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The COVID Shock To The Dollar

The COVID Shock To The Dollar

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The COVID Shock To The Dollar Tyler Durden Tue, 06/23/2020 - 22:05

Authored by Stephen Roach via Project Syndicate,

Pandemic time runs at warp speed. That’s true of the COVID-19 infection rate, as well as the unprecedented scientific efforts under way to find a vaccine. It is also true of transformational developments currently playing out in pandemic-affected economies. Just as a lockdown-induced recession brought global economic activity to a virtual standstill in a mere two months, hopes for a V-shaped recovery are premised on an equally quick reopening of shuttered economies.

It may not be so simple. sudden stop – long associated with capital flight out of emerging markets – often exposes deep-rooted structural problems that can impair economic recovery.

It can also spark abrupt asset-price movements in response to the unmasking of long-simmering imbalances.

Such is the case for the pandemic-stricken US economy. The aggressive fiscal response to the COVID-19 shock is not without major consequences. Contrary to the widespread belief that budget deficits don’t matter because near-zero interest rates temper any increases in debt-servicing costs, in the end there is no “magic money” or free lunch. Domestic saving, already depressed, is headed deep into negative territory. This is likely to lead to a record current-account deficit and an outsize plunge in the value of the dollar.

No country can afford to squander its saving potential – ultimately, the seed-corn of long-term economic growth. That’s true even of the United States, where the laws of economics have often been ignored under the guise of “American exceptionalism.”

Alas, nothing is forever. The COVID-19 crisis is an especially tough blow for a country that has long been operating on a razor-thin margin of subpar saving.

Heading into the pandemic, America’s net domestic saving rate – the combined depreciation-adjusted saving of households, businesses, and the government sector – stood at just 1.4% of national income, falling back to the post-crisis low of late 2011. No need to worry, goes the conventional excuse – America never saves.

Think again. The net national saving rate averaged 7% over the 45-year period from 1960 to 2005. And during the 1960s, long recognized as the strongest period of productivity-led US economic growth in the post-World War II era, the net saving rate actually averaged 11.5%.

Expressing these calculations in net terms is no trivial adjustment. Although gross domestic saving in the first quarter of 2020, at 17.8% of national income, was also well below its 45-year norm of 21% from 1960 to 2005, the shortfall was not as severe as that captured by the net measure. That reflects another worrisome development: America’s rapidly aging and increasingly obsolete stock of productive capital.

That’s where the current account and the dollar come into play. Lacking in saving and wanting to invest and grow, the US typically borrows surplus saving from abroad, and runs chronic current-account deficits in order to attract the foreign capital. Thanks to the US dollar’s “exorbitant privilege” as the world’s dominant reserve currency, this borrowing is normally funded on extremely attractive terms, largely absent any interest-rate or exchange-rate concessions that might otherwise be needed to compensate foreign investors for risk.

That was then. In COVID time, there is no conventional wisdom.

The US Congress has moved with uncharacteristic speed to provide relief amid a record-setting economic free-fall. The Congressional Budget Office expects unprecedented federal budget deficits averaging 14% of GDP over 2020-21. And, notwithstanding contentious political debate, additional fiscal measures are quite likely. As a result, the net domestic saving rate should be pushed deep into negative territory. This has happened only once before: during and immediately after the 2008-09 global financial crisis, when net national saving averaged -1.8% of national income from the second quarter of 2008 to the second quarter of 2010, while federal budget deficits averaged 10% of GDP.

In the COVID-19 era, the net national saving rate could well plunge as low as -5% to -10% over the next 2-3 years. That means today’s saving-short US economy could well be headed for a significant partial liquidation of net saving.

With unprecedented pressure on domestic saving likely to magnify America’s need for surplus foreign capital, the current-account deficit should widen sharply. Since 1982, this broad measure of the external balance has recorded deficits averaging 2.7% of GDP; looking ahead, the previous record deficit of 6.3% of GDP in the fourth quarter of 2005 could be eclipsed. This raises one of the biggest questions of all: Will foreign investors demand concessions to provide the massive increment of foreign capital that America’s saving-short economy is about to require?

The answer depends critically on whether the US deserves to retain its exorbitant privilege. That is not a new debate. What is new is the COVID time warp: the verdict may be rendered sooner rather than later.

America is leading the charge into protectionism, deglobalization, and decoupling. Its share of world foreign-exchange reserves has fallen from a little over 70% in 2000 to a little less than 60% today. Its COVID-19 containment has been an abysmal failure. And its history of systemic racism and police violence has sparked a transformative wave of civil unrest. Against this background, especially when compared with other major economies, it seems reasonable to conclude that hyperextended saving and current-account imbalances will finally have actionable consequences for the dollar and/or US interest rates.

To the extent that the inflation response lags, and the Federal Reserve maintains its extraordinarily accommodative monetary-policy stance, the bulk of the concession should occur through the currency rather than interest rates. Hence, I foresee a 35% drop in the broad dollar index over the next 2-3 years.

[ZH: Is that what gold is pricing?]

Shocking as that sounds, such a seemingly outsize drop in the dollar is not without historical precedent. The dollar’s real effective exchange rate fell by 33% between 1970 and 1978, by 33% from 1985 to 1988, and by 28% over the 2002-11 interval. COVID-19 may have spread from China, but the COVID currency shock looks like it will be made in America.

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US: The New Real Hoaxes?

US: The New Real Hoaxes?

Authored by Pete Hoekstra via The Gatestone Institute,

The investigative reporting by these two organizations…

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US: The New Real Hoaxes?

Authored by Pete Hoekstra via The Gatestone Institute,

  • The investigative reporting by these two organizations [the New York Times and the Washington Post] was so thorough and groundbreaking it turned up things that were not even there.

  • For having refused to rescind these awards, the Pulitzer Committee should receive its own Pulitzer -- for fraud.

  • The real hoax appears to have been the CCP's ostensible good behavior and the now-hugely-discredited initial reporting on the virus.

  • Or how about the Hunter Biden laptop cover-up? Once again, On October 14, 2020, just weeks before the 2020 presidential election, a critical story of possible extensive influence-peddling with senior intelligence officers in the CCP, Russia and Ukraine by the son of a presidential candidate. The contents of the laptop raised questions that the candidate at the time, Vice President Joe Biden, could be compromised. The entire subject was decisively pushed aside, along with the potential threat to national security that such an eventuality might entail.

  • Also not allowed during the January 6th hearings have been any witnesses for the defense, any cross-examination, or any exculpatory evidence.

  • One wonders, for instance if the January 6th Committee will consider the July 29, 2022 tweet by General Keith Kellogg, that on January 3, 2021, Trump, in front of witnesses, did indeed ask for "troops needed" for January 6. Kellogg wrote: "I was in the room."

  • The January 6th Committee has also not released any information about government informants or FBI undercover law enforcement officers who might have been in the crowd, and Pelosi is also said to be blocking access to a massive quantity of documents. Finally, according to attorney Mark Levin, under the Constitution's separation of powers, Congress, has no legitimacy even to hold a criminal investigation: that power belongs to the Judiciary. The entire proceeding is illegitimate and a usurpation of power.

  • Is it surprising that after the Pulitzer decision, the Russia collusion hoax, the Whitmer kidnapping hoax, the Covid origin hoax, the Hunter Biden laptop hoax, and now the January 6th Committee hoax, that many Americans believe there is something wrong with the system?

Recently former US President Donald Trump challenged the award of Pulitzer Prizes to the New York Times and the Washington Post for their investigative reporting on alleged collusion between the 2016 Trump campaign and Russia.

The investigative reporting by these two organizations was so thorough and groundbreaking it turned up things that were not even there.

You have to hand it to them for this so-called "great reporting": the Pulitzer Committee sure did.

We now know, of course, the grand conspiracy pushed by these papers is nothing more than thoroughly debunked disinformation. For having refused to rescind these awards, the Pulitzer Committee should receive its own Pulitzer -- for fraud.

The intractability of the Pulitzer Committee is only the latest example of why so many Americans have been losing trust in their institutions, both public and private. Rather than admitting that these awards were a mistake, and that much of the reporting was not investigative reporting, but merely a recitation of fabrications put forward by political hacks for campaign purposes, the Pulitzer Committee announced that it will stand by its initial decision, facts be dammed.

The Russia hoax is emblematic of the model built by the anti-Trump, anti-America First, anti-populist movement that the American people have experienced for the last six years. It embodies many of the characteristics that have frustrated Americans. It is a combination of influential forces -- media, social media, political players, and government -- that put forward information detrimental to one -- oddly always the same -- political viewpoint. In this instance, populists -- believers in the rights, wisdom or virtues of the common people, according to Merriam Webster -- who might embrace the concept of personal freedom espoused by the Constitution, a free market economy, economic growth, energy independence, school choice, equal application of the law and decentralized governance.

Much of the material used to foster the Russia hoax originated from the discredited "Steele Dossier," pedaled by former British spy Christopher Steele, funded by Clinton-linked opposition research firm FusionGPS, and pushed by Clinton campaign lawyer Michael Sussman. This discredited information was shared widely -- and often, it seems, with prior knowledge of its falseness -- through the mainstream media and social media when it was leaked to the press early in 2017 just before Donald Trump was sworn in as president. The material contributed to the launching of the Mueller "Russiagate" investigation, which cast a shadow over the first two years of the Trump administration. Government officials were involved as CIA Director John BrennanFBI Director James Comey and DNI James Clapper all lent their credibility to the supposed authenticity or seriousness of the Russian materials. All of this did tremendous damage to the effectiveness of the Trump administration, as it sought to govern, by putting it under a cloud of suspicion and illegitimacy from the outset.

This, however, was not the only example. Consider the disrupted kidnapping plot against Michigan Governor Gretchen Whitmer in her key swing state for presidential elections. "The FBI got walloped [in April]", according to the New York Post, " when a Michigan jury concluded that the bureau had entrapped two men accused of plotting to kidnap Gov. Gretchen Whitmer. Those men and others were arrested a few weeks before the 2020 election in a high-profile, FBI-fabricated case...."

The media, however, for the most part portrayed the kidnapping plot as the work of domestic terrorists, with the implied inference being they were right-wing Trump supporters. Whitmer went so far as to accuse Trump of being complicit in the plan, even though it emerged that these alleged plotters had also supposedly wanted to hang Trump. The FBI, it was later shown, had been heavily involved in the plot through informants and individuals it had placed in the group. By the time the case came to trial after the election, Biden had won Michigan's electoral votes and the damage had been done.

Consider, also, the COVID pandemic. The "facts" at the time were supposedly that it came from "nature" and that the Chinese Communist Party (CCP) government had supposedly known nothing about its human-to-human transmissibility, even though it had "made whistleblowers disappear and refused to hand over virus samples so the West could make a vaccine."

The CCP, early on, was portrayed as a constructive player in controlling the spread of the virus, even as it was recalling and hoarding all of its Personal Protective Equipment (PPE). This fiction was reinforced by Dr. Anthony Fauci, the World Health Organization, and other prominent participants – apart from Taiwan, which futilely tried to warn the WHO of the coronavirus's fierce human-to-human transmissibility, only to be dismissed.

The mainstream media and social media also quickly began parroting the "official" story line. Social media companies suspended the accounts of whoever might have had a different opinion and some were even canceled.

For the 10 months leading up to the November 2020 election, the narrative was set: COVID-19 was a naturally occurring virus and the CCP was in the clear. Imagine how different the 2020 presidential election might have been if the debate was how the world would have held the CCP accountable for the leak and coverup of COVID from the Wuhan Institute of Virology. Now in 2022, a lab-leak is considered the most "likely cause" of the coronavirus, but again the political damage, and a gigantic amount of non-political damage, has already been done. The real hoax appears to have been the CCP's ostensible good behavior and the now-hugely-discredited initial reporting on the virus.

Or how about the Hunter Biden laptop cover-up? Once again, On October 14, 2020, just weeks before the 2020 presidential election, a critical story of possible extensive influence-peddling with senior intelligence officers in the CCP, Russia and Ukraine by the son of a presidential candidate. The contents of the laptop raised questions that the candidate at the time, Vice President Joe Biden, could be compromised. The entire subject was decisively pushed aside, along with the potential threat to national security that such an eventuality might entail.

Discussion of Hunter Biden's laptop with its reportedly incriminating information about the Biden family business dealings with the CCPRussia, and other actors in what appeared to be a model of pay-for-play, was instantly shut down. Fifty-one former government intelligence officials , who we now know were perfectly well aware that the laptop was real – the FBI had been holding it for months -- wrote a letter describing the contents of the laptop as having "all the classic earmarks of a Russian information operation" designed to damage Joe Biden.

NPR famously downplayed the story, and once again, if you used social media to post information originally reported by the New York Post, you were canceled.

A year and a half after the election, the facts were finally "officially" accepted: Well, what do you know, it really was Hunter Biden's laptop and the material on it "is real!"

Once again, the leadership at the FBI, the media, social media, and former government officials had developed a hoax to damage their political opposition and the people who supported it.

Finally, there is the January 6th Committee, a one-sided investigative body, sometimes called "the third (attempted) impeachment." The Committee appears to have been put in place to stop Trump from running for office again. Before the proceeding even began, its outcome was predetermined: Trump was to be found guilty of -- something. As Stalin secret police chief, Lavrentiy Beria used to say during Soviet Russia's reign of terror, "Find me the man and I'll find you the crime." So the US show trial commenced.

Even its start was ominous. House Speaker Nancy Pelosi, in an unprecedented move, vetoed the committee appointments of Representatives Jim Banks and Jim Jordan. This rebuff led House Minority Leader Kevin McCarthy to pull his five Republican candidates from participating. Pelosi, it appeared, wanted only anti-Trump folks to serve on the Committee. Also not allowed during the January 6 hearings have been any witnesses for the defense, any cross-examination, or any exculpatory evidence.

One wonders, for instance if the January 6th Committee will consider the July 29, 2022 tweet by General Keith Kellogg, that on January 3, 2021, Trump, in front of witnesses, did indeed ask for "troops needed" for January 6. Kellogg wrote:, "I was in the room:"

"Great OpEd. Reinforces my earlier comment on 6 Jan Cmte. Has quote from DOD IG Report regarding 3 Jan 2021 meeting with Actg Def Secy Miller/CJCS Milley in the Oval on the 6 Jan NG request by POTUS on troops needed. I was in the room."

While purportedly examining in detail every decision and action by Trump and his team, the Committee refuses to question Pelosi, among the leading figures responsible for the security of the Capitol. She reportedly "turned down" requests for greater security. According to the Federalist:

"Four days after the riot, former Capitol Police Chief Steven Sund, who resigned his post in the aftermath, told The Washington Post his request for pre-emptive reinforcement from the National Guard ahead of Jan. 6 was turned down. Sund said House Sergeant at Arms Paul Irving, overseen by Pelosi, thought the guard's deployment was bad "optics" two days before the raid.... Despite the Associated Press and Washington Post's best efforts to run interference for the speaker, suddenly exonerating her of duties overseeing Capitol security, the riot on Jan. 6 was a security failure Pelosi owns. If the "speaker trusts security professionals to make security decisions," then why, as the police breach unfolded, did Irving feel compelled to seek the speaker's approval to dispatch the National Guard, as The New York Times reported? How could Pelosi also order the extended shut down of the Capitol to visitors, citing coronavirus, and install metal detectors in the House chamber?"

The Committee has not evaluated the performance of the Capitol Police or other law enforcement agencies, but it has targeted the "private records of individuals with no connection to the violence."

The January 6th Committee has also not released any information about government informants or FBI undercover law enforcement officers who might have been in the crowd, and Pelosi is also said to be blocking access to a massive quantity of documents. Finally, according to attorney Mark Levin, under the Constitution's separation of powers, Congress, has no legitimacy even to hold a criminal investigation: that power belongs to the Judiciary. The entire proceeding is illegitimate and a usurpation of power. The Committee's narrative is clear: Donald Trump is responsible for the events of January 6, now let us manufacture the evidence to prove it.

This article has not even delved into the 28 states that "changed voting rules to boost mail-in ballots." Some States apparently omitted both state law and the need for states' legislatures to be the sole arbiters of election law, as required by the Constitution; the $400 million spent by Facebook founder Mark Zuckerberg; the 2000-plus "mules" and the algorithms that sent conservative emails to spam while emails with liberal content went through to the addressees.

Is it any wonder that many Americans have lost faith in their institutions and leaders? Is it surprising that after the Pulitzer decision, the Russia collusion hoax, the Whitmer kidnapping hoax, the Covid origin hoax, the Hunter Biden laptop hoax, and now the January 6th Committee hoax, that many Americans believe there is something wrong with the system? The media, social media, government officials and others have been complicit in undermining our rule of law and possibly even subverting an election.

*  *  *

Peter Hoekstra was US Ambassador to the Netherlands during the Trump administration. He served 18 years in the U.S. House of Representatives representing the second district of Michigan and served as Chairman and Ranking member of the House Intelligence Committee. He is currently Chairman of the Center for Security Policy Board of Advisors and a Distinguished Senior Fellow at Gatestone Institute.

Tyler Durden Fri, 08/12/2022 - 23:55

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These Are The Most (And Least) Livable Cities In The World

These Are The Most (And Least) Livable Cities In The World

Pandemic restrictions changed the livability of many urban centers worldwide as…

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These Are The Most (And Least) Livable Cities In The World

Pandemic restrictions changed the livability of many urban centers worldwide as cultural sites were shuttered, restaurant dining was restricted, and local economies faced the consequences. But as cities worldwide return to the status quo, many of these urban centers have become desirable places to live yet again.

As Visual Capitalist's Avery Koop notes, this map uses annual rankings from the Economist Intelligence Unit (EIU) to show the world’s most livable cities, measuring different categories including: stability, healthcare, culture and environment, education, and infrastructure.

A Quick Note on Methodology

The ranking attempts to assess which cities across the globe provide the best living conditions, by assigning a score on 30 quantitative and qualitative measures across the five categories with the following weightings:

  1. Healthcare (20%)
  2. Culture & Environment (25%)
  3. Stability (25%)
  4. Education (10%)
  5. Infrastructure (20%)

Of the 30 factors within these categories, the qualitative ones are assigned as acceptable, tolerable, uncomfortable, undesirable, or intolerable by a team of expert analysts. Quantitative measures are given a score based on a number of external data points. Everything is then weighted to provide a score between 1-100, with 100 being the ideal.

Ranked: The 10 Most Livable Cities

Of the 172 cities included in the rankings, many of the most livable cities can be found in Europe. However, three of the top 10 are located in Canada: Vancouver, Calgary, and Toronto.

Vienna has been ranked number one many times, most recently in 2019. According to the EIU, the Austrian capital only fell out of the top slot during the pandemic years because its famous museums and restaurants were shuttered.

 

Only one Asian city, Osaka, makes the top 10 list, tying with Melbourne for 10th place. Notably, not a single U.S. city is found in the top ranks.

 

Editor’s note: Two cities tie for both the #3 and #10 ranks, meaning that the “top 10” list actually includes 12 cities.

Ranked: The 10 Least Livable Cities

Some of the least livable cities in the world are located across Africa and Central Asia.

 

Many of the least livable cities are within conflict zones, contributing to the low ratings. However, these regions are also home to some of the world’s fastest growing cities, presenting many opportunities for ambitious residents.

 

The Biggest Changes in Ranking

Let’s take a look at the cities that moved up the global rankings most dramatically compared to last year’s data.

Moving Up: The 10 Most Improved Cities

 

Here’s a look at the cities that fell the most in the rankings since last year’s report.

 

Moving Down: The 10 Cities That Tumbled

 

According to the report, a number of cities in New Zealand and Australia temporarily dropped in the ranking due to COVID-19 restrictions.

 

It’s also worth noting that some Eastern European cities moved down in the rankings because of their close proximity to the war in Ukraine. Finally, Kyiv was not included in this year’s report because of the conflict.

Urbanization and Livability

As of 2021, around 57% of the world’s population lives in urban centers and projections show that people worldwide will continue to move into cities.

While there are more amenities in urban areas, the pandemic revealed many issues with urbanization and the concentration of large populations. The stress on healthcare systems is felt most intensely in cities and restrictions on public outings are some of the first measures to be introduced in the face of a global health crisis.

Now with the cost of living rising, cities may face pressures on their quality of life, and governments may be forced to cut spending on public services. Regardless, people worldwide continue to see the benefits of city living—it’s projected that over two-thirds of the global population will live in cities by 2050.

Tyler Durden Fri, 08/12/2022 - 21:00

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Popeyes Appears To Be Calling It Quits In China

Popeyes Appears To Be Calling It Quits In China

What would a U.S. presence anywhere be without fast food fried chicken? 

Perhaps this is…

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Popeyes Appears To Be Calling It Quits In China

What would a U.S. presence anywhere be without fast food fried chicken? 

Perhaps this is why Popeyes is in focus by the Global Times, after it was reported that the fast food chain shut down 7 of its 9 stores in mainland China. 

The brand "apparently failed to gain ground" in China, the report says, while sister brand Tim Hortons - originally a Canadian brand - has continued to make an "ambitious expansion push".

Four outlets in Shanghai have closed, according to the report. They are unable to be reached by phone and only two additional locations - one in Huangpu District and one in Pudong New Area - remain.

Popeye's also formerly had two stores in Hangzhou, East China's Zhejiang Province and one store in Nanjing, East China's Jiangsu Province, the report says. 

A member of Popeyes' staff confirmed to Global Times that the locations had been shuttered, and that they were unsure about their future: "We were not informed whether the stores will be closed permanently or opened later. We haven't received any specific notice nor the reason for the closure."

Popeyes first started to expand in China at the worst possible time, May 2020, right at the beginning of the pandemic. The company's initial success - with customers waiting in line as early as 4AM - had led the brand to believe it could expand to 1,500 stores in 10 years. 

Restaurant Brands International still has Tim Hortons - referred to as "Tim's China" - and Burger King with a strong presence in mainland China. RBI is still aiming for more than 2,750 Tim Hortons stores in China by 2026.  

Tyler Durden Fri, 08/12/2022 - 18:30

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