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July Monthly

July Monthly



Many major and emerging central banks took action in June, but outside of possible technical adjustments will continue with the current supportive stance in July.  The policy focus will shift back to fiscal initiatives.  The highlights will be the EU Summit on July 12, which is considering the EC's 750 bln euro package of grants and loans, and the US decision regarding the $600 a week extra unemployment insurance (expiring at the end of July) and another large budget bill ostensibly for state and local governments and infrastructure.

In the second half of June, more monetary support was provided, though it took different forms and was not coordinated.  The Federal Reserve's Main Street facility was launched after being announced in late March.  The Fed's corporate bond purchase program began including individual issues rather than just ETFs, which had been the case previously, and it will also buy bonds in the primary market. 

The Bank of Japan expanded interest-free loans to corporations to JPY110 trillion from JPY75 trillion.  The ECB made net new three-year loans of nearly 550 bln euro (at minus 100 bp), or a 10% increase in its balance sheet (~5.63 trillion euros as of June 12).  The Bank of England boosted its bond-buying program by GBP100 bln. 

The People's Bank of China cut its reverse repo rate by 20 bp and officials signaled further easing of monetary policy would be delivered.  It also announced a 25 bp cut in the re-discount rate to 2%, which is seen helping small and medium businesses.  Other central banks, including Brazil (-75 bp to 2.25%), Russia (-100 bp to 4.50%), Indonesia (-25 bp to 4.25%), the Philippines (-50 bp to 2.25%) Mexico (-50 bp to 5.0%), and Colombia (-25 bp to 2.50%).   

It appears that most of the major economies are past the worst of the direct of economic impact.  Going forward, nation-wide lockdowns may not be necessary, though localized action could have broader knock-effects.  As the second quarter wound down, several countries in Europe and Asia have seen an increase in new cases.  The US is seeing a record number of cases, and a few re-opening exercises have been reversed, and others halted, while Mexico may be seeing early signs that the curve is bending, Brazil is still in the throes of the worst of the epidemic.

The world's two largest economies will report Q2 GDP in July. China's report is due in the middle of the month.  Outside of February, China's composite PMI has been above the boom/bust 50-level. China's economy contracted by nearly 10% in the first quarter, and small but positive growth cannot be ruled out in Q2, though some economists are more pessimistic. The US economy contracted by 5% at an annualized pace in Q1, and output may have fallen by 35%-45% in Q2.  It reports the first estimate at the end of the month.   

The third quarter is widely expected to show strong improvement over Q2 and there is good reason to suspect it was a historically short but deep contraction.  The critical issue going forward is about the pace of the recovery, which itself depends on no small extent on the evolution of the virus.  If new flare-ups cannot be totally avoided, as was seen in Beijing that had a surge in cases after reporting no new cases for more than fifty days, then the challenge is the speed and effectiveness of containment. 

However, after the third quarter, visibility is limited. Without a vaccine or specific treatment, the recovery will likely be gradual and uneven.  The signs of green shoots may also temper the will to maintain the extent of the stimulus. There may be two last hurrahs in July.  A consensus may be reached for the EU Recovery Fund at the summit. 

The protracted negotiations underscore that these are not emergency funds that will be disbursed and spent immediately.  It is a small part of the fiscal support many countries will need.  The subscript may be where the real political importance lies.  A common bond that is not an intergovernmental agreement, but something larger, some have suggested is the "Hamiltonian moment" for Europe.  It could be scaffolding for a greater fiscal union, but we are reluctant to project emergency measures into the future.  Those fights still lie ahead.

In fact, in the current circumstances, a common bond itself is not so controversial.  By focusing on the potential significance of a common bond, the advocates not confronted the main objection of the "frugal four" (Sweden, Denmark, Netherlands, and Austria).  Their complaint is how the proceeds of the bond will be used.  The German and French proposal is heavily weighed toward grants.  This does not sit well with taxpayers in the North.  

The US may approve another stimulus package in July  Previously, the Congressional Budget Office projected a budget deficit of around 18% of GDP.   If it weren't for the elections in November, this package might not have been considered. At the same time, most countries have neither the political will nor financial capacity to provide as much stimulus.  After the Great Financial Crisis, the divergence helped underpin the dollar.   This time a different dynamic appears to be at work. The liquidity the central banks are providing, and the spending of governments are encouraging the pursuit of risk-assets. And the dollar is the opposite. 

At the same time, between loan guarantees and the fiscal stimulus, German efforts are unlikely to be matched elsewhere in Europe.  Even with a generous package of loans and grants, the EU's Recovery Fund is not going to dampen that new divergence in Europe could very well shape the next European crisis. 

EC President von der Leyen and UK Prime Minister Johnson appear to have reinvigorated the trade talks, which will be accelerated in the coming weeks. The UK indicated that regardless of the outcome, it will relax the control that applies to trade with the EU for the first half of next year, seemingly making a virtue out of necessity.   If the Irish border was the critical element in the withdrawal bill, the crux of trade dispute might be over the future alignment of environmental and labor protections, and state aid.  Checks of plants and products of animal origins will also be particularly challenging for the UK.  Its ports lack the facilities and often the space to carry out such checks.  Some estimates suggest the UK may need to hire as many as 50k more customs agents. 

Meanwhile, Japan has indicated that a trade agreement needs to also be completed by the end of July to give it time to be debated and approved by the Diet.  To achieve this, the EU-Japan trade agreement that took effect in 2019 will likely simply be duplicated to include the UK. The UK was pushing for a further reduction (or elimination) of Japanese tariffs on goods and agriculture, like beef and cheese.   

Dollar:  The dollar fell against all the major currencies in May but sterling and the yen  It fell further in June, though sterling was the exception, slipping about 0.2%  The JP Morgan Emerging Market Currency Index fell 1% in June after rising 3.4% in May, which was the only month in H1 20 that it did not decline.  With the funding markets functioning normally, the use of the Fed's swap facility diminished, and the dollar was used again to fund the purchase of other higher-risk assets. Speculators, judging from the positioning in the futures market, have amassed a significant long euro position. Outside of the yen, the non-commercials in the futures market were net short most of the other currency futures.  In the weeks ahead, negative surprises will likely be more dollar supportive than unexpected positive news. 

Euro:  The ECB has aggressively moved to ensure that its ultra-accommodative monetary stance transmitted through the region.  In June, it increased the size of its Pandemic Emergency Purchase Plan by 600 bln euros and extended the program until at least mid-2021. It also made net new loans of about 550 bln euros for three-years at minus 100 bp.  The ECB's balance sheet increased by roughly 11.5% in June, more than the previous two months put together.  What market participants call carry trades is the implementation of the ECB's transmission mechanism.  The ECB buys bonds and provides incentives for investors to buy peripheral bonds, thus narrowing spreads. The next step is the European Recovery Plan, and there is cautious optimism that a compromise can be struck.  Europe appears to be doing a better job than the US in containing the virus.  Trade tensions with the US over digital tax, the Nord Stream II pipeline, and the threat of US auto tariffs, are simmering just below the surface.  Merkel assumes the rotating presidency of the EU in H2 20 and certainly has her work cut out. 

(end of March indicative prices, previous in parentheses)

Spot: $1.1235   ($1.1100) 
Median Bloomberg One-month Forecast $1.1225 ($1.1075) 
One-month forward  $1.1245 ($1.1110)    One-month implied vol  7.1%  (6.4%)    

Yen:   The dollar rose to almost JPY110 in early June, its highest level since late March, but quick retreated and tested the lower end of the range near JPY106 as the month drew to a close. The exchange rate's co-movement with the risk appetites has weakened from the first part of the year.  The rolling 60-day correlation is around 0.15, after peaking above 0.80 in February and holding above  0.55 throughout Q1.  It was just below 0.50 at the start of June.  Other forces moved to the fore in June, and some observers emphasized the large corporate divesture (Softbank sales of T-Mobile, ~$20 bln).  The government and the central bank are cautiously optimistic that a recovery may be at hand.   The Bank of Japan forecasts a 4% contraction this year, which appears to be on the optimistic side of forecasts.  Soft (surveys) and hard data (industrial production) has disappointed.  Judging from the BOJ's bond purchase plans in July, it will not object to further steepening of the yield curve.  The nearly five basis point increase in the 10-year benchmark yield was the most within the G7 in the second quarter. Japan's 30-year yield a little below 60 bp. By comparison, the UK's 30-year Gilt is a few basis points higher, while the German Bund yield is minus two basis points.  

Spot: JPY107.95 (JPY107.85)      
Median Bloomberg One-month Forecast JPY107.65  (JPY107.60)     
One-month forward JPY107.90  (JPY107.80)    One-month implied vol  5.8% (5.4%)  

Sterling: Sterling's flat performance in June after the poor showing in May (-~2.0%) reflects the poor news stream from the UK.   Even when some data, like the preliminary June PMI was stronger than expected, sterling struggled to sustain even modest upticks.  The low for June (~$1.2250) was set late in the month.  The euro set a three-month high against sterling (~GBP0.9175) at the end of June, as well.  We look for a better showing from sterling in July, which is a critical month for the UK.  The country will be re-opening more quickly, and the risk of new flare-ups, as seen elsewhere, is a concern.  Trade talks with the EU are to accelerate, and the next several weeks will reveal if progress has been made.  The UK's own customs facilities and personnel need to be expanded.  Japan is insisting that its trade agreement with the UK needs to be completed by the end of July to give the Diet sufficient time to debate and vote on it.  It may be little more than extending the agreement between the EU and Japan that took effect last year.  

Spot: $1.2400  ($1.2345)   
Median Bloomberg One-month Forecast $1.2415 ($1.2355) 
One-month forward $1.2400 ($1.2345)   One-month implied vol 9.0% (8.9%)

Canadian Dollar:  The US dollar fell out of the CAD1.3850-CAD1.4200 trading range of April and the first half of May and continued to fall in the first part of June, ultimately reaching nearly CAD1.33.   The greenback entered a consolidative phase in the second half of June, but there may be scope back into the previous range.  June will be remembered for the beginning of Macklem's seven-year term as Governor of the Bank of Canada.  It will also be remembered for when Fitch became the first major rating agency to take away its AAA standing, citing rising deficit and debt levels in response to the pandemic (now, AA+ with stable outlook).  The housing sector appears to be leading the Canadian recovery. In Q2, Canada's 10-year yield fell about 25 bp to lead the G7. The Bank of Canada meets on July 15. There is scope for technical adjustments as the markets have normalized.  

Spot: CAD1.3580  (CAD 1.3780) 
Median Bloomberg One-month Forecast  CAD1.3585 (CAD1.3810)
One-month forward  CAD1.3575  (CAD1.3800)    One-month implied vol  7.0%  (6.9%) 

Australian Dollar:  The Australian dollar dropped 12.7% in Q1 and bounced 12.5% in Q2 (including a 3.5% gain in June).  The currency appreciation did not reflect the domestic economy, which has been hard hit by the virus.  The preliminary June composite PMI surged from 28.1 in May to 52.6.  In 2019, it averaged 50.5, and last June stood at 52.5.  The Aussie is one of the currency proxies for risk.  The rolling 60-day correlation between (percent change) in the Aussie and S&P 500 is near 0.7 and the highest eight years.  On a purely directional basis, the correlation is about 0.95.  The Reserve Bank of Australia meets on July 7.  No change in policy is expected, but it could raise the level of concern about the strength of the Aussie.  When exchange rates move in the opposite direction of monetary policy, it can dilute official effects.

Spot:  $0.6900($0.6665)       
Median Bloomberg One-Month Forecast $.0.6870  ($0.6575)     
One-month forward  $0.6905  ($0.6665)     One-month implied vol 10.9%  (10.8%)   

Mexican Peso:  The dollar peaked around MXN25.7850 in early April, and two months later, it looks like it has bottomed near MXN21.45, a little above an important technical level. The peso is also treated as a currency proxy for risk, and it also serves as a proxy for emerging market currencies broadly.  The dollar recorded the highs for the month (~MXN23.23) on the last session.  The government's response to the pandemic continues to appear relatively light. The central bank delivered its fifth rate cut of the year in June to bring the cash target to 5.0% from 7.25% at the end of 2019.  Banxico does not meet again until August when it could deliver a 25 or 50 bp rate cut depending on circumstances. While worker remittances have been stronger than expected, the trade position has deteriorated markedly.  In May, what was supposed to be a trade surplus was the second consecutive deficit over $3.5 bln.  Exports had fallen by almost 57% year-over-year, while imports were off 47%. 

Spot: MXN22.99 (MXN22.18)  
Median Bloomberg One-Month Forecast  MXN22.77 (MXN22.38)  
One-month forward  MXN23.09 (MXN22.28)     One-month implied vol 18.8% (18.5%)

Chinese Yuan:   The dollar peaked in late May near CNY7.1780 and returned to CNY7.05, the lower end of its two-month trading range, before the middle of June.  It was confined to CNY7.05-CNY7.10 trading range second half of the last month.  The 200-day moving average is around CNY7.0460, and the dollar has not been below CNY7.03 since mid-March.  Chinese officials have done a reasonably good job if their goal is for a stable yuan against the dollar.  It appreciated by about 0.25% in Q2 after falling almost 1.7% in Q1.  The stability of the yuan, while offering substantially higher rates than the US, may attract investment flows. Relations with the US continue to deteriorate.  China has boosted imports from the US recently, including meat, aircraft, and integrated circuits.  China has by-and-large, kept trade issues separate from other political issues. But, Beijing has warned on at least two occasions that if the US continues to challenge it on so many fronts, including on issues it regards as redlines, it will not be able to fulfill Phase One trade agreement.  China has only met about a fifth of the overall quantitative target through May.  

Spot: CNY7.0655(CNY7.1365)
Median Bloomberg One-month Forecast  CNY7.0670 (CNY7.1150) 
One-month forward CNY7.0795  (CNY7.1350)    One-month implied vol  4.2% (4.7%)


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Steps to building a more patient-centric industry

Lack of access, strict regulations, and demanding schedules have made it extremely difficult for patients to participate in
The post Steps to building…



Lack of access, strict regulations, and demanding schedules have made it extremely difficult for patients to participate in clinical trials. A 2018 NIH survey found that patients felt clinical trial participation to be inconvenient and burdensome, and nearly half (49.0%) said it disrupted their daily routine. In 2021, a CISCRIP Perceptions and Insights Study reported more disruption to daily routines compared to previous years, citing length of visits, travel, and diagnostic tests as top burdens.

To ease this burden, the life sciences industry has been searching for ways to make clinical trials more accessible for patients and to drive participation numbers, increase participant diversity, and improve overall patient experience. For many patients, this change starts with choice.

A recent survey of clinical trial professionals found that more than two-thirds of respondents (61%) believe giving patients choice will have a positive impact on clinical research, and well over half (58%) said that their organisations plan to give patients the option to choose how they participate in clinical trials moving forward. Some examples of these choices can include video visits, phone visits, and remote monitoring.

As the industry focuses on creating a more holistic, inclusive patient experience, here are key steps to consider in order to help bridge the gap between clinical research and the patient experience.

Build a base in the community

According to the FDA’s 2020 Drug Trials Snapshot Report, only 8% of clinical trial participants are Black or African American, as compared to nearly 14% of the US population. The fact is, many minorities never learn about vital clinical trials in play, or that they’re eligible to participate. Subsequently, they are excluded, creating an evident gap in participants, and subsequently needed data on how treatments respond across different demographics of people.

Creating a broader, more inclusive patient experience starts with building a network of advocates who can help organisers meet patients where they are located and educate them about the availability and value of the trials. Initially, there needs to be a more proactive and sustained nationwide outreach effort to raise clinical trial awareness within minority communities.

It’s also important to partner with trusted people within minority communities, such as religious and government leaders that have the credibility needed to share clinical trial information to counter scepticism. If sponsors can partner with patient-advocacy groups to inform design, recruitment, follow-up, and even data collection (particularly for patient-reported outcomes), it will help to keep patients engaged longer and potentially derive higher quality data sets that can lead to better patient outcomes over the long run.

Embrace technology to expand reach

Technology – especially related to automation and the cloud – can help create a more flexible clinical trial model, thereby making it easier for patients to participate. Digital tools used in decentralised trials, remote enrolment tools, consent forms, wearables, and remote devices, as well as data capture, can help to expand overall access to clinical trials. For example, with remote monitoring, doctors and trial administrators can analyse all the data coming in and, if there’s a problem, they can act more quickly and respond back to the patient through a mobile device such as a smartphone.

Cloud platforms can open two-way communication channels for patients, doctors, and trial administrators to talk and share data, essentially in real-time. Some early examples of these capabilities were part of the US Centers for Disease Control and Prevention’s (CDC) v-safe program, developed by Oracle, which is used to track the effects of the COVID-19 vaccines through voluntary, scheduled survey prompts, and to remind people about boosters. Today, capabilities like this are being extended so that trial data from wearable devices and home-monitoring systems can be communicated directly to trial sites.

A new solution

One significant roadblock to clinical trial inclusion of minority groups has been location and transportation. Many potential participants lack transportation to and from clinical sites, and some trials are only held in large city hospitals, instead of smaller community hospitals that participants can sometimes access more easily. Thanks to decentralised trials and technology that collects data remotely, people from anywhere can participate.

One approach the industry has been exploring is to utilise community retail pharmacies as a central location for people to learn about and participate in clinical trials. By collaborating with pharmacy retailers, sponsors will have more opportunities for patient recruitment because they can offer patients the convenience and comfort of visiting familiar community sites.

For example, CVS and Walgreens have instituted flexible clinical trial models that combine patient insights, technology capabilities, and in-person and virtual-care options to engage broader and more diverse communities. The result is a much more expansive pool of participants and potentially much better information about populations where the drug is effective, and other populations where it might not be effective.

Keep it simple

There’s a notion that because the healthcare and life sciences industries are very complex, the systems that support them have to be equally complex. In fact, the opposite is true. Easier-to-use systems will increase participation rates, and we will have better outcomes as a result. With so many technology advancements at its disposal, the industry must find a way to bridge the divide between patient experience and clinical research. The patient journey must be a positive one, so that they will encourage others to participate.

Imagine, clinical research as an accessible care option to anyone. Technology has given us the opportunity to make this goal a reality. But as an industry, we must innovate to bring new experiences to market and improve the clinical research ecosystem for patients, healthcare professionals, sponsors, and regulators.

About the author

Katherine (Kathy) Vandebelt is global head of clinical innovation at Oracle Health Sciences. With over thirty years of experience in clinical research working in different geographies and across various TA, Kathy has worked with various organisations to advance their clinical operations and business processes to a better operating model. She believes patients are the most important constituent in clinical development and provide the necessary information to assess the safety and efficacy of new medicines. She strives to introduce new experiences and make the clinical research ecosystem better for patients, healthcare professionals, sponsors, and regulators using the power of technology.

The post Steps to building a more patient-centric industry appeared first on .

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42 Biden Admin Officials Put On Notice By House Republicans

42 Biden Admin Officials Put On Notice By House Republicans

Authored by Jack Phillips via The Epoch Times (emphasis ours),

At least 42 Biden…



42 Biden Admin Officials Put On Notice By House Republicans

Authored by Jack Phillips via The Epoch Times (emphasis ours),

At least 42 Biden administration officials were sent letters by Republicans on the House Judiciary Committee this month requesting testimony from a variety of White House officials.

Flanked by House Republicans, U.S. Rep. James Comer (R-Ky.) speaks during a news conference at the U.S. Capitol in Washington on Nov. 17, 2022. (Alex Wong/Getty Images)

Those letters primarily dealt with the suspected politicization of the FBI and Department of Justice (DOJ), investigations into U.S. border security, and President Joe Biden’s son Hunter.

A recent letter (pdf) led by Rep. Jim Jordan (R-Ohio) to White House chief of staff Ron Klain requested testimony from Biden administration staffers relating to alleged “misuse of federal criminal and counterterrorism resources to target concerned parents at school board meetings.” Interviews from four White House officials were requested.

Around the same time, another letter (pdf) from Jordan was sent to the Department of Education requesting testimony from three officials, and another letter to the Department of Homeland Security requests interviews from around a dozen administration officials. That includes embattled Homeland Security Secretary Alejandro Mayorkas and U.S. Immigrations and Customs Enforcement chief Tae Johnson.

Even more DOJ and FBI officials were asked to testify during the next Congress, according to two separate letters (pdf, pdf) sent by Jordan and others last week. They’re seeking testimony from Attorney General Merrick Garland, FBI Director Christopher Wray, Deputy Attorney General Lisa Monaco, and dozens of other DOJ and FBI officials, according to a Washington Examiner analysis of the GOP-backed letters.

It’s likely that Republicans will seek to investigate how the FBI and DOJ handled investigations into former President Donald Trump and the raid that targeted Mar-a-Lago in August. Republicans and Trump have long said the two agencies have exhibited a politically motivated animus toward the former president, coming after Garland announced he had appointed a special counsel, Jack Smith, to investigate him.

FBI Director Christopher Wray (R) and Attorney General Merrick Garland speak at a press conference at the Department of Justice in Washington on Oct. 24, 2022. (Kevin Dietsch/Getty Images)

More than a week ago, Garland appointed Smith as special counsel to “oversee two ongoing criminal investigations” into Trump, namely events surrounding the Jan. 6, 2021, Capitol breach and the Mar-a-Lago raid, according to a DOJ statement. Just days before, Trump announced he would be embarking on a third presidential bid in 2024.

Other Investigations

House Majority Leader-elect Steve Scalise (R-La.) revealed that some of the GOP’s priorities for the incoming Congress are probing the origins of COVID-19, the widely criticized U.S. withdrawal from Afghanistan, and allegations surrounding Hunter Biden.

The House Oversight Committee, under its top Republican and likely next chairman, Rep. James Comer (R-Ky.), is “ready to go start looking into a lot of the questions that people have had,” Scalise told Breitbart this weekend.

Whether it’s Hunter Biden’s dealings with all kinds of foreign countries [or] the laptop scandal, which the liberal media tried to dismiss when it came out in 2020,” he added. “It’s been verified.

It turns out there’s a lot of information on that laptop that raises serious questions, and James Comer’s committee’s going to be asking those.

Read more here...

Tyler Durden Wed, 11/30/2022 - 22:25

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How Inflation Changes Culture

How Inflation Changes Culture

Authored by Jeffrey Tucker via,

The midterm elections are over (no Red Wave), but nothing…



How Inflation Changes Culture

Authored by Jeffrey Tucker via,

The midterm elections are over (no Red Wave), but nothing has changed. In fact, the Biden regime will probably become even more emboldened to pursue destructive economic policies because it will interpret the lack of a Red Wave as some kind of mandate.

Every day seems to be a day of spin, with every regime apologist assuring the public that inflation is getting better. Just look at the wonderful trend line! They point to the latest inflation numbers, which were down a bit from the month prior.

The regime insists that yes, inflation will vex us for a bit more time but will settle down in a few months. Plus, the president is working to fix this! And we know the American people are on board with him since no Red Wave materialized.

But in the footnotes, you’ll find the truth: it was a tiny drop and mostly for technical reasons and the main reason for the drop has already disappeared from the price trends.

Has any political propaganda on this topic ever been this ineffective? It’s truly a joke.

Where’s the Relief Coming From?

The producer price index that came out recently paints a clearer picture. It’s grim. It reveals no softening at all. In fact, it shows that there are plenty of coming price increases. Here is the index by commodities from 2013 to the present.

Remember how last year many people finally came to the conclusion that we had to learn to live with COVID? That was a smart choice because there was no way that the China-style suppression method could work.

Well, here we are now with a preventable inflation pandemic and the realization that we have to learn to live with inflation. Soon we’ll realize that we have to live with recession at the same time.

But what does this mean?

The impact will be felt not just in terms of economics but in culture. Inflation causes a society-wide shortening of time horizons.

True Prosperity

Let’s review some basics. All societies are born desperately poor, fated to live off foraging and just getting by. Prosperity is built through the construction of capital, which is the institution that embodies forward thinking.

To make capital requires the deferral of consumption: you have to give up some today in order to make tools that enable more consumption tomorrow. This means discipline and a future orientation. And it means, above all, savings that can be invested in productive projects. Only through that path can societies grow rich.

A key component of this concerns the stability of the medium of exchange. And not just stability: a currency that rises in value over time incentivizes saving and thus investing for the long term.

The late 19th century provided a good example of this. Under the gold standard, money grew more valuable over time, thus rewarding long-term thinking and instilling that outlook in the culture at large.

Live for Today

Inflation has the opposite effect. It punishes saving. It forces a penalty on economic behavior that is future-oriented. That means also discouraging investment in long-term projects, which is the whole key to building a complex division of labor and causing wealth to emerge from the muck of the state of nature. Every bit of inflation trims back that future orientation.

Hyperinflation utterly wrecks it.

Living for the day becomes the theme. Taking what you can get now is the method and the theme. Grasping and spending. You might as well because the money is only going down in value and goods are in ever shorter supply.

Better to live hard and short and forget the future. Go into debt if possible. Let the devaluation itself pay the price.

The Seeds of Destruction

Once this attitude becomes instilled in a prosperous society, what we call civilization gradually devolves. If inflation persists, this kind of short-term thinking can wreck everything.

This is why inflation is not just about rising prices. It’s about declining prosperity, the punishing of thrift, the discouragement of financial responsibility, and a culture that gradually falls apart.

Another factor in reducing time horizons is legal instability. This was my first concern when the lockdowns began. Why would anyone start a business if governments can just shut it down on a whim? Why plan for the future when that future can be wrecked by the stroke of a pen?

Many people had assumed that this new path would be short-lived. Surely the politicians would wise up and stop the madness. Surely! Tragically, it got worse and worse. The spending and printing began and ramped up over time. It was a perfect storm of sheer madness, and now we are paying the highest possible price.

The Hinge of History

We need to speak frankly about what’s happening to the global economy. It’s not just about supply chain breakages. Those can be repaired. It’s not just about inflation affecting every country. We are living amidst a fundamental upheaval in the whole world.

The most significant single danger to global prosperity now comes in the form of a devastating and deeply tragic wreckage of the country that was set to lead the world in finance and technology: China.

The WSJ summarizes the current pain:

China in 2021 accounted for 18.1% of global gross domestic product, according to International Monetary Fund data, behind the U.S. at 23.9% but ahead of the 27 members of the European Union at 17.8%. It accounts for almost a third of global manufacturing output, according to United Nations data from 2020. China’s economy expanded modestly at the beginning of the year but data for March and April point to a sharp slowdown.

The trouble there traces to the top. When Xi Jinping locked down Wuhan, the world celebrated him for achieving what no other leader in history had achieved: the eradication of a virus in one country. Even now, he gets accolades for this.

The rest of the world followed, and elites in all countries said that this path was the future.

Going Backwards

Now the virus is on the loose all over the country, and the eradication methods are intensifying. This is crushing economic growth and now threatening genuine economic depression in the country that only a few years ago was seen as the greatest economic engine of the world.

It’s truly the case that Xi Jinping has put his personal pride above the well-being of all people in China. The scientists in the country know that he is wrong about this but no one is in a position to tell him.

We cannot really trust the data coming out of China but officially the rate of infection in that country is one of the lowest in the world. Billions more people need to get the bug and recover in order to have anything close to herd immunity. This means that lockdowns are the way for years to come so long as the present regime remains in power.

American prosperity for decades has relied on: relatively low inflation, fairly stable rules of the game, and widening trade with the world and China in particular. All three are at an end. Yes, it is heartbreaking to watch it all unfold.

I’m not defending China’s human rights abuses. Far from it. But the best way to end these abuses is through engagement, not estrangement.

We all need hope right now but it’s very difficult to find, since we are on a course that is not likely to be fixed for a very long time.

Tyler Durden Wed, 11/30/2022 - 19:05

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