Tag: finance

Authored by Gordon Chang via The Gatestone Institute,

• The trend of Chinese ruler Xi Jinping’s recent comments warns us that his China does not want to live within the current Westphalian system of nation states or even to adjust it. From every indication, Xi is thinking of overthrowing it altogether.

• Beijing now thinks it can, with impunity, injure Americans. In the first week of May, the Pentagon said that China, from its base in Djibouti, lasered a C-130 military cargo plane, causing eye injuries to two American pilots.

• The laser attack in the Horn of Africa, far from any Chinese boundaries, highlights Beijing’s unstated position that the U.S. military has no right to operate anywhere and that China is free to do whatever it wants anyplace it chooses. And let us understand the severity of the Chinese act: an attempt to blind pilots is akin to an attempt to bring down their planes, and an attempt to bring down planes is an assertion China has the right to kill.

The trend of Chinese ruler Xi Jinping’s recent comments warns us that his China does not want to live within the current Westphalian system or even to adjust it. From every indication, Xi is thinking of overthrowing it altogether. Pictured: Xi Jinping (center) at a Chinese Communist Party event on January 2, 2019 in Beijing. (Photo by Mark Schiefelbein-Pool/Getty Images)

“I hear prominent Americans, disappointed that China has not become a democracy, claiming that China poses a threat to the American way of life,” Jimmy Carter wrote on the last day of 2018 in a Washington Post op-ed.

That claim, Carter tells us, is a “dangerous notion.”

There is nothing more dangerous than a notion from the 39th president, even on China. China, despite what he said, threatens not only America’s way of life but also the existence of the American republic. Chinese ruler Xi Jinping has, in recent years, been making the extraordinary case that the U.S. is not a sovereign state.

The breathtaking position puts China’s aggressive actions into a far more ominous context.

Carter, and almost all others who comment on Chinese foreign policy, see Beijing competing for influence in the current international order. That existing order, accepted virtually everywhere, is based on the Treaty of Westphalia of 1648, which recognizes the sovereignty of individual states that are supposed to refrain from interfering in each other’s internal affairs. Those states now compete and cooperate in a framework, largely developed after World War II, of treaties, conventions, covenants, and norms.

Many Chinese policymakers believe they are entitled to dominate others, especially peoples on their periphery. That concept underpinned the imperial tributary system in which states near and far were supposed to acknowledge Chinese rule. Although there is no “cultural DNA” that forces today’s communist leaders to view the world as emperors did long ago, the tributary system nonetheless presents, as Stephen Platt of the University of Massachusetts points out, “a tempting model” of “a nostalgic ‘half-idealized, half-mythologized past.’ “

In that past, there were no fixed national boundaries. There was even no concept of “China.” There was, as Yi-Zheng Lian wrote in the New York Times, “a sovereignty system with the emperor’s compound in the middle.” Around that were concentric rings. “The further from the center, the less the center’s control and one’s obligations to it,” Lian noted. The Chinese, in fact, were perhaps the first to develop the idea of a borderless world.

In short, Chinese emperors claimed they had the Mandate of Heaven over tianxia, or “All Under Heaven,” as they believed they were, in the words of Fei-Ling Wang of Georgia Tech, “predestined and compelled to order and rule the entire world that is known and reachable, in reality or in pretension.” As acclaimed journalist Howard French writes in Everything Under the Heavens, “One can argue that there has never been a more universal conception of rule.”

Unfortunately, the current Chinese leader harbors ambitions of imposing the tianxia model on others. As Charles Horner of the Hudson Institute told me, “The Communist Party of China remains committed to ordering the People’s Republic of China as a one-party dictatorship, and that is perforce its starting point for thinking about ordering the world.” In other words, a dictatorial state naturally thinks about the world in dictatorial terms. Tianxia is by its nature a top-down, dictatorial system.

Xi Jinping has employed tianxia language for more than a decade, but recently his references have become unmistakable. “The Chinese have always held that the world is united and all under heaven are one family,” he declared in his 2017 New Year’s Message. He recycled tianxia themes in his 2018 New Year’s message and hinted at them in his most recent one as well.

Xi has also used Chinese officials to explain the breathtaking scope of his revolutionary message. Foreign Minister Wang Yi, in Study Times, the Central Party School newspaper, in September 2017 wrote that Xi Jinping’s “thought on diplomacy”—a “thought” in Communist Party lingo is an important body of ideological work—”has made innovations on and transcended the traditional Western theories of international relations for the past 300 years.” Wang with his time reference is almost certainly pointing to the Westphalian system of sovereign states. His use of “transcended,” consequently, hints that Xi wants a world without sovereign states—or at least no more of them than China.

The trend of Xi’s recent comments warns us that his China does not want to live within the current Westphalian system or even to adjust it. From every indication, Xi is thinking of overthrowing it altogether, trying to replace Westphalia’s cacophony with tianxia‘s orderliness.

Xi not only spouts tianxia-like statements, his regime also employs scholars to study the application of tianxia to the world.

He also acts tianxia. His China in December 2016 seized a U.S. Navy drone in international water in the South China Sea. Chinese spokesman Yang Yujun said, according to the official Xinhua News Agency, that one of its navy’s lifeboats “located an unidentified device” and retrieved it “to prevent the device from causing harm to the safety of navigation and personnel of passing vessels.”

In fact, China’s ships had over a long period tailed the USNS Bowditch, an unarmed U.S. Navy reconnaissance vessel. The American crew, who at the time were trying to retrieve the drone, repeatedly radioed the Chinese sailors, who ignored their calls and, within 500 yards of the U.S. craft, went into the water in a small boat to seize it. The Chinese by radio told the Bowditch they were keeping the drone.

The site of the seizure, about 50 nautical miles northwest of Subic Bay, was so close to the shoreline of the Philippines that it was beyond China’s expansive “nine-dash line” claim. There was absolutely no justification for the Chinese navy to grab the drone. The intentional taking of what the Defense Department termed a “sovereign immune vessel” of the United States showed that Beijing thought it was not bound by any rules of conduct.

Beijing now thinks it can, with impunity, injure Americans. In the first week of May, the Pentagon said that China, from its base in Djibouti, lasered a C-130 military cargo plane, causing eye injuries to two American pilots.

The laser attack in the Horn of Africa, far from any Chinese boundaries, highlights Beijing’s unstated position that the U.S. military has no right to operate anywhere and that China is free to do whatever it wants anyplace it chooses. And let us understand the severity of the Chinese act: an attempt to blind pilots is akin to an attempt to bring down their planes and an attempt to bring down planes is an assertion China has the right to kill.

China has been called a “trivial state,” one which seeks nothing more than “perpetuation of the regime itself and the protection of the county’s territorial integrity.” This view fundamentally underestimates the nature of the Chinese challenge. China, under Xi Jinping, has become a revolutionary regime that seeks not only to dominate others but also take away their sovereignty.

Xi at this moment cannot compel others to accept his audacious vision of a China-centric world, but he has put the world on notice.

These events together mean, once again, that Carter has failed to understand a hardline regime. In his op-ed, he warns America against starting “a modern Cold War” with China. Washington, in reality, cannot start anything. There already is a struggle that Xi Jinping has made existential.

via RSS http://bit.ly/2BZrVsP Tyler Durden

When most people think about the potential risks of artificial intelligence and machine learning, their minds immediately jump to “the Terminator” – a future where robots, according to a dystopian vision once articulated by Elon Musk, would march down suburban streets, gunning down every human in their path.

But in reality, while AI does have the potential to sow chaos and discord, the manner in which this might happen is much more pedestrian, and far less exciting than a real-life “Skynet”. If anything, risks could arise from AI networks that can create fake images and videos – known in the industry as “deepfakes” – that are indistinguishable from the real think.

Who could forget this video of President Obama? This never happened – it was produced by AI software – but it’s almost indistinguishable from a genuine video.

Well, in the latest vision of AI’s capabilities in the not-so-distant future, a columnist at TechCrunch highlighted a study that was presented at a prominent industry conference back in 2017. In the study, researchers explained how a Generative Adversarial Network – one of the two common varieties of machine learning agents – defied the intentions of its programmers and started spitting out synthetically engineered maps after being instructed to match aerial photographs with their corresponding street maps.

The intention of the study was to create a tool that could more quickly adapt satellite images into Google’s street maps. But instead of learning how to transform aerial images into maps, the machine-learning agent learned how to encode the features of the map onto the visual data of the street map.

The intention was for the agent to be able to interpret the features of either type of map and match them to the correct features of the other. But what the agent was actually being graded on (among other things) was how close an aerial map was to the original, and the clarity of the street map.

So it didn’t learn how to make one from the other. It learned how to subtly encode the features of one into the noise patterns of the other. The details of the aerial map are secretly written into the actual visual data of the street map: thousands of tiny changes in color that the human eye wouldn’t notice, but that the computer can easily detect.

In fact, the computer is so good at slipping these details into the street maps that it had learned to encode any aerial map into any street map! It doesn’t even have to pay attention to the “real” street map — all the data needed for reconstructing the aerial photo can be superimposed harmlessly on a completely different street map, as the researchers confirmed:

The agent’s actions represented an inadvertent breakthrough in the capacity for machines to create and fake images.

This practice of encoding data into images isn’t new; it’s an established science called steganography, and it’s used all the time to, say, watermark images or add metadata like camera settings. But a computer creating its own steganographic method to evade having to actually learn to perform the task at hand is rather new. (Well, the research came out last year, so it isn’t new new, but it’s pretty novel.)

Instead of finding a way to complete a task that was beyond its abilities, the machine learning agent developed its own way to cheat.

One could easily take this as a step in the “the machines are getting smarter” narrative, but the truth is it’s almost the opposite. The machine, not smart enough to do the actual difficult job of converting these sophisticated image types to each other, found a way to cheat that humans are bad at detecting. This could be avoided with more stringent evaluation of the agent’s results, and no doubt the researchers went on to do that.

And if even these sophisticated researchers nearly failed to detect this, what does that say about our ability to differentiate genuine images from those that were fabricated by a computer simulation?

via RSS http://bit.ly/2CPDwfI Tyler Durden

Authored by Steven Guinness,

A resurgence in nationalistic tendencies has been predominately associated with the advents of Brexit and Donald Trump’s presidency. But have these outcomes meant that we now neglect to give due consideration to the years that preceded the supposed breakdown of the ‘rules based global order‘?

It was in Davos at the 2013 World Economic Forum – three years before the UK voted to leave the European Union – that IMF head Christine Lagarde warned an audience of bankers and economists of the dangers of renewed protectionism:

If we look at openness, and we see that the situation is improving, you can be absolutely sure that nations will revert to their natural tendency of hiding behind their borders, of moving toward protectionism, of listening to vested interest and will forget about transcending those national priorities. It is not the way to go.

Of paramount importance, according to Lagarde, was the removal of barriers, particularly in terms of global trade. By observing the climate in the present day, trade has become a central pillar of geopolitical disorder in the manner of ‘Trump’s Trade War‘ with China and the potential for supply chains between the UK and the EU to be compromised in the wake of Brexit.

In 2014, Lagarde returned to Davos to speak to delegates about something she called ‘reset‘. Keep in mind at this point that the world was still over two years away from Brexit and Trump’s ascension to power. There had yet to be any discernible rise in what is today characterised throughout the media as ‘populism‘.

Sharing a platform with Bank of England governor Mark Carney and European Central Bank President Mario Draghi, Lagarde explained what this reset would entail in regards to monetary policy.

We see as necessary going forward a reset in the area of monetary policies. We believe that quantitative easing and the accommodating monetary policies that have been adopted should be continued up until such point that growth is well anchored in those economies.

Once it is well anchored then those accommodating policies have to be reformulated, have to move either back into their old territories or be more traditional, or be, maybe, of a different kind.

A further two facets to the ‘reset‘ would be the reform of the financial sector and regulatory environment via Basel III (which runs through the Bank for International Settlements), and structural reforms of global economies that would encompass product markets, service markets and emerging markets.

In an interview with Bloomberg during the 2014 World Economic Forum, Lagarde expanded on her definition of a ‘reset‘. Her message was clear: without cooperation between nations, the reset would most likely be fraught with instability and market turbulence. Governments would have to implement ‘growth friendly measures‘ in order to secure ‘jobs rich growth‘.

Behind national governments sit the central banks, who Lagarde said would begin a gradual process of reversing six years of ‘unconventional‘ monetary policy methods. This would later become widely known as ‘normalisation‘.

At the time of Lagarde’s interview, the Federal Reserve had just begun to taper their asset purchasing scheme (quantitative easing), which was introduced in the aftermath of Lehman Brothers collapsing. By the end of 2014, the Fed had ended the scheme entirely. A year later, in December 2015, they began to raise interest rates – the first rise in over a decade.

It was not until December 2016 – after Donald Trump was confirmed as the next President – that the Fed accelerated its programme of ‘normalising‘ rates. This has since expanded to the bank rolling off assets from its balance sheet – a process called ‘balance sheet normalisation‘.

Altogether, the Fed have raised rates seven times since the December 2016 hike, and so far have rolled off over $400 billion in assets from their balance sheet.

Outside of America, the Bank of England have also begun to raise rates amidst the UK preparing to leave the EU. The European Central Bank announced in December 2018 that as of the new year, they would cease their bond buying facility, having gradually tapered the programme over a two year period.

Nearly five years after Christine Lagarde first spoke of the need for a ‘reset‘ of global monetary policy, three of the most influential central banks in the world are all engaged in the practice, albeit at varying speeds.

What began as rhetoric has been reinforced with concrete actions. As much as Lagarde and the IMF may have warned against ‘a rising tide of inward-looking nationalism‘ (and continues to do so), there is no doubt that such mechanisms have assisted in the ‘reset‘ of monetary policies.

How so? It quickly becomes apparent when reading through central bank communications that of primary concern to them now is their mandate for 2% annual inflation. The Fed is raising rates in part under the proviso of containing ‘inflationary pressures‘, whilst the Bank of England’s two rate hikes since the original EU referendum have been motivated by inflation breaching the 2% level due to a sustained devaluation of sterling.

As you would expect, the IMF fully endorses the current trend of monetary policy. The communique from the thirty-eighth meeting of the International Monetary and Financial Committee in October 2018 stated that where inflation was ‘close to or above target‘, central banks should tighten policy.

I have argued in separate articles that the actions stemming from Brexit and Donald Trump – far from being to the detriment of globalists – do in fact work in their favour.

The ‘reset‘ of monetary policy works primarily as a vehicle for the International Monetary Fund and the Bank for International Settlements to position themselves as the beneficiaries of the inevitable economic downturn that will ensue.

As I will be exploring in an upcoming series of articles, the IMF are agitating to reform their quota subscriptions (the institution’s prime source of funding) and in turn the weighting of their Special Drawing Rights (SDR) basket of currencies.

Conditions in the global economy – namely rising trade protectionism that pits the United States and China into economic conflict – has put the world reserve status of the dollar in increased jeopardy. For the IMF to achieve their goals, the dominance of the dollar as the payment of choice throughout global trade must not only be jeopardized. It must ultimately be dismantled, so as to gradually move the world nearer to the globalist utopia of assimilating national currencies through the SDR with the aim of creating a digitised global currency.

I believe that China’s inclusion in the IMF’s SDR basket in 2016 – just weeks before Donald Trump was chosen as the next U.S. president – marked the next significant stage of this process.

via RSS http://bit.ly/2CRykIl Tyler Durden

As of December 2018, 160 people had been murdered across the Washington metropolitan area, up from 116 in 2017, a spike of about 40%, according to new data from the Metropolitan Police Department.

In total, of the 534 people shot in the nation’s capital through mid-December, 23% died, reported The Washington Post.

Out of control murders had been visible since the first half of 2018. In response, Mayor Muriel Bowser had to deploy additional officers in Spring to get ahead of the crime wave – traditionally in the summer months, to wards 7 and eight that had been experiencing spikes in violent crime. By early summer, Police Chief Peter Newsham said the region already experienced a 41% surge in homicides year over year.

“Just like when we had a spike in shootings and violence in 2015, we got all the agencies of the government coordinated to respond. We were able to drive that crime down then and we will do it again,” Bowser said during a Ward 4 “crime walk” in May, during which she spoke with residents about their crime concerns.

“We’re going to stop this little uptick in violence. Investigators are making significant progress in some of the recent violent cases we’ve seen in our city, so you’re going to see, we’re going to end up having a good summer here in the District,” Newsham said during the same walk.

By August, there had been 100 homicides in the District, compared to just 74 at the same time in 2017. One month later, there had been more people killed than all of 2017, with three months left in 2018.

City officials blamed the uptick in violence on illegal guns in the District. At a press conference in September, Newsham admitted that the current penalties for possession of an illegal weapon did not seem to be an effective deterrent. “The consequences of illegal firearm possession in our city is not changing the behavior. We’re arresting sometimes the same folks over and over again for carrying illegal firearms in the city,” he said.

Homicides in the District have been on a roller coaster over the last two decades, from a high of 262 in 2002 to a low of 88 in 2012. Now it seems that the violent crime trend is back.

While homicides soared around the nation’s capital, killings were mostly down in other nearby metros.

In Montgomery County, Maryland, homicides dropped from 21 in 2017 to 19 in 2018, while in Fairfax County, Virginia, fatal shootings fell from 18 to 13 across the past two years.

Maryland’s Prince George’s County saw one of the most significant annual drops, going from 80 homicides in 2017 to 60 last year. In the Arlington, Virginia, murders went from four to just three in 2018.

However, in Baltimore’s case, where wealth inequality, vacant homes, and homicides plagued the dying city, murders topped 300 for the fourth consecutive year. The wave of violence began not long after the April 2015 death of Freddie Gray, who died while in police custody. That triggered massive riots across the city, where the murders and violent crime have surged ever since.

It is certainly odd that in the “greatest economy ever,” out of control homicides are surging across the Baltimore–Washington metropolitan area, just a stone’s throw from the White House. 

via RSS http://bit.ly/2SxpVzi Tyler Durden

Authored by Onar Am via Liberty Nation,

The legacy media is mostly silent on the jailing of a German journalist in Venezuela…

The German Junge Freiheit journalist Billy Six has been arrested and charged for espionage in Venezuela. Reporters Without Borders (RFS) said that Venezuelan authorities are accusing Six of spying, rebellion, and “violating security zones.”

He faces up to 28 years in prison if found guilty.

Six, who is known for his center-right viewpoints, was investigating the consequences of socialism in the Latin-American failed nation. Gerardo Moron of Venezuelan NGO Espacio Publico explained that:

“Six was in Venezuela investigating drug trafficking activities, smuggling of fuel and strategic goods, human trafficking and even the exodus of Venezuelans — crimes and realities present in this part of Venezuela.”

According to Edward Six, father of the jailed journalist, the government is holding him on the grounds of a photo his son took of President Nicolás Maduro at a rally that allegedly proves that he was inside the security perimeter. Edward Six says his son denies this.

“He just was on the street. He talked to all these normal people. He asked them questions and put that on the internet.”

This is not the first time the brave reporter has got in trouble with authoritarian regimes. In December 2012, the Syrian army arrested him for entering the country illegally and held him for three months.

Freedom Of Speech

Journalists are often like canaries in the coal mine. They give an early warning about a society’s slide into totalitarianism. When freedom of speech disappears, it is a sign that someone is maintaining power not based on competence, but on oppression. Shining the light of truth on the worthy only strengthens their position, but the corrupt are only be weakened by it.

Venezuela was held up as a beacon of progress by progressive socialists all over the West until only a few years ago, when the Bolivarian revolution transmuted into a nightmare where starving people are forced to eat garbage or their own pets in order to survive.

The left was quick to go silent, and far-fetched explanations were conjured to explain away yet another miserable failure of socialism. It was the low oil price, the capitalists were conspiring to destroy Venezuela, and Chavez was good, but Maduro is bad.

Six Versus Khashoggi

Consider the difference in Western press coverage of the killing of Islamic journalist Jamal Khashoggi and the imprisonment of Six. On the former there has been massive reactions, but the legacy media has been almost silent on the German journalist.

Billy Six

Why? Billy Six was trying to tell the truth about socialism, the “progressive” ideas that always fail. That’s a story that is a turn-off for most of mainstream media. Khashoggi, by contrast, was a leftist darling because he was critical of an ally of the United States and moderate reformer of political Islam, Crown Prince Mohammed bin Salman of Saudi Arabia.

Never mind that Khashoggi was a radical Islamist, had connections to the Muslim Brotherhood, and was possibly a mouthpiece of Iran. He was against the liberal freedoms of the West, and that makes him an ally of the illiberal left.

The legacy media has called President Donald Trump an authoritarian and fascist for labeling them as “the enemy of the people,” painting him as someone who would oppose free speech and imprison journalists. However, when reporters are actually jailed for merely doing their jobs, the fake news media remain indifferent. Their silence on the matter speaks volumes.

via RSS http://bit.ly/2Fe63x0 Tyler Durden

Conservative pundit and author Ann Coulter said on Wednesday that President Trump will cave on his $5 billion demand to fund his border wall currently at the center of a partial government shutdown. 

Discussing the issue with radio host Mark Simone, Coulter admitted “the president and I have had a little tiff.” 

“For one thing, he actually did shut down the government — though don’t worry, he will fold in the end.”

Coulter decried the president last month after the senate passed a continuing resolution to stave off a government shutdown that didn’t allocate funding for a border wall. Trump reversed course shortly after, re-upping his demand for a border wall and sending the government into a partial shutdown that’s now on day 12.

Coulter added “the one person who deserves the most credit of all — for going ballistic when Trump caved on wall funding right before Christmas — which I think we got him to take back — is Matt Drudge. He was the one who put it up as the siren.”

“It just shows you how the media is so terrified of Drudge that they will not mention him,” she said, adding the media would rather focus on Fox News. “Fox was like three days behind the game.” –Mediaite

Exactly what Israel has?

Coulter told Breitbart News this week that she would accept a “fence” instead of a complete “wall,” as long as it was modeled after the one built in Israel. 

“I would like exactly what Israel has. I wish Israel would build it. … Israel is a country that has to be concerned about security, and a country with some self-respect, and hat they’ve done — it’s just stunning — this year they started on an underwater wall which will be part-wall and part-fence,” Coulter told SiriusXM’s Breitbart News Tonight with hosts Joel Pollak and Rebecca Mansour. 

Incoming Speaker of the House Nancy Pelosi (D-CA) told NBC News earlier this week that Democrats would not provide money for President Donald Trump’s “wall,” though she was not asked whether she would accept a “fence,” which Democrats have voted for in the past.

Coulter added, “[Israel’s] border-wall with Egypt, I believe, is part-wall and part-fence. It was 99 point-something effective. It’s about 16 feet high, hundreds of miles long, but 99 percent effective wasn’t good enough for Israel. This is the attitude our country should be taking if you care about your country. So in certain parts along the wall they added ten feet, all with razor wire at the top. The number of illegal immigrants from Africa has fallen to zero. Zero point zero. It is now 100 percent effective.”

Coulter continued, “The reason you turn to Israel is they’re an ally. They have major security concerns. They take their security and the safety of their people seriously. They’ve been working on various walls since I think around 2002. They have loads of experience.” –Breitbart

“We often turn to Israel for tips on how to deal with terrorism, [and] how to do airport security. In fact, that’s one thing we ought to be able to get out of Kushner. How about he call up Netanyahu? As a gesture of friendship to America, let Netanyahu give a speech talking about the great success of their wall and how it’s kept their country safe and secure. Just a little tip to America, like, ‘Look what we’ve done,” Coulter continued. 

Listen below: 

 

via RSS http://bit.ly/2C1B97Y Tyler Durden

Back in August 2 we reported of a historic event for China’s economy: for the first time in its modern history, China’s current account balance for the first half of the year had turned into a deficit. And while the full year amount was likely set to revert back to a modest surplus, it was only a matter of time before one of the most unique features of China’s economy – its chronic current account surplus – was gone for good.

The back in November, as part of its summary of Top Macro Trades for 2019, UBS wrote that the upcoming loss of China’s current account cushion, softening domestic activity, and upcoming tariffs mean that “for the first time in 25 years, China would have to make a choice between external stability and growth.”

Now it is the Wall Street’s Journal‘s turn to bring attention to this topic, calling it a “tectonic shift” in China’s economy, which has largely gone unnoticed by investors, and which is “quietly beginning to upend the global financial system.”

A key driver behind China’s declining current account is that after having long been the world’s heavyweight saver and a huge buyer of foreign assets like Treasurys, the world’s most populous nation is now a big spender, and in early 2018, China got more of its growth from consumption than the U.S., the global king of consumer spending where some 70% of economic growth is due to consumer spending. And as China’s increasingly wealthy population spends more at home and abroad, its total trade surplus with the rest of the world has shriveled to a fraction of its former size.

In other words, China is rapidly becoming the next US.

This transformation of China into a consumption-driven economy has enormous implications for global capital markets, and impacts everyone from retirees investing in U.S. Treasurys to fund managers investing in emerging markets like Indonesia or India. It could, the WSJ notes, also eventually help ease some of the frictions between the U.S. and China.

To be sure, China is still an export powerhouse – after all, it is China’s massive trade surplus with the US that is arguably the reason for the ongoing trade war between the US and China. However, it is China’s declining trade balance with the rest of the world that is of bigger concern in this context. As a reference, China’s trade surplus has shrunk by a third in just three years: in 2015, the country exported around $150 billion worth of goods more than it imported each quarter. In the third quarter of 2018, the goods trade surplus was just $100 billion.

Furthermore, as China’s citizens have become wealthier, they are consuming more too instead of saving. One place where this consumption is evident on a global scale is in the form of tourism; indeed China’s net spending on foreign services such as tourism surged from $50 billion to more than $80 billion over the same 2015-2018 period. While some part of that is travelers laundering money abroad to evade China’s strict controls on overseas investment, the reality is that anyone who has been in the world’s major cities in the past few years has witnessed the tidal wave of Chinese tourist spending (and its recent drop – just ask Tiffany’s).

And while all the those wealthy tourists have been a windfall for tour operators, and retailers who cater to an ultra wealthy Chinese clientele, their spending sprees mean China has less left over for other assets: such as U.S. Treasurys. This has a direct impact on such key aspects of China’s economy such as its exchange rate: as a result of slowing savings, Beijing is no longer buying dollars to keep mushrooming trade earnings from pushing up the yuan, but rather the opposite. Chinese holdings of US Treasurys peaked at $1.3 trillion in 2013 and have since declined to $1.1 trillion, a trend that will only accelerate in 2019 if new U.S. tariffs further reduce Chinese exports.

Naturally, a drop in Chinese capital flowing into U.S. government bonds raises many problematic issues, especially at a time when the US deficit is expected to hit $1 trillion as soon as this year and keep rising; and while the lack of China as a net buyer may not seem like a big deal now with yields falling as investors flee wobbly equity markets, it will weigh on Treasury prices over the long run especially if US domestic purchasers who have largely picked up the slack from China back away. While total foreign Treasury holdings have been essentially flat since 2014, overall Treasury debt is up about 20% since then. The risk is that lower demand for its bonds means the U.S. government has to pay more to borrow, forcing interest rates sharply higher.

But as the WSJ notes, before the US is eventually impacted, a more immediate impact has been a huge hit to emerging markets. As China consumes more, there is less money available for investment, and – taking another page of the US playbook – Beijing has been trying to attract more foreign capital to fill in the gap. As a result, emerging markets suffered last year not only because of the rising dollar, but because China is attracting unprecedented inflows to its stock and bond markets.

As the chart below shows, according to the IIF, China captured a whopping 75% of nonresident portfolio investment in emerging markets in 2018 and will absorb around 70% in 2019, up from just 28% in 2017. China’s Americanization has had a staggering impact on recent capital flows: in the second quarter alone, China attracted $61 billion of net portfolio investment inflows—triple the quarterly levels it was drawing in as recently as 2014. All other emerging markets, meanwhile, saw a 2018 full-year net outflow of $45 billion according to IIF data. One implication: Even if the dollar weakens in 2019, many emerging economies could still struggle, because they are now competing with China for foreign investment capital.

Picking up on this theme, Bloomberg notes that following the massive exodus of Chinese capital in 2015, Beijing policymakers decided that in order to alleviate pressures on their currency, they would attract foreign cash—and boost demand for the yuan—by opening the doors to fixed income investors under the assumption that big overseas funds are always looking for ways to diversify and would likely want some exposure to China’s bond market, the third-largest in the world.

It worked… for a while. Money poured in, and inflows accelerated after China set up a channel called Bond Connect for foreigners to trade through Hong Kong in July 2017. But overseas funds started pulling money out in late 2018. That’s when U.S.-based investors trimmed their participation in the country’s dollar-denominated sovereign bond sale in October, accounting for only 2% of the five-year notes China issued, down from 20% in 2017. Then, in November, China’s biggest bank, Industrial & Commercial Bank of China Ltd., canceled a dollar bond sale in the U.S.

To be sure, China’s policymakers are urgently trying to attract bond investors, and Goldman Sachs anticipates a fresh campaign by China to promote investment in its assets.  A key milestone will come in April when China debt will start to be included in the Bloomberg Barclays Global Aggregate Index, assuming certain criteria for accessibility and transparency are met.

It is unclear, however, if buyers will emerge: after all they may have just as attractively yield US bonds competing for the same capital. Indeed, the unhedged yield differential between US and China bonds has collapsed to almost nothing.

“Capital inflows, especially those into the bond market, will be very crucial for China’s balance of payments, as the current account will deteriorate further amid the trade war and the restructuring of the economy,” said Becky Liu at Standard Chartered.

Which goes back full circle to what we said about China’s shrinking current account: with China’s trade surplus subsiding, and likely to become a current account deficit before long, if China’s bond market receives waves of overseas cash, that will help finance the deficits without running up a dangerous amount of debt in foreign currency. Then again, that’s precisely the same boat that the US finds itself in as well.

Curiously, just like the US needs hundreds of billions in outside capital, so does China. Estimates on inflows in coming years vary from about $760 billion over the long term at Morgan Stanley to Goldman’s $1 trillion by the end of 2022 to $3 trillion through 2020 at UBS.

While the money is flowing for now, whether or not that continues will depend on the outcome of the trade war. Jason Pang, a fixed income portfolio manager at JPMorgan Asset Management in Hong Kong, said he has been boosting China holdings in recent months. But “whether we will add more,” he said “depends on the trade war.”

Ironically, as China’s funding needs grow to approach those of the US, it is giving Washington further leverage in the ongoing trade war. In fact, it may be one reason for optimism about a U.S.-China trade deal. While China may not budge on U.S. demands to cease supporting critical technology industries like microchips and robotics, it urgently needs more foreign cash — most obviously for industries like health care where prices are too high and service often horrendous.

The WSJ’s conclusion: “U.S. investors this week were focused on the surprising news that Apple’s iPhone sales were falling short of expectations in China, and fretting about what that might augur for the months to come. But over time, what will matter more to global markets is the big rise in Chinese consumer demand, the big fall in Chinese savings and the big increase in China’s need for foreign capital.”

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Brazil’s new President Jair Bolsonaro told SBT TV in an interview taped Thursday that he would be open to the possibility of the United States opening a military base on his country’s soil, departing from decades of Brazilian foreign policy, according to Reuters. 

Bolsonaro’s announcement came two days after he took power on Tuesday, nothing that Russia’s support of neighboring Venezuela and its President Nicolas Maduro’s “dictatorship” had significantly escalated tensions in the region. When asked if he would consider a US military presence in Brazil, Bolsonaro responded: “Depending on what happens in the world, who knows if we would not need to discuss that question in the future.” 

He also stressed that Brazil would like to have “supremacy here in South America.” 

The far-right leader is upending foreign policy dating back over a decade, which saw the leftist Workers Party emphasizing South-South relations and sometimes tussling on the international stage with the United States.

Bolsonaro, a 63-year-old former Army captain and admirer of both Brazil’s 1964 to 1985 military dictatorship and U.S. President Donald Trump, has quickly deepened ties with the Unites States and Israel.

Bolsonaro’s national security adviser, retired Army General Augusto Heleno, confirmed earlier on Thursday that the president wants to move Brazil’s embassy in Israel to Jerusalem, but that logistical considerations were standing in the way. –Reuters

The Brazilian agriculture sector – still recovering from a massive country-wide truck drivers’ strike, has lobbied against moving Brazil’s embassy from Tel Aviv – citing angry Arab nations that buy billions of dollars worth of Brazilian halal meat which is “permissible” to eat under Islam.

That said, Benjamin Netanyahu became the first Israeli Prime Minister to visit Brazil this week, where he attended Bolsonaro’s inauguration. Following a private meeting between the two leaders, Netanyahu said that Bolsonaro told him that the embassy’s relocation was a matter of “when, not if.” 

On Thursday Heleno said “there is a clear desire that this happens, but there has been no decision on a date.”

He said he did not think exports would be threatened, arguing that Brazilian diplomats would work with Middle Eastern trading partners to ease concerns.

Bolsonaro and some state governors in Brazil are looking to purchase drones and lean on the United States and Israel for other technology and know-how as they seek to dismantle powerful and heavily armed drug cartels. –Reuters

Bolsonaro also met with World Trade Organization head, Roberto Azvedo, who noted that the far-right Brazilian president’s opposition to globalism were shared by many other countries, and that the trade body was making changes. To that end, Brazil’s new Foreign Minister Ernesto Araujo on Wednesday said that the country would fight for change at multilateral institutions such as the WTO under his watch. 

Bolsonaro’s Chief of Staff, meanwhile, said that the new administration was committed to an ambitious pension overhaul following the first full meeting of the new administration’s cabinet – and that a privatization program was still being considered. 

By early next week each minister should announce their top priority, Lorenzoni said.

Bolsonaro’s economic team has promised to liberalize Brazil’s hidebound economy, rid the country of “socialism,” and enact conservative social measures in areas like education.

On Wednesday, Bolsonaro unveiled plans to step up privatizations, toughen prison sentencing guidelines and hand control over indigenous land claims to the powerful Agriculture Ministry. Brazilian markets soared on promises to shrink government.

Bolsonaro’s administration is made up of free market economists, statist former military generals, and religious ideologues, and it remains to be seen just how committed he is to liberalizing the economy. –Reuters

On Thursday morning Bolsonaro tweeted that privatizing 12 Brazilian airports and four ports should bring in an initial investment of $1.85 billion.  

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Authored by Ryan McMaken via The Mises Institute,

The federal government is in the midst of a partial “shutdown.” Don’t worry, there’s still plenty of money flowing to a great many government departments. And even those workers who experience deferred salaries during the shutdown will almost certainly get their back pay paid in full.

But as always occurs during these so-called shutdowns, many of the most popular amenities offered by the federal government are being shut down. This includes the national parks such as Yosemite and Rocky Mountain National Park.

Back during the 2013 shutdown, under the Obama administration, the federal government took an especially punitive position. The administration sent armed government agents to shut down the parks. It sent in extrastaff to erect barriers around some monuments — monuments funded by private trusts — such as the World War II memorial in Washington, DC.

This time, the feds are being a little bit more laissez-faire about it.

Rather than sending armed guards barking threats and orders at visiting taxpayers, the administration is simply closing down services. Most of these “services” of course, won’t be missed by most people. But when the government closes off all the bathrooms and outhouses, things can start to get messy.

And this, apparently is what’s happening at parks such as Joshua Tree National Park, where the land along the roads is in danger of becoming one big outdoor latrine.

Some volunteers have attempted to address the issues:

“Once those port-a-potties fill up there’s no amount of cleaning that will save them,” said Sabra Purdy, who along with her husband, Seth, owns the rock-climbing guide service Cliffhanger Guides in the town of Joshua Tree.

The 40-year-old Purdy is among dozens of volunteers who have been collecting garbage, cleaning bathrooms and generally keep an eye on the park. Local business owners and park supporters are donating toiletries and cleaning supplies.

“People are doing it because we love this place and we know how trashed it’ll get if we don’t,” she said.

It doesn’t have to be this way.

Contrary to the myth that public lands would immediately be sold to rapacious developers and oil drillers were the lands to fall into the hands of state or local governments, the reality is that public lands such as those in national parks are usually viewed very favorably by surrounding communities and by the voters in the states in which they are located.

As tourist attractions, and as giant recreational areas for locals, public lands are quite valuable as indirect sources of revenue for both private- and government-sector institutions in the area.

The federal government, on the other hand, has no skin in the game when it comes to shutting down monuments and national parks thousands of miles from Capitol Hill. For the feds, it’s all a political game in Washington, DC. What happens in the communities bordering federal lands — many of them rural — is but a mere afterthought to people like Nancy Pelosi. But at the local level, access to local tourist attractions could mean a restaurant’s ability to pay its staff with income from tourists.

In some cases, locals have even attempted to work around federal shutdowns by paying for the parks themselves. In 2013, for example, the State of Colorado paid the Department of the Interior more than $360,000 dollars to open up Rocky Mountain National Park during that shutdown. This was only possible after an arduous process of negotiations with federal bureaucrats, who could have easily vetoed the deal for any reason at all.

The whole thing illustrates the danger of allowing the federal government to exercise control over vast swaths of the American landscape, while minimizing the influence of those who are impacted most by federal decisions. Besides, there’s certainly no justification for having an entire national system of parks dependent on Washington, DC. The very idea that access to an outhouse in rural California should depend on a backroom deal in Washington DC should strike every reasonable person as utterly absurd.

Maybe, just maybe, the use of a pit toilet in the middle-of-nowhere Arizona ought to be a decision of the people who live within 500 miles of it.

But how to pay for it?

Well, there’s an easy way to deal with that too. If a “shutdown” is going to cut off the usual subsidies for a national park, then let the park collect a fee that covers the full cost of operation. After all, national parks already charge far too little for entry because they are subsidized by federal tax revenue. This means even people who have never set foot in a park pay so that the park’s visitors can use the park’s amenities at subsidized prices.

This also means that when things don’t go as planned — i.e., when DC politicians don’t rubber stamp all the usual paperwork in time — then everything closes down. Sometimes private businesses within the parks are forced to shut down, too.

Were the parks allowed to operate without subsidies, of course, we all know what would happen. Countless articles would be published at The Atlantic and Salon about how the national parks are now just for “the one percenters.” When a fee increase was proposed in 2017, we were told an increase would “threaten access to nature.” But at the same time, we’re told to rend our garments over the fact that infrastructure in the parks is underfunded. In the end, it turns out, we’re told that yet another tax increase and more government spending will fix everything. But don’t you dare think about charging the actual users a fee that covers costs!

At the moment, though, all of this is moot since the feds can’t get their act together enough to even empty a few dumpsters. Remember this the next time we’re told that state or local governments — or even private conservation trusts — could never, ever be trusted with the delicate business of managing some rural lands.

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Following Apple’s warning over quarterly revenue guidance due to “lower than anticipated iPhone revenue, primarily in Greater China,” all eyes are now on the USA’s largest trading partner. 

And as the Wall Street Journal notes, the current economic slowdown in China is different than previous downturns “because this time Chinese consumers are taking a hit.” 

A less-certain economic outlook, the trade fight with the U.S., rising living costs and expectations of slower income growth are weighing on household spending. Meanwhile, slowing sales, rising costs and trade-related uncertainties are squeezing businesses’ profit margins, from retailers to manufacturers. –WSJ

To that end, here are seven China charts that should keep investors up at night.

Retail-sales growth cratered to its lowest level in 15 years in November, as Beijing’s efforts to slash personal income tax failed to lift spending. 

Property Sales have also moderated significantly in the last three years, which may lead local governments to ease restrictions on home purchases in 2019 according to analysts. 

Chinese auto makers have also been feeling the heat from sagging sales, seeing their largest drop in almost seven years during November – marking the fifth straight monthly decline. The industry is on track for its first annual sales drop in nearly 30 years. 

Consumption tax revenue cratered in October to the tune of 61.6% year-over-year, only to drop 71.2% in November. The indicator of cojnsumer spending is a tax imposed on luxury goods such as jewelry and high-end cosmetics, or items deemed to be environmentally unfriendly such as cars and gasoline. 

Industrial profits have been cooling since May of last year after hitting double-digit growth in 2017, as subdued factory price gains and slower sales took their toll. 

The Purchasing Managers Index (PMI) contracted in december following nearly two years of expansion. “The downbeat PMI readings suggest China’s economic growth likely decelerated further in the final quarter of 2018 and the slowdown is expected to continue this year,” according to the Journal. 

Lastly, China’s GDP has slowed to its weakest pace in almost 10 years during the third quarter, and is expected to slow further over 2019. GDP is expected to fall to 6.4% in the fourth quarter, down a smidge from third quarter growth of 6.5%. 

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