Have some health issues flaring up and minor surgery on Friday, so may not post much till Monday, although I’ll try. Anyway, an open thread so you can discuss what’s going on. As usual, if I covered a topic in the last week, please comment there instead.
Author: Ian Welsh Page 2 of 449
Regular readers will know that China has been going after billionaires hard. So much so, in fact, that the number of billionaires is dropping in China.
Back after the financial collapse executives did very very well. They had been lying repeatedly, had engaged in wide-scale fraud and to the extent that there was any punishment it was fines on the companies involved.
Not only were the fines less than the companies had made, but even in the rare case that the company went bankrupt, the executives involved still got to keep all the money they had made. Dick Fuld, CEO of Lehman Brothers wound up with a net worth of over 500 million — after his company was bankrupt.
The saying at the time when bad deals were made was IBGYBG. “I”ll be gone, you’ll be gone.”
So if you want to dis-incentivize bad executive behaviour, you have to really go after the execs. Here’s an example of China doing it the right way:
Xu Jiayin (许家印), founder of China Evergrande Group and former China’s richest man, was sentenced to life in prison by a Shenzhen court today.
He was convicted of fundraising fraud, illegal deposit-taking, securities fraud and embezzlement.
Evergrande Group was fined RMB… pic.twitter.com/wSnbzJaSER
— Tong Bingxue 仝冰雪 (@tongbingxue) August 20, 2026
Notice that all his personal assets were seized. I’d also track down any family member he made rich and take that money away.
The only way to restrain capitalists is real prison sentences or execution (Vietnam is fond of executing corrupt execs) and taking their money, and thus power, away. The idea of corporations being used to shield decision makers and beneficiaries of illegal or evil behaviour from liability has to go away. Corporate personhood has to end, as well, or they have to be given the disadvantages of personhood. “Committed a serious crime? OK, the corporation is dissolved.”
Psychologically the most important thing here is for government officials to not identify with business leaders. Chinese CCP bureaucrats do not think of themselves as part of the same class as executives at companies. Organizationally there can be no revolving door between business and government. You can move from biz to government, but not vice versa. There can be no route for payoffs, including the old “I”ll hire or give your wife or kid a sweetheart deal.”
For most of Western history bureaucrats – aka. civil servants, were considered morally superior to businessmen, because they were working for the common good and by doing so earning less than they could if they were in the private sector. Business was what you did if you were morally inferior: a person who was concerned about yourself and not others.
That ethos produced some very competent and high powered government bureaucracies which were well respected, especially when combined with civil service examinations.
Government and business are two different things. There has to be some understanding between them, since government must regulate business, but government’s job is to make the people better off, not to make businesses richer.
When government operates this way it can control private enterprise so that markets work to the benefit of society. When it doesn’t, usually because it’s been corrupted by capitalists, it enables monopolies and oligopolies and exploitative practices and when there are crises, it bails out the rich, not the people.
All of this is well understood, really, it’s just that there’s a lot of money to pay for scummy intellectuals and journalists and experts to obscure the fact and pretend that there’s a trickle down effect or that what’s good for rich is good for society. (Hello Milton Friedman, you corrupt hack.)
Markets are a lot like nuclear energy. Great if you do it right, but if you don’t, it’ll blow up in your face, and the first rule is that the more money a capitalist has the more harshly they should be treated if they break the law or hurt the public. In China, that’s how it is. In the West, the rich skate and the poor go to prison for life or have their homes and savings and livelihood stolen.
What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.
I’m not a big fan of Canada’s Prime Minister Carney, the guy who blew two housing bubbles: one in Canada then another in the UK. He’s a neoliberal’s neoliberal.
But unlike most he is neither stupid nor a coward.
It was looking like there would be a Canada/US trade deal, and honestly? I was worried what Canada had given away to get it.
But then according to Carney (the US denies, but the when the Trump administration’s lips are moving, they’re lying), they added a bunch of last minute additions.
These are pretty close to annexation without the troops: the US would control Canada’s trade and have first call on all its minterals and would have altered our internal laws to suit them. I’m particularly intrigued by America wanting an end to Quebec’s language sign laws: what the hell does that have to do with the US?
It’s always hard to tell what is going on in the Trump administration, but these demands seem calculated to force Carney to refuse. He’d lose the next election if he agreed, the backlash would be immense. Certainly he would have been crushed in Quebec, and without Quebec he has no route to victory.
Moderately sane and informed American officials would know this. So, normally, one would assume they deliberately spiked the talks.
But this is the Trump administation, full of some of the stupidest and most ignorant people on Earth, ruled by a senile old man with the attention span of a grasshopper on cocaine.
So maybe they really figured “Canada has to do what we tell them to!’
Instead, the vast majority of Canadians support Carney, even prairie westerners who usually hate his guts.
And fortunately it worked out for the best. They pushed a strong hand way too far. The truth is that Canada has a ton of trade with America and is very vulnerable.
But the longer term truth is this: there’s nothing Canada buys from the US it can’t get somewhere else, often for a lot less (hello China) and there’s not much Canada exports that it couldn’t sell to nations other than America. We’re in a bad position because against the opposition of the majority of Canadians a feckless previous Prime Minister signed trade deals with the US which increased integration.
But what was done can be undone, because Canada is not naturally dependent on America.
One argument I keep hearing from Americans is that Canada needs America to defend it. To which the answer is a question: “From whom?”
The truth is that no one but the US is actually an invasion threat to Canada. Second biggest country in the world. Separated by large oceans or thousands of miles of land from every country in the world except America. The only nation America protects us from is America, and that’s what’s known as a protection racket.
Generally I don’t believe in making deals with Trump. No deals at all. He doesn’t keep his deals and if you make any concessions he always assumes that means there’s more to be had and comes back again with more threats.
The task for Canada is, indeed, to diversify away from the US. Trump is doing us a favor. If he’d offered a slightly shitty deal, we’d have accepted it. If he’d asked only for the moon, not the stars, he’d have gotten it. By making demands no Prime Minister could accept without losing the next election, demands which amount to “we control your trade relations with everyone else going foward” Trump made it possible for Carney to tell him no on the entire package.
And while that will suck for Canada; while Canada will be hurt by a trade war: it’s forcing us to do the right thing rather than put it off or do it slowly.
So I’d like to thank Trump.
“Thank you President Trump, for being a complete and utter asshole with the IQ of a squash and no empathy or kindness at all Any President slightly smarter of slightly more able to understand other people could have had Canadian elites giving them cheap everything Canada has an integrating with the US even more. But you keep showing why that’s impossible and stupid.”
Now we just need a strong military deterrent. We have a lot of mountains and Iran has just shown us how to use them.
What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.
Treasury bonds are auctioned by the Treasury department. It is an auction: banks say what rates they will accept, the ones who offer the lowest rate get the bonds. You can agree to buy bonds without bidding, in which case you just get whatever rate the auction sets.
So Treasury does not set the rates and say “take it or leave it.”
The rates for short term bonds are close to the Federal Reserve rate, longer term bonds can diverge a lot based on how much banks think the future is dangerous. After all if you’re locked in for five, ten or twenty years, and bond interest rates go up, you just took a bath relatively speaking. And since they probably went up because inflation went up, you could wind up with less real money than you started with. With short term bonds you can take a loss, but you aren’t stuck with it.
This is the primary market. The secondary market is FAR larger and is people selling bonds that already exist to each other. If interest rates go up, the price of existing bonds goes down, and vice-versa.
The largest holders of Treasury bonds outside of the US are Japan, China and the EU. If they sell a lot of bonds (and Japan is considering it) then for the usual reasons, the price will go down on bonds and that means interest rates need to rise in the next auction. If I can get bonds for cheaper, I’m not going to buy them off the primary market or from primary dealers.
Now there are banks who are required to buy bonds. First there are primary dealers, 25 of them: they have to bid. But they aren’t required to take the interest rates Treasury wants taken. As a rule they’ll try to be close to what Treasury wants, being a Primary Dealer is valuable, but they aren’t going to cut their throats.
The secondary market effectively determines the minimum interest rate that Primary Dealers can accept, because if they accepted less they’d be buying bonds worth less than bonds on the secondary market. They’re not going to eat billions of dollars of losses.
Next we have the fact that all US banks are essentially required to hold Treasuries as part of their liquidity requirements. Most assets count for liquidity, but only some assets are counted at 100%. Treasuries count, because the idea is that the Feds can always print money and therefore you are always sure to at least get your interest payments. The federal government cannot go bankrupt, so long as the US debt is denominated in dollars.
BUT as prices for bonds drop, which remember happens in inverse to interest rates on new bonds and also drop if there’s much more selling than buying on the secondary market, the value of the bonds that all these banks hold as their reserve requirement also drops.
So if Treasuries become a lot cheaper the banks suddenly can’t, en-masse, and for no fault of their own (this time) meet their liquidity requirements. And then you have a potential banking crisis.
Yes, the Fed could then step in and pull some arguably illegal shenanigans. But that has its own downsides. The bottom line is that if the world suddenly doesn’t want as many Treasuries as the debt and interest payments requires, the US has a real problem.
Go back to “as long as US debt is denominated in dollars”. A lot of counries can’t borrow in their own currency, or can’t borrow all the money they need. So they issue bonds denominated in other currencies, usually the US dollar.
If there isn’t enough demand for US bonds, then suddenly the US is in the same position. Bear in mind, even if I want exposure to the US, do I want it in Treasuries? After all, it’s the stock market that’s been super juicied, and if I think inflation is going to go up significantly, why buy Treasuries now? Why not wait?
But this where the rest of the current clusterfuck comes in. There’s every reason to believe that inflation will go up. A barrel of diesel is now selling for around $180 dollars. The Iran mess shows no end in sight. AI looks like a circle jerk bubble.
What happens if AI is a bubble and bursts at the same time as all this is going on?
Well that tanks the stock market. Suddenly foreigners want a lot less US dollars, since they don’t want as many US bonds or stocks.
If this happens, the US dollar starts falling. All assets owned in US dollars become worth less to everyone, foreigners and domestic, since the US dollar can buy less (remember, net importer.)
What we have right now is a perfect storm: the AI bubble, treasury bond problems, the Bank of Japan needing to sell treasuries to prop up the Yen, the Iran war. The US isn’t intervening to help Japan with the Yen out of the goodness of their own hearts, most of these people would sell their own kids into sex slavery if it’d help them get ahead. They’re doing so because if they don’t help Japan, Japan will help itself by selling potentially hundreds of billions of Treasuries in a short time.
If you’ve been following, you know that means that bond prices will drop and interest rates on new issues will have to go up and banks will become insolvent. It also will mean that a lot of other people will sell because they’ll get hit by margin calls as the value of their portfolio drops precipitously.
This is a real problem. It is not fake. And because it is a few problems: the Iran war, the carry trade, the AI bubble all at the same time, it’s very hard to manage.
If Trump had a lick of sense or wasn’t being blackmailed by Israel (or whatever the reason is) he’d end the damn war tomorrow and give Iran what is needed, because keeping the war going is risking the entire ball of wax.
Once the US loses dollar hegemony, it won’t get it back because most of the world hates it and Russia/China and others have been working hard to create SWIFT alternatives. Likewise if the US loses dollar hegemony most of the West can expect a huge hit to standards of living.
Dollar hegemony could have continued for another twenty years if the US had played nice with China and Russia, not abused sanctions, and not started stupid wars. Moving off has real costs and if the price of staying on wasn’t high, countries would have just gone along with it. But the US made unnecessary enemies and fucked around, and now it’s going to find out. If not during this crisis conflux, then the next, and there will be a next.
What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.
Japan has, since the mid 90s, had very low interest rates. The Japanese carry trade was to borrow in Japan and invest in America. You didn’t even need to take any real risk. Borrow Japanese, buy safe bonds in the US that paid more. Or you could use the money for riskier bets.
This has been going on for more than half my life and I’m not young. It was one of those money spigots that insiders and wealthy people have access too, but most of the rest of us simply watch: free money for some.
Now it’s coming to an end. The Japanese Yen is under immense pressure and so far interventions have not done squat. So the Japanese are raising interest rates.
But more than that they’re selling large chunks of their US treasuries in interventions, and Japan is the largest holder of US government debt outside of America. (China is second.)
This happens at the same time as the US bond market is breaking. Treasury literally can’t sell all of its bonds. Rates are high, about at 2007 levels, and they’re selling short term bonds and using that to buy their own long term bonds.
Add to this issues with oil and distillates, especially diesel, the fact that the US military is basically out of a lot of weapons and has lost a war.
Then there’s the real-estate market:
America and Americans are under a lot of stress. Because interest rates are high and Biden and Trump love to spend but not tax there are also soaring interest payments on the US debt.
Now the big advantage the US has over most countries is that its debt is denominated in its own currency. The federal government cannot go bankrupt unless elites lose their will to print money, which so far they haven’t. They’ve printed literal trillions since 2008, though it’s concealed by pretending that Federal Reserve operations which create money out of mid air to keep rich people rich aren’t money printing.
The result was massive inflation in the top end, and a drying up of businesses aiming at the middle class and poor. You see this most clearly in Las Vegas, which used to have cheap rooms and food but now doesn’t, because why cater to people who have no money?
(In China prices are low, even at luxury hotels, because there is a mass market like the one the US had in the 50s and 60s.)
After all this add in the AI bubble and fertilizer and diesel shortages hitting farmers.
The entire system is cracking apart.
The smartest money isn’t the money that has been plunging into the AI bubble, it’s the people who have kept their powder dry, because as everything goes to hell, there will be significant buying opportunities. Warren Buffet, for example, built up a huge amount of cash, though his successor has spent some.
In a serious economic crisis, and one is coming, you can buy up companies and assets (and all those homes, which you then rent at profit maximizing rates which leave millions homeless) for cents on the dollar.
As for you, dear reader, well, probably you won’t be able to take advantage of this, any more than you could in the bounce after 2007.
The Federal Reserve and other central banks will have to decide whether or not to do bail outs, and whether or not to bail out the rich or ordinary people. They’ll choose the rich. But there is a problem with the whole “America’s debt is in dollars so it doesn’t matter theory.”
America’s a net importer. It has less and less to sell to the world that the world needs. There has been a slow but consistent move away from the US dollar as a reserve currency, a movement away from settling trade in US dollars and China’s now forcing companies to choose between America and China. If you enforce US sanctions, they’ll fine you and if you don’t pay, you’ll lose access to their market.
Ultimately the US dollar’s value comes from US strength: economically and militarily. Like the British Pound (which was once worth five times or more than the US dollar) it can be expected to lose value because there is simply less need for it. Everything you really need you can get somewhere else, unless like Europe, you’ve sanctioned other suppliers so much you’re destroying your own economy.
Anyway, all of these things all happening at the same time is all sorts of bad news. I’d expect some sort of financial crisis within a year and it will be a doozy. Wherever it starts it will hit everything in the US and Europe and the Anglosphere and much of the rest of the world. Central banks will have to spent trillions in another bail out.
But this will be the last major US bailout, because after this there will be nothing. The US will not have the tech lead in almost anything, is not creating the world’s future techs other than AI (which China is winning, anyway) and will have lost much of its military intimidation factor.
Welcome to the end of the American Empire. You’ll see it in food shortages, high prices and an elite determined to become an elite similar to India’s or much of South America’s: ruling over essentially poor nations, but filthy rich amongst the rubble.
What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.
We all know about American sanctions. They are enforced by removing people from the US/EU banking system, and the SWIFT transfer network.
Because this system was used by almost everyone for international transfers, the US could forbid trade between third parties: “you can’t buy or sell from Russia/Iran/whoever because we’ll cut you off from our system.”
American law only applies in America. If Russia and Nigeria want to trade something, that should have nothing to do with the US and it should have no say. But it has and entire countries have been devastated by it.
This week a Singaporean shipping company received a hefty fine in China, the fine was just short of 5 million RMB. What happened was, they had refused to fulfill a shipment from Shanghai to Panama and returned the goods because the Hong Kong shipper was included on a U.S. sanctions list. I hope you heard that, a Singaporean shipping company, nothing to do with the USA, refused a shipment that was sent from Shanghai, in China, to Panama in Central America, of products that were being shipped by a HK company that is sanctioned.
Had the goods been going to the USA, then this would not have been illegal, because the goods, or the company shipping them are sanctioned there and Chinese domestic law can’t change that.
However, the Shanghai Maritime Court ruled this as a breach of contract, China has not sanctioned this company, the US had nothing to do with the product, the shipping or the destination so, based on Article 12 of the new Anti-Foreign Sanctions Law, the court ordered compensation for the loss of over RMB 4.99 million plus interest. It went on to the Supreme People’s Court which subsequently listed it as a typical case, stating it was the first judicial judgment confirming the mandatory applicability of the law.
What this means, if it continues, and the supreme court of China’s language indicates that it will, is that you’ll be forced to choose: you can either obey US sanctions, in which case you can’t do business with China, or you can obey Chinese law and that means you won’t be able to do business with America or its vassals.
It took China a long time to do this. Only recently did China decide that the US can no longer stop its technological and industrial progress: China is ahead in almost all techs, and in the few it’s behind in it doesn’t feel it must have US goods. China forcing even AI companies to use domestic chips was a tell.
Last decade I predicted that a likely outcome of the rise of China and America’s fall was a new cold war. There’s an entire topic category “New Cold War”.
And here we are, with it reaching the serious stage.
The bottom line is that while China is happy to sell to the US and wants to keep doing so, it no longer absolutely needs to. Nor does it need parts from the US. It’s the West that needs tech transfers from China.
And there’s no upside to helping the US other than sales because everything that makes the US stronger is used to hurt China or its friends. Notice that BRICS includes two countries currently at war with the West: Russia and China, America is trying to flip Brazil back to the hard right, and Trump is constantly sanctioning South Africa.
Helping America, if you’re China, is as stupid as it gets given America has clearly treated China as an enemy and is assaulting China’s friends.
In the last cold war Russia was the weaker side, economically, from the start to the end. In this war China is stronger in every way that matters: militarily, industrially and technologically. It also has a larger population.
The smart money is “always bet on the stronger side”. Sure sometimes they lose. But not often. And the West is now the weaker side.
Welcome to the end of the European centuries. We had one hell of a run, but our leaders pissed it away. Let us hope that China is a kinder hegemon than Europe or America ever were.
What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.
It appears that the Iranians are no longer negotiating with America. In fact they’ve said that they won’t negotiate as long as Trump is President. Their demands are an end to all attacks, including in Lebanon and Gaza, a return of all frozen funds, an end to all oil sanctions and that US bases are never rebuilt. They won’t negotiate on the Strait, saying that’s between them and Oman.
While this is understandable: Trump is completely untrustworthy and can’t keep a deal, I think it’s not entirely true.
But when dealing with Trump, everything has to be cash or carry. The first step will be giving them all the funds: flown in in crates in non-US dollar denominations. The second is an end to sanctions.
At that point, I’d guess they’ll talk.
But the bottom line is simple: America has lost the war.
Further the new Supreme Leader has systematically been putting hard liners in key positions, including some who thought that when Israel kept attacking Lebanon, Iran should have attacked Israel. The new supreme leader is far more hardline than the old. He gave the less hardline leaders a chance to negotiate with the MOU, but that failed. The Iranian government works on “if there’s a consensus to try something the supreme leader will usually let it happen to see if it works.”
But it failed. And that gives Motjaba the legitimacy to say “you had your shot, now we’ll try it the other way.”
Iran’s fairly opaque, though not as much as what passes for Trump’s brain, so I don’t know what they’ll do, but I think if they are serious about Lebanon and Gaza they’re going to have to go to war with Israel in a real way, and defeat Israel unambiguously, as they have America.
Assuming that Israel doesn’t use nukes (which would lead to the end of Israel), this is entirely within their capabilities: they’re still producing missiles and drones, and the US is virtually out of interceptors and low on many other important weapons. Bases are badly damaged and dangerous to use. Aircraft carriers are exhausted and they’ve now had to withdraw ALL carriers from Asia. Ukraine is essentially out of interceptors, and Russia is hitting everything and anything it wants, and attacks on ports have turned Ukraine into a land locked country just as harvest season hits and Ukraine needs to ship out its grain.
The US Empire is overstretched, and Israel is a small country with less than ten million people. It’s the tail that wags the dog, but there’s not much dog left to wag and increasing influential Americans are admitting they’re going to have to make a deal on Iranian terms.
Iran has now won the missile race, which I said they would do day one of the war. The question is if they’ll win the economic race: both America and Iran’s economies are under pressure: who will succumb to that first?
Thankfully for Iran, they’ve been sanctioned for decades and China is supporting them economically. They’re not nearly as reliant on imported goods as the US is. So my guess is they win the “who can take the economic pain longer” race too, especially since if Trump doesn’t cut a deal and possibly even if he does given how long he’s left it, the Republicans are likely to get slaughtered in the midterms and Trump’s control of Congress is in question. Sure, Democrats are massive warmongers too, but forcing Trump to admit defeat isn’t politically unpalatable.
All of this is, essentially, a result of a stubborn refusal to admit reality. To admit that America couldn’t manufacture enough weapons. To admit that Iran could close the Strait and that it mattered. The weird support of Ukraine attacking Russian refineries, just as America needs Russian oil on the market.
America is so used to being able to shove everyone around that it just doesn’t seem to have occurred to most American leaders that they could decisively lose a war in a way they could not just walk away from as in Vietnam or Afghanistan. The Iranians have America by the balls and are squeezing, and America has no way to make them stop.
It’s a contest of who can inflict and endure the most pain, and the answer to both questions is “Iran.”
So Iran will win this war and it will get a good peace deal. That’s essentially baked in now. The question is if they can or will do what is necessary to force Israel out of Lebanon and Gaza. My guess is Gaza ain’t happening, but I think Lebanon is possible. The same calculus applies to Israel as America: Iran can do more damage to Israel than vice-versa, has a more secure weapons supply and nukes don’t change that: Israel can destroy Iran, but that won’t destroy all their missiles and the remaining forces would then take out Israel, including using a dirty nuke, and hitting Israel’s nuclear facilities and desalination plants. Israel would be rendered uninhabitable.
If Iran pushes hard enough on Israel, they’ll be forced to back down as well.
Wars have consequences. This one will be looked back on by historians as the death knell of America. It may be the death knell of Israel as well.
What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.