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The Pound’s Future In A Dollar Collapse

The Pound’s Future In A Dollar Collapse

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The Pound's Future In A Dollar Collapse Tyler Durden Sat, 07/18/2020 - 07:00

Authored by Alasdair Macleod via GoldMoney.com,

In recent articles for Goldmoney I have pointed out the dollar’s vulnerability to a final collapse in its purchasing power. This article focuses on the factors that will determine the future for sterling.

Sterling is exceptionally vulnerable to a systemic banking crisis, with European banks being the most highly geared of the GSIBs. The UK Government, in opting to side with America and cut ties with China, has probably thrown away the one significant chance it has of not seeing sterling collapse with the dollar.

A possible salvation might be to hang onto Germany’s coattails if it leaves a sinking euro to form a hard currency bloc of its own, given her substantial gold reserves. But for now, that has to be a long shot.

And lastly, in common with the Fed and ECB, the Bank of England has taken for itself more power in monetary matters than the politicians are truly aware of, being generally clueless about money.

Conclusion: the pound is unlikely to survive a dollar collapse, which for any serious student of money, is becoming a certainty.

Introduction

In recent articles I have made a case for the dollar’s demise. Accelerated money-printing is being used to support everything through the coronavirus crisis, which comes on top of a potentially devastating turn in the credit cycle, made worse by the suppression of international trade through tariffs. Only the blind cannot see that with everyone calling for the end of globalisation, it is now actually happening with consequences to follow. Being the grease for global trade the dollar is required by foreigners in fewer quantities and will be sold down by them; they own some $27 trillion in securities, bills and cash, approximately 125% of US GDP in 2019.

It makes the dollar doubly vulnerable to two developing events impacting the domestic front: a global banking crisis and a full-blown depression. The former guarantees an expensive rescue attempt as the Fed has no option but to attempt to underwrite all banking obligations, and the latter will provoke a response of Keynesian inflationism on steroids. Furthermore, such a crisis is bound to lead to dollar long positions being unwound in the foreign exchanges for reasons detailed above, only leaving those required for immediate liquidity needs.

The emerging economic crisis is different from Lehman because it is a collapse of non-financial businesses worldwide undermining the widest extent of banking collateral, while the Lehman Crisis was broadly confined to the unwinding of residential property speculation, predominantly in America. It is therefore a more fundamental liquidation problem, involving considerably greater quantities of debt. Excessive speculation is far easier to wash out of the system than real businesses going bust in large numbers.

A new systemic crisis is imminent because the policy of supporting financial asset values by money-printing will sooner or later fail. Already, it has become impossible for independent observers to reconcile rising stock markets with collapsing businesses, the latter getting irretrievably worse by the day. The commercial banks are stuck in the middle of this crisis, expected to extend credit while their bad debts escalate at a record pace.

The tensions being created by the authorities’ manipulation of markets in defiance of fundamental factors can only result in a systemic crisis coupled with a crash in financial asset values. By binding their future to an inflation of asset prices, a collapse of fiat currencies will prove impossible to avoid. At least, that is the lesson from John Law when in 1720 his Mississippi scheme collapsed in about six months and his livres currency became entirely worthless.

The reason is not hard to discern. An event such as a banking crisis disrupts investor complacency. A banking crisis is always resolved in the short term by an opening of the money spigot by the lenders of last resort. The Fed can attempt to deal with liquidity, but it cannot stop insolvency. The consequences are that risk assets, starting with equities, are sold as insolvencies rise. And as the asset inflation support scheme of the central banks unwinds, bond yields are reassessed. Defaults become commonplace. Junk becomes junk squared and investment grade descends into junk. Next is the reassessment of government funding requirements, and with the costs required to save the non-financial economy laid bare, even government bond yields escape from the central bank’s manipulative control.

Money and debt are like matter and antimatter: when they come together in a financial black hole they cease to exist. A financial cytokine storm is bound to hit the over-owned US dollar first, being everyone’s international fiat currency. Its purchasing power measured initially against other currencies declines, and then against commodities, energy and the values of life’s essentials. The marker for this outcome is the price of gold, rising strongly and increasingly likely to cause its own crisis for bullion banks, which are currently committed to losses of $38bn on the Comex gold futures contract alone. The only solution for the US is to accept a return to gold. But that is wholly against the DNA of the Fed and US Treasury, and it would hand unacceptable power to the Chinese, who have cornered the physical gold market.

We stand therefore on the threshold of a global fiat money destruction, starting with the US dollar, being expressions of faith in our governments, which are descending into bankruptcy. And when a nation’s population realises that the reason for rising prices is not, as their government is likely to aver, the greed of capitalists but the loss of its unbacked currency’s credibility, it will prove impossible to stabilise it.

While the dollar’s fate increasingly appears to be sealed, the question arises over the fate of other currencies. To greater or lesser degrees, the same underlying factors affect all fiat currencies and the dollar’s demise will require survivors to have introduced at least an element of soundness in their backing. In this article, we focus on how sterling might fare in this outcome, and whether the UK’s monetary authorities can rescue it from the dollar’s fate.

Delusions in Westminster and Whitehall

For an international audience it is worth outlining the difference between these two expressions of the same location: Westminster is associated with Parliament and the politicians while Whitehall is associated with the great offices of state, the bureaucratic civil service whose offices are in the Westminster street of that name. The civil service advises the politicians, so both these arms of government must understand and accept the solution to any crisis. With respect to money issues they have been delegated lock stock and barrel to Threadneedle Street, the location of the Bank of England in the City.

The physical separation between Westminster and the City matters. Not only have monetary affairs been fully delegated to the Bank of England but different cultures have evolved, with Westminster and the Treasury in Whitehall assuming monetary policies are competently managed. But, as they say, power corrupts, and absolute power corrupts absolutely. There are no meaningful checks and balances on the Bank of England and its monetary policy. And you cannot sack the Governor without creating a monetary crisis.

The BoE is culturally closer to the ECB, the Fed, and the Bank for International Settlements than Westminster. Monetary policy is no longer focussed on the national interest, but a cadre of unelected central bankers, with more power than the political class, have been cooking up their own objectives. A long time ago, Mayer Amschel Rothschild put it succinctly; “Let me issue and control a nation’s money and I care not who writes the laws”.

The situation in Britain echoes that of America in the 1920s. Calvin Coolidge was the last laissez-faire president. But he did not realise what Benjamin Strong was doing at the relatively new Fed. Strong oversaw manipulation of gold in conjunction with Norman Montague at the Bank of England, the rapid expansion of bank credit and the establishment of a discounted bill market, aiming to copy the success of London’s discount houses. The unwinding of this unbacked credit led to the Wall Street crash and the 1930s depression.

Similarly, a British quasi-libertarian government was elected last year, determined to deal with an overly bureaucratic Whitehall, focused on process instead of objectives. Except, and like Coolidge they don’t realise it, the real power lies with today’s Montague Norman in cahoots with today’s Benjamin Strong — Andrew Bailey and Jay Powell.

We must understand the importance of the relationship between the BoE and the politicians. It makes it virtually impossible for the government to control monetary events. Let us assume that key ministers in the government actually understand the importance of returning to a metallic standard and are willing to give up the facility of financing government spending by inflationary means. It will cut no ice with civil service advisors, who are all committed neo-Keynesians. And the BoE will fight strongly to resist, because a gold standard removes the Bank’s power. It makes it extremely unlikely Britain’s free-market government can ween itself away from inflationary financing, even in a monetary collapse. And the current situation is deteriorating rapidly, too rapidly for a disputing combination of Westminster, Whitehall and the BoE between them to regain control over a collapsing currency.

One possible escape route has been closed off in recent weeks, with the British siding with America and therefore her dollar against China and her inherently more promising economic situation. China’s economic policies are far from ideal in the free market sense. China is like all other major nations, relying on inflationary finance to develop her own infrastructure as well as pan-Asian communications and transport facilities. But at least her currency is backed by a high savings rate of some 45%[ii], which as well as reducing the tendency towards price inflation emanating from monetary inflation, provides needed capital for investment in production.

A propensity to save was the defining characteristic of post-war Germany’s mark and Japan’s yen, which is now shared by China’s yuan. And unlike Britain and her allies China’s welfare commitments are minimal, so future government costs are easier to control.

The UK has decided to side with yesterday’s declining power for democratic and cultural reasons as well as the lure of the “special relationship”. It has rejected an alliance with the most dynamic of the major powers, which with Russia as its sidekick is rapidly becoming the world’s superpower, dominating Eurasia and Africa. When the history of our era is written, be in no doubt that we will see that current events, instigated by America, has given China what she really wants: freedom from American hegemony and from her overvalued currency at a crucial time. She can now progress her economy, thanks to its savers, while America continues to destroy hers through maxed-out consumption and monetary inflation.

Furthermore, China has effectively cornered the physical gold market; checkmate for fiat currencies. And not only will America find it intellectually difficult to return to gold, and virtually impossible to return to the necessary balanced budgets, but anything that promotes gold as money plays to China’s strength and America then loses all hope in the financial war waged against China.

Britain’s banks are especially vulnerable

Based on its pre-eminent role in the financing of trade, for some 200 years the City of London has been a major centre in Europe for international finance. Half that time was spent on a gold standard between the Napoleonic Wars and the First World War. Following the latter, New York became increasingly powerful while London declined. After the Second World War and Britain’s descent into socialism and exchange controls, London became less relevant until the Thatcher era, when the removal of exchange controls and the City’s big-bang restructuring made London fully relevant to global finance once again.

The massive expansion of financial business since the mid-eighties reflected the generally non-nationalistic British approach to business. In the European context this is why the nationalists in Frankfurt and Paris by giving preference to national champions could never compete, and the reason why European banks chose London to base their non-domestic lending and investment banking activities.

A general fiat currency collapse will wipe out virtually all London’s existing financial business: over-the-counter derivatives, trade finance, bonds and eurobonds, equities — these will be only some of the casualties. So far as the UK Government is concerned, tax revenue from these activities are over 10% of its total income and their failure will immediately throw up a matching budget deficit — virtually impossible to finance in these conditions. The other side of the coin is what happens to the UK’s banking system in a global systemic collapse, to which the UK is much exposed because of its financing pre-eminence.

According to the Bank of England’s database, total outstanding financial institutions’ sterling and foreign currency assets at 31 May stood at £8.12 trillion ($10.2 trillion), 3.6 times UK GDP. In a banking crisis the government would have no option but to take these assets on board or to alternatively underwrite loan losses in their entirety. Furthermore, without the continuing support of stable financial asset values — which is inconceivable following a systemic crisis of any magnitude — then net liabilities will be uncovered, and losses will accumulate. In other words, if in this inflationary environment stock markets crash and bond yields rise, the government will be exposed to further catastrophic losses.

The Bank of England’s database does not include assets and liabilities of the foreign subsidiaries of financial institutions which are a further substantial sum. Do not expect their automatic inclusion in any rescue package. These losses will have to be addressed in other financial centres and given that offshore centres do not have safety nets for depositors the losses and consequences will be considerable. Nor do they include shadow banking, estimated by the Office for National Statistics in 2018 to be a further £2.2 trillion, though this figure fluctuates wildly.

There is a further complication, and that is the divorce of Chinese activities from the Anglosphere, affecting both HSBC and Standard Chartered, two major British banks with substantial Chinese and Far Eastern businesses. The politics of the situation are at odds with financial reality, and criticism of China’s non-democratic regime risks ending up in a rescue attempt of these banks by the BoE and the Treasury, while rapidly disappearing business leaves the British holding the remaining liabilities.

The context of Brexit

The UK is negotiating trade terms with the EU to apply following the implementation period which expires at the end of this year. The promise of a golden future, which certainly chimes with the Prime Minister, is embodied in free trade. Free ports are proposed. With members of the Commonwealth free trade agreements can be easily negotiated with good will on both sides, and agreements with Japan and South Korea can be simply novated from existing EU agreements. But the prospect of a fast-tracked agreement with the US may be receding, with President Trump increasingly distracted by domestic concerns in this his election year.

The lack of a trade agreement with the EU is less of a threat to the UK than commonly argued, the greater losers by far being the EU. However, the UK is still financially obligated for EU economic programmes. According to Brexit Central, under the current Multiannual Financial Framework Britain could be on the hook for financial claims up to €478bn, though this is disputed. More important is the UK banking system’s counterparty risk in the event of an EU banking crisis.

In Figure 1, global systemically important banks (GSIBs) in Europe and the UK are highlighted in yellow. The most highly geared banks are in the Eurozone, when total balance sheet assets are compared with the market capitalisation of banks’ equity. Of the fifteen most highly geared, only three banks are not European, and all three UK GSIBs are in this category.

The most extreme of the GSIBs is Société Generale, currently with assets over 100 times its market capitalisation. The difficulties of the major German private banks, Deutsche and Commerzbank (not a GSIB) have been widely publicised, as have those of Italian, Spanish and Greek banks. When a systemic crisis hits global markets, there’s a good chance it will start in the European time zone, for which London remains the financial centre.

It’s not just about COVID-19

So far, planned spending in connection with the coronavirus amounts to an estimated £190bn — about 7% of M1 money. The hope is that once the crisis passes, the economy will revert to normal – the so-called V-shaped recovery. As this prospect recedes, businessmen will review their forecasts, and the majority will either close or downsize their operations.

The purpose of the furlough scheme was to bridge a V-shaped recovery and prevent massive unemployment, but that ends in October, having kept over nine million people out of the unemployment statistics. Unless there is some sort of miracle, many of these will be unemployed when, or even before the furlough scheme ends.

The extra spending on the furlough and other schemes has been covered by the Bank of England’s £200bn quantitative easing programme on a one-off basis. Doubtless, as the situation evolves there will have to be further funding by this route, otherwise funding costs will rise sharply.

Having gone nap on a V-shaped recovery it is not clear how the government plans its exit. Governments almost always make the mistake of thinking there is an economic normal to which a previous situation can return. This is the underlying assumption behind statistical measuring and economic modelling. Instead, economies are dynamic except in a totalitarian regime where everything is rationed by a central committee. But we know that doesn’t work, as demonstrated when the Berlin Wall fell.

There is therefore no “normal” to which to return. Subsidising existing businesses and furloughing staff is an encumbrance to necessary changes in production in order to satisfy consumers, who will have changed their needs and wants. For example, if the coronavirus is conquered and all social interaction returns, it is reasonable to assume that consumers won’t be in the market in large numbers for luxury SUVs to the same extent, yet manufacturers have been investing their production heavily in this direction for the last twenty years. Before the lockdown, retailers deemed it necessary to have branches in every city and every shopping mall, in order to secure and maintain market share. Their priorities have now changed from these strategic objectives to conserving capital.

To be fair to Rishi Sunak, the Chancellor, he appears to understand this point and has made available interest-free finance to small and medium size businesses. Partly, that will be used by businesses to stabilise their finances, but it does give the opportunity for entrepreneurs to fund new ventures. But even then, subsidised capital is usually taken up solely for the opportunity rather than to fund a properly considered venture, leading to malinvestments exposed at the turn of the next credit cycle.

But there is one thing clear: even with a government dominated by ministers more libertarian than any since the Thatcher era and therefore sympathetic to free market solutions, there is no exit plan that fully recognises the role of free markets. Government spending as a proportion of GDP has increased, will increase further and is unlikely to decline. Nor is there any recognition of the global bank credit cycle and its consequences. Forgotten is the downturn in global trade, which for an entrepôt nation is vitally important. For different reasons, the developing crisis for the dollar is also developing for sterling.

Can sterling avoid the dollar’s fate?

The economic solution to preserve the currency can be easily described. The problem is whether those in charge understand it after decades of Keynesian intervention and inflationism. Not only must Keynes’s theories be jettisoned, but the whole macroeconomic paradigm as well. And there must be an unequivocal acceptance that the role of the state must be rolled back to only the defence of the nation, the provision of law and order and to maintain clear, simple contract law. Taxes must be substantially reduced but balanced budgets maintained as well. Socialism must be ditched, and the people be permitted to build and maintain their own wealth.

That it can be achieved without going onto a gold standard was shown in Germany following the collapse of the paper mark in 1923, and again in Germany in 1948 when Ludwig Erhard piloted the nation from post-war destruction to becoming the wealthiest European nation by the time of its reunification. His recipe was simple: remove control of the economy from the Allied military administrations and hand it back to the people.

Germany had monetary stability without gold, but under the Bretton Woods agreement the dollar was a sheet anchor, directly (or indirectly in the case of Britain and France’s colonies). Germany used this breathing space to build her own gold reserves. Low government spending, a growing savings culture and growing exports allowed the foreign exchanges to set a rate for the mark confidently, giving it added credibility for the German people who welcomed the opportunity to save appreciating marks. But today, no such exchange stability will exist when the dollar collapses, except for those nations which take appropriate monetary action.

Therefore, a precondition for stabilising the currency without gold is that there are other stable currencies. After this crisis wipes out purely fiat currencies it will therefore require a return to gold backing for the few survivors. Britain foolishly sold most of her gold when Gordon Brown was Chancellor of the Exchequer and has only 310 tonnes left. As a rule of thumb that works out as £8,600 of M-zero money supply to one ounce of gold, comparing badly with Britain’s European neighbours.

It is worth noting that Germany, France and Italy do have significant gold reserves. A sub-optimal solution for them would be to transfer these reserves to the ECB and the ECB to use them to stabilise the euro. Better solutions can be had. The ECB has shown with its monetary policies to be entirely reliant on unsound money, with which it is destroying the eurozone’s banking system. Its management is incapable of being re-educated. As an institution it should be dismantled before it does any more harm.

Meanwhile, the Bundesbank has been forced into silence on the matter, retaining at its core a few influential sound money men, despairing of a solution. But for them to take over control of ECB policy would be politically divisive, making it virtually impossible to deliver monetary stability.

The practical and political choice would be to withdraw. German politics, informed by two currency collapses in the last hundred years, strongly suggests Germany would choose to go it alone with its own gold-backed currency. Far better for Germany to abandon the money side of the European project. This would be a major development, leading to the destruction of the euro. But with the collapse of the dollar and the current ECB management in charge, this would be seen as an increasingly likely outcome for the euro anyway.

If a new German mark had gold backing, the Netherlands would probably join to form the nucleus of a gold-backed bloc. France and Italy have the gold reserves but lack budgetary control. Whichever way it pans out sound money could emerge in Europe, in which case the right economic policies in the UK might have a chance of stabilising the pound, because there would be a basis of comparative valuation for it on the foreign exchanges and a complete monetary collapse might be avoided. But compared with having and deploying credible gold reserves it would be rather like playing league-level football with your shoelaces tied together.

Conclusion

Despite having the most libertarian government for the last forty years, there is little sign any senior ministers really understand monetary affairs. Furthermore, by giving over responsibility for money to the Bank of England, there is a feeling in Westminster and Whitehall that there is no need to worry about how the Bank achieves agreed targets on unemployment and price inflation. The result is the Bank is now arguably more powerful than the executive, planning monetary policies with other central banks instead of for the direct benefit of the British Isles.

Britain faces a difficult time in the next few months. A global banking crisis can be taken as read, requiring the government and the BoE to backstop all banking obligations. The destructive monetary policies of the ECB, with which the BoE has been complicit, should drive Germany to re-establish the mark, hopefully backing it with gold to form the nucleus of a new European sound money regime, but there is no guarantee of this outcome.

Furthermore, by submitting to America’s anti-China policy, Britain has done away with the one possible economic and monetary lifeline at its disposal. Clearly, no one in government thinks this really matters, showing a lack of strategic vision.

It will be a brave Britton who relies on the survival of his currency through these extraordinary times.

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Escobar: Russia-China Partnership Defangs US Empire

Escobar: Russia-China Partnership Defangs US Empire

Authored by Pepe Escobar,

China’s State Council has released a crucial policy paper…

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Escobar: Russia-China Partnership Defangs US Empire

Authored by Pepe Escobar,

China’s State Council has released a crucial policy paper titled 'A Global Community of Shared Future: China’s Proposals and Actions' that should be read as a detailed, comprehensive road map for a peaceful, multipolar future.

That is if the hegemon - of course faithful to its configuration as War Inc. - does not drag the world into the abyss of a hybrid-turned-hot war with incandescent consequences.

In sync with the ever-evolving Russia-China strategic partnership, the white paper notes how “President Xi Jinping first raised the vision of a global community of shared future when addressing the Moscow State Institute of International Relations in 2013.”

That was ten years ago, when the New Silk Roads – or Belt and Road Initiative (BRI) - was launched: that became the overarching foreign policy concept of the Xi era. The Belt and Road Forum next month in Beijing will celebrate the 10th anniversary of BRI, and relaunch a series of BRI projects.

“Community of Shared Future” is a concept virtually ignored across the collective West – and in several cases lost in translation across the East. The white paper’s ambition is to introduce “the theoretical base, practice and development of a global community of shared future.”

The five key points include building partnerships “in which countries treat each other as equals”; a fair and just security environment; “inclusive development”; inter-civilization exchanges; and “an ecosystem that puts Mother Nature and green development first," as Xi detailed at the 2015 UN General Assembly.

The white paper forcefully debunks the “Thucydides Trap” fallacy: “There is no iron law that dictates that a rising power will inevitably seek hegemony. This assumption represents typical hegemonic thinking and is grounded in memories of catastrophic wars between hegemonic powers in the past.”

While criticizing the “zero-sum game” to which “certain countries” still cling to, China completely aligns with the Global South/global majority, as in “the common interests of all peoples around the world. When the world thrives, China thrives, and vice versa.”

Well, that’s not exactly the “rules-based international order” in play.

It’s All About Harmony

When it comes to building a new system of international relations, China prioritizes “extensive consultation” among equals and “the principle of sovereign equality” that “runs through the UN Charter.” History and realpolitik, though, dictate that some countries are more equal than others.

This white paper comes from the political leadership of a civilization-state. Thus it naturally promotes the “increase of inter-civilization exchanges to promote harmony” while elegantly remarking how a “fine traditional culture epitomizes the essence of the Chinese civilization.”

Here we see a delicate blend of Taoism and Confucianism, where harmony – praised as “the core concept of Chinese culture” - is extrapolated to the concept of “harmony within diversity”: and that is exactly the basis for embracing cultural diversity.

In terms of promoting a dialogue of civilizations, these paragraphs are particularly relevant:

“The concept of a global community of shared future reflects the common interests of all civilizations – peace, development, unity, coexistence, and win-win cooperation. A Russian proverb holds, 'Together we can weather the storm.'

"The Swiss-German writer Hermann Hesse proposed, 'Serve not war and destruction, but peace and reconciliation.' A German proverb reads, 'An individual’s effort is addition; a team’s effort is multiplication.' An African proverb states, 'One single pillar is not sufficient to build a house.' An Arabian proverb asserts, 'If you want to walk fast, walk alone; if you want to walk far, walk together.'

"Mexican poet Alfonso Reyes wrote, 'The only way to be profitably national is to be generously universal.' An Indonesian proverb says, 'Sugarcane and lemongrass grow in dense clumps.' A Mongolian proverb concludes, 'Neighbors are connected at heart and share a common destiny.' All the above narratives manifest the profound cultural and intellectual essence of the world.”

BRI Caravan Rolls On

Chinese diplomacy has been very vocal on the need to develop a “new type of economic globalization” and engage in “peaceful development” and true multilateralism.

And that brings us inevitably to the BRI, which the white paper defines as “a vivid example of building a global community of shared future, and a global public good and cooperation platform provided by China to the world.”

Of course, for the hegemon and its collective West vassals, BRI is nothing but a massive debt trap mechanism unleashed by “autocrat China”.

The white paper notes, factually, how “more than three-quarters of countries in the world and over 30 international organizations” had joined the BRI, and refers to the sprawling, ever-expanding connectivity framework of six corridors, six routes, an array of ports, pipelines and cyberspace connectivity, among others via the New Eurasian Land Bridge, the China-Europe Railway Express (a “steel camel fleet”) and the New Land-Sea Trade Corridor crisscrossing Eurasia.

A serious problem may involve China’s Global Development Initiative, whose fundamental aim, according to Beijing, is “to accelerate the implementation of the UN’s 2030 Agenda for Sustainable Development.”

Well, this agenda has been designed by the self-described Davos elites and conceptualized way back in 1992 by Rockefeller protégé Maurice Strong. Its inbuilt wet dream is to enforce the Great Reset – complete with a nonsensical zero-carbon green agenda.

Better Listen to Medvedev’s Warning

The hegemon is already preparing the next stages of its hybrid war against China – even as it remains buried deep down into a de facto proxy hot war against Russia in Ukraine.

Russian strategic policy, in essence, completely aligns with the Chinese white paper, proposing a Greater Eurasian Partnership, a concerted drive towards multipolarity, and the primacy of the Global South/global majority in forging a new system of international relations.

But the Straussian neocon psychos in charge of the hegemon’s foreign policy keep raising the stakes. So it’s no wonder that after the recent attack on the HQ of the Black Sea Fleet in Sevastopol, a new National Security Council report leads to an ominous warning by Security Council Deputy Chairman Dmitry Medvedev:

“NATO has turned into an openly fascist bloc similar to Hitler’s Axis, only bigger (...) It looks like Russia is being left with little choice other than a direct conflict with NATO (...) The result would be much heavier losses for humanity than in 1945."

The Russian Ministry of Defense, meanwhile, has revealed that Ukraine has suffered a staggering 83,000 battlefield deaths since the start of the - failed - counteroffensive four months ago.

And Defense Minister Shoigu all but gave away the game in terms of the long-term strategy, when he said, “the consistent implementation of measures and activity plans until 2025 will allow us to achieve our goals."

So the SMO will not be rounded up before 2025 – incidentally, much later than the next US presidential election. After all, Moscow’s ultimate aim is de-NATOization.

Faced with a cosmic NATO humiliation on the battlefield, the Biden combo has no way out: even if it declared a unilateral ceasefire to re-weaponize Kiev’s forces for a new counteroffensive in the spring/summer of 2024, the war would keep rumbling on all the way to the presidential election.

There’s absolutely no way some sharp intellect in the Beltway would read the Chinese white paper and be “infected” by the concept of harmony. Under the yoke of Straussian neocon psychos, there are zero prospects for a détente with Russia – not to mention Russia-China.

Both the Chinese and Russian leaderships know quite well how the Ray McGovern-defined MICIMATT (military-industrial-congressional-intelligence-media-academia-think tank complex) works.

The kinetic aspect of MICIMATT is all about protection of the global interests of big US banks, investment/hedge funds and multinational corporations. It’s not a coincidence that MICIMATT monster Lockheed-Martin is mostly owned by Vanguard, BlackRock and State Street. NATO is essentially a mafia protection racket controlled by the US and the UK that has nothing to do with “defending” Europe from the “Russian threat."

The actual MICIMATT and its NATO extension’s wet dream is to weaken and dismember Russia to control its immense natural resources.

War Against the New 'Axis of Evil'

NATO’s incoming graphic humiliation in Ukraine is now compounded with the inexorable rise of BRICS 11 – which embodies a lethal threat to the hegemon’s geoeconomics. There’s next to nothing the MICIMATT can do about that short of nuclear war – except turbo-charging multiple instances of Hybrid War, color revolutions and assorted divide-and-rule schemes. What’s at stake is no less than a complete implosion of neoliberalism.

The Russia-China strategic partnership of true sovereigns has been coordinating full-time.

Strategic patience is the norm. The white paper reveals the magnanimous facet of the number one economy in the world by PPP: that’s China’s response to the infantile notion of “de-risking”.

China is “de-risking” geopolitically when it comes to not falling for serial provocations by the Hegemon, while Russia exercises Taoist-style control to not risk a kinetic war.

Still, what Medvedev just said carries the implication that the hegemon on desperation row could even be tempted to launch WWIII against, in fact, a new “axis of evil” of three BRICS nations – Russia, China and Iran.

Secretary of the [Russian] National Security Council Nikolai Patrushev could not have been more crystal clear:

“In its attempts to maintain its dominance, the West itself destroyed the tools that worked better for it than the military machine. These are freedom of movement of goods and services, transport and logistics corridors, a unified system of payments, global division of labor and value chains. As a result, Westerners are shutting themselves off from the rest of the world at a rapid pace.”

If only they could join the community of shared future – hopefully on a later, non-nuclear, date.

Tyler Durden Sat, 09/30/2023 - 23:30

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“More Deceit”: Gaetz Rages Over McCarthy-Ukraine Side Deal To Pass Stopgap

"More Deceit": Gaetz Rages Over McCarthy-Ukraine Side Deal To Pass Stopgap

Update (2155ET): Following the Senate’s passage of the Continuing…

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"More Deceit": Gaetz Rages Over McCarthy-Ukraine Side Deal To Pass Stopgap

Update (2155ET): Following the Senate's passage of the Continuing Resolution, Rep. Matt Gaetz took to Twitter, where he was enraged over a side deal made between Speaker Kevin McCarthy and the Democrats for Ukraine funding, which Gaetz says he "didn't tell House Republicans" about until after the vote. 

Gaetz was responding to Punchbowl News' Jake Sherman, who related a message from House Democratic leadership.

"When the House returns, we expect Speaker McCarthy to advance a bill to the House Floor for an up-or-down vote that supports Ukraine, consistent with his commitment to making sure that Vladimir Putin, Russia and authoritarianism are defeated. We must stand with the Ukrainian people until victory is won."

Nine Senate Republicans voted against the bill; Marsha Blackburn (R-Tenn.), Mike Braun (R-Ind.), Ted Cruz (R-Texas), Bill Hagerty (R-Tenn.), Mike Lee (R-Utah), Roger Marshall (R-Kan.), Rand Paul (R-Ky.), Eric Schmitt (R-Mo.) and J.D Vance (R-Ohio).

*  *  *

Update (2109ET):  The Senate has voted 88-9 to pass the House's Continuing Resolution stopgap funding bill, which stripped out funds for Ukraine, includes $16 billion for disaster relief, and will keep the US government running for another 45 days.

Among the Senate "Yea" votes was Michael Bennet (D-CO), who was absolutely flipping his lid over the lack of Ukraine funding earlier in the day.

The bill, which passed the House earlier in the day by a bipartisan vote of 335-91, was passed with just three hours to go before a shutdown.

Just before the vote, Sen. Majority Leader Chuck Schumer (D-NY) vowed to keep fighting for more US taxpayer dollars for Ukraine, saying that he and Senate Minority Leader Mitch McConnell (R-KY) have "agreed to continue fighting for more economic and security aid for Ukraine."

"We support Ukraine’s efforts to defend its sovereignty against Putin’s aggression," said Schumer - to which McConnell said he's "confident" that the Senate can pass more "urgent assistance to Ukraine later this year. But let's be clear," that the "alternative," a shutdown, "would not just pause our progress on these important priorities, it would actually set them back."

*  *  *

Update (1755ET): After an afternoon of theatrics from Rep. Jamal Bowman (D-NY), it appears that the stopgap legislation to keep the government running through November 17 will now pass at the 11th hour.

According to the Wall Street Journal, the bill to keep the government funded past 12:01 Sunday includes $16 billion in disaster relief, but does not include Ukraine funds.

The House voted 335-91 for the funding measure, which includes $16 billion in disaster relief but omits aid for Ukraine. It also excludes border-security measures sought by Republicans. The margin exceeded the two-thirds majority needed to clear the bill through the House, which considered the legislation under special procedures requiring a supermajority of votes. All but one Democrat voted in favor of the measure, while nearly half of Republicans voted against it. -WSJ

While White House officials say President Biden supports the measure, the Senate has reportedly been lax in quickly taking up the measure late Saturday, raising the possibility of further malarkey.

Developing...

*  *  *

(Update 1655ET): So let's get this straight. In the home stretch of negotiations over the House's GOP stopgap bill - while Democrats were actively trying to stall the vote so they could actually read it - a widely reported phenomenon, Rep. Jamal Bowman (D-NY) pulls the fire extinguisher.

His excuse is that he wasn't actually trying to stall the the vote, and that he's essentially an idiot...

"Congressman Bowman did not realize he would trigger a building alarm as he was rushing to make an urgent vote. The Congressman regrets any confusion," said a spokesperson.

Yes. Because this happens all the time.

MSNBC breathlessly repeats the Simple Jack defense.

House Speaker Kevin McCarthy capitalized on the incident, comparing Bowman to a January 6th insurrectionist.

As we noted below... Bowman used to be a public school principal before he was elected to Congress, who rallied against standardized testing, at a private school he founded that has a 27% literacy rate, so... maybe?

Then again, he would be no stranger to fire drills, no?

*  *  *

House before the House finally approved a 'clean' stopgap funding bill to avert a government shutdown (which has since been sent to the Senate for consideration before the midnight funding deadline), Socialist Rep. Jamaal Bowman (D-NY) was caught pulling the fire alarm in a House office building Saturday in order to try and delay a vote on ta House GOP stopgap spending bill.

The incident in the Cannon Building was caught on camera and confirmed by several witnesses, Politico reports.

"This is the United States Congress, not a New York City high school. To pull the fire alarm to disrupt proceedings when we are trying to draft legislation to AVERT A SHUTDOWN is pathetic…even for members of the socialist squad," Staten Island GOP Rep. Nicole Malliotakis wrote on X, formerly Twitter.

"Rep Jamaal Bowman pulled a fire alarm in Cannon this morning," House Administration Committee Chairman Bryan Steil wrote on X. "An investigation into why it was pulled is underway."

According to Bowman spox Emma Simon, "Congressman Bowman did not realize he would trigger a building alarm as he was rushing to make an urgent vote. The Congressman regrets any confusion."

In other words, he's claiming to be too stupid to have known what he did - and don't believe your lying eyes!

Granted, Bowman used to be a public school principal before he was elected to Congress, who rallied against standardized testing, at a private school he founded that has a 27% literacy rate, so...

Needless to say, the memes are already flying.

.

Meanwhile, the House cleared the 'clean' stopgap bill without funding for Ukraine or the border, by a vote of 335-91. One Democrat and 90 Republicans voted against the measure.

*  *  *

Update: (1335ET): With a government shutdown just hours away, House Speaker Kevin McCarthy has turned to Democrats for help passing a temporary bill, after House Freedom Caucus members dug their heels in over no funds for Ukraine.

"What I am asking, Republicans and Democrats alike, put your partisanship away," said McCarthy. "Focus on the American public."

McCarthy needs a two-thirds majority to pass their Continuing Resolution (CR), which would require a significant number of Democrats - who have strongly supported more Ukraine aid - to cross the aisle.

The House GOP bill would be a 'clean' Continuing Resolution, which won't include Ukraine funding or border assistance.

"We will put a clean funding stopgap on the floor to keep government open for 45 days for the House and Senate to get their work done," said McCarthy following a meeting. "We will also, knowing what had transpired through the summer, the disasters in Florida, the horrendous fire in Hawaii, and also the disasters in California and Vermont. We will put the supplemental portion that the president asked for in disaster there too."

"Keeping the government open while we continue to do our work to end the wasteful spending and the wokeism and most important, secure our border," McCarthy said.

If the bill does not pass, Republicans plan to bring up several measures to mitigate the effects of a government shutdown, multiple members said. 

Those include bills to continue paying service members and extending authorization of the Federal Aviation Administration and National Flood Insurance Program, both of which are also set to expire at midnight unless Congress takes action. Republicans are also examining measures to continue pay for border patrol agents. -The Hill

The Democrats, meanwhile, have been using parliamentary tactics to slow down the vote so they can more carefully read the GOP proposal.

Rep. Matt Gaetz (R-FL), one of the key holdouts in the House, called McCarthy's bipartisan appeal "disappointing," and said that McCarthy's speakership is "on tenuous ground."

When asked what his next move will be, Gaetz said "I guess we'll have to see how the vote goes."

What's next?

According to Goldman, there's a 90% probability of a shutdown before the Oct. 1 deadline.

That said, there will be three upcoming catalysts in the next few weeks that may result in passage.

1) All members of the US military are due to be paid on Oct. 13, and a missed pay date would have serious political ramifications; there is a good chance the House will vote to reopen before or shortly after that date; 

2) A few House Republicans have said they might bring a “motion to vacate” that would remove McCarthy as Speaker unless a majority of the House supports him. Whatever the outcome of such a vote, getting past it could set the stage for a reopening; 

3) There are procedural moves (a “discharge petition” is the most frequently discussed) that Democrats can make to pass an extension of spending authority in the House over Speaker McCarthy’s objections. However, this would require support from at least 5 House Republicans (assuming that all Democrats sign on). This will not help avoid a shutdown, but could come into play over the next two weeks, as political pressure to reopen grows (particularly when combined with the first point on military pay). 

In light of the above, Goldman doesn't expect this to last more than 2-3 weeks, and that the Oct. 13 military pay date will become a focal point in the timeline.

*  *  *

Update (2157ET): It looks like the Senate isn't willing to strip Ukraine funds from the continuing resolution. In a Friday night tweet, House Speaker Kevin McCarthy (R-CA) said that the "misguided Senate bill has no path forward and is dead on arrival."

Meanwhile, according to Punchbowl News' Jake Sherman and Josh Bresnahan, McCarthy is floating a CR that would last until Nov. 17 at FY2023 funding levels, which would not include border funds or Ukraine funding.

*  *  *

In an 11th hour Hail Mary in the hopes of averting a government shutdown, House Speaker Kevin McCarthy (R-CA) announced that the only way the House will pass a Continuing Resolution (CR) to fund the government through October is to drop Ukraine funding.

"I think if we had a clean one without Ukraine on it, we could probably be able to move that through," McCarthy told CNN's Manu Raju.

The comment comes hours after McCarthy lost a game of chicken with the House Freedom Caucus, failing to pass a CR which left McCarthy will few options to try and avert a shutdown in less than 36 hours. McCarthy was hoping that the House bill's border security provisions would win over enough holdouts to pass.

Meanwhile, the White House slammed the failed bill over the 'elimination of 12,000 FBI agents,' and 'almost 1,000 ATF agents.'

Of note, House Republicans on Thursday narrowly passed the annual defense spending bill, but only after they removed $300 million in Ukraine aid from the legislation (which then cleared in a separate vote because a bunch of Democrats then voted).

Speaker Kevin McCarthy, who failed twice last week to advance the bill to the floor, finally locked down enough Republican votes to pass the bill after the House stripped $300 million to arm Ukraine from the text.

The separate bill carved out to allocate those funds for Kyiv passed Thursday in a 311-117 blowout bipartisan vote. Republicans had won a close procedural vote earlier in the day to separate the Ukraine money from the Pentagon bill, a move meant to flip a handful of GOP holdouts. -Politico

Democrats framed the optics as Kremlin-friendly, with House Armed Services ranking Democrat Adam Smith saying "The Russians are good at propaganda... It will be played as America backing off of its commitment for Ukraine."

Republicans responded that by carving Ukraine out of the defense bill, it allows opponents of either measure (Ukraine aid or the defense bill) to voice their opinions on each independently.

"Why don’t we make sure this gets through? I mean, I’m just mystified that this is somehow a problem," said House Rules Chair Tom Cole (R-OK), according to Politico. "We guarantee you something you want is going to pass the House and you’re upset about it."

And now, McCarthy says there's no way to avert a government shutdown unless the House, and the Senate, agree to nix Ukraine aid from the 30-day stopgap.

Fire and Brimstone...

On Friday, White House top economic adviser Lael Brainard said that a shutdown would pose an "unnecessary risk" to what he described as a resilient economy with moderating inflation.

Treasury Secretary Janet Yellen then chimed in, warning that all of Bidenomics could be negatively impacted.

"The failure of House Republicans to act responsibly would hurt American families and cause economic headwinds that could undermine the progress we’re making," Yellen said from Port of Savannah, Georgia, adding "A shutdown would impact many key government functions from loans to farmers and small businesses, to food and workplace safety inspections, to Head Start programs for children.

"And it could delay major infrastructure improvements."

Goldman has predicted that a shutdown will last 2-3 weeks, and that a 'quick reopening looks unlikely as political positions become more deeply entrenched.' Instead, as political pressure to reopen the government builds, pay dates for active-duty military (Oct. 13 and Nov. 1) will become key dates to pay attention to.

In addition, they think a shutdown could subtract 0.2pp from Q4 GDP growth for each week it lasts (adding the same to 1Q2024, assuming it's over by then).

What's more, all data releases from federal agencies would be postponed until after the government reopens.

More via Goldman:

What are the odds the government shuts down?

A shutdown this year has looked likely for several months, and we now think the odds have risen to 90%. The most likely scenario in our view is that funding will lapse after Sep. 30, leading to a shutdown starting Oct. 1. That said, a short-term extension cannot be entirely ruled out. In the event that Congress avoids a shutdown starting Oct. 1, we would still expect a shutdown at some point later in Q4.

While there is likely sufficient support in both chambers of Congress to pass a short-term extension of funding—this is known as a “continuing resolution” (CR)—that is “clean” with no other provisions attached, the majority of that support would come from Democrats. The Senate is considering a CR that includes aid for disaster relief and Ukraine. House Republican leaders are under political pressure to pass a CR that includes Republican policy priorities that can pass with mainly or exclusively Republican support. At the moment, neither chamber looks likely to pass the other chamber's CR.

The outlook seemed bleak ahead of the debt limit deadline earlier this year, but Congress resolved it in time; why shouldn’t we expect a last-minute deal once again?

The smaller economic hit from a shutdown puts less pressure on Republican leaders to override the objections of some in their party to reach a deal. Ahead of the debt limit deadline earlier this year, Republican leaders reached a deal over the objections of some in their party because the potential hit to the economy from an impasse would have been unpredictable and severe, and even lawmakers most strongly opposed to a compromise agreed that the debt limit must be raised. By contrast, the economic hit from a shutdown would be smaller and more predictable, as there have already been two protracted shutdowns over the last decade. While most lawmakers on both sides of the aisle would prefer to avoid a shutdown, both sides appear more willing to take the chance it occurs.

*  *  *

Stay tuned...

Tyler Durden Sat, 09/30/2023 - 17:57

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Senate Votes To Pass House’s Stopgap Funding Bill Without Ukraine Aid

Senate Votes To Pass House’s Stopgap Funding Bill Without Ukraine Aid

Update (2109ET):  The Senate has voted 88-9 to pass the House’s Continuing…

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Senate Votes To Pass House's Stopgap Funding Bill Without Ukraine Aid

Update (2109ET):  The Senate has voted 88-9 to pass the House's Continuing Resolution stopgap funding bill, which stripped out funds for Ukraine, includes $16 billion for disaster relief, and will keep the US government running for another 45 days.

Among the Senate "Yea" votes was Michael Bennet (D-CO), who was absolutely flipping his lid over the lack of Ukraine funding earlier in the day.

The bill, which passed the House earlier in the day by a bipartisan vote of 335-91, was passed with just three hours to go before a shutdown.

Just before the vote, Sen. Majority Leader Chuck Schumer (D-NY) vowed to keep fighting for more US taxpayer dollars for Ukraine, saying that he and Senate Minority Leader Mitch McConnell (R-KY) have "agreed to continue fighting for more economic and security aid for Ukraine."

"We support Ukraine’s efforts to defend its sovereignty against Putin’s aggression," said Schumer - to which McConnell said he's "confident" that the Senate can pass more "urgent assistance to Ukraine later this year. But let's be clear," that the "alternative," a shutdown, "would not just pause our progress on these important priorities, it would actually set them back."

*  *  *

Update (1755ET): After an afternoon of theatrics from Rep. Jamal Bowman (D-NY), it appears that the stopgap legislation to keep the government running through November 17 will now pass at the 11th hour.

According to the Wall Street Journal, the bill to keep the government funded past 12:01 Sunday includes $16 billion in disaster relief, but does not include Ukraine funds.

The House voted 335-91 for the funding measure, which includes $16 billion in disaster relief but omits aid for Ukraine. It also excludes border-security measures sought by Republicans. The margin exceeded the two-thirds majority needed to clear the bill through the House, which considered the legislation under special procedures requiring a supermajority of votes. All but one Democrat voted in favor of the measure, while nearly half of Republicans voted against it. -WSJ

While White House officials say President Biden supports the measure, the Senate has reportedly been lax in quickly taking up the measure late Saturday, raising the possibility of further malarkey.

Developing...

*  *  *

(Update 1655ET): So let's get this straight. In the home stretch of negotiations over the House's GOP stopgap bill - while Democrats were actively trying to stall the vote so they could actually read it - a widely reported phenomenon, Rep. Jamal Bowman (D-NY) pulls the fire extinguisher.

His excuse is that he wasn't actually trying to stall the the vote, and that he's essentially an idiot...

"Congressman Bowman did not realize he would trigger a building alarm as he was rushing to make an urgent vote. The Congressman regrets any confusion," said a spokesperson.

Yes. Because this happens all the time.

MSNBC breathlessly repeats the Simple Jack defense.

House Speaker Kevin McCarthy capitalized on the incident, comparing Bowman to a January 6th insurrectionist.

As we noted below... Bowman used to be a public school principal before he was elected to Congress, who rallied against standardized testing, at a private school he founded that has a 27% literacy rate, so... maybe?

Then again, he would be no stranger to fire drills, no?

*  *  *

House before the House finally approved a 'clean' stopgap funding bill to avert a government shutdown (which has since been sent to the Senate for consideration before the midnight funding deadline), Socialist Rep. Jamaal Bowman (D-NY) was caught pulling the fire alarm in a House office building Saturday in order to try and delay a vote on ta House GOP stopgap spending bill.

The incident in the Cannon Building was caught on camera and confirmed by several witnesses, Politico reports.

"This is the United States Congress, not a New York City high school. To pull the fire alarm to disrupt proceedings when we are trying to draft legislation to AVERT A SHUTDOWN is pathetic…even for members of the socialist squad," Staten Island GOP Rep. Nicole Malliotakis wrote on X, formerly Twitter.

"Rep Jamaal Bowman pulled a fire alarm in Cannon this morning," House Administration Committee Chairman Bryan Steil wrote on X. "An investigation into why it was pulled is underway."

According to Bowman spox Emma Simon, "Congressman Bowman did not realize he would trigger a building alarm as he was rushing to make an urgent vote. The Congressman regrets any confusion."

In other words, he's claiming to be too stupid to have known what he did - and don't believe your lying eyes!

Granted, Bowman used to be a public school principal before he was elected to Congress, who rallied against standardized testing, at a private school he founded that has a 27% literacy rate, so...

Needless to say, the memes are already flying.

.

Meanwhile, the House cleared the 'clean' stopgap bill without funding for Ukraine or the border, by a vote of 335-91. One Democrat and 90 Republicans voted against the measure.

*  *  *

Update: (1335ET): With a government shutdown just hours away, House Speaker Kevin McCarthy has turned to Democrats for help passing a temporary bill, after House Freedom Caucus members dug their heels in over no funds for Ukraine.

"What I am asking, Republicans and Democrats alike, put your partisanship away," said McCarthy. "Focus on the American public."

McCarthy needs a two-thirds majority to pass their Continuing Resolution (CR), which would require a significant number of Democrats - who have strongly supported more Ukraine aid - to cross the aisle.

The House GOP bill would be a 'clean' Continuing Resolution, which won't include Ukraine funding or border assistance.

"We will put a clean funding stopgap on the floor to keep government open for 45 days for the House and Senate to get their work done," said McCarthy following a meeting. "We will also, knowing what had transpired through the summer, the disasters in Florida, the horrendous fire in Hawaii, and also the disasters in California and Vermont. We will put the supplemental portion that the president asked for in disaster there too."

"Keeping the government open while we continue to do our work to end the wasteful spending and the wokeism and most important, secure our border," McCarthy said.

If the bill does not pass, Republicans plan to bring up several measures to mitigate the effects of a government shutdown, multiple members said. 

Those include bills to continue paying service members and extending authorization of the Federal Aviation Administration and National Flood Insurance Program, both of which are also set to expire at midnight unless Congress takes action. Republicans are also examining measures to continue pay for border patrol agents. -The Hill

The Democrats, meanwhile, have been using parliamentary tactics to slow down the vote so they can more carefully read the GOP proposal.

Rep. Matt Gaetz (R-FL), one of the key holdouts in the House, called McCarthy's bipartisan appeal "disappointing," and said that McCarthy's speakership is "on tenuous ground."

When asked what his next move will be, Gaetz said "I guess we'll have to see how the vote goes."

What's next?

According to Goldman, there's a 90% probability of a shutdown before the Oct. 1 deadline.

That said, there will be three upcoming catalysts in the next few weeks that may result in passage.

1) All members of the US military are due to be paid on Oct. 13, and a missed pay date would have serious political ramifications; there is a good chance the House will vote to reopen before or shortly after that date; 

2) A few House Republicans have said they might bring a “motion to vacate” that would remove McCarthy as Speaker unless a majority of the House supports him. Whatever the outcome of such a vote, getting past it could set the stage for a reopening; 

3) There are procedural moves (a “discharge petition” is the most frequently discussed) that Democrats can make to pass an extension of spending authority in the House over Speaker McCarthy’s objections. However, this would require support from at least 5 House Republicans (assuming that all Democrats sign on). This will not help avoid a shutdown, but could come into play over the next two weeks, as political pressure to reopen grows (particularly when combined with the first point on military pay). 

In light of the above, Goldman doesn't expect this to last more than 2-3 weeks, and that the Oct. 13 military pay date will become a focal point in the timeline.

*  *  *

Update (2157ET): It looks like the Senate isn't willing to strip Ukraine funds from the continuing resolution. In a Friday night tweet, House Speaker Kevin McCarthy (R-CA) said that the "misguided Senate bill has no path forward and is dead on arrival."

Meanwhile, according to Punchbowl News' Jake Sherman and Josh Bresnahan, McCarthy is floating a CR that would last until Nov. 17 at FY2023 funding levels, which would not include border funds or Ukraine funding.

*  *  *

In an 11th hour Hail Mary in the hopes of averting a government shutdown, House Speaker Kevin McCarthy (R-CA) announced that the only way the House will pass a Continuing Resolution (CR) to fund the government through October is to drop Ukraine funding.

"I think if we had a clean one without Ukraine on it, we could probably be able to move that through," McCarthy told CNN's Manu Raju.

The comment comes hours after McCarthy lost a game of chicken with the House Freedom Caucus, failing to pass a CR which left McCarthy will few options to try and avert a shutdown in less than 36 hours. McCarthy was hoping that the House bill's border security provisions would win over enough holdouts to pass.

Meanwhile, the White House slammed the failed bill over the 'elimination of 12,000 FBI agents,' and 'almost 1,000 ATF agents.'

Of note, House Republicans on Thursday narrowly passed the annual defense spending bill, but only after they removed $300 million in Ukraine aid from the legislation (which then cleared in a separate vote because a bunch of Democrats then voted).

Speaker Kevin McCarthy, who failed twice last week to advance the bill to the floor, finally locked down enough Republican votes to pass the bill after the House stripped $300 million to arm Ukraine from the text.

The separate bill carved out to allocate those funds for Kyiv passed Thursday in a 311-117 blowout bipartisan vote. Republicans had won a close procedural vote earlier in the day to separate the Ukraine money from the Pentagon bill, a move meant to flip a handful of GOP holdouts. -Politico

Democrats framed the optics as Kremlin-friendly, with House Armed Services ranking Democrat Adam Smith saying "The Russians are good at propaganda... It will be played as America backing off of its commitment for Ukraine."

Republicans responded that by carving Ukraine out of the defense bill, it allows opponents of either measure (Ukraine aid or the defense bill) to voice their opinions on each independently.

"Why don’t we make sure this gets through? I mean, I’m just mystified that this is somehow a problem," said House Rules Chair Tom Cole (R-OK), according to Politico. "We guarantee you something you want is going to pass the House and you’re upset about it."

And now, McCarthy says there's no way to avert a government shutdown unless the House, and the Senate, agree to nix Ukraine aid from the 30-day stopgap.

Fire and Brimstone...

On Friday, White House top economic adviser Lael Brainard said that a shutdown would pose an "unnecessary risk" to what he described as a resilient economy with moderating inflation.

Treasury Secretary Janet Yellen then chimed in, warning that all of Bidenomics could be negatively impacted.

"The failure of House Republicans to act responsibly would hurt American families and cause economic headwinds that could undermine the progress we’re making," Yellen said from Port of Savannah, Georgia, adding "A shutdown would impact many key government functions from loans to farmers and small businesses, to food and workplace safety inspections, to Head Start programs for children.

"And it could delay major infrastructure improvements."

Goldman has predicted that a shutdown will last 2-3 weeks, and that a 'quick reopening looks unlikely as political positions become more deeply entrenched.' Instead, as political pressure to reopen the government builds, pay dates for active-duty military (Oct. 13 and Nov. 1) will become key dates to pay attention to.

In addition, they think a shutdown could subtract 0.2pp from Q4 GDP growth for each week it lasts (adding the same to 1Q2024, assuming it's over by then).

What's more, all data releases from federal agencies would be postponed until after the government reopens.

More via Goldman:

What are the odds the government shuts down?

A shutdown this year has looked likely for several months, and we now think the odds have risen to 90%. The most likely scenario in our view is that funding will lapse after Sep. 30, leading to a shutdown starting Oct. 1. That said, a short-term extension cannot be entirely ruled out. In the event that Congress avoids a shutdown starting Oct. 1, we would still expect a shutdown at some point later in Q4.

While there is likely sufficient support in both chambers of Congress to pass a short-term extension of funding—this is known as a “continuing resolution” (CR)—that is “clean” with no other provisions attached, the majority of that support would come from Democrats. The Senate is considering a CR that includes aid for disaster relief and Ukraine. House Republican leaders are under political pressure to pass a CR that includes Republican policy priorities that can pass with mainly or exclusively Republican support. At the moment, neither chamber looks likely to pass the other chamber's CR.

The outlook seemed bleak ahead of the debt limit deadline earlier this year, but Congress resolved it in time; why shouldn’t we expect a last-minute deal once again?

The smaller economic hit from a shutdown puts less pressure on Republican leaders to override the objections of some in their party to reach a deal. Ahead of the debt limit deadline earlier this year, Republican leaders reached a deal over the objections of some in their party because the potential hit to the economy from an impasse would have been unpredictable and severe, and even lawmakers most strongly opposed to a compromise agreed that the debt limit must be raised. By contrast, the economic hit from a shutdown would be smaller and more predictable, as there have already been two protracted shutdowns over the last decade. While most lawmakers on both sides of the aisle would prefer to avoid a shutdown, both sides appear more willing to take the chance it occurs.

*  *  *

Stay tuned...

Tyler Durden Sat, 09/30/2023 - 17:57

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