Month: January 2022

Via SchiffGold.com,

The Fed has a difficult choice to make.

Will it crash the economy? Or will it crash the dollar?

Whichever way this coin flip turns out — you lose.

Based on the December FOMC minutes, the central bankers at the Federal Reserve are suddenly serious about inflation. They are even talking about balance sheet reduction. This is the prescribed policy to take on rampant inflation. And we certainly have rampant inflation.

If the Fed doesn’t shut off the monetary spigot, inflation will continue to flame out of control. If it goes long enough, it could lurch into hyperinflation and eventually even precipitate a currency crisis that crashes the dollar.

But doing something about inflation comes at a cost. If the central bank actually does what’s necessary to tame inflation, it will almost certainly crash the economy, which is built on easy money, low interest rates, money printing, and debt.

An article published by the Mises Wire highlights “a myriad of detrimental effects to other facets of the economy.”

To start, the aforementioned contractionary monetary policies will presumably slow GDP growth, wage growth, and possibly even job creation over the course of their implementation.”

The Fed knows this. It has already lowered its projected GDP growth forecasts. There are also rumblings of rising unemployment in 2022. And keep in mind, the Fed hasn’t actually done anything yet. The central bankers are almost certainly understating the impacts of their tightening policy on the economy.

Rising interest rates and the end of QE will also put a big squeeze on the federal government.

Furthermore, a rise in the federal funds rate will undisputedly lead to a rise in net interest payments made by the government. In fiscal year 2020, the United States federal government spent $345 billion in net interest payments alone, despite near-zero interest rates. The nonpartisan Committee for a Responsible Federal Budget found that even a 2 percent increase in interest rates would cause net interest payments to rise to a whopping $750 billion, and as mentioned above, by 2024 the federal funds rate is expected to increase by exactly 2 percent. It should also be noted that this study was conducted in March 2021, prior to the passage of the American Rescue Plan and the Bipartisan Infrastructure Bill, which was then followed up with a stark increase in interest rates on newly issued Treasury bills, all of which will cause the $750 billion projection to be an underestimate.”

One also needs to consider how rising interest rates will impact consumer behavior.

The upcoming interest rate increases will pull the prime rate up, thus furthering the burden of credit cardholders paying interest. It would be in the best interest of consumers to pay off their debts in a timely manner in order to avoid further economic strain later on. We should also anticipate a rise in fixed mortgage rates, increasing the cost of taking out loans on the purchase of property as well. While fixed mortgage rates and interest rates don’t have a perfect positive correlation, since 2004 there has been a ~0.74 correlation coefficient, meaning they are still very closely correlated.”

“On top of that, car loan rates are also likely to increase, which may worsen already tense conditions for those looking to purchase a vehicle. Similar to fixed mortgage loans, there is not a perfect positive correlation between interest rates and car loan rates. However, a strong relationship is still maintained, shown by a correlation coefficient of ~0.73. Used car prices have reached all-time highs in 2021, and following the disbursement of stimulus checks, consumption expenditures on durable goods starkly dropped. Buying a vehicle is arguably more difficult than ever, and higher loan rates on cars may discourage such purchases even more.”

In other words, tighter monetary policy will slow down the economy and likely drive it into recession. Depression isn’t out of the question given just how much malinvestment and misallocation there is in the economy today.

So, which will it be? High inflation? Or a crashing economy?

The coin is in the air.

AccuWeather Senior Meteorologist Joe Lundberg delivered some unwelcoming news for millions of residents across the mid-Atlantic and Northeast on Thursday morning. He said a major snowstorm is expected to sweep across the region Thursday night into Friday, battering areas already hit with snow on Monday. 

Lundberg said the storm could rapidly strengthen overnight and develop into a bomb cyclone. This means the storm’s central pressure will rapidly drop over 24 hours, indicating the storm will strengthen as it moves up the Northeast. 

By Thursday evening, Kentucky, West Virginia, Maryland, Virginia, North Carolina, and Tennessee should experience accumulating snow. Around the Washington–Baltimore metropolitan area, where nearly a foot fell in some places, up to six inches of snow is expected through Friday. Philadelphia and New York City are expected to pick up around 6 inches. The heaviest snow could be across eastern Maine, Connecticut, Rhode Island, and eastern Massachusetts. 

Expect slippery conditions along the Interstate 95 corridor from Washington, D.C. to Baltimore to Philadelphia to New York City to Boston.

For Friday, expect a blizzard from eastern Maine across the border into New Brunswick, Canada. Conditions could quickly deteriorate if the storm undergoes bombogenesis.

For the working-age population working remotely, don’t expect a day off as there is no such thing as a snow day anymore. That also goes for students. Unless you can in sick for the “Omi-cold.” 

Authored by Andrew Moran via The Epoch Times,

Oil and gas stocks outperformed fashionable environmental, social, and governance (ESG) companies in 2021.

Despite getting hammered in the early days of the global health crisis, energy businesses have returned to prominence over the last year.

Exxon Mobil climbed about 50 percent, Chevron advanced roughly 40 percent, ConocoPhillips soared 70 percent, and Suncor surged 42 percent. But it has been Exxon and Chevron that have allowed many global energy equity funds to surpass a plethora of U.S. and European sustainable funds.

Many ESG energy exchange-traded funds (ETFs) underperformed the more conventional energy ETFs.

The Parnassus Core Equity fund, which owns close to $23 billion in assets, increased 29 percent last year. The iShares ESG Aware MSCI USA ETF enjoyed a 26.2 percent gain in 2021. In comparison, the Energy Select Sector SPDR ETF soared nearly 40 percent, while the Vanguard Energy ETF swelled more than 42 percent.

The logo of Chevron is seen in Los Angeles, Calif., on April 12, 2016. (Lucy Nicholson/Reuters)

Market analysts note two trends unfolding: global oil demand is forecast to continue its upward ascent in 2022 and 2023, while ESG fund inflows have potentially peaked.

Some of the latest projections suggest that it could be another bullish year for oil and gas stocks.

The Organisation of Petroleum Exporting Countries (OPEC) anticipates crude demand to be 4.2 million barrels per day in 2022, with the 13-member cartel dismissing the severity of the Omicron variant at its latest meeting.

“Indeed, some of the recovery previously expected in 4Q21 is now shifted to 1Q22, followed by a more steady recovery throughout 2H22,” OPEC stated in its December Monthly Oil Market Report.

“The impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges. This is in addition to a steady economic outlook in both the advanced and emerging economies.”

Banks’ pricing forecasts over the next year vary. Morgan Stanley predicts prices at $85 per barrel amid an under-supplied market, but JPMorgan Chase projects crude oil to hit $125 a barrel this year.

Other financial institutions, like Barclays, are bracing for tighter global inventories this year, supporting prices at their best levels since 2014.

Abhishek Deshpande, JP Morgan’s Head of Oil Market Research and Strategy, is also monitoring several key events in 2022 that could impact prices, including renewed sanctions on Iran and increased domestic output.

Sustainable Investing Under Scrutiny

Meanwhile, new data from Morningstar Direct show that U.S. and European ESG fund inflows might have peaked in the first quarter of 2021.

During the January-to-March period, U.S. ESG fund flows totaled $22.6 billion, falling to $15.7 billion by the third quarter. European ESG fund flows reached $149 billion in the first three months of last year before dropping to $108 billion in the July-to-September span.

The diminished inflows came as the industry launched a record 38 ESG equity funds in the third quarter of 2021, surpassing the previous record of 30 in the third quarter of 2020.

A growing number of banks and investors are scrutinizing sustainable investment opportunities.

Upon further inspection, the Bank of America noted that many ESG funds had elevated their holdings in top technology companies, like Alphabet and Google. At the same time, these ESG funds are underweight energy companies.

Tariq Fancy, BlackRock’s former chief investment officer for sustainable investing, has become a premier critic of the green investing bandwagon since leaving the Wall Street titan in 2019. He has noted that the various probes, particularly by Bloomberg Businessweek, have nudged the financial sector to become more careful of sustainable funds and the broader ESG movement.

Fancy contends that these funds only benefit Wall Street rather than environmentally and socially conscious organizations and investors.

“There’s no reason to believe it achieves anything beyond sort of giving them more fees, and my concern, obviously, is it would be creating a placebo on top of that,” he told Bloomberg.

Greenwashing has been one of the most notable concerns in the industry. This is the practice of disseminating misinformation on a corporation’s environmental impact.

Asset management firms have been accused of misrepresenting their ESG investments so they can sell higher-fee financial products with minimal environmental benefit.

The unscrupulous behavior has triggered consternation among institutional investors. Last summer, a Schroders Institutional Investor Study discovered that more than half of the surveyed institutional investors identified greenwashing as a significant challenge when choosing ESG securities.

Is enthusiasm dissipating? Experts argue that it might depend on public policymaking pursuits at the federal and state levels.

“Despite mounting catalysts with the U.S. infrastructure plan and E.U. taxonomy requirements, the clean-energy sector may remain exposed to uncertainty linked to government support such as stimulus delays or incentives-cuts announcements, the most recent being in California,” wrote Adeline Diab, head of ESG research for EMEA and the Asia-Pacific region at Bloomberg Intelligence, in December.

But if institutions and investors are indifferent to the “dubious” components of ESG funds and integration, then perhaps oil and gas outperforming this realm will be the catalyst to waning interest.

Still, the overall sustainable market had a stellar year. ESG-related ETFs garnered $130 billion in 2021, up from $75 billion a year ago. The issuance of sustainable bonds and loans ballooned to $1.5 trillion. Early-stage investment for climate-focused technology firms flirted with the $50 billion mark.

Something remarkable has happened in just the past 7 days: whereas real Treasury rates had been trading at multi-month lows on the last day of 2021, hitting a low of -1.13% – an indication that markets viewed the economy’s future prospects as dismal and indicative of a chronic disbelief in the Fed’s ability to decisively raise rates – in the four trading days since New Year’s Day, real rates have surged to -0.788%, the highest level since June, while breakevens have slumped despite the surge in oil.

The result has been a sharp move higher in nominal rates, which today hit 1.75%, surpassing the highest level last year, in March 2021, and the highest since pre-covid, because the drop in breakevens has been more than offset by the surge in real rates.

So what is going on here? Has the market, in just four short days, reversed its dour outlook on the economy’s prospects and now sees far more growth upside in the coming years?

That’s also the question other strategists are tackling today: in his note from this morning, Nomura’s Charlie McElligott writes that he cares little about the sharp move in nominals but is instead focused on Real Yields—where as he noted yesterday, “much of the recent move higher (less negative) in Reals has been driven by market confidence that US economic growth can withstand a short hike-cycle via such a low terminal/neutral rate (much lower than implied by Fed Dots).”

Extending on this, CME today writes that yesterday’s FOMC Minutes did indeed “crystalize and even accelerate the full-circle “hawkish pivot” of the Fed from the post-COVID response era, to now”, an FOMC which is:

• 1) not only going to lift-off sooner upon wrap-up of Taper (with the March mtg priced ~80% now)…but now too with
• 2) the market moving closer to 3.5 hikes in ’22 (likely going to 4 all-in), and
• 3) most critically from a “4Q18 QT Risk-Asset Scar Tissue” perspective, will too now likely begin a simultaneous balance-sheet runoff, starting mid-year 2022

Meanwhile, as we discussed extensively overnight, whereas Powell’s prior testimony at the Dec meeting laid the hawkish groundwork — the recent introduction from Waller and Daly (post the Dec Fed meeting) of support for balance-sheet runoff alongside policy rate hiking (as an alternative to “over-hiking” which would also help avoid yield curve “over-flattening” as well) has emerged as “a new battlefront” for traders according to

So, Charlie continues, after 2021 proved to be such a vicious P&L year for many (particularly in back-half of ’21) in the Rates / Macro space, “I do want to reiterate my view that much of this “bearish Rates / USTs” move in 2022 is effectively “pent-up” Flow / re-positioning which was waiting for the new year’s “risk-budget” to be deployed….and here we are…”

As such, yesterday’s uber hawkish minutes were the final “green light,” where:

1. the FOMC was even more explicit about broken supply chains taking longer to solve (extending deep into this new year);
2. FOMC commentary was that Omicron, on the margin, is potentially a further inflation catalyst;
3. that several Fed members believe we are already near “full employment”; and of course…
4. the aforementioned  “smoke signal” on their comfort with balance-sheet unwind going simultaneously as rate hikes

So as Treasurys broke to new local lows/Yields to new highs, this time it wasn’t driven by the recent “confidence on growth” from perception of a short-tightening cycle in conjunction with a world getting more comfortable “living with COVID” as an endemic; instead, according to the Nomura quant, “it was outright risk-premium being added back into Real Rates on this multi-fronted FOMC attack on easy “financial conditions” to rein in their (now politically bipartisan) inflation problem, which has them effectively “boxed-in”

This is how Nomura’s rates analysts summarizes the dynamic suggested by the Fed:

Altogether, we believe the comments on rates are consistent with our expectation of March liftoff, followed by three additional hikes in 2022 (June, September and December), before slowing to a pace of two hikes per year in 2023 and 2024. However, the minutes also underscore upside risk to our policy rate forecast. If inflation does not moderate as we expect this year, the Fed may ultimately hike rates more quickly – resulting in more than four rate hikes in 2022 – and to a higher terminal rate relative to our expectation of 2.00-2.25%.

Then there is pure muscle memory, of course: as Charlie notes, traders (especially Equities folks) do not like the backtest of QT (balance sheet runoff, but alongside liftoff / policy rate hikes, e.g. 4Q18) as it pertains to the risk-asset environment and enhanced trading swings & volatility.

And this is where further nuance in yesterday’s minutes gets even more interesting, because as Nomura Economist Rob Dent stated last night, “A sizeable faction appears to prefer a May runoff announcement and a more aggressive runoff path for MBS…”

Curiously, when one looks at Nomura’s original analysis of impact from the Fed balance sheet unwind upon cross-asset markets from the “last QT” (back in 2017/2018) in comparing UST, MBS and combo SOMA balance-sheet reductions (the bank’s original study was Oct ’17 through Jul ’18 of QT weeks vs non-QT weeks)—the eye-opening ‘hard data’ takeaway (beyond the usual ‘anedcotes’) was that “…when there is a MBS or MBS/UST QT–unwind week, those periods on average see larger moves, in particular to the downside for broader risk assets.”

Yes, “truly shocking” that the market hates liquidity drains. How does McElligott rationalize this observation?  His explanation:

My finger-in-the-air theory is that MBS is a risk-asset with a massively outsized portion of the market being “held” by the Fed, and when we widen there (likely because of the “source of demand” transfer from “price-insensitive Fed hands” back to private investors—which will require far-greater “price-discovery”), it can negatively impact everything from other spread products (i.e. Credit), to reverberating into the collateral chain, to spill-over into the cost of capital & leverage

So putting it all together, the now rubber-stamped from the FOMC “outright QT/balance-sheet runoff” path (one that may favor “…more aggressive runoff path for MBS”) alongside simultaneous rate hiking—is absolutely an escalation of risks to Interest Rates, according to McElligott, hence building-in greater risk premium, and with that, a cross-asset “risk,” as formerly placid “easy financial conditions” are set to inflect into something which risks “putting back” Vol into the market instead of previously “absorbing” it

Translation: the Fed has just sown the seeds of the market’s next destruction (which will inevitably lead to even more stimulus down the road but we’ll cross that bridge when we get to it) and as McElligott concludes, in his eyes, this is the largest part of why yesterday saw said knee-jerk “correlation 1” de-risking in Equities (meaning a “risk parity” or 60/40 fund type “deleveraging cascade” potential) off the back of a good ole-fashioned “financial conditions tightening tantrum.”

Expect more pain until stocks once again approach the strike price of Powell’s put, which could be a while: as Morgan Stanley estimated in mid-December, this time around, the Fed put will be 20% below the highs, compared to just 10% on all previous occasions.

 

 

Authored by Jonathan Turley,

This is the one year anniversary of the disgraceful rioting in the Capitol building. The scenes of that day are seared in the memory of many of us. I publicly condemned Trump’s speech while it was being given and I called for a bipartisan vote of censure over his responsibility in the riots. However, I have long maintained that there was no evidence to support a criminal charge against Trump for incitement.

Yet, a year ago, various legal experts declared that Trump should be charged based on his speech and his delay in calling for protesters to leave Capitol Hill. District of Columbia Attorney General Karl Racine announced that he was considering arresting Trump, Donald Trump Jr., Rudy Giuliani and U.S. Rep. Mo Brooks with inciting the violent invasion of the U.S. Capitol.  So, a year later, what ever happened to the prosecution of Donald Trump?

Racine and others were not restrained by Republicans in Congress and clearly were eager to make the “clear” case for prosecution. The fact is that they were restrained by the Constitution and the media attention over their dubious claims quietly faded away like so many other “slam dunk” charges highlighted on cable news programs.

Democratic politicians and commentators are still demanding that Trump be criminally charged. Former Democratic Sen. Claire McCaskill, now an MSNBC analyst, recently declared that Attorney General Merrick Garland would “go down in infamy as one of the worst attorney generals in this country’s history” if former President Trump is not charged. Garland seemed to respond to the pressure this week by pledging that his department would charge any responsible “at any level.”

Those three words revived the hopes many on CNN and MSNBC, which spent four years trafficking in often unfounded theories of criminality against Trump and his family.

Indeed, many of the same legal experts reappeared to offer assurances that Trump can be still frog marched to the hoosegow.

It is all too familiar. Just a year ago, cable networks were riding high on ratings by offering a steady diet of blockbuster stories establishing clear criminal conduct by Trump or his family. Former House counsel Norman Eisen was assuring viewers that Trump was “colluding in plain sight” and the criminal case against Trump for obstruction of justice was overwhelming. Professor Richard Painter was explaining the clear case of treason against Trump. Professor Laurence Tribe declared the dictation of a misleading statement about the Trump Tower meeting constituted witness tampering. Trump further claimed strong cases for obstruction of justice, criminal election violations, Logan Act violations, and extortion by Trump or his family.  Others explained that Trump could be charged with negligent homicide over the Covid-19 crisis.

The same figures were back on Jan. 6th to declare that the Trump speech to be sufficient for prosecution. Legal analyst Elie Honig said he would “gladly show a jury” his inflammatory remarks and “argue they cross the line to criminality.” Professor Richard Ashby Wilson said, “Trump crossed the Rubicon and incited a mob to attack the Capitol as Congress was in the process of tallying the Electoral College vote results. Trump should be criminally indicted for inciting insurrection against our democracy.” Laurence Tribe declared, “This guy was inciting not just imminent lawless action, but the violent decapitation of a coordinate branch of the government, preventing this peaceful transition of power and putting a violent mob into the Capitol while he cheered them on.”

So what happened?  Even if you assume that Trump was protected by his own Justice Department, it was only a matter of days before the Biden Administration was in place and ready for new prosecutions. Moreover, District of Columbia Attorney General Karl Racine announced that week that he was investigating Trump for a possible incitement charge. He was heralded in the media with global coverage. Then nothing happened.

The reason is that the speech itself was not a crime. Indeed, it was protected free speech. They knew that a court would throw out such an indictment and, even if they could find a willing judge, any conviction would be thrown out on appeal.

In Brandenburg v. Ohio, the Supreme Court ruled in 1969 that even calling for violence is protected under the First Amendment unless there is a threat of “imminent lawless action and is likely to incite or produce such action.”

It is common for political leaders to call for protests at the federal or state capitols when controversial legislation or actions are being taken. Indeed, in past elections, Democratic members also protested elections and challenged electoral votes in Congress.

The fact is that Trump never actually called for violence or a riot. Rather, he urged his supporters to march on the Capitol to express opposition to the certification of electoral votes and to support the challenges being made by some members of Congress. He expressly told his followers “to peacefully and patriotically make your voices heard.”

Trump also stated: “Now it is up to Congress to confront this egregious assault on our democracy…And after this, we’re going to walk down – and I’ll be there with you – we’re going to walk down … to the Capitol and we’re going to cheer on our brave senators and congressmen and women.”

He ended his speech by saying a protest at the Capitol was meant to “try and give our Republicans, the weak ones … the kind of pride and boldness that they need to take back our country. So let’s walk down Pennsylvania Avenue.” Such marches are common — on both federal and state capitols — to protest or to support actions occurring inside.

Notably, the Ku Klux Klan leader Clarence Brandenburg referred to a planned march on Congress after declaring that “revengeance” could be taken for the betrayal of the president and Congress. The Supreme Court nevertheless overturned the conviction. Likewise, in Hess v. Indiana, the court rejected the prosecution of a protester declaring an intention to take over the streets, holding that “at worst, (the words) amounted to nothing more than advocacy of illegal action at some indefinite future time.” In NAACP v. Claiborne Hardware Co., the court overturned a judgment against the National Association for the Advancement of Colored People after one official declared, “If we catch any of you going in any of them racist stores, we’re gonna break your damn neck.” That was ruled as the hyperbolic language of advocacy.

That is why Racine did not arrest Trump, even after he left office shortly after the riot.

The House is still trying to generate new evidence not found by the Justice Department. Despite arresting hundreds and investigating thousands, the Justice Department never found an “insurrection” or “rebellion” to be charged. Instead, most people were charged with crimes like trespass or unlawful entry. A few faced more serious charges of assaulting officers.  This remains a protest that became a riot due to the reckless rhetoric of the rally and the lack of preparation by the Capitol.

None of that belittles the responsibility of those who rioted or excuses their conduct. These individuals are being rightfully prosecuted and have been given severe sentences given these charges.

Moreover, the House could still find that “smoking gun” evidence that supports a criminal charge against Trump. Yet, the media is hyping “bombshell” disclosures that do little to move that needle. For example, Vice Chair Rep. Lynne Cheney recently announced that they had proof that Ivanka Trump asked her father to issue a statement to encourage protesters to leave the Hill but President Trump still delayed in making such a statement. That is not a crime. Being callous or slow in making public statements may make you a bad person or bad president but it does not make you an actual criminal. This is not some form of nonfeasance in failing to take an action required by law. Such a prosecution would allow the prosecution of politicians for a wide array of statements not made in times of political discord. It would gut the First Amendment.

Such analysis is hardly popular with images of rioters smashing windows in the Capitol being replayed on cable networks. In an age of rage, one must be unequivocal and amplified in your outrage to avoid suspicion. I recently told the Washington Post that a viable case against Trump would need to show that he took concrete steps in enabling, anticipating, or coordinating in the riot. In response, Washington Post columnist Jennifer Rubin (who has called for burning down the Republican party and expulsion of Republican members) declared “I have no idea what Turley is talking about. You don’t need to prove Trump intended the riot. He intended to obstruct Congress. This is what @RepLizCheney was explaining last week.”

That reference is to the crime of “corruptly obstructing an official proceeding,” a charge against some rioters. However, Trump was not among them. Swapping out “incitement” or “insurrection” for obstruction does little to address the fundamental constitutional barrier. It would still criminalize free speech and run counter to controlling case law. Democrats have in the past challenged electoral votes and have participated in protests over certification. In January 2005, Boxer joined former Rep. Stephanie Tubbs Jones to challenge George W. Bush’s victory over Democratic challenger John Kerry in the state of Ohio. Boxer argued that Republicans had engaged in voter suppression. Many who are condemning the challenge today heaped praise on Boxer in 2004. That is not itself an obstruction of Congress. For Trump to call for the same opposition, it not itself obstruction.

Moreover, if Trump is not legally responsible for the riot, he is not legally responsible for waiting to call for the rioters to stop.  What the Committee would need is evidence that Trump actively withheld resources or obstructed efforts to quell the riot. Thus far, the record shows that refusal of a large national guard deployment was refused on Capitol Hill and not at the White House.

From the D.C. Attorney General to the current U.S. Attorney General, there has been no paucity of time or lack of investigation over the last year. They certainly know where to find Trump who is hiding in plain view at Mar-o-Lago. Indeed, Rubin (who praised Garland’s nomination, as did I) recently declared him to be a mistake for failing to arrest Trump. The other possibility is that there was a will but not a crime.

Just the other day, Chicago Mayor Lori Lightfoot said during an interview with CNBC that her goal is to “never shut down again”, in reference to a lockdown that economically devastated small business owners. During this interview, Lightfoot insisted that schools weren’t a locus of the spread, which of course is in line with the CDC’s own guidance.

“Our schools are not the source of significant spread. The issue is community spread. But we need to keep our kids in schools, which is what we’re going to do in Chicago,” she said, adding that:

…she “will not allow” the union “to take our children hostage.”

She took issue with the union demanding that all educators, students, and volunteers test negative for COVID-19 before returning to school.

“We are not going to rob parents of their right and their obligation to tell us if they want testing or not on their children. It’s not going to happen. It’s morally wrong,” Lightfoot said.

Yet, two days later, millions of parents in the city of Chicago are scrambling Thursday morning as the city’s public schools have once again been shut down by a teacher’s union that’s determined to strike until they get more tests for members who are worried about “safety”, despite the fact that even omicron hasn’t been shown to spread in schools and among children.

As the NYT explains, nowhere in the US is the situation more “acrimonious and unpredictable” than in Chicago. The city retaliated to the Teachers’ Union vote by calling off school altogether, refusing the teachers’ call for remote instruction. The enmity between the teacher’s union and city hall is something that’s been years in the making, according to the NYT. And with violence surging in the city’s streets following its most murderous year in decades, there’s never been a time where leaving children unsupervised could put them more at risk.

One city activist put things perfectly: the city is now in an “untenable situation.”

“If they are in class and Covid is rampaging, that’s a problem. If they are not there and out on the streets, that’s a problem,” said Tamar Manasseh, who leads an anti-violence group in the city, and who said she was looking into ways to help children with nowhere to go during the day. “This has put us in an untenable situation.”

To get a better picture of the situation that Chicago parents are dealing with: parents weren’t informed about the cancellation of school starting Wednesday until 2300 Chicago Time on Tuesday night.

The decision impacts the more than 300K schoolchildren in Chicago, and it’s unclear when classes will resume. Union leaders insist that their members are only asking for basic safety precautions like regular testing for students and proper protocols for quarantining and shutting down schools experiencing an outbreak.

Their attacks on Mayor Lightfoot have grown surprisingly personal, with one top official complaining to a NYT reporter that Lightfoot doesn’t “understand partnership and collaboration.”

Jesse Sharkey, the union president, said an increase of cases in the school system and the onslaught of Omicron, which causes milder illness than other variants but frequent breakthrough infections, had heightened members’ concern. He called for testing all students before classrooms reopened, as well as stepped-up surveillance testing after that. The district had instituted an optional testing plan over winter break, but most of the 150,000 or so mail-in P.C.R. tests given to students were never returned; of the ones that were, a majority produced invalid results.

“If you want to get us back into the schools quicker, provide testing,” he said.

Mr. Sharkey and Stacy Davis Gates, the union’s vice president, also criticized the mayor for her approach to negotiations and for her repeated public criticisms of the union. Members of Ms. Lightfoot’s administration have defended the school system’s efforts to make classrooms safe and have emphasized that children rarely face severe outcomes from Covid-19.

“The mayor wants to fight when we should be working,” Ms. Davis Gates said. “She’s fighting us instead of the virus. I don’t understand it.”

She said the mayor’s “her-way-or-the-highway” leadership style had made matters worse.

“The mayor, bless her heart, she doesn’t understand partnership and collaboration,” Ms. Davis Gates said.

Some activists are blaming Mayor Lightfoot, saying the decision to close schools was made in response to a “political beef”.

But in Chicago, some said they did not believe that the district had adequately adjusted to the incursion of Omicron. Ja’Mal Green, an activist and former mayoral candidate who lives on the South Side, said he held his son out of kindergarten this week because he did not think the district had adequate virus precautions.

Mr. Green praised the union’s actions, and said he worried about the convergence of the pandemic, street violence and educational disruption in the city.

“The mayor really has a political beef with the union and doesn’t want to come to any type of compromise because she wants to beat them over the head for the strikes and the things that have happened in the past,” said Mr. Green, who has frequently criticized Ms. Lightfoot.

One would think that failing to keep the schools open is a basic failure for a mayor.

The mayor has received backing from the White House, which said earlier Wednesday that all schools should remain open, including in Chicago, but the union has thus far stood firm on its demands.