Month: June 2022

Authored by Michael Shellenberger via Substack,

The West’s Malthusian neoliberal political order is rapidly collapsing…

Led by U.S. President Joe Biden, the Group of Seven (G-7) economic powers announced plans to ban the transport of Russian oil sold above a certain price with the goal of hurting Russia enough so that it ends its war against Ukraine. “There is only one way out: for Putin to accept that his plans in Ukraine will not succeed,” said German Chancellor Olaf Scholz.

The G-7’s plan is to impose a price cap on Russian oil through the regulation of petroleum shipping, banking, and insurance.

The proposal is, in a word, ludicrous.

Russian President Vladimir Putin would never agree to a price cap. He would likely withhold oil from the market in the same way he has been withholding natural gas from Europe, driving up prices. Putin would then sell oil to countries including China and India at a 30-40% discount, as he has been doing, or larger. Russia produces oil at a price of just $3-$4 per barrel and Russian firms can profit with oil prices at $25-$30 per barrel. And while it’s true that there is a near-monopoly in shipping insurance, Russia has been creating alternatives to it.

Neither China nor India are likely to agree to the cap unless G-7 nations imposed severe “secondary sanctions” against them, which could escalate into a mutually destructive trade war. But even if they did formally comply, the two nations could easily cheat, as several analysts quickly noted on Twitter.

“A price cap will never work,” said one.

“Every refiner will bid price cap…. India and China… will cheat and pay above the cap and win all they want as [the] other option is twice the price. Nobody will know they paid it, either. Russia ends with more revenue.”

Defenders of the oil price cap proposal point to a similar oil price cap mechanism that President Bill Clinton led the United Nations Security Council to impose on Iraq in 1995, as part of the U.N.’s “oil-for-food programme,” which allowed Iraq to sell its oil in exchange for food and medicine. It was meant to serve the humanitarian needs of the Iraqi people while preventing Iraq’s then-president, Saddam Hussein, from increasing military capabilities. Oil buyers put money into an escrow account run by a private bank. Some of the money was then distributed to Iraq, some was for war reparations to Kuwait, and some was for U.N. operations.

But the Iraq oil-for-food scheme became famously corrupt and had to be shut down. And while the U.N. Security Council was united on Iraq, it is today divided over Russia’s invasion of Ukraine. China, India and 33 other nations refuse to condemn Russia’s invasion, and China and India are, as noted, the largest buyers of heavily-discounted Russian oil.

Russia’s response to Western financial sanctions are further proof that an oil price cap can’t work. Biden in March said sanctions were “crushing the Russian economy” and that “the ruble is reduced to rubble.” But high energy prices have meant that Russia is making more money than ever, the ruble is at a seven-year high against the dollar, and China’s benefiting from discounted Russian oil. As such, the attempted bans on Russian oil are proof that the G-7’s latest price cap idea would backfire. Putin would simply reduce oil and gas exports to punish participating nations and further drive up prices.

“It is a nightmare scenario,” noted an oil trader.

The response to the G-7 Russian oil price cap proposal has been near-uniformly negative, even from economists sympathetic to the Biden administration and some G-7 leaders. “This is going to fail,” tweeted the head of the Peterson Institute for International Economics. “The G7 won’t enforce it on India, and China will retaliate until a workaround is reached.” Italy’s Prime Minister urged the oil price cap to include a natural gas price cap, and French President Emmanuel Macron has proposed a price cap on all oil, not just Russian oil. “The U.S.,” noted Politico, “which originally proposed the narrower Russian price cap, and is currently the world’s biggest oil producer, was blindsided by the French plan.”

In other words, the G-7 is in chaos. Last fall, G-7 leaders claimed climate change was the most important issue in the world, demanded that government subsidies to fossil fuels be phased out, and tried to deny African nations fossil fuels. Now, G-7 nations are subsidizing energy, waiving energy taxes, and burning more coal than they have in years. In the three decades since the Cold War, G-7 leaders have heralded a new global order based on free markets and neoliberal ideology. Now, they are proposing price-fixing and the creation of a Western energy cartel.

The bottom line is that there will be no Western energy cartel, nor even a price cap on Russian oil or gas. Global energy markets are far too globalized for an oil price cap to work. Russia, China, India and at least 33 other nations would circumvent it, and as soon as they did, the West would be forced to abandon it, too, given the crippling effect it would have on Western economies. Indeed, simply attempting to impose a global oil price cap would wreak havoc. Noted Bloomberg, “politicians are likely to quietly abandon the concept after agreeing to explore it.”

What, then, is going on? Why are President Biden and the G-7 pushing the West ever closer to a “nightmare scenario” of energy shortages and recession?

The Great Reset looms…

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Just hours after reports of hundreds of people being laid off at Tesla’s San Mateo, Autopilot focused, office, it appears the company is up and running at full capacity at its new Gigafactory in Texas. 

That’s because electrek reported this week that the company is now cranking out as many as 5,000 vehicles per week from its new Texas location, though the report questions whether or not that is a “sustainable” rate. 

The factory also added production of the Model Y Long Range on top of the Standard Range version, the report says. The automaker is staying mum on the details of its production coming from its new factory, it continues.

The Texas Gigafactory has been one of the the company’s most important recent investments. The company is finally, after starting production of the Model Y back in 2021, starting to gradually ramp up deliveries of vehicles built in its Texas factory. 

The company’s goal is reportedly to produce 10,000 vehicles per week by the end of the year. 

electrek’s sources told them that “Tesla has managed to ramp up production since adding a new version of the Model Y, Model Y Long Range, and it now produces several thousand vehicles per week” at the factory. 

They were also told Tesla was capable of producing at least 2,000 Model Ys per week from the factory. Some buyers taking delivery of the Model Y Long Range from the factory are being told that their models have the old 2170 cell batteries, and not the company’s new ones. 

Drone footage appears to show that Tesla is getting “hundreds of cars out every day,” the report concluded. 

Authored by Jeffrey Tucker via The Brownstone Institute,

Two weeks before the 2020 general election, on October 21, 2020, Donald Trump issued an executive order (E.O. 13957) on “Creating Schedule F in the Excepted Service.” 

It sounds boring.

Actually, it would have fundamentally changed, in the best possible way, the entire functioning of the administrative bureaucracy that rules this country in a way that bypasses both the legislative and judicial process, and has ruined the checks and balances inherent in the US Constitution. 

The administrative state for the better part of a century, and really dating back to the Pendleton Act of 1883, has designed policy, made policy, structured policy, implemented policy, and interpreted policy while operating outside the control of Congress, the president, and the judiciary. 

The gradual rise of this 4th branch of government – which is very much the most powerful branch – has reduced the American political process to mere theater as compared with the real activity of government, which rests with the permanent bureaucracy. 

Any new president can hire the heads of agencies and they can hire staff, which are known as political appointees. These 4,000 political appointees ostensibly rule 432 agencies (as listed by the Federal Register) as well as some 2.9 million employees (aside from the military and postal service) that effectively inhabit permanent jobs. This permanent state – sometimes called the deep state – knows the ropes and the processes of government far better than any temporary political appointee, thus reducing the appointed jobs to cosmetic positions for the press to hound while the real actions of government take place behind the scenes. 

From 2020 and onward, the American people got to know this administrative state well.

• They ordered us to wear masks.

• They deployed their influence to close small businesses and churches.

• They limited how many people we could have in our homes.

• They festooned our businesses with plexiglass and told everyone to stay six-feet apart.

• They demanded two weeks of quarantine when crossing state borders.

• They decided which medical procedures were elective and non-elective.

• And they finally demanded compliance with vaccine mandates at the penalty of job loss. 

None of this was ordered by legislation. It was all invented on the spot by the permanent staff of the Centers for Disease Control and Prevention. We had no idea they had such power. But they do. And that same power which allowed those egregious attacks on rights and liberties also belongs to the Food and Drug Administration, the Department of Labor, the Environmental Protection Agency, the Department of Agriculture, the Department of Homeland Security, and all the rest. 

Donald Trump came into office with the promise of draining the swamp, without understanding entirely what that meant. He gradually came to realize that he had no control over most of the affairs of government, not because he had no patience for the legislative process but because he had no ability to terminate the employment of most of the civilian bureaucracy. Nor could his political appointees control it. The media, he gradually came to realize, echoed the priorities and concerns of this administrative state due to long-established relationships that led to nonstop leaks that spread false information. 

In May of 2018, he took his first steps to gain some modicum of control over this deep state. He issued three executive orders (E.O. 13837, E.O. 13836, and E.O.13839) that would have diminished their access to labor-union protection when being pressed on the terms of their employment. Those three orders were litigated by the American Federation of Government Employees (AFGE) and sixteen other federal labor unions. 

All three were struck down with a decision by a DC District Court. The presiding judge was Ketanji Brown Jackson, who was later rewarded for her decision with a nomination to the Supreme Court, which was affirmed by the US Senate. The prevailing and openly stated reason for her nomination was said to be mostly demographic: she would be the first black woman on the Court. The deeper reason was more likely traceable to her role in thwarting actions by Trump which had begun the process of upending the administrative state. Jackson’s judgment was later reversed but Trump’s actions were embroiled in a juridical tangle that rendered them moot. 

Following the lockdowns of mid-March 2020, Trump became increasingly frustrated with the CDC and Anthony Fauci in particular. Trump was profoundly aware that he had no power to fire the man, despite his epicly terrible role in prolonging Covid lockdowns long after Trump wanted to open up to save the American economy and society. 

Trump’s next step was radical and brilliant: the creation of a new category of federal employment. It was called Schedule F. 

Employees of the federal government classified as Schedule F would have been subject to control by the elected president and other representatives. Who are they? They are those who met the following criteria:

Positions of a confidential, policy-determining, policy-making, or policy-advocating character not normally subject to change as a result of a Presidential transition shall be listed in Schedule F. In appointing an individual to a position in Schedule F, each agency shall follow the principle of veteran preference as far as administratively feasible.

Schedule F employees would be fired. “You’re fired” was the slogan that made Trump TV famous. With this order, he would be in a position to do the same to the federal bureaucracy. The order further demanded a thorough review throughout the government. 

Each head of an executive agency (as defined in section 105 of title 5, United States Code, but excluding the Government Accountability Office) shall conduct, within 90 days of the date of this order, a preliminary review of agency positions covered by subchapter II of chapter 75 of title 5, United States Code, and shall conduct a complete review of such positions within 210 days of the date of this order.

The Washington Post in an editorial expressed absolute shock and alarm at the implications:

The directive from the White House, issued late Wednesday, sounds technical: creating a new “Schedule F” within the “excepted service” of the federal government for employees in policymaking roles, and directing agencies to determine who qualifies. Its implications, however, are profound and alarming. It gives those in power the authority to fire more or less at will as many as tens of thousands of workers currently in the competitive civil service, from managers to lawyers to economists to, yes, scientists. This week’s order is a major salvo in the president’s onslaught against the cadre of dedicated civil servants whom he calls the “deep state” — and who are really the greatest strength of the U.S. government.

Ninety days after October 21, 2020 would have been January 19, 2021, the day before the new president was to be inaugurated. The Washington Post commented ominously: “Mr. Trump will try to realize his sad vision in his second term, unless voters are wise enough to stop him.”

Biden was declared the winner due mostly to mail-in ballots. 

On January 21, 2021, the day after inauguration, Biden reversed the order. It was one of his first actions as president. No wonder, because, as The Hill reported, this executive order would have been “the biggest change to federal workforce protections in a century, converting many federal workers to ‘at will’ employment.” 

How many federal workers in agencies would have been newly classified at Schedule F? We do not know because only one completed the review before their jobs were saved by the election result. The one that did was the Congressional Budget Office. Its conclusion: fully 88% of employees would have been newly classified as Schedule F, thus allowing the president to terminate their employment. 

This would have been a revolutionary change, a complete remake of Washington, DC, and all politics as usual. 

Trump’s EO 13957 was a dagger aimed directly at the heart of the beast. It might have worked. 

It would have gotten us closer to the restoration of a Constitutional system of government in which we have 3 – not 4 – branches of government that are wholly controlled by the people’s representatives. It would have gone a long way toward gutting the administrative state of its power and returning the affairs of state to the people’s control. 

The action was stopped dead due to the election results. 

Whatever one’s view of Trump, one has to admire the brilliance of this executive order. It shows that Trump had come to understand the problem and actually innovate a fundamental solution, or at least the beginnings of one. The “deep state” as we’ve come to know it would have been curbed, and we would have taken a step toward recreating the system that existed before the Pendleton Act of 1883. 

Many efforts have been deployed through the years to regain constitutional control over the permanent bureaucracy. An example is the Hatch Act of 1939 which forbids employees of the government to work for political campaigns. That act turned out to be toothless – one does not need to work for a campaign in order to skew one’s labor in the direction of always granting the federal government more power and control – and largely made irrelevant in the succeeding decades. 

Trump came to office promising to drain the swamp but it was very late in his term before he figured out the means at his disposal to do just that. His final effort took place merely two weeks before the election that was decided in favor of his opponent Biden, who quickly reversed this action just two days following the deadline of an ordered review that would have reclassified, and thus gained control over, a sizable portion of the administrative state. 

With Executive Order 12003 (“Protecting the Federal Workforce”), Biden saved the deep state’s bacon, leaving the efforts finally to drain the swamp to another day and another president. 

Still, Executive Order 13957 exists in the archives as a possible path forward to restore checks and balances in the US system of government. A new Congress can also take such steps at least symbolically. 

Until something takes place to restore the people’s control of the administrative state, a sword of Damocles will continue to hang over the entire country and we will never be safe from another round of lockdowns and mandates. 

Should a genuinely reformist president ever take office, this executive order must be issued on the very first day. Trump waited too long but that mistake need not be repeated. 

The quarter may be over, but the selling is extending to the afterhours session where the closely watched semiconductor bellwether just reported earnings which were not that bad. The problem is the guidance: it was catastrophic, and sent the stock sharply lower after hours.

First, a look at the just concluded third fiscal quarter:

• Adjusted revenue $8.64 billion, +16% y/y, meeting the estimate $8.64 billion
• Adjusted EPS $2.59 vs. $1.88 y/y, beating the estimate $2.45
• Adjusted gross margin 47.4% vs. 42.9% y/y, missing the estimate 47.9%
• Cash flow from operations $3.84 billion, +7.8% y/y, missing estimate $4.42 billion

But while the historical numbers may have been good, the guidance was an absolute disaster, disappointing on the top line, the bottom line and margin – The company now sees:

• Adjusted revenue $6.8 billion to $7.6 billion, missing the consensus estimate of $9.14 billion by about $2 billion!
• Adjusted EPS $1.43 to $1.83, missing the estimate $2.57 by about 40%!
• Adjusted gross margin 41% to 44%, wildly missing the estimate 47.9%, and confirming that margin pressure is here and is real.

CEO Sanjay Mehrotra was almost as laconic as RH CEO Gary Friedman yesterday, saying that “recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023. We are confident about the long-term secular demand for memory and storage and are well positioned to deliver strong cross-cycle financial performance.”

“Weakened?” We would say the industry demand has fallen off a cliff. As for being positioned for the long-term, the market begs to differ, sending the stock as much as 7% lower as it braces for much worse horror stores in the coming weeks when the horror Q2 earnings seasons begins in earnest…