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The whole world is facing a debt crisis – but richer countries can afford to stop it

Debt is becoming unaffordable.

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Countries across the world are drifting towards a debt crisis. Economic slowdowns and rising inflation have increased demands on spending, making it almost impossible for many governments to pay back the money they owe.

In normal times, those countries could simply take on new debt to replace the old debt. But international conditions have made it much more difficult to do this.

As a result, some of those approaching repayment deadlines will simply not be able to meet them. Sri Lanka and Zambia have already missed payments, throwing both countries into an economic tailspin, and offering perhaps a preview of impending global problems.

One of the main reasons for this worrying scenario is that countries across the world are essentially compelled to borrow money in US dollars or Euros, and keep foreign currency reserves for future debt payments.

But those reserves face other vital demands. They are needed to purchase oil and other imports, and well as maintaining the credible value of their domestic currency.

Unfortunately for many emerging economies, the reserves they hold are simply not enough to cover all of these demands – especially after energy prices soared when Russia invaded Ukraine.

At the same time, foreign currencies have become more expensive to buy because the US Federal Reserve and the European Central Bank are raising interest rates. Sri Lanka reportedly has no reserves left, while Pakistan is said to be operating on a month-to-month basis.

Countries usually issue new bonds (think of them as tradeable IOUs) to roll over old debt, a process that works just fine – until it doesn’t. In July 2022, no emerging countries issued any new bonds, indicating that investors are alarmed by the risk of low currency reserves, and are no longer interested in lending to them.

China too has scaled back its lending since the beginning of the pandemic to limit its exposure to global risk. So without bond markets or China, countries are turning to alternative sources of credit.

Kenya and Ghana for example, recently took out bank loans to alleviate budget shortfalls. And while the precise terms of these loans are not known, banks usually demand higher interest rates and shorter repayment periods, which may only add to a country’s financial stress levels.

Other countries are turning to some of the oil-rich gulf states currently profiting from high energy prices. Egypt and Pakistan have received loans from Saudi Arabia, the United Arab Emirates (UAE) and Qatar, while Turkey has also borrowed from the UAE. These loans may be welcome lifelines, but they also create opportunities for richer countries to effectively buy influence and generate dependency.

Overall then, a multitude of factors are working against some of the world’s poorest and indebted countries. If a global debt crisis does ensue, expect political turmoil to follow.

Sri Lanka’s default prompted wide spread protests, forcing the president to resign. And research shows that extremist parties perform better after a financial crisis.

Liquidity and transparency

But it is not too late for the international community to help avoid such a scenario.

First off, the US and the EU should slow down their interest rate hikes. These US and EU rate hikes slow economic growth around the world, as the United Nations warned, and they are draining countries’ foreign currency reserves.

It is also not clear that these interest rate hikes are addressing domestic inflation problems. If wealthier countries wish to lower inflation without igniting a global debt crisis, they should lower the trade barriers that artificially raise prices. For example, both the US and EU levy tariffs on imported agricultural products, which increase the price of food for their consumers.

Oil plant.
Oil prices are depleting reserves. Shutterstock/Corona Borealis Studio

Second, the International Monetary Fund (IMF) should drop or at least soften the austerity requirements linked to its emergency lending. For example, Zambia’s new IMF deal requires lower government subsidies on fuel and food at a time when prices are increasing. These policies are politically unpopular and encourage countries to seek help from China and oil-rich states instead.

Those countries that are compelled to borrow from the IMF face the risk of emboldening extremist political elements. Now is not the time to push orthodox fiscal requirements that are questionable in their effectiveness. Instead, the IMF should prioritise global liquidity during these difficult economic conditions.

Finally, China should take a leading, transparent role in debt negotiations. Many of the countries facing debt problems owe money to China, a process often shrouded in secrecy.

We know, for instance, that China has agreed to participate in restructuring negotiations in Zambia but has not done the same in Sri Lanka. China has provided emergency loans and debt relief to Pakistan and Argentina, though the effectiveness or extent of this aid is unknown.

A more transparent approach would reduce uncertainty in global markets and allow other creditors to coordinate with China. While China’s lending has not been transparent up until this point, more clarity would benefit China’s overseas investments as well as the global debt market.

Time is running out before many debt distressed countries face repayment day. Debt problems are contagious, as was seen with the Latin American debt crises of the 1980s, the Asian financial crises of the 1990s, and the Eurozone debt crises of the 2010s. The global community should work together to avert another global economic spiral, and help millions of people avoid needless suffering.

Patrick E. Shea does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Small Business Bankruptcies Surge In 2023, Five Reasons Why

Small Business Bankruptcies Surge In 2023, Five Reasons Why

Authored by Mike Shedlock via MishTalk.com,

Small business bankruptcies are at…

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Small Business Bankruptcies Surge In 2023, Five Reasons Why

Authored by Mike Shedlock via MishTalk.com,

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

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

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

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

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

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

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

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

Five Reasons for Surge in Bankruptcies

  • Rising Interest Rates

  • Surging Wages

  • Tighter Bank Credit

  • Overleverage

  • Work-at-Home Curtailing Demand

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

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

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

Surge in Wages

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

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

A Big Deal Indeed, Expect More Inflation

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

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

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

30 Percent Raise Coming Up!

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

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

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

Other states will follow California.

Biden Newsome Tag Team

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

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

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

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

Bank Credit and Over-Leverage

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

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

The bankruptcies will fall hard on the regional banks.

Add it all up and things rate to get worse.

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

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Fair and sustainable futures beyond mining

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

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

Credit: Kamila Svobodova

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

 

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

 

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

 

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

 

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

 

Contact:

Dr Kamila Svobodova

University of Göttingen

Department of Agricultural Economics and Rural Development

Platz der Göttinger Sieben 5, 37073 Göttingen, Germany

kamila.svobodova@uni-goettingen.de

 


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

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

Authored by Jonathan Turley,

With the commencement of the…

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

Authored by Jonathan Turley,

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

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

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

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

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

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

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

  1. bribery,

  2. conspiracy,

  3. obstruction, and

  4. abuse of power.

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

Yet three facts are now unassailable.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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