-on effects in the non-financials. Difficult though it was, its resolution was relatively predictable.
This crisis started in the non-financials and is therefore more damaging to the economy; its severity is likely to lead to a banking crisis far larger than the Lehman failure and possibly greater than anything seen since the 1930s depression.
Commercial bankers are now waking up to this possibility. For them, the immediate danger is associated with this quarter-end just passed, when demand for credit to pay quarterly charges increases significantly. Already, businesses are in arrears as never before, with many shopping malls, office blocks and factories unused and rents unpaid. It is this problem, shared by banks around the world, which due to the severity of current business conditions is likely to tip the banking system over the edge and into an immediate crisis. The extent of the problem is likely to be revealed any time in this month of July.
Excluding the subsequent effects, the Lehman crisis cost the US Government and its agencies over $10 trillion in support and rescue operations. This time, being in the non-financial sector with knock-on effects for the financial economy, this crisis is much deeper than Lehman and will require a far larger bailout cheque for collapsing industries. Part of the problem are the broken supply chains needing bridging finance. And none of this can be done without the Fed funding it all directly or indirectly through quantitative easing. Despite the massive monetary inflation already underway there can be no doubt that aggregate consumer demand and the production of goods to satisfy it will take an enormous hit this year and beyond, and there is little doubt about the state’s will be on the hook for even more monetary financing.
Unemployment of previously productive labour is already rising dramatically, and as bankruptcies increase the rise in the unemployment numbers will continue to do so. Let us therefore assume that compared with last year the production of goods and services and consumer demand for them will decline by at least 25%. Note that we avoid using money-totals, since they are meaningless; it is the exchange of labour being converted into physical products and services that matters.
Into this situation is injected enormous quantities of money, none of which defeats the constraints on true supply of goods, nor for overall demand in a high unemployment economy. Put in a more familiar way, we will have too much money chasing not enough goods. There is only one outcome, other things being equal; the purchasing power of the dollar in terms of consumer goods will be driven significantly lower. But central bank analysis rules this out, associating too much money chasing too few goods with only an expanding, over-stimulated economy.
This explains stagflation, the situation where an economy stagnating in overall demand is accompanied by rising prices. Nor are other things ever equal, the condition for the paragraph above. The early receivers of inflated money will spend it, driving up the prices of the goods and services they acquire before the prices of other goods and services are affected. These early receivers include the Federal Government, which in an election year is doubly unlikely to hold back. Distribution of state money will increasingly be in the form of welfare to the unemployed, skewing spending towards life’s essentials. Inevitably, in an economy with subdued activity not responding quickly enough to produce the volumes of products desired, prices, mainly of essential items, will increase sharply.
Almost certainly, a broad index of prices will not capture this secular effect until too late. The CPI includes a majority of items which are only occasionally bought by individuals. Poor demand for non-essentials where there is now an oversupply puts downward pressure on their prices even in an inflationary environment. It is therefore possible for the CPI to record little or no price inflation as an average when food and energy prices are rising strongly, particularly when statistical methods designed to show little or no increase in price inflation are additionally taken into account.
Consequently, central banks are already being badly misled by the CPI’s statistical method. And when prices for essentials are soaring, they will continue to increase the quantity of money in circulation, distracted by that 2% increase in the CPI target. By the time it creeps up above that rate it will be too late, much monetary water having already flowed under the bridge.
The politicians will likely dismiss rising prices for food and fuel as the result of profiteering — they always do and then contemplate introducing price controls, making this outcome even worse.
Let us stand back from what is happening — or shortly will be — and estimate the inflation scene as far as we know it:
After growing at an average annual rate of 9.5% since the Lehman crisis, broad money in the form of FMQ accelerated to an annualised growth rate of 98% from February this year. Bank balance sheets increased by just under $2.5 trillion in March and April but are now beginning to contract. More increases in base money from the Fed are sure to follow, compensating for lack of bank credit expansion.
The Fed is underwriting the whole US corporate debt market in an attempt to ensure the flow of finance for all borrowers, bypassing the banks and suppressing yields in the markets. The secondary market for non-financial debt in the US alone is $9.6 trillion, probably requiring an initial trillion or so of Fed buying in the foreseeable future to keep yield spreads suppressed.
The quarter-end two days ago will be marked by a significant rise in missed payments. But demands for more bank credit will be resisted by the banks leading to many more existing loans going sour. Under the weight of non-performing loans, it will be a miracle if a banking crisis is not triggered by missed payments in the US, or elsewhere where banking systems are even weaker. Wherever it starts, the Fed is committed to underwrite the whole US banking system, along with all its commercial borrowers with falling sales and disrupted supply chains, to prevent unemployment spiralling out of control. The monetary inflation required for this alone could easily be at least twice the cost of the Lehman crisis.
The Fed is also attempting to underwrite the whole market for financial assets by inflating the quantity of dollars being fed into it in order for the necessary financial and economic confidence to be maintained.
Monetary expansion on this scale is bound to undermine the dollar in the foreign exchanges as foreigners liquidate portfolio investments, US Treasury stock, agency stock and the excess of bills and bank deposits not required for reserve currency liquidity purposes. This will leave the Fed funding a government deficit escalating beyond control, and if it is to keep borrowing costs low, it must also absorb sales of foreign-held Treasury and agency debt which currently total $6.77 trillion.
Measured in current dollars, even the quantity of narrow M1 money after all this inflationary financing is likely to grow to much more than 2019’s US GDP, which will be contracting sharply in terms of physical output and consumption. This is the recipe for a monetary collapse, as John Law illustrated in France in 1720.
Apart from keeping the banking system up and running, the other of the Fed’s overriding objectives is to ensure the US Government is funded. There can be no doubt that its budget deficit is already out of control. Before COVID-19, the White House was already on course for a trillion-dollar plus deficit. That has widened as a result of tax shortfalls and increased spending costs. In May, the Congressional Budget Office estimated the deficit for the first eight months of fiscal 2019/20 had more than doubled to $1,905 billion, of which $1,162 was incurred just in April and May. If the deficit continues at this rate, then the outturn for the fiscal year will at least $3 trillion.
The administration had proposed a $2 trillion stimulus, some of which is reflected in figures for April and May. Congress went even further, proposing a $3 trillion stimulus. If elements of Congress’s extra spending are adopted, we can amend our expectations and pencil in a budget deficit rising towards $4 trillion at an annualised rate.
The belief that funding sums of this magnitude in the markets can be achieved at current interest rates is a fallacy. It can only be attempted with unlimited monetary creation, which ultimately undermines this solution.
Before the virus hit, it was estimated by the White House that annual borrowing costs would be $422 bn. If the deficit increases by $3 trillion, this will rise to about $480bn on the White House’s current interest rate assumptions. With the interest rate burden already accounting for over 40% of the pre-COVID-19 budget deficit estimates, we can see why the Fed and US Treasury are keen to keep bond yields suppressed. In a nutshell, if they rise a funding crisis is the only result.
Following a near certain banking crisis there is bound to be a flight out of deposits and risk assets into the perceived safety of US Treasuries. For a brief period, the government will be able to fund its deficit without a rise in interest rates. But unless the increased issue of Treasury bonds is bought by the Fed, the economic effect will be to drain funds from the financial and non-financial private sectors. Therefore, the Fed is almost certain to cover almost all of it by quantitative easing.
In summary, government finances started in this presidential election year with the largest deficit on record. We now have an economic disaster unfolding, driven not only by the COVID-19 lockdowns but by a confluence of a turn in the bank credit cycle and rising trade protectionism. It is no exaggeration to suggest we are on the brink of an economic catastrophe; a descent into an economic dark age. Not only is the budget deficit escalating to multiples of that expected as recently as last March, but there is no prospect of it declining at any time.
To this outlook we can add other negative factors. The contraction of cross-border trade globally is indicative of a spreading slump in business activity. The trend for increasing trade protectionism by America is growing. The retreat into nationalistic isolation is spreading. These trends are plain to see for those who care to observe them. And for America, in a presidential election year political factors are likely to make things even worse.
How monetary inflation translates into higher prices
We can expect to see two stages in the process of the dollar’s purchasing power being undermined. The first appears to have already commenced with the dollar weakening in the foreign exchanges, and the second, yet to come, is a public rejection of it as a means of exchange.
A year ago, foreign holders on the last reported figures held over $20.5 trillion of US securities to which must be added bank deposits, bills, CDs etc., totalling a further $6,452bn for a total of almost $27 trillion. The contraction in cross-border trade and the isolationism that goes with economic downturns suggest that foreigners now require smaller dollar balances, leading to the repatriation of dollar funds into foreign currencies.
Also compelling foreigners to sell are political developments. The Trump administration has been destabilised by its failure to contain the coronavirus with lockdowns, and a socialistic Joe Biden is now ahead in the opinion polls. If Biden is elected, then all the dollar’s gains during the Trump administration could be lost.
We must also not forget that unless the US’s savings rate increases, in normal times a higher budget deficit leads to matching higher trade deficits. When monetary capital arising from trade deficits is recycled, the budget deficit becomes funded directly or indirectly by foreigners. Indeed, this is why foreigners have accumulated dollars and dollar investments significantly in excess of US GDP. But if this virtuous circle is disrupted, the twin deficit still exists without the net dollar proceeds in foreign hands continuing to accumulate. Instead, the dollars are sold for other currencies and commodities.
Therefore, foreigners have two separate dollar problems to consider: the level of their current holdings which are now too high, and the increasing quantities of dollars in their hands from current and future trade. And with the budget deficit escalating towards $4 trillion, the trade deficit will increase to a similar amount. Unless, that is, the American people increase their savings. They might do so for the very short-term as a reaction to rising economic uncertainty, but not on the scale required, nor for long enough to make a significant dent in the twin deficit relationship.
In his remaining months as president, Trump is likely to respond to a rising trade deficit by increasing tariffs on increasing quantities of imported goods, extending his trade policy against China to other jurisdictions. If so, production costs for consumer goods will rise, driven by a combination of a falling dollar in the foreign exchanges and escalating tariffs on imported goods. It then becomes a vicious circle with foreigners seeing their dollar earnings collapsing in value, encouraging them to liquidate more of their existing holdings.
The price effect of these factors is bound to be noticed eventually by American consumers and will affect the relative preference individuals will have between holding a monetary reserve and owning goods. A small change in the aggregate level of consumer preferences in this regard can have a significant impact on prices, and if they desire collectively to hold less liquidity and more goods, prices of commonly desired goods will rise sharply. With COVID-19 and changing economic conditions, preferences are likely to increase for essentials, particularly food and energy, and with capacities for essential products deprived of the capital required to expand output the ability of manufacturers to respond by increasing production will be badly restricted.
In the final stages of an inflation driven crisis the general public becomes indiscriminate in their purchases of goods, even to the point of selling property in order to survive. A currency which no one wants then loses all its objective value for transaction purposes.
This is what happens following all monetary inflations. Once the general public loses confidence that a fiat currency will retain its objective value in transactions, it begins to dispose of it as rapidly as possible and it is too late to stabilise it. This has been the experience of every fiat currency which has died in the past.
The text-book example was the great inflation in Germany’s post-war Weimar Republic. Then, as is increasingly the case today, the government relied on monetary inflation as its principal source of funding. The final collapse, when the German people no longer accepted the paper mark as money for transactions, took place between about May and November, taking roughly six months. The time taken was a combination of an understanding of what was happening spreading throughout the economy and the foreign exchanges, and the time taken to obtain cash — which was in short supply due the demand for it — and find the goods, which were also in short supply, to buy. It was described at the time as the crack-up boom, the final boom into goods and real values that marks the end of a seemingly endless inflation, being the complete breakdown of a monetary system.
Today, the time taken for the dollar’s final descent into oblivion will be set by the same human values, quickened by today’s instant communications and payment systems, potentially making the collapse more rapid.
In conclusion, don’t be misled by the common belief that a decline in the US economy will lead to falling prices. The inflationary response from the Fed, which will be immense, will ensure far too much money ends up driving demand for a diminished quantity of needed goods.
via ZeroHedge News https://ift.tt/2BBi1kX Tyler Durden