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Vilches: Europe’s Mad Ban On Russian Oil

Vilches: Europe’s Mad Ban On Russian Oil

Authored by Jorge Vilches,

Cognitive scientists would concur in that the current performance of…

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Vilches: Europe's Mad Ban On Russian Oil

Authored by Jorge Vilches,

Cognitive scientists would concur in that the current performance of European leadership could be diagnosed as either myopic ignorance or - most probably - full intellectual blindness.

Ursula von der Leyen

In the case of so far happy-go-lucky Ursula von der Leyen there is no doubt it´d be the latter… but only if we first dismiss her warm on-the-record support for Bundeswehr colonial policies and military involvement… plus her praise of Third Reich famous general Field Marshall Erwin Rommel, Commander of the Führer Headquarters. But leaving that possible Nazi whiff aside, full ´intellectual blockage´ is the only kind way to dare explain a most strategic project as foolish and doomed to fail as banning Russian oil sales worldwide. Why so you may ask ?

Ref #1 https://www.wsws.org/en/articles/2017/06/20/vond-j20.html

asymmetrical retaliation

The short answer is massive — ´Russian´ massive – unmitigated “asymmetrical non-military retaliation” through surgical and divisive optional sales of natural gas – and other key commodities – just leaving EU sanctioned Russian oil for sale to and re-sale by third parties. And, oh yes, weaponization is not limited to any particular means as various European war schools should have internalized already. War means war and pretty much anything is fair game. But apparently, it´d be as if through the centuries, uppity European leaders – most especially German, French, Swedish, British and Poles — have not learned a single thing despite the über-high costs already paid for by their nations large-caliber warfare experiences most especially with Russia. By the way, the UK also has the additional ( unsolvable? ) burden of its current Brexit ballast…

Ref # 2 https://www.zerohedge.com/energy/eu-proposes-ban-russian-oil-imports

Ursula´s softball

May I call you Ursula ? Thank you. “We will make sure that we phase out Russian oil in an orderly fashion [… a phenomenal bad joke of sorts… ] in a way that allows us and our partners to secure alternative supply routes and minimises the impact on global markets” you said. Question: will the Russians just idly watch you trying to execute such enormity at the EU´s preferred speed and political and geopolitical sequencing? And the Russians would never dare to strike back with natural gas or other restrictions no? For starters, what about nickel, uranium, and lithium? Not having them would be like trying to prepare tasty food without salt, pepper or mustard. Without uranium no nuclear power is possible, did you know? [ more on that later ]. Ursula, your pink unicorn wishful thinking is unfathomable gal.

EU kelpers

This mad-ban requires EU approval with conditional support from Hungary, Greece, and others. So some special EU members will be exempted while regular EU ´kelpers´ will not. Now could that lead to serious friction ? How many years will it take all of Europe to reconvert its industry and supply chains? “This is why we will phase out Russian supply of crude oil within 6 months and refined products by the end of the year.” Okay, so Aunty Ursie you believe the Russians are dumb enough to let you phase this idea out nice and easy at your own pace and whenever you decide to act per your own special EU schedule. No market dynamics involved as Europe plays everybody else´s pieces too as grandpas would do with 3-year-old grandkids.

Ref # 3 https://www.rt.com/business/555065-russia-oil-ban-exemption-eu/

Russian DNA

No way Ursula, the Russians play world-class professional chess while you play elementary school checkers, not even being good at that either. The instant Russia perceives the initial execution of your game plan regarding banning of Russian oil, they´ll make their moves, not yours. And those Russian moves will not be nice and pretty. For one, Europe will not have anywhere nearly ready its own diesel refining capacity by the end of 2022 while the middle distillate market is ever much tighter everywhere as demand recovers from the Covid pandemic. So the EU “plan” is

to frantically search for hard-to-find or simply non-existent substitutes while investing tons of time, money, effort and risk. Well, the Russians know that already even before you start. Diesel is already in critically short supply in the EU.

Furthermore, Europe will continue buying Russian oil and distillates via third countries once it introduces any embargo only that at much higher prices than today. Such old, quick and dirty business is known as “triangulation” Ursula.

Russian hardball

The existential threat imposed on Russia by the EU with its macabre “Ukraine Plan” and sanctions has not left Russia any way out other than playing hardball for keeps. Furthermore, the Russian non-military retaliation domain is actually unlimited due to the full-scale and open-ended addiction that Europe has developed for Russian imports of different sorts including commodities of any and every imaginable type. Without such, Europe will cease to exist as we know it in a matter of a very few months, if not weeks. As Francis Fukuyama should posit, Europe´s dependency on Russian commodities is the end of its own history. The unipolar world is dying, admit it Frank. Hint: write a new book guy.

Ref # 4 https://www.zerohedge.com/energy/trump-was-right-putins-gas-strategy-gives-germany-only-bad-worse-choices

Ref # 5 https://www.rt.com/business/554968-moscow-toughens-response-western-sanction

not your dog

It seems that Ursula von der Leyden has convinced the EU that feeding a refinery or a chemical plant is pretty much like feeding your dog. But nothing can be further from the truth. Chemical plants and refineries are very closely matched and subtly calibrated to very specific supply feeds very difficult to substitute. Changes can and have been made, but it requires lots of time, effort, money, dedicated facilities, experimentation, specific expertise, risk, and most important fixed, unchanging feeds always complying with specs. This means that Russia today supplies Europe with exclusive unreplaceable oil & gas grades of very specific chemical content (even coal grades) that would be impossible to get from third parties fast enough and cheap enough. So it´s a very delicate and tight matching already achieved between European facilities and Russian fuels and other inputs that cannot be altered or replaced that easily, let alone all at the same time !! Are EU countries aware of all this ?

Ref #6 https://www.ifo.de/en/node/69417

expensive divorce

So maybe after investing years, money, expertise, trials & errors, risk and lots of hard work Europe may possibly and eventually be able to partially switch from current to dirtier or far more inefficient options. But that would be (a) against the EU´s Green Deal compliance and (b) a very short-term non-sustainable “solution” (c) against the whole world.

So how can Europe transition to a 0% Russian supplies end-point as swiftly and safely as Chinese plate spinners? 

Ref # 7 https://www.rt.com/business/555087-energy-warning-russia-sanctions/

No minimally informed no-nonsense mindset has thought out the foolish idea of coordinating the whole European continent in this self-destructive mission. Taking matters to an extreme, let´s assume that Europe completely weans itself – or is cut off — from Russian oil & gas imports tomorrow morning and everything else sourced in Russia. In that hypothetical case, Moscow may feel the financial problem possibly within 6 months… or maybe never. But if such event were to happen, the timing would be quite different as the EU would necessarily start imploding in 6 days and would achieve full implosion in 6 weeks. With the oil mad-ban Europe would badly need to find substitutes for Russian imports. The problem is such need cannot ever be satisfied fast enough and right enough no matter how it is diced or sliced. Triangulation means Europe will buy quality Russian imports via third countries only that at much higher prices

plug & play (not)

No, it is not anywhere near “plug & play” either. No. Several EU landlocked countries can only import nat-gas thru existing Russian pipeline unless a nightmarish and highly risky sea-land supply lines are established by different means going across complicated mountain ranges sometimes, a project which no one wants to entertain. Replacing Russian feeds & supply lines is an incommensurable task that Russia will not help out with either. Once Russia withstands the “ban Russian oil” idea, Europe will find itself in the worse of both worlds not being able to rewind back.

tit-for-tat ?

Also, the impact of the Russian reaction may most probably result to be disproportionate to the damage inflicted by an EU worldwide ban on Russian oil. Hence, ´asymmetrical´, simply because an exact ´tit-for-tat´ result is impossible to calculate for and let alone effectively achieve. If ever implemented, the unintended consequences of a haphazard decision such as proposed will necessarily mean for the EU either to (1) instantly back-pedal to square one or (2) finally suicidal Europe would follow through and achieve its goal. I kid you not. Other commodities could be included.

human food

And food for thought, as Europe would face famine in-its-face if grains from Ukraine, Belarus, Russia and elsewhere are tied up or absent by Russian retaliation or impossibility to deliver. And the lack of cheap diesel and natural gas from Russia means that farmers everywhere face sharply increased costs, whereby fertilizer is either not available at all, or too expensive to use, and thus crop yields will fall worldwide increasing the price of food products. Greenhouse producers in many parts of Europe have already shut down over high energy costs as prices stand today, not even thinking of the possibility of having Russian oil banned worldwide. Banning Russian oil from Europe can only back-fire.

Ref # 8 https://www.zerohedge.com/commodities/worlds-largest-fertilizer-company-warns-crop-nutrient-disruptions-through-2023

Russian leverage

It´s impossible to approach all aspects involved at once, so let´s briefly touch upon part of Russia´s bargaining power.

  1. Russia does not want, let alone need, to defeat all of Europe. Just turning Germany — or Poland for that matter — into a messy mess would be more than enough for the whole EU to focus and reason out basic stuff.

  2. No uranium from Russia means the 3 remaining German nuclear power stations cannot be re-commissioned. Not having already scheduled substitute delivery of finely-tuned Russian uranium means an adaptive retro-fit with newly-sourced feed, which technically is risky and mission almost impossible which would take years.

  3. China + India + Brazil have ´free-patent-IP´ investments plans in Russia kicking off an entirely new ball game

  4. 60% of German gas consumption is Russian. Today German industry would not survive without Russian gas.

  5. A partial or total reduction of Russian nat-gas and coal supply in retaliation for banning Russian oil would negatively and instantly impact Europe in many ways and the rest of the world with irregular market dynamics.

  6. If not delivered to the EU, the Russian nat-gas can be vented or flared at well-heads as there is plenty more.

  7. Russian oil can be sold elsewhere and/or stockpiled relatively rapidly and easily, or production can be slowed down without damaging reservoirs or wells. Russia will actually increase its “drill baby drill” policy.

  8. Paraphrasing former US Secretary of Treasury John Connally “Sorry, Russian commodities, your problem

  9. Russia´s market is 85% of the world population largely under growth and just as fed up with the US-dollar reserve currency system. The EU trade embargo on Russia does not work per parallel imports from 3rd parties

  10. The defiant Russian economy is doing just fine, the Ruble is as strong as ever. US President Biden vowed “to make sure the pain of our sanctions hits the Russian economy, not ours” as if he were getting the picture…

  11. China and others definitely back Russia while the rest of the world de-dollarizes and does not sanction Russia

  12. There are $ 500 billion worth of physical Western assets in Russia that can be confiscated at any time.

Ref # 9 https://www.rt.com/business/555076-moscow-allows-foreign-goods/

Ref # 10 https://www.rt.com/business/553038-russia-lifts-ban-parallel-imports/

Ref # 11 https://www.newyorker.com/news/daily-comment/russia-and-china-unveil-a-pact-against-america-and-the-west

Ref # 12 https://www.lexology.com/library/detail.aspx?g=39ef25c3-1bf0-4029-bac2-de0ac11965da

Ref # 13 https://www.rt.com/business/555097-russia-sanctions-recession-economist/

Ref # 14 https://www.rt.com/business/555119-russia-india-oil-sales-increase/

eyes wide shut

Agreed, it´s a multi-variable environment in a context of constant change with plenty of moving parts interacting on each other. But, for starters, no ( or less) Russian nat-gas and no Russian oil means many unsolvable things for the EU today. We´d also need to add the impact of having no oil, coal, or gas substitutes fast enough in large enough quantities. All of that put together means no (or less) refined products, no intermediate distillates, no heavy-duty machinery (think mining) no nickel nor aluminum, cobalt or lead or magnesium, no neon, no grains or edibles at large, wheat, corn, barley, rye, soybeans, timber, paper, titanium, rocket engines, nitrogen fertilizer, crop nutrients, potash, less petrochemicals, iron ore, minerals and rare-earths, uranium for nuclear power plants, lithium for batteries, no inputs for production of metals, plastics, fabrics, pharmaceuticals, fertilizer, chemicals, etc., no manganese, chromium, platinum, essential palladium for catalytic converters, copper, tin, mica, wolfram, bismuth, kaolin, talcum, tungsten, diamonds, phosphates, sulphur… and even no gold. By the way, as we should all know, none of these can be printed.

Russian vacations

By the way, fewer distillates such as diesel and fuel oil means that private and public transportation and freight would slow down lots, also affecting heavy-duty vehicles, industrial machinery, and airplane travel. Also far lower tourism. So might as well shut down the EU and go away on vacation to beautiful Russia right? You won´t find that much food or heating or A/C either, just new massive unheard of migrations all around you. With less Russian imports, very huge German industrial giants run the certainly serious risk of shutting down otherwise continuous year-round processes which cannot be re-started and would mean irreparable harm & negative impact on the German economy and the rest of the world. And it’s not only Russian produce that would be missing. Also from Belarus and Ukraine itself + the Stans

mission impossible

Only mediocre light-brained European leadership can propose such suicidal move 100% guaranteed to blowback in-their-face much harder and faster than their original strike. It´d be like poking a bear ( sound familiar ? ) with a sharply pointed pole and pretending the beast to continue munching fish unbothered by the aggression itself and the presence of the aggressor, both. Not even young unexperienced teen-aged urban Canadians would think of doing such a thing. Of course, they would know that the bear will necessarily focus attention first ( already done that… ) then would rise on his hind legs and swing his sharp deadly paw wide and fast sooner than the EU can react to what just happened.

It isn´t European David vs. Russian Goliath either. It´s a well-fed and rested Russian Goliath with hypersonic weapons under his arm vs. a worn-out underweight European David with a worn-down sling and lots of very small stones…

to “Schwedt” or not to “Schwedt

Schwedt is a key refinery for which the German government better find fast good & reliable sources of substitute Russian oil. If Schwedt does not deliver as usual, problems will be felt throughout Germany, Poland, and elsewhere.

But one problem is that Schwedt is majority-owned by Rosneft, the Russian state oil company which has control.

Now supposedly Schwedt has already dramatically reduced its dependence on Russian oil. But there´s a rub.

data laundromat

The rub is that EU member countries are very good at data laundering practices since inception of EU membership acceptance proceedings. Don´t trust me, ask Goldman Sachs they should know. So, for example, if imported Russian oil stays stationary in an EU depot for a couple of months it is “nationalized” and it is no longer considered to be ´Russian´.  Also, the official oil inflow figures cheat, as for partial mixtures of Russian oil 45%+ 55% ´oil from somewhere else´ it is considered to be non-Russian, see? So Russian oil import substitution is a topic not yet anywhere close to being solved. And if Russian oil is banned right here, well Russians might deny delivery of either Russian oil or Russian gas – or whatever — over there. They defend their interests, not the EU´s.

Ref # 15 https://www.rt.com/business/555059-europe-needs-russian-gas/ 

Ref # 16 https://www.rt.com/business/555022-germany-petrol-shortages-russia-oil/

two to tango

Which brings us to the fact that the EU cannot dream of moving its pieces in a vacuum as if the Russian enemy were not there also playing in the same theater scenarios and moving its pieces alternatively. The instant the EU makes any headway whatsoever regarding the possible banning of Russian oil, then Russia will respond in kind or possibly before so as to carry out a pre-emptive deterrence sort of like a taste of things to come such as in Poland and Bulgaria

We have every right to take a matching decision and impose an embargo on gas pumping through the [existing] Nord Stream 1 gas pipeline. So firstly, Russia may reduce or cut off its gas exports if the West goes ahead with a ban on Russian oil”. Understand? The EU attacks Russian oil and Russia counter-attacks reducing or cutting off Russian natural gas, etc. In other words, asymmetric non-military retaliation.

Ref # 17 https://www.bbc.com/news/58888451

Prices

If the Russian oil ban attempt goes ahead, agreed that the first thing that Russia may do is reduce or cut off nat-gas supplies – or other key commodities — with the stroke of a keyboard.. And it would be impossible to find replacements for Russian oils fast enough also. It would take years of adaptation and readjustments and it will still be much more expensive for European consumers. Russian Deputy Prime Minister Alexander Novak left on record that a “rejection of Russian oil would lead to catastrophic consequences for the global market causing oil prices to more than double to $300 a barrel”…possibly up to $ 500 pundits say assertively in specialized blogs. Be it $300 or $500 does the EU actually want that ? And Russia would end up earning much more by exporting far less. Trust US Treasury Secretary Janet Yellen, she said it, not me. And the higher the price, the higher the inflationary pressure and the higher the prices at the supermarkets already at approx. 35% p.a.. I can´t believe having to explain all this, really…

Ref # 18 https://www.bbc.com/news/business-60656673

Despite sanctions, Russia has almost doubled its monthly earnings from selling fossil fuels to the EU, according to the Centre for Research on Energy and Clean Air. The EU has imported about $23 billion dollars of fossil fuels per month from Russia since March 2022 as oil and gas prices have soared, compared with an average of about $ 12 billion in 2021. Meanwhile, transfers of oil between tankers have surged as buyers take advantage of discounted Russian crude. Different crude blends shipped from Russia may also contain oil from elsewhere which would also be affected.

logistics & freight

Banning Russian oil also means a logistics major reversal from-East-to-West to from-South-to-North. Such cardinal change is costly and risky. New shipping freighters are unprepared for unknown delivery schedules and product specs. Ports and oceans are different, shipping lanes are different, climate is different, seasonal availability of product and ship size and type are also different. That also involves lots of negotiating time, coordination, money, expertise, risk, permanent costs, and new dependencies with yet unknown trade and business partners, new modus operandi, brokers, insurance companies, etc. That is why every EU government has failed to build a realistic energy strategy that does not depend on Russia. Continuity, LNG & LPG terminal bottlenecks, and processing, availability, cost, no weather restrictions when needed. Pipe delivery is safe, dependable, and cheap, sea freight is risky and cost-prohibitive

nuclear blues

Germany had 15 nuclear plants in operation. The last 3 operating nuclear plants in Germany were scheduled to be decommissioned permanently in 2022. Part of the “Green Agenda” in the EU is to eliminate nuclear plants. France does not approve this, but is having technical trouble with its nuclear plants. France has said it will shut down 50% of its nuclear plants for critical maintenance this year at the worst possible timing imaginable.

Ref # 19 https://www.bbc.com/news/business-61298791

military impact

No readily available fuels of the right type (careful) mean no deployment no planes or other aircraft which means pretty much being stuck. Bad logistics, less food, no (or less) supplies, no heating to speak of. The European conventional military dependence on Russian fuels is beyond overwhelming, close to checkmate. Fuel imports are not anywhere near a military solution, just a way for civilians to survive if and when available and at a terribly high price.

“So the EU better be prepared to continue paying (many) billions of euros each week to Russia, supporting the Ruble and subsidizing its military in the process. It’s not just a short-term problem, either. If Germany manages over time (many years ?) to find adequate replacements for Russian natural gas, oil and coal, it will be at (tremendously) much higher prices. The era of cheap-Russian natural gas fueling the German economy is over. German energy-intensive companies, like its chemical giants, could not compete in the global market. Germany will face painful choices about the future of its industrial economy”. So without very specific and unreplaceable exclusive Russian grades of natural gas and oil and coal the European military are pretty much game-over.

Ref # 20 https://www.zerohedge.com/energy/trump-was-right-putins-gas-strategy-gives-germany-only-bad-worse-choices

unmanageable world finances

The camel is 990% overloaded and this one foolish decision may break its back. The world already rides on a wild $ 600+ trillion of a derivatives tiger that can only survive provided the corresponding counterparties do not fail.

“ Clearly, central banks in conjunction with their governments will have no option but to rescue their entire financial systems, which involves yet more central bank credit being provided on even greater scales than seen over Covid, supply chain chaos, and the provision of credit to pay for higher food and energy prices. It must be unlimited.”

Ref # 21 https://www.goldmoney.com/research/goldmoney-insights/financial-war-takes-a-nasty-turn?gmrefcode=gata

So unless something dramatically favorable happens very soon, economic-financial considerations will have highly negative socio-political impact driving the crisis to a high-pitch climax with the pitchforks roaming about European streets. Per Rabobank: “ When the ´food system´ breaks down, everything will break down with it”.

Per The Guardian, “…Come October, it’s going to get horrific, truly horrific … a scale beyond what we can deal with”.

Europe´s mad ban on Russian oil is just another perfect example of sheer Anglo-Saxon European puppeteering.

Ref # 22 https://www.theguardian.com/business/2022/apr/19/energy-chiefs-fear-40-of-britons-could-fall-into-fuel-poverty-in-truly-horrific-winter

Ref # 23 https://www.zerohedge.com/markets/rabobank-when-food-system-breaks-down-everything-will-break-down-it

Tyler Durden Mon, 05/09/2022 - 02:00

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How Inflation Changes Culture

How Inflation Changes Culture

Authored by Jeffrey Tucker via DailyReckoning.com,

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

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How Inflation Changes Culture

Authored by Jeffrey Tucker via DailyReckoning.com,

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

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

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

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

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

Where’s the Relief Coming From?

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

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

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

But what does this mean?

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

True Prosperity

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

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

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

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

Live for Today

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

Hyperinflation utterly wrecks it.

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

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

The Seeds of Destruction

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

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

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

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

The Hinge of History

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

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

The WSJ summarizes the current pain:

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

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

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

Going Backwards

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

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

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

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

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

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

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

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Mish’s Daily: The Next Stop on This Fierce Bear Market Rally: A Global Recession?

Determining whether we are in a risk-on or risk-off climate is challenging, especially after a fantastic day of gains in every major US index.We should…

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Determining whether we are in a risk-on or risk-off climate is challenging, especially after a fantastic day of gains in every major US index.

We should be in a risk-on environment. The Chinese stock market even rose, with technology and electric vehicles leading, as investors hoped for a more liberal COVID-19 governmental policy. With a gain of 4.4%, the Nasdaq composite, which had been the slacker, led gains among major US indices.

The S&P 500 (represented above by the SPY ETF) also surpassed its 200-day moving average for the first time in seven months. Markets are also approaching critical technical levels, which can accentuate positive or negative data, so keep an eye out tomorrow for PCE, the Fed's favorite inflation gauge.

Regardless of today's market action, there are indications that a global recession is imminent, with part of Europe potentially already in a recession and the US possibly next year. In particular, a rare 20-year recession signal is flashing red.

Global bonds joined US peers in signaling a recession, with a gauge measuring the global yield curve inverting for the first time in at least two decades.

According to Bloomberg Global Aggregate bond sub-indices, the average yield on government debt expiring in 10 years or more has slipped below that on short-term bond yields. On the heels of Fed Chairman Powell's dovish remarks today, the stock market rallied with heavy volume. Yet global bond yields signal a recession ahead.

Market conditions are ripe with profitable trading opportunities. Investors should pay close attention to commodities, currencies, bond yields, and inflation. If the PCE print is higher than expected, one-third or even more of today's gains could be erased quickly. On the flip side, if PCE is lower than expected, stocks might continue to run higher.

It is crucial to proceed with caution, as there is the potential for significant volatility in the coming weeks and months. We believe this ferocious bear market rally still has some legs – but don't wait too long to make your move, or your portfolio might get clawed quickly. If you are looking to capitalize on this ferocious bear market rally, our team can help your trading to protect your portfolio while allowing you to benefit from bullish trends.

Rob Quinn, our Chief Strategy Consultant, can provide more information about our trading and Mish's Premium Trading Service. Click here to learn more about Mish's Premium trading service with a complimentary one-on-one consultation.

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International

Protests in China are not rare — but the current unrest is significant

Comparisons have been made to the 1989 demonstrations that led to the Tiananmen Square massacre. An expert on Chinese protests explains why that it half…

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Protesters march along a street in Beijing on Nov. 28, 2022. Noel Celis/AFP via Getty Images

Street protests across China have evoked memories of the Tiananmen Square demonstrations that were brutally quashed in 1989. Indeed, foreign media have suggested the current unrest sweeping cities across China is unlike anything seen in the country since that time.

The implication is that protest in China is a rarity. Meanwhile, the Nov. 30, 2022, death of Jiang Zemin – the leader brought in after the bloody crackdown on 1989 – gives further reason to reflect on how China has changed since the Tiananmen Square massacre, and how Communist party leaders might react to unrest now.

But how uncommon are these recent public actions? And how do they compare with the massive weekslong demonstrations of 1989?

Having written extensively on protest in China, I can attest that protests in China are not at all uncommon – but that doesn’t make what is happening now any less significant. Alongside similarities between the current street actions and more typical protests of recent years, there are also parallels between the demonstrations today and those in 1989. Yet differences in China’s international status and domestic leadership reduce the chances for liberal democratic transformation now.

Not so unusual, but still unique

The current protests are ostensibly about the Chinese government’s strict “zero COVID” policies. They were triggered by a deadly fire in the northwestern city of Urumqi on Nov. 24, with some residents blaming lockdown rules for hampering rescue efforts. Unrest has since spread to multiple cities, including Beijing and Shanghai.

The specifics are unique to the pandemic. But in many respects, what we are seeing is not new or unusual – protests, in general, are not rare in China.

In fact, from 1990 through the present, popular protests have been more frequent and widespread in China than they were in the years leading up to the Tiananmen Square-centered demonstrations.

According to Chinese government statistics, the yearly count of domestic “mass incidents” or “public order disturbances” – euphemisms used to refer to everything from organized crime to street protests – rose from 5,000 to 10,000 in the early 1990s to 60,000 to 100,000 by the early 2000s.

Despite the lack of official numbers since 2006 – which ceased to be published after that year – verbal statements by Chinese officials and research by scholars and nongovernment organizations estimate the number of yearly protests to have remained in the high tens-of-thousands.

When protests turn political

This is not to say the recent multi-city protests are unsurprising or insignificant. To the contrary, the current media spotlight is, I believe, well-deserved.

Nearly all the thousands of protests appearing every year in the post-Tiananmen Square period have been localized and focused on specific material issues. They occur, for example, when villagers feel they are unfairly compensated for land acquisitions, when private sector workers are not paid, or when residents suffer from environmental degradation caused by waste incinerators.

In contrast, the anti-lockdown protests have emerged in numerous cities – reporting by CNN suggests there have been at least 23 demonstrations in 17 cities. They are also all focused on the same issue: COVID-19 restrictions. Moreover, they are targeted at central Party leaders and official government policy.

For the the closest parallels in terms of size of protest, one has to go back to the late 1990s and early 2000s.

From 1998 to 2002, tens of thousands of state-owned enterprise workers in at least 10 Chinese provinces demonstrated against layoffs and enforced early retirements. And in 1999, roughly 10,000 members of the now-banned spiritual movement Falun Gong amassed in central Beijing to protest their suppression and demand legal recognition.

But these protests were directed at issues that specifically affected only these groups and did not critique China’s top political leaders or system as a whole.

The only post-1989 examples of overt collective political dissent – that is, public action calling for fundamental change to the mainland’s Chinese Communist Party-led political system – have been exceedingly small and transpired off the streets. In 1998, activists formed the China Democracy Party, declaring it a new political party to usher in liberal democratic multi-party governance. Though the party persisted openly for roughly six months, establishing a national committee and branches in 24 provinces and cities, its leaders ultimately were arrested and the party driven underground.

A decade later, a group of intellectuals led by writer Liu Xiaobo posted online a manifesto called “Charter 08” advocating for liberal democratic political reform. Liu, who later received the Nobel Peace Prize, was jailed as a result. He remained in prison until his death, from untreated cancer, in 2017.

And while the massive and sustained protests in Hong Kong over the past decade exemplify political dissent, protesters’ demands have remained confined to political reform in the Hong Kong Special Administrative Region of the People’s Republic of China.

Calls for change and for Xi to go

So how much do the current anti-lockdown protests resemble the demonstrations that shook the regime in the spring of 1989?

Both have involved urban residents from various walks of life, including university students and blue-collar workers.

And in each case, the demands of protesters have been mixed. They include specific material complaints: In 1989, it was the impacts of inflation; in 2022, it is the effects of lockdowns and incessant PCR testing.

But they also include broader calls for political liberalization, such as freedom of expression.

A giant white statue with arm aloft stand above 100s of people.
The Goddess of Democracy stood as a symbol of protest during the 1989 Tiananmen Square demonstrations. David Turnley/Getty Images

Indeed in some ways, the protesters of 2022 are being more pointed in their political demands. Those on the streets of at least two major cities have called on President Xi Jinping and the Chinese Communist Party to step down. Demonstrators in 1989 refrained from such system-threatening rhetoric.

That reflects the changing political realities of China then and now. In early 1989, Party leadership clearly was split, with more reform-oriented leaders such as Zhao Ziyang perceived as sharing the activists’ vision for change. As such, demonstrators saw a way of achieving their aims within the communist system and without a wholesale change in leadership.

The contrast with today is stark: Xi has a firm grip on the party. Even if Xi were to miraculously step down, there is no clear opposition leader or faction to replace him. And if the party were to fall, the resultant political void is more likely to bring chaos than orderly political transformation.

Yet if the Chinese Communist Party is a different entity now than it was in 1989, its response to unrest shares some traits. Central authorities in 1989 blamed the protests on foreign “black hands” seeking to destabilize China. The same accusations have been raised in online posts now.

In fact, the government response to recent protests follows a pattern that has played out time and again in post-1989 protests. There is little to no official media coverage of the protests or acknowledgment by central Chinese Communist Party leaders. At the same time, local authorities attempt to identify and punish protest leaders while treating regular participants as well-intended and non-threatening. Central criticism – and possible sanction – of local officials portrayed as violating national policies follows. Meanwhile, there are moves to at least partially address protester grievances.

It is a messy and inefficient way to respond to public concerns – but it has become the norm since 1989.

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

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