Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Week-end Wrap – Political Economy – October 9, 2022

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On October 9, 2022

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by Tony Wikrent

The carnage of mainstream neoliberal economics

The Expected Financial Crash Is Finally Here 

[Moon of Alabama, via Naked Capitalism 10-4-2022]

Today Yves Smith of Naked Capitalism writes about the now Inevitable Financial Crisis….

The second warning comes from ‘Dr. Doom’ Nouriel Roubini….

The central banks have misdiagnosed the reason for the currently high inflation rates. They were caused not only by too much stimulus provided by governments and the central banks but to a large part by the lack of supplies which is to the consequence of the pandemic and the ‘western’ sanctions following the war in Ukraine. By increasing interest rates the central banks fought against the wrong enemy. They made things worse….

 

New Study: Wall Street Banks Are Doubling Down on Risk by Selling Credit Default Swaps on their Risky Derivatives Counterparties 

Pam Martens and Russ Martens: October 6, 2022 [Wall Street on Parade]

Last Thursday, while news outlets focused on videos of the devastating impact of Hurricane Ian on the southwest coast of Florida, two researchers at the Office of Financial Research published a breathtaking and almost surreal analysis of how the mega banks on Wall Street are once again doubling down on unprecedented risk with derivatives and threatening the financial stability of the U.S. The report was ignored by mainstream business media.

The Office of Financial Research was created under the Dodd-Frank financial reform legislation of 2010 to make sure that Wall Street mega banks could never again ravage the economy and financial system of the United States — as they did in 2008 – by engaging in reckless derivative trades and toxic bets….

 

All Eyes Are on Credit Suisse; But Media Blacked Out Data from the New York Fed Suggest Contagion from Nomura Is Another Threat 

By Pam Martens and Russ Martens, October 7, 2022 [Wall Street on Parade]

Nomura Holdings is tiny compared to the mega banks on Wall Street. According to its website, it had just $384 billion in assets as of March 31, 2021. On the same date, JPMorgan Chase had $3.2 trillion in assets. But for reasons that neither the Federal Reserve nor Congress have yet to explain, a unit of Nomura was allowed to borrow trillions of dollars in emergency repo loans from the Fed beginning on September 17, 2019 – months before there was any COVID crisis anywhere in the world. The chart above shows that in the last three months of 2019, Nomura borrowed $3.7 trillion cumulatively under the Fed’s emergency repo loan program, topping the amount borrowed by JPMorgan Chase by $1.11 trillion.

 

Is This the End of ‘Socialism for the Rich’? 

Yanis Varoufakis [Atlantic, via Naked Capitalism 10-6-2022]

Last Thursday, the International Monetary Fund spooked the markets and surprised the commentariat by chiding the U.K. Conservative government for fiscal irresponsibility…. the IMF’s communiqué went so far as to censure the British government for introducing large tax cuts (now partially canceled after the IMF intervention), because they would mainly “benefit high-income earners” and “likely increase inequality.” Tories loyal to Britain’s beleaguered new prime minister, Liz Truss; America’s feistier Republicans; international economic pundits; and even some of my comrades on the left were briefly united by a common puzzlement: Since when did the IMF oppose greater inequality?

 

Bill Mitchell — Two diametrically-opposed approaches to dealing with inflation–stupidity versus the Japanese way

Bill Mitchell [Billy blog, via Mike Norman Economics 10-6-2022]

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Open Thread

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On October 8, 2022

19 Comments

Use to discuss topics unrelated to recent posts. AKA: no Ukraine or Covid.

Addendum To My Fifteen Points On The Ukraine War

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On October 7, 2022

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Decided a little more needed to be added to the post, but email went out just before I added it, so I’m putting it here.

Addendum:

My argument, from the beginning, has always been simple: Russia can mobilize more men than Ukraine and has reason to do so. Unless they are weaker internally/China than I think or NATO intervenes more than I think, they will eventually have a conventional military victory.

Of course, I could be wrong, but nothing which has happened yet has changed my view. What has happened is that NATO was willing to mobilize more resources than I expected, and that has made a Russian victory require more mobilization (and I always felt doing this with only 200k men was stupid.) However, absent sending in large numbers of NATO troops, the fundamental assertion remains.

As for the internals, the Russia economy, as far as I can tell, is doing better than much of Europe. The fundamentals are simple: Russia a food and fuel surplus and can get almost everything else they need from China and other sources and China needs Russia to not lose. This is not the late USSR, constantly running food deficits.

This leaves internal political instability, and my judgment is that if Putin loses power he is replaced by hard right wingers who will mobilize more, not less. There is no meaningful centrist or left wing opposition in Russia.

If you believe I’m wrong on any of these points and you’re right my argument may be wrong, but this is the argument.

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Fifteen Points About the Future of the Ukraine War

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On October 7, 2022

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Let’s lay it out.

First: the next while belongs to Ukraine. They have the initiative and new Russian troops will take time to arrive.

Second: Russia is almost certainly mobilizing more than 300K troops, the bill allowed for one million. The more they mobilize the more training time will be required; not just because there are more troops but because they are reaching deeper into reserves to people who have been out for longer.

Third: When enough of those troops reach the front, Russia will stop their territorial losses and go back on the offensive. The more Russia mobilizes, the stronger the offensive. If they go up to a million, they will have about 2:1 when added to current troops in Ukraine.

Four: Russia is not fighting just Ukraine. If it was, it would win. It is fighting Ukraine + NATO, and it’s clear that means that NATO officers are doing the majority of the planning and we now know that there are some NATO troops on the ground, we will find out there were more, and that a lot of volunteers were “volunteers.”

Five: Western propaganda has included a lot of declarations that the end-goal is regime change, recapturing Crimea and even breaking up Russia. It has been declared, over and over again, that there will be no negotiated peace with Putin. This means the Russians regard this war as existential.

Six: what Putin said was “all methods” not tac-nukes, that includes things like level bombing, taking out Ukrainian infrastructure (remember, power, water and sewage are on in most of Ukraine and Putin could turn them off tomorrow.) Tac-nukes are part of all-methods, but unlikely to be the first thing reached for. They will be used if necessary to defend Russian territory, which to Moscow includes the Oblasts that recently were declared part of Russia.

Seven: OPEC cutting oil production is, in fact, helpful to Russia. Understand clearly that outside the West and our client states like Japan, Korea and Taiwan, most of the world is not cheering for NATO to win, because for good reason they hate and fear Europe and the US far more than they do Russia.

Eight: The only country which has sufficient leverage over the Russians to force and end to the war is China. However China does not want Russia to lose the war, for their to be regime change, and so on. Russia is their satrapy, their junior ally and absolutely necessary to their security. A regime friendly to them must stay in power. With Russia China can survive a western naval blockade, without it China cannot. It is that simple.

Nine: there is nothing that Russia absolutely must have that it cannot get from China and India. They cannot be choked out economically without those two nations cooperation (though really, it’s about China) and China in particular will not cooperate, though it may make mealy mouthed statements as if it is.

Ten: Europe is suffering more from sanctions than Russia is: significantly more.

Eleven: However bad this war has been, it can be a lot worse. It hasn’t even reached Iraq war levels of destruction of infrastructure, for example, as pointed out in six.

Twelve: the Nord Stream pipelines were sabotaged so Europe in general and Germany in particular would have less reason to press for peace, especially as the winter makes clear how much they need Russian natural gas. It was done to keep the war going, and to help de-industrialize Germany and Europe so that America can maintain its hegemony.

Thirteen: because the Russians now see this war as existential, they will mobilize as much as they need to. If that is millions of men, it’s millions of men. Though there is clearly some resistance to mobilization, it is unlikely to be enough to stop it, and the more the West threatens to break up Russsia and so on, the less resistance there will be. Russia has traditionally been willing to bear huge losses in what it considers existential wars.

Fourteen: The war will go on until one side or another is actually defeated. That may be economic defeat, political defeat or military defeat, though they tend to go together.

Fifteen: peace can only be made in two ways: crushing your enemies entirely, or negotiating. You can’t make peace with your friends, only with your enemies.

Bonus Point: Kennedy negotiated because Russia then, and now, has enough nukes to end the world. Also the crisis was caused because the US put nukes in Turkey.

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Rationality Is A Process, Not A Conclusion (Nuclear Weapons Edition)

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On October 5, 2022

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A lot of mistakes come from assuming rationality means “thinks the same way I do” rather than “reasons from premises I might not share.”

Less than 1/1000 economists predicted the financial collapse, because they reasoned from assumptions like “the market is self-correcting” or “housing prices never go down.” (Sometimes both at the same time, which is rarely rational.)

Back in 2008 I wrote an article saying the next war w/Russia would be over Sevastopol/Crimea. I was told by Eurocrats that was impossible, because it would be irrational: the energy trade was too big to risk, Putin needed it. Rational. Putin didn’t see it that way, either then or now: Crimea and Sevastopol were Russian regions, strategically and emotionally important. When Ukraine seemed serious about cancelling the Sevastopol naval base lease, he acted.

Right now I hear a lot of people saying things like “never give into nuclear blackmail because then Russia will keep using it” or “Putin is rational, he would never use nuclear weapons.”

Now I don’t think he will, but I don’t think it’s impossible, even if one considers Putin rational. All he has to have is a scenario where he believes that he will get more than he will lose.

So, imagine that at some point Russia wants to end the war with Ukraine but doesn’t or can’t conquer enough to force a peace. Or imagine that there is a fake peace (no peace treaty) and Ukraine keeps dropping artillery shells into territory Russia says is theirs now.

Putin might, rationally, decide that the way to force a peace is to indicate that if war continues, he’ll go nuclear and if people don’t believe him, drop a tac-nuke or two to prove he’s not bluffing. (Remember, blackmailers who kidnap people often DO kill the victim. They aren’t bluffing.)

He thinks that the West is not really willing to risk a nuclear war and that if he is willing to risk one they will back down, especially if what he wants isn’t really that big. That’s a rational belief. It might be wrong, but it’s not irrational.

Or perhaps Putin gets into a scenario where he’s losing the war badly, and believes that if he does either he loses power and maybe his life; or that the Western maximalists will succeed in breaking up Russia. If the only way to stop that is to drop a nuke or two, why not? The US dropped nukes on Japan for less reason, although it’s true that no one else had nukes back then.

But what does the West do? If they tit-for-tat, and drop a tac-nuke or two, that means general war: Ukraine doesn’t have nukes, remember, so a NATO country has to attack and that will lead to nuclear war pretty fast if Putin thinks he can’t win a general war. (This is also true of a conventional war against Russia by NATO. Once he’s used tac-nukes, what makes you think he’ll stop when faced by a much more powerful enemy?)

The idea that Putin won’t use nukes is based on the idea that the risk of armageddon is always greater than whatever he expects to achieve. But what if he figures he can only die once or that Russia will cease to exist if he doesn’t use them, or that using them is the only way to stop a long drawn out fake peace? Also, remember that to some people dying by nukes and dying any other way is still just dying.

Now I have to say that  think Russia is very unlikely to use nukes , even tac-nukes, but I also feel uneasy ruling it entirely because it is quite easy to come up with scenarios where Russian leadership decides the gain is worth the risks. This is even true if Russia feels backed into a corner, or if they are in an Afghanistan or Spanish Ulcer situation (Napoleon constantly losing troops in Spain). An ongoing bleeding which can’t otherwise be stopped might be worth risking nuclear war. If you’re going to lose anyway without it, why not risk it?

This, by the way, is why fighting a nuclear superpower over what they consider a core interest (notice “they”, not what you think, but what they think) is so risky and why the USSR and the US danced around each other like ponderous elephants. “If we really fight, we both lose.”

If Russia wants to win in Ukraine more than we (and given our support for Ukraine, it is “we”) do, they may well use nukes. Pretending it’s impossible is stupid and very very dangerous.

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Vaccine And Mask Effectiveness

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On October 4, 2022

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I have mostly avoided the vaccine debate, but let’s take a brief pass.

This isn’t because vaccines don’t work.

This doesn’t mean I’m entirely happy with MRNA vaccines, I’m not and I think there’s some validity to them having negative side-effects. I’m even more unhappy with the uneven way they were applied, which allowed for Covid to gain repeated mutations which made vaccines less effective. I personally would have taken Sputnik-V if it were allowed in my country.

But the vaccines are protective against death and serious illness is indicated by the population studies I’m aware of. This is also true of masks.

Now, I do not favor and never did favor a policy primarily based on vaccines. I have always believed that public health measures like properly done shutdowns (much briefer than we had if you do them early), track and trace, quarantine, paid sick leave, travel bans for anything but absolutely necessary travel (with mandatory quarantine) and so on were the way to go. I wanted all loans frozen for the duration of shutdowns, or paid for by central banks (if they can create trillions for rich people, they could easily have done so for ordinary people.)

We fumbled Covid, probably because it was making the rich rich very very fast, and that lost trust in measures that were somewhat effective, but were sold as silver bullets. They weren’t, absent both public health efforts and a worldwide effort and/or travel banks. This has now morphed into culture war bullshit, where what you think depends not on your actual study of the issues, but on what your politics are.

That’s very sad, and very stupid.

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Week-end Wrap – Political Economy – October 2, 2022

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On October 2, 2022

13 Comments

by Tony Wikrent

 

Global power shift as USA and west commit suicide by neoliberalism

The U.S. Is Winning Its War On Europe’s Industries And People 

[Moon of Alabama, via Naked Capitalism 9-27-2022]

 

The epidemic

“‘Other Places in the Country Didn’t Do This’: How One California Town Survived Covid Better Than the Rest”

[Politico, via Naked Capitalism Water Cooler 9-27-2022]

“Even with its world-class technologies, the university’s labs didn’t have equipment with the kind of capacity to test the whole university, let alone the whole community. The machines that could do that — test up to 40,000 samples of human saliva for Covid each week — cost about $450,000 a pop. And they would need two, for backup. The university administration, desperate for a workable plan, agreed to pay for them. And researchers across UC Davis, from the engineering department to the medical school, began to collaborate, searching for ways to solve the enormous logistical challenges. The plant researchers worked to refine the process, using a papaya enzyme to make human spit less viscous and easier to process. A colleague in the engineering department devised a machine to shake the vials, a necessary and laborious step previously done by hand. These scientific innovations — and an anonymous $40 million donation — allowed this college town to do something that few, if any, other communities were able to do during Covid: Starting in the fall of 2020, the university tested its students and staff every week and made free, walk-in testing available throughout the town.” And: “n the end, Davis and the surrounding area experienced a different kind of pandemic than virtually anywhere else in the country. The university itself escaped a wave of outbreaks that swept other campuses like the University of Georgia, the University of Alabama and Ohio State University after they reopened in 2020. Pollock said the plan made so much sense to him when it came together that he expected other universities to do the same. ‘But it turns out,’ he told county supervisors a few months ago, ‘that the other places in the country didn’t do this.’”

 

”New Infectious Threats Are Coming. The U.S. Probably Won’t Contain Them”

[New York Times, via Naked Capitalism Water Cooler 9-30-2022]

“If it wasn’t clear enough during the Covid-19 pandemic, it has become obvious during the monkeypox outbreak: The United States, among the richest, most advanced nations in the world, remains wholly unprepared to combat new pathogens. The coronavirus was a sly, unexpected adversary. Monkeypox was a familiar foe, and tests, vaccines and treatments were already at hand. But the response to both threats sputtered and stumbled at every step. The United States spends between 300 to 500 times more on its military defense than on its health systems, and yet “no war has killed a million Americans,” noted Dr. Thomas R. Frieden, who led the C.D.C. under former President Barack Obama.”

 

[Twitter, via Naked Capitalism 10-1-2022]

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Open Thread

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On October 1, 2022

18 Comments

Use to discuss topics unrelated to recent posts. No Covid or Ukraine related discussion.

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