Jun 19

Today’s News 19th June 2018

  • Italy's Salvini Orders "Special Census" And Expulsion Of Illegal Gypsies, Immediately Compared To Hitler

    Italy’s new Interior Minister, and the country’s de facto leader now that the League has surpassed 5-Star is national poalling,  Matteo Salvini told an Italian television station Monday that he plans to conduct a census of the Roma community, and will kick anyone out of the country residing there illegally.

    “I’ve asked the ministry to prepare a dossier on the Roma question in Italy,” Salvini told TeleLombardia, adding that the country’s large community of Roma, also known as Gypsies, was “chaos” several years after a crackdown.

    “Unfortunately we will have to keep the Italian Roma because we can’t expel them,” Salvini added.

    Italy’s Roma community is vast, and consists of mostly poor people from Romania and the former Yugoslavia. Italian authorities periodically clean out Gypsy squatter camps at the outskirts of major cities in the hopes that the notoriously nomadic Roma will find another place to set up camp. 

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    Salvini’s remarks drew immediate comparisons to Adolf Hitler – with liberal politicians warning that Italy had a “terrible” history in which they conducted a Fascist-era census of Jews.

    “You can work for security and respect for rules without becoming fascist,” tweeted Democratic lawmaker Ettore Rosato. “The announced census of Roma is vulgar and demagogical.”

    In a follow-up statement, Salvini said he had no plans to take digital fingerprints or make index cards of individual Roma – rather, he wants a study of the overall situation.

    “We are aiming primarily to care for the children who aren’t allowed to go to school regularly because they prefer to introduce them to a life of crime. We also want to check how millions of euro that come from European funds are spent,” said Salvini. 

    Salvini said over Facebook and Twitter that he also thinks of “those poor children who are trained in theft and lawlessness.” 

  • "Hopeless" European Millennials And The Populist Takeover

    Authored by John Rubino via DollarCollapse.com,

    Europe is frequently held up as an example of how the rest of the world should behave on a variety of issues. But this comparison misses at least two things:

    First, “Europe” is actually a lot of different countries in a lot of different situations.

    Second, much of what seems to work over there only does so because it’s being financed with ever-increasing amounts of debt.

    For countries, as for individuals, borrowing money is fun at first but beyond a certain point becomes debilitating, as interest payments begin to crowd out everything else. That’s where a growing number of Europe’s failed states now find themselves, with overly-generous pensions and overly-restrictive labor laws making it virtually impossible to run a functioning market-based economy.

    The result: Fewer good jobs and more frustrated voters – especially young ones who have seen only the downside of the current system – and the resulting rise of populist political parties that recognize the problems without offering coherent solutions, thus guaranteeing even more chaos in the future.

    As Today’s Wall Street Journal notes, in Italy and Greece, nearly a third of young adults not only aren’t working but aren’t enrolled in school or training. What are they doing? Apparently just sitting around and stewing about life’s injustice.

    As for where they’re sitting and stewing, in Greece, Italy and Spain it’s now normal for adults all the way into their 30s to live with their parents, largely because they can’t find work that pays enough to afford a house, car and other requirements of independent life.

    Not surprisingly, they’re also failing to attract mates — because who wants to marry an unemployed 30-year-old who lives with his or her parents?

    Add it all up and you get fertile ground for politicians willing to promise a quick fix.

    In Italy, the populist 5 Star Movement and League parties won a combined majority of the youth vote and now run the show.

    In Spain, 40% of voters under 35 are, according to polls, leaning towards the far-left party Podemos and its political allies.

    In Greece, more than 41% of those age 18 to 24 voted for far-left Syriza in the 2015 election.

    As for Germany, which looks great by comparison, keep in mind that a big part of its economic outperformance is due to other EU countries borrowing huge amounts of money to buy German exports.

    When the latter run out of money – a point which is clearly coming – Germany suffers twice, once when it loses important customers and again when its banks, having lent trillions of euros to Italy, Spain, et al, have to eat those losses.

    But bad-mouthing Europe should not be seen as implicit praise of the US. We, like Germany, have an advantage that’s both unfair and temporary. Where Germany has trading partners willing to borrow big to buy Mercedes and Beemers, the US has the world’s reserve currency, which acts as an unlimited credit card for our entitlement state and military/industrial empire. Slightly different scams, same eventual result: the credit spigot gets turned off and all hell breaks loose.

  • Mass Shooting Attack On World Cup Fans After Sweden Win

    Police in Sweden are attempting to downplay initial reports of terrorism after a man opened fire on a crowd during World Cup celebrations as the Swedish national team beat South Korea earlier in the day. As the story broke, multiple international headlines suggested a terror attack in progress related to World Cup play, with at least five people wounded in the southern city of Malmo. One man has reportedly died of his injuries in what’s being described as a “mass shooting”.

    A hail of bullets were unleashed by an unknown shooter in a car mid-evening in the downtown Drottninggatan area just as revelers took the streets to celebrate the Swedish national team’s 1-0 win against South Korea. 

    All 5 victims are being described in European press as “World Cup fans” who were among a crowd exiting area venues that had been screening the soccer match. The shooter (or shooters) may have been targeting a group gathered inside of a coffee shop.

    Image via The Daily Star

    “There are no signs that this is terror-related,” said police spokesman Fredrik Bratt, as quoted in EuroNews. “It is probably a shooting between criminal individuals.” 

    Though as the Daily Mail reports “feuds between criminal gangs fighting over territory have taken place in major Swedish cities in recent years” Swedish media initially described a crime that appears broad and random in nature, designed to cause mass casualties. 

    However some local sources indicate some among the victims may include known criminals engaged in gang or organized crime activities. 

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    Eyewitnesses told the the Swedish language Aftonbladet newspaper that around 15 to 20 shots were fired in Malmo’s downtown area. Malmo is Sweden’s third largest city with a population of about 350,000 — but is known for a high murder rate among European cities, and has a reputation as being the most dangerous city in Scandinavian countries. 

    Police have cordoned off a large area downtown and say a major investigation is ongoing. A police spokesman said: “There are injured people who have been hospitalized with ambulances and some who have been traveling with private individuals.”

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    Sweden’s Sydsvenskan newspaper reports that all among the injured were standing on the sidewalk outside a coffee shop when a car drove up and unleashed automatic fire at close range on the group. Multiple reports also say some among the wounded were rushed away in private cars, which could further suggest an incident involving organized crime. One witness, Jonatan Burhoff, told Aftonbladet he saw wounded people being carried to private cars that drove off “as fast as possible”.

    The shootings took place close to a police station which allowed for emergency response units to arrive on the scene almost immediately. No suspects were immediately apprehended according to early reports.

  • How The Last Superpower Was Unchained

    Authored by Tom Engelhardt via The Asia Times,

    Think of it as the all-American version of the human comedy: a great power that eternally knows what the world needs and offers copious advice with a tone deafness that would be humorous, if it weren’t so grim.

    If you look, you can find examples of this just about anywhere. Here, for instance, is a passage in The New York Times from a piece on the topsy-turvy Trumpian negotiations that preceded the Singapore summit. “The Americans and South Koreans,” wrote reporter Motoko Rich, “want to persuade the North that continuing to funnel most of the country’s resources into its military and nuclear programs shortchanges its citizens’ economic well-being. But the North does not see the two as mutually exclusive.”

    Think about that for a moment. The US has, of course, embarked on a trillion-dollar-plus upgrade of its already massive nuclear arsenal (and that’s before the cost overruns even begin). Its Congress and president have for years proved eager to sink at least a trillion dollars annually into the budget of the national security state (a figure that’s still rising and outpaces by far that of any other power on the planet), while its own infrastructure sags and crumbles. And yet it finds the impoverished North Koreans puzzling when they, too, follow such an extreme path.

    “Clueless” is not a word Americans ordinarily apply to themselves as a country, a people, or a government. Yet how applicable it is.

    And when it comes to cluelessness, there’s another, far stranger path the United States has been following since at least the George W Bush moment that couldn’t be more consequential and yet somehow remains the least noticed of all. On this subject, Americans don’t have a clue. In fact, if you could put the United States on a psychiatrist’s couch, this might be the place to start.

    America contained

    In a way, it’s the oldest story on Earth: the rise and fall of empires. And note the plural there. It was never – not until recently at least – “empire,” always “empires.” Since the 15th century, when the fleets of the first European imperial powers broke into the larger world with subjugation in mind, it was invariably a contest of many. There were at least three or sometimes significantly more imperial powers rising and contesting for dominance or slowly falling from it.

    This was, by definition, the history of great powers on this planet: the challenging rise, the challenged decline. Think of it for so many centuries as the essential narrative of history, the story of how it all happened until at least 1945, when just two “superpowers,” the United States and the Soviet Union, found themselves facing off on a global scale.

    Of the two, the US was always stronger, more powerful, and far wealthier. It theoretically feared the Russian Bear, the Evil Empire, which it worked assiduously to “contain” behind that famed Iron Curtain and whose adherents in the US, always modest in number, were subjected to a mania of fear and suppression.

    However, the truth – at least in retrospect – was that, in the Cold War years, the Soviets were actually doing Washington a strange, if unnoted, favor. Across much of the Eurasian continent, and other places from Cuba to the Middle East, Soviet power and the never-ending contest for influence and dominance that went with it always reminded American leaders that their own power had its limits.

    This, as the 21st century should have (but hasn’t) made clear, was no small thing. It still seemed obvious then that American power could not be total. There were things it could not do, places it could not control, dreams its leaders simply couldn’t have. Though no one ever thought of it that way, from 1945 to 1991, the United States, like the Soviet Union, was, after a fashion, “contained.”

    In those years, the Russians were, in essence, saving Washington from itself. Soviet power was a tangible reminder to American political and military leaders that certain areas of the planet remained no-go zones (except in what, in those years, were called “the shadows”).

    The Soviet Union, in short, rescued Washington from both the fantasy and the hell of going it alone, even if Americans only grasped that reality at the most subliminal of levels.

    That was the situation until December 1991 when, at the end of a centuries-long imperial race for power (and the never-ending arms race that went with it), there was just one gigantic power left standing on Planet Earth. It told you something about the thinking then that, when the Soviet Union imploded, the initial reaction in Washington wasn’t triumphalism (though that came soon enough) but utter shock, a disbelieving sense that something no one had expected, predicted, or even imagined had nonetheless happened. To that very moment, Washington had continued to plan for a two-superpower world until the end of time.

    America uncontained

    Soon enough, though, the Washington elite came to see what happened as, in the phrase of the moment, “the end of history.” Given the wreckage of the Soviet Union, it seemed that an ultimate victory had been won by the very country its politicians would soon come to call “the last superpower,” the “indispensable” nation, the “exceptional” state, a land great beyond imagining (until, at least, Donald Trump hit the campaign trail with a slogan that implied greatness wasn’t all-American any more).

    In reality, there were a variety of paths open to the “last superpower” at that moment. There was even, however briefly, talk of a “peace dividend” – of the possibility that, in a world without contesting superpowers, taxpayer dollars might once again be invested not in the sinews of war-making but of peacemaking (particularly in infrastructure and the well-being of the country’s citizens).

    Such talk, however, lasted only a year or two and always in a minor key before being relegated to Washington’s attic. Instead, with only a few rickety “rogue” states left to deal with – like… gulp … North Korea, Iraq and Iran – that money never actually headed home, and neither did the thinking that went with it.

    Consider it the good fortune of the geopolitical dreamers soon to take the reins in Washington that the first Gulf War of 1990-1991, which ended less than a year before the Soviet Union collapsed, prepared the way for quite a different style of thinking. That instant victory led to a new kind of militarized dreaming in which a highly tech-savvy military, like the one that had driven Iraqi autocrat Saddam Hussein’s forces out of Kuwait in such short order, would be capable of doing anything on a planet without serious opposition.

    And yet, from the beginning, there were signs suggesting a far grimmer future. To take but one infamous example, Americans still remember the Black Hawk Down moment of 1993 when the world’s greatest military fell victim to a Somali warlord and local militias and found itself incapable of imposing its will on one of the least impressive not-quite-states on the planet (a place still frustrating that military a quarter-century later).

    In that post-1991 world, however, few in Washington even considered that the 20th century had loosed another phenomenon on the world, that of insurgent national liberation movements, generally leftist rebellions, across what had been the colonial world – the very world of competing empires now being tucked into the history books – and it hadn’t gone away. In the 21st century, such insurgent movements, now largely religious, or terror-based, or both, would turn out to offer a grim new version of containment to the last superpower.

    Unchaining the indispensable nation

    On September 11, 2001, a canny global jihadist by the name of Osama bin Laden sent his air force (four hijacked US passenger jets) and his precision weaponry (19 suicidal, mainly Saudi followers) against three iconic targets in the American pantheon: the Pentagon, the World Trade Center, and undoubtedly the Capitol or the White House (neither of which was hit because one of those jets crashed in a field in Pennsylvania). In doing so, in a sense bin Laden not only loosed a literal hell on Earth, but unchained the last superpower.

    William Shakespeare would have had a word for what followed: hubris. But give the top officials of the Bush administration (and the neocons who supported them) a break. There had never been a moment like it: a moment of one. A single great power left alone, triumphant, on planet Earth. Just one superpower – wealthy beyond compare, its increasingly high-tech military unmatched, its only true rival in a state of collapse – had now been challenged by a small jihadist group.

    To president Bush, vice-president Dick Cheney, and the rest of their crew, it seemed like nothing short of a heaven-sent opportunity. As they came out of the shock of 9/11, of that “Pearl Harbor of the 21st century,” it was as if they had found a magic formula in the ruins of those iconic buildings for the ultimate control of the planet. As secretary of defense Donald Rumsfeld would instruct an aide at the Pentagon that day, “Go massive. Sweep it up. Things related and not.”

    Within days, things related and not were indeed being swept up. The country was almost instantly said to be “at war,” and soon that conflict even had a name, the Global War on Terror. Nor was that war to be against just al-Qaeda, or even one country, an Afghanistan largely ruled by the Taliban. More than 60 countries said to have “terror networks” of various sorts found themselves almost instantly in the administration’s potential gunsights. And that was just to be the beginning of it all.

    In October 2001, the invasion of Afghanistan was launched. In the spring of 2003, the invasion of Iraq followed, and those were only the initial steps in what was increasingly envisioned as the imposition of a Pax Americana on the Greater Middle East.

    There could be no doubt, for instance, that Iran and Syria, too, would soon go the way of Iraq and Afghanistan. Bush’s top officials had been nursing just such dreams since, in 1997, many of them formed a think-tank (the first ever to enter the White House) called the Project for the New American Century and began to write out what were then the fantasies of figures nowhere near power. By 2003, they were power itself and their dreams, if anything, had grown even more grandiose.

    In addition to imagining a political Pax Republicana in the United States, they truly dreamed of a future planetary Pax Americana in which, for the first time in history, a single power would, in some fashion, control the whole works, the Earth itself.

    And this wasn’t to be a passing matter either. The Bush administration’s “unilateralism” rested on a conviction that it could actually create a future in which no country or even bloc of countries would ever come close to matching or challenging US military power. The administration’s National Security Strategy of 2002 put the matter bluntly: The US was to “build and maintain” a military, in the phrase of the moment, “beyond challenge.”

    They had little doubt that, in the face of the most technologically advanced, bulked-up, destructive force on Earth, hostile states would be “shocked and awed” by a simple demonstration of its power, while friendly ones would have little choice but to come to heel as well. After all, as Bush said at a Veterans of Foreign Wars convention in 2007, the US military was “the greatest force for human liberation the world has ever known.”

    Though there was much talk at the time about the “liberation” of Afghanistan and then Iraq, at least in their imaginations the true country being liberated was the planet’s lone superpower. Although the Bush administration was officially considered a “conservative” one, its key officials were geopolitical dreamers of the first order and their vision of the world was the very opposite of conservative. It harkened back to nothing and looked forward to everything.

    It was radical in ways that should have, but didn’t, take the American public’s breath away; radical in ways that had never been seen before.

    Shock and awe for the last superpower

    Think of what those officials did in the post-9/11 moment as the ultimate act of greed. They tried to swallow a whole planet. They were determined to make it a planet of one in a way that had never before been seriously imagined.

    It was, to say the least, a vision of madness. Even in a moment when it truly did seem – to them at least – that all constraints had been taken off, an administration of genuine conservatives might have hesitated. Its top officials might, at least, have approached the post-Soviet situation with a modicum of caution and modesty.

    But not George W Bush, Dick Cheney, Donald Rumsfeld and pals. In the face of what seemed like the ultimate in possibilities they proved clueless when it came to the possibility that anything on Earth might have a shot at containing them.

    Even among their critics, who could have imagined then that, more than 16 years later, having faced only lightly armed enemies of various sorts, still wealthy beyond compare, still with a military funded in a way the next seven countries couldn’t cumulatively match, the United States would have won literally nothing?

    Who could have imagined that, unlike so many preceding imperial powers (including the US of the earlier Cold War era), it would have been able to establish control over nothing at all; that, instead, from Afghanistan to Syria, Iraq deep into Africa, it would find itself in a state of “infinite war” and utter frustration on a planet filled with ever more failed states, destroyed cities, displaced people, and right-wing “populist” governments, including the one in Washington?

    Who could have imagined that, with a peace dividend no longer faintly conceivable, this country would have found itself not just in decline, but – a new term is needed to catch the essence of this curious moment – in what might be called self-decline?

    Yes, a new power, China, is finally rising – and doing so on a planet that seems itself to be going down. Here, then, is a conclusion that might be drawn from the quarter-century-plus in which America was both unchained and largely alone.

    The Earth is admittedly a small orb in a vast universe, but the history of this century so far suggests one reality about which America’s rulers proved utterly clueless: After so many hundreds of years of imperial struggle, this planet still remains too big, too disparate, too ornery to be controlled by a single power. What the Bush administration did was simply take one gulp too many and the result has been a kind of national (and planetary) indigestion.

    Despite what it looked like in Washington once upon a time, the disappearance of the Soviet Union proved to be no gift at all, but a disaster of the first order. It removed all sense of limits from America’s political class and led to a tale of greed on a planetary scale. In the process, it also set the US on a path to self-decline.

    The history of greed in our time has yet to be written, but what a story it will someday make. In it, the greed of those geopolitical dreamers will intersect with the greed of an ever wealthier, ever more gilded 1%, of the billionaires who were preparing to swallow whole the political system of that last superpower and grab so much of the wealth of the planet, leaving so little for others.

    Whether you’re talking about the urge to control the planet militarily or financially, what took place in these years could, in the end, result in ruin of a historic kind. To use a favored phrase from the Bush years, one of these days we Americans may be facing little short of “regime change” on a planetary scale. And what a piece of shock and awe that’s likely to prove to be.

    All of us, of course, now live on the planet Bush’s boys tried to swallow whole. They left us in a world of infinite war, infinite harm, and in Donald Trump’s America where cluelessness has been raised to a new power.

  • Nearly Half Of All Millennials Know Someone Affected By Opiates

    The statistics surrounding the American opioid epidemic are becoming more and more alarming with each passing day, it seems. Two weeks ago, we cited a new report claiming that one in five millennial deaths can be attributed not just to drugs – but specifically to opioids.

    The study is called “The Burden of Opioid-Related Mortality in the United States,” published Friday in JAMA. Researchers from St. Michael’s Hospital in Toronto, Ontario, found that all opiate deaths — which accounts for natural opiates, semi-synthetic/ humanmade opioids, and fully synthetic/ humanmade opioids — have increased a mindboggling 292 percent from 2001 through 2016, with one in every 65 deaths related to opioids by 2016. Men represented 70 percent of all opioid-related deaths by 2016, and the number was astronomically higher for millennials (24 and 35 years of age).

    According to the study, one out of every five deaths among millennials in the United States is related to opioids. In contrast, opioid-related deaths for the same cohort accounted for 4 percent of all deaths in 2001.

    Opioid

    And today Axios cited a new NBC News/GenForward poll revealing that nearly half of millennials (42%) have been impacted by the opioid crisis in some way, either because they have a friend or family member who is struggling with addiction, or because they themselves are addicted.

    Why it matters: Millennials, ages 22 to 37, are expected to make up the largest generation in the U.S. by 2019. Overdose deaths are causing this group of individuals to die at a faster rate that those over 50 years old, according to the CDC.

    By the numbers:

    • White male and female millennials have been affected by the opioid epidemic the most — 54% know someone who is caught in the issue.
    • 30% of black millennials say they know someone who has dealt with an opioid addiction. Asian-Americans 26%. Latinos 23%.
    • More people who live in the Northeast part of the U.S. said they know someone who has dealt with opioid addiction than any other region. But about 40% of millennials in the Midwest, South and West still said yes to knowing someone.

    Democrats and Republicans have been scrambling to pitch a harm-reduction program to help reduce the number of deaths, but many remain uncomfortable with the idea of needle-exchange vans and clinics that offer emergency services (like supervised injection sites) for addicts operating in their neighborhoods.

    Opioid

    Furthermore, the political influence of the millennial generation is being affected by the crisis, as more young Americans are arrested (or are too busy feeding their addictions to care much about voting).

    Across party lines, roughly half of young Republicans and half of young Democrats say they know somebody struggling with opioid addiction. The future of the epidemic could be greatly impacted by a series of bills wending through Congress right now: One bill seeks to crackdown on illicit fentanyl – a powerful synthetic – another seeks to remove unused prescriptions out of circulation. Another – what Axios describes as “possibly the most significant” – would lift the IMD exclusion, a ban on federal Medicaid money for mental health treatment, allowing adult opioid users to stay at a bed in an institution for 30 days.

    Expanding access to opioid treatment would likely do the most to help improve conditions for addicts on the ground. But as it stands, having access to treatment isn’t enough – because nearly all research shows that substance-abuse treatments like rehab are still deeply ineffective treatments for opioids.

    When it comes to reducing the number of opioid overdoses, the solution put forth by one small-time Ohio politician still stands out: Just let the addicts die.

  • The Hidden Risk Of A Trade Deficit Reduction

    Authored by Valentin Schmid via The Epoch Times,

    A deal to reduce the trade deficit will have far-reaching consequences for the dollar…

    In May, China reportedly offered the United States a $200 billion reduction in its goods surplus with the United States. It would be a major victory for the Trump administration’s tough trade policy on China.

    The Chinese authorities so far have confirmed they are willing to buy up to $70 billion more agricultural and energy goods from the United States and they would be able to make good on the promise given the centrally-planned Chinese economy.

    But even if China were to follow through and import more from the United States or export less to it – reducing its surplus from the $500 billion in 2017 to $300 billion per year in the future – this would not be the end of the story.

    Capital Flows

    The problem with the single-handed focus on trade is that international trade between different nations has two sides. One is the goods trade, the other is the trade in capital, which has far-reaching consequences for interest rates and exchange rates.

    So far, the United States has financed persistent deficits in goods with persistent surpluses in capital exports. This means foreigners ship BMW cars and Samsung TVs to the United States and end up owning Miami condominiums, Apple stocks, and U.S. Treasury bonds.

    Of course, it’s not necessarily the same people who sell the BMWs and get the Apple stock, but the equation applies to the trade balances between nations.

    At the end of 2017, foreigners owned $33.8 trillion of U.S. assets with the United States owning $26 trillion of foreign assets, a net deficit of $7.8 trillion, which represents the accumulated trade deficit with the rest of the world from past decades.

    Indeed, capital transactions make up 95 percent of international financial flows, compared to 5 percent for trade.

    The Balancing Factor

    More importantly, these international investment decisions are not made at a top-down level, although they balance out trade surpluses and deficits automatically at the national aggregate.

    Because the United States has a very open capital account (there are few restrictions on money moving in and out of the country) and attractive assets (Apple and Miami), it brings in investments from foreign countries with high savings rates like Germany and China.

    Both companies and consumers in these countries save more than they spend because of culture, state intervention, and many other reasons. Either way, companies and individuals make asset allocation decisions independently of the national goods surplus their country has with the United States.

    So how does the capital account automatically balance with the trade account? “Over 90 percent of the ‘adjustment’ required to balance the accounts lies in the value of currencies,” writes Woody Brock of research firm Strategic Economic Decisions who wrote an excellent paper on the topic.

    Because of relatively inflexible supply chains as well as sticky consumer preferences, it takes large moves in currencies and prices to shift demand for goods either up or down.

    Not so with capital. Even small moves in the currency lead to traders and investors buying and selling trillions of assets, but also vice versa, where changing economic conditions at home or abroad lead to more or less appetite for U.S. assets.

    Reduce the Deficit to Boost the Dollar

    Let’s take the reported $200 billion reduction in the trade deficit with China as an example. In this case, sticky U.S. consumer preferences would fall victim to heavy-handed intervention by the Chinese state, and China would export $200 billion less goods to the United States, while producers in China would at first be swamped by more agricultural and energy products than they needed.

    Any combination of the two (more exports to China, fewer imports from China) would reduce the trade deficit from the current $500 billion to $300 billion.

    What also stays the same is the demand for U.S. dollar assets by Chinese citizens and companies, absent other economic changes or changes in Chinese policies to further control its capital account.

    Before the adjustment and at the current exchange rate of 6.41 yuan per dollar, the Chinese are demanding 3.20 trillion yuan worth of dollar assets, or $500 billion.

    But after the adjustment, the United States will only supply $300 billion of capital to the Chinese. How to reconcile the difference? The dollar will have to rise to 10.68 yuan in order to supply 3.2 trillion yuan, worth $300 billion, of U.S. capital.

    That’s a 66 percent rise in the dollar – which the United States would consider outrageous, since the politicians on this side of the Pacific have been complaining bitterly that the Chinese are artificially undervaluing their currency.

    Of course, there will be changes in the asset mix too, as Miami condos will become very expensive for the Chinese, whereas the relative prices of bonds and stocks and their cash flows (interest payments and dividends) as well as upside potentials are not affected by the exchange rate.

    In addition, although Chinese now receive less income from exports if they cannot find a substitute market, this does not mean their demand for foreign capital needs to decline. The Chinese pool of yuan savings is so large that even less income through trade would not make a dent in the appetite for overseas assets.

    According to surveys conducted by the Financial Times in China, wealthy Chinese want to invest around 30 percent of their assets abroad, with the United States being the preferred destination. Right now, Credit Suisse estimates Chinese household wealth to be in the region of $29 trillion. And this does not include Chinese companies who are buying everything from foreign companies that fit their strategic needs just to get money out of the country.

    It’s important to note that this analysis is only mathematically valid in a two-nation world economy. If other trading partners were involved, U.S. consumers could source products from other countries, the global U.S. trade deficit would not be reduced as much, and the yuan would not fall as much.

    However, considering the Trump administration wants to reduce the global trade deficit, the analysis becomes valid again, although it is impossible to calculate the impact on all different exchange rate. The only conclusion: If asset allocation preferences around the world don’t shift and the trade deficit with the rest of the world goes down, the dollar would go up. By how much against which rate is impossible to say.

    Too Much Volatility

    In the two nation world economy case, the adjustment would wreak havoc with the Chinese regime’s careful plans to centrally manage its currency, which is the biggest reason the Chinese would want to test the waters first with a $70 billion increase in imports and a corresponding reduction in the trade surplus.

    Even in the multilateral word economy scenario, adjustments would take time and exchange rate volatility would increase, although the effects would wear off eventually.

    Interestingly enough, tariffs on Chinese goods would lead to a much similar result. They make Chinese goods more expensive in dollar terms and represent an artificial devaluation in the U.S. dollar. They would thus reduce the trade deficit by limiting Chinese exports to the United States.

    What they would not do is limit the amount of capital demanded by the Chinese for U.S. assets. And unless the tariff also includes a surcharge on Chinese investment in the United States (an artificial boost to the U.S. dollar), we would be confronted with similar exchange rate dynamics as in the example above.

    In either case, absent significant changes in U.S. industrial policy and capital goods accumulation, the currency is the only variable to make the United States better off on world markets both from a production and a consumption perspective.

    The deal won’t boost U.S. exports and industrial production, but the trade deficit will be reduced and U.S. consumers would get more bang for their buck. So as unlikely as the full $200 billion reduction is about to happen, from a U.S. perspective it may be worthwhile.

  • Unprecedented Israeli Strikes Target Iraqi Shia Militias In Syria

    A day after a mysterious airstrike close to the Iraq-Syria border reportedly killed over 30 Syrian government soldiers and Iraqi paramilitary forces backed by Iran, a US official has told CNN the attack was carried out by Israel and not by the US coalition.

    Syrian state media blamed the strike on the US-led coalition — though in the immediate aftermath any level of confirmation or evidence was hard to come by. The claims prompted the US coalition spokesman to issue a formal denial, calling Syria’s accusation “misinformation” as US-backed SDF forces are only operating east of the Euphrates, and not near Abu Kamal, which lies west, according to the statement. 

    If confirmed it would mark the first time in the war that Iraq’s paramilitary forces have been targeted by Israel. The Iran-backed Popular Mobilization Units (PMU, or PMF) have increasingly coordinated with the Syrian Army as well as pro-Syrian irregular Shia fighters during anti-ISIS operations along Syria’s eastern border of late. 

    The incident marks the second time in three weeks that the Syrian Army has accused the US Coalition of bombing their troops in southeast Syria; however it is uncertain as yet how Damascus will respond to this new claim of Israeli responsibility. 

    The CNN source is an unnamed US official, who gave no other details on the strike, including how many jets conducted the mission or the flight path into the Iraq-Syria border area, though CNN notes, “The area is some distance from Israel and Israeli jets would have had to overcome significant logistical hurdles to strike that area.”

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    And as Al Masdar News points out, Israel “has never attacked the Syrian military this far from their border, so if they were behind this – this would be the first time they have every bombed the Deir Ezzor Governorate.” 

    The last confirmed Israeli strike in Deir Ezzor was in 2007, when Israel destroyed an alleged nuclear reactor in al-Kibar. Up until now in the war confirmed there have been acknowledged Israeli attacks in western Syria, around Damascus, and in the Homs desert (T-4 airbase).

    Syrian military sources initially told Reuters that the strikes were conducted by attack drones flying from the direction of U.S. lines. Syrian forces did not respond to the attacks which left dozens of Syrian Army, allied National Defense Forces (NDF), and Iraqi paramilitary troops killed and wounded in the town of Al-Harri, in the Abu Kamal countryside. 

    Though casualty numbers have varied slightly — with opposition media site SOHR citing 38 and pro-government sources citing well over 40 — it marks a significant escalation given the high death toll against units which were in the midst of battling remnant ISIS pockets in Syria’s east. 

    The attack came the same day that Israeli Prime Minister Benjamin Netanyahu said in a cabinet meeting, “We will take action – and are already taking action – against efforts to establish a militarily presence by Iran and its proxies in Syria both close to the border and deep inside Syria. We will act against these efforts anywhere in Syria.”

    Netanyahu’s words follow similar statements made last week wherein he accused Iran of importing 80,000 Shia fighters into the Syrian conflict from places like Pakistan and Afghanistan in order to both “covert” Syrian Sunnis and prepare attacks against Israel, claiming that a broader “religious war” would emerge. 

    “That is a recipe for a re-inflammation of another civil war – I should say a theological war, a religious war – and the sparks of that could be millions more that go into Europe and so on … And that would cause endless upheaval and terrorism in many, many countries,” Netanyahu said before an international security forum in Jerusalem last Thursday.

    “Obviously we are not going to let them do it. We’ll fight them. By preventing that – and we have bombed the bases of this, these Shi’ite militias – by preventing that, we are also offering, helping the security of your countries, the security of the world,” he said.

    Currently, new reports of a “massive build-up” of Syrian Army troops and their allies in Syria’s south continue to emerge after Assad recently reaffirmed his desire to liberate “every inch” of sovereign Syrian territory. As the army conducts operations increasingly close to the Israeli-occupied Golan Heights, the likelihood of more direct Syria-Israel clashes to come is high. 

  • China Enters The Trade Trap

    Via Investing In Chinese Stocks blog,

    Perhaps nobody knows what President Trump will do next, including President Trump, but right now it looks like he has successfully maneuvered China into a trade trap.

    The goal is to slow China’s economy such that military modernization slows and its economy cannot catch up with the United States. Meanwhile, implementation of this strategy is called “Beijing’s playbook” and the whole time President Trump speaks positively about Xi Jinping and China’s help in other areas.

    Bloomberg: Xi to Counter Trump Blow for Blow in Unwanted Trade War

    “The Chinese view this as an exercise in self-flagellation, meaning that the country that wins a trade war is the country that can endure most pain,” said Andrew Polk, co-founder of research firm Trivium China in Beijing.

    China “thinks it can outlast the U.S. They don’t have to worry about an election in November, let alone two years from now.”

    This is the mistake autocrats always make about Western governments and the United States. They view the messy and inefficient political system (intentionally designed that way to protect liberty) as a weakness. They think politicians care more about elections than anything else. They see the difficulty in reaching consensus as a weakness. However, they miss the fact that democratic governments enjoy greater legitimacy. If the U.S. reaches a majority in favor of confronting China on trade, then President Trump has the far stronger political hand.

    Confronting China on trade raises President Trump’s popularity. His base and independent voters favor this policy.

    Democrats oppose him because he is Trump, but they would lose votes if the only issue in November was “Confront China on trade, yes or no?”

    If President Trump makes it through November losing only a few House seats (as is typical of nearly all mid-term elections) and sticks to his China trade policy, he will come out the other side incredibly strengthened on trade heading into 2020. If the public begins to view the trade war more as war than trade, they will want to win the war of attrition.

    China’s “ace” remains yuan devaluation.

    When I wrote The Logic of Strategy: Yuan Devaluation and the Road to Trade War, I expected economics to lead the way as the yuan devalued. Although the yuan weakened in 2015 and 2016, it was not the substantial depreciation needed to reset the financial system. Still, China created the conditions for a major currency depreciation and U.S. trade policy will soon lean heavily on this pressure point.

    Finally, remember that geopolitics is right beneath the surface of the trade war. The U.S. is confronting China in the South China Sea. Pacific nations are turning against China.

    ABC: China warns citizens in Vietnam after protests fuel anti-Chinese sentiment

    China has warned its citizens in Vietnam after protesters clashed with police over a government plan to create new economic zones for foreign investment that has fuelled anti-Chinese sentiment in the country.

    SCMP: China tells Australia to remove its ‘coloured glasses’ to get relations back on track

    Relations between the two countries have cooled since late last year when Prime Minister Malcolm Turnbull’s government proposed a bill to limit foreign influence in Australia, including political donations. Beijing saw the move as “anti-China”.

    Critics say President Trump’s trade policy is poorly designed and antagonizes allies, but the Logic of Strategy says nations will come around to Trump’s position in the coming months and years.

  • DOJ Indicts "Vault 7" Leak Suspect; WikiLeaks Release Was Largest Breach In CIA History

    A 29-year-old former CIA computer engineer, Joshua Adam Schulte, was indicted Monday by the Department of Justice on charges of masterminding the largest leak of classified information in the spy agency’s history.

    Schulte, who created malware for the U.S. Government to break into adversaries computers, has been sitting in jail since his August 24, 2017 arrest on unrelated charges of posessing and transporting child pornography – which was discovered in a search of his New York apartment after Schulte was named as the prime suspect in the cyber-breach one week after WikiLeaks published the “Vault 7” series of classified files. Schulte was arrested and jailed on the child porn charges while the DOJ ostensibly built their case leading to Monday’s additional charges.

    [I]nstead of charging Mr. Schulte in the breach, referred to as the Vault 7 leak, prosecutors charged him last August with possessing child pornography, saying agents had found 10,000 illicit images on a server he created as a business in 2009 while studying at the University of Texas at Austin.

    Court papers quote messages from Mr. Schulte that suggest he was aware of the encrypted images of children being molested by adults on his computer, though he advised one user, “Just don’t put anything too illegal on there.” –New York Times

    Monday’s DOJ announcement adds new charges related to stealing classified national defense information from the Central Intelligence Agency in 2016 and transmitting it to WikiLeaks (“Organization-1”). 

    The Vault 7 release – a series of 24 documents which began to publish on March 7, 2017 – reveal that the CIA had a wide variety of tools to use against adversaries, including the ability to “spoof” its malware to appear as though it was created by a foreign intelligence agency, as well as the ability to take control of Samsung Smart TV’s and surveil a target using a “Fake Off” mode in which they appear to be powered down while eavesdropping.

    The CIA’s hand crafted hacking techniques pose a problem for the agency. Each technique it has created forms a “fingerprint” that can be used by forensic investigators to attribute multiple different attacks to the same entity.

    …

    The CIA’s Remote Devices Branch’s UMBRAGE group collects and maintains a substantial library of attack techniques ‘stolen’ from malware produced in other states including the Russian Federation.

    With UMBRAGE and related projects the CIA cannot only increase its total number of attack types but also misdirect attribution by leaving behind the “fingerprints” of the groups that the attack techniques were stolen from.

    UMBRAGE components cover keyloggers, password collection, webcam capture, data destruction, persistence, privilege escalation, stealth, anti-virus (PSP) avoidance and survey techniques. –WikiLeaks

    Schulte previously worked for the NSA before joining the CIA, then “left the intelligence community in 2016 and took a job in the private sector,” according to a statement reviewed in May by The Washington Post.

    Schulte also claimed that he reported “incompetent management and bureaucracy” at the CIA to that agency’s inspector general as well as a congressional oversight committee. That painted him as a disgruntled employee, he said, and when he left the CIA in 2016, suspicion fell upon him as “the only one to have recently departed [the CIA engineering group] on poor terms,” Schulte wrote. –WaPo

    Part of that investigation, reported WaPo, has been analyzing whether the Tor network – which allows internet users to hide their location (in theory) “was used in transmitting classified information.” 

    In other hearings in Schulte’s case, prosecutors have alleged that he used Tor at his New York apartment, but they have provided no evidence that he did so to disclose classified information. Schulte’s attorneys have said that Tor is used for all kinds of communications and have maintained that he played no role in the Vault 7 leaks. –WaPo

    Schulte says he’s innocent: “Due to these unfortunate coincidences the FBI ultimately made the snap judgment that I was guilty of the leaks and targeted me,” Schulte said. He launched Facebook and GoFundMe pages to raise money for his defense, which despite a $50 million goal, has yet to receive a single donation.

    As The Post noted in May, the Vault 7 release was one of the most significant leaks in the CIA’s history, “exposing secret cyberweapons and spying techniques that might be used against the United States, according to current and former intelligence officials.”

    The CIA’s toy chest includes:

    • Tools code named “Marble” can misdirect forensic investigators from attributing viruses, trojans and hacking attacks to their agency by inserted code fragments in foreign languages.  The tool was in use as recently as 2016.  Per the WikiLeaks release:

    “The source code shows that Marble has test examples not just in English but also in Chinese, Russian, Korean, Arabic and Farsi. This would permit a forensic attribution double game, for example by pretending that the spoken language of the malware creator was not American English, but Chinese, but then showing attempts to conceal the use of Chinese, drawing forensic investigators even more strongly to the wrong conclusion, — but there are other possibilities, such as hiding fake error messages.”

    • iPads / iPhones / Android devices and Smart TV’s are all susceptible to hacks and malware. The agency’s “Dark Matter” project reveals that the CIA has been bugging “factory fresh” iPhones since at least 2008 through suppliers. Another, “Sonic Screwdriver” allows the CIA to execute code on a Mac laptop or desktop while it’s booting up.
    • The increasing sophistication of surveillance techniques has drawn comparisons with George Orwell’s 1984, but “Weeping Angel”, developed by the CIA’s Embedded Devices Branch (EDB), which infests smart TVs, transforming them into covert microphones, is surely its most emblematic realization.
    • The Obama administration promised to disclose all serious vulnerabilities they found to Apple, Google, Microsoft, and other US-based manufacturers. The US Government broke that commitment.

    “Year Zero” documents show that the CIA breached the Obama administration’s commitments. Many of the vulnerabilities used in the CIA’s cyber arsenal are pervasive and some may already have been found by rival intelligence agencies or cyber criminals.

    In addition to its operations in Langley, Virginia the CIA also uses the U.S. consulate in Frankfurt as a covert base for its hackers covering Europe, the Middle East and Africa.

    CIA hackers operating out of the Frankfurt consulate ( “Center for Cyber Intelligence Europe” or CCIE) are given diplomatic (“black”) passports and State Department cover. 

    • Instant messaging encryption is a joke.

    These techniques permit the CIA to bypass the encryption of WhatsApp, Signal, Telegram, Wiebo, Confide and Cloackman by hacking the “smart” phones that they run on and collecting audio and message traffic before encryption is applied.

    • The CIA laughs at Anti-Virus / Anti-Malware programs.

    CIA hackers developed successful attacks against most well known anti-virus programs. These are documented in AV defeats, Personal Security Products, Detecting and defeating PSPs and PSP/Debugger/RE Avoidance. For example, Comodo was defeated by CIA malware placing itself in the Window’s “Recycle Bin”. While Comodo 6.x has a “Gaping Hole of DOOM”.

    You can see the entire Vault7 release here.

    A DOJ statement involving the Vault7 charges reads: 

    “Joshua Schulte, a former employee of the CIA, allegedly used his access at the agency to transmit classified material to an outside organization.  During the course of this investigation, federal agents also discovered alleged child pornography in Schulte’s New York City residence,” said Manhattan U.S. Attorney Geoffrey S. Berman. 

    On March 7, 2017, Organization-1 released on the Internet classified national defense material belonging to the CIA (the “Classified Information”).  In 2016, SCHULTE, who was then employed by the CIA, stole the Classified Information from a computer network at the CIA and later transmitted it to Organization-1.  SCHULTE also intentionally caused damage without authorization to a CIA computer system by granting himself unauthorized access to the system, deleting records of his activities, and denying others access to the system.  SCHULTE subsequently made material false statements to FBI agents concerning his conduct at the CIA.         

    Schulte faces 135 years in prison if convicted on all 13 charges: 

    1. Illegal Gathering of National Defense Information, 18 U.S.C. §§ 793(b) and 2
    2. Illegal Transmission of Lawfully Possessed National Defense Information, 18 U.S.C. §§ 793(d) and 2
    3. Illegal Transmission of Unlawfully Possessed National Defense Information, 18 U.S.C. §§ 793(e) and 2 
    4. Unauthorized Access to a Computer To Obtain Classified Information, 18 U.S.C. §§ 1030(a)(1) and 2
    5. Theft of Government Property, 18 U.S.C. §§ 641 and 2
    6. Unauthorized Access of a Computer to Obtain Information from a Department or Agency of the United States, 18 U.S.C. §§ 1030(a)(2) and 2
    7. Causing Transmission of a Harmful Computer Program, Information, Code, or Command, 18 U.S.C. §§ 1030(a)(5) and 2
    8. Making False Statements, 18 U.S.C. §§ 1001 and 2
    9. Obstruction of Justice, 18 U.S.C. §§ 1503 and 2
    10. Receipt of Child Pornography, 18 U.S.C. §§ 2252A(a)(2)(B), (b)(1), and 2
    11. Possession of Child Pornography, 18 U.S.C. §§ 2252A(a)(5)(B), (b)(2), and 2
    12. Transportation of Child Pornography, 18 U.S.C. § 2252A(a)(1)
    13. Criminal Copyright Infringement, 17 U.S.C. § 506(a)(1)(A) and 18 U.S.C. § 2319(b)(1)

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