And just like that, the hopes and dreams of Michael Moore and his fellow Democrats went up in flames.
In an interview with Amtrak’s magazine ‘The National,’ Michelle Obama, the self-proclaimed ‘forever First Lady,’ rebuffed any calls to face Donald Trump in the upcoming election.
“Just between us,” 12-year-old journalist Hilde Lysiak began. “If you thought the country needed you and you thought you could really help our nation, is there even a one percent chance you’d consider running?”
“Just between us, and the readers of this magazine — there’s zero chance,” Mrs. Obama replied.
“There are so many ways to improve this country and build a better world, and I keep doing plenty of them, from working with young people to helping families lead healthier lives. But sitting behind the desk in the Oval Office will never be one of them. It’s just not for me.”
🚨NEW: Michelle Obama says “There’s zero chance” she’ll run for President in interview released today with child reporter Hilde Lysiak.https://t.co/IcFeJwWF2a
The comments come just one day after Moore, the portly filmmaker, insisted the only person who could “crush” President Trump would be Michelle Obama.
“The only way to remove Trump is to crush Trump,” he said in an interview with MSNBC. “And that’s the question that has to be asked, who can crush Trump? Who’s the street fighter?”
“In fact, it is Obama – Michelle Obama.”
Pipe Dream
Moore’s comments were little more than fantasy, as the former First Lady has repeatedly said she has no interest in running for President. Not that she doesn’t have the qualifications in her mind.
In fact, it’s not that she couldn’t win the presidency, it’s that she just doesn’t want it.
“I have never had the passion for politics,” she said during a speech at the 39th annual Simmons Leadership Conference last year.
“Just because I gave a good speech, I’m smart and intelligent doesn’t mean I should be the next president,” she bragged.
Besides, why would she want that gig when she’s claimed that after “working really hard for this country,” there were still people “who won’t see me for what I am because of my skin color.”
In other words, why would she want to ‘work’ for those racist Americansagain?
Nightmares
As for ‘ways to improve this country and build a better world’ – her ideas on this are even more frightening than the prospect of an Obama in the White House again.
Mrs. Obama has, on multiple occasions, declared it would be a good investment for the country to “invest in creating thousands of ‘me’s.’”
China’s Global Times — the communist country’s hawkish, belligerent state tabloid — has responded to the Pentagon’s Friday announcement stating the US is looking to deploy intermediate range ballistic missiles to Asia “within months,” warning “it will certainly trigger an intense arms race in the region.”
Its editorial board, long understood as a mouthpiece of the state, has slammed remarks made by US Defense Secretary Mark Esper outlining the new mid-range ballistic missile deployment plans, crucially which came immediately on the heels of the formal collapse of the landmark US-Russia INF treaty, saying American greed and naked drive for hegemony will spark a dangerously unprecedented arms race which will fuel further “instability” across Asia. The Global Times commentary opens with:
The US is greedily pursuing an absolute and all-sided military superiority to consolidate its hegemony. It refuses to accept any relative balance of power. Such a stubborn and overbearing country has become the largest source of Asia’s instability.
The authors further warn US plans will “break the status quo” in Asia, unleashing “geopolitical chaos” by deploying offensive weapons, because “Any country accepting US deployment would be against China and Russia, directly or indirectly, and draw fire against itself.”
“Asian countries must collectively resist the US’ attempt in creating new crisis in this region and prevent it from provoking extreme arms races and forcing all countries to take sides,” the editorial urges further.
If the US really deploys Intermediate-range missile in Asia, it will inevitably trigger an intense arms race. Arms race is full of uncertainties, but it will only have one result. That is China will have a strategic weapons arsenal on par with that of the US. https://t.co/jM6JzaeQIE
Nothing less than a new Cold War will be the inevitable result of new US offensive missiles stationed in the region. The state-backed editorial board specifically called out close US allies Japan and South Korea:
Particularly Japan and South Korea must remain sober. Their interests have been diverse due to Asia’s vigorous development. The US is no longer their only source of benefits. The two countries’ relations with both China and Russia have stayed largely smooth and economic cooperation is expanding. It will be their nightmare if they follow the US to start a new Cold War.
The column speculates on the likelihood that Tokyo or Seoul will likely be the first to be asked to accept the missile deployment. However, “If they assist the US to threaten China and Russia, China-Russia retaliations will cause no less loss to their national interests than those caused by the US pressure.”
“The US must accept the rise of China and other Asian countries,” it concludes, followed by a threat:
It is hoped that Japan and South Korea will not turn themselves to cannon-fodder in the aggressive US Asian policy.
Meanwhile, following Defense Secretary Esper’s trip to Australia for high level talks with defense officials, Australian Defence Minister Linda Reynolds late Sunday evening issued a statement which ruled out rumors that the US is set to deploy mid-range missiles in Australia. She confirmed no formal request has been made.
“I asked him directly, ‘was there any expectation of a request’, and he said ‘no’,” she said, referring to Esper.
* * *
previously
A mere day after the US officially exited the landmark Intermediate-range Nuclear Forces treaty (INF) which had cooled the Cold War arms race, preventing a build-up in Europe, the Pentagon is looking to deploy intermediate range conventional missiles in the Pacific region “within months”.
Noting that it will most certainly provoke the ire of China, US Defense Secretary Mark Esper said Friday of the plans, “It’s fair to say, though, that we would like to deploy a capability sooner rather than later.” Esper made the remarks from Australia. “I would prefer months. I just don’t have the latest state of play on timelines.”
“I would prefer months… but these things tend to take longer than you expect,”Esper stated.
File image of US military’s land-based Aegis missile defense testing system based in Hawaii, and being developed jointly with Japan, via the AP.
This week’s official end of the INF comes six months after President Trump issued Moscow an ultimatum to cease its alleged violations of the historic treaty.
At the same time US officials indicated plans to test a new missile which would have been prohibited under the arms control treat in the coming weeks, according to the AP.
The Pentagon has been sparse on details, and there’s been no indication of which US Pacific or Asian allies might in the near future host new missiles. Both Australia and Japan have lately worked closely with the US on joint missile defense projects, however.
Interestingly, one of the key reasons both Trump and Bolton have cited over the past year for their view that the INF is “obsolete” is that it fails to include major world powers like China that have made huge advances in their ballistic missile and defense technology since the Cold War.
Concerning China, Esper dismissed the potential that new US systems in the Pacific could trigger a crisis amid ongoing tensions with Beijing, per the AP:
Esper, who was confirmed as Pentagon chief on July 23, wouldn’t detail possible deployment locations in Asia, saying it would depend on discussions with allies and other factors. He downplayed any reaction from China, saying that “80 percent plus of their inventory is intermediate range systems, so that shouldn’t surprise them that we would want to have a like capability.”
But perhaps it’s all about geography. Consider for example, how Washington and the American public would react if China were to deploy medium-range missiles in Greenland or anywhere in the Atlantic for that matter.
On Friday, 88-year old Former Soviet leader Mikhail Gorbachev, who originally signed the INF alongside Reagan, warned“This US move will cause uncertainty and chaotic development of international politics.”
Indeed we could already be witnessing the beginning of a new “chaos” and “uncertainty” of a global arms race.
via ZeroHedge News https://ift.tt/2YMykVK Tyler Durden
Following the plunge in the yuan overnight, The U.S. Treasury Department on Monday designated China as currency manipulator, a historic move that no White House had exercised since the Clinton administration.
“Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator,” the Treasury Department said in a release.
“As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.” “
“This pattern of actions is also a violation of China’s G20 commitments to refrain from competitive devaluation.”
The Omnibus and Competitiveness Act of 1988 requires the Secretary of the Treasury to analyze the exchange rate policies of other countries. Under Section 3004 of the Act, the Secretary must “consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade.” Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator.
As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.
As noted in the most recent Report to Congress on the Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States (“FX Report”), China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market. In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain unfair competitive advantage in international trade.
The Chinese authorities have acknowledged that they have ample control over the RMB exchange rate. In a statement today, the People’s Bank of China (PBOC) noted that it “has accumulated rich experience and policy tools, and will continue to innovate and enrich the control toolbox, and take necessary and targeted measures against the positive feedback behavior that may occur in the foreign exchange market.” This is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis.
This pattern of actions is also a violation of China’s G20 commitments to refrain from competitive devaluation. As highlighted in the FX Report, Treasury places significant importance on China adhering to its G-20 commitments to refrain from engaging in competitive devaluation and to not target China’s exchange rate for competitive purposes. Treasury continues to urge China to enhance the transparency of China’s exchange rate and reserve management operations and goals.
This is very odd since just a few a weeks ago, The US Treasury Report chose not to label China a currency manipulator as it only triggered one of the criteria.
this is what the Treasury said about China’s FX policy:
Treasury continues to urge China to take the necessary steps to avoid a persistently weak currency. China needs to aggressively address market-distorting forces, including subsidies and state-owned enterprises, enhance social safety nets to support greater household consumption growth, and rebalance the economy away from investment. Improved economic fundamentals and structural policy settings would underpin a stronger RMB over time and help to reduce China’s trade surplus with the United States.
The report also said that “Treasury continues to have significant concerns about China’s currency practices, particularly in light of the misalignment and undervaluation of the RMB relative to the dollar. China should make a concerted effort to enhance transparency of its exchange rate and reserve management.”
Despite not accusing China of manipulting the yuan, the report warned that “notwithstanding that China does not trigger all three criteria under the 2015 legislation, Treasury will continue its enhanced bilateral engagement with China regarding exchange rate issues, given that the RMB has fallen against the dollar by 8 percent over the last year in the context of an extremely large and widening bilateral trade surplus. Treasury continues to urge China to take the necessary steps to avoid a persistently weak currency.”
The punchline – the US was quite clear in its demands to Beijing:
China needs to aggressively address market-distorting forces, including subsidies and state-owned enterprises, enhance social safety nets to support greater household consumption growth, and rebalance the economy away from investment. Improved economic fundamentals and structural policy settings would underpin a stronger RMB over time and help to reduce China’s trade surplus with the United States.
Of
via ZeroHedge News https://ift.tt/2ZAvDnv Tyler Durden
In a nation afflicted by fads, crazes, manias, and rages, mass murder is the jackpot for nihilists – begging the question: why does this country produce so many of them? Answer: this is exactly what you get in a culture where anything goes and nothing matters. Extract all the meaning and purpose from being here on earth, and erase as many boundaries as you can from custom and behavior, and watch what happens, especially among young men trained on video slaughter games.
For many, there is no armature left to hang a life on, no communities, no fathers, no mentors, no initiations into personal responsibility, no daily organizing principles, no instruction in useful trades, no productive activities, no opportunities for love and affection, and no way out. This abyss of missing social relations is made worse by the everyday physical settings for everyday lives based on nothing: the wilderness of parking lots that America has turned itself into. Such is the compelling myth of the New World as a wilderness that we obliged ourselves to re-enact it, minus nature, including human nature, especially what may be noble and sacred about human nature.
The old truism sticks: when nothing is sacred, everything is profane, and what could be more profane than slaughtering your fellow humans en masse, for no good reason? Just because you felt like it at the time? Another time, you might feel like scarfing some tacos, or checking in on the free porn sites, or tweaking some crushed-up oxycontin. One message from the culture of anything-goes-and-nothing-matters comes through loud and clear: if it feels good, do it! And if you feel bad, do something to make yourself feel better.
The wonder is that the way we live these days hasn’t turned more people into homicidal maniacs, considering how many are out there feeling bad in this grotesque landscape of incessant motoring, vivid purposelessness, and lost aspiration — unless these bloody skirmishes are the precursor to some more general outbreak of murderous havoc. It’s not hard these days to imagine the political animus ratcheting up to something like a new civil war. If it works out that way, it will be the most psychologically confused political event of modern history.
The Walmart is the perfect setting for these ceremonies of nihilist wrath. The sheer size of these places makes the “consumers” inside feel small, and informs them that they are at the mercy of colossal forces for their pitiful daily needs, their Hot Pockets, their disposable diapers, their roach spray. The shooter is just a momentary concentration of everything else grinding the dignity and meaning out of American lives. The bad karma in these dynamics compels some periodic release. Cue some young man jacked on his own hormones and a comic book conception of human power relations.
I’m not persuaded that a ban on gun sales will do anything to prevent more of these deadly episodes because there are already too many firearms loose in America. But it is probably necessary to make some kind of statement, say a ban on military-type weapons, and I rather expect that will happen. But the political process of recognizing what really ails this society is mired in bad faith, idiocy, and neuroticism. And the political actors are signaling their ineptitude clearly, which only adds to the sweeping demoralization of everybody else.
We await a restructuring of American life into real communities of people working together at things that matter, and it will require the demise of the things that have worked so hard to destroy all that, namely, the tyranny of the giants, the town-killing Walmarts, the suffocating monster of government, the media manipulators of reality, the too-big-to-fail banks. The people alone won’t loosen the grip of these monsters and, honestly, they lack the will to even imagine life without all that.
But history onrushing will do it for them, first in the form of a financial fiasco that upsets the meaning of what “money” is, and all the instruments calibrated in it; and then with an economic collapse of supply lines and activities that we can’t afford to carry on anymore.
The people may have to be dragged kicking and screaming into that new disposition of things, just because it’s so hard to let go of what you’re used to. Something like this appears to be underway now in global business and markets. For a while, it will only add to the confusion. Clarity is a lagging effect.
via ZeroHedge News https://ift.tt/2T8eCyk Tyler Durden
Apparently piling on to President Trump’s worries, North Korea has once again fired two “unidentified projectiles” into the East Sea, according to South Korea’s Yonhap news agency.
After last week’s missile test, President Trump shrugged off the actions. but this time could be different as North Korea has been more threatening, as Reuters reports that North Korea said on Tuesday that the joint military drill being conducted by the United States and South Korea violates agreements North Korea made with them, state media KCNA said.
The North Korea foreign affairs ministry called joint military exercises being conducted by the U.S. and South Korea a “flagrant violation of June 12 DPRK-U.S. Joint Statement, Panmunjom Declaration and September Pyongyang Joint Declaration.”
“If the U.S and South Korean authorities trust to luck, disregarding our repeated warnings, we will make them pay heavy price which will in turn make them very much difficult,” a spokesperson for North Korea’s foreign affairs ministry said.
The timing of this worsening rhetoric is highly coincidental with China’s apparent start of a currency war following Trump’s escalation of the trade war with additional tariffs.
Bottom line, this won’t end well.
via ZeroHedge News https://ift.tt/2ZC3A7c Tyler Durden
The closer we get to seeing former Vice President Biden potentially cinch the Democratic nomination for president, the more the American public will be informed of the mountain of corruption looming over his lengthy political career. Case in point – an over 7,000 word new Politico deep dive into “middle-class Joe” Biden, as he alone likes to call himself, chronicles the decades-long sordid history of effort of his family, especially his brother and sons, to “cash in on Joe’s political ties.”
Source: Getty via Bloomberg
The Politico story packs a punch from the start, and goes on to detail seemingly countless instances of Joe being one or two degrees of separation from major corruption, bribery and‘pay to play’ lobbying schemes, via the mediation of key family members.
The opening anecdote, introducing the scandal plagued Paradigm Global Advisors, accused of being run as a personal funds account of sorts for the Bidens, is a recent in a long dirty list of examples:
The day the Bidens took over Paradigm Global Advisors was a memorable one.
In the late summer of 2006 Joe Biden’s son Hunter and Joe’s younger brother, James, purchased the firm. On their first day on the job, they showed up with Joe’s other son, Beau, and two large men and ordered the hedge fund’s chief of compliance to fire its president, according to a Paradigm executive who was present.
After the firing, the two large men escorted the fund’s president out of the firm’s midtown Manhattan office, and James Biden laid out his vision for the fund’s future. “Don’t worry about investors,” he said, according to the executive, who spoke on the condition of anonymity, citing fear of retaliation. “We’ve got people all around the world who want to invest in Joe Biden.”
It’s but one among many instances throughout VP Biden’s political career spanning back to the 1970s wherein James and Hunter Biden stood accused of using the family name to make business deals, as well as presenting themselves as powerful gatekeepers able to wield Joe’s influence.
Hunter and Joe Biden, via Politico
While Biden’s relatives themselves have always managed to slip away from being named for criminal wrongdoing, a number of their associated have over the years been indicted or convicted, as the report details.
And yet, the seemingly exhaustive report conveniently omits what’s “hidden in plain site” — enough for Trump’s personal lawyer Rudy Giuliani go off in an epic rant over the “censored” Ukraine scandal via Twitter.
Biden, Inc.: How ‘Middle Class’ Joe’s family cashed in on the family name – POLITICO Magazine. This article is an example of the double standard. It details almos 5 decades of the Biden families slimy business dealings. But it says Joe didn’t know. https://t.co/0rLIBQq5MO
It’s a continuation of Giuliani’s summer long blasting the media for its hypocritical silence concerning Biden-connected schemes and cover-ups in Ukraine and China. Starting in early June, Giuliani pointed out, “If Donald Trump Jr. got $1.5 billion from the Chinese, you don’t think we’d be going crazy?”
This was after Peter Schweizer, the author of Clinton Cash and the recently released Secret Empires discovered that in 2013, then-Vice President Biden and his son Hunter flew together to China on Air Force Two – and two weeks later, Hunter’s firm inked a private equity deal for $1 billion with a subsidiary of the Chinese government’s Bank of China, which expanded to $1.5 billion, according to a follow-up article of Schweizer’s in the New York Post in May.
The longer the cover-up of the Biden family selling public office, the closer to the election it will crash down. Then Dems will yell about election interference and their media will lie for them. But even with our corrupt double standard the day of reckoning is near. https://t.co/ghvlMH05ut
As for Ukraine, it must be remembered that Biden openly bragged bragged last year to an audience of foreign policy experts in a televised event how he threatened to hurl Ukraine into bankruptcy if their top prosecutor, General Viktor Shokin, wasn’t immediately fired, according to prior reports in The Hill. Crucially, Shokin was of course, investigating Burisma.
As we’ve detailed multiple times over the past months, Joe Biden allegedly directed $1.8 billion in aid money to Ukraine while Obama’s vice president, simultaneously, his son Hunter received millions of dollars from Ukrainian energy giant Burisma Holdings.
This is the “hidden in plain sight” scandal that Politico casually glossed over in its fifteen plus page report:
In his own words, with video cameras rolling, Biden described howhe threatened Ukrainian President Petro Poroshenko in March 2016 that the Obama administration would pull $1 billion in U.S. loan guarantees, sending the former Soviet republic toward insolvency, if it didn’t immediately fire Prosecutor General Viktor Shokin. –The Hill
“I said, ‘You’re not getting the billion.’ I’m going to be leaving here in, I think it was about six hours. I looked at them and said: ‘I’m leaving in six hours. If the prosecutor is not fired, you’re not getting the money,’” bragged Biden, recalling the conversation with Poroshenko.
“Well, son of a bitch, he got fired. And they put in place someone who was solid at the time,” Biden said at the Council on Foreign Relations event – while insisting that former president Obama was complicit in the threat.
Here we have Biden calmly explaining how he exerted his power representing the strongest nation in the world to force out of office a top foreign official – an official who happened to be investigating his son’s energy company – and yet Politico dares to claim: “There’s no evidence that Joe Biden used his power inappropriately or took action to benefit his relatives with respect to these ventures.”
Via The Intercept
But in a “really nothing to see hear” type line, the report feigns to set the limits of Biden family wrong doing (in a “limited hangout” sort of way):
Interviews, court records, government filings and news reports, however, reveal that some members of the Biden family have consistently mixed business and politics over nearly half a century, moving from one business to the next as Joe’s stature in Washington grew.
Giuliani is right on in his prediction: “The longer the cover-up of the Biden family selling public office, the closer to the election it will crash down.”
Again, assuming Biden takes the nomination, with both the national spotlight on him and republican investigators digging, it’s true that “even with our corrupt double standard the day of reckoning is near,” as Giuliani concluded.
via ZeroHedge News https://ift.tt/2MFi4zj Tyler Durden
The much-heralded “off the lows” squeeze bounce into the US cash market close has been entirely erased after-hours, leaving Dow futures down 940 points on the day as Treasury yields extend their decline…
Well that bounce didn’t last long…
And as stocks tumbled, yields also tanked…
Erasing the entire Trump-flation myth…
What will The PBOC do tonight?
via ZeroHedge News https://ift.tt/2M1Wa9Z Tyler Durden
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
– Charles Dickens, A Tale of Two Cities
You’re not losing your mind, everybody else is. Things are crazy and getting crazier. Something must be done. Somebody, please do something.
If paying attention to global events overwhelms and results in a combined sense of dread, concern and bewilderment, you’re not alone. It’s not simply because humans have more access to more information than ever before that you feel this way, there does appear to be a quickening in the pace of the unfolding of humanity’s latest chapter. Things are genuinely falling apart, but things are always falling apart. Likewise, things are always being built and created. Governments come and governments go, as do global empires and monetary systems. Everything is dying and being born all at once, constantly and forever. This will not change.
Japanification is a term that has re-emerged recently. It refers to the prolonged economic stagnation of Japan, which commenced after a financial crash in the early 1990s. The stagnation of Japan has been marked by very low inflation (recurring periods of deflation), stagnating productivity growth and a massive increase in government debt.
However, at the same time as the financial crisis that started the long stagnation in Japan, there was a similar crisis in a small northern country, Finland. Finland had followed such a similar economic trajectory as Japan that it was dubbed the “Japan of the North”. However, while Japan fell into a prolonged economic malaise, the Finnish economy returned to growth just four years after the onset of the crisis (see Figure 1).
What caused the difference between these two outcomes?
Figure 1. Volume of nominal, local currency GDP per capita in Finland and Japan between 1969 and 2018 (1969=100). Note: due to the recurrent deflation periods in Japan, comparisons using the constant (real) GDP per capita are not feasible. Source: GnS Economics, World Bank
The boom of Finland and Japan
Both Japan and Finland were relatively poor countries in the 1950s. Both were on the losing side of the Second World War (Japan had primarily fought against the U.S. and Finland against the Soviet Union) which made them temporary outcasts in the new global political order. After they regained a place in global politics, both established an ambitious industrialization program.
In both countries monetary and fiscal policies, under a regime of currency regulation, were used to channel resources towards industrialization. Capital flows were tightly-managed, and interest rates were set below market-clearing levels. This forced national savings toward investment and allowed for only essential consumption.
In Japan, the export sector grew fast with the composition of exports changing over time from toys and textiles to bicycles and motorcycles and, eventually, to steel, automobiles and electronics. In Finland, foreign trade was initially heavily concentrated with the Soviet Union, including exports of heavy metal products, and imports of crude oil for refining and eventual re-export to western economies. Exports to western economies, particularly forestry products, started to grow as war reparations ended and repeated currency devaluations kept Finnish exports competitive. Reconstruction supported domestic industrial production as well when external demand for Finnish exports slowed.
In the 1970s a global trend of financial deregulation started in the U.S. After the oil crises of the 1970s resulted in stagflation in both Japan and Finland, deregulation eventually spread to both countries by the 1980s with each government easing control over its financial sector. A massive financial boom followed due to the increased availability of capital.
During the 1980s, the price of real estate in Japan increased by a factor of six. At its peak, the value of Japanese real estate was, incredibly, double that of the entire U.S. The Nikkei stock market index rose 40,000 percent from early 1949 through late 1989, with the most massive increase during the 1980s. In the late 1980s, the market value of Japanese equities was twice the market value of U.S. equities. ’
In Finland, the much-increased availability of foreign funding made prices in the stock market explode eight-fold between 1979 and 1989, the prices of real estate four-fold and foreign direct investments six-fold. Speculation in various asset markets was endemic in both countries.
The crash and stagnation of Japan
The stock market of Japan peaked on the last trading day of 1989. It bottomed-out in the spring of 2003 after a fall of close to 80 percent from the peak. Commercial real estate imploded to approximately one-tenth of its peak value. Because the collateral of the Japanese banking sector consisted largely of real estate, bank valuations collapsed as well. Many industrial firms also suffered crippling losses from their investments in real estate. The frightening collapse of the stock market wiped-out a large part of the capital of banks, and a severe financial crisis ensued.
When the crisis hit, the Japanese government and the Bank of Japan (BOJ) enacted massive bailout programs. The BOJ started to reduce its target interest rate in 1991, which eventually reached zero in 2001. When the crisis intensified in 1993/1994, it started to act as lender of last resort, and also bailed-out several large financial institutions. In 2001, the BOJ enacted Quantitative Easing Policy (”QEP”), a forefather of the current Quantitative Easing, or “QE” now considered a standard “policy tool” by central banks globally.
The Japanese government subsidized firms to maintain employment, and banks were allowed to carry non-performing loans on their books without any demands on borrowers to restructure their businesses. Government policies permitted the use of accounting gimmicks, which allowed bank supervisors to implement policies enabling banks to understate their loan losses and overstate their capital.
Moreover, facing widespread public anger over bank bailouts, the government allowed, and in some cases even encouraged, banks to extend loans to ailing businesses (“evergreening”). Faced with an unpleasant alternative, the banks were more than happy to comply. Their lending operations diminished considerably and became biased towards unhealthy and unprofitable companies. The reason for this was simple: weak banks supported weak companies to prevent the losses that bankruptcy would incur.
The Japanese economy began to “zombify.” Because banks extended loans increasingly to unproductive companies, this led to misallocation of credit on a massive scale resulting in a fall in the investment rate and a prolonged slump in total factor productivity. This in turn led the Japanese economy into a prolonged stagnation, from which it has yet to recover. Moreover, the Japanese government has supported its zombified economy with massive fiscal stimulus, which has pushed the government debt-to-GDP ratio to an astonishing 240 percent of GDP (see Figure 2 below).
The crash and recovery of Finland
The stock market of Finland reached its peak in April 1989. It eventually fell by 70 percent from peak-to-trough with banking stocks collapsing by over 90 percent. Housing prices fell by 50 percent. The crash in the asset markets inflicted crippling losses on the banking sector.
One of the largest banks of Finland, SKOP (the central bank of co-operative savings banks) failed and was taken over by the Bank of Finland on September 19th, 1991. It had engaged in a risky and aggressive expansion during the 1980’s, when the bank, in one example, issued credit lines to customers who had been rejected by other banks in order to gain market share. SKOP had also invested aggressively in the stock market and provided large volumes of foreign currency loans to households and companies. The falling stock market had already reduced its profitability and mounting business failures, combined with the evaporation of trust in the interbank markets, finally pushed the bank over the edge.
After the takeover of SKOP, Finland’s economy went into freefall. On November 14, 1991, Finland was forced to devalue the markka after the foreign currency reserves of the Bank of Finland were depleted. On September 8, 1992, Finland was forced to abandon the currency peg and let the markka “float”.
Within a matter of months, the Finnish markka lost over 30 percent of its value. Because many of the loans issued to households and corporations were denominated in foreign currency, their adjusted principal value and carrying cost skyrocketed. A wave of corporate bankruptcies and loan defaults by households and entrepreneurs followed. The crisis spread to other banks and the availability of credit and then consumption collapsed, taking the Finnish economy with them.
In a panic mode, the parliament of Finland passed legislation establishing a Government Guarantee Fund for the banking sector in March of 1992. It included strict conditions, including a demand that any bank receiving funds provide a detailed plan on how it would return to profitability. It also agreed to show flexibility on the loan conditions applied to financially-strained households and businesses, and the leadership of participating banks were required to personally commit to the specific program aimed at returning the bank to health.
In reality, the process of bank recapitalization was fairly chaotic. At the very beginning there were no rules, no regulations and very little guidance or lessons available from abroad. There were mass terminations of credit lines, despite the rules agreed-to during the design of the bailout program. Gradually, however, the government became more skilled at distributing funds and regulating the recapitalization of Finnish banks.
Between 1991 and 1993 the GDP of Finland fell by an impressive 14 percent and unemployment rose close to 20 percent. Because the availability of credit diminished considerably, firms failed en masse. Business bankruptcies tripled between 1989 and 1992. Thankfully, a number of foreign financial institutions nevertheless continued to trust—and lend to—the Finnish government, thus preventing a total meltdown of the economy.
However, because only the most profitable Finnish corporations survived the crisis, they were able to eventually power a strong recovery, supported by the restructured banking sector. In 1994, the GDP of Finland grew by over four percent and in 1995 over five percent.
The recovery was first driven by the electronics, metallurgical, and engineering sectors with the traditional paper and pulp sector providing strong support. The technology boom got into gear in 1997, and “tech” became the largest exporting sector in 2000. In just seven years after the crisis, the volume of Finland’s exports had more than doubled.
The crisis changed the Finland’s economy in many ways, ending, for instance, the old growth model and prompting the restructuring of the banking sector, but it was also a reminder that the export sector is the leading sector of the economy. Domestic demand, for example, exceeded the 1990 level only in 1999. After a massive surge in government debt during the crisis, the debt-to-GDP ratio quickly stabilized (see Figure 2).
Figure 2. The general government debt-to-GDP ratios of Finland and Japan. Source: GnS Economics, Mbaye, Badia and Chae (2018).
Fast vs. slow deflation
So, after a similar crash and onset of financial crisis, the histories of Finland and Japan diverge. While Japan decided to save all its banks, and many corporations, Finland was forced to accept a more difficult, yet ultimately more successful method of “cleansing” its economy.
Economic stability in Japan proved to require both slow economic growth and a steady and remarkably large increase in public debt. Economic stability in Finland delivered a high rate of growth, but demanded change: large reductions in direct and indirect public support of traditional values and economic approaches.
Of course, the stories do not end there, and in both countries there are strong minority views that the bargain which was struck at the time was too one-sided. For instance, there is no certainty that the Japanese economy can indefinitely support the growth of public debt. Similarly, there is little evidence that the Finnish labor market can evolve sufficiently to permanently avoid the need to devalue—the pattern before the euro.
Still, the comparison of the crisis responses of Finland vs. Japan shows clearly that a rapid recovery from financial crisis requires short-term pain to “cleanse” the economy: a fast deflation. This must be done in order to avert long-term economic malaise through zombification of the economy: a slow deflation.
Into the endgame (of the current expansion)
Now with the Fed and the ECB both flirting with the idea of negative rates and further asset purchases, deeper zombification of the global economy is a real risk. While Japan has been able to keep its economy afloat with such measures, the same is unlikely to succeed on a global scale. This would require even more drastic monetary measures than exist at present.
The fact is that the model of economic governance by central banks, which we economists have cherished for several decades, has failed. Admitting that fact is, unsurprisingly, proving to be very difficult. With the staff of the Bank of International Settlements being, basically, the only institutional voice of reason (see: this, this and this) combined with a few distinct and courageous voices from academia (see: this and this), dangerous ideas of extended money conjuring, such as “Modern Monetary Theory” are gaining traction.
We hope that central bankers, and a majority of macroeconomists, change their thinking as soon as possible. We need first to thoroughly understand, and then to heed the lessons of Japan and resolve to accept short-term economic pain in exchange for long-term economic health—like Finland wisely did.
As we noted on Sunday, El Paso and Dayton aren’t the only US cities to have suffered tragic shootings.
Following 60 shootings in the first 96 hours of August – seven of which were deadly, Chicago’s Mount Sinai Hospital temporarily stopped accepting patients on Sunday because they hit maximum capacity after 17 people were shot between Saturday night and Sunday morning, according to Chicago’s WGN9.
12 of the victims were rushed to Mt. Sinai, causing the hospital to go “on bypass” for several hours – meaning ambulances are unable to new patients in and must divert to one of the city’s other four trauma centers.
The hospital went “off bypass” at around 6:30 a.m. and has been accepting new patients since.
Trauma center capacity issues entirely uncommon in Chicago, according to Hospital official Roberta Rakove, who said that in previous year’s shootings, “all Level 1 trauma centers were overwhelmed, but we all managed.”
“This weekend was not that kind of weekend, but it was enough.“
Responding to the violence, Chicago Police Superintendent Eddie Johnson said in a Sunday press conference “We experienced an unacceptable and disheartening level of gun violence on the West Side last night.“
“You have to stop yourself and ask what will it take before we get a handle on what’s going on,” adding “Not only in Chicago, but across the country.”
“From police departments to the court systems to prosecutors to legislators — we have to come together and figure out more common-sense solutions to these problems because clearly too many of our citizens are being shot and killed.”
On Sunday we noted that while Chicago’s August is off to a bloody start – this weekend was actually one of the city’s better ones in recent history.
We’re sure the 2020 candidates are offering internal ‘thoughts and prayers’ for the Democatic stronghold of Chicago, which has some of the toughest gun laws in the country.
via ZeroHedge News https://ift.tt/2YLkFOH Tyler Durden
