Visualizing The Snowball Of Global Government Debt

Over the last five years, markets have pushed concerns about debt under the rug.

But, while economic growth and record-low interest rates have made it easy to service existing government debt, Visual Capitalist’s Jeff Desjardins points out that it’s also created a situation where government debt has grown in to over $63 trillion in absolute terms.

The global economic tide can change fast, and in the event of a recession or rapidly rising interest rates, debt levels could come back into the spotlight very quickly.

THE DEBT SNOWBALL

Today’s visualization comes to us from HowMuch.net and it rolls the world’s countries into a “snowball” of government debt, colored and arranged by debt-to-GDP ratios. The data itself comes from the IMF’s most recent October 2018 update.

Courtesy of: Visual Capitalist

The structure of the visualization is apt, because debt can accumulate in an unsustainable way if governments are not proactive. This situation can create a vicious cycle, where mounting debt can start hampering growth, making the debt ultimately harder to pay off.

Here are the countries with the most debt on the books:

Note: Small economies (GDP under $10 billion) are excluded in this table, such as Cabo Verde and Barbados

Japan and Greece are the most indebted countries in the world, with debt-to-GDP ratios of 237.6% and 181.8% respectively. Meanwhile, the United States sits in the #8 spot with a 105.2% ratio, and recent Treasury estimates putting the national debt at $22 trillion.

LIGHT SNOW

On the opposite spectrum, here are the 10 jurisdictions that have incurred less debt relative to the size of their economies:

Note: Small economies (GDP under $10 billion) are excluded in this table, such as Timor-Leste and Solomon Islands

Macao and Hong Kong – both special administrative regions (SARs) in China – have virtually zero debt on the books, while the official country with the lowest debt is Brunei (2.8%).

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“The People” Know What They Want And Just Might Get It – Good And Hard

Authored by James George Jatras via The Strategic Culture Foundation,

A survey of nations in what was once known quaintly as the Free World shows some of them engaged in what could best be described as a cold civil war.

Such a condition is inherently unstable. One possible future is one where the cold conflict becomes hot with unforeseeable consequences. Another is that one side successfully represses the other before violence reaches a certain threshold.

Now before we go any further, let’s make one thing clear. Whatever the country and its specific ills, we can be sure that Vladimir Putin is the culprit. According to Stephen Collinson of CNN (“Another good day for Putin as turmoil grips US and UK”):

‘In London, Theresa May on Tuesday suffered the worst defeat in the modern parliamentary era by a prime minister, as lawmakers shot down her Brexit deal with the European Union by a staggering 432 votes to 202.

‘The United States, meanwhile, remains locked in its longest-ever government shutdown, which is now entering its 26th day, is nowhere near ending and is the culmination of two years of whirling political chaos sparked by President Donald Trump.

‘It’s hard to believe that two such robust democracies, long seen by the rest of the world as beacons of stability, have dissolved into such bitter civic dysfunction and seem unmoored from their previous governing realities. [ … ]

‘The result is that Britain and the United States are all but ungovernable on the most important questions that confront both nations.

‘That’s music to Putin’s ears.

‘The Russian leader has made disrupting liberal democracies a core principle of his near two-decade rule, as he seeks to avenge the fall of the Soviet empire, which he experienced as a heartbroken KGB agent in East Germany.

‘Russia has been accused of meddling in both the Brexit vote and the US election in 2016 — the critical events that fomented the current crisis of the West.’

It isn’t exactly clear how the “meddling” of which the coryphaeus of the Kremlin is merely “accused” managed to entice Theresa May into botching (or sabotaging) Brexit talks or to embolden Donald Trump into finally standing his ground on his top campaign pledge. Even Collinson admits that folks in the US and UK may have had something to do with the ruckus: “Supporters of Trump in the US and Brexit in Britain see their revolts as uprisings against distant or unaccountable leaders who no longer represent them or share their values.”

Harrumph! Why should anyone care what the great unwashed think about accountability or values? What matters, say “skeptics” like Collinson, is that the proles’ getting uppity might be “deeply corrosive to the international political architecture that has prevailed for over 70 years.” Let’s get our priorities straight!

While Britain and the US are entertaining distractions, the current main feature is the jacquerie going on in France. To be sure, many wonder if les gilets jaunes are a genuine, grassroots rebellion of ordinary Frenchmen, or some kind of Astroturf comparable to “color revolutions” that western governments and their accomplices like George Soros have sponsored in many countries. While there is some evidence of agents provocateurs (the expression is French, after all) working for the Emmanuel Macron regime – can we start using that word now, like “Assad regime,” “Putin regime,” etc.? – and minor involvement of groups like Antifa committing vandalism with an aim to discredit the yellow vests, the definitive attestation of authenticity was pronounced by world-class poseur and shill for plutocracy and warmongering, Bernard-Henri Lévy: “It’s a real social movement, but it’s one driven by sad, mortifying, and destructive forces.”

Any movement Lévy calls sad, mortifying, and destructive – that’s French for “deplorable” – can’t be all bad, especially with some monarchists involved. It’s rather ironic, though, given that barely a year ago some were comparing vain little Macron to Napoleon.

What is perhaps most detestable to bien pensants like Collinson and Lévy is that the social basis of the yellow vests is readily identifiable. They’re who we used to call simply French working people. As geographer Christopher Guilluy describes in Spiked:

‘Paris creates enough wealth for the whole of France, and London does the same in Britain. But you cannot build a society around this. The gilets jaunes is a revolt of the working classes who live in these places.

‘They tend to be people in work, but who don’t earn very much, between 1000€ and 2000€ per month. Some of them are very poor if they are unemployed. Others were once middle-class. What they all have in common is that they live in areas where there is hardly any work left. They know that even if they have a job today, they could lose it tomorrow and they won’t find anything else.

‘Not only does peripheral France fare badly in the modern economy, it is also culturally misunderstood by the elite. … One illustration of this cultural divide is that most modern, progressive social movements and protests are quickly endorsed by celebrities, actors, the media and the intellectuals. But none of them approve of the gilets jaunes. Their emergence has caused a kind of psychological shock to the cultural establishment. It is exactly the same shock that the British elites experienced with the Brexit vote and that they are still experiencing now, three years later.

‘The Brexit vote had a lot to do with culture, too, I think. It was more than just the question of leaving the EU. Many voters wanted to remind the political class that they exist. That’s what French people are using the gilets jaunes for – to say we exist. We are seeing the same phenomenon in populist revolts across the world. [ … ]

‘The Parisian economy needs executives and qualified professionals. It also needs workers, predominantly immigrants, for the construction industry and catering et cetera. Business relies on this very specific demographic mix. The problem is that ‘the people’ outside of this still exist. In fact, ‘Peripheral France’ actually encompasses the majority of French people. [ … ]

Think of the ‘deplorables’ evoked by Hillary Clinton. There is a similar view of the working class in France and Britain. They are looked upon as if they are some kind of Amazonian tribe. The problem for the elites is that it is a very big tribe.

‘The middle-class reaction to the yellow vests has been telling. Immediately, the protesters were denounced as xenophobes, anti-Semites and homophobes. The elites present themselves as anti-fascist and anti-racist but this is merely a way of defending their class interests. It is the only argument they can muster to defend their status, but it is not working anymore.

‘Now the elites are afraid. For the first time, there is a movement which cannot be controlled through the normal political mechanisms. The gilets jaunes didn’t emerge from the trade unions or the political parties. It cannot be stopped. There is no ‘off’ button. Either the intelligentsia will be forced to properly acknowledge the existence of these people, or they will have to opt for a kind of soft totalitarianism.’

Unfortunately, “soft totalitarianism” is not out of the question, whether in France or other countries in which populism threatens to upend the elites’ neoliberal gravy train and all the social and moral baggage that comes with it. Guilluy sees the revolt in France as beyond control by the “normal political mechanisms.” That may be true, at least in France, at least for now.

But the US may be another story. At the end of this week all Washington was atwitter with an alleged bombshell (relax, in the US legacy media every other story is a “bombshell,” especially if it involves dirt on Trump) that former Trump attorney, “fixer,” and alleged literal bagman Michael Cohen had actually been instructed by his erstwhile client to commit perjury. Unlike much else thrown at Trump, this story (reported in Buzzfeed, which by total coincidence played a key early role in publicizing the US-UK Deep’s State’s “dirty dossier”) would constitute an impeachable crime. In an extraordinary move, Grand Inquisitor Robert Mueller released a statement through a spokesman indicating the report was “not accurate” but not specifying in what regard. As of this writing Buzzfeed stands by the story and asked for clarification by Mueller’s office, which may or may not be forthcoming.

Whatever the fate of this report, make no mistake: there will be more of the same, an endless parade of themThe fact that such reports might turn out not to be true makes little difference. Their existence is sufficient to keep Trump constantly on the defensive pending his removalone way or another.

Elizabethtown College Professor Emeritus Paul Gottfried describes how grandees of the GOP are already getting set to restore the status quo ante in collusion with their nominal Democrat adversaries once the interloper is gone:

‘… in the next few years, a working alliance will develop between regular Democrats—particularly New Democrats from red states—and the milquetoast Republican establishment. … Such an alliance would reflect electoral reality, as the Right seems to be growing weaker, not stronger, since the election of Trump two years ago. The ever ambitious Mitt Romney fired on his party’s leader prematurely, but his political instincts may be right after all. The GOP is likely to move leftward because that’s where a majority of the voters are, and if this happens to Trump’s detriment, Romney will hope to pick up the pieces. Neoconservatives and much of the authorized conservative movement would no doubt welcome the Utah senator or someone like him as the kind of “conservative” they could work with were he to run for the presidency.

‘If the elections since 2018 have shown anything, it’s this: blue electoral areas have remained quite solid, while traditionally red ones, even in the Deep South, are up for grabs. That’s because the party perceived as being further to the left has benefited from its growing coalition. If there’s another explanation, I can’t seem to find it. It would not be unusual to have two national parties that are recognizably on the left contending for power. The parties now running the major Western European countries are all to the left of our present GOP.

‘In a possible alliance, the GOP, as the ideologically and electorally weaker side, will readily cooperate with establishment Democrats. They will undoubtedly find such shared concerns as confronting Putin “the thug” and supporting the Likud Party in Israel. They should have no trouble reaching an agreement on giving amnesty to all non-criminal illegal immigrants once Trump is no longer on the scene.

‘There is no reason to think that this political shift won’t continue. We are looking at a process that’s been brought about by college educators, the culture industry, the mass media, and mass immigration, and the momentum may be extremely hard to reverse or even to stop. America’s future won’t necessarily be British Columbia’s, whose provincial legislature features only parties of the left and which hasn’t elected a conservative to a provincial office since the early 1990s.’

The celebrated Sage of Baltimore, H. L. Mencken observed that “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” This begs the question, though, of who the “common people” are. In contrast to France, where Guilluy’s “peripheral France” is still a majority of the French population, US elites in both parties are looking to the day when America’s “deplorables” are a minority (which we already may be) that will continue to shrink. Anyone who might object to ethnic and moral replacement is clearly a racist and “white supremacist,” comparable to France’s “xenophobes, anti-Semites and homophobes.” In the not too distant future, Guilluy’s “normal political mechanisms” may be more than sufficient to handle what’s left of a disappearing America.

If Trump is going to build that Wallhe’d better do it damn fast.

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Hong Kong Housing Market Enters Correction Territory

After notching its longest streak of declining prices since at least 2016, what was formerly the world’s hottest housing market has officially entered correction territory, as a single interest rate hike by monetary authorities (which prompted HSBC, one of the most active banks in the region, to raise its prime lending rate) has gone a long way toward offering some badly needed relief for prospective homebuyers in the city’s middle class.

HK

According to Bloomberg, secondary home prices in Hong Kong have shed 9.8% from their August peak to hit their lowest level since February 2018.

Housing

Though one broker quoted by Bloomberg carefully insisted that, while “correction” was an appropriate word to describe what is happening in the market, calling it a “collapse” would be a bridge too far.

“You can say it’s a correction with a 10 percent drop in prices, though it’s not a collapse,” said Patrick Wong, a real estate analyst with Bloomberg Intelligence.

Particularly because a looming vacancy tax trade-war related volatility suggest that the market still has another 5% to 10% to go until it bottoms out (then again, considering that Hong Kong is the world’s most expensive housing market, a chasm between bids and asks could push it even lower, particularly as anxious government officials actively try to pull the rug out from under robust prices.

Various factors have combined to put downward pressure on home values, from worsening sentiment due to volatile markets and the U.S.-China trade war, to interest-rate rises and a looming vacancy tax. Prices still probably have about 5 to 10 percent further to drop, Wong said.

The dip has been welcomed by would-be home buyers trying to get on the property ladder as well as government officials concerned about affordability. The question is how long the softness will last, particularly considering demand is still strong and there are growing signs the U.S. Federal Reserve may pause its upward trajectory.

For what it’s worth, Citigroup has prices bottoming in the next two months as buyers swoop in to take advantage of relatively good deals; Morgan Stanley expects prices to rise 2% this year for similar reasons.

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The US Military Is Winning… No, Really, It Is!

Authored by Nick Turse via TomDispatch.com,

A Simple Equation Proves That the U.S. Armed Forces Have Triumphed in the War on Terror…

4,000,000,029,057. Remember that number. It’s going to come up again later.

But let’s begin with another number entirely: 145,000 — as in, 145,000 uniformed soldiers striding down Washington’s Pennsylvania Avenue. That’s the number of troops who marched down that very street in May 1865 after the United States defeated the Confederate States of America. Similar legions of rifle-toting troops did the same after World War I ended with the defeat of Germany and its allies in 1918. And Sherman tanks rolling through the urban canyons of midtown Manhattan? That followed the triumph over the Axis in 1945. That’s what winning used to look like in America — star-spangled, soldier-clogged streets and victory parades.

Enthralled by a martial Bastille Day celebration while visiting French President Emmanuel Macron in Paris in July 2017, President Trump called for just such a parade in Washington.  After its estimated cost reportedly ballooned from $10 million to as much as $92 million, the American Legion weighed in. That veterans association, which boasts 2.4 million members, issued an August statement suggesting that the planned parade should be put on hold “until such time as we can celebrate victory in the War on Terrorism and bring our military home.” Soon after, the president announced that he had canceled the parade and blamed local Washington officials for driving up the costs (even though he was evidently never briefed by the Pentagon on what its price tag might be).

The American Legion focused on the fiscal irresponsibility of Trump’s proposed march, but its postponement should have raised an even more significant question: What would “victory” in the war on terror even look like? What, in fact, constitutes an American military victory in the world today? Would it in any way resemble the end of the Civil War, or of the war to end all wars, or of the war that made that moniker obsolete? And here’s another question: Is victory a necessary prerequisite for a military parade?

The easiest of those questions to resolve is the last one and the American Legion should already know the answer. Members of that veterans group played key roles in a mammoth “We Support Our Boys in Vietnam” parade in New York City in 1967 and in a 1973 parade in that same city honoringveterans of that war. Then, 10 years after the last U.S. troops snuck out of South Vietnam — abandoning their allies and scrambling aboard helicopters as Saigon fell — the Big Apple would host yet another parade honoring Vietnam veterans, reportedly the largest such celebration in the city’s history. So, quite obviously, winning a war isn’t a prerequisite for a winning parade.

And that’s only one of many lessons the disastrous American War in Vietnam still offers us. More salient perhaps are those that highlight the limits of military might and destructive force on this planet or that focus on the ability of North Vietnam, a “little fourth-rate” country — to quote Henry Kissinger, the national security advisor of that moment — to best a superpower that had previously (with much assistance) defeated Nazi Germany and Imperial Japan at the same time. The Vietnam War — and Kissinger — provide a useful lens through which to examine the remaining questions about victory and what it means today, but more on that later.

For the moment, just remember: 4,000,000,029,057, Vietnam War, Kissinger.

Peace in Our Time… or Some Time… or No Time

Now, let’s take a moment to consider the ur-conflict of the war on terror, Afghanistan, where the U.S. began battling the Taliban in October 2001. America’s victory there came with lightning speed. The next year, President George W. Bush announced that the group had been “defeated.” In 2004, the commander-in-chief reported that the Taliban was “no longer in existence.” Yet, somehow, they were. By 2011, General David Petraeus, then commander of U.S. forces in Afghanistan, claimed that his troops had “reversed the momentum of the Taliban.” Two years later, then-commander General Joseph Dunford spoke of “the inevitability of our success” there.

Last August, President Trump unveiled his “Strategy in Afghanistan and South Asia.” Its “core pillar” was “a shift from a time-based approach to one based on conditions”; in other words, the “arbitrary timetables” for withdrawal of the Obama years were out. “We will push onward to victory with power in our hearts,” President Trump decreed. “America’s enemies must never know our plans or believe they can wait us out.”

The president also announced that he was putting that war squarely in the hands of the military. “Micromanagement from Washington, D.C., does not win battles,” he announced. “They are won in the field drawing upon the judgment and expertise of wartime commanders and frontline soldiers acting in real time, with real authority, and with a clear mission to defeat the enemy.” The man given that authority was General John Nicholson who had, in fact, been running the American war there since 2016. The general was jubilant and within months agreed that the conflict had “turned the corner” (something, by the way, that Obama-era Secretary of Defense Leon Panetta also claimed — in 2012).

Today, almost 17 years after the war began, two years after Nicholson took the reins, one year after Trump articulated his new plan, victory in any traditional sense is nowhere in sight. Despite spending around $900 billion in Afghanistan, as the Special Inspector General for Afghanistan Reconstruction determined earlier this year, “between 2001 and 2017, U.S. government efforts to stabilize insecure and contested areas in Afghanistan mostly failed.” According to a July 30, 2018, report by that same inspector general, the Taliban was by then contesting control of or controlled about 44% of that country, while Afghan government control and influence over districts had declined by about 16% since Nicholson’s predecessor, General John Campbell, was in command.

And that was before, last month, the Taliban launched a large-scale attack on a provincial capital, Ghazni, a strategically important city, and held it for five days, while taking control of much of the province itself. Finally driven from the city, the Taliban promptly overran a military base in Baghlan Province during its withdrawal. And that was just one day after taking another Afghan military base. In fact, for the previous two months, the Taliban had overrun government checkpoints and outposts on a near-daily basis. And keep in mind that the Taliban is now only a fraction of the story. The U.S. set out to defeat it and al-Qaeda in 2001. Today, Washington faces exponentially more terror groups in Afghanistan — 21 in all, including an imported franchise from the Iraq War front, ISIS, that grew larger during Nicholson’s tenure.

Given this seemingly dismal state of affairs, you might wonder what happened to Nicholson. Was he cashiered? Fired, Apprentice-style? Quietly ushered out of Afghanistan in disgrace? Hardly. Like the 15 U.S. commanders who preceded him, the four-star general simply rotated out and, at his final press conference from the war zone late last month, was nothing if not upbeat.

“I believe the South Asia Strategy is the right approach. And now we see that approach delivering progress on reconciliation that we had not seen previously,” he announced. “We’ve also seen a clear progression in the Taliban’s public statements, from their 14 February letter to the American people to the recent Eid al-Adha message, where [Taliban leader] Emir Hibatullah acknowledged for the first time that negotiations will, quote, ‘ensure an end to the war,’ end quote.”

In the event that you missed those statements from a chastened Taliban on the threshold of begging for peace, let me quote from the opening of the latter missive, issued late last month:

“This year Eid­ al­-Adha approaches us as our Jihadi struggle against the American occupation is on the threshold of victory due to the help of Allah Almighty. The infidel invading forces have lost all will of combat, their strategy has failed, advanced technology and military equipment rendered useless, [the] sedition and corruption­-sowing group defeated, and the arrogant American generals have been compelled to bow to the Jihadic greatness of the Afghan nation.”

And those conciliatory statements of peace and reconciliation touted by Nicholson? The Taliban says that in order to end “this long war” the “lone option is to end the occupation of Afghanistan and nothing more.”

In June, the 17th American nominated to take command of the war, Lieutenant General Scott Miller, appeared before the Senate Armed Services Committee where Elizabeth Warren (D-MA) grilled him on what he would do differently in order to bring the conflict to a conclusion. “I cannot guarantee you a timeline or an end date,” was Miller’s confident reply.

Did the senators then send him packing? Hardly. He was, in fact, easily confirmed and starts work this month. Nor is there any chance Congress will use its power of the purse to end the war. The 2019 budget request for U.S. operations in Afghanistan — topping out at $46.3 billion — will certainly be approved.

#Winning

All of this seeming futility brings us back to the Vietnam War, Kissinger, and that magic number, 4,000,000,029,057 — as well as the question of what an American military victory would look like today. It might surprise you, but it turns out that winning wars is still possible and, perhaps even more surprising, the U.S. military seems to be doing just that.

Let me explain.

In Vietnam, that military aimed to “out-guerrilla the guerrilla.” It never did and the United States suffered a crushing defeat. Henry Kissinger — who presided over the last years of that conflict as national security advisor and then secretary of state — provided his own concise take on one of the core tenets of asymmetric warfare: “The conventional army loses if it does not win. The guerrilla wins if he does not lose.” Perhaps because that eternally well-regarded but hapless statesman articulated it, that formula was bound — like so much else he touched — to crash and burn.

In this century, the United States has found a way to turn Kissinger’s martial maxim on its head and so rewrite the axioms of armed conflict. This redefinition can be proved by a simple equation:

0 + 1,000,000,000,000 + 17 +17 + 23,744 + 3,000,000,000,000 + 5 + 5,200 + 74 = 4,000,000,029,057

Expressed differently, the United States has not won a major conflict since 1945; has a trillion-dollar national security budget; has had 17 military commanders in the last 17 years in Afghanistan, a country plagued by 23,744 “security incidents” (the most ever recorded) in 2017 alone; has spent around $3 trillion, primarily on that war and the rest of the war on terror, including the ongoing conflict in Iraq, which then-defense secretary Donald Rumsfeld swore, in 2002, would be over in only “five days or five weeks or five months,” but where approximately 5,000 U.S. troops remain today; and yet 74% of the American people still express high confidence in the U.S. military.

Let the math and the implications wash over you for a moment. Such a calculus definitively disproves the notion that “the conventional army loses if it does not win.” It also helps answer the question of victory in the war on terror. It turns out that the U.S. military, whose budget and influence in Washington have only grown in these years, now wins simply by not losing — a multi-trillion-dollar conventional army held to the standards of success once applied only to under-armed, under-funded guerilla groups.

Unlike in the Vietnam War years, three presidents and the Pentagon, unbothered by fiscal constraints, substantive congressional opposition, or a significant antiwar movement, have been effectively pursuing this strategy, which requires nothing more than a steady supply of troops, contractors, and other assorted camp followers; an endless parade of Senate-sanctioned commanders; and an annual outlay of hundreds of billions of dollars. By these standards, Donald Trump’s open-ended, timetable-free “Strategy in Afghanistan and South Asia” may prove to be the winningest war plan ever. As he described it:

“From now on, victory will have a clear definition: attacking our enemies, obliterating ISIS, crushing al-Qaeda, preventing the Taliban from taking over Afghanistan, and stopping mass terror attacks against America before they emerge.”

Think about that for a moment. Victory’s definition begins with “attacking our enemies” and ends with the prevention of possible terror attacks. Let me reiterate: “victory” is defined as “attacking our enemies.” Under President Trump’s strategy, it seems, every time the U.S. bombs or shells or shoots at a member of one of those 20-plus terror groups in Afghanistan, the U.S. is winning or, perhaps, has won. And this strategy is not specifically Afghan-centric. It can easily be applied to American warzones in the Middle East and Africa — anywhere, really.

Decades after the end of the Vietnam War, the U.S. military has finally solved the conundrum of how to “out-guerrilla the guerrilla.” And it couldn’t have been simpler. You just adopt the same definition of victory. As a result, a conventional army — at least the U.S. military — now loses only if it stops fighting. So long as unaccountable commanders wage benchmark-free wars without congressional constraint, the United States simply cannot lose. You can’t argue with the math. Call it the rule of 4,000,000,029,057.

That calculus and that sum also prove, quite clearly, that America’s beleaguered commander-in-chief has gotten a raw deal on his victory parade. With apologies to the American Legion, the U.S. military is now — under the new rules of warfare — triumphant and deserves the type of celebration proposed by President Trump. After almost two decades of warfare, the armed forces have lowered the bar for victory to the level of their enemy, the Taliban. What was once the mark of failure for a conventional army is now the benchmark for success. It’s a remarkable feat and deserving, at the very least, of furious flag-waving, ticker tape, and all the age-old trappings of victory.

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Extremely Disturbing Footage Of Deadly Mexico Pipeline Explosion Surfaces

Extremely disturbing footage of the aftermath of a giant fireball that burst from an illegal gasoline pipeline tap near a small town north of Mexico City has surfaced online.

As we reported earlier, at least 66 people have been confirmed dead after a geyser of gasoline ignited at the site of the illegal tap, instantly engulfing the surrounding area in flames.

Reports from the scene described piles of charred bodies so badly burned that responders struggled to separate and identify the individuals.

In the video, people are seen throwing themselves on the grass and in water to try and extinguish the flames.

The horrific incident took place as locals had gathered around a ruptured Pemex pipeline to collect the fuel that was spilling out. The company blamed the fire on thieves drilling into the pipe.

 

 

 

 

 

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BofA Sees 3 Paths For The Market: Stairs, Escalator, Roller-Coaster

Among the most memorable events of 2018 is that one of closest correlations across major asset classes – that between stocks and bonds – broke down, prompting Deutsche Bank strategist Torsten Slok to exclaim that “something is wrong.”

“What is safe to say is that there is something driving equities lower, which is not impacting rates. Or there is something keeping long rates high, which is not impacting equities,” Slok mused in a note in late December, discussed here.

Slok also predicted that anyone expecting this divergence to collapse shortly may be disappointed since the breakdown of the positive correlation between stocks and bond yields may not just be a temporary problem as the federal government is projected to notch annual trillion dollar deficits for a “very long time, prompting traders to demand even higher bond yields in the future regardless if stocks underperform.

And yet, the breakdown of the bond/equity correlation appears to already be over because as Bank of America observes in its latest weekly Rates report, this dynamic once again changed in the last two months as markets repriced the growth outlook and equity markets sold off, the belly of the curve (5y-7y) led the Treasury market rally, in sharp contrast to the first three quarters of 2018. As a result, 5y-30y curve became increasingly directional with equity markets during risk-off moves (Chart 2).

What prompted this “renormalization” in one of the historically stongest market correlations?

According to BofA, the heart of the concern is global growth. As a result, headlines on central bank dovishness and trade talk progress only provide temporary relief and are discounted by rates investors. By the same logic, investor risk appetite may only be altered materially when US and China data stand on solid footing.

This change in risk appetite has been reflected in flow data as shown in Chart 3 above. Over the course of the Q4 risk-off move, mutual fund flows shifted from the front-end to the long end, similar to the behavior in January 2016. As such, until the market receives new information on growth outlook, for better or worse, Bank of America notes that both the Fed and the markets may need to be patient.

Which brings us to the key question that needs to be answered to determine future asset returns heading into 2019, namely “how much” and “how fast” the US economy is going to slow down, as opposed to the “if” question.

Unfortunately, according to Bank of America, we have to be patient to get a clearer sense of the above question but the next few weeks will be critical as Q4 earnings are released from corporate America and January data start to come in.

As a result, BofA sees three paths for the market:

  • The stairs scenario: while there have been scary prints in global data, there is still a possibility that the US economy is weathering the global slowdown just fine. At least some of the most reliable indicators for predicting a recession are still far from stress levels. The flipside is that if what we’ve seen so far is a bad dream, the pause that the Fed is currently engineering may be short lived once we are back on track later this year. In this case, supply pressure would have a much bigger impact than in 2018, and a belly led sell-off could reverse the long end steepening we’ve seen, and the supply pressure could really kick in; the result would be a rerun of the late summer of 2018 when rising yields sparked an equity slump.
  • The escalator scenario: Irrespective of the ongoing sharp bull market rally in stocks, BofA believes that it is increasingly likely that the markets will experience a more volatile H1. As discussed above, while the rest of the world has been dealing with growth roadblocks all of last year, asset prices in the US only re-priced recently. Meanwhile, according to time-zone analysis from BofA, the Treasury rally since Q4 2018 showed that almost the entire 50bp move in 10y UST was done during US hours, reflecting domestic investors pricing in a weaker growth outlook. The silver lining is that while data continues to be sluggish, markets and sentiment were able to at least push central bankers and politicians to be more accommodative, leaving the outlook for H2 a little brighter (for now).
  • The roller-coaster scenario: the economy would be a mess in this case, which however is far from reality at least based on recent data; should this scenario materialize the simple call would be to buy bonds no questions asked.

And since the observations above reflect the views of BofA’s rates team, they conclude that without new information on data, earnings, and policies, both rates and curves are likely to stay range-bound, adding that of the scenarios list above, the first one would cause the most positioning pain as investors unwind 5y-30y curve steepeners and short vol positions in the front end (the Fed is not only willing to be patient, they are also willing to be flexible). Scenario two is the most likely according to BofA, with rates continuing to follow risky assets, with the belly leading the moves.

Eventually, as more economic data emerges and solidifes the case for either an accelerating slowdown or a rebound, the Fed will have to react. As long as the Fed is on hold, BofA is confident that the time for a structural steepener is not ripe, and even though steepeners were the trade in vogue in recent weeks, 2y-10y has remained relatively flat. The bank further notes that “the recent 5y-30y steepening is a reflection of growth concerns and haven bid, rather than the beginning of a cutting cycle. “

Finally, if the economic climate improves and the hiking cycle resumes, while stocks will likely resume their slide, the 5y-30y should continue to flatten; alternatively, if the economy hits a brick wall and there is a need for the Fed to cut rates, 2y-10y curve catch up to 5y-30y.

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“Come To Your Senses!” Russia Slams Trump’s Space-Based Missile Defense Plans

After what many are describing as Trump’s attempted channeling of Reagan’s ‘Star Wars’ program with Thursday’s unveiling of a missile defense strategy heavily focused on space as “the next war-fighting domain”, Moscow has issued a predictably harsh rebuke, calling the newly published US Missile Defense Review (MDR) “openly confrontational” and a danger to global stability and peace. 

Warning that Washington’s missile defense strategy could restart the Cold War-era arms race, the Russian Foreign Ministry on Friday accused the White House of seeking to weaponize space while removing any limitations to development. Indeed President Trump did appear to reaffirm his controversial decision to pull out of the 1987 Intermediate-Range Nuclear Forces (INF) Treaty with Russia during his remarks at the Pentagon Thursday affirming, “We are committed to establishing a missile defense program that can shield every city in the United States and we will never negotiate away our right to do this.

In response, the Russian Foreign Ministry announced, “We would like to note that the very same logic served as the foundation of the widespread nuclear missile race that brought the world to the brink of disaster multiple times.” The statement added that US defense planners “apparently decided to step on the same rake, with predictable consequences,” in reference to 20th century nuclear brinkmanship. 

Trump and the MDR itself called for investment into “new technologies” focused on space such as space-based launch detection sensors that would coordinate anti-air missiles on the ground in places like Alaska, in order to “shield every American city”. The president said the US must “recognize that space is a new warfighting domain, with the Space Force leading the way.” He further promised it will be a “very, very big part” of America’s future defense:

My upcoming budget will invest in a space-based missile defense layer. It’s new technology. It’s ultimately going to be a very, very big part of our defense and obviously of our offence.

We will ensure that enemy missiles find no sanctuary on Earth or in the skies above. This is the direction that I’m heading.

But Moscow fired back that the plan “practically gives the green light to deploying elements with strike capability in space,” which will “inevitably lead to an arms race in space, which would have the worst kind of consequences for international security and stability,” according to the Foreign Ministry statement

The statement further urged Washington to “come to its senses” and abandon any restart of a new ‘Star Wars’ program, first proposed under the Reagan administration.  It described that the opposite of global stability and peace would be the outcome, as any weaponization of space would result in a “heavy blow to international stability, which is already falling apart thanks to irresponsible actions by Washington.” The statement concluded, “Obviously, no one wins in this scenario.”

Moscow partly appears to be reacting to the fact that the Pentagon’s review of the nation’s missile defenses (the first since 2010) specifically names Russia as among bad actors and potential threats. For example, the concluding section to the newly published Missile Defense Review  identifies Russian cruise and hypersonic missile capabilities as a rising threat:

As rogue state missile arsenals develop, space will play a particularly important role in support of missile defense.

Russia and China are developing advanced cruise missiles and hypersonic missile capabilities that can travel at exceptional speeds with unpredictable flight paths that challenge existing defensive systems.

The exploitation of space provides a missile defense posture that is more effective, resilient and adaptable to known and unanticipated threats… DoD will undertake a new and near-term examination of the concepts and technology for space-based defenses to assess the technological and operational potential of space-basing in the evolving security environment.

It will be interesting to see the extent to which the Kremlin responds with a “gloves off” approach, as it has increasingly and very publicly hyped its own advanced weapons programs over the past year while talk of finally abandoning the INF comes out of Washington, and as Trump urges greater defense spending among European NATO allies. 

Meanwhile one former high level Russian defense official has told RT “militarization of space is inevitable” — perhaps signalling that Moscow is ready and willing to answer Trump’s call (above its own skies) to protect the homeland “anywhere, anytime, anyplace”.

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Will Globalists Sacrifice The Dollar To Get Their ‘New World Order’?

Authored by Brandon Smith via Alt-Market.com,

Trade is a fundamental element of human survival. No one person can produce every single product or service necessary for a comfortable life, no matter how Spartan their attitude. Unless your goal is to desperately scratch an existence from your local terrain with no chance of progress in the future, you are going to need a network of other producers. For most of the history of human civilization, production was the basis for economy. All other elements were secondary.

At some point, as trade grows and thrives, a society is going to start looking for a store of value; something that represents the man-hours and effort and ingenuity a person put into their day. Something that is universally accepted within barter networks, something highly prized, that is tangible, that can be held in our hands and is impossible to replicate artificially. Enter precious metals.

Thus, the concept of “money” was born, and for the most part it functioned quite well for thousands of years. Unfortunately, there are people in our world that see economy as a tool for control rather than a vital process that should be left alone to develop naturally.

The idea of “fiat money”, money which has no tangibility and that can be created on a whim by a central source or authority, is rather new in the grand scheme of things. It is a bastardization of the original and much more stable money system that existed before that was anchored in hard commodities. While it claims to offer a more “liquid” store of value, the truth is that it is no store of value at all.

Purveyors of fiat, central banks and globalists, use ever increasing debt as a means to feed fiat, not to mention the hidden tax of price inflation. When central bankers get a hold of money, it is no longer a representation of work or value, but a system of enslavement that crushes our ability to produce effectively and to receive fair returns for our labor.

There are many people today in the liberty movement that understand this dynamic, but even in alternative economic circles there are some that do not understand the full picture when it comes to central banks and fiat mechanisms. There is a false notion that paper currencies are the life blood of the establishment and that they will seek to protect these currencies at all costs. This might have been true 20 years ago or more, but it is not true today. Things change.

The king of this delusion is the US dollar. As the world reserve currency it is thought by some to be “untouchable”, a pillar of the globalist structure that will be defended for many decades to come. The reality, however, is that the dollar is nothing more than another con game on paper to the globalists; a farce that they are happy to sacrifice in order to further their goals of complete centralization of world trade and therefore the complete centralization of control over human survival.

That is to say, the dollar is a stepping stone for them, nothing more.

The real goal of the globalists is an economic system in which they can monitor every transaction no matter how small; a system in which there is eventually only one currency, a currency that can be tracked, granted or taken away at a moment’s notice. Imagine a world in which your “store of value” is subject to constant scrutiny by a bureaucratic monstrosity, and there is no way to hide from them by using private trade as a backstop. Imagine a world in which you cannot hold your money in your hand, and access to your money can be denied with the push of a button if you step out of line. This is what the globalists really desire.

Some people might claim that this kind of system already exists, but they would be fooling themselves. Even though fiat currencies like the dollar are a cancer on free markets and true production, they still offer privacy to a point, and they can still be physically allocated and held in your hand making them harder to confiscate. The globalists want to take a bad thing and make it even worse.

So, the question arises – How do they plan to make the shift from the current fiat paper system to their “new world order” economy?

First and foremost, they will seek a controlled demolition of the dollar as the world reserve currency. They have accomplished this in the past with other reserve currencies, such as the Pound Sterling, which was carefully diminished over a period of two decades just after WWII through the use of treasury bond dumps by France and the US, as well as the forced removal of the sterling as the petro-currency. This was done to make way for the US dollar as a replacement after the Bretton Woods agreement in 1944.

The dollar did not achieve true world reserve status, though, until after the gold standard was completely abandoned by Nixon in the early 1970’s, at which point a deal was struck with Saudi Arabia making the dollar the petro-currency. Once the dollar was no longer anchored to gold and the world’s energy market was made dependent on it, the fate of the US economy was sealed.

Unlike Britain and the sterling, the US economy is hyper-dependent on the dollar’s world reserve status. While Britain suffered declining conditions for decades after the loss, including inflation and high interest rates, the US will experience far more acute pain. A complete lack of adequate manufacturing capability within US borders has turned our nation into a consumer based society rather than a society of producers. Meaning, we are dependent on the demand for our currency as a reserve in order to enjoy affordable goods from outside sources (i.e. other manufacturing based countries).

Add to this lack of production ability the fact that for the past decade the Federal Reserve has been pumping trillions of dollars into financial markets around the globe. This means trillions of dollar held overseas only on the promise that those dollars will be accepted by major exporters as a universal store of value. If faith in that promise is lost, those trillions could come flooding back into the US through various channels, and the buying power of the currency would crumble.

There is a delusion within the American mainstream that even if such an event were to occur, the transition could be handled with ease. It’s fantastical, I know, but never underestimate the cognitive dissonance of people blinded by bias.

The rebuilding of a production base within the US to offset the crisis of losing the world reserve currency would take many years; perhaps decades. And this is in the best case scenario. With a plummeting currency and extreme price inflation, the cost of establishing new production on a large scale would be immense. While local labor might become cheap (in comparison with inflation), all other elements of the economy would become very expensive.

In the worst case scenario there would be complete societal breakdown likely followed by an attempted totalitarian response by government. In which case, forget any domestically funded economic recovery. Any future recovery would have to be funded and managed from outside the US. And here is where we see the globalist plan taking shape.

The banking elites have hinted in the past how they might try to “reset” the global economy. As I’ve mentioned in many articles, the globalist run magazine The Economist in 1988 discussed the removal of the dollar to make way for a global currency, a currency which would be introduced to the masses by 2018. This introduction did in fact take place as The Economist declared it would. Blockchain and digital currency systems, the intended foundation of the next globalist monetary structure, received unprecedented coverage the past two years.  They are now a part of the public consciousness.

Here is how I believe the process will unfold:

The 2008 crash in credit and housing markets led to unprecedented stimulus by central banks, with the Federal Reserve leading the pack as the greatest source of inflation. This program of bailouts and QE stimulus conjured an even bigger bubble, which many alternative analysts have dubbed “the everything bubble”.

The growing “everything bubble” encompasses not just stock markets or housing, but auto markets, credit markets, bond markets, and the dollar itself. All of these elements are now tied directly to Fed policy. The US economy is not only addicted to stimulus measures and near-zero interest rates; it will die without them.

The Fed knows this well. Chairman Jerome Powell hinted at the crisis that would evolve if the Fed ever cut off stimulus, unwound its balance sheet and hiked rates in the October 2012 Fed minutes.

Without constant and ever expanding stimulus measures, the false economy will implode. We are already seeing the effects as the Fed cuts tens-of-billions per month in assets from its balance sheet and hikes interest rates to their “neutral rate of inflation”. Auto markets, housing markets, and credit markets are in reversal, and stocks are witnessing the most instability since the 2008 crash. All of this was triggered by the Fed simply exerting incremental rate hikes and balance sheet cuts.

It is also important to note that almost every US stock market rally the past several months has taken place while the Fed’s balance sheet cuts were frozen.  For example, for the past two-and-a-half weeks the Fed’s assets have only dropped by around $8 billion; this is basically a flatline in the balance sheet.  It should not be surprising given this pause in cuts (in tandem with convenient stimulus measures by China) that stocks spiked through early to mid-January.

That said, Fed tightening will start again, either by rate hikes, asset cuts, or both at the same time. The Fed’s purpose is to create a crisis. The Fed’s goal is to cause a crash. The Fed is a suicide bomber that does not care what happens to the US system.

But what about the dollar, specifically?

The Fed’s tightening policies do not only translate to crisis for US stocks or other markets. I see three primary ways in which the dollar can be dethroned as the world reserve.

1) Emerging economies have become addicted to Fed liquidity over the past ten years. Without continued access to the Fed’s easy money, nations like China and India are beginning to seek out alternatives to the dollar as a world reserve. Contrary to the popular belief that these countries would “never” be able to decouple from the US, the process has already begun. And, it is the Fed that has actually created the necessity for emerging markets to seek out other sources of liquidity besides the dollar.

2) Donald Trump’s trade war is yet another cover event for the loss of reserve status. I would note that the primary rationale for tariffs was to balance the trade deficit.  The trade deficit with China has done the opposite and is continually expanding each month.  This suggests much higher tariffs on China would be required to reduce the imbalance.

It must also be understood that the trade deficit with China has long been part of a larger agreement.  China is one of the largest buyers of US debt in the world and has continued to utilize the dollar as the world reserve currency.  If the trade war continues through this year, it is only a matter of time before China, already seeking dollar alternatives as the Fed tightens liquidity, will start using its US treasury and dollar holdings as leverage against us.

Bilateral agreements between multiple nations that cut out the dollar are being established regularly today. If China, the largest exporter/importer in the world, stops accepting the dollar as the world reserve, or if they start accepting other currencies in competition, then numerous other nations will follow their lead.

3) Finally, if the war of words between Trump and the Fed becomes something more, then this could be used by the establishment to undermine faith in US credit.  If Trump seeks to shut down the Fed entirely, the globalists are handed yet another perfect distraction for the death of the dollar. I can see the headlines now – The “reset” could then be painted as a “rescue” of the global economy after the “destructive actions of populists” who “bumbled into fiscal destruction” because they were blinded by an “obsession with sovereignty” in a world that “requires centralization to survive”.

The specifics of the shift to a global currency are less clear, but again, we have hints from the globalists. The Economist suggests that the US economy will have to be taken down a few pegs, and that the IMF would step in as the arbiter of forex markets through its SDR basket system. This plan was echoed recently by globalist Mohamed El-Erian in an article he wrote titled “New Life For The SDR?”. El-Erian also suggests that a global currency would help to combat the “rise of populism”.

The Economist notes that the SDR would only act as a “bridge” to the new global currency. Paper currencies would still exist for a time, but they would be pegged to the SDR exchange rates. Currently, the dollar is only worth around .71 SDR’s. In the event of the loss of world reserve status, expect this exchange rate to drop significantly.

As the global crisis deepens the IMF will suggest a “reset” to a more manageable monetary framework, and this framework will be based on blockchain technology and a cryptocurrencywhich the IMF has likely already developed. The IMF hints at this outcome in at least two separate white papers recently published which herald a new age in which crypto as the next phase of evolution for global trade.

I predict according to the current pace of the trade war, Fed liquidity tightening and de-dollerization that threats to the dollar’s world reserve status will hit the mainstream by 2020.  The process of “resetting” the global monetary system would likely take at least another decade to complete.  The globalist preoccupation with their “Agenda 2030” sustainable development initiatives suggests a decade long timeline.

Without ample resistance, the introduction of the cashless society will be presented as a natural and even “heroic” response by the globalists to save humanity from the “selfishness” of destructive nationalists. They will strut across the world stage as if they are saviors, rather than the villains they really are.

*  *  *

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Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins and the Rockefeller Foundation were involved in the government program, as well as four executives from Bristol-Myers’ predecessors, Bristol Laboratories and the Squibb Institute, according to the complaint.

“The overall purpose of the study was to test out whether antibiotics could be used to prevent syphilis and other sexually transmitted infections before its symptoms appeared in someone who was exposed to them. So the researchers initially recruited sex workers with syphilis to have sex with prisoners.

Later on, they directly infected volunteers without their informed consent or knowledge of what was really happening.

In many cases, though, infected people were left untreated. In total, 83 deaths were linked to the study, though it’s not entirely certain whether the infections were the direct cause (That said, late-stage syphilis is often fatal),” reported Gizmodo.

In a January 3 decision, US District Judge Theodore Chuang denied the defendants’ argument that a recent Supreme Court decision shielding foreign businesses from lawsuits in US courts over human rights abuses abroad also applied to domestic firms absent Congressional authorization.

Chuang’s decision was a big victory for 444 victims (all mostly dead) and their relatives suing over the experiment.

The experiment was concealed until a professor at Wellesley College in Massachusetts discovered the files in 2010.

Chuang said lawsuits against US businesses under the federal Alien Tort Statute were not “categorically foreclosed” by the Supreme Court decision last April 24 in Jesner v Arab Bank Plc covering foreign corporations.

He said the “need for judicial caution” was “markedly reduced” where US businesses were defendants because there was no significant threat of diplomatic tensions from foreign governments.

The federal judge said letting the Guatemala case proceed would “promote harmony” by giving foreign plaintiffs a chance at a remedy in the American court system.

“Johns Hopkins expresses profound sympathy for individuals and families impacted by the deplorable 1940s syphilis study funded and conducted by the U.S. government in Guatemala,” the university said in a statement. “We respect the legal process, and we will continue to vigorously defend the lawsuit.”

Hopkins, Bristol-Myers, and the Rockefeller Foundation and their lawyers did not immediately respond to Reuters‘ requests for a statement.

Paul Bekman, a lawyer for the 444 Guatemalans, said his clients would proceed with discovery, including the exchange of decades-old documents.

An earlier decision found no statute of limitations arguments could be made since the plaintiffs did not learn about the experiment until 2010. 

Infecting Guatemalan hookers with sexually transmitted diseases was one of many eugenic programs the US government conducted during the 1940s and Post–World War II era. Now the academic institutions and corporations involved in these horrific government experiments are being served with massive lawsuits that could be financially devastating. 

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“Modern Monetary Theory” Is a Joke That’s Not Funny

Authored by Michael Strain, op-ed via Bloomberg.com,

Yes, a government that issues its own currency can pay its bills. But piling up debt for no urgent reason is lunacy…

If you follow the debates over U.S. economic policy, you had probably heard of modern monetary theory well before freshman Democratic Representative Alexandria Ocasio-Cortez spoke favorably about it earlier this month.

If you thought from the start that the whole idea sounded like lunacy, you were right, even if it’s possible to admit some sliver of sympathy for it. So why is MMT, as it is known for short, generating such intense interest now?

First, let’s start with the confusion over what it is. The answer seems to depend on which advocate of MMT is being asked. It is sometimes a theory of money. MMT is also being discussed in the context of a political program to justify huge increases in social spending. Finally, there is its role as a prescription for macroeconomic policy.

Even as just an economic theory, it is not settled or fully developed. This makes engaging with it challenging — even, at times, frustrating.

The bedrock observation of MMT is correct: Any government that issues its own currency can always pay its bills. This observation allows policy makers to show less concern about the budget deficit than is typically the case.

In fact, MMT is growing in prominence precisely because of its relative lackof concern about the size of the deficit. In the years immediately after the Great Recession, which started in December 2007, this aspect of MMT stood in favorable contrast to the position of fiscal-policy centrists and many Republican politicians who called for significant reductions in the deficit at a time of very high unemployment.

Today, when some are continuing to question commonly held views about fiscal policy, the thrust of MMT – the deficits matter a lot less than its critics would have you believe — is attractive to many solid economists. (Though I am not yet sold on their arguments.)

In my reading, this is about all that can be said favorably regarding modern monetary theory. As a political program, the observation that a government issuing its own fiat currency can’t involuntarily default — an observation with which mainstream economists largely agree — has been used to advocate for extremely expensive spending policies, including a universal jobs guarantee and single-payer health care. There’s no need, some MMT advocates argue, to let paying for these proposals through tax increases get in the way of enacting them; government can just increase the deficit.

In a short review of MMT, the economist Stan Veuger (my colleague at the American Enterprise Institute) notes that on its face this is not all that different from current policies that deliver benefits today and costs tomorrow, including the deficit-financed 2017 tax cuts. But that’s more of a criticism of this approach to legislating than a justification for MMT.

Political progressives like Ocasio-Cortez who are showing sympathy for MMT are also being short-sighted. If we further loosen the shackles tax revenue has placed on federal spending, then Democrats may get Medicare for All the next time they control the government. But, in turn, when the GOP is next in the White House, what might it do with its newfound fiscal freedom?

Both parties claim to care about the deficit, but once in power they often act as if they care more about putting their preferred policies in place, whether these are tax cuts in the case of conservatives or new spending programs in the case of liberals. Further loosening political constraints on deficits is reckless, no matter which party is doing it.

But it is in its ideas about macroeconomic policy that MMT fully earns its place on the fringe.

The theory understands that the economy is constrained by real limits on its inputs to production. If you push its advocates hard enough they will admitthat at some point all that spending could send the economy into a bout of damaging inflation.

But they quickly dismiss that risk, in part by pointing to the lack of inflation in advanced economies in the recent past and by appeals to vague thought experiments.

So what does MMT have to say about inflation when it does materialize? Since under MMT the central bank is responsible for financing government programs through printing money, it falls to the institution with authority over tax and budget policy — the U.S. Congress — to make sure prices are stable by raising taxes and moving the budget deficit into surplus. As part of a series of columns last year for Bloomberg Opinion, leading MMT exponent Stephanie Kelton called on fiscal policy, not the Federal Reserve, to manage the business cycle.

But it is extremely difficult to imagine Congress responding to an overheating economy by legislating tax increases. If anything, the opposite is easier to imagine: When households are being hit with price increases, the natural inclination of an elected representative might be to increase their disposable income by lowering taxes, not raising them.

It is precisely this dynamic — the occasional need for the institution in charge of price stability to inflict short-term pain for long-term benefit — that justifies in large part the political independence of central banks.

Veuger, who is largely critical of MMT, points out that its advocates may envision an independent fiscal authority, though even on this their views are hard to decipher.

But tax policy changes the way income is distributed across households — the after-tax income of high-earning households is reduced, and households to which income is redistributed see increases — and Veuger argues that for this reason it should not be conducted by an agency that is independent of politics.

Monetary policy also has distributional implications. For example, low interest rates are good for borrowers but bad for savers. But given that the U.S. already heavily redistributes income through the tax code, Veuger is right that we should avoid the turmoil that would be created by handing tax policy over to a new, independent agency.

We typically think of inflation as being generated from an overheating economy with excess demand. But prices can also rise because it has become more expensive for businesses to produce goods and services. For example, this situation could occur if the price of oil were to increase rapidly — the economy could experience stagnation and inflation at the same time.

In this scenario, MMT seems to call for tax increases in order to restrain inflation. But the economy is already slowing. Raising taxes
would only make a downturn worse, increasing unemployment and further slowing the economy.

Modern monetary theory is seductive in its promises and, occasionally, in its observations. But if enacted it could cause great harm to the U.S. economy. Like Medusa, it may seem beautiful. But if you look it in the eye you will turn to stone. 

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