- Why The Catalan Independence Movement Is Failing
The Catalan fight for independence is not how conflicts are fought throughout history, let alone how they are won.
Some movements for national independence have succeeded in history, others have not. Presently, it seems that the Catalan bid is destined to fail. Maybe in the future Catalans will change their strategy and achieve their goal, but at the moment of writing the Catalan independence movement can be described as a storm in a teacup.
We therefore looked at what worked in the past and is missing right now, or what clearly is not working.
1. A bad plan to begin with.
Catalan independence is about claiming sovereignty from Madrid, just to immediately relinquish it to Brussels. If this had been decades ago, before the 1992 Maastricht Treaty, maybe it wouldn’t have mattered. Now, especially after the Brexit vote, the EU leadership has decided to push forward with the European Federalist project, starting possibly with a Eurozone financial minister as proposed by French President Macron.The latter’s plan also includes a Eurozone budget and that’s where the Catalan plan makes even less sense: part of the resentment towards Madrid is because Catalans do not like regional fiscal transfers towards the rest of Spain. Would they like it if fiscal transfers were towards other European regions via Macron’s proposed Eurozone budget?Many
Catalans also resent the “austerity” imposed by Madrid. Yet it’s not Madrid imposing it, it’s Brussels. Yet Catalans want to dump Madrid because of austerity and then join Brussels?
Why leave a political system because of its unnerving centralism just to join one that is shifting towards centralization, even further from the will of the people?
The EU also does not like referenda.Mainly because it tends to be on the losing side. It lost the ones on the “European Constitution” in 2004 in the Netherlands and France. The Constitution was then pragmatically swapped into “Lisbon’s Treaty” with a number of formal changes, but even that one was rejected in a referendum by the Irish. This time, the EU leadership forced a remake, finally succeeding.
More recent examples saw the Greek referendum on austerity in the summer of 2015, where the Greeks rejected the “Troika”, just to be forced into a humiliating surrender; the Dutch referendum on the association treaty with Ukraine, which also rejected the agreement; and the already mentioned one in the UK on the European Union membership. The EU’s track record in referenda is poor at best, thus it’s no surprise that EU leaders distrust direct democracy. Indeed, the European Commission through the agency of its President Juncker, refused to support the Catalan bid, fearing an opening of Pandora’s box and further political fragmentation, that would allow anyone to leave political systems (including the EU) at will. One Brexit was enough.
The EU can’t also let Catalonia go without incurring needless risks; nor can Spain. As we explained previously, Catalan independence could spark a second Eurozone debt crisis.
Catalan nationalists chose to overlook the centralist, pro-austerity and anti-direct democracy nature of the current European Union. A bit too much to be ignored.
2. Inconclusive leadership.
The now former Catalan President Puigdemont is a champion of missing opportunities. If there ever was a chance to succeed, it was right after the referendum, regardless of its democratic credibility, when the moral was high and there was a momentum of political support. Puigdemont flinched. His first speech after the referendum left many supporters confused. He then signed a declaration of independence, just to suspend it within seconds.
Can anyone imagine the Founding Fathers of the United States of America doing the same? Or the Greek ones after the war with the Ottoman Empire?
When Puigdemont finally decided to go forward, it was too late. He had missed his date with history. There might not be another one.
3. Gun-free society.
American supporters of the Second Amendment will love this one. It is not necessarily an endorsement, but a historical observation. The former claim to fight against centralism just like their ancestors fought against the King of England. Catalans want to fight against Castilian centralism and the King of Spain (independent Catalonia would be a republic).
The irony is that a sizeable portion of Catalan nationalists within the Catalan parliament are left-of-the-centre progressives.We wonder thus if Catalan progressives now feel that the US Second Amendment is still a “relic of the past” and similarly shun the need for a “well regulated militia” against an oppressive government, like American progressives do.
Looking at historical precedents, why are the French still celebrating the “Bastille Day” as a symbol of their revolution? The fortress didn’t serve only as a prison, it was also an armory.
Catalonia also lacks its own army, while it can rely on its own police force, the “Mossos d’Esquarda”. Not enough to stop the Spanish forces to regain control of the situation with ease.
4. Lack of international recognition or foreign support.
We once again look at past examples: the French fought on the side of the American revolutionaries against the British; the British and the Russians fought on the side of the Greek in 1821. More recent examples, the US backed Slovenia, Bosnia, Croatia, Kosovo and Montenegro in the successive splits from Serbia-dominated Yugoslavia. Similarly the US is backing the Kurdish ambition in Syria, while the Russians backed the Crimeans in their secession from Ukraine.
No one backed Catalonia. Nor has anyone so far recognized its independence. Foreign backing generally comes from powers interested in destabilizing the country facing a secessionist movement. No one seems to be interested in destabilizing Spain right now.
Foreign support often provides the weaponry for the insurgents to succeed in overthrowing the oppressors; should a civil war start in Catalonia and should a foreign power start to provide weapons to the Catalan insurgents, the Spanish government could be forced to let Catalonia go or fight an extremely costly war. However, we are not at this point.
Catalans put their faith in the EU, but it was misguided if not plainly delusional as discussed previously.
5. The “snowflake” generation.
Mass crowd rallies waving flags can be inspiring. They can also be hard to control once in movement. Not every crowd is the same, though. Waving flags does not make you independent. Not even the unilateral declaration of independence makes you so. A conditio sine qua non for an aspiring sovereign state is the ability to control its territory and defend it. Catalonia doesn’t seem to be able to do that.
When you look at the crowds of Catalan nationalists, there’s a widespread support among the youth. None of them however did any military service whatsoever. This is a common issue in Western Europe. The last generation that fought a war, the Second World War, is either dead or on its way out. Since then, military service has been progressively abolished. New generations don’t know how to fight.
They also don’t seem to be aware of what exactly they were doing. The Spanish Constitution forbids secession, hence Catalan independence is a rebellion against the constitutional order and as such is being treated by the Spanish government: it’s a revolution. When the Spanish police reacted against the Catalan referendum, Catalan nationalists took it on social media to express their outrage against “fascist Spain”. The disdain seemed to be shared by many Westerners. However, in every other part of the world, and at any other point in history, events of this type would leave dead bodies on the floor, regardless of “fascism”.
We are not inciting violence with this, we are simply making a historical observation.
It seems that the great plan of Catalan nationalists for independence was “Step aside while I make a revolution, otherwise I’m going to call you names. On Twitter. And maybe make a video on Youtube and share it with my friends on Facebook.” That’s it.
While Kurds are fighting Islamic terrorists and brandishing AK-47s in Syria, Catalans are brandishing their Iphones. The former are fighting for independence, the latter look like they are attending a pop concert.
Catalans over-relied on social media outrage to support their cause, just to find out that after a few days, people go back to their lives and lose interest. Nobody lifted a finger in favour of Catalonia. Not even Catalans themselves. It might be that the region is still wealthy despite some problems, hence a civil war would result in more material loss than the Catalans are ready to put up with for the prize of independence. This is not how revolutions are done.
- China Unveils "Magic" Island-Building Ship On Eve Of Trump Arrival
In a move that appears to validate Joint Chiefs Of Staff Chairman Joseph Dunford’s concerns about China’s strategy of slowly expanding its territorial and military footprint in the Pacific, the Chinese government unveiled on Sunday a “magical” island-building ship on the eve of Donald Trump’s visit in a move likely to renew fears about its claims to territory in the South China Sea, the Financial Times reported.
Measuing 140 meters, the Tiankun is the biggest dredger in Asia, with cutters and pumps capable of smashing the equivalent of three Olympic pools of rock an hour from the sea floor and shooting it up to 15 kilometers away to create artificial land. Over the past five years, China has used similar vessels to create a string of strategic islands to support its claims to 85% of the territory in the South China Sea.
China has been widely criticized by the international community for its land-reclamation efforts in in the Spratley islands, where China has been building manmade bases over some of the since 2014. China has asserted its dominance of several groups of tiny islands in the South and East China Seas. China last year said it would not accept a ruling against it made in a key international legal case over the strategic reefs and atolls that China has asserted its authority over. In that ruling, the ICC decided that the islands belonged to the Philippines.
According to Newsweek, the US estimates China has added 3,200 acres of land on seven features (which includes rocky outcrops and reefs) over the past three years.
Between 2013 and the middle of 2016 – the peak phase of the island-building efforts – China created seven islands and reclaimed 2,000 acres, and built airfields, missile bases and radar systems.
Last year, Beijing appeared to signal it was halting large-scale dredging. However, the creation of the Tiankun would suggest otherwise. Launched at a shipyard in Jiangsu province on Friday, the Tiankun will enter service next year with Tianjin Dredging Company, an arm of state-owned China Communications Construction Company that has carried out most of the dredging in the South China Sea.
The Marine Design and Research Institute in Shanghai, which designed the vessel, described it as a “magic island-maker” on Saturday.
The US military has taken a more hard-line approach to China’s territorial claims in the Pacific since President Donald Trump took office. Since inauguration day, the US Navy has conducted at least four “freedom of operation” missions whereby US destroyers have sailed within 12 miles of the controversial islands. The most recent such mission occurred in mid-October. Each time, China has scrambled fighter jets and ships to intercept the US vessel.
As the FT pointed out, Washington’s opposition to China’s claims remains an irritant in bilateral relations, and the topic is expected to be an important point of discussion with Xi Jinping, China’s president, when Trump arrives in Beijing on Wednesday for a two-day visit.
- Did Russia's Iranian Energy Deal Kill Four Birds With One Stone?
Russia’s gargantuan $30 billion energy deal with Iran simultaneously accomplished four objectives that are central to the grand strategic goals behind Moscow’s “Ummah Pivot”…
Rosneft chief executive Igor Sechin announced that his company signed a roadmap to invest the mind-numbingly large sum of $30 billion in the Iranian energy sector following his and President Putin’s visit to the Islamic Republic to hold three-way talks with Azerbaijan. This masterstroke of energy diplomacy wouldn’t have been possible had it not been for Trump scaring Western investors away from Iran and pushing the country closer towards Russia as a result, which totally reversed the intended dynamic of the Obama Administration that sought to reorient Iran in the opposite direction through the multiple concessions that it offered up through the summer 2015 nuclear deal. Russia’s foreign policy “progressives” are indeed making rapid progress in advancing their 21st-century grand strategic goal of positioning Moscow as the supreme balancing force in the Eurasian supercontinent, and this is in turn accelerating the global transition to a Multipolar World Order.
In order to appreciate just how profoundly significant of a geostrategic move Moscow made this week, one needs to look no further than the four objectives that were immediately advanced through the Russian-Iranian energy roadmap:
Unveiling A Trans-Azeri Pipeline
Russia intends to build a trans-Azeri pipeline to Iran, which will not only strengthen bilateral Russian-Iranian relations and their trilateral expansion with Azerbaijan, but also importantly demonstrates the success of the recent Russian-Azeri rapprochement over the past year. Moscow views Baku as an integrationist in the sense that it’s facilitating Russia and China’s supercontinental goal of linking the landmass closer together, while traditional Russian “ally” Armenia is seen as a Western-leaning obstructionist that’s suddenly become a wayward partner.
It shouldn’t be interpreted as coincidental that this new energy-driven milestone in Russian-Azeri relations occurred just weeks before the planned signing of Armenia’s “Comprehensive And Enhanced New Agreement” with the EU. The dichotomy of Azerbaijan moving closer to Russia at precisely the same moment that Armenia drifts towards the West is expected to have serious implications for the Nagorno-Karabakh peace process because it suggests that Moscow might more solidly support Baku’s preferred solution to this conflict in line with international law while the West (influenced to a strong degree by the powerful US-based Armenian lobby) might back Yerevan’s continued occupation of the region.
Starting The South Asian Stream
The other important outcome of this trilateral summit is that Russia also announced that it intends to build a tristate pipeline between Iran, Pakistan, and India, which the author recently remarked might signify that Russia has been successful in getting India to downscale its support for Baloch terrorism against Pakistan due to New Delhi’s newfound self-interest in this transnational region’s stability because of “South Asian Stream”. If successful with this strategy, then Moscow could prove that it’s indeed the only balancing force capable of sustaining stability in the Mideast-South Asian pivot region because of the influence that Russia is still capable of wielding in “moderating” the pro-Western pivot that India’s embarked on in recent years.
Neutralizing Iran As A European Competitor
In line with the abovementioned strategy that the Obama Administration had for gently co-opting Iran and its “moderate”-led government into the Western fold, a large part of the vision had to do with using Western investments to eventually transform the country into a formidable competitor to Russia in the European marketplace. That entire blueprint has now been neutralized because of Trump’s aggression against the Islamic Republic and the “rescue mission” that Russian energy investments are now engaged in to “save” the Iranian economy from the US’ anti-Iranian bullying of its Western partners (despite the President’s public denial thereof) and what appear to be impending sectoral sanctions against its resource sector. Under these circumstances, which are setting into motion reformatted years-long strategies by all sides, it’s all but impossible for the US to ever “guide” Iran in the direction of becoming a serious competitor to Russia’s marketplace position in Europe, thereby averting this scenario.
Reassuring Tehran About The Russian-Saudi Rapprochement
Finally, Iran had every reason to be concerned about the Russian-Saudi rapprochement if its decision makers viewed it from a “zero-sum” Neo-Realist angle, even though Moscow’s intent behind it had always been about forging a win-win solution for retaining state-to-state peace in the Mideast, but all of those fears were put to rest after the announcement about Rosneft’s $30 billion energy investment plans in the Islamic Republic. Tehran can now rest assured that Moscow isn’t “selling out” to the Saudis, but is indeed truly trying to balance the complex interstate relations of the Mideast, hence the very successful outcome of President Putin’s visit to Iran in proving just how successful Russia’s “Ummah Pivot” is shaping out to be.
- Baltimore's Weekend 'Cease-Fire' Shattered As Off-Duty Cop Gunned Down
Baltimore’s second attempt at a 72-hour ‘cease-fire’ was cut short for the second time this year after an off-duty Washington police officer was killed and a women wounded on Saturday.
According to The Baltimore Sun homicide data base, Sgt. Tony Mason Jr.,40, was shot and killed on the upper west side at 2800 Elgin Avenue. Reports from NBC News, indicate Mason was struck by a fatal bullet inside a parked vehicle, where he was later transported by ambulance to a nearby hospital and died…
— Gregg Pemberton (@G_Pem) November 4, 2017
Unfortunately, Saturday’s shooting occurred just 26-hours into the 72-hour ‘Nobody Kill Anybody Baltimore Cease-Fire’ campaign empowered by community activist who seek change in Baltimore after 50-years of democratic controlled leadership and de-industrialization compounded with an opioid crisis has left the city in an utter mess. The last ‘cease-fire’ in August failed about 40-hours in, as two killings thwarted efforts by community activist. It appears that ‘cease’fire’ events will become more prevalent as the community attempts to raise awareness. The problem with Baltimore and many other cities across the United States is that democratic controlled leadership did not allow media to cover the complete mess in their inner cities. As consciousness increases across America, Americans are figuring out their empire is dying. People are now demanding change.
On Thursday, just one day before the ‘cease-fire’ started, 3 homicides pushed Baltimore’s murder count above 300 making it the third year in a row. Ever since the Ferguson effect in 2014, death and destruction has taken over the city. Sadly enough, The Economist is forecasting a record year for homicides with their models pointing to over 400.
Visualizing the Ferguson effect in Baltimore shows an increase in gun violence after events in Ferguson, Missouri (2014), Freddie Gray (2015), and Baltimore Riots (2015). These events have contributed to Baltimore’s demise, as the city is spiraling out of control plagued in gun violence and an opioid crisis. Yet, it goes unnoticed, despite Baltimore’s homicide rate is doubled of Chicago’s.
As of November 5th, Baltimore’s homicides for 2017 crested over 300. Notice how the homicides are not limited to a certain area of the city, but are wide spread. Oddly enough, homicides are contained with-in the I-95 corridor.
Last week, we warned “the idea of the second ceasefire failing is a very real possibility”, and as of Saturday morning it has.
The blackmarkets of Baltimore or specifically the opioid trade are simply not going to stop for a community led ‘cease-fire’. Listen to leaders of the ‘cease-fire’ back in August calling-out Baltimore and comparing it to a “warzone“.
Remaining events for Baltimore CeaseFire for Sunday:
- Four Viral Claims Spread By 'Journalists' On Twitter In The Last Week Alone That Are False
There is ample talk, particularly of late, about the threats posed by social media to democracy and political discourse. Yet one of the primary ways that democracy is degraded by platforms such as Facebook and Twitter is, for obvious reasons, typically ignored in such discussions: the way they are used by American journalists to endorse factually false claims that quickly spread and become viral, entrenched into narratives, and thus can never be adequately corrected.
The design of Twitter, where many political journalists spend their time, is in large part responsible for this damage. Its space constraints mean that tweeted headlines or tiny summaries of reporting are often assumed to be true with no critical analysis of their accuracy, and are easily spread. Claims from journalists that people want to believe are shared like wildfire, while less popular, subsequent corrections or nuanced debunking are easily ignored. Whatever one’s views are on the actual impact of Twitter Russian bots, surely the propensity of journalistic falsehoods to spread far and wide is at least as significant.
Just in the last week alone, there have been four major factually false claims that have gone viral because journalists on Twitter endorsed and spread them: three about the controversy involving Donna Brazile and the DNC, and one about documents and emails published by WikiLeaks during the 2016 campaign. It’s well worth examining them, both to document what the actual truth is as well as to understand how often and easily this online journalistic misleading occurs:
Viral Falsehood #1: The Clinton/DNC agreement cited by Brazile only applied to the General Election, not the primary.
On Wednesday, Politico published a blockbuster accusation from Donna Brazile’s new book: that the DNC had “rigged” the 2016 primary election for Hillary Clinton through an agreement that gave Clinton control over key aspects of the DNC, a claim that Elizabeth Warren endorsed on CNN. The Clinton camp refused to comment publicly, but instead contacted their favorite reporters to publish their response as news.
The following day, NBC published an article by Alex Seitz-Wald that recited and endorsed the Clinton camp’s primary defense: that Brazile was wrong because the agreement in question (a copy of which they provided to Seitz-Wald) applied “only to preparations for the general election,” and had nothing to do with the primary season. That defense, if true, would be fatal to Brazile’s claims, and so DNC-loyal journalists all over Twitter instantly declared it to be true, thus pronouncing Brazile’s accusation to have been fully debunked. This post documents how quickly this claim was endorsed on Twitter by journalists and Democratic operatives, and how far and wide it therefore spread.
The problem with this claim is that it is blatantly and obviously false. All one has to do to know this is read the agreement. Unlike the journalists spreading this DNC defense, Campaign Legal Defense’s Brendan Fischer bothered to read it, and immediately saw, and documented, how obviously false this claim is:
The NBC article itself that was originally used to spread this claim now includes what amounts to a serious walk back, if not outright retraction, of the DNC’s principal defense:
DNC and Clinton allies pointed to the fact that the agreement contained self-justifying lawyer language claiming that it is “focused exclusively on preparations for the General,” but as Fischer noted that passage “is contradicted by the rest of the agreement.” This would be like creating a contract to explicitly bribe an elected official (“A will pay Politician B to vote YES on Bill X”), then adding a throwaway paragraph with a legalistic disclaimer that “nothing in this agreement is intended to constitute a bribe,” and then have journalists cite that paragraph to proclaim that no bribe happened even though the agreement on its face explicitly says the opposite.
The Clinton/DNC agreement explicitly vested the Clinton campaign with control over key matters during the primary season: the exact opposite of what journalists on Twitter caused hundreds of thousands of people, if not millions, to believe. Nonetheless, DNC loyal commentators continue to cite headlines and tweets citing the legalistic language to convince huge numbers of people that the truth is the exact opposite of what it actually is:
Viral Falsehood #2: Sanders signed the same agreement with the DNC that Clinton did.
To make the Clinton/DNC agreement appear benign and normal, the claim was quickly and widely circulated that Sanders had signed the same agreement with the DNC as Clinton had. This, too, was false – in the most fundamental way possible.
Simply put, the agreement Sanders signed with the DNC – which the Sanders camp appears to have provided ABC News in order to debunk the claim – did not contain any of the provisions vesting control over the DNC that made the Clinton agreement cited by Brazile so controversial. As ABC News put it (emphasis added):
A joint fundraising agreement between the Bernie Sanders campaign and the Democratic National Committee — obtained Friday by ABC News and signed at the start of the primary campaign for the 2016 presidential election — does not include any language about coordinating on strategic decisions over hiring or budget, unlike a fundraising memo between the Hillary Clinton team and the DNC.
It’s possible that had Sanders wanted to invoke his funding arrangement with the DNC, and then signed a second agreement, it might have included similar control provisions. But it’s also possible that it would not have. We’ll never know, because it never happened. What we actually know for certain – what exists in reality – is that Sanders never signed any agreement with the DNC that contained the control provisions that were given in 2015 to the Clinton campaign. In other words, the provisions cited by Brazile in her “rigging” allegation did not exist in any contract signed with the DNC by the Sanders campaign.
Needless to say, a tiny fraction of those who were exposed to the original falsehood (Sanders signed the same agreement as Clinton) ended up seeing this fundamental reversal, because the journalists who promoted the original falsehood felt no compunction, as usual, to provide the less pleasing correction.
Viral Falsehood #3: Brazile stupidly thought she could unilaterally remove Clinton as the nominee.
Yesterday, the Washington Post published an article reporting on various claims made in Brazile’s new book. The headline, which was widely tweeted, made it seem as though Brazile delusionally believed she had a power which, obviously, she did not in fact possess: “Donna Brazile: I considered replacing Clinton with Biden as 2016 Democratic nominee.” The article said Brazile considered exercising this power after Clinton’s fainting spell made her worry that Clinton was physically debilitated, and her campaign was “anemic” and had taken on “the odor of failure.”
But Brazile – as a result of her stinging criticisms and accusations of Clinton, Obama and the DNC – is currently Public Enemy Number One among Democrats in the media. So they seized on this headline to pretend that she claimed the power to unilaterally remove Clinton on a whim, and then used this claim to mercilessly vilify her – the chair of Al Gore’s 2000 campaign, last year’s interim head of the DNC, and a long-time Democratic Party operative – as a deluded, insane, dishonest, profiteering, ignorant fabulist who lacks all credibility.
But the entire attack on Brazile was false. She did not claim, at least according to the Post article being cited, that she had the power to unilaterally remove Clinton. The original Post article, buried deep down in the article, well after the headline, made clear that she was referencing a complicated process in the DNC charter that allowed for removal of a nominee who had become incapacitated.
The Post then amended its story to reflect that she made no such absurd claim in her book, but rather noted that “the DNC charter empowered her to initiate replacement of the nominee” and that “if a nominee became disabled, she explains, the party chair would oversee a complicated process of filling the vacancy that would include a meeting of the full DNC.” The Post then added this note to the top of the article:
Journalists on Twitter spent hours yesterday mocking, maligning and attacking the reputation of Brazile for a claim that she simply never made – all because a tweeted headline, which they never bothered to read past or evaluate, made them think they were justified in doing so in order to malign someone who has, quickly and bizarrely, become one of the Democrats’ primary enemies.
Viral Falsehood #4: Evidence has emerged proving that the content of WikiLeaks documents and emails was doctored.
From the time WikiLeaks began last year publishing emails and documents from the DNC and John Podesta’s email inbox, Clinton officials and their media supporters have constantly insinuated, and sometimes outright stated, that the WikiLeaks documents were frauds because they had been altered. What was most notable about this accusation was how easy it would have been proven had it really been true: all anyone had to do was show the actual, original email that they sent or received, and then compare it to the altered WikiLeaks version, and that would have been proof that WikiLeaks archive was unreliable.
But that never happened. Never once did any of the dozens of Democratic Party operatives who sent or received the emails published by WikiLeaks point to a single specific case of an alteration – something that, obviously, they would have eagerly done had they been able to. As Politico noted last year (emphasis added):
Clinton’s team hasn’t challenged the accuracy of even the most salacious emails released in the past four days, including those featuring aides making snarky references to Catholicism or a Bill Clinton protégé describing Chelsea Clinton as a “spoiled brat.” And numerous digital forensic firms told POLITICO that they haven’t seen any proof of tampering in the emails they’ve examined — adding that only the hacked Democrats themselves could offer that kind of conclusive evidence.
Similarly, when PolitiFact tried last year to fact-check the Clinton campaign’s claims that the documents were doctored, they noted: “The Clinton campaign, however, has yet to produce any evidence that any specific emails in the latest leak were fraudulent.”
Nonetheless, the desire to believe this persisted. And this week, AP published a report that countless journalists seized upon to claim that proof finally had emerged that the WikiLeaks documents had been altered. The claim in the AP report is incredibly simple and limited. It does not involve any claim that WikiLeaks altered any documents, or that any of the emails it published were frauds; rather, the claim is that Guccifer, on one of the documents that he published, placed a “CONFIDENTIAL” watermark that did not appear on another version:
The first document Guccifer 2.0 published on June 15 came not from the DNC as advertised but from Podesta’s inbox, according to a former DNC official who spoke on condition of anonymity because he was not authorized to speak to the press.
The official said the word “CONFIDENTIAL” was not in the original document .
Guccifer 2.0 had airbrushed it to catch reporters’ attention.
There are so many reasons to question whether this actually happened. To begin with, the fact that one version of the document is without a “Confidential” watermark doesn’t mean no version has one; it’s common to add watermarks of that sort for different purposes and different recipients. Moreover, AP’s only basis is an anonymous source claiming the document has been altered, along with the version that lacks the watermark. This is very far from proof that Guccifer “airbrushed it to catch reporters’ attention.”
But let’s assume for the sake of argument that Guccifer did, in fact, add a “Confidential” watermark to this document, and did so to entice journalists to view the document as more appetizing. This does not remotely justify the claim that any of the documents and emails published by WikiLeaks were materially altered and were thus unreliable.
First, Guccifer adding a watermark to a document he circulated does not mean that any of the emails published by WikiLeaks in its archive was altered. It’s long been known that Guccifer altered the documents’ metadata to hide its path, but nobody ever tried to cite that as proof that anything published by WikiLeaks was fraudulent (indeed, PolitiFact cited Guccifer’s alteration of metadata when concluding there was no evidence that the WikiLeaks documents themselves had been altered).
Second, this has no bearing on the content of the emails or documents themselves published by WikiLeaks, which to date nobody has demonstrated have been altered in the slightest. Third, if it were the case that any of the emails or documents published by WikiLeaks were fraudulent, it would still be incredibly easy to prove: all anyone would have to do is produce the original and show how the WikiLeaks version was altered; why – a full year after WikiLeaks began publishing these documents – has nobody done this, despite the overwhelming incentive that exists to expose this?
In sum, evidence that the content of any of the WikiLeaks emails was altered is nonexistent, while there is overwhelming reason to believe none has been (beginning with the fact that, as easy it would be to do so, no proof has been provided after all this time). Nonetheless, as a result of journalists’ conduct on Twitter this week, the false claim that emails and documents in the WikiLeaks archive were proven to be altered is now viral and will remain fixed in people’s belief system forever:
There’s no way to prove the negative: that no emails or documents published by WikiLeaks were altered. But one should demand actual evidence before affirming this claim. And despite the ease of providing that proof, and the long period of time that has elapsed, none has been provided. But, unsurprisingly, that did not stop the claim that it had been proven from going viral this week on Twitter – all based on the tenuous claim that Guccifer added a “Confidential” watermark to one of the documents he circulated.
It can certainly be menacing for Russian bots to disseminate divisive messaging on Twitter. But it’s at least equally menacing if journalists with the loudest claim to authoritative credibility are using that platform constantly to entrench falsehoods in the public’s mind.
- In Bizarre Warning JPMorgan Says "Beware The Shadow World" As "Speed Of Asset Rally Is Scary"
While the Fed may still be confused by the lack of inflation, if only in the “real economy”, if not in financial assets, increasingly more analysts have realized that what the Fed has done is tantamount to blowing an roaring inflationary bubble, if largely confined to the realm of asset prices. And while we used a Goldman chart to demonstrate this divergence a little over a month ago…
… now it’s JPMorgan’s turn to undergo the proverbial epiphany.
In a note from JPM’s Jan Loeys, titled “Financial overheating a problem yet?”, the strategist writes that “growth-sensitive assets, such as equities, credit, cyclicals, and commodities continue to gain and outperform, keeping us comfortably in the Growth Trade. Growth prospects have been rising and accelerating over the past two months from the only slow and dispersed upgrades of the previous 12 months. By now, we are in a full-fledged and globally synchronized move up in growth optimism.” Perhaps, but there is a catch as JPM unwillingly concedes:
The speed of these upgrades and asset price rallies is both exhilarating and scary. The faster we rally, the greater the joy, but the more one should be worried about the eventual reckoning. How far from now is that and what should we do about it?
JPM’s answer to this rhetorical question is ambivalent: while the largest US bank says that the current rally still has upside, it quietly advises its clients to start selling.
We stay in the Growth Trade as we believe that the steady upgrading of growth prospects and asset price moves is still benefiting from greater positive feedback loops and that the negative feedback from economic and financial overheating are both still too weak or too far off. At the same time, the speed of the rally is inducing us to start trimming slowly, through going neutral on HY.
Going back to the top chart, JPM then distinguishes between economic and financial overheating:
Economic overheating to us means that as companies start spending more, they eventually push up input prices – wages, resources – and the cost of borrowing, which all eat into profits and then future capital spending, making the economy vulnerable to the downside. The good news here is that so far, these negative feedback forces remain quite weak with even today’s US Jobs report showing no wage pressures. Corporate bond yields are down on the year, oil is flat and only industrial metals are up a lot, but that is too narrow to drive company costs.
Financial overheating, in contrast, is well advanced and feels so late 90s, that it merits monitoring a lot more closely for signs of bubble-trouble.
JPM then goes so far as suggesting that the asset bubble is closest to bursting in the US: “The country to focus on for signals of financial bubble risk is the US, because its expansion is much further advanced than that in other large countries, and because dollar assets make up half of all investable assets in the world.”
Here’s why JPM, along with everyone else, is worried the financial bubble is on the verge of bursting:
The signs of financial overheating in the US can be seen from elevated equity multiples, which for the S&P500 reached 24 on a trailing reported GAAP basis, the same as in 1997; new cycle lows on HG spreads and lower than the last cycle lows when adjusted for maturity and ratings changes; HY yields below 6%, which cannot be called high yield anymore; US Households with a higher share of equities in their financial assets than anytime except 1999-2000; and US household confidence back to the highs of the 90s, and their unemployment rate back to the lows then.
JPM eases client concerns, claiming that at least for now, the feedback loops of the bubble’s melt-up phases are self-reinforcing in a positive feedback loop:
The immediate impact of asset price inflation, and rising confidence and risk investing is to actually boost the positive growth shock that started it, reinforcing and providing positive feedback which in turn feeds risk asset prices further.
However, this benign initial state is unstable:
The reason we monitor financial overheating closely, despite its initial reinforcing impact, is that the last few cycles have shown that it leads to excesses that eventually make the markets and economy vulnerable to any setback, innocuous as the setback may be initially. The low vol and easy money environment of the current cycle, both at historic extremes, are a perfect breeding ground for financial excess. Simple leverage and low risk premia signals are to this analyst not the most worrying areas.
And then the best phrase perhaps ever penned by a JPM analyst, one who may have been watching Stranger Things a little too much in recent days: beware the shadow world.
It is instead the stuff we can’t see, hidden in the shadow world, outside the control of the regulators, as well as the economic and financial innovation that in the end leads to extremes.
Following these rather explicit warnings from JPM about the risk of “financial overheating”, the bank has some advice for clients on what they should do next:
What should investors do about the risk of financial overheating? There are in principle three options: i) full speed ahead with risk assets, but run fast away at the first sign of serious trouble; ii) start trimming and hedging risk asset positions; or iii) cut now and move to cash as the eventual correction will be ugly. We choose the middle road, and have started trimming, despite remaining net long the growth trade.
- The first approach – pedal-to-the-metal and then brake all you can when trouble is in sight – requires ultimate timing, is vulnerable to head-fakes, and is challenged by the fact that is analyst did not react fast enough in 2000 and 2007.
- The last option – to cut and run fast now – faces the risk that the market and economy may still only be in 1997, and could thus miss the doubling of the equity markets that was still coming.
- Hence, our preference to dollar average over the next year or so into a more neutral, and eventually defensive risk position. Some of that can be done by slowly building downside protection through 3-year out options, during
periods of extreme volatility and good liquidity. Another way is to sell some of the longs in risk assets that do not always perform well late cycle and that are at their most extreme valuation now. For that we selected HY bonds. US HY yields fell this week to under 6%. From these levels, in the past the next 12-month returns were only just positive.
In conclusion: “The rolling fundamentals of earnings and default rates remain positive for HY, but these data are backward looking and do not tell us that much about the future. Our bullish view on growth and the rising odds of US tax reform keep us long and OW US risk assets, but the challenging value of HY make us prefer equity to credit longs. Go neutral on the HY asset class.”
Be that as it may, it is – as Loeys poetically puts it – all about the “shadow world” from this point on…
- Remembering Communism's Bloody Century
In the 100 years since Lenin’s coup in Russia, the ideology devoted to abolishing markets and private property has left a long, murderous trail of destruction…
A century ago this week, communism took over the Russian empire, the world’s largest state at the time. Leftist movements of various sorts had been common in European politics long before the revolution of Oct. 25, 1917 (which became Nov. 7 in the reformed Russian calendar), but Vladimir Lenin and his Bolsheviks were different. They were not merely fanatical in their convictions but flexible in their tactics—and fortunate in their opponents.
Communism entered history as a ferocious yet idealistic condemnation of capitalism, promising a better world. Its adherents, like others on the left, blamed capitalism for the miserable conditions that afflicted peasants and workers alike and for the prevalence of indentured and child labor. Communists saw the slaughter of World War I as a direct result of the rapacious competition among the great powers for overseas markets.
But a century of communism in power—with holdouts even now in Cuba, North Korea and China—has made clear the human cost of a political program bent on overthrowing capitalism. Again and again, the effort to eliminate markets and private property has brought about the deaths of an astounding number of people. Since 1917—in the Soviet Union, China, Mongolia, Eastern Europe, Indochina, Africa, Afghanistan and parts of Latin America—communism has claimed at least 65 million lives, according to the painstaking research of demographers.
Communism’s tools of destruction have included mass deportations, forced labor camps and police-state terror – a model established by Lenin and especially by his successor Joseph Stalin. It has been widely imitated. Though communism has killed huge numbers of people intentionally, even more of its victims have died from starvation as a result of its cruel projects of social engineering.
For these epic crimes, Lenin and Stalin bear personal responsibility, as do Mao Zedong in China, Pol Pot in Cambodia, the Kim dynasty in North Korea and any number of lesser communist tyrants. But we must not lose sight of the ideas that prompted these vicious men to kill on such a vast scale, or of the nationalist context in which they embraced these ideas. Anticapitalism was attractive to them in its own right, but it also served as an instrument, in their minds, for backward countries to leapfrog into the ranks of great powers.
The communist revolution may now be spent, but its centenary, as the great anticapitalist cause, still demands a proper reckoning.
In February 1917, Tsar Nicholas II abdicated under pressure from his generals, who worried that bread marches and strikes in the capital of St. Petersburg were undermining the war effort against Germany and its allies. The February Revolution, as these events became known, produced an unelected provisional government, which chose to rule without the elected parliament. Peasants began to seize the land, and soviets (or political councils) started to form among soldiers at the front, as had already happened among political groups in the cities.
That fall, as the war raged on, Lenin’s Bolsheviks undertook an armed insurrection involving probably no more than 10,000 people. They directed their coup not against the provisional government, which had long since become moribund, but against the main soviet in the capital, which was dominated by other, more moderate socialists. The October Revolution began as a putsch by the radical left against the rest of the left, whose members denounced the Bolsheviks for violating all norms and then walked out of the soviet.
The Bolsheviks, like many of their rivals, were devotees of Karl Marx, who saw class struggle as the great engine of history. What he called feudalism would give way to capitalism, which would be replaced in turn by socialism and, finally, the distant utopia of communism. Marx envisioned a new era of freedom and plenty, and its precondition was destroying the “wage slavery” and exploitation of capitalism. As he and his collaborator Friedrich Engels declared in the Communist Manifesto of 1848, our theory “may be summed up in the single sentence: Abolition of private property.”
Once in power in early 1918, the Bolsheviks renamed themselves the Communist Party as they sought to force-march Russia to socialism and, eventually, to history’s final stage. Millions set about trying to live in new ways. No one, however, knew precisely what the new society was supposed to look like. “We cannot give a characterization of socialism,” Lenin conceded in March 1918. “What socialism will be like when it reaches its completed form we do not know, we cannot say.”
But one thing was clear to them: Socialism could not resemble capitalism. The regime would replace private property with collective property, markets with planning, and “bourgeois” parliaments with “people’s power.” In practice, however, scientific planning was unattainable, as even some communists conceded at the time. As for collectivizing property, it empowered not the people but the state.
The process set in motion by the communists entailed the vast expansion of a secret-police apparatus to handle the arrest, internal deportation and execution of “class enemies.” The dispossession of capitalists also enriched a new class of state functionaries, who gained control over the country’s wealth. All parties and points of view outside the official doctrine were repressed, eliminating politics as a corrective mechanism.
The declared goals of the revolution of 1917 were abundance and social justice, but the commitment to destroy capitalism gave rise to structures that made it impossible to attain those goals.
In urban areas, the Soviet regime was able to draw upon armed factory workers, eager recruits to the party and secret police, and on young people impatient to build a new world. In the countryside, however, the peasantry—some 120 million souls—had carried out their own revolution, deposing the gentry and establishing de facto peasant land ownership.
Today’s News 6th November 2017
With the devastated country on the verge of famine, Lenin forced reluctant party cadres to accept the separate peasant revolution for the time being. In the countryside, over the objections of communist purists, a quasi-market economy was allowed to operate.
With Lenin’s death in 1924, this concession became Stalin’s problem. No more than 1% of the country’s arable land had been collectivized voluntarily by 1928. By then, key factories were largely owned by the state, and the regime had committed to a five-year plan for industrialization. Revolutionaries fretted that the Soviet Union now had two incompatible systems—socialism in the city and capitalism in the village.
Stalin didn’t temporize. He imposed coercive collectivization from the Baltic Sea to the Pacific Ocean, even in the face of mass peasant rebellion. He threatened party officials, telling them that if they were not serious about eradicating capitalism, they should be prepared to cede power to the rising rural bourgeoisie. He incited class warfare against “kulaks” (better-off peasants) and anyone who defended them, imposing quotas for mass arrests and internal deportations.
Stalin was clear about his ideological rationale. “Could we develop agriculture in kulak fashion, as individual farms, along the path of large-scale farms” as in “America and so on?” he asked. “No, we could not. We’re a Soviet country. We want to implant a collective economy, not solely in industry, but in agriculture.”
And he never backtracked, even when, as a result of his policies, the country descended into yet another famine from 1931 to 1933. Forced collectivization during those few years would claim 5 to 7 million lives.
The Soviet Union’s awful precedent did nothing to deter other communist revolutionaries. Mao Zedong, a hard man like Stalin, had risen to the top of the Chinese movement and, in 1949, he and his comrades emerged as the victors in the Chinese civil war. Mao saw the colossal loss of life in the Soviet experiment as intrinsic to its success.
His Great Leap Forward, a violent campaign from 1958 to 1962, was an attempt to collectivize some 700 million Chinese peasants and to spread industry throughout the countryside. “Three years of hard work and suffering, and a thousand years of prosperity,” went one prominent slogan of the time.
Falsified reports of triumphal harvests and joyful peasants inundated the communist ruling elite’s well-provisioned compound in Beijing. In reality, Mao’s program resulted in one of history’s deadliest famines, claiming between 16 and 32 million victims. After the catastrophe, referred to by survivors as the “communist wind,” Mao blocked calls for a retreat from collectivization. As he declared, “the peasants want ‘freedom,’ but we want socialism.”
Nor did this exhaust the repertoire of communist brutality in the name of overthrowing capitalism. With their conquest of Cambodia in 1975, Pol Pot and his Khmer Rouge drove millions from the country’s cities into the countryside to work on collectives and forced-labor projects. They sought to remake Cambodia as a classless, solely agrarian society.
The Khmer Rouge abolished money, banned commercial fishing and persecuted Buddhists, Muslims and the country’s ethnic Vietnamese and Chinese minorities as “infiltrators.” Pol Pot’s regime also seized children to pre-empt ideological infection from “capitalist” parents.
All told, perhaps as many as 2 million Cambodians, a quarter of the population, perished as a result of starvation, disease and mass executions during the four nightmarish years of Pol Pot’s rule. In some regions, skulls could be found in every pond.
Marx’s class analysis denied legitimacy to any political opposition, not just from “bourgeois” elements but from within communist movements themselves—because dissenters “objectively” served the interests of the international capitalist order. The relentless logic of anticapitalist revolution pointed to a single leader atop a single-party system.
From Russia and China to Cambodia, North Korea and Cuba, communist dictators have shared key traits. All have conformed, more or less, to the Leninist type: a fusion of militant ideologue and unprincipled intriguer. And all have possessed an extreme willpower—the prerequisite for attaining what only unspeakable bloodshed could bring.
Communism was hardly alone over the past century in committing grand carnage. Nazism’s repression and wars of racial extermination killed at least 40 million people, and during the Cold War, anticommunism spurred paroxysms of grotesque violence in Indonesia, Latin America and elsewhere.
But as evidence of communism’s horrors emerged over the decades, it rightly shocked liberals and leftists in the West, who shared many of the egalitarian aims of the revolutionaries. Some repudiated the Soviet Union as a deformation of socialism, attributing the regime’s crimes to the backwardness of Russia or the peculiarities of Lenin and Stalin. After all, Marx had never advocated mass murder or Gulag labor camps. Nowhere did he argue that the secret police, deportation by cattle car and mass death from starvation should be used to establish collective farms.
But if we’ve learned one lesson from the communist century, it is this: That to implement Marxist ideals is to betray them. Marx’s demand to “abolish private property” was a clarion call to action—and an inexorable path to the creation of an oppressive, unchecked state.
A few socialists began to recognize that there could be no freedom without markets and private property. When they made their peace with the existence of capitalism, hoping to regulate rather than to abolish it, they initially elicited denunciations as apostates. Over time, more socialists embraced the welfare state, or the market economy with redistribution. But the siren call to transcend capitalism persists among some on the left.
It also remains alive, though hardly in orthodox Marxist fashion, in Russia and China, the great redoubts of the communist century. Both countries continue to distrust what is perhaps most important about free markets and private property: Their capacity to give independence of action and thought to ordinary people, pursuing their own interests as they see fit, in private life, civil society and the political sphere.
But anticapitalism also served as a program for an alternative world order, one in which long-suppressed nationalist aims might be realized. For Stalin and Mao, heirs to proud ancient civilizations, Europe and the U.S. represented the allure and threat of a superior West. The communists set themselves the task of matching and overtaking their capitalist rivals and winning a central place for their own countries on the international stage. This revolutionary struggle allowed Russia to satisfy its centuries-old sense of a special mission in the world, while it gave China a claim to be, once again, the Middle Kingdom.
Vladimir Putin’s resistance to the West, with his peculiar mix of Soviet nostalgia and Russian Orthodox revival, builds on Stalin’s precedent. For its part, of course, China remains the last communist giant, even as Beijing promotes and tries to control a mostly market economy. Under Xi Jinping, the country now embraces both communist ideology and traditional Chinese culture in a drive to raise its standing as an alternative to the West.
Communism’s bloody century has come to an end, and we can only celebrate its passing. But troubling aspects of its legacy endure.
As discussed last Friday, several notable surprises in the proposed GOP tax bill involved real estate, and would have an explicit – and adverse – impact on not only proprietors’ tax bills, but also on future real estate values if the republican tax bill is passed. And, as the following analysis by Barclays suggests, they may have a secondary purpose: to slam real estate values in counties that by and large voted for Hillary Clinton.
Going back to Friday, the biggest surprise was that mortgage interest would only be deductible on mortgage balances up to $500K for new home purchases, down from the current $1mn threshold. Existing mortgages would be grandfathered, such that borrowers with existing loans would still be allowed to deduct interest on the first $1mn of their mortgage balances. In addition, only the first $10K of local and state property taxes would be allowed to be deducted from income. Finally, married couples seeking a tax exemption on the first $500K of capital gains upon a sale of their primary residence will need to have lived in their home for five of the past eight years, versus two out of the past five years under current rules. This capital gains tax exemption would also be gradually phased out for households that have more than $500K of income a year.
As might be expected, the above provisions caused an uproar in the realtor and homebuilding industries, as Barclays Dennis Lee points out. The National Association of Realtors (NAR) released a statement commenting that “the bill represents a tax increase on middle-class homeowners”, with the NAR President stating that “[t]he nation’s 1.3 million Realtors cannot support a bill that takes homeownership off the table for millions of middle-class families”. Meanwhile, the chairman of the National Association of Home Builders (NAHB) stated that “[t]he House Republican tax reform plan abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations”. Given the strong resistance from these two powerful housing groups, there may be changes made to these provisions in the final version of the bill.
What is more interesting, however, is a detailed analysis looking at who would be most affected by Trump’s real estate tax changes. Here, an interest pattern emerges, courtesy of Barclays.
According to CoreLogic, the median home price in the US is around $224K while the average property tax paid by homeowners in the country is around $3,300. This suggests that only a minority of homeowners are likely to be affected by the proposed mortgage interest and property tax deduction caps. Indeed, according to preliminary analysis by the NAHB, only about 7mn homes will be affected by the $500K mortgage interest deduction, and since these homeowners will receive the grandfathering benefit, they will not experience any immediate increase in taxes as a result of the mortgage interest deduction cap.
Meanwhile, approximately 3.7mn homeowners pay more than $10K in property taxes according to the NAHB. These homeowners will experience an immediate increase in taxes from the property tax deduction cap; however, to put this number in perspective, the US Census estimates that there are approximately 76mn owner-occupied homes in the country, indicating that fewer than 5% of households may experience a rise in taxes as a result of the property tax cap.
Who is most impacted?
As expected, the homeowners who will be most negatively affected by the proposed caps primarily reside along the coasts, particularly in California. Using estimated median home prices provided by the NAR, Barclays found that of the 20 counties in the country with the highest median home prices, eight were located in California (Figure 3). Perhaps not surprisingly, a majority of voters in all 20 counties voted for Clinton in last year’s presidential election. In fact, Clinton won the vote in the top 45 counties in the country with the highest median home prices. Suddenly the method behind Trump’s madness becomes readily apparent…
And while we now know who will be largely impacted, there is a broader implication: not only will these pro-Clinton counties pay more in taxes, it is there that real estate values will tumbles the most. Hers’ Barclays:
We can also use the above median home prices to estimate the potential increase in taxes from the deduction caps in the first 12 months for would-be homeowners looking to purchase a home in these counties. Using the simplifying assumption that all borrowers purchase their homes at the median home price in each county and take out an 80% LTV, 30y mortgage at a 4% rate, we can come up with estimates for the monthly P&I payment for each of these areas (Figure 4). We can also estimate the average property tax burden in these counties using average state-level property tax rates.
As Dennis Lee calculates, “assuming that all of these homeowners are taxed at a marginal rate of 39.6%, we find that the increase in tax burden during the first 12 months of homeownership driven solely by the mortgage interest and property tax deduction caps varies from $0 for the county with the 20th highest median home price (San Miguel County, Colorado) to approximately $7,200 for the highest-priced county (San Francisco County, California).” Barclays’ conclusion: these counties – all of which are largely pro-Clinton – would need a 0-11% decline in their median home prices to keep the after-tax monthly mortgage and property tax payments the same for would-be buyers.
And that’s how Trump is about to punish the “bicoastals” for voting against him: by sending their real estate values tumbling as much as 11%, while serving them with a higher tax bill to boot.
Just two weeks after warning of the potential for an imminent 'Minsky Moment', Chinese central bank governor Zhou Xiaochuan has penned a lengthy article on The PBOC's website that warns ominously of latent risks accumulating, including some that are "hidden, complex, sudden, contagious and hazardous," even as the overall health of the financial system appears good.
The imminence of China's Minksy Moment is something we have discussed numerous times this year.
The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion.
And then at the latest Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following;
“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”
Yet, stock markets shrugged off his warning… while the Chinese yield curve has now been inverted for 10 straight days – the longest period of inversion ever…
The nation should toughen regulation and let markets serve the real economy better, according to Zhou.
The government should also open up financial markets by relaxing capital controls and reducing restrictions on non-Chinese financial institutions that want to operate on the mainland, he wrote.
“High leverage is the ultimate origin of macro financial vulnerability," wrote Zhou, 69, who is widely expected to retire soon after a record 15-year tenure.
“In sectors of the real economy, this is reflected as excessive debt, and in the financial system, this is reflected as credit that has been expanding too quickly."
Zhou’s comments signal that policy makers remain committed to a campaign to reduce borrowing levels across the economy.
Concern that regulators may intensify the deleveraging drive after the twice-a-decade Communist Party Congress has helped push yields on 10-year government bonds to a three-year high.
Still, measures of credit continue to show expansion, with aggregate financing surging to a six-month high of 1.82 trillion yuan ($274 billion) in September. China’s corporate debt surged to 159 percent of the economy in 2016, compared with 104 percent 10 years ago, while overall borrowing climbed to 260 percent.
- China’s financial system faces domestic and overseas pressures; structural imbalance is a serious problem and regulations are frequently violated
- Some state-owned enterprises face severe debt risks, the problem of "zombie companies" is being solved slowly, and some local governments are adding leverage
- Financial institutions are not competitive and pricing of risk is weak; the financial system cannot soothe herd behaviors, asset bubbles and risks by itself
- Some high-risk activities are creating market bubbles under the cover of "financial innovation"
- More companies have been defaulting on bonds, and issuance has been slowing; credit risks are impacting the public’s and even foreigners’ confidence in China’s financial health
- Some Internet companies that claim to help people access finance are actually Ponzi schemes; and some regulators are too close to the firms and people they are supposed to oversee
- China’s financial regulation lags behind international standards and focuses too much on fostering certain industries; there’s a lack of clarity in what central and regional government should be responsible for, so some activities are not well regulated
- China should increase direct financing as well as expand the bond market; reduce intervention in the equity market and reform the initial public offering system; pursue yuan internationalization and capital account convertibility
- China should let the market play a decisive role in the allocation of financial resources, and reduce the distortion effect of any intervention
- China should improve coordination among financial regulators
Which all sounds very ominous and very positive in ending this facade..but just like the promises/threats ofprevious deleveragings – at the first sign of market jitters, the bankers will fold. As Kyle Bass recently concluded…
"…it’s the biggest bubble we have ever seen in the history of financial markets. $40 trillion of assets in a system with $2 trillion in equity."
Aside from China's credit bubble, the simmering conflict in North Korea and tensions between the US and China related to the latter's insistence on building in the Spratly Islands also threaten China's economy, as well as global risk assets.
“We’re now in a bubble of epic proportions for Chinese credit…everything seems to be bubbling to the top and reaching a boiling point almost concurrently."
To be sure, there are a lot of powerful interests around the world that would suffer if China’s economy collapsed. But despite this, because he believes in the position, Bass is going to stay on his side of the trade – even as other longtime China bears like Mark Hart announced this week that he was abandoning a seven-year long bet on a massive yuan devaluation.
“People so want for everything to be okay. Nobody in their right mind wants us to be right because if I’m right were going to see a global growth slowdown you think about the concentric circles of how it affects each participant.
The economy may really slow down and we might have additional problems…so I’m going to keep investing the way I am and hope it all works out.”
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