Last week, we got the latest round of abysmal economic data out of Brazil. To summarize: GDP is in “free fall mode” (to quote Barclays), inflation hit double digits for the first time in over a decade, and unemployment soared to 7.9% in August, up sharply from just 4.3% a year earlier.
Put simply: it’s a full on economic meltdown.
The situation is made immeasurably worse by the country’s seemingly intractable political quagmire. The standoff between President Dilma Rousseff (who has been accused of cooking the fiscal books) and House Speaker Eduardo Cunha (who has been implicated in a kickback scheme tied to Petrobras) has led to a veritable stalemate that’s made it exceedingly difficult for Rousseff and her embattled finance minister Joaquim Levy to push through badly needed austerity measures.
Rousseff scored a victory on the austerity front on Wednesday when lawmakers approved her veto of a bill that would have raised retirement payments alongside the minimum wage, but this is an uphill battle and while incremental wins may be enough to give the beleaguered BRL some temporary respite, the medium- to long-term outlook is abysmal.
As Brazil continues to muddle through what has become a stagflationary nightmare, Barclays is out with a fresh look at the country’s debt dynamics and unsurprisingly, the picture isn’t pretty.
The road ahead depends on fiscal policy, Barclays begins, and that, given the current dynamic, is not a good thing. “Even if politics were uncomplicated and policy unconstrained, Brazil would still face enormous challenges adjusting to far less supportive local and global conditions,” the bank notes, referencing the now familiar laundry list of EM problems including slumping commodity prices, lackluster demand from China, the yuan deval (bye, bye trade competitiveness), and the incipient threat of a Fed hike and thus an even stronger USD.
“Investors are also grappling with the prospect of a prolonged, unsustainable fiscal policy framework,” Barclays adds.
And here’s Antonio Pascual doing his best Alberto Ramos impression by rattling off a comically long list of problems:
“Brazil is confronting a toxic combination of a primary budget deficit, high public debt (relative to EM countries), very high real interest rates (the Selic stands at 14.25%), sluggish trend growth, a negative commodity price shock and potential contingent liabilities for the sovereign, which together spell trouble for public debt dynamics.”
Yes they sure do “spell trouble for debt dynamics” and if the prospect of further imperiling the economy wasn’t enough to tie Copom’s hands, the relationship between public debt and rates leaves the central bank virtually paralyzed:
The combination of high debt/GDP and high interest rates means that Brazil suffers from ‘fiscal dominance’, a situation where monetary policy is driven by sovereign solvency concerns. Given the sensitivity of public debt to high interest rates in Brazil, the central bank is unlikely to tighten policy despite high inflation.
And even as Brazil doesn’t necessarily have an “original sin” problem (at least when it comes to public debt), the outlook is still rather dire:
How much time does Brazil have before markets push sovereign yields higher, accelerating the unsustainable debt dynamics? There are some important risk mitigants. Brazil’s debt is predominantly payable in local currency, and what is payable in foreign currency is covered many times over by its international reserves. The problem is that, by our estimates, public debt in Q4 2015 will be more than 71% of GDP with average funding costs at more than 12%, with no prospects for a turn-around towards a sustainable primary surplus or stronger growth prospects.
Going forward, “the prospects of success are bleak”:
The challenges of fiscal consolidation in Brazil are only beginning, and without policy changes, prospects of success are bleak.
In a stressed scenario, in which there is a lack of full Congress support and an unsuccessful asset sales program, we see the fiscal adjustment for 2016 amounting to only 1.0% of GDP.
This scenario is consistent with increased market pressure for the remainder of 2015 and 2016 (Figure 9). Market stress could increase, for example, due to a potential impeachment of the President, a loss of confidence in the fiscal outlook, and/or a significant increase in contingent liabilities. Our projection assumes that the primary balance worsens relative to our base case, reaching -2.3% of GDP in 2016. The deficit falls gradually thereafter but a deficit persists until 2019 (-0.5 percent).
The recession lasts for longer than in the base case, but inflation rises further because further BRL depreciation pushes actual inflation and inflation expectations higher. Inflation rises to 9% in 2015 and remains high (but gradually falls) thereafter. Interest rates rise 2pp more than in the base case in 2015 and 2016, as higher risk premia push up the cost of debt.
The end result, Barclays warns is that "in the stress scenario, debt/GDP rises to over 100% of GDP by 2020 and does not stabilise." And while the bank admits that "there are various negative developments compounding this scenario, including higher average interest rates and weaker growth," Barclays cautions that it "does not view [the] assumptions as unrealistic" given that for instance, the projection only assumes interest rates rising 200bp relative to the base case which "is half the increase in the cost of debt seen during the global financial crisis of 2008, and considerably less than the pressure seen in 2002 when the Selic rate rose by 800bp in less than six months."
What happens if the cost of debt rises in line with what we witnessed in 2008, you ask? This:
The chart depicts 40 paths for debt/GDP associated with increasingly higher interest rates in steps of 10bp, starting from the baseline path for debt/GDP to the last path corresponding to the baseline scenario for interest rates plus a 400bp shock. The shock is applied to the interest rate in the transition years, not to the steady state interest rate (set at 8%). The key takeaway is that as the cost of debt rises in the baseline scenario, public debt/GDP increases rapidly and stabilizes later relative to the base case. In the extreme case of a +400bp increase in the average cost of debt, the public debt/GDP ratio peaks at a whopping 114% in 2021.
So what's the takeaway besides the fact that Brazil is, for lack of a better word, screwed (because we already knew that)? Well remember, Brazil is representative of the problems facing EM as a whole. Slumping commodity prices, currency carnage, FX pass through inflation, sensitivity to decelerating Chinese demand and to Beijing’s yuan deval, Brazil has it all - they even have a seemingly intractable political crisis, and as we never tire of pointing out, idiosyncratic political risk factors have become an important part of the EM calculus (see Turkey and Malaysia for instance). In short, the country is a proxy for EM as a whole. With that in mind we close with what Barclays says are the wider implications of Brazil's deteriorating fiscal picture and challenging debt dynamics:
"The prospect of such deterioration is likely to lead to a further sell-off in Brazilian assets and could create contagion – especially to vulnerable EMs – given Brazil’s systemic importance."
Brussels Lockdown Day 2: Police Hunt "Two Terrorists," Jihadi John Accomplice As Civilians Urged To "Remain At Home"
On Saturday, police and other security personnel instituted what amounts to a military lockdown of Brussels amid a “serious and imminent” terror threat.
The government’s crisis center advised the public to “avoid places where a lot of people come together like shopping centers, concerts, events or public transport stations wherever possible.” The metro was closed, bus drivers refused to work, and local authorities were encouraged to cancel large events. Soldiers and police carrying assault rifles patrolled the streets where military vehicles were parked and for all intents and purposes, residents were told to simply stay inside.
Belgian Interior Minister Jan Jambon told reporters he wanted a register of everyone living in Molenbeek because it was not clear at present who was there, with authorities conducting door-to-door checks of every house. "The local administration should knock on every door and ask who really lives there," Jambon said. Here's what Jambon had to say on Sunday: "There are several suspects, that’s why we have put in place such a concentration of resources. We are following the situation minute by minute. There’s is no point in hiding that there is a real threat, but we are doing everything we can, day and night, to counter this situation,”
Saturday came and went without incident, but apparently, Brussels isn’t out of the woods yet. The terror threat level remained at 4 - the highest - on Sunday and the warzone like conditions may extend into the work week.
Authorities are apparently searching for “two men” who officials say pose an imminent threat to the public. "There are two terrorists in the Brussels region that could commit very dangerous acts,” Schaerbeek Mayor Bernard Clerfayt told Belgian media on Sunday.
As The Telegraph reports, “the national security council, including top ministers, was expected to convene on Sunday afternoon to determine what measures to take or retain,” while it’s possible schools could be closed on Monday.
Just in case the public wasn’t worried enough, “a terror suspect” linked to Jihadi John has apparently “evaded” British intelligence and escaped to Brussels where authorities fear he may have linked up with an Abdelhamid Abaaoud cell. The suspect, who authorities are calling “CF”, “was under surveillance when he slipped the security net and escaped in the back of a lorry,” The Telegraph says, adding that “he is known to have arrived in Brussels where he tried to obtain a false British passport.” CF is “seeking to harm the public on a wide and terrifying scale,” a judge says.
Here are the latest images out of Brussels:
"Shelter in place and remain at home. If you were planning to attend an event, we strongly urge you to reconsider," the US Embassy in Brussels advised Americans living in or visiting the city.
“Unfortunately, it’s a threat that goes beyond just that individual,” Jabon added, referring to Paris suspect Salah Abdeslam. "One big test will be whether the metro system starts running again Monday morning, when many of the capital’s more than one million inhabitants depend on public transport to get to work," WSJ notes.
So, the terror marathon continues unabated and as you might have heard overnight, there were conflicting reports on Saturday regarding whether Anonymous (who decided last week to launch a cyber war against ISIS) had leaked a list of targets terrorists intended to strike on Sunday. The top Anonymous Twitter feed denied that the "intel" emanated from the group, but authorities took it seriously enough that the FBI weighed in.
In any event, Belgian Prime Minister Charles Michel wants you to know that despite the troops in the streets, the city-wide lockdown, and the government's advice to remain indoors, nobody should be "panic-stricken." Rather, Belgians should just "be alert."
Roger that, Charles.
Redefining âThe Human Rightsâ In The Context Of The Rise Of Islamism And The Onslaught Of The Western Democracies
Seven years after the Fed unleashed ZIRP and QE to "fix the economy", it has finally admitted that ZIRP and QE failed to do that (although they certainly succeeded in blowing the biggest asset bubble ever), and for the past 6 months the Fed has engaged in what may be the most ridiculous case of revisionist history, as the narrative has been flipped on its head, and now the all too wise career economists of the Fed (with the help of a few good ex-Goldman bankers) are pitching the first rate hike in nearly a decade as the solution to all the economy's problems.
For now the equity market has played along with this grotesque flip-flop in monetary policy, first by rising two months ago on terrible job numbers which made the December rate hike less realistic, and then rising some more in the aftermath of the October "hawkish" Fed announcement and minutes, which in no uncertain terms warned a December rate hike is coming after all, poor economic data be damned.
To be sure, while stocks as usual remain stuck in their imaginary ivory tower where good news is great, and bad news is even greater, other assets have been far less enthusiastic. In fact, as we have shown repeatedly, the dramatic flattening of the yield curve (via the 2s30s) is now screaming policy error.
Yet if bonds foresee a major monetary policy "error" why do stocks remain oblivious? One attempt at an answer was provided by Goldman late last week when the firm suggested that the natural rate of the economy (to which the Fed will hike rates before re-easing) has declined and will remain lower for longer: in other words, the Fed's experiment has weakened the economy so much, its potential growth rate has been cut in half in the past decade.
To Goldman this was, as can be expected, bullish for stocks and bearish for bonds (ironically even as another part of Goldman is saying that the "Bernanke put" is now gone and has been replaced with the "Yellen call", which is why Goldman's 2016 year end target is an unchanged market).
Another, far more credible interpretation, comes from Deutsche Bank's Dominic Konstam.
According to the DB strategist, what the Fed is likely ignoring is that after decades of bubbles, the monetary excess aftermath of the great financial crisis has still not cleared, and that not only is the equilibrium real rate "lower for longer", it is in fact negative.
What this means is that the Fed, in its reflexive attempt to boost confidence in the economy - and the logic goes as follows: "look, we are raising rates, and we wouldn't be raising rates unless we thought the economy could handle it" (just please ignore the whole "subprime is contained" thing) - is not only engaging in massive policy error, but is about to unleash a recession which will promptly force it to cut rates again (to negative) and start another episode of QE.
Here is Deutsche, first laying out what the Fed economists think:
The real case for policy error - equilibrium short real rates may be below zero
There are two interpretations of the macroeconomic data that have vastly different implications for the effect of imminent rate hikes. The first is the “conventional” view, which the Fed subscribes to. This view posits that the short-term real equilibrium rate is around zero. Since the nominal Funds rate is at the zero lower bound, policy is accommodative, and this is why the labor market has improved rapidly. Inflation has not picked up because it as a lagging indicator. However, some form of a Phillips Curve relationship does exist, and so inflation will eventually reach the Fed’s 2 percent target. As per this view, if inflation rises and nominal growth also rises then the equilibrium nominal rate will rise. Even if the equilibrium real rate does not change, the Fed might at least be able to get to the market’s view of the terminal rate – slightly below 2 ½ percent – without inflicting serious damage on the economy. If the equilibrium real rate does rise, all the better – the markets would move to the Fed’s dots, and the terminal rate would be around the Fed’s target of 3 ½ percent.
How to determine if the equilibrium rate is negative? Just look at the debt, stupid:
The alternative view is more worrying. In this view, the equilibrium nominal rate is at present much lower than the Fed thinks and the equilibrium real rate is meaningfully negative. Policy at present is not very accommodative, and to the extent that it is, inflation is actually running above its equilibrium level, which is close to 1 percent. One might argue for low “implied” equilibrium short rates via debt ratios. For example, if nominal growth is 3 percent and the debt GDP ratio is 300 percent, the implied equilibrium nominal rates is around 1 percent. This is because at 1% rates, 100% of GDP growth is necessary to service interest costs.
Which goes back to our fundamental thesis from day 1: there is simply too much debt, and while unconventional policy merely increases the debt, the interest rate shock from a rate hike will crash the economy: hence, the Fed is trapped.
In this case, real growth would slow in response to rate hikes because productivity would stay weak at full employment and companies would be profit/price constrained around paying higher wages. Moreover, nominal growth would then slow even more than real growth does because inflation would fall to 1 percent or below.
But... a 25 bps rate hike is tiny: surely the economy can handle it? Actually, if the equilibrium rate is negative, it can't.
This is the important policy error scenario because even a very shallow path of rate hikes might drive the real Funds rate well above the short-term equilibrium real rate, further depressing demand. It is then plausible that the economy would be driven into recession, and the Fed would quickly be forced to abort the hiking cycle. As an aside, such a policy error could reinforce itself by causing structural damage that puts additional downward pressure on the equilibrium real rate. In this case the yield curve would flatten meaningfully, at least until the Fed actually reversed course by cutting rates.
Finally, this is critical because just like Japan in 2000, and all other central banks during the New Normal, who raised rates only to lower them immediately after, the Fed is about to unleash not only a policy mistake, but to do precisely the one thing that will force it to not only cut rates, perhaps to negative, while doing even more QE.
This scenario is also bullish for rates because the Fed would, at the very least, stop rolling down its SOMA portfolio. More likely it would restart asset purchases in an attempt to stimulate the economy once more, pushing yields further down. We have argued in the past that unconventional forms of monetary accommodation are here to stay. The minutes of the October meeting confirm this view, noting that some policymakers felt it would be “prudent to have additional policy tools” because a lower long-run equilibrium real rate makes it more likely that reductions in the Funds rate alone would not be sufficient to stimulate the economy in the event of a downturn in the future.
Whether this error will crush what little credibility the Fed has and be its final error, either policy or communication, will be revealed in the very near future.
Good luck Janet.
Last month, US Congresswoman Tulsi Gabbard went on CNN and laid bare Washington’s Syria strategy.
In a remarkably candid interview with Wolf Blitzer, Gabbard calls Washington’s effort to oust Assad “counterproductive” and “illegal” before taking it a step further and accusing the CIA of arming the very same terrorists who The White House insists are "sworn enemies.”
In short, Gabbard all but tells the American public that the government is lying to them and may end up inadvertently starting “World War III.”
For those who missed it, here’s the clip:
That was before Paris.
Well, in the wake of the attacks, Gabbard has apparently had just about enough of Washington vacillating in the fight against terror just so the US can ensure that ISIS continues to destabilize Assad and now, with bi-partisan support, the brazen Hawaii Democrat has introduced legislation to end the "illegal war" to overthrow Assad.
Gabbard, who fought in Iraq - twice - has partnered with Republican Adam Scott on the bill. Here's AP:
In an unusual alliance, a House Democrat and Republican have teamed up to urge the Obama administration to stop trying to overthrow Syrian President Bashar Assad and focus all its efforts on destroying Islamic State militants.
Reps. Tulsi Gabbard, a Democrat, and Austin Scott, a Republican, introduced legislation on Friday to end what they called an "illegal war" to overthrow Assad, the leader of Syria accused of killing tens of thousands of Syrian citizens in a more than four-year-old civil war entangled in a battle against IS extremists, also known as ISIS.
"The U.S. is waging two wars in Syria," Gabbard said. "The first is the war against ISIS and other Islamic extremists, which Congress authorized after the terrorist attack on 9/11. The second war is the illegal war to overthrow the Syrian government of Assad."
Scott said, "Working to remove Assad at this stage is counter-productive to what I believe our primary mission should be."
Since 2013, the CIA has trained an estimated 10,000 fighters, although the number still fighting with so-called moderate forces is unclear. CIA-backed rebels in Syria, who had begun to put serious pressure on Assad's forces, are now under Russian bombardment with little prospect of rescue by their American patrons, U.S. officials say.
For years, the CIA effort had foundered — so much so that over the summer, some in Congress proposed cutting its budget. Some CIA-supported rebels had been captured; others had defected to extremist groups.
Gabbard complained that Congress has never authorized the CIA effort, though covert programs do not require congressional approval, and the program has been briefed to the intelligence committees as required by law, according to congressional aides who are not authorized to be quoted discussing the matter.
Gabbard contends the effort to overthrow Assad is counter-productive because it is helping IS topple the Syrian leader and take control of all of Syria. If IS were able to seize the Syrian military's weaponry, infrastructure and hardware, the group would become even more dangerous than it is now and exacerbate the refugee crisis.
And make no mistake, Tulsi's understanding of Washington's absurd Mid-East policy goes far beyond Syria. That is, Gabbard fully grasps the big picture as well. Here's what she has to say about the idea that the US should everywhere and always attempt to overthrow regimes when human rights groups claim there's evidence of oppression:
"People said the very same thing about Saddam (Hussein), the very same thing about (Moammar) Gadhafi, the results of those two failed efforts of regime change and the following nation-building have been absolute, not only have they been failures, but they've actually worked to strengthen our enemy."
Somebody get Langley on the phone, this woman must be stopped.
Here's Gabbard speaking to CNN this week about Assad:
So there's hope for the US public after all.
Perhaps if the clueless masses won't listen to "lunatic" fringe blogs or Sergei Lavrov, they'll listen to a US Congresswoman who served two tours of duty in Iraq and who is now telling Americans that The White House, The Pentagon, and most especially the CIA are together engaged in an "illegal" effort to overthrow the government of a sovereign country and in the process are arming the very same extremists that are attacking civilians in places like Paris.
Good luck Tulsi, and thanks for proving that there's at least one person inside that Beltway that isn't either dishonest or naive.
* * *
“Here are 10 reasons the U.S. must end its war to overthrow the Syrian government of Assad:
- Because if we succeed in overthrowing the Syrian government of Assad, it will open the door for ISIS, al-Qaeda, and other Islamic extremists to take over all of Syria. There will be genocide and suffering on a scale beyond our imagination. These Islamic extremists will take over all the weaponry, infrastructure, and military hardware of the Syrian army and be more dangerous than ever before.
- We should not be allying ourselves with these Islamic extremists by helping them achieve their goal because it is against the security interests of the United States and all of civilization.
- Because the money and weapons the CIA is providing to overthrow the Syrian government of Assad are going directly or indirectly into the hands of the Islamic extremist groups, including al-Qaeda affiliates, al-Nusra, Ahrar al-Sham, and others who are the actual enemies of the United States. These groups make up close to 90 percent of the so-called opposition forces, and are the most dominant fighters on the ground.
- Because our efforts to overthrow Assad has increased and will continue to increase the strength of ISIS and other Islamic extremists, thus making them a bigger regional and global threat.
- Because this war has exacerbated the chaos and carnage in Syria and, along with the terror inflicted by ISIS and other Islamic extremist groups fighting to take over Syria, continues to increase the number of Syrians forced to flee their country.
- Because we should learn from our past mistakes in Iraq and Libya that U.S. wars to overthrow secular dictators (Saddam Hussein and Muammar Gaddafi) cause even more chaos and human suffering and open the door for Islamic extremists to take over in those countries.
- Because the U.S. has no credible government or government leader ready to bring order, security, and freedom to the people of Syria.
- Because even the ‘best case’ scenario—that the U.S. successfully overthrows the Syrian government of Assad—would obligate the United States to spend trillions of dollars and the lives of American service members in the futile effort to create a new Syria. This is what we have been trying to do in Iraq for twelve years, and we still have not succeeded. The situation in Syria will be much more difficult than in Iraq.
- Because our war against the Syrian government of Assad is interfering with our being one-pointedly focused on the war to defeat ISIS, Al-Qaeda, and the other Islamic extremists who are our actual enemy.
- Because our war to overthrow the Assad government puts us in direct conflict with Russia and increases the likelihood of war between the United States and Russia and the possibility of another world war.”
* * *
Oh, and if you needed another reason to like Tulsi, here's a bonus 40 second clip for your amusement...
"This market is looking like a disaster and the rates are a reflection of that," warns one of the world's largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines - having collapsed to all-time record lows this week - it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before... 2008! "It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term."
Baltic Dry at record lows...
And Shanghai Containerized Freight collapsing...
Shipping freight rates for transporting containers from ports in Asia to Northern Europe plunged by 27.9 percent to $295 per 20-foot container (TEU) in the week ending on Friday, one source with access to data from the Shanghai Containerized Freight Index told Reuters.
The drop came after spot freight rates on the world’s busiest route dropped 39.3 percent last week, and the current rates are widely seen as loss-making levels for container shipping companies.
The spot freight rates for transporting containers, carrying anything from flat-screen TVs to sportswear from Asia to Northern Europe, has fallen 70 percent in three weeks.
In the week to Friday, container freight rates fell 22.5 percent from Asia to ports in the Mediterranean, dropped 8.6 percent to ports on the U.S. West Coast and were down 8.0 percent to ports on the U.S. East Coast.
But even more concerning is this collapse is occurring just as the containerized freight industry enters its golden seasonal period...
Now where have we seen this massive unprecedented decoupling before?
Of course the clarion calls of the status quo, everything is awesome, optimists is that this has nothing to with demand but is merely due to over-supply of ships...
Supply has indeed surged...
But only thanks to totally manipulated and decoupled-from-reality signals from 'markets' that caused firms to massively mal-invest in building ships for the renaissance of global trade... which never happened...
In fact, as the chart above shows, growth in global trade has been slowing down for some time, as Acting-Man's Pater Tenebrarum notes,
But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation. Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with.
Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all.
More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum...
US, French Aircraft Carriers Rush Toward Syrian Coast To Find Numerous Russian Warships Already There
Two weeks ago, on November 5, and one week before the Paris terrorist attack, we reported that somewhat unexpectedly, France had dispatched its only aircraft carrier, the Charles de Gaulle, to "the eastern Mediterranean for operations against Isis in both Syria and Iraq."
It was unclear just what these pre-emptive operations would be and why France is getting so dramatically involved in the campaign against ISIS. Not knowing the dramatic attack that was about to unfold (whose false flag origins have been quickly ignored as nobody has yet explained why a fake Syrian passport was found next to the suicide bomber), we speculated that this move had to do with the departure of the CVN-71 Theodore Roosevelt which had left the Persian Gulf region a month ago, leaving the entire 5th Naval Fleet without a US carrier presence for the first time in a decade.
One week later, we found out that Paris may have had an advance hint of what was about to unfold when on the night of Friday 13 it all fell into place.
But with the French aircraft carrier full steam ahead toward the Syrian coast, the US could not afford to leave the airborne defense of the region to the French, so it did what was just a matter of time: it weighed anchor on the CVN-75, Harry Truman which was deployed toward the Middle East where according to the Daily Press it will "fight the Islamic State."
According to the Press, "the Truman is expected to reach the Persian Gulf before the year’s end. The U.S. has been launching air strikes into Iraq and Syria from aircraft carriers in the Persian Gulf — at least until last month, when the USS Theodore Roosevelt left the area after an extended deployment. The two-month gap is the first in nearly a decade that the U.S. has had no carrier in the region."
While the Truman’s departure date was set more than a year ago, it came about six months earlier than first planned. In October 2014, it was announced that the ship would switch deployment cycles with the Norfolk-based USS Dwight D. Eisenhower, which required an additional 10 months in the shipyard.
As the Navy Times reports, "there were no immediate changes to deployment orders as a result of Friday's terror attacks, but there is great resolve among the sailors to support their French allies, said Capt. Ryan Scholl, Truman's skipper. Scholl said his crew is ready to bring peace or "violent destruction."
Something tells us it will be the latter.
Once again, here is the ETA: Carrier Theodore Roosevelt left 5th Fleet in mid-October, leaving that region without a carrier until the Truman CSG gets there, which should be about six weeks, or just around the New Year.
Then again, according to the latest Stratfor naval map, the Truman is already approaching Gibraltar. If accurate, it means the carrier will be next to Syria in a couple of weeks tops.
Scholl offered assurance to coalition and U.S. forces still in the fight across Syria and Iraq as part of Operation Inherent Resolve.
"The Harry S. Truman battle group will be there in due time and execute our mission successfully," he said. "We hope that brings some peace of mind to the people that are out there, both our coalition partners as well as our troops on the ground, and it brings a hard-to-swallow, deliberate pause in our enemy."
Where things get very interesting is what the Navy Times says next:
ISIS is not the only challenge that awaits the flotilla, which includes the cruiser Anzio, Carrier Wing Air 7, and destroyers Bulkeley, Gravely and Gonzalez. Russian, Chinese and Iranian marines have established their presence in Syria, and Russian warships from the Black Sea have relocated to the eastern Mediterranean to protect fighter jets conducting airstrikes in support of Syria's Assad regime. In preparation, the strike group's Composite Training Unit Exercise focused on adversaries that more closely resembled those of the Cold War.
Russians and Iranians we knew about, but Chinese? Does the US Navy know something that has not been made public previously?
While we await the answer, what we do know is that suddenly the east Mediterranean is about to become a warship and aircraft carrier parking lot, with the Truman and de Gaulle side by side, just as we predicted it would be a month ago when we said that the summer of 2013 naval scenario is unfolding once again.
Then there are the Russians. Here's the latest from Tass:
Ten ships of the Russian Navy are involved in the anti-terrorism operation in Syria, Russia’s Defense Minister Sergey Shoigu told President Vladimir Putin on Friday.
"The naval group comprises ten ships, six of them are in the Mediterranean," the minister said.
Shoigu said the Caspian Flotilla warships on Friday launched 18 cruise missiles at terrorist positions in Syria hitting seven targets.
"On November 20, the Caspian Flotilla warships launched 18 cruise missiles at seven targets in the Raqqa, Idlib and Aleppo provinces of Syria. All the targets were hit," Shoigu said.
As we said: busy, and it's only going to get busier.
But the punchline is Russia is already treating the Syrian coastline as its own playground, and has imposed explicit no fly zones in the eastern Mediterranean as the following tweet reveals:
??? ????????? ???? ??-?? "Russian Navy exercise" ????????? 14–23 ??????, 21–23 ?????? ? 24–26 ?????? ??????????????. pic.twitter.com/Pi3qwpw1wB
— Ilya A. = ???? ?. (@ain92ru) November 20, 2015
What happens when both the French and the US navies, both packing dozens of airplanes, arrive and convert the Mediterranean off the Syrian coast into one big warship parking lot.
We can only hope that the sudden confluence of goodwill and best intentions by the superpowers to crush ISIS is genuine instead of merely a ploy to get everyone in the same place and result in the biggest ever Gulf of Tonkin redux and an "accidental" sinking of one or more ships... with or without a fake Syrian passport planted next to it.
One way to view Official Washington is to envision a giant bubble that serves as a hothouse for growing genetically modified “group thinks.” Most inhabitants of the bubble praise these creations as glorious and beyond reproach, but a few dissenters note how strange and dangerous these products are. Those critics, however, are then banished from the bubble, leaving behind an evermore concentrated consensus.
This process could be almost comical – as the many armchair warriors repeat What Everyone Knows to Be True as self-justifying proof that more and more wars and confrontations are needed – but the United States is the most powerful nation on earth and its fallacious “group thinks” are spreading a widening arc of chaos and death around the globe.
We even have presidential candidates, especially among the Republicans but including former Secretary of State Hillary Clinton, competing to out-bellicose each other, treating an invasion of Syria as the least one can do and some even bragging about how they might like to shoot down a few Russian warplanes.
Though President Barack Obama has dragged his heels regarding some of the more extreme proposals, he still falls in line with the “group think,” continuing to insist on “regime change” in Syria (President Bashar al-Assad “must go”), permitting the supply of sophisticated weapons to Sunni jihadists (including TOW anti-tank missiles to Ahrar ash-Sham, a jihadist group founded by Al Qaeda veterans and fighting alongside Al Qaeda’s Nusra Front), and allowing his staff to personally insult Russian President Vladimir Putin (having White House spokesman Josh Earnest in September demean Putin’s posture for sitting with his legs apart during a Kremlin meeting with Israeli Prime Minister Benjamin Netanyahu).
Not surprisingly, I guess, Earnest’s prissy disapproval of what is commonly called “man spread” didn’t extend to Netanyahu who adopted the same open-leg posture in the meeting with Putin on Sept. 21 and again in last week’s meeting with Obama, who – it should be noted – sat with his legs primly crossed.
This combination of tough talk, crude insults and reckless support of Al Qaeda-connected jihadis (“our guys”) apparently has become de rigueur in Official Washington, which remains dominated by the foreign policy ideology of neoconservatives, who established the goal of “regime change” in Iraq, Syria and Iran as early as 1996 and haven’t changed course since. [See Consortiumnews.com’s “How Neocons Destabilized Europe.”]
Despite the catastrophic Iraq War – based on neocon-driven falsehoods about WMD and the complicit unthinking “group think” – the neocons retained their influence largely through an alliance with “liberal interventionists” and their combined domination of major Washington think tanks, from the American Enterprise Institute to the Brookings Institution, and the mainstream U.S. news media, including The Washington Post and The New York Times.
This power base has allowed the neocons to continue shaping Official Washington’s narratives regardless of what the actual facts are. For instance, a Post editorial on Thursday repeated the claim that Assad’s “atrocities” included use of chemical weapons, an apparent reference to the now largely discredited claim that Assad’s forces were responsible for a sarin gas attack outside Damascus on Aug. 21, 2013.
After the attack, there was a rush to judgment by the U.S. State Department blaming Assad’s troops and leading Secretary of State John Kerry to threaten retaliatory strikes against the Syrian military. But U.S. intelligence analysts refused to sign on to the hasty conclusions, contributing to President Obama’s last-minute decision to hold off on a bombing campaign and to accept Putin’s help in negotiating Assad’s surrender of all Syrian chemical weapons (though Assad still denied a role in the sarin attack).
Subsequently, much of the slapdash case for bombing Syria fell apart. As more evidence became available, it increasingly appeared that the sarin attack was a provocation by Sunni jihadists, possibly aided by Turkish intelligence, to trick the United States into destroying Assad’s military and thus clearing the way for a Sunni jihadist victory.
We now know that the likely beneficiaries of such a U.S. attack would have been Al Qaeda’s Nusra Front and the spinoff known as the Islamic State (also called ISIS, ISIL or Daesh). But the Obama administration never formally retracted its spurious sarin claims, thus allowing irresponsible media outlets, such as The Washington Post, to continue citing the outdated “group think.”
The same Post editorial denounced Assad for using “barrel bombs” against the Sunni rebels who are seeking to overthrow his secular government, which is viewed as the protector of Syria’s minorities – including Christians, Alawites and Shiites – who could face genocide if the Sunni extremists prevail.
Though this “barrel bomb” theme has become a favorite talking point of both the neocons and liberal “human rights” groups, it’s never been clear how these homemade explosive devices shoved out of helicopters are any more inhumane than the massive volumes of “shock and awe” ordnance, including 500-pound bombs, deployed by the U.S. military across the Middle East, killing not only targeted fighters but innocent civilians.
Nevertheless, the refrain “barrel bombs” is accepted across Official Washington as a worthy argument for launching devastating airstrikes against Syrian government targets, even if such attacks clear the way for Al Qaeda’s allies and offshoots gaining control of Damascus and unleashing even a worse humanitarian cataclysm. [See Consortiumnews.com’s “Obama’s Ludicrous ‘Barrel Bomb’ Theme.”]
But it is now almost impossible for Official Washington to disentangle itself from all the false narratives that the neocons and the liberal hawks have spun in support of their various “regime change” strategies. Plus, there are few people left inside the bubble who even recognize how false these narratives are.
So, the American people are left with the mainstream U.S. news media endlessly repeating storylines that are either completely false or highly exaggerated. For instance, we hear again and again that the Russians intervened in the Syrian conflict promising to strike only ISIS but then broke their word by attacking Al Qaeda’s Nusra Front and “our guys” in Sunni jihadist forces armed by Saudi Arabia, Qatar, Turkey and the CIA.
Though you hear this narrative everywhere in Official Washington, no one ever actually quotes Putin or another senior Russian official promising to strike only at ISIS. In all the quotes that I’ve seen, the Russians refer to attacking “terrorists,” including but not limited to ISIS.
Unless Official Washington no longer regards Al Qaeda as a terrorist organization – a trial balloon that some neocons have floated – then the Putin-lied narrative makes no sense, even though every Important Person Knows It to Be True, including Obama’s neocon-leaning Defense Secretary Ashton Carter.
The U.S. political and media big shots also mock the current Russian-Iranian proposal for first stabilizing Syria and then letting the Syrian people decide their own leadership through internationally observed democratic elections.
Okay, you might say, what’s wrong with letting the Syrian people go to the polls and pick their own leaders? But that just shows that you’re a Russian-Iranian “apologist” who doesn’t belong inside the bubble. The Right Answer is that “Assad Must Go!” whatever the Syrian people might think.
Or, as the snarky neocon editors of The Washington Post wrote on Thursday, “Mr. Putin duly dispatched his foreign minister to talks in Vienna last weekend on a Syrian political settlement. But Moscow and Tehran continue to push for terms that would leave Mr. Assad in power for 18 months or longer, while — in theory — a new constitution is drafted and elections organized. Even a U.S. proposal that Mr. Assad be excluded from the eventual elections was rejected, according to Iranian officials.”
In other words, the U.S. government doesn’t want the Syrian people to decide whether Assad should be kicked out, an odd and contradictory stance since President Obama keeps insisting that the vast majority of Syrians hate Assad. If that’s indeed the case, why not let free-and-fair elections prove the point? Or is Obama so enthralled by the neocon insistence of “regime change” for governments on Israel’s “hit list” that he doesn’t want to take the chance of the Syrian voters getting in the way?
Reality Tied Down
But truth and reality have become in Official Washington something like Gulliver being tied down by the Lilliputians. There are so many strands of lies and distortions that it’s impossible for sanity to rise up.
Another major factor in America’s crisis of false narratives relates to the demonizing of Russia and Putin, a process that dates back in earnest to 2013 when Putin helped Obama sidetrack the neocon dream of bombing Syria and then Putin compounded his offense by assisting Obama in getting Iran to constrain its nuclear program, which derailed another neocon dream to bomb-bomb-bomb Iran.
It became ominously clear to the neocons that this collaboration between the two presidents might even lead to joint pressure on Israel to finally reach a peace agreement with the Palestinians, a possibility that struck too close to the heart of neocon thinking which, for the past two decades, has favored using “regime change” in nearby countries to isolate and starve Lebanon’s Hezbollah and Palestinian groups, giving Israel a free hand to do whatever it wished.
So, this Obama-Putin relationship had to be blown up and the point of detonation was Ukraine on Russia’s border. Official Washington’s false narratives around the Ukraine crisis are now also central to neocon/liberal-hawk efforts to prevent meaningful coordination between Obama and Putin in countering ISIS and Al Qaeda in Syria and Iraq.
Inside Official Washington’s bubble, the crisis in Ukraine is routinely described as a simple case of Russian “aggression” against Ukraine, including an “invasion” of Crimea.
If you relied on The New York Times or The Washington Post or the major networks that repeat what the big newspapers say, you wouldn’t know there was a U.S.-backed coup in February 2014 that overthrew the elected Ukrainian government of Viktor Yanukovych, even after he agreed to a European compromise in which he surrendered many powers and accepted early elections.
Instead of letting that agreement go forward, right-wing ultra-nationalists, including neo-Nazis operating inside the Maidan protests, overran government buildings in Kiev on Feb. 22, 2014, causing Yanukovych and other leaders to flee for their lives.
Behind the scenes, U.S. officials, such as neocon Assistant Secretary of State for European Affairs Victoria Nuland, had collaborated in the coup plans and celebrated the victory by Nuland’s handpicked leaders, including the post-coup Prime Minister Arseniy Yatsenyuk, whom she referred to in an earlier intercepted phone call as “Yats is the guy.”
Nor would you know that the people of Crimea had voted overwhelmingly for President Yanukovych and – after the coup – voted overwhelmingly to get out of the failed Ukrainian state and reunify with Russia.
The major U.S. news media twists that reality into a Russian “invasion” of Crimea even though it was the strangest “invasion” ever because there were no photos of Russian troops landing on the beaches or parachuting from the skies. What the Post and the Times routinely ignored was that Russian troops were already stationed inside Crimea as part of a basing agreement for the Russian fleet at Sevastopol. They didn’t need to “invade.”
And Crimea’s referendum showing 96 percent approval for reunification with Russia – though hastily arranged – was not the “sham” that the U.S. mainstream media claimed. Indeed, the outcome has been reinforced by various polls conducted by Western agencies since then.
The MH-17 Case
The demonization of Putin reached new heights after the July 17, 2014 shoot-down of Malaysia Airlines Flight 17 over eastern Ukraine killing all 298 people onboard. Although substantial evidence and logic point to elements of the Ukrainian military as responsible, Official Washington’s rush to judgment blamed ethnic Russian rebels for firing the missile and Putin for supposedly giving them a powerful Buk anti-aircraft missile system.
That twisted narrative often relied on restating the irrelevant point that the Buks are “Russian-made,” which was used to implicate Moscow but was meaningless since the Ukrainian military also possessed Buk missiles. The real question was who fired the missiles, not where they were made.
But the editors of the Post, the Times and the rest of the mainstream media think you are very stupid, so they keep emphasizing that the Buks are “Russian-made.” The more salient point is that U.S. intelligence with all its satellite and other capabilities was unable – both before and after the shoot-down – to find evidence that the Russians had given Buks to the rebels.
Since the Buk missiles are 16-feet-long and hauled around by slow-moving trucks, it is hard to believe that U.S. intelligence would not have spotted them given the intense surveillance then in effect over eastern Ukraine.
A more likely scenario of the MH-17 shoot-down was that Ukraine moved several of its Buk batteries to the frontlines, possibly fearing a Russian airstrike, and the operators were on edge after a Ukrainian warplane was shot down along the border on July 16, 2014, by an air-to-air missile presumably fired by a Russian plane.
But – after rushing out a white paper five days after the tragedy pointing the finger at Moscow – the U.S. government has refused to provide any evidence or intelligence that might help pinpoint who fired the missile that brought down MH-17.
Despite this remarkable failure by the U.S. government to cooperate with the investigation, the mainstream U.S. media has found nothing suspicious about this dog not barking and continues to cite the MH-17 case as another reason to despise Putin.
How upside-down this “Everything Is Putin’s Fault” can be was displayed in a New York Times “news analysis” by Steven Erlanger and Peter Baker on Thursday when all the “fundamental disagreements” between Obama and Putin were blamed on Putin.
“Dividing them are the Russian annexation of Crimea and its meddling in eastern Ukraine, Moscow’s efforts to demonize Washington and undermine confidence in NATO’s commitment to collective defense, and the Kremlin’s support of President Bashar al-Assad of Syria,” Erlanger and Baker wrote.
This tangle of false narratives is now tripping up the prospects of a U.S.-French-Russian-Iranian alliance to take on the Islamic State, Al Qaeda and other Sunni jihadist forces seeking to overthrow Syria’s secular government.
The neocon Washington Post, in particular, has been venomous about this potential collaboration which – while possibly the best chance to finally resolve the horrific Syrian conflict – would torpedo the neocons’ long-held vision of imposed “regime change” in Syria.
In editorials, the Post’s neocon editors also have displayed a stunning lack of sympathy for the 224 Russian tourists and crew killed in what appears to have been a terrorist bombing of a chartered plane over the Sinai in Egypt.
On Nov. 7, instead of expressing solidarity, the Post’s editors ridiculed Putin and Egyptian President Abdel Fattah el-Sisi for not rushing to a judgment that it was an act of terrorism, instead insisting on first analyzing the evidence. The Post also mocked the two leaders for failing to vanquish the terrorists.
Or as the Post’s editors put it: “While Mr. Putin suspended Russian flights on [Nov. 6], his spokesman was still insisting there was no reason to conclude that there had been an act of terrorism. … While Western governments worried about protecting their citizens, the Sissi and Putin regimes were focused on defending themselves. …
“Both rulers have sold themselves as warriors courageously taking on the Islamic State and its affiliates; both are using that fight as a pretext to accomplish other ends, such as repressing peaceful domestic opponents and distracting attention from declining living standards. On the actual battlefield, both are failing.”
Given the outpouring of sympathy that the United States received after the 9/11 attacks and the condolences that flooded France over the past week, it is hard to imagine a more graceless reaction to a major terrorist attack against innocent Russians.
As for the Russian hesitancy to jump to conclusions earlier this month, that may have been partially wishful thinking but it surely is not an evil trait to await solid evidence before reaching a verdict. Even the Post’s editors admitted that U.S. officials noted that as of Nov. 7 there was “no conclusive evidence that the plane was bombed.”
But the Post couldn’t wait to link the terrorist attack to “Mr. Putin’s Syrian adventure” and hoped that it would inflict on Putin “a potentially grievous political wound.” The Post’s editors also piled on with the gratuitous claim that Russian officials “still deny the overwhelming evidence that a Russian anti-aircraft missile downed a Malaysian airliner over Ukraine last year.” (There it is again, the attempt to dupe Post readers with a reference to “a Russian anti-aircraft missile.”)
The Post seemed to take particular joy in the role of U.S. weapons killing Syrian and Iranian soldiers. On Thursday, the Post wrote, “Syrian and Iranian troops have lost scores of Russian-supplied tanks and armored vehicles to the rebels’ U.S.-made TOW missiles. Having failed to recapture significant territory, the Russian mission appears doomed to quagmire or even defeat in the absence of a diplomatic bailout.”
Upping the Ante
The neocons’ determination to demonize Putin has upped the ante, turning their Mideast obsession with “regime change” into a scheme for destabilizing Russia and forcing “regime change” in Moscow, setting the stage for a potential nuclear showdown that could end all life on the planet.
To listen to the rhetoric from most Republican candidates and Democratic frontrunner Hillary Clinton, it is not hard to envision how all the tough talk could take on a life of its own and lead to catastrophe. [See, for instance, Philip Giraldi’s review of the “war with Russia” rhetoric free-flowing on the campaign trail and around Official Washington.]
At this point, it may seem fruitless – even naïve – to suggest ways to pierce the various “group thinks” and the bubble that sustains them. But a counter-argument to the fake narratives is possible if some candidate seized on the principle of an informed electorate as vital to democracy.
An argument for empowering citizens with facts is one that transcends traditional partisan and ideological boundaries. Whether on the right, on the left or in the center, Americans don’t want to be treated like cattle being herded by propaganda or “strategic communication” or whatever the latest euphemism is for deception and manipulation.
So, a candidate could do the right thing and the smart thing by demanding the release of as much U.S. intelligence information to cut this Gordian knot of false narratives as possible. For instance, it is way past time to declassify the 28 pages from the congressional 9/11 report addressing alleged Saudi support for the hijackers. There also are surely more recent intelligence estimates on the funding of Al Qaeda’s affiliates and spin-offs, including ISIS.
If this information embarrasses some “allies” – such as Saudi Arabia, Qatar and Turkey – so be it. If this history makes some past or present U.S. president look bad, so be it. American elections are diminished, if not made meaningless, when there is no informed electorate.
A presidential candidate also could press President Obama to disclose what U.S. intelligence knows about other key turning points in the establishment of false narratives, such as what did CIA analysts conclude about the Aug. 21, 2013 sarin attack and what do they know about the July 17, 2014 shoot-down of MH-17.
The pattern of the U.S. government exploiting emotional moments to gain an edge in an “info-war” against some “enemy” and then going silent as more evidence comes in has become a direct threat to American democracy and – in regards to nuclear-armed Russia – possibly the planet.
Legitimate secrets, such as sources and methods, can be protected without becoming an all-purpose cloak to cover up whatever facts don’t fit with the desired propaganda narrative that is then used to whip the public into some mindless war frenzy.
However, at this point in the presidential campaign, no candidate is making transparency an issue. Yet, after the deceptions of the Iraq War – and with the prospects of another war based on misleading or selective information in Syria and potentially a nuclear showdown with Russia – it seems to me that the American people would respond positively to someone treating them with the respect deserving of citizens in a democratic Republic.
Global geopolitics (and why it won't end well) explained in 57 words...
The political left is happy to see people cross borders but would happily restrict the flow of capital and goods.
The political right is happy to see capital and goods cross borders but would happily build a fence to restrict the flow of people.
I’m afraid that the compromise might be to restrict people, capital and goods.
* * *
Give me liberty, or give me death!
– Partrick Henry, American Founding Father, 1775
They value their civil liberties more than they value life. I disagree with that. You want to be free and dead? I’d rather be not free and alive
– Billionaire Hillary Clinton donor Haim Saban, 2015
Just in case you’re wondering what the people bankrolling Hillary Clinton’s Presidential campaign think about civil liberties, you now have your answer.
Here’s what billionaire Haim Saban had to say about civil liberties during an interview with The Wrap:
What are people in Hollywood saying about the Paris terror attacks?
Many members of the Hollywood community are very liberal and they value their civil liberties more than they value life. I disagree with that. You want to be free and dead? I’d rather be not free and alive. The reality is that certain things that are unacceptable in times of peace — such as profiling, listening in on anyone and everybody who looks suspicious, or interviewing Muslims in a more intense way than interviewing Christian refugees — is all acceptable [during war]. Why? Because we value life more than our civil liberties and it’s temporary until the problem goes away. But to say this is shameful — I disagree.
[ISIS] said, ‘We’re going to Paris,’ and they went to Paris. They’re saying they’re now going to Washington. Watch out, they might. I’m not suggesting we put Muslims through some kind of a torture room to get them to admit that they are or they’re not terrorists. But I am saying we should have more scrutiny.
Yes, because it’s so liberal to push a false Orwellian choice between freedom and safety. The entire concept of civilization and liberty revolves around the belief individuals never have to make such a sacrifice Indeed, America never would have been founded in the first place had the colonists accepted Saban’s infantile logic.
How does this guy sound any different from George W. Bush or Dick Cheney? The answer is he doesn’t, which makes perfect sense because Hillary Clinton is a dyed in the wool neocon. Always has been always will be. Meanwhile, The Wrap highlighted just how important Haim Saban is to Hillary…
TheWrap spoke to Saban about his support for the Democratic presidential frontrunner — he and and his wife, Cheryl, gave $2 million to Priorities USA Action, Clinton’s Super PAC, and hosted a fundraiser in May that netted another $2 million.
In case you forget, I’ve highlighted Saban in the past. Recall the following from the post, Inside the Mind of an Oligarch – Sheldon Adelson Proclaims “I Don’t Like Journalism”:
At the conference, which also featured top Democratic funder Haim Saban, Adelson also said Israel would not be able to survive as a democracy: “So Israel won’t be a democratic state, so what?” he asked Saban, adding that democracy, after all, is not mentioned in the Torah,and recommended that the country build a “big wall” to protect itself, saying, “I would put up a big wall around my property.”
Saban and Adelson should buy The New York Times together in an effort to bring more “balance” to the newspaper’s coverage of Israel and the Middle East, Adelson suggested to wild applause. Adelson already owns Israel Hayom, a free Israeli newspaper widely seen as reflecting the positions of Prime Minister Benjamin Netanyahu, who is considered close to Adelson, and, more recently, news website NRG and religious newspaper Makor Rishon.
Haim Saban, a media mogul and close Democratic ally of Hillary Rodham Clinton, criticized President Obama’s outreach to Iran, declaring that “we’ve shown too many carrots and a very small stick.”
Still, Saban said that he thinks Clinton would repair the relationship and that he has told her he would spend “whatever it takes” to propel her into the White House. That includes giving millions of dollars to Priorities USA, a super PAC that helped Obama in 2012 and is revving up to aid Clinton in 2016.
As regular readers are no doubt aware, we’ve devoted quite a bit of time to covering Brazil’s unfolding economic meltdown. The latest data out this week showed GDP in “free fall mode” (to quote Barclays), inflation hitting double digits for the first time in over a decade, and unemployment soaring to 7.9% in August, up sharply from just 4.3% a year earlier.
In many ways, Brazil is representative of the problems facing EM as a whole. Slumping commodity prices, currency carnage, FX pass through inflation, sensitivity to decelerating Chinese demand and to Beijing’s yuan deval, Brazil has it all - they even have a seemingly intractable political crisis, and as we never tire of pointing out, idiosyncratic political risk factors have become an important part of the EM calculus (see Turkey and Malaysia for instance).
Because Brazil tends to dominate the discussion when we talk about Latin America, it’s sometimes easy to forget that the outlook for Brazil’s neighbors matters as well. Latin America is a net commodities exporter and we can learn a lot from observing the interplay between slumping prices for commodities, rising inflation, lackluster economic growth, and central banks forced by the prospect of rising prices to adopt procyclical, rather than counter-cyclical policies despite their weakening economies.
When last we checked in on Latin America as a whole, we said the following:
“...a plunging currency, FX pass through inflation, and a soft outlook for growth is a pretty terrible place to be in if you’re a central bank, but that’s exactly where things stand for the “LA-5” (believe it or not, that’s not a reference to the Lakers, it’s short for Brazil, Chile, Colombia, Mexico, and Peru), who very shortly will be forced to decide whether the risks associated with further FX weakness outweigh those of hiking rates into a poor economic environment.”
We went on to highlight comments from Goldman regarding the likely path for Latin American monetary policy given the factors outlined above.
Now, Goldman is out with its latest take on the macro outlook for Latin America and unsurprisingly, the forecast is "uninspiring."
"Latin America’s growth performance has been eroding since 2010, and has unreservedly disappointed in recent years. Aggregate regional growth peaked in 2010 at above 6%, moderated steadily throughout 2011-13, and downshifted sharply to a significantly below-trend pace during 2014-15," Goldman begins, adding that "unfortunately, the near future may not be more endearing as we do not envisage a major pickup in growth buoyancy and expect inflation to remain relatively high."
Here's a more comprehensive assessment:
Given the shifting external backdrop, the region is unlikely to count on strong balance of payments dynamics to leverage and support a visible economic recovery. The expectation of low-for-longer commodity prices, weak non-commodity export demand, moderating FDI and portfolio inflows, and likely more expensive and selective access to external funding, may well demand additional current account adjustment. This would require further currency depreciation, higher domestic savings and contained investment (i.e., weak domestic absorption). Furthermore, we see virtually no room for additional countercyclical fiscal or monetary stimulus to support a more vigorous recovery.
And here's a big picture look at the growth/inflation outlook across the region:
As you can see, the inflation/growth mix doesn't look particularly favorable. As Goldman goes on to note, "Latin America is forecasted to grow an uninspiring +0.8% in 2016; a very shallow recovery from the -0.3% growth rate forecasted for 2015." Consider the following graphic, which underscores the extent to which the region is performing well below trend:
Subpar, disappointing growth that's disastrously below trend and will remain marginally so through 2020. Got it.
Of course what you don't want if you've got lackluster growth, is rising inflation because that sets the stage for the "S" word. Unfortunately, that's where Latin America looks to be headed. Here's Goldman on the inflation outlook:
Despite the weak growth dynamics, inflation is expected to remain high across LatAm. Average inflation ex-Venezuela is expected to reach 8.1% in 2016, down slightly from the forecasted 8.7% average for 2015.
In Brazil, headline inflation is expected to end 2015 in double digits and to moderate gradually throughout 2016, albeit to a still very high 6.5% due to weak policy fiscal and monetary policy credibility, renewed deterioration of inflations expectations, additional BRL depreciation, lingering upward pressure on administered and regulated prices, strong inertial forces, and widespread formal and informal indexation mechanisms which introduce significant downward rigidity (stickiness) in price formation.
Overall, inflationary pressures across the Andean economies are expected to remain relatively high throughout 1H2016 given the expected lagged pass-through from currency depreciation and the impact from what is expected to be an intense El Niño weather phenomenon.
And finally, coming full circle to our original discussion of how high inflation and weak currencies have put regional CBs in a position of having to, at the least, remain on hold and more likely adopt procyclical policies despite the tepid outlook for growth, Goldman suggests that "the scope for monetary accommodation in the region in 2016" is limited at best. "In Brazil, sticky above-target inflation should limit the capacity of the central bank to ease monetary policy in 2016 [and] the central banks across the Andean region have been normalizing monetary policy during 2H2015 given persistent and generalized above-target inflationary pressures," Alberto Ramos (the Goldman analyst who has a talent for making lists of Brazil's myriad problems that are so long as to induce riotous laughter) adds.
Last, but certainly not least, here's how the FX situation will likely develop in 2016:
Regional currencies have weakened significantly in 2014-15 and we expect further weakness in 2016. We expect most currencies to depreciate moderately in 2016 given the evolving global backdrop (low commodity prices with additional declines forecasted for copper prices, rising dollar yields, and strengthening USD), the unhappy domestic combination of low growth and high inflation, and a number of idiosyncratic factors.
So while it's probably too strong to equate the overall regional outlook with the stagflationary nightmare gripping Brazil, all of the above does indeed suggest that Latin America is stuck with a decidedly unfavorable growth-inflation outcome which is likely to worsen materially going forward. On that note, we'll close with one last passage from Goldman:
Despite the undistinguished growth outlook, in our assessment, the spectrum of risks is still tilted to the downside. In fact, the vector of risks is to a large extent not materially different from the risks the region was facing at the beginning of 2015, namely: (1) sharperthan-expected growth deceleration in China; (2) another leg down in commodity prices; (3) potential quasi-sovereign and private corporate sector forced deleveraging or balance sheet distress given heavy borrowing over the last few years and diminished profitability, and, last but not the least, (4) sharper-than-expected deceleration of capital inflows triggered by a strengthening USD, rising Dollar yields, and/or renewed bouts of volatility in international financial markets that could dampen sentiment towards emerging markets.
Presented with no comment...
On Tuesday, Chinese Vice Foreign Minister Liu Zhenmin told the press that contrary to the narrative being propagated by Washington and its allies in the South Pacific, Beijing had actually shown “great restraint” in the South China Sea.
China, Liu went on to explain, has tolerated the “occupation” of the disputed waters even as Beijing has “both the right and the ability to recover the islands and reefs illegally occupied by neighboring countries.” Essentially, Liu said China would be well within its rights to forcibly expel The Philippines, Malaysia, and Vietnam from the Spratlys.
Liu’s comments came ahead of the Asia-Pacific Economic Cooperation summit held in Manila on Thursday and Friday.
At the close of the Summit, Japanese PM Shinzo Abe met with President Benigno Aquino - who earlier this year compared the Chinese to Nazis - to discuss the possibility that Japan could provide Manila with “large ships” that the Philippines can use to patrol the South China Sea.
As Reuters reported on Friday, “the deal will mark the first time Japan has agreed to directly donate military equipment to another country, and is the latest example of Abe's more muscular security agenda.”
"There was a request from President Benigno Aquino regarding the provision of large patrol vessels to the Philippine Coast Guard and Japan would like to consider the specifics," Abe said in a statement.
Reuters goes on to note that “rather than challenge Beijing directly by sending warships or planes to patrol the South China Sea, Japan is helping to build the military capacity of friendly nations with claims to parts of the waterway.”
Well don’t look now, but Abe may soon move beyond the mere provision of ships to Japan’s allies. Here’s Nikkei with more:
Tokyo will consider dispatching its Self-Defense Forces to the South China Sea, Prime Minister Shinzo Abe told U.S. President Barack Obama here Thursday, suggesting a possible role for Japan in patrolling those tense waters.
Abe said his government is watching how the situation in that body of water affects Japan's national security. Several nations have competing claims to various islands in the South China Sea.
"The United States-Japanese alliance is one of the lynchpins of our security as well as Japan's," Obama told reporters before his roughly 90-minute meeting with Abe, their first since the prime minister visited Washington in April.
In their talk, Abe expressed support for what the U.S. calls "freedom of navigation exercises" in the South China Sea -- sailing warships through waters claimed by China around islands it has built. Obama said America will continue to do so routinely.
Japan will support countries with a stake in the situation and reject all unilateral actions that seek to change the status quo or raise tensions, Abe said.
Bear in mind that in addition to the generally "frosty" relations between Tokyo and Beijing, Japan and China are at odds over Beijing's construction of oil and gas exploration platforms close to disputed waters in the East China Sea:
Make no mistake, if Japan starts to conduct the same type of "freedom of navigation" exercises near the Spratlys that the US has now pledged to carry out at least twice per quarter, it will be more than Beijing can bear.
The US is one thing, Japan is entirely another and if Ash Carter and The Pentagon are really looking to escalate a South Pacific conflict, they can certainly do so by encouraging Abe to send warships near Fiery Cross, Subi, and Mischief.
The 'Great Recession' was evidently so bad for the economy that it stopped the net influx of illegal immigrants from Mexico. For the first time since the 1940s, more Mexicans have been leaving the U.S. to return home than arriving, a reversal that brings down the curtain on the largest immigration wave in modern American history. As WSJ reports, the Pew Research Center figures released Thursday suggest that the surge in legal and illegal Mexican immigration that helped transform America - and remains a contentious issue on the presidential campaign trail - may have peaked for good.
Pew Hispanic found that, according to official numbers, more than 800,000 undocumented workers came to the United States during 2009-2014 while more than 1 million fled the U.S. during the same period. It seems that employment became more difficult after the 2008 economic crisis, while Mexico’s economy actually improved.
Apparently there are so few good jobs that many Mexican migrants – including both those that are legal and illegal – departed or stop coming in and turned instead to work in their home country where they can also be with family.
According to Pew Research, best estimates and careful research show a dramatic change in illegal immigration:
More Mexican immigrants have returned to Mexico from the U.S. than have migrated here since the end of the Great Recession, according to a new Pew Research Center analysis of newly available government data from both countries. The same data sources also show the overall flow of Mexican immigrants between the two countries is at its smallest since the 1990s, mostly due to a drop in the number of Mexican immigrants coming to the U.S.
From 2009 to 2014, 1 million Mexicans and their families (including U.S.-born children) left the U.S. for Mexico, according to data from the 2014 Mexican National Survey of Demographic Dynamics (ENADID). U.S. census data for the same period show an estimated 870,000 Mexican nationals left Mexico to come to the U.S., a smaller number than the flow of families from the U.S. to Mexico.
Mexico is the largest birth country among the U.S. foreign-born population – 28% of all U.S. immigrants came from there in 2013. Mexico also is the largest source of U.S. unauthorized immigrants.
A majority of the 1 million who left the U.S. for Mexico between 2009 and 2014 left of their own accord, according to the Mexican government’s ENADID survey data.
While it is true that many immigrants are not officially counted and many estimates put the number of undocumented workers much higher than 12 or 13 million, that number is declining for the first time since the 1970s.
This chart below tells a story that words alone cannot describe, and images of border crossings and protests fail to capture.
The situation is economic much more than it is political. The Wall Street Journal suggests several factors have undermined the lure of the U.S.
Mexican families have fewer mouths to feed as the country’s birthrate has declined to near replacement level, similar to that of the U.S., relieving economic pressure that motivated migrants to go north to find higher-paying jobs than are available in Mexico. Meanwhile, Mexico’s economy improved.
"The days of mass immigration from Mexico are over," said Pia Orrenius, senior economist at the Federal Reserve Bank of Dallas who studies migration. "Slower population growth in Mexico along with a stable economy and an expanded public-safety net are developments that have trimmed the 'push factor.'"
But, as SHTFPlan.com's Mac Slavo writes, the celebration of a historic turning of the tide for one of the most contentious issues in American politics may also herald the tough times ahead for Americans and everyone else working here, regardless of status.
The jobs have essentially dried up, and things stand to get even worse if/when the next economic bomb drops. And that could be any day now.
The writing is on the wall, the system is on edge, and something as simple as a Federal Reserve rate hike could mean financial desperation for millions upon millions of Americans.
Perhaps surprisingly, many Mexican nationals no longer view life in the United States as a better opportunity, with many seeing it is as on-par with life in Mexico:
While almost half (48%) of adults in Mexico believe life is better in the U.S., a growing share says it is neither better nor worse than life in Mexico. Today, a third (33%) of adults in Mexico say those who move to the U.S. lead a life that is equivalent to that in Mexico
But with the receding tide of immigrants from south of the border may come larger and larger numbers of immigrants from China and India, as well as Islamic countries, including many technically skilled workers here on H-1B visas who are replacing American jobs.
USA Today reports on the shift – not of overall immigration numbers, but of their sources:
“The nature of immigration itself is beginning to change,” [Mark Hugo Lopez, director of Hispanic research at Pew Research] said. “It looks like Mexican migration is at an end.”
The reversal of Mexican migration doesn’t mean that the United States is seeing fewer immigrants overall, just that their countries of origin are changing.
The United States has seen a record number of Central Americans fleeing violence in the past few years, straining the country’s ability to process their requests for asylum. In addition, Lopez said, immigrants from China, India and other Asian nations are coming as students and high-tech workers. Eventually, Asians will become the dominant share of the immigrant population, he added.
Though they claim to have now reversed their decision, Disney recently came under fire for decision to layoff all of its American workers – including those with decades of experience – and replace them with cheaper (but equally skilled) IT workers from India.
The move, cancelled or not, is a sign of the times for a situation that may become more desperate and gloomy with each passing year for native American workers who once assumed relative wealth among the middle class, but are now fighting for survival.
President Obama, for his part, has over-extended – well, abused really – his executive authority to grant amnesty to millions of illegal immigrants from Mexico, but they too may soon prefer their country of origin – particularly if the coming financial implosion hits worst in the United States.