Apropos this morning’s item about Congress generally not reining in the President, I thought I’d note one area where the Legislative branch—or, to be precise, its upper House—has clawed some power away from the Executive: Court of Appeals and Supreme Court judicial appointments.
At least for much of the late 1900s, the President has been seen as having broad latitude to appoint such judges, even when the opposite party ran the Senate. Some appointments, to be sure, were blocked (especially before the filibuster was abolished, and the senatorial blue-slip policy weakened, for such matters), but on balance the Senate largely deferred to the President’s choices.
It seems likely that this has changed, at least for the foreseeable future. When the President and the Senate are from the same party, appointments will go smoother than before (because of the abolition of the filibuster). But when they are of opposite party, I expect that there will likely be a lot of pushback from the Senate. Perhaps spots will be left vacant, at least for a short while (and especially on the Courts of Appeals). Or perhaps deals will be worked out, for instance ones through which the President proposes one seemingly liberal candidate and one seemingly conservative one.
I’m not claiming that this is a good development or a bad one; I’m just trying to point out that this is one area where the Legislative/Executive power balance has been shifting a bit to the Senate (or at least to the majority party within the Senate).
The Constitution, of course, gives both branches a role in judicial appointments—the President to nominate, and the Senate to decide whether to consent (and also to give “advice”)—but leaves disputes to be resolved through the political process. The resulting compromise positions can be tugged to and fro by the branches, as the party leaders’ and members’ preferences change. As I understand it, in the late 1900s the pattern was chiefly that the Senate had a lot of power over District Court appointments but the President had the great bulk of the power over Court of Appeals appointments and especially Supreme Court appointments. Now we’re seeing that ebb away from the President, though of course that too is a political shift that could be reversed in future years.
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Expect “Cascading Global Impact” As Coronavirus Causes Massive Manufacturing Disruptions Worldwide
China has now placed hundreds of millions of its citizens under quarantine, leaving its economy grinding to a halt.
Workers can’t leave their homes. Factories are idle. Most (if not all) of China’s ports are no longer shipping. International flights are increasingly banned from the country.
As the manufacturing powerhouse to the world, you’ll be challenged to think of ANY industry that won’t experience serious supply chain interruptions and shortages from China’s woes. For instance, did you know China makes the vast majority of our prescription pharmaceuticals?
A MASSIVE hit to the global economy will directly result from the damage the Wuhan coronavirus is currently doing. And it may get worse, a lot worse, as The Telegraph’s Ambrose Evens Pritchard points out, “the longer Beijing enforces curbs on work and travel, the greater the global economic shock.”
The Chinese economy is 17pc of the world economy and deeply integrated into international supply chains. It was just 4.5pc of world GDP during the SARS epidemic 2003, which some like to use as a reassuring template. You cannot shut down China for long these days without shutting down the world.
Wednesday’s investor euphoria at reports of two new wonder drugs from Zhejiang University show how badly unhinged the market has become. This is not the way that medical science advances. Nor could these anti-virals possibly be ready, in time and at scale, to avert serious economic upheaval.
The open question is whether the coronavirus shock is enough to abort the fragile economic recovery underway since last summer’s near miss, when frightened central bankers in the US, Europe and 47 other jurisdictions cut rates in a drastic monetary U-turn.
Personally, I think the glacial SARS episode tells us little about the fast-spreading Wuhan virus. The 2019-nCoV variant is more akin to the Spanish Flu pandemic of 1918.
In fact, as Goldman noted here, the overall impact on global growth is about a 2% cut in Q1…
Of course, Goldman’s baseline assumption is that the “aggressive response from the authorities in China and elsewhere will bring the rate of new infections down sharply by the end of Q1.” If so, global economic activity should normalize in subsequent quarters.
… it will be another two weeks or so before we start to receive traditional macro data that could show a direct impact from the coronavirus outbreak and associated containment measures. Until then, market participants will need to continue to rely on sector-specific information such as news reports on factory closures and high frequency trackers of things like passenger travel and utility consumption.
But what if the virus is not “cured” by then? And what if the money-printing can’t save the world’s workshop?
Both the US Federal Reserve and the European Central Bank have already relaunched quantitative easing – a bizarre thing to do if the US economy is really doing as well as Donald Trump claimed in his State of the Union address. Clearly US strength is a late-cycle illusion. Exhaustion has been masked by both by a blast of monetary stimulus and a fiscal deficit near 5pc of GDP.
The scale of disruption in China is already staggering and is already spreading worldwide… and fast, as Mike Shedlock details below, China is effectively shut down and goods are now stranded in floating quarantines.
Nearby countries like Japan and South Korea are hit hardest but Global Shipping Disruptions will spread fast.
About 80% of world goods trade by volume is carried by sea and China is home to seven of the world’s 10 busiest container ports, according to the United Nations Conference on Trade and Development. Nearby Singapore and South Korea each have a mega port too.
“A closure of the world’s manufacturing hub impacts container shipping at large, as it is a vital facilitator of the intra-Asian and global supply chains,” said Peter Sand, chief shipping analyst at BIMCO, an international shipping association. “This will affect many industries and limit demand for containerized goods transport,” Sand told CNN Business.
The shutdowns mean that some ships can’t get into Chinese ports, as the loading and discharging of goods slows, said Guy Platten, secretary general of the International Chamber of Shipping, a trade body. Others are stuck in dock, waiting for workers to return to ports so that construction and repairs can be completed, Platten added.
Still more vessels are idling in “floating quarantined zones,” as countries such as Australia and Singapore refuse to allow ships that have called at Chinese ports to enter their own until the crew has been declared virus-free, added Sand. Platten said he knew of at least one crew that is running low on food because their ship has been idled for so long.
Giant shipping companies such as Maersk, MSC Mediterranean Shipping, Hapag-Lloyd and CMA-CGM have said that they have reduced the number of vessels on routes connecting China and Hong Kong with India, Canada, the United States and West Africa.
Not Just Shipping
IAG Cargo, the air cargo arm of British Airways parent IAG, on Monday canceled all services to and from mainland China for at least the remainder of the month, citing a UK government travel advisory, according to a statement on its website.
German logistics group DHL has reported “severe disruptions to inbound and outbound air cargo shipments, trucking and rail cargo services.”
“The full impact of the Chinese coronavirus outbreak on container volumes will not be fully measurable until ports announce their throughput numbers for the first quarter, but data collected on weekly container vessel calls at key Chinese ports already shows a reduction of over 20% since 20 January,” Paris-based Alphaliner said in the report, released late Tuesday.
“As far as box volumes in China, we see a fall of around 23% over the past three weeks as the country is gradually shutting down,” said Wang Lei, a broker in Shanghai, the main gateway for Chinese exports and the world’s busiest seaport with some 42 million containers a year.
“Workers from crane operators to customs officials and truck drivers are staying home,” Mr. Lei said. “It’s always slower during the Lunar New Year holidays, but this is something else. People are afraid to interact and it’s killing business.”
Supply Chain Disruption to Japan and South Korea
Am informed from my industry network in Asia about 2/3 of Chinese industrial supply chains to Japan already shut down, almost complete shutdown to So.Korea. Impact on Taiwan, Germany, other big manufacturing exporters must also be severe. Hit to Q1 global GDP? https://t.co/WihMW1CwpL
I know a small business owner who imports from China, nothing has moved from the warehouses over there for 4 weeks now.
— Mr Nobody. FAO SNP cockwombles – drop dead. (@nobodytoknow) February 6, 2020
Permanent Relocation?
Nobody knows how long would 2019-nCoV pandemia last, but it might be long enough to make end manufacturers trigger permanent relocation of supply chains, rather than consider it a temporary interruption.
The Baltic Exchange’s capesize index, which constitutes part of the Baltic Dry Index—an important proxy for the world’s shipping market—extended deeper into negative territory Monday, after slipping below zero for the first time ever on Friday.
Capesize vessels move products such as iron ore and coal from mines in Latin America and Australia to Europe and China. The index tracking them plunged from minus 21 points to an all-time low of minus 102 on Monday, a Baltic Exchange spokesperson said.
The broader Baltic Dry Index, which tracks global shipping rates, fell to 466 on Monday, its lowest level in four years.
If the rate is negative, someone is paying you to take the ship.
For now, The Telegraph’s AEP concludes, global markets remain in Pavlovian mode. There will always be more Chinese stimulus. Uncle Xi will always look after everybody. Close China-watchers – and some very sharp scientists – suspect that this latest flurry of optimism is just a lull before the thunderstorm.
“It’s now clear that coronavirus is a serious event risk to the entire world and that financial conditions are tightening very quickly,” said Edward Harrison from Credit Writedowns.
The channel of financial contagion runs from the epidemic through the oil price to a “bear market rout” in the broader energy sector, and from there to overstretched US junk bonds. “High yield is where the rubber hits the road,” he said.
Supply chain disruptions are starting to hurt big time.
One of Robert Mueller’s pivotal trial witnesses told the special prosecutor’s team in spring 2018 that a key piece of Russia collusion evidence found in Ukraine known as the “black ledger” was fabricated, according to interviews and testimony.
The ledger document, which suddenly appeared in Kiev during the 2016 U.S. election, showed alleged cash payments from Russian-backed politicians in Ukraine to ex-Trump campaign chairman Paul Manafort.
“The ledger was completely made up,” cooperating witness and Manafort business partner Rick Gates told prosecutors and FBI agents, according to a written summary of an April 2018 special counsel’s interview.
In a brief interview with Just the News, Gates confirmed the information in the summary.
“The black ledger was a fabrication,” Gates said.
“It was never real, and this fact has since been proven true.”
Gates’ account is backed by several Ukrainian officials who stated in interviews dating to 2018 that the ledger was of suspicious origins and could not be corroborated.
If true, Gates’ account means the two key pieces of documentary evidence used by the media and FBI to drive the now-debunked Russia collusion narrative — the Steele dossier and the black ledger — were at best uncorroborated and at worst disinformation. His account also raises the possibility that someone fabricated the document in Ukraine in an effort to restart investigative efforts on Manafort’s consulting work or to meddle in the U.S. presidential election.
Much mystery has surrounded the black ledger, which was publicized by the New York Times and other U.S. news outlets in the summer of 2016 and forced Manafort out as one of Trump’s top campaign officials.
After gaining wide attention as purported evidence of Russian ties to the Trump campaign, the ledger was never introduced as evidence at Manafort’s 2018 trial or significantly analyzed in Mueller’s final 2019 report, which concluded that Trump did not collude with Russia to influence the 2016 election. No FBI 302 interview reports have been released either showing what the FBI concluded about the ledger.
Gates’ interview with the Mueller team now provides a potential clue as to why.
By April 2018, Gates had reached a plea deal to testify against Manafort in a criminal case that ultimately resulted in Manafort’s conviction on tax and illegal lobbying charges. As the day-to-day manager of Manafort’s political consulting and lobbying efforts for former Ukrainian President Viktor Yanukovych, Gates handled Manafort’s operations and was deeply familiar with when and how payments were made and from whom.
During a debriefing with Mueller’s team on April 10, 2018, Gates was asked about the August 2016 New York Times article that first alerted the public to the existence of the black ledger and eventually led to Manafort’s downfall.
“The article was completely false,” Gates is quoted as telling Mueller’s team in a written summary of the interview created by some of the attendees.
“As you now know there were no cash payments. The payments were wired. The ledger was completely made up.”
When pressed as to why he was so certain, Gates explained the ledger did not match the way Yanukovych’s Party of Regions made payments to consultants like Manafort.
“It was not how the PoR [Party of Regions] did their record keeping,” Gates told the prosecution team, according to the written summary.
Furthermore, Gates revealed that Manafort’s team had confirmed with the party’s former accountant that the black ledger could not be a contemporaneous document because the party’s official accounting books burned in a 2014 fire during Ukraine’s Maidan uprising.
“All the real records were burned when the party headquarters was set on fire when Yanukovych fled the country,” Gates told the investigators, according to the interview summary.
The Party of Regions accountant reached by Manafort’s team told them that the black ledger was a “copy of a document that did not exist” and it “was not even [the accountant’s own] handwriting,” Gates told the prosecutors.
Gates’ account to prosecutors closely matches what several Ukrainian officials have said for more than a year.
Ukraine’s Special Anti-Corruption Prosecutor Nazar Kholodnytskyy told me last spring that he believed the black ledger was not a contemporaneous document, and likely manufactured after the fact.
“It was not to be considered a document of Manafort,” Kholodnytskyy said in an interview.
“It was not authenticated. And at that time it should not be used in any way to bring accusations against anybody.”
Likewise, one of Gates’ and Manafort’s Ukrainian business partners, Konstantin Kilimnik, who is now indicted in the same case as Manafort but remain at large, wrote a senior U.S. State Department official in summer 2016 that the black ledger did not match actual payments made to Manafort’s firm.
“I have some questions about this black cash stuff because those published records do not make sense,” Kilimnik wrote the State official in August 2016.
“The time frame doesn’t match anything related to payments made to Manafort. … It does not match my records. All fees Manafort got were wires, not cash.”
In December 2018, a Ukrainian court ruled that two of that country’s government officials — member of parliament Sergey Leschenko and Artem Sytnyk, the head of the National Anticorruption Bureau of Ukraine — illegally interfered in the 2016 U.S. election by publicizing the black ledger evidence.
While that ruling has been overturned on a technicality, the role of Sytnyk and Leschenko in pushing the black ledger story remains true.
In an interview last summer, Leschenko said he first received part of the black ledger when it was sent to him anonymously in February 2016, but it made no mention of Manafort. Months later, in August 2016, more of the ledger became public, including the alleged Manafort payments.
Leschenko said he decided to publicize the information after confirming a few of the transactions likely occurred or matched known payments.
But Leschenko told me he never believed the black ledger could be used as court evidence because it couldn’t be proved beyond a reasonable doubt that it was authentic, given its mysterious appearance during the 2016 election.
“The black ledger is an unofficial document,” Leschenko told me. “And the black ledger was not used as official evidence in criminal investigations because you know in criminal investigations all proof has to be beyond a reasonable doubt. And the black ledger is not a sample of such proof because we don’t know the nature of such document.”
In the end, the black ledger did prompt the discovery of real financial transactions and real crimes by Manafort, which ultimately led to his conviction.
But its uncertain origins raise troubling questions about election meddling and what constitutes real evidence worthy of starting an American investigation.
Angry Chinese Ambassador Slams US Senator For “Absolutely Crazy” Theory Coronavirus Is Biological Weapon
Shortly after Zero Hedge asked in the last week of January if the nVoC-2019 Coronavirus pandemic was not, as some early reports claimed, the product of a Wuhan seafood market, where people were allegedly eating infected bats (which we now know never happened) but instead a Chinese biological weapon that had escaped from the Wuhan Institute of Virology (and one lab in particular), which in turn led to an immediate and permanent suspension of our account by the publisher also known as Twitter (and which should thus be subject to Section 230 of the Communications Decency Act), none other than Arkansas Senator Tom Cotton echoed our concerns, tweeting that “China claimed—for almost two months—that coronavirus had originated in a Wuhan seafood market. That is not the case. @TheLancet published a study demonstrating that of the original 40 cases, 14 of them had no contact with the seafood market, including Patient Zero.”
Senator Cotton followed up this tweet with another, in which he effectively suggested that the coronavirus had in fact escaped from China’s only level four biohazard superlab (located conveniently in Wuhan), stating that “we still don’t know where coronavirus originated. Could have been a market, a farm, a food processing company. I would note that Wuhan has China’s only biosafety level-four super laboratory that works with the world’s most deadly pathogens to include, yes, coronavirus.”
We still don’t know where coronavirus originated. Could have been a market, a farm, a food processing company.
I would note that Wuhan has China’s only biosafety level-four super laboratory that works with the world’s most deadly pathogens to include, yes, coronavirus. pic.twitter.com/CtuU2czBLp
And despite China’s best efforts to downplay this scary possibility with countless articles written in China’s state-owned press “disproving” that the virus was in fact an escaped Chinese bioweapon, such as this one from Caixin “Shi Zhengli responds to questioning experts agree that the new crown virus is not artificial“, while censoring any allegation across its social medias that the Wuhan Institute was the origin of the virus, last Friday the White House finally stepped in and with more than a month’s delay, and one week after Cotton’s controversial tweet, the Trump administration formally asked scientists if the virus was indeed a Chinese man-made bioweapon (needless to say, an affirmative answer would put whoever it is at twitter that suspended our account in a rather unpleasant position).
That did not prevent China from theatrically getting increasingly more angry at the mere suggestion that the virus which some claim has now infected over 1.5 million people, was a product of the Wuhan Institute of Virology – as if by simply feigning outrage it could convince the world’s population that it had nothing to do in the spread of nCoV despite clear and glaring evidence to the contrary – and on Sunday, the Chinese Ambassador to the U.S. Cui Tiankai slammed Senator Cotton for doing just what we did first, namely suggesting the coronavirus could have been created in a Chinese biological warfare lab.
“I think it’s true that a lot is still unknown and our scientists, Chinese scientists, American scientists, scientists of other countries, are doing their best to learn more about the virus, but it’s very harmful, it’s very dangerous, to stir up suspicion, rumors and spread them among the people,” he said.
It wasn’t clear if the “suspicion” would be more dangerous than the consequences of arresting your own Whuan whistleblower doctor who tried to warn the world of the imminent danger from the Coronavirus (and who later died after a brief and unsuccessful battle with the virus)? Or maybe it was more dangerous than urging the world to ignore the fact that China has put 400 million of its own in people in over 60 cities on lockdown, and continue flying commercial to China, pretending nothing is happening and ignoring video clips from Wuhan showing local crematoria working 24/7 to dispose of bodies killed by the viral pandemic (without being add to the list of diseases casualties).
No, you see, what Tiankai was concerned about is that the possibility that China created a plague that is now killing its own population, could cause a panic: “For one thing, this will create panic,” Cui said, adding that it would also “fan up racial discrimination and xenophobia.”
Here one also wonders what will create a bigger panic: the fact that China is arresting “whistleblower doctors”, drags away and sequesters anyone who refuses to be put under forced quarantine, and appears to fabricate data involving the epidemic, or cracks down on anyone asking the most reasonable question – did China’s top bioweapon institute, located in Wuhan, spark the deadliest pandemic in decades, which started in… Wuhan?
But yes, we are delighted to see that China has now also stooped to using the oldest trick in the liberal playbook: “…but it’s racist.”
And just like that, anyone accusing China’s Level-4 lab, which as Nature wrote in 2017 was studying the “world’s most dangerous pathogens”, of sparking what may be the world’s worst pandemic in decades, is now a racist, and subject to immediate and permanent suspension by the free speech overlords at twitter such as the company’s associate General Counsel, Jeff Rich (his LinkedIn page is here) who one week ago urged his 1,400 followers to “cull” and “excise” the “cancerous” president Trump from the herd. One wonders, Rich, does this violate Twitter’s “Abuse and harassment” rules?
YES!! Again, this 👇 Excise the Trump cancer, then deliberate over policy differences. He is the single most destructive force against our system of government, way of life and American values EVER! He must be culled from the herd. ASAP! https://t.co/MVfdAylV2H
Anyway, back to China’s rather sensitive ambassador who, instead of promising to look into whether any of the allegations that China created the Coronavirus, simply lashed out at anyone daring to ask the question: “There are all kinds of speculation and rumors,” he added, noting that there were also conspiracy theories about the virus originating in the United States. “How can we believe all these crazy things?”
Well, Cui, “we can believe all these crazy things”, because China has yet to reveal just what animal was responsible for the spread of the virus at the Huanan Seafood Market, as per the official Chinese narrative. Maybe the reason why it can’t is that as scientists have already observed, no animal was capable of actually spreading the virus in such a way as to put the blame on a meat market that had existed for decades and never sparked a deadly pandemic.
Or maybe China can finally allow members of the US CDC to go to Wuhan and inspect the Virology Institute and observe just what went on in there, and whether, as so many have now speculated, it wasn’t one of your public workers who accidentally (or not) spread the virus?
But that wasn’t all: Cui also defended how the Chinese government handled the case of Li Wenliang, the Chinese doctor who died last week after warning about the virus weeks before the government, with the government arresting him and forcing him to retract his warnings.
“He was a doctor, and a doctor could be alarmed by some individual cases, but as for the government, you have to base your decisions on more solid evidence and signs,” Cui said. “I don’t know who tried to silence him, but there was certainly disagreement…on what exactly the virus, is how it is affecting people.”
“I don’t know who tried to silence him, but there was certainly disagreement…on what exactly the virus, is how it is affecting people,” @AmbCuiTiankai says in the wake of the death of Dr. Li Wenliang who first made public warnings of the #Coronavirus weeks before the government pic.twitter.com/CaQLoz1gOi
Here is a guess who “tried to silence” him – your government, the same government that was responsible for the disappearance of Chen Qiushi, a citizen journalist who has covered the outbreak in China and has since vanished. Asked about Cui responded “I have never heard of this guy, so I don’t have any information to share with you.”
Right.
That said, as Steve Guest put it best, “China’s ambassador to the United States just went on CBS’ “Face the Nation” and DID NOT deny that coronavirus stemmed from the Chinese military’s biological warfare program. Amb. Cui Tiankai then suggested that the virus could come from a US military lab.”
We’ll conclude with what we said earlier today, namely that “there have been serious questions on whether this Wuhan coronavirus outbreak was due to a leak or mishandling of laboratory animals used in coronavirus studies. This is a reasonable public inquiry regarding the source of the outbreak and it warrants a transparent investigation from the Chinese authorities and foreign disease control and laboratory operation experts. This is not just about the accountability of medical ethics or laboratory safety operations, it is directly related to the current endeavors to contain the virus outbreak.
While the animal host of 2019-nCoV is yet to be identified, the data and information from possible animal hosts and potential zoonic infection is imperative for prevention and controlling disease on an international scale.
The Huanan seafood market has a high potential of harboring the animal host. Animal data and profiling results from the Huanan seafood market need to be disclosed immediately by Chinese authorities even if they are negative results. It is imperative for U.S. CDC and WHO officers to demand that Chinese authorities release the information about animal testing data.
If Chinese authorities refuse to disclose testing data for animal samples, it could imply an intentional cover-up of the true origin of the 2019-nCoV outbreak.
Sadly, we doubt we will ever get an answer to this question, because – as the Chinese ambassador made it clear – any line of inquiry into whether there was an “intentional cover-up of the true origin of the 2019-nCoV outbreak” is now, well… racist.
Apropos this morning’s item about Congress generally not reining in the President, I thought I’d note one area where the Legislative branch—or, to be precise, its upper House—has clawed some power away from the Executive: Court of Appeals and Supreme Court judicial appointments.
At least for much of the late 1900s, the President has been seen as having broad latitude to appoint such judges, even when the opposite party ran the Senate. Some appointments, to be sure, were blocked (especially before the filibuster was abolished, and the senatorial blue-slip policy weakened, for such matters), but on balance the Senate largely deferred to the President’s choices.
It seems likely that this has changed, at least for the foreseeable future. When the President and the Senate are from the same party, appointments will go smoother than before (because of the abolition of the filibuster). But when they are of opposite party, I expect that there will likely be a lot of pushback from the Senate. Perhaps spots will be left vacant, at least for a short while (and especially on the Courts of Appeals). Or perhaps deals will be worked out, for instance ones through which the President proposes one seemingly liberal candidate and one seemingly conservative one.
I’m not claiming that this is a good development or a bad one; I’m just trying to point out that this is one area where the Legislative/Executive power balance has been shifting a bit to the Senate (or at least to the majority party within the Senate).
The Constitution, of course, gives both branches a role in judicial appointments—the President to nominate, and the Senate to decide whether to consent (and also to give “advice”)—but leaves disputes to be resolved through the political process. The resulting compromise positions can be tugged to and fro by the branches, as the party leaders’ and members’ preferences change. As I understand it, in the late 1900s the pattern was chiefly that the Senate had a lot of power over District Court appointments but the President had the great bulk of the power over Court of Appeals appointments and especially Supreme Court appointments. Now we’re seeing that ebb away from the President, though of course that too is a political shift that could be reversed in future years.
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The Nation, which enthusiastically has supported every totalitarian communist regime that has existed in the past century (and that includes Pol Pot’s Cambodia and North Korea) is now firmly riding the Bernie Sanders bandwagon. This article, entitled “Why American Socialism Failed—and How It Could Prevail Today,”unwittingly gives away the mentality of American socialists which claims all economic issues as being “solved” by the implantation of socialism – regardless of the actual economic outcomes.
Three years ago, I wrote “The End of Socialists is Socialism, Not Prosperity,” and this article follows some of the same themes. In that article, I argued that socialists do not necessarily believe that socialism produces better economic outcomes than capitalism—indeed, one would have to be willfully blind to fail to recognize the differences—but that socialists believe it doesn’t matter. Socialism is a moral imperative, and the only thing holding back the implementation of this system in the USA has been the failure of socialists to present a plausible alternative—something that socialists claim now is being done.
People who follow the arguments based in Austrian economics are intimately familiar with the economic calculation problem of socialism as laid out by Ludwig von Mises in 1920 and Murray N. Rothbard on numerous occasions, as well as the secondary “knowledge” argument presented by F. A. Hayek in 1945. Mises and Rothbard presented what clearly are irrefutable claims that the only kind of socialist economy that could exist would be a primitive, extremely basic economy that could not support any kind of complex economic activity. Even a die-hard socialist like Robert Heilbroner would admit to as much in his 1989 commentary in The New Yorker:
The Soviet Union, China & Eastern Europe have given us the clearest possible proof that capitalism organizes the material affairs of humankind more satisfactorily than socialism: that however inequitably or irresponsibly the marketplace may distribute goods, it does so better than the queues of a planned economy….the great question now seems how rapid will be the transformation of socialism into capitalism, & not the other way around, as things looked only half a century ago.
However, as I pointed out three years ago, the collapse of the USSR and the eastern European socialist states did not “convert” Heilbroner to becoming an advocate for capitalism, nor did China’s transformation from Mao’s giant commune to a quasi-capitalist economy (and subsequent economic growth) change his mind. Indeed, socialists seem almost impervious to factual arguments, and despite a gaggle of “what would a socialist economy look like” articles in publications such as Jacobin, socialists have never refuted the Austrian arguments. For that matter, socialists really cannot appeal to economics at all despite their claim that their goal is to provide a better economic society for those ubiquitous workers. Jacobin declares:
For socialists, establishing popular confidence in the feasibility of a socialist society is now an existential challenge. Without a renewed and grounded belief in the possibility of the goal, it’s near impossible to imagine reviving and sustaining the project. This, it needs emphasis, isn’t a matter of proving that socialism is possible (the future can’t be verified) nor of laying out a thorough blueprint (as with projecting capitalism before its arrival, such details can’t be known), but of presenting a framework that contributes to making the case for socialism’s plausibility.
(Note that the Jacobins are famous for unleashing the infamous Reign of Terror during the French Revolution, in which thousands of so-called enemies of the state were murdered. That American socialists today willingly associate themselves with genocide speaks volumes of what these people will do if they ever gain real power here.)
In other words, the implementation of a socialist order is not so much dependent upon a plausible model of a socialist economy, but rather is an exercise that depends upon convincing people that somewhere over the rainbow we can make the whole thing work, despite the failures of the past. And that is where the recent articles in The Nation and the Daily Mail reveal much about the socialist mentality.
In The Nation, Ross Barkan argues that the barriers to implementing a socialist system are political, not economic. Indeed, in “Why American Socialism Failed” he writes that there was just too much political resistance to reorganizing the United States into something like what at that time was being done in the Soviet Union. (It should be noted that he seems to view the Russian Revolution with much sympathy—and fails to note that perhaps Americans at that time were not interested in implementing a regime that would mirror the atrocities being committed by the Red Army and the new Soviet government.)
Instead of following the old political strategy of having people run as members of a socialist party, Barkan says that the better plan is for socialists simply to take over the modern Democratic Party by electing socialists from the presidency on down. He writes:
Today’s Democratic Party is a shell waiting to be inhabited by whoever claims the prizes of elected office. If Bernie Sanders, a democratic socialist, is elected president of the United States, the Democratic Party will slowly become his party. And if he loses, inspiring still more DSA recruits and fueling down-ballot victories, socialists can continue to win council, legislative, and even congressional seats on Democratic lines, wielding tangible clout.
In New York, there is one socialist in the state legislature: DSA member Julia Salazar. She has helped lead campaigns for public control of power companies and a universal right to housing. Five DSA-backed candidates are seeking legislative seats this June, challenging establishment-backed Democrats. If they all win, they will start to gain back the momentum of the 1920s.
This time, there will be no reactionary legislative leaders to unseat the new socialists, no Red Scare to feed a public frenzy against their anti-capitalist views. Salazar is a member of the Democratic majority, an ally of the progressive block, unlikely to lose an election anytime soon. The DSA members seeking to join her will be free to advocate for radical change. It’s a future that would have surprised the class of 1920 because Socialists never took over New York, let alone America. But today’s socialists march into the 2020s without the daunting roadblocks of a century ago. They don’t need their own party anymore. They can just take someone else’s.
In other words, the entire question of socialism is political; socialists can speak about their utopian visions, be elected on those platforms, but really don’t have to explain how they actually will make a socialist economy perform in a way that will even begin to match the output of a private enterprise–based economy. Yet, when confronted with the reality of the actual performance of a socialist economy, all the writer can do is to appeal to the election of socialists, which should not be surprising, since the end of socialism is political power and nothing else.
Laura might have experienced a few more milestones if a Hamilton, Ontario, Canada, hospital had been able to accommodate a bone marrow transplant for the young woman. Numerous donors were a match with Laura and ready to donate, but Hamilton’s Juravinski Hospital didn’t have enough beds in high-air-pressure rooms for the procedure. Hospital staff told her they had about 30 patients with potential donors, but the means to only do about five transplants a month.
Although Hillier’s obituary “slammed” the wait times in Canada, nonetheless, nothing will be done because Canada’s “single payer” system is both politically sacrosanct and a socialist politician’s dream. It is sacrosanct because it provides the “free healthcare” that socialists promise and a politician’s dream because it provides unending opportunities for “reform.” In reality, the economic calculation problem is front and center, making it impossible to “fix” the Canadian single-payer system, something no Canadian politician will admit.
One doubts that Hillier would have died in the same way in the United States. For all of the criticism American medical care receives from the left (and the current system hardly fits the claim by socialists that it is “free market”), one can be reasonably assured that a young woman here would not die because of a lack of hospital beds.
In Canada, however, such deaths are a matter of course, and for all of the “this shouldn’t happen” statements from both politicians and victims’ families, it will continue to happen. (Canada, perhaps not surprisingly, has relatively poor cancer survival rates.) Under socialism, one stands in line and does not challenge the system, since the system is based not upon the successful delivery of services, but rather on the prospect of such services being made available “to the people” for no fee, the product of a “compassionate” socialist state.
Note that at no point in his article does Barkan write of any way that socialism would improve the lives of Americans. Socialism is not about providing needed services to those who cannot receive them otherwise, nor is it about raising the living standards of the poor, despite socialist claims to the contrary. Socialists do not create goods and services; they commandeer them for political purposes, and such things are useful only as a means of putting and keeping socialist politicians in power.
No politician in Canada will be voted out of office for the premature death of Laura Hillier, nor will any hospital administrators be sacked. Had medical officials given in to sentiment and bumped Hillier up the transplant list, someone else would have died for lack of space. The enemy here is scarcity, and under socialism, scarcity is multiplied. Canadians have come to accept this situation, all the while convincing themselves that theirs not only is a morally-superior system to anything that exists in their neighbor to the south, but also enables them to receive medical services that they believe would be denied them if their government were not paying. They have become like the cave dwellers in Plato’s allegory, believing that the medical shadows they see on the wall represent the best care possible.
Socialists might well take over the Democratic Party; indeed, American voters are capable of putting someone like Bernie Sanders in the White House. They well could make the electoral gains that the writers at The Nation have coveted for decades. What they cannot do, however, is tell the truth about socialism. Another article in Jacobin, written by Sam Gindin, demonstrates this last point:
Murray Rothbard, a lifetime disciple of the archconservative Ludwig von Mises, lamented that when he entered grad school after World War ii “the economics establishment had all decided, left, right, and center, that…socialism’s only problems, such as they might be, were political. Economically, socialism could work just as well as capitalism.” With socialism carrying such a degree of economic credence, the elaboration of the details of a functioning socialist society seemed decidedly less pressing for socialists than developing the politics of getting to it.
Gindin then goes on to “refute” Hayek’s “knowledge problem” critique of socialism (while ignoring the Austrian “economic calculation” issue). The rest of the piece essentially can be shortened into this one sentence: forget the past failures of socialism; this time we will make it work.
We have been hearing this kind of thing for more than a century. Socialists tell us that if the rest of us will give them total power over our lives, this time they will provide prosperity, and unlike previous socialist regimes, they won’t strip us of our liberties. We should have as much confidence in their words as the loved ones of Laura Hillier had in the empty promises of Canadian medical officials.
Chinese Copper Buyers Cancel Orders Around The Globe As Economy Grinds To A Halt
While Beijing has been doing everything in its power to keep equity markets artificially supported to avoid a collapse in the precious “wealth effect” and investor sentiment, throwing the kitchen sink at equities and in addition to a record liquidity injection…
… rate and tax cuts, and various fiscal stimulus measures, outright banning the shorting of stocks, there is one indicator that Beijing has been unable to manipulate. Ominously, it is the one indicator that leads overall Chinese output and suggests that the world’s 2nd largest economy has hit a brick wall.
We are talking, of course, about Dr.copper, that age-old barometer for the health of the global economy, which after rebounding modestly from a record 13-day drop, has once again resumed sliding, in the process creating a gaping divergence with the US equity market, which so far has shown an immunity – so to speak – to any concerns about viruses or frankly anything else.
But why is the price of copper plunging, and why has this most popular barometer for the state of the global economy disconnected from both Chinese stocks and the S&P500?
Simple: while China’s “National Team” still has enough firepower to intervene in the stock market, where it can just outright ban selling and print any amount of liquidity it needs to push stocks higher, it lacks the funds to offset the collapse in demand from Chinese copper buyers on the ground, who have seen the writing on the wall for China’s economy – the world’s largest buyer of the orange metal – and have literally torn up contracts, or as the FT reports, “copper traders in China… have asked miners from Chile to Nigeria to cancel or delay shipments” due to a freefall in copper demand.
According to the report, “multiple Chinese copper buyers said they had scrapped or postponed overseas orders by declaring force majeure since the end of January, when Beijing began to report a surge in coronavirus infections.”
As for the reason why copper demand is collapsing, China’s efforts to contain the virus, ranging from restricting highway traffic to extending the lunar new year holiday, have affected industrial activity and raised concerns about growth in the world’s second-biggest economy. In fact, as we reported on Friday, according to JPMorgan China’s Q1 GDP is already set to plunge from 6% to 1%…
… and while a rebound in Q2 is expected as Beijing gets the pandemic under control, this may end up an overly optimistic assumption for a nation where some speculate as many as 1.5 million are now infected. Indeed, even JPM admits that unless the pandemic is contained in the next few weeks, China’s GDP may crash as much as -4% in Q1, ending all hopes for a quick rebound, and in the process potentially triggering a global recession, if not depression.
It’s not just copper that is seeing an implosion in demand: Chinese buyers of liquefied natural gas have also considered declaring force majeure, a clause that identifies natural disasters or other unavoidable catastrophes as cause for not fulfilling a contract.
Quoted by the FT, a manager at Guangzhou Zhongshan Trade, a non-ferrous metal trading firm in southern China that focuses on copper and antimony, said that “Coronavirus has had a huge impact on copper demand as downstream users [involved in processing raw copper] have stopped acquiring raw material.” Guangzhou Zhongshan this week asked suppliers in Chile and Somalia to delay shipments of 500 tonnes of copper worth about Rmb25m ($3.57m) for at least a week. It has also cancelled a preliminary contract with a seller in Somalia and has stopped placing new orders.
“The epidemic is not just a China issue, it is a global problem,” the manager said, adding that its customers had not objected to its decision, although there is a reason for that – they expect these orders to return shortly. If that doesn’t happen, and if the world’s largest buyer of copper fails to return to the market, the avalanche of upstream bankruptcies as one copper producer after another files, could result in the world’s biggest commodity shock since Lehman.
Copper users, ranging from car companies to home appliance makers, are suffering from a collapse in sales.
As for the port of Guangzhou (aka Canton), located in China’s Pearl river delta, one of the biggest in China for commodities trading, business activity has already plunged with fewer than a third of workers on duty, the manager added, even though Guangzhou is not yet officially under quarantine. As a result, at least a dozen other Chinese copper buyers could use force majeure in the coming weeks to try to renegotiate copper import contracts, said traders in the city, located about 1,000km south of Wuhan, the outbreak’s centre. One can only imagine what would happen if a burst of new cases were to be reported in this province which is key to China’s economy.
One thing is certain: the coronavirus fallout – which has led to nearly half a billion people living under lock down – is only just starting, as copper users, ranging from car companies to home appliance makers, face a sharp drop in sales if the outbreak continues to worsen. Consultancy Wood Mackenzie said demand for copper-related products could suffer “further disruptions” after more than a dozen provinces imposed restrictions on people’s movements in an attempt to contain the disease.
That, the FT reports, has prompted copper traders to embrace the use of force majeure, even if it comes at the expense of their business partners. What it means is that the copper supply chain is now on the verge of collapse, and it’s every man for themselves. Ironically, Chinese end buyers will be ok, buffeted by the massive liquidity injections unleashed by the PBOC. But what about all those fragile upstream producers all of which are so dependent on Chinese purchases?
Well, they are none of China’s business: “Sellers have to accept our terms because the disease has made business contracts invalid,” said an executive at Shenzhen Yongfulu, a copper trader in southern China with annual revenues of about Rmb40m. Yongfulu imported 4,000 tonnes of copper last year. The company asked its suppliers in Chile and Somalia to postpone shipments of 400 tonnes of copper for at least two weeks.
Needless to say, a plunge in Chinese purchases – which has already led to a record drop in the price of copper – would send shockwaves through the global copper market. The nation accounts for half of global consumption of the metal, according to the International Copper Study Group. Copper futures traded in Shanghai have fallen 8 per cent since the beginning of this year. And even though many local Chinese smelters have continued to operate despite the breakout of the pandemic , the decision to shut down roads in key hubs and cities across China has caused delays in them receiving raw materials.
The practice of force majeure is controversial. Dan Harris, a lawyer who has worked on force majeure cases against Chinese firms, said an overuse of the clause will hurt Chinese copper importers in the long run. “Legally, these Chinese companies may be in the right,” said Mr Harris. “But [copper sellers] are going to remember that. A year from now they are not going to sell to those Chinese companies.”
Somehow we doubt that: after all who in the world, literally, can possibly replace the ravenous demand from Chinese buyers. The answer is rhetorical, which however leads to another question: what happens to China’s economy as the world realizes that countless just-in-time supply chains, all of which pass through China, are no longer working?
Viewing the past through the lens of history is unfair to the participants. Missteps are too obvious. Failures are too abundant. Vanities are too absurd. The benefit of hindsight often renders the participants mere imbeciles on parade.
Was George Armstrong Custer really just an arrogant Lieutenant Colonel who led his men to massacre at Little Bighorn? Maybe. Especially when Sitting Bull, Crazy Horse, and numbers estimated to be over ten times his cavalry appeared across the river.
Were George Donner and his brother Jacob naïve fools when they led their traveling party into the Sierra Nevada in late fall? Perhaps. Particularly when they resorted to munching on each other to survive the relentless blizzard.
Certainly, Custer and the Donner brothers were doing the best they could with the information available to them. The decisions they made must have seemed reasoned and calculated at the time. But what they couldn’t see – until it was too late to turn back – was that with each decision, they unwittingly took another step closer to their ultimate demise.
Still they were human just like we are human…no smarter, no dumber. We’re not here to ridicule them; but rather, to learn from them.
A Good Man in a Bad Trade
Rudolf von Havenstein had been president of the Reichsbank – the German central bank – since 1908. He knew the workings of central bank debt issuances better than anyone. He was good at it.
Thus, when he was called upon by history to deliver a miracle for the Deutches Reich in the aftermath of WWI, he knew exactly what to do. He’d deliver monetary stimulus. In fact, he’d already been at it for several years.
On August 4, 1914, at the start of the war, the Goldmark – or gold-backed Reichmark – became the unbacked Papermark. With gold out of the picture, the money supply could be expanded to meet the endless demands of war.
To this end, von Havenstein took public debt from 5.2 billion marks in 1914 to 105.3 billion marks in 1918. Over this time, he increased the quantity of marks from 5.9 billion to 32.9 billion. German wholesale prices rose 115 percent.
By the war’s end, Germany’s economy was in shambles. Industrial production in 1920 had slipped to just 61 percent of the level seen in 1913. With a weak economy, and under the crushing weight of debt, it was time for von Havenstein to really get to work.
In truth, he didn’t have much of a choice. The limits of fiscal and monetary prudence had been crossed when the Goldmark was replaced with the Papermark. Reversing course now would have brought an immediate economic collapse and societal discord.
What happened next?
The Triumph of Madness
Our friend Bill Bonner, as recently revealed in his Daily Diary, will tell you what happened next:
“The authorities had financed the war by printing money. Now, they figured they could print their way out of the post-war depression…
“The decision seemed like the right one at the time. It prevented an immediate crisis – with mass unemployment and political upheaval.
“Von Havenstein knew it would cause inflation, but he considered it the lesser of two evils. He also seemed to think that the inflation would be moderate… as it had been during the war… and that it would reduce the crushing weight of Germany’s war debt.
“One little step led to another. And five years later, when von Havenstein died, the central bank of Germany had printed some 500 quintillion marks. This hyperinflation of the money supply caused a hyper deflation in the value of the mark. One U.S. dollar was worth 4.2 trillion marks by December 1923.
“Yet for all the ‘money’ held by Germans, they were destitute. The economy had caved in. Violent mobs were out in the streets. A decade later, the Nazis rose to power, the Reichstag burned, and 60 million died in WWII.
“But who could have seen that coming?”
Naturally, no one could have seen that coming. Not even a practitioner of abstract thinking could have forecast such madness. But step by step, madness triumphed…
…and step by step, madness triumphs today. By this, here’s a quick, incomplete list of steps taken into our current madness:
President Nixon’s ‘temporary’ suspension of the Bretton Woods Agreement in 1971 – cutting the link between the dollar and gold.
Alan Greenspan establishes the Greenspan put following the Black Monday crash of October 19, 1987 – gifting the mother of moral hazards to Wall Street gamblers.
The taxpayer funded bailout of the Savings & Loans industry in 1989 – presaging the 2007 subprime mortgage crisis.
The Fed’s bailout of Long-Term Capital Management in 1998 – inadvertently suppling excess gas to an already overinflated dot com bubble.
Greenspan’s easy money policies in the early 2000s following the bursting of the dot com bubble – inflating residential real estate prices.
Hank Paulson’s 2008-09 TARP bailout bazookas – ‘heads I win, tails you lose’ socializing Wall Street losses to taxpayers.
Ben Bernanke’s courage to act money printing via quantitative easing (QE) and zero interest rate policy (ZIRP) from 2008 to 2014 – the origins of today’s everything bubble.
The Powell pivot and abrupt end of monetary policy normalization in 2019 – adding fuel to the fire and sustaining the everything bubble no matter what.
Repo madness program of 2019 thru the present – breakdown of the overnight funding market and the indefinite application of daily liquidity conjured out of thin air by the Fed.
The Fed’s ‘Not QE’ reserve management program of 2019 thru the present – Rudolf von Havenstein style money printing to buy U.S. Treasuries, fund trillion dollar deficits, and keep the lights on in Washington at all costs.
What happens next?
Debts will be paid in full. The dollar will go up in smoke. And step by step, madness of the kind only abstract thinking can forecast will triumph.
New MIT Skull Study Analysis Calls For 70% Chance Of Recession In Next Six Months
A new index that has been an accurate past indicator of recessions is showing that we are currently at a 70% chance of recession, attributed to weakening industrial production and the slope of the yield curve.
The new indicator is a combination between State Street Associates and MIT’s Sloan School of Management and is called the KKT Index of the Business Cycle.
It is based off of the idea of Mahalanobis distance, which is a measure of the distance between a point P and a distribution D, introduced by P. C. Mahalanobis in 1936. The distance is a multi-dimensional generalization of the idea of measuring how many standard deviations away P is from the mean of D. In addition to using it for the analysis of skulls, Mahalanobis distance is used in cluster analysis and classification techniques.
“The Mahalanobis distance was originally conceived to measure the statistical similarity of the values of a set of dimensions for a given skull to the average values of those dimensions for a chosen group of skulls,” the study says.
The study’s abstract reads:
Their index has several important features that distinguish it from the Conference Board’s leading, coincident, and lagging indicators. It is efficient because as a single index it conveys reliable information about the path of the business cycle. Their index gives an independent assessment of the state of the economy because it is constructed from variables that are different than those used by the NBER to identify recessions.
It is strictly data driven; hence, it is unaffected by human bias or persuasion. It gives an objective assessment of the business cycle because it is expressed in units of statistical likelihood. And it explicitly accounts for the interaction, along with the level, of the economic variables from which it is constructed.
The study’s co-author William Kinlaw, senior managing director at State Street Associates said to Axios: “This index offers a precise probability of recession or robust growth … by comparing key variables to the patterns that prevailed during historical episodes.”
The study incorporated U.S. data including industrial production, nonfarm payrolls, stock market return and the slope of the Treasury yield curve.
The study says that the lead time on the yield curve predicting recessions is often too long, stating: “Many pundits believe that an inverted yield curve presages the onset of recession. Exhibit 4 tends to support this relationship, though the lead time is often quite long.”
Dating back to 1916, the KKT Index has gone up “leading up to every recession so that the combination of its trajectory and level provides a reliable indicator of the likelihood of recession,” according to the study.
In Exhibit 5, “he dark line shows the level of the KKT Index leading up to, during, and following recessions. The light line shows level of the index leading up to, during, and following periods of robust growth,” the study says.
The unconditional likelihood of a recession occurring in a 6 month period is usually just 17%. As of November 2019, the reading on the index was as high as 76%.
The study concludes: “We highlight the row corresponding to the realization of recessions over the subsequent six months for various levels of the index. We also report the unconditional frequency of recession for the various time spans. Exhibit 6 reveals that when the index exceeded 50%, 54% of the time a recession occurred within the next six months.”
It continued: “When it exceeded 60%, a recession occurred 61% of the time within the next six months. When the index exceeded 70% the frequency of recessions was 70%. When it exceeded 80%, recessions occurred 77% of the time. And when it exceeded 90%, recessions followed 91% of the time.”
The Democratic presidential field, with the notable exception of faltering front-runner Joe Biden, has been engaging in a race to see who can make the most elaborate promises of immediate executive action. Forget 100 days; we’re now talking 100 hours to see what that magical Oval Office pen and phone can do.
On Day One, President Elizabeth Warren would wipe out student loans for 42 million people, ban fracking “everywhere” and block any future fossil fuel leases on public lands and offshore. We are still awaiting the full Day One list from a future President Sanders, but we know it includes an executive order to “legalize marijuana in every state in this country.”
Legalizing marijuana is a wonderful and long-overdue idea, but Sanders’ way of getting there is not. Federal law, including the odious Controlled Substances Act, is constitutionally required to originate from or be struck down by either Congress or constitutional amendment. A presidency with enough power to legalize Activity X irrespective of Congress or the desires of states is a presidency with enough power to criminalize that same activity when the other team wins. It’s a seesaw of authoritarianism, and we should all want to get off.
Of course, Republicans generally aren’t much eager to diminish the scope of executive power, either, at least so long as they have it or expect to have it. The Framers’ theory was that members of Congress, because of their roles and their own political ambitions (which, for most, don’t extend to the Presidency), would work to protect Congressional authority and rein in Presidential authority; alas, we haven’t been seeing much of that.
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