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Fed Hawkishness Will Be Kept At Bay By China’s Angst

Fed Hawkishness Will Be Kept At Bay By China’s Angst

Authored by Simon White, Bloomberg macro strategist,

China’s faltering recovery will…

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4 months ago

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Fed Hawkishness Will Be Kept At Bay By China's Angst

Authored by Simon White, Bloomberg macro strategist,

China’s faltering recovery will restrain US and global inflation, further capping already-fading Federal Reserve hawkishness.

It was supposed to be “revenge spending” that did it. After almost three years of lockdown, the ending of restrictions in China was expected to unleash a flood of repressed consumers ready to splurge.

But if revenge is a dish best served cold, no-one’s eating it. China is in the midst of yet another false start to its recovery amid a deteriorating economic backdrop.

This has knock-on effects for the US and the rest of the world. Global inflation will remain on the soft side while still-subdued monetary stimulus will keep a lid on commodity prices. A re-acceleration in US inflation will be deferred, raising the possibility the Fed is at its peak rate.

The chart below starkly illustrates China’s diverging set of fortunes. Despite experiencing supply-and-demand-disrupting lockdowns along with everyone else, China is the only country to have seen consumer deflation since the beginning of 2020. Almost every other country has seen its largest price rises in decades.

For China’s recovery to evolve from a stumble to a run, more stimulus will be required, which will lead to rising consumer inflation, higher commodity prices, and thus a re-acceleration in global inflation.

This may seem like thinking too many steps ahead, but the fact is global disinflation is now in full swing, and therefore increasingly priced in by money markets and inflation-fixing swaps. The market upset will come when disinflation slows and price growth starts rising again.

Understanding why China has seen consumer deflation - when everyone else had the opposite - illuminates what is likely to happen next in the cycle.

During the pandemic, DM countries focused on protecting jobs and stimulating consumption. Many EMs had only nominal lockdowns as their finances were not in a position to backstop their economies. China, on the other hand, had stringent restrictions and gave little support to workers and consumers.

In short, China resorted to what it knows best, which is going for the low-hanging fruit of export-orientated growth at the expense of the household sector.

We can see this in China’s trade. Exports, predictably, surged in response to China’s pandemic stimulus. In a more balanced economy, some of this income would spread to the household sector, the largest net importer, and imports would rise too. Except imports in China stagnated even as exports rose to new highs. The wealth was not being spread.

Now exports are slowing as China hits the limits of what the world is currently willing to import. Unemployment is creeping higher, at just under 4%, but this obscures the more worrying picture in youth unemployment, rising fast and now over 20%.

China will be forced at some point to stimulate in a way that floats all boats, so-called flood-like stimulus.

That sort of easing is a big deal for China, and for the rest of the world. It was flood-like stimulus that meant China was responsible for 70% of the world’s money growth in the immediate aftermath of the GFC. It’s not hyperbole to suggest that without China, the global economy would have entered a depression.

But high debt levels and a reluctance to re-buoy the shadow-finance sector are likely staying China’s hand for now. But when job losses become too large to stomach, policy makers will relent.

We’ll know this has happened when we see a significant upturn in real M1 growth. Real M1’s inability to gain much momentum tells us why the recovery has yet to get going. But as the chart below shows, when it does it also means commodities should begin rising again.

Falling commodity prices have driven most of the decline in US headline inflation. The chart below shows headline PCE inflation split up into supply and demand components. As can be seen, the demand component has barely budged from its highs, while supply inflation – driven by commodities – has been responsible for most of the fall seen in the headline number.

The flip side is that an increase in commodity prices would quickly re-inforce still-elevated demand inflation and lead to a re-acceleration in US (and global) price growth.

China’s unemployment rate and other growth data will be key in gauging when policy makers are likely to significantly boost stimulus. Until then, the Fed and other central banks will probably become more risk averse - balancing growth concerns with the inflation outlook - with the (current) peak in rates very close (if not already here in the case of the Fed).

The faltering recovery in China will allow the Fed and other central banks to step back and perhaps even ease. But the inflation truce will only be temporary, and the underlying dynamics are such that they will have to return to the battle later in the cycle.

Tyler Durden Thu, 06/01/2023 - 11:15

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Government

Small Business Bankruptcies Surge In 2023, Five Reasons Why

Small Business Bankruptcies Surge In 2023, Five Reasons Why

Authored by Mike Shedlock via MishTalk.com,

Small business bankruptcies are at…

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22 mins ago

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October 2, 2023

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Small Business Bankruptcies Surge In 2023, Five Reasons Why

Authored by Mike Shedlock via MishTalk.com,

Small business bankruptcies are at a much higher pace than any year since the Covid pandemic...

Small business bankruptcies from the American Bankruptcy Institute via the Wall Street Journal

The Wall Street Journal reports There’s No Soft Landing for These Businesses

Nearly 1,500 small businesses filed for Subchapter V bankruptcy this year through Sept. 28, nearly as many as in all of 2022, according to the American Bankruptcy Institute.

Bankruptcy petitions are just one sign of financial stress. Small-business loan delinquencies and defaults have edged upward since June 2022 and are now above prepandemic averages, according to Equifax.

An index tracking small-business owners’ confidence ticked down slightly in September, driven by heightened concerns about the economy, according to a survey of more than 750 small businesses. Fifty-two percent of respondents believed that the country is approaching or in a recession, said the survey by Vistage Worldwide, a business-coaching and peer-advisory firm.

Robert Gonzales, a bankruptcy attorney in Nashville, said he’s now getting four times as many calls as he did a year ago from small businesses considering a bankruptcy filing.

“We are just at the front end of the impact of these dramatically higher interest rates,” Gonzales said. “There are going to be plenty of small businesses that are overleveraged.”

Five Reasons for Surge in Bankruptcies

  • Rising Interest Rates

  • Surging Wages

  • Tighter Bank Credit

  • Overleverage

  • Work-at-Home Curtailing Demand

Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

The Fed has hiked interest rates to 5.25% to 5.50%. It’s the highest in 22 years.

And Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

Surge in Wages

Minimum wages have surged. Unions are piling on. Small businesses have to offer prevailing wages or they cannot get workers.

In California, Minimum Wage for Fast Food Workers Jumps 30% to $20 Per Hour. Governor Gavib Newsom called it a “big deal”, I responded:

A Big Deal Indeed, Expect More Inflation

Yes, governor, this is very big deal. It will increase the cost of eating out everywhere.

The bill Newsom signed only applies to restaurants that have at least 60 locations nationwide — with an exception for restaurants that make and sell their own bread, like Panera Bread (what’s that exception all about?)

Nonetheless, the bill will force many small restaurants out of business or they will pony up too.

30 Percent Raise Coming Up!

If McDonalds pays $20, why take $15.50 elsewhere?

The $4.50 hike from $15.50 to $20 is a massive 30 percent jump.

Expect prices at all restaurant to rise. Then think ahead. This extra money is certain to increase demands for all goods and services, so guess what.

Other states will follow California.

Biden Newsome Tag Team

Biden’s energy policies have made the US less secure on oil, more dependent on China for materials needed to make batteries, fueled a surge in inflation, and ironically did not do a damn thing for the environment, arguably making matters worse.

See  The Shocking Truth About Biden’s Proposed Energy Fuel Standards for discussion of the administration’s admitted impacts of Biden’s mileage mandates.

Newsom is doing everything he can to make things even worse.

The tag team of Biden and Newsom is an inflationary sight to behold.

Bank Credit and Over-Leverage

In the wake of the failure of Silicon Valley Bank, across the board small regional banks are curtailing credit.

The regional banks over-leveraged on interest rate bets. And businesses overleveraged too, getting caught up in work-from-home environments that curtailed demand for some goods and services.

The bankruptcies will fall hard on the regional banks.

Add it all up and things rate to get worse.

Tyler Durden Mon, 10/02/2023 - 15:40

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Fair and sustainable futures beyond mining

Mining brings huge social and environmental change to communities: landscapes, livelihoods and the social fabric evolve alongside the industry. But what…

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52 mins ago

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October 2, 2023

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Mining brings huge social and environmental change to communities: landscapes, livelihoods and the social fabric evolve alongside the industry. But what happens when the mines close? What problems face communities that lose their main employer and the very core of their identity and social networks? A research fellow at the University of Göttingen provides recommendations for governments to successfully navigate mining communities through their transition toward non-mining economies. Based on past experiences with industrial transitions, she suggests that a three-step approach centred around stakeholder collaboration could be the most effective way forward. This approach combines early planning, local-based solutions, and targeted investments aimed at fostering economic and workforce transformation. This comment article was published in Nature Energy.

Credit: Kamila Svobodova

Mining brings huge social and environmental change to communities: landscapes, livelihoods and the social fabric evolve alongside the industry. But what happens when the mines close? What problems face communities that lose their main employer and the very core of their identity and social networks? A research fellow at the University of Göttingen provides recommendations for governments to successfully navigate mining communities through their transition toward non-mining economies. Based on past experiences with industrial transitions, she suggests that a three-step approach centred around stakeholder collaboration could be the most effective way forward. This approach combines early planning, local-based solutions, and targeted investments aimed at fostering economic and workforce transformation. This comment article was published in Nature Energy.

 

Dr Kamila Svobodova, Marie Skłodowska-Curie Research Fellow at the University of Göttingen, argues that, in practice, governments struggle to truly engage mining communities in both legislation and action. Even the more successful, often deemed exemplary, transitions failed to follow the principles of open and just participation or invest enough time in the process. Early discussions about how the future will look following closure help to build trust and relationships with communities. A combination of bottom-up and top-down approaches engages people at all levels. This ensures that the local context is understood and targeted specifically. It also establishes networks for collaboration during the transition. Effective coordination of investments toward mining communities, including funding to implement measures to support workers, seed new industries, support innovations, and enhance essential services in urban centres, proved to be successful in the past.

 

“To ensure energy security, it’s essential for governments to recognize the profound transformation that residents of mining communities experience when they shift away from mining,” Svobodova explains. “Neglecting these communities, their inherent strength of mining identity and unity, could lead to social and economic instability, potentially affecting the overall national energy infrastructure.”

 

Moving toward closure and consequently away from mining is not an easy or short journey. “It is essential that governments recognize that the transition takes time, and persistence is essential for success,” says Svoboda. “They should openly communicate their strategies, ensuring communities and other stakeholders are well-informed and engaged. Building trust and providing guidance helps residents navigate the uncertainties associated with transitions. By embracing the three-step approach that centers around stakeholder engagement, governments can prioritize equitable and just outcomes when navigating mining transitions as part of their energy security strategies.”

 

Original publication: Svobodova, K., “Navigating community transitions away from mining,” Comment article in Nature Energy 2023. DOI: 10.1038/s41560-023-01359-9. Full text available here: https://rdcu.be/dnmU3 

 

Contact:

Dr Kamila Svobodova

University of Göttingen

Department of Agricultural Economics and Rural Development

Platz der Göttinger Sieben 5, 37073 Göttingen, Germany

kamila.svobodova@uni-goettingen.de

 

Journal

Nature Energy

DOI

10.1038/s41560-023-01359-9

Method of Research

Observational study

Subject of Research

Not applicable

Article Title

Navigating community transitions away from mining

Article Publication Date

29-Sep-2023

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Government

Turley: Four Biden Impeachment Articles & What The House Will Need To Prove

Turley: Four Biden Impeachment Articles & What The House Will Need To Prove

Authored by Jonathan Turley,

With the commencement of the…

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2 hours ago

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October 2, 2023

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Turley: Four Biden Impeachment Articles & What The House Will Need To Prove

Authored by Jonathan Turley,

With the commencement of the impeachment inquiry into the conduct of President Joe Biden, three House committees will now pursue key linkages between the president and the massive influence peddling operation run by his son Hunter and brother James.

The impeachment inquiry should allow the House to finally acquire long-sought records of Hunter, James, and Joe Biden, as well as to pursue witnesses involved in their dealings.

I testified this week at the first hearing of the impeachment inquiry on the constitutional standards and practices in moving forward in the investigation. In my view, there is ample justification for an impeachment inquiry. If these allegations are established, they would clearly constitute impeachable offenses. I listed ten of those facts in my testimony that alone were sufficient to move forward with this inquiry.

I was criticized by both the left and the right for the testimony. 

Steven Bannon and others were upset that I did not believe that the basis for impeachment had already been established in the first hearing of the inquiry.

Others were angry that I supported the House efforts to resolve these questions of public corruption.

Without prejudging that evidence, there are four obvious potential articles of impeachment that have been raised in recent disclosures and sworn statements:

  1. bribery,

  2. conspiracy,

  3. obstruction, and

  4. abuse of power.

Bribery is the second impeachable act listed under Article II. The allegation that the President received a bribe worth millions was documented on a FD-1023 form by a trusted FBI source who was paid a significant amount of money by the government. There remain many details that would have to be confirmed in order to turn such an allegation into an article of impeachment.

Yet three facts are now unassailable.

First, Biden has lied about key facts related to these foreign dealings, including false statements flagged by the Washington Post.

Second, the president was indeed the focus of a corrupt multimillion-dollar influence peddling scheme.

Third, Biden may have benefitted from this corruption through millions of dollars sent to his family as well as more direct benefit to Joe and Jill Biden.

What must be established is the President’s knowledge of or participation in this corrupt scheme. The House now has confirmed over 20 calls made to meetings and dinners with these foreign clients. It has confirmation of visits to the White House and dinners and events attended by Joe Biden. It also has confirmation of trips on Air Force II by Hunter to facilitate these deals, as well as payments where the President’s Delaware home address was used as late as 2019 for transfers from China.

The most serious allegations concern reported Washington calls or meetings by Hunter at the behest of these foreign figures. At least one of those calls concerned the removal or isolation of a Ukrainian prosecutor investigating Burisma, an energy company paying Hunter as a board member. A few days later, Biden withheld a billion dollars in an approved loan to Ukrainian in order to force the firing of the prosecutor.

The House will need to strengthen the nexus with the president in seeking firsthand accounts of these meetings, calls, and transfers.

However, there is one thing that the House does not have to do. While there are references to Joe Biden receiving money from Hunter and other benefits (including a proposed ten percent from one of these foreign deals), he has already been shown to have benefited from these transfers.

There is a false narrative being pushed by both politicians and pundits that there is no basis for an inquiry, let alone an impeachment, unless a direct payment or gift can be shown to Joe Biden. That would certainly strengthen the case politically, but it is not essential legally. Even in criminal cases subject to the highest standard, payments to family members can be treated as benefits to a principal actor. Direct benefits can further strengthen articles of impeachment, but they would not be a prerequisite for such an action.

For example, in Ryan v. United States, the Seventh Circuit U.S. Court of Appeals upheld the conviction of George Ryan, formerly Secretary of State and then governor of Illinois, partly on account of benefits paid to his family, including the hiring of a band at his daughter’s wedding and other “undisclosed financial benefits to him and his family and to his friends.” Criminal cases can indeed be built on a “stream of benefits” running to the politician in question, his family, or his friends.

That is also true of past impeachments. I served as lead counsel in the last judicial impeachment tried before the Senate. My client, Judge G. Thomas Porteous, had been impeached by the House for, among other things, benefits received by his children, including gifts related to a wedding.

One of the jurors in the trial was Sen. Robert Menendez (D-N.J.), who voted to convict and remove Porteous. Menendez is now charged with accepting gifts of vastly greater value in the recent corruption indictment.

The similarities between the Menendez and Biden controversies are noteworthy, in everything from the types of gifts to the counsel representing the accused.  The Menendez indictment includes conspiracy charges for honest services fraud, the use of office to serve personal rather the public interests. It also includes extortion under color of official right under 18 U.S.C. 1951. (The Hobbs Act allows for a charge of extortion without a threat of violence but rather the use of official authority.)

Courts have held that conspiracy charges do not require the defendant to be involved in all (or even most) aspects of the planning for a bribe or denial of honest services. Thus, a conspirator does not have to participate “in every overt act or know all the details to be charged as a member of the conspiracy.”

Menendez’s case shows that the Biden Administration is prosecuting individuals under the same type of public corruption that this impeachment inquiry is supposed to prove. The U.S. has long declared influence peddling to be a form of public corruption and signed international conventions to combat precisely this type of corruption around the world.

This impeachment inquiry is going forward. The House just issued subpoenas on Friday for the financial records of both Hunter and James Biden. The public could soon have answers to some of these questions. Madison called impeachment “indispensable…for defending the community” against such corruption. The inquiry itself is an assurance that, wherever this evidence may lead, the House can now follow.

Tyler Durden Mon, 10/02/2023 - 15:00

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