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Friday, May 23, 2025

2025-05-25

 **** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:

Stock prices are no longer a leading indicator. This post provides empirical evidence behind how the Cyclical Economy leads company earnings which leads stock prices

.................................................... In the last three Business Cycle recessions of 1990, 2001 and 2008, the Cyclical Economy peaked and declined in advance of S&P 500 earnings. In the 2008 example, the lead time was significant.

So it’s not accurate to say stocks lead the economy.

It’s conclusive that several critical sectors of the economy move first, and it’s this stress that causes the decline in earnings, stock prices, and broader economic pressure.

.............. Today, as depicted, the Cyclical Economy has rolled over, lower than January 2023, and pressure is likely to remain as the Leading Economy is still in a downturn. This suggests that cyclical or economically sensitive assets will continue to underperform.

The more blue-chip and defensive investments, like the S&P 500 or the Mag7 heavy Nasdaq, have a window to continue outperforming because Aggregate Economic activity continues to march along.


The weight of the evidence is back in balance as market technicals improve but macro challenges persist

Last week began with breadth thrust and ended with a US debt downgrade. These bookends perfectly encapsulate the current dynamics in the financial markets. The technical backdrop for equities has improved substantially over the past month while macro conditions continue to create a challenging environment. Historically, stocks do very well in the wake of breadth thrusts (more on this in a moment). At the same time, historically do quite poorly when bonds yields are pushing higher (30-year Treasury yields are at a level rarely seen in the past 2 decades). ........




Technicals over narratives in this case

There is one thing that is true in every bond market - the 30-year point on the government yield curve is its own beast driven by buyers that aren’t dictated by price but rather the need to hedge their liabilities.

For Europe, US, UK and Japan, the dominant player is usually pension and insurance funds who are looking to hedge long liabilities. Large moves in 30-year yields relative to the rest of the curve usually indicate a change in behaviour from these players. ............



DB: We have a problem (via TheBondBeat)

It is simple. The US cannot close its very large current account deficit unless it closes its fiscal deficit too. But over the last few days we are learning something very important: the US appears unwilling to do that. The emerging reconciliation bill from the US Congress points to ever-wide fiscal deficits above 6%. The US - China trade accord effectively signals a very low pain threshold on taxing (tariffing) the US consumer. In all, even if we account for the (now diminished) revenues from tariffs the US budget deficit will keep growing. The current account deficit will likely keep widening in this scenario too.

The significance of this conclusion cannot be over-estimated. We have been arguing over the last few months that the market is reducing its willingness to fund US twin deficits. This is arguably entirely reasonable given the expressed US desire to reduce them. But actions speak louder than words: the newsflow over the last few days aligns with the opposite outcome. We worry this is brewing a major problem for the dollar and potentially the US bond market too. ............

.............. The market conclusion is clear. For foreigners to continue financing US debt one thing needs to happen: the non-dollar price of US Treasuries needs to decline, either via currency depreciation or a drop in the price of the bonds. The problem for the latter is that it makes US debt dynamics even worse so is not sustainable. We are ultimately left with the only solution to this problem being dollar weakness. That will effectively lead to a capital writedown of foreign holdings of US assets and an improvement in America's net external asset position





.......... Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Josh Easterly, co-founder and co-chief investment officer of Sixth Street Partners, are among those warning that the credit market may not be pricing in enough risk. And the lowest rung of junk bonds are flashing warnings that the US economy could soon face slower growth and higher inflation, as well as the possibility of a recession.

Risk premiums on junk bonds rated in the CCC tier have widened 1.56 percentage points this year, and 0.4 percentage point in the latest week. The gap between spreads on CCCs and the next tier above them, Bs, has been widening this year and in the last two weeks, signaling that the weakest bonds are lagging.

The CCC widening and underperformance are red flags, said Connor Fitzgerald, fixed-income portfolio manager at Wellington Management, a firm that oversees more than $1 trillion of assets. ..........

........ Dimon, who was early to spot risks in the mortgage market during the US housing bubble, said on Monday that credit spreads aren’t accounting for the impacts of a potential downturn. He added that the chances of elevated inflation and stagflation are greater than people think and cautioned that America’s asset prices remain high.

Credit is a “bad risk,” Dimon said at JPMorgan’s investor day. “The people who haven’t been through a major downturn are missing the point about what can happen in credit.” ..........


The president’s modus operandi makes long-term planning futile



Everyone’s busy debating whether Donald Trump’s global tariff plan is economic protectionism, geopolitical strategy, electoral propaganda, or the act of a madman who has lost the plot. It seems to me that such excitement is misplaced. Trump’s flip-flopping trade war is in many ways a red herring. What is framed as a bold economic policy that will drive investment in the US and ignite a new economic boom serves to distract us from its real purpose, which belongs to a completely different playbook. As paradoxical as it may sound, the ongoing economic slowdown of the United States is not the painful yet necessary short-term side effect of Trump’s tariffs, but rather its goal. Collateral damage is the intended outcome. In other words, Trump’s aggressive neo-mercantilism works mostly as perception management (whether he means it as such or not). It is much less about reshoring manufacturing than feeding the credit addiction of financial capital. Let’s break this down.

Uncle Sam’s GDP has already shrunk by an annual rate of 0.3% in the first quarter of 2025, after growing by 2.4% in the previous quarter. A sustained, tariff-related economic slump would not only serve to justify an inflation that in fact has never dropped (when measured against wages and savings). More crucially, it would provide the Federal Reserve with the perfect pretext to lower interest rates (the cost of money), which in turn will bring down yields on sovereign debt. The absolute priority for the US Treasury is as urgent as it is banal: to refinance around $9 trillion in maturing debt by the end of 2025. In addition to this historically unprecedented “maturity wall”, the Congressional Budget Office projects a $1.9 trillion federal deficit for fiscal year 2025, bringing the total debt issuance requirement to over $10 trillion. Without the US dollar as global reserve currency, this massive imbalance would have already precipitated a default.

As things stand, what is required is sending the 10-year Treasury yield well below 4%, while also exerting pressure on a 30-year yield that has recently jumped to 5%. In systemic terms, the interest on this mammoth debt must fall whatever it takes, since it defines the entire financial environment and therefore the entire constellation of Western capitalism, and beyond. ....................

If there’s one point that Trump has been coherent about, it is that he wants lower rates. He’s not alone. Especially after Moody’s downgrade of the US credit rating (16 May 2025), most corporate media seem to have joined the “agent of chaos” President in calling for the same policy. So while tariffs may lead to inflation in the short term (which official data can easily misrepresent), sustained economic contraction would force the hand of the Federal Reserve to bring down rates and “stimulate”, which would also put an end to the boring Trump vs Powell pantomime. After all, this has been the playbook of “soap bubble” capitalism over the last few years.  .....................


Tariffs: What the hell just happened?


Why you shouldn’t get excited about his “deals”


A potential supply and demand shock means the US economy may be in for years of volatility

It is a mark of how eager investors are to put the idea of a trade war behind them that markets surged last week on the news of a tariff “deal” between the US and China.

Never mind that it was a 90-day pause on higher rates that is likely to bring only temporary relief. Investors bought the story that US President Donald Trump’s market friendly Treasury secretary Scott Bessent was now firmly in the driving seat, China hawk Peter Navarro had been pushed into a broom cupboard somewhere in the back of the White House and we could all go back to pre-“liberation day” bullishness.

I don’t buy it.

I think we are still in for a lot more volatility — not only in the next three months as the new normal of 10 per cent across-the-board US tariffs shakes out (and this is the best-case scenario), but over the next few years, as the long-term structural trends towards a new global economic paradigm continue.

Let’s start with the immediate issues. ............











Charts:

1b:
1c:
2: 






(not just) for the ESG crowd:



Burning, worsened by global heating, overtook farming and logging as biggest cause of destruction of tropical forests




The US political world can today be divided not only between left and right, but along another axis: Trump maximalists and Trump minimalists. Maximalists are inclined to view Trump as an agent or conduit of a sudden historical rupture, whether the transformation of the party system, the destruction of American democracy or the implosion of the liberal world order. Minimalists see Trump not as a fundamental break but rather as a lurid symbol of longer-running developments, or a symptom of crises that lie elsewhere – a black hole detracting attention from real political problems.

This is not a cleanly partisan or ideological distinction, which is one of the things that makes it interesting. ............

............... First, the tariffs. On ‘Liberation Day,’ Trump appeared to deliver the international economic demolition job that many maximalists feared and some hoped for. Yet at the first sign of bond market jitters, he switched course from global trade realignment to simple trade war on China – and then, a few weeks later, pulled back from that, too. Significant duties on China remain in force, and further tariff shenanigans remain likely, but transformational change appears to be off the table. On Wall Street, what the Financial Times has dubbed ‘the Taco trade’ – based on the theory that Trump Always Chickens Out – has sent markets roaring back to their pre-tariff levels. .................


Trump’s escalation of censorship and retaliation is terrifying. The groundwork for it was prepared years in advance.




Today on TAP: Yet more horrors are hidden in the fine print.



Geopolitical Fare:




Empire’s don’t collapse; they commit inevitable suicide by destroying their primary sources of wealth: respect and industry. The American empire has existed since July 4, 1776 when it was declared as colonial elites revolted against the British in a quest to expand their territory across the mainland of North America. Over the course of two and a half centuries, the empire has become the most dominant force—militarily, economically, and culturally—that the world has ever seen.

After a couple world wars left every other major power weakened, the US inherited a position of supreme power, with no historical parallel to match the overwhelming global influence that the US Government now commanded. Going into WWII, US planners were well aware America was the strongest economic force in the world, as it had been for decades at this point, and that it would be in a position of strength at the wars end which would allow Washington to shape the affairs of international politics—indefinitely if that were possible—and that they would need to create a global order that would ensure the control of a majority of the worlds resources for American corporations, primarily those in the energy sector.

To be sure, these supposed “wise men” at the creation of the “Pax Americana” indeed achieved much success. .......................

While the empire maintains its peripheral status as the world’s leading power, the gap between the US and peer competitors has grown considerably smaller. Much has changed the last decade-plus. The unipolar moment is no more, mostly cordial relations with the Russians in the 1990’s and 2000’s have completely devolved, the Chinese are the leading manufacturer in the world (the US held this title for more than a century until 2010), Beijing and Moscow have formed a defacto coalition with the Iranians and others to fight American hegemony, and the US—after having unmatched power and credibility once again after easily liberating Kuwait from Saddam in 1991—has lost what goodwill it has in the world and is now viewed, largely, as a rogue state that threatens international peace and security.

Of course, all imperial powers behave like rogue states, but the cultural hegemony and prestige of America has had nearly as much to do with its global dominance as military strength or economic might. To instill obedience into an empire, a state needs mystique and the ability to seduce allies and partners to do their bidding. The US doesn’t really have this any longer, as the world has long seen the hypocrisy of American actions. .....................

............................... Washington doesn’t stand a chance economically in the long term. You can see this in the Trump tariffs, launched on not just China but essentially the entire world. Trump’s “liberation day” and trade war is a sign of desperation from an empire that knows it can’t compete economically with its top competitor anymore. Their only avenue is tariffs in an attempt to slow industry and production down in China, as well as in America’s own colonies, while hoping this will somehow strengthen the US economy long term.

Washington is really gambling on damaging the global economy in the hopes of maintaining American primacy. As Yanis Varoufakis explains: “This is what his (Trump) critics do not understand. They mistakenly think that he thinks that his tariffs will reduce America’s trade deficit on their own. He knows they will not. Their utility comes from their capacity to shock foreign central bankers into reducing domestic interest rates. Consequently, the euro, the yen and the renminbi will soften relative to the dollar. This will cancel out the price hikes of goods imported into the US, and leave the prices American consumers pay unaffected. The tariffed countries will be in effect paying for Trump’s tariffs.”

That’s one possible outcome. The American empire is hoping the world falls in line and that the damage done to economies across the world leaves the US in the drivers seat, albeit much weaker both economically and geopolitically. Another far likelier scenario, in my view, is that America simply further isolates itself and slides deeper into economic recession, imperial decline, and drives allies into adversarial hands because they simply cannot trust doing business with such an unstable and untrustworthy regime. America has become the rogue nation of our time in not only reality, which it’s always been, but even to most of the world who essentially fear it. What they’re most likely accomplishing is simply strengthening the bilateral relations between key allies and their top adversary long term. ........................



The inexorable decline of the American Empire has arrived at an Imperial Paradox. It must either fight a war and die, or not fight a war and yet still die.

Here are the options:

China
Neither South Korea nor Japan want anything to do with a war against China, leaving only the Philippines dumb enough to play along. ...................

Iran
In the context of a war against Iran, all the geography is against the US. ...........

Russia
From a geographic and logistical standpoint, the only remotely conceivable war is one in Ukraine against Russia. ..............

So if you're an empire that thinks it needs a war to reaffirm at least its short-term relevance and fading glory ... well, these are your choices.

Sic transit gloria mundi.


The Liberal Intellectual Paradigm is Broken

............. The real action in the US is not happening in seminars at Brookings or in op-eds in the New York Times. It is happening backstage, out of sight; beyond the reach of polite society, and mostly off-script. America is undergoing a transformation more akin to what befell Rome in the age of Augustus. 

Which is to say, the main happening is the collapse of a paralytic élite order, and the consequent unfolding of new political projects. 

The collapse of global liberalism’s intellectual paradigm -- its delusions together with its associated technocratic structure of governance -- transcends the red/blue schism in the West. The sheer dysfunctionality associated with western culture wars has underlined that the entire approach to economic governance must change. 

For thirty years Wall Street sold a fantasy … and that illusion just shattered. The 2025 trade war has exposed the truth: Most major US companies were duct-taped together by fragile supply chains, cheap energy, and foreign labour. And now? It's all breaking. 

Frankly put, liberal élites simply have demonstrated that they are not competent or professional in matters of governance. And they do not understand the gravity of the situation they face -- which is that the financial architecture that used to produce easy solutions and effortless prosperity is well-past its ‘sell-by’ date. ........................ 





The demonstrative support shown once again by Berlin for Israel-while-committing-genocide is a spectacle that remains very revolting and puzzling to many and certainly to everyone who is intellectually and morally sane. Across changes of government, Germany is displaying a callous, brutal, and also perfectly tone-deaf come-what-may loyalty - if that is the word - to the genocidal apartheid state of Israel that practices an ideology and commits crimes all too reminiscent of Nazism. ..........



.................................. It’s been so transparently obvious this entire time that Israel’s entire objective is to remove Palestinians from a Palestinian territory so their land can be used for Israel’s own purposes — but you’d never have known it from looking at the western press.

For the last year and a half the western media have been brazenly lying to the public by framing this as a “war with Hamas” instead of the naked ethnic cleansing operation it clearly is.  ............

If the western press had been doing actual journalism, Israel would never have been able to bring Gaza to this point. Because the western press have instead been administering propaganda this entire time, Gaza is now an uninhabitable pile of rubble full of desperate, starving people, allowing Israel and the Trump administration to argue that the humanitarian thing to do is to evacuate them all immediately. ...............

None of this would be possible if the west had an actual free press whose job is to create an informed populace. But we do not have an actual free press whose job is to create an informed populace — we have imperial propaganda services disguised as news. .............



A good start.

So, someone killed two Israeli diplomats in D.C. and everyone is crying crocodile tears and screaming about anti-semitism. (One of them was a Christian fundamentalist, as an aside.)

These two diplomats are agents of a genocidal state. Their job is to keep the weapons and ammunition flowing to Israel so that Israel can kill more Palestinians, wipe out the last remaining hospital, torture Palestinians, rape Palestinians (including, it appears, with dogs), deliberately snipe children in the head, cause a huge famine, and turn every building in Gaza into dust.

And I’ve left a number of sickening crimes out.

So, am I sad they are dead? No. Am I going to pretend I give a shit when someone who supports genocide winds up dead? No. Every single pious well wishing for Biden is the equivalent of wishing Petain, the leader of Vichy France, who helped the Holocaust along, a good life.

All of these people are knowingly involved in genocide. They have had many opportunities to stop supporting mass murder and they have refused every single one of them.

They are all, forgive me for using the word, evil. The bad guys. Torture. Rape. Mass murder. Deliberate killing of children.

It is my dream that every single one of them will eventually hang from the neck for their crimes. No exceptions. And I think it would be wise to add the corporate leadership of companies like Palantir and Microsoft, both of which are helping the genocide along.

This is a moral stance, but it is also a pragmatic stance. People who have gotten away with genocide once are not the sort of people anyone wise wants in their society, or in a position of power anywhere. Once could easily become twice.

You don’t even have to give a damn about Palestinians, you just have to have good judgment and a concern for your own neck and the lives, rectums and limbs of people you care about.

From the neck. Till dead. For everyone who knowing aided or committed genocide.



................................ China is important. Its dedication to peaceful development and diplomacy is laudatory and in stark contrast to the bombastic hectoring and warring of the US-NATO block. China cares for the well-being of all its citizens; it seeks win-win relationships with other countries — not the win-lose entanglements of the capitalist West. ......................


And might never be

The day before yesterday, I posted an analysis of the Istanbul talks and what they meant— with the prediction that Russia could not achieve his goals without regime change in Ukraine.

No one had been really talking about that –”regime change” — certainly not in the West where the absolute worst case scenario is just giving Russia the 4 oblasts that have joined its federation and Crimea, with Kiev maintaining sovereignty as an independent nation state over the rest of of what is now called "Ukraine"-- under the same kind of government that has ruled it since 2014.

No one seems to pay much attention to what Putin says!

Ah, when the devil talks you should not listen!

Putin's goals have always been demilitarization followed by denazification to enable a pluralistic democracy and neutrality, along with tangible and realistic long-term guarantees of Russian security. ...............


Russian forces have been building a security buffer along the country’s border, Vladimir Putin has said


After days of disruption by pro-Palestine activists at its Build developer conference, No Azure for Apartheid said, Microsoft made it impossible to send emails containing "Palestine" or "Gaza."




Sci Fare:






Other Fare:

Aurelien: What We Have.
The new is dying, but the old cannot be reborn. What do we do?

............... So the subject for this week is how we might survive personally, and even retain our sanity, when governments and institutions of all kinds seem to be beyond redemption and even beyond repair, and yet paradoxically people are expected to depend on them more and more. So first we need to look at where we are, and I will lay out the argument that the political and social order of the last forty years is crumbling, and so each of us needs to think about how we might react. I will then provide some (very preliminary) thoughts about how we might react.

I and others have written enough about the decline in governments and institutions of all kinds that there’s not a lot worth adding here. But it is interesting, perhaps, to dwell for a moment on what this means for individuals, which is the focus of this essay. Institutions should exist to serve people, after all, even if only indirectly. ....................................................



The worst mistake you can make when reading the news is to assume there’s a good reason why the mass media report on something in the way that they do. That there’s a good reason why Israel-Palestine gets framed as a complex and morally ambiguous issue with no clear path forward, even though it all looks pretty self-evident to you. That there must be a valid and legitimate reason why one story gets more coverage than a seemingly far more important story, like how the release of one Israeli-American hostage is currently getting far more news media coverage than the deliberate starvation of an entire enclave full of civilians.

In reality there is no valid and legitimate reason why such things are covered the way they are. The coverage happens in the way that it happens because it serves the information interests of Israel and the western empire, and for no other reason.

So much western ignorance is facilitated by the manipulative way the imperial media report on what’s going on in the world. .................

............ So one of the most important things you need to do to maintain a truth-based worldview is to take complete control over your own understanding of the importance of the pieces of information which come across your field of vision. You can’t rely on others to tell you how important they are, because all the most amplified and influential voices in our society are working to manipulate your understanding of their importance, and most ordinary people you’ll interact with are being manipulated by those voices to some extent. Public political discourse is overwhelmingly dominated by these distortions. ..............




Economic uncertainty and AI are causing employers to think twice about all but the most sterling candidates



Pics of the Week:

Ziggurat Skyscrapers and Hugh Ferriss’ Retrofuturism
Posted by at No comments:

Tuesday, May 13, 2025

2025-05-13

***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:

Policymakers say inflation and unemployment could increase as Trump’s tariffs heighten uncertainty

........... Powell also reiterated his recent statements that the central bank was in no “hurry” to change policy as it assesses the effects of tariffs. He said the “right thing to do is await further clarity”. ...........

............ While GDP contracted for the first time in three years in the first quarter, officials put that down to distortions triggered by the tariffs as US businesses look to get ahead of the levies by importing goods. 

“It’s a little bit confusing . . . but I think we understand what’s going on and it’s really not going to change things for us,” Powell said.


DB: Tariffs and r* (via the Bond Beat)
Could US tariffs result in higher equilibrium level of interest rates? Yes.

As previously noted, r* isn't equivalent to potential growth. In the US, “other determinants" (i.e., the supply/demand of savings) account for ~80% of the post-GFC decline in r*, compared to only ~20% for potential growth. Tariffs represent a negative supply shock for the US that could lower potential growth (and thus r*). However, fiscal policy among key US trading partners has become notably more accommodative in response to US tariffs. Consequently, the "other determinants" component of r* is likely to increase.

Early evidence suggests that the shift in the global supply/demand of savings is outweighing the decline in potential growth. Bearing in mind the limitations of real-time r* estimates, the estimate derived from the bond/equity correlation continues its upward trend, reaching a post-GFC high following the US tariffs announcement.




The great economist John Maynard Keynes once proposed an international system to eliminate trade surpluses and deficits. Now the ‘Mar-a-Lago Accord’ aims to bring that idea to life.

.............. For years, this document was ignored and overlooked, the radical ideas inside it abandoned. But now, in 2025, some of Keynes’s theories are being combed over once again. And in a turn of events that would doubtless have surprised a determinedly liberal intellectual like Keynes, the man who could help bring them to reality is none other than Donald Trump. 

There is a long and knotty thread that connects the document written by Keynes in 1941 with today’s discussions about a so-called “Mar-a-Lago Accord”—the much-hyped plan to weaken the U.S. dollar as a way to help reindustrialize America. Where Keynes and Trump converge is over the one big, overarching problem that now plagues the world economy: imbalance. 

These imbalances manifest in all kinds of ways. The most visible is the fact that the U.S. imports cheap goods from around the world and pays for them with an unending stream of IOUs, mostly in the form of Treasury bonds. To put it in technical terms, the U.S. has a large current-account deficit ............

.......... But look beneath the surface and those persistent imbalances have left deep scars. In particular, as manufacturing shifted to China, so too did jobs. Old industrial regions—many of them, coincidentally, in swing states in presidential elections—have been hollowed out. That successive presidents have pledged to rebuild American manufacturing is in part a symptom of these imbalances. 

The broad contours of this system have been with us for so long they might feel like a natural state of affairs, but there is nothing natural about countries having mammoth surpluses and deficits and—this is the really important bit—having them for so long. Over time, these imbalances really ought to, well, balance. Currencies and wages should adjust, making it more attractive to make stuff in America; China should begin to consume more and import more. ...........

Which brings us to the idea of a Mar-a-Lago Accord, most famously dangled late last year in a paper by Stephen Miran, now chair of Donald Trump’s Council of Economic Advisers. The Trump administration, like many of its predecessors, sees the strong dollar as an obstacle to bringing manufacturing back to the U.S. 

Miran argued that new American tariffs would incentivize other countries to sign up for access to a U.S. trade zone. As part of this deal, they would agree to intervene in currency markets to reduce the value of the dollar. They might also swap some of their existing U.S. Treasurys for much longer-dated versions, with the Federal Reserve providing short-term liquidity as needed. Such a dollar-depreciating accord, Miran wrote, would help to create manufacturing jobs in America and reallocate aggregate demand from the rest of the world to the U.S. 

Since being appointed, however, Miran seems to have gone cold on the idea, saying recently that the administration isn’t actively considering it. Perhaps that is because Treasury officials have gently pointed out that forcing other nations to accept U.S. bonds that might never be repaid is effectively a default. (After this story was published online, a White House spokesperson told the Journal that “neither Miran nor the administration have ever gone hot on the idea in the first place.”)

Nonetheless, his ideas have captured the attention of many in the international economic community—not so much because they have a chance of success but because they provide some economic scaffolding for Trump’s trade policy. If you believe in the Mar-a-Lago Accord, tariffs suddenly seem to have a deeper purpose: They are there to confront the imbalances in the global economy, something economists have been grappling with since Keynes.

.................. The great irony is that Trump might already have triggered a monumental shift in the international monetary system, not through an accord but essentially by mistake. 


Will Trump Pretend to Fix What He Broke?
Why you shouldn’t get excited about his “deals”


China and others must think afresh as the US steps away from its role as balancer of last resort

............ To understand the problems the world economy faces it helps to start from the topic of “global imbalances”, which was much discussed in the run-up to the global and Eurozone financial crises of 2007-2015. In the years since, these imbalances have grown smaller but the overall picture has not changed. As the IMF’s latest World Economic Outlook notes: China and European creditor nations (notably Germany) have run persistent surpluses, while the US has run offsetting deficits. As a result, the US net international investment position was minus 24 per cent of global output in 2024. ....

So what, a passionate free-marketeer would ask? Indeed, even a not-quite-so-passionate free marketeer might note, with good reason, that the US has been fortunate to live beyond its means for decades. That need not be a problem: nobody, after all, will be able to force the US to pay its liabilities back. It also has ways, both elegant and not so elegant, to default. Inflation, depreciation, financial repression and mass corporate bankruptcies all come to mind. ..............


..................... Trump’s unpredictability and focus for bilateral deals are indeed foolish. But the old US-led economic order is now unsustainable. The US will no longer serve as balancer of last resort. The world — especially China and Europe — has to think afresh.


Tech, trade, finance and military policies are mingling in a manner not seen during the neoliberal era

......... in the 20th century free-market intellectual framework — which is the one in which most western professionals built their careers — it was generally assumed that rational economic self interest ruled the roost, not grubby politics. Politics seemed to be derivative of economics — not the other way around.

No longer. The trade war unleashed by US President Donald Trump has shocked many investors, since it seems so irrational by the standards of neoliberal economics. But “rational” or not, it reflects a shift to a world where economics has taken second place to political games, not just in America, but many other places too. ..................

............... in the meantime, investors and business leaders would do well to note five key points about this geoeconomics debate.

First, this phenomenon is not simply about one man (Trump), but rather marks a much bigger turning point in the intellectual zeitgeist — of a sort we have seen a few times before.

One such shift occurred just over a century ago, when the globalist, Imperialist vision of capitalism that reigned before the first world war was displaced by nationalist, protectionist policies. Another came after the second world war, when Keynesian economics took hold. Then, in the 1980s, free-market neoliberal ideas displaced Keynesianism.

The fact that the intellectual pendulum is now swinging again, towards more nationalist protectionism (with a dose of military Keynesianism), thus fits a historical pattern — although few predicted that the swing would take quite this form. ...............

.......... Third, an (obvious) factor behind this rivalry is that China is now challenging America’s incumbent dominance. This pattern has often been seen before, as Ray Dalio, the hedge fund luminary, notes in a provocative forthcoming book. Investors should also note that Dalio suggests such conflict is rarely resolved quickly or smoothly — least of all when there is a debt cycle involved.

........... But what is evident is that there is rising acceptance in the US that government should shape commerce in the national interest. This will invariably prod regions such as Europe to follow suit.

All of which will horrify many observers, particularly those raised in that neoliberal era. But don’t expect the intellectual pendulum to swing back soon — even if the US cuts a few trade deals, as Dan Ivascyn of Pimco notes, Trump’s love of tariffs runs deep. For better or worse, we all need to learn to navigate geoeconomics. We cannot just wish it away.



Summary: This report explores gold’s reemergence not merely as a store of value, but as a strategic monetary tool for circumventing sanctions, supporting trade diplomacy, and conducting debt management. Drawing upon historical precedent, contemporary developments, and theoretical frameworks such as Stephen Miran’s Mar-a-Lago Accord, this essay proposes that the United States is positioned to reengage in a sovereign-level gold trading for purposes of reducing debt, rewarding trade partners, and restoring the US manufacture-export base. This mechanism, once dominated by bullion banks and now emulated by sanctioned states, enables the monetization of gold without outright liquidation. Gold-forward hedges provide the United States with an opportunity to strategically weaken the dollar as a component of its need to remain competitive in export driven global economies, reduce debt obligations, and support trade-partner allies through targeted currency support. This report argues that gold’s transformation under Basel III, coupled with a shift in U.S. monetary strategy, marks a return to gold’s core geopolitical function.







It’s that magical time of the year again, when we once again worry that the broken US political system will result in the unnecessary sovereign default of the world’s premier reserve asset and usher in financial Ragnarok.



The – Japanese asset price bubble – burst in spectacular fashion in late 1991 (early 1992) following five years in which the real estate and share market boomed beyond belief. The boom coincided with a period of over-the-top neoliberal relaxation of banking rules which encouraged wild speculation. The origins of the boom can be traced back to the endaka recession in the mid-1980s, after the signing of the – Plaza Accord – forced the yen to appreciate excessively. This was at the behest of the US, which wanted to reduce its current account deficit through US dollar depreciation. The narratives keep repeating!



Bubble Fare:

The promoters of scam currency spent more money than any other group in 2024. They’re now realizing a massive return on investment in Donald Trump’s White House.

................................ The $FECAL episode was a small but telling sign of how crypto, despite being a relative flop commercially, has infiltrated American politics. Once the memecoin appeared, Casten’s unremarkable comment turned into an opportunity for graft and self-­dealing, however ludicrously conceived and executed. Casten recognized as much. If he weren’t a known critic of the crypto lobby, Casten said, the token might have provoked some suspicion—that, say, the congressman was in on the grift. “You should be asking me hard questions about that, right?” he said in an interview. “It’s insane.”

If no part of society is immune from the all-powerful hand of the market, the same might now be said of crypto. Never has so much power, authority, and attention been afforded to such an economically unproductive industry. Never has so much energy and human potential been wasted chasing illusory profits in a business that relies on Ponzi economics. And never have politicians had so many opportunities for clandestine personal enrichment, in a parallel financial system that they’ve largely let run amok. ..................



President Abraham Lincoln is considered to be the moral savior of the United States for ending slavery. To pay for the war, he made enormous changes in the basic relationship between the federal government and money. These changes greatly diminished individual property rights and increased the power of Washington over the private economy.

The paper money created by Abraham Lincoln to finance the Civil War was the first crypto currency. Lincoln relied on the issuance of nonconvertible paper currency to support the military effort, in today’s terms like forcing people to accept buttons or miscellaneous crypto tokens in payment. Lincoln used interest bearing paper “money” or “greenbacks” to finance the Civil War and, more significant, passed laws mandating the acceptance of paper currency as “legal tender” for all debts.

When Treasury Secretary Salmon Chase asked Congress to pass the legislation in order to maintain government bond prices and procure supplies for the army, the law provided that import duties and interest on the public debt would still be paid in gold. Paper money was seen as inferior to gold. In fact, paper was not seen as money at all, but rather as a form of debt.

Though the Founders made provision under the Commerce Clause of the Constitution for trade between the states free of tariff, there was no provision for a common currency or banking system to tie together the nation or even the individual states. State-chartered banks issued various forms of debt to the public in return for some future promise to pay in hard money—that is, gold or silver.

The major difference between the private money of the 1700s and modern crypto tokens is that the former at least promised payment in a tangible asset—gold. The latter explicitly promises nothing save a speculative flutter on price appreciation. When you buy a crypto currency, you buy an option on finding a greater fool, but nothing more, a transaction that would have provoked contempt in Lincoln’s day. ..........................

................. Many Americans remember President Richard Nixon for closing the gold window at the Treasury in 1971, a mostly symbolic act that ended any pretense of a link between the dollar and gold. Yet by ending the use of gold as money in America four decades earlier, FDR ensured the political survival of the Democratic Party, enshrined the paper dollar as de facto money and put America on the road to hyperinflation and excessive debt a century later.  The dollar today is simply a crypto currency supported by the legal monopoly of the United States.



Tariff Fare:

Reflections on the unfolding US tariffs gambit

Snapshot: This essay explores the 2025 US tariff imbroglio with the aid of game theoretic concepts. It consolidates reflections and comments that I have made in various posts over the last few weeks. In doing so, it reveals how a series of strategic miscalculations by the Trump Administration, particularly its overestimation of America’s centrality in global trade and the decision to grant a 90-day grace period to all countries except China, backfired. Rather than isolating China or compelling allies into bilateral trade concessions, the US triggered a multipolar coordination game. In such as game, nations are incentivised to delay action, deepen ties with one another, and shift away from reliance on Washington. The result is a consolidation of the evolving contours of global trade toward a post-American order. In this context, strategic patience, coalition building, and distributed power are the principal features. ..........


DB: Trade policy uncertainty: There's too much confusion, I can't get no relief (via The Bond Beat)

In recent work we replicated and extended analysis by Federal Reserve staff which quantified the impact of trade policy uncertainty on the economy (see “Analysis of the paralysis from trade policy uncertainty” and “The short and variable lags of trade policy uncertainty”). At the time we warned that the results were a best-case scenario, as it assumed trade policy uncertainty would quickly revert to historical averages rather than persisting at elevated levels.

We update that analysis using data for trade policy uncertainty through April. Unsurprisingly, the April 2nd Liberation Day announcements which lifted tariffs to the highest level in a century, and subsequent partial reversal of some tariffs but further escalation with China, led to record readings for trade policy uncertainty last month.

Updated results suggest that annualized real GDP could be depressed by as much as 2.5 percentage points in Q3 and Q4 2025. This estimated drag is meaningfully larger than the 1-1.5 percentage points dent estimated using TPU data through February and March. These results are consistent with our forecast of near zero growth in H2 and still elevated recession risks.


The recent shift in trade policy by the new US administration is impacting global trade and creating volatility in financial markets. This column quantifies the economic impact of the 2nd April tariffs on Europe, discusses the financial market response to the announcement, and looks at the role of the exchange rate response for the transmission of the shock. The authors provide different scenarios for the exchange rate going forward. While economic theory would imply an appreciation of the US dollar, its recent weakening must be seen in the broader policy context. Implications are derived for the case that the weakness of the US dollar vis a vis the euro persists.




Natixis: A four-fifths cut in China exports to the US could axe 6.4 million jobs; Nomura: Beijing’s GDP could hit the low single digits if exports are halved





Well, maybe. Who the hell knows what he’ll do. Anyway, tariffs are back to 10% on either side and negotiations will continue.

Note that China got what they wanted, minus 10%—no negotiations until the tariffs are removed.

There will still be a two month trade burp. Ships weren’t leaving China for the US at all, literally zero. Lot of freight companies are about to make a mint, though. So expect some shortages, but nothing worse than Covid, and hopefully lasting less time.

The fundamental problem remains, however, which is that there’s no certainty around any of this, so business people can’t make long term plans, including plans to build or relocate manufacturing. Trump and the US can’t be trusted to stay steady on policy, so avoiding making big plans involving the US makes sense.

The Great Power picture is clearer, however. The US tried to impose its will on China and failed. China wouldn’t negotiate till its pre-conditions were met. The world has two great powers, with the EU bidding to become the third (I think they’ll fail, but that’s what the rearmament is about.)

And, in economic terms, China is by far the pre-eminent great power. It isn’t even close. The era of American hegemony is officially over. The US tried to impose its will on the world and failed.



Tariff Tweets of the Week:

...


Charts:
1:  "As we approach the end of corporate earnings season, the now backward-looking results from Q1 can be best described as better-than-feared. In aggregate, year-over-year S&P 500 earnings growth is tracking higher than expectations at the start of the earnings season (12% vs. 6%) – and better than the ~9% long-term average growth in EPS. Unfortunately, these results are somewhat meaningless because the world today is much different than pre “Liberation Day.”

2: 
3: 




(not just) for the ESG crowd:

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The Road to 2050: Scenarios for Humanity

If emissions continue, warming could reach 2.4–2.7°C by 2050, triggering cascading crop failures, mass migration of 216 million, and uninhabitable zones in the Gulf Coast and South Asia. Aggressive renewable transitions might limit warming to 2°C, but legacy damage—acidified oceans, depleted soils—would still cause widespread famine and conflict.

The J.P. Morgan report Heliocentrism: 15th Annual Energy Paper (2025) casts significant doubt on the feasibility of a full global transition to 100% renewable energy by mid-century, citing systemic, economic, and technological barriers. While solar and wind capacity are expanding rapidly, the report emphasizes that the energy transition remains linear, not exponential, and faces critical limitations: .........................

.........................................

....................... In short, the report underscores that the energy transition is a century-scale industrial shift, not a rapid revolution. Without radical policy interventions, global cooperation, and trillions in infrastructure investment, fossil fuels will remain entrenched—even as renewables expand.

A global “Marshall Plan” deploying degrowth economics and regenerative agriculture could stabilize populations. Yet this requires dismantling entrenched power structures—a prospect hindered by nationalism and corporate influence. ......


This is a book review of Ramana’s Nuclear is not the Solution: The Folly of Atomic Power in the Age of Climate Change


U.S. B.S.:


As the Trump administration prepares to increase the enormous U.S. defense budget to over one trillion dollars, it is an appropriate time to describe how the U.S. arms industry participates in a structure of normalized corruption that I call defense racketeering. The Military-Industrial Complex that President Eisenhower warned against in 1961 has grown and evolved in ways that are grossly wasteful, promote armed conflict,  and weaken national defense. I will describe this pernicious system of grifting and offer some recommendations for ending it.

A few years ago, I made the diagram shown below depicting the financial circulatory system of the U.S. Military-Industrial Complex (aka, The Blob). Eisenhower originally intended to describe it as the Military-Industrial-Congressional Complex, and this would have been a more accurate term because the defense budget funding committees of the U.S. Congress are the beating heart of the Blob.



Geopolitical Fare:


It can make you feel like you’re going mad. How phony and superficial it all is. How we’re a year and a half into history’s first live-streamed genocide and our whole society is acting like everything’s peachy.

We’re murdering kids. We’re starving them. We’re dropping high tech military explosives on them. Blowing their limbs off. Ripping their guts out. Shooting them in the head. This isn’t just being done by “Israel”. It’s being done by the entire western empire which backs these atrocities. ........



............... Imagine the western reaction if Iran had bombed a humanitarian aid ship trying to feed starving civilians.

Imagine the reaction if Chinese forces were caught massacring medical workers in ambulances.

Imagine the reaction if Russia bombed an international humanitarian aid convoy in clearly marked vehicles.

It would be all we’d hear about for weeks.

❖

My social media feeds are filling up with footage of skeletal starving children in Gaza. If we had sane and responsible news media in the west, this would be the lead story in every outlet and publication. But we do not have sane and responsible news media. We have propaganda services disguised as news media. ...............



After a year and a half of genocidal atrocities, the editorial boards of numerous British press outlets have suddenly come out hard against Israel’s onslaught in Gaza. ..............

.................... It is odd that it has taken all these people a year and a half to get to this point. I myself have a much lower tolerance for genocide and the mass murder of children. If you’ve been riding the genocide train for nineteen months, it looks a bit weird to suddenly start screaming about how terrible it is and demanding to hit the brakes all of a sudden.

These people have not suddenly evolved a conscience, they’re just smelling what’s in the wind. Once the consensus shifts past a certain point there’s naturally going to be a mad rush to avoid being among the last to stand against it .......


 'Let the IDF Mow Them Down!': In Israel, Violence Saturates Everyday Life



Sci Fare:

The thalamus is a gateway, shuttling select information into consciousness.



Other Fare:

ChatGPT has unraveled the entire academic project.


Human sperm count is rapidly declining, and that may lead to a fast demise of the homo sapiens species.



Book Fare:

Ursula Le Guin's "Planet of Exile"

Let me start by saying that there is no novel by Ursula K. Le Guin that is not the best novel by Ursula K. Le Guin. All her novels are her best novels, and all are masterpieces. It is an incredible series of stories, each one different, and each one surprisingly insightful, deep, interesting, and prophetic.

It is true for this fantastic novel: Planet of Exile, written in 1966, her second novel, written at 37. Look, this is such a masterpiece that I don’t know where to start in telling you about it ...............

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