- Iraqi Dinar May Replace Dollar And Euro In Iran's 2nd Largest Export Market
Amidst continuing talks between Iran and Iraq over how to settle payments for Iraq’s natural gas imports from Iran in the face of Washington sanctions, Iranian officials are mulling over Iraq’s offer to pay in Iraqi Dinars instead of the dollar or Euro, according to Iranian state media. This follows the September announcement by Iran that it planned to completely ditch the dollar as a currency used by the two countries in the trade transactions.
Iraq was among countries granted a temporary exemption as energy sanctions on its eastern neighbor and regional Shia ally took effect November 5, and since then Baghdad has pushed to process payments for gas and electricity in its own currency of dinars. Iraq is Iran’s second largest export market with a substantial portion of that trade in energy, which cannot cannot easily be structured outside the new sanctions regime.
Iraq’s President Barham Salih (L) is accompanied by his Iranian counterpart, Hassan Rouhani, to a meeting of Iran-Iraq delegations for talks in Tehran on November 17. Via President.ir Baghdad has found itself in the delicate position as a partner of both Washington and Tehran — largely reliant on the former for defense and on the latter for gas and power generation, keeping its economy afloat. Last summer a severe temporary electricity reduction fueled unrest across the south of Iraq. Chronic shortages and a failing Iraqi infrastructure means Tehran has been a key lifeline fueling Iraq’s increasingly desperate needs.
Iranian officials have also recently declared “Iraq is one of our successes” and a “strategic ally” as echoed in a weekend televised broadcast featuring the head of Iran’s Islamic Shura Council, Hossein Amirabedhaleyan. However, as the head of the Iran-Iraq Chamber of Commerce Yahya Ale-Eshagh stated before the latest round of sanctions took effect: “Resolving the banking system problem must be a priority for both Iran and Iraq, as the two countries have at least $8 billion in transactions in the worst times,” according to a September statement.
Meanwhile on Monday Iran’s leadership continued making dubious promises that energy exports will defy all expectations and thrive, with President Hassan Rouhani saying US sanctions are “part of a psychological war doomed to failure”.
“We will not yield to this pressure, which is part of the psychological war launched against Iran,” Rouhani said in a speech broadcast live on state television.
“They have failed to stop our oil exports. We will keep exporting it… Your regional policies have failed and you blame Iran for that failure from Afghanistan to Yemen and Syria,” he added as the crowd he addressed in the city of Khoy chanted “Death to America!”.
Noting that Washington had succumbed to granting temporary waivers to eight major buyers of Iranian oil due to economic realities, he explained: “America is isolated now. Iran is supported by many countries. Except for the Zionist regime (Israel) and some countries in the region, no other country backs America’s pressure on Iran,” according to Reuters.
Iranian officials have vowed to stick by the 2015 Iran nuclear deal in spite of Washington’s aggressive attempts to dismantle it. Foreign Ministry spokesman Bahram Qasemi expressed to reporters he is “hopeful that the Europeans can save the deal” in reference to the EU’s attempts to establish a Special Purpose Vehicle (SPV) for non-dollar trade with Iran. European and other foreign business, however, have still been leaving Iran in droves out of fear of US penalties.
“We expect EU to implement the SPV as soon as possible,” Qasemi said. “Iran adheres to its commitments as long as other signatories honor theirs.”
Reuters reported last week, based on statements from six unnamed diplomats, that the EU had sought to establish the SPV by this month but failed as no country is currently willing to host it. This gives new impetus to current negotiations between Iran and Iraq held this past weekend as the Iraqi president visited Tehran on Saturday with a delegation for a series of talks.
Iran’s Ambassador Iraj Masjedi announced over the weekend amidst the high level talks involving Iraq’s President Barham Salih: “Considering the problems that have emerged in dollar-based banking transactions, a joint proposal between Iran and Iraq is using Iraq’s dinar in trade,” according to Iranian state media. He added that an alternative plan might included using barter mechanisms to carry out imports and exports with Iraq.
Following these meetings Iranian President Hassan Rouhani indicated the two neighbors look to increase their annual trade from the current $12 billion to $20 billion.
- The 'Hitlergate' Hearings & Rescuing America From "The Brink Of Fascism"
Authored by CJ Hopkins via The Unz Review,
OK, so, that was a close one. For a moment there, I was starting to worry that the Democrats weren’t going to take back the House and rescue us from “the brink of fascism.” Which, if that had happened, in addition to having to attend all those horrible stadium rallies and help the government mass murder the Jews, we would have been denied the next two years of Donald Trump-related congressional hearings and investigations that we can now look forward to … I’m going to go ahead and call them the Hitlergate Hearings.
Staging these hearings has always been a crucial part of the Resistance’s strategy. As history has proved, time and time again, when literal fascists take over your democracy, outlaw opposing political parties, and start shipping people off to concentration camps and revoking journalists’ White House access, the only effective way to defeat them is to form a whole buttload of congressional committees and investigate the living Hitler out of them. This is especially the case when the literal fascists who have commandeered your democracy are conspiring with a shifty-eyed Slavic dictator whose country you have essentially surrounded with your full-spectrum dominant military forces, and who your media have thoroughly demonized, but who is nevertheless able to brainwash your citizens into electing his fascist puppet president with a few thousand dollars worth of Facebook ads.
Once you’ve determined that has happened (which it obviously has), the gloves have to come off. No more prancing around in pussyhats, not with Russian Hitler in office! No, at that point, you really have no choice but to wait two years until your opposition party (which Hitler somehow forgot to ban) regains control of the House of Representatives (which Hitler somehow forgot to dissolve), wait another two months until they take office, and then immediately start issuing subpoenas, auditing Hitler’s financial records, and taking affidavits from former hookers.
I realize that may sound extreme, but remember, we’re talking literal fascists, backed by literal Russian fascists, who are going around emboldening literal fascism, and making literal fascist hand gestures on television, and doing all kinds of other fascist stuff!
Now, OK, if you’re anything like me, you’re probably wondering, if Trump is really a fascist, not to mention a Russian intelligence asset, why hasn’t the “Resistance” just assassinated him? Many of them are ex-CIA, after all, or are otherwise members of the Intelligence Community. Why bother with all these congressional hearings? Why not just go in there and kill him?
Well, the problem with that apparently is, they have to follow “the rule of law,” which prevents them from just assassinating people, and “regime-changing” governments that are not playing ball, and, you know, staging military coups, arming and training sadistic death squads, and sanctioning thousands of children to death. That kind of stuff is not just wrong, like, morally, or whatever, it is also illegal. So, even though a Russian agent, who is also literally Adolf Hitler, stole the election from Hillary Clinton, and is remaking America into a fascist dictatorship, the only recourse the “Resistance” has is to mount these congressional investigations and publicize them in excruciating detail until November 3, 2020, at which point all this “Fascism” hysteria will just disappear into the ether like the “War on Terror” hysteria did the moment Trump won the nomination.
But that’s two years from now, which is almost an eternity. In the meantime, the neoliberal “Resistance” has got some serious investigating to do! And not just Mueller’s investigation of Trump’s treasonous activities as a Russian agent. No, we’re talking congressional investigations of his tax returns, his Deutsche Bank statements, takeout receipts, dry cleaning tickets, his entire fascistic financial history! And then there’s that emoluments thing! And that Kavanaugh thing! And that security clearance thing! And that bimbo thing! And some other things! And, well, I think it’s pretty safe to assume we are on the road to Subpoena City!
The corporate media appear to agree. Scanning the post-election coverage, it looked like most “Resistance” journalists got the official press release. The Guardian started taking live bets on which investigations the House would launch first. The New York Times, in its ongoing efforts to protect Special Counsel Robert Mueller from the fascistic “muzzling” its editorial staff are certain that Trump is about to subject him to in order to prevent him from presenting evidence of Trump’s formative years in the GRU (and possible links to the Skripal assassins), published a “roadmap” Mueller can follow to “send incriminating evidence directly to Congress,” bypassing the Nazified Justice Department! According to CNN (a dissident samizdat owned by the Turner Broadcasting division of Warner Media, LLC, which, in turn, is owned by AT&T, a multinational conglomerate holding company), “House Democrats are preparing to unleash the full force of their oversight powers on the Trump administration” in series of “high-octane Democratic-controlled hearings,” which Jim Acosta will be covering live, if he has to take out every jackbooted Nazi intern on the Hill to do it! I could go on, but you get the picture.
And for anyone who doesn’t, here it is…
The next two years will be a demonstration of the power of the global capitalist empire and its predominant propaganda machine the likes of which the world has never witnessed. By November 3, 2020, they will need to have brainwashed enough Americans into voting for whatever global capitalist puppet the Democrats end up nominating to defeat Donald Trump in the general election, which isn’t going to be a cakewalk. To do this, they will need to foment such an atmosphere of mindless hysteria, emotional exhaustion, and paranoia that anyone to the left of Mussolini will stagger to the polls on election day and vote for the Democrat just to make it stop.
In addition to the Hitlergate Hearings, each and every excruciating moment of which will be broadcast live and then milked to death by the corporate media’s experts and pundits, they will continue to subject us to a torrent of messaging designed to convince us that Donald Trump is simultaneously Hitler and a Russian operative, and that America is literally “on the brink of fascism,” and that anyone who questions this narrative is a Putin-loving Trumpian fascist, and a hate criminal, and probably a “domestic terrorist.”
None of this messaging will need to make sense. The goal of the “Resistance” is not to present a credible case that Donald Trump is literally a fascist or a Russian operative, or that global capitalism is in any real danger of being torn asunder by literal fascism (whatever your definition of fascism is). The goal of the “Resistance” is to make it unmistakeably clear who is really running things, and what happens to annoying billionaire ass clowns who get elected president without their permission, and to the ignorant rabble who elect such ass clowns, or who vote to leave the European Union (which, of course, they will never allow to happen, except perhaps in some nominal sense).
In other words, the global capitalist ruling classes are about to teach the world a lesson. It is the same basic lesson they have been teaching the world since the dissolution of the Soviet Union. They taught it in the former Yugoslavia. They taught it in Greece, and Iraq, and Libya. They have taught it throughout the Middle East. They are about to teach it throughout the West. The lesson is, resistance to global capitalism is not just futile, it is suicidal. The lesson is, play with identity politics and all that “cultural wars” stuff to your heart’s content, but fuck with global capitalism and we will squash you like a tomato bug.
The Hitlergate Hearings, the fascism hysteria, the Russian mind control paranoia, and the rest of the concerted propaganda campaign we have been subjected to since 2016 (and are about to experience the full force of) are all just parts of a broader effort, not just to crush the “populist” insurgency that began in the West with the Brexit referendum, continued with Trump, and then spread throughout Europe, but to crush all hope for any future rebellions against global capitalism and its ideology, regardless of whether they stem from the Left or Right. (If you think they’re just focused on the neo-nationalists, you obviously haven’t been paying attention to the ongoing demonization of Corbyn, Mélenchon, Sahra Wagenknecht, and assorted other “populist” leftists.) In the old days, this was the part where the king would mount the usurper’s head on a spike to remind everybody who was boss. Nowadays, of course, we do it on television, or the Internet, like when we hung Saddam, or sodomized Gaddafi with a bayonet. They’re not going to do anything like that to Trump, who is, after all, an American usurper, but they are going to make an example of him.
So, get out your popcorn, and your pitchforks, and so on, and get ready to cheer them on as they do. The future of democracy hangs in the balance! And, if you’re on the Twitter, make sure you fulfill your daily Calling-Trump-a-Fascist and Feeding-the-Fascism-Hysteria quotas. And Putin, of course. Don’t forget Putin … and whatever other mindless hysteria the capitalist ruling classes need us to parrot. Trust me, in about two years, when the post-Putin-Nazi celebrations begin, and people are running around in the streets burning effigies, hooting vuvuzelas, and hunting down anyone wearing the wrong hat, you’re not going to want to be mistaken for having been on the “populist” side of history.
- "Dozens" Of Princes Turn Against MbS As King Salman's Brother Waits In The Wings
For the past month the younger brother of Saudi Arabia’s King Salman, 76-year old Prince Ahmed bin Abdulaziz, has reportedly been positioned as the prime candidate to replace the increasingly embattled crown prince Mohammed bin Salman (MbS) after Prince Ahmed returned to the kingdom from self-imposed exile weeks ago.
Now just days after the CIA issued its report saying the agency believes MbS ordered the Jamal Khashoggi killing, Reuters has revealed that MbS has even more reason to be nervous about political survival as his brothers are now publicly leaking they’re ready for a replacement in the succession. Perhaps it’s payback time for last year’s Ritz Riyadh imprisonment?
Reuters reports that “some members of Saudi Arabia’s ruling family are agitating to prevent Crown Prince Mohammed bin Salman from becoming king, three sources close to the royal court said.” And Reuters has confirmed it’s not a mere handful of angry princes who are prepared to make the case, but multiple dozens:
Dozens of princes and cousins from powerful branches of the Al Saud family want to see a change in the line of succession but would not act while King Salman – the crown prince’s 82-year-old father – is still alive, the sources said. They recognize that the king is unlikely to turn against his favorite son, known in the West as MbS.
Crown Prince Mohammed bin Salman and Prince Ahmed Abdulaziz (right), via the AFP Enter Prince Ahmed, whose name has been increasingly floated in international press reports as an option amenable to the West — a consideration crucial to Saudi calculations.
Prince Ahmed has reportedly for weeks been meeting with other members of the Saudi royal family living outside the kingdom, along with “figures inside the kingdom” who have encouraged him to usurp his nephew. He’s long been an open critic of bin Salman (MBS), and for this reason had been in the West with security guarantees given by US and UK officials.
His name features prominently in the bombshell new Reuters report:
Rather, they are discussing the possibility with other family members that after the king’s death, Prince Ahmed bin Abdulaziz, 76, a younger full brother of King Salman and uncle of the crown prince, could take the throne, according to the sources.
Prince Ahmed, King Salman’s only surviving full brother, would have the support of family members, the security apparatus and some Western powers, one of the Saudi sources said.
Prince Ahmed, 76, has been living in the UK for several years after serving as Saudi Arabia’s deputy minister of interior between 1975 – 2012, and briefly as minister of interior in 2012. Ahmed was seen as a potential candidate to succeed King Salman in the early 2000’s, however he was sidelined in March 2014 amid one of several shakeups within the House of Saud.
On November 4, 2017 MbS began arresting as many as 500 Saudi princes, government ministers and businessmen – detaining them in the Ritz-Carlton hotel in Riyadh. Private jets were grounded to prevent people from fleeing, while over 2,000 domestic bank accounts and other assets were frozen as the government targeted up to $800 billion in wealth that was reportedly “linked to corruption.”
Prince Ahmed was protected from the purge, as MbS was unable to touch any sons of King Abdulaziz, founder of the modern Saudi state.
Last week after news of the bombshell CIA report pointing to MbS personally ordering Khashoggi’s murder, and with President Trump calling the CIA assessment “very premature” but “possible”, things are fast aligning against MbS; however, much will be determined this week as Trump said he would evaluate the matter when he’s due to receive a complete report of the case on Tuesday.
The return of senior Saudi Prince Ahmed during the last week of October sparked speculation over preparations to oust MbS, via FT. Reuters continues:
Senior U.S. officials have indicated to Saudi advisers in recent weeks that they would support Prince Ahmed, who was deputy interior minister for nearly 40 years, as a potential successor, according to Saudi sources with direct knowledge of the consultations.
Unnamed western intelligence officials leaking to the press against MbS has become somewhat of a pattern since late October as he’s already been effectively dumped by the very agencies that once considered him their “reformist” darling.
A senior state department official who has seen a version of the CIA Khashoggi report told me it’s “blindingly obvious” that MBS ordered his murder
— Tara Palmeri (@tarapalmeri) November 19, 2018
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However, much will be determined based on if Trump is convinced it’s time to dump the 33-year old de facto ruler of Saudi Arabia, as Reuters reveals based on unnamed senior officials:
One senior U.S. official said the White House is in no hurry to distance itself from the crown prince despite pressure from lawmakers and the CIA’s assessment that MbS ordered Khashoggi’s murder, though that could change once Trump gets a definitive report on the killing from the intelligence community.
The official also said the White House saw it as noteworthy that King Salman seemed to stand by his son in a speech in Riyadh on Monday and made no direct reference to Khashoggi’s killing, except to praise the Saudi public prosecutor.
But if MbS continues flirting with Russia over a potential deal to buy its S-400 anti-aircraft missiles, the White House could quickly cut him loose.
It was revealed that last May the crown prince directed his defense to ministry to prepare to “focus on purchasing weapon systems and equipment in the most pressing fields” including the Russian S-400 system, which would also include training, according to a letter seen by Reuters.
Thus with all of these threads and revelations coming together at once, this week could make or break MbS as the future king of Saudi Arabia. Trump’s initial words after he reviews the full expected CIA report will determine much.
Is MbS’ family prepping the ultimate payback for the extended stay at the Ritz-Carlton Riyadh? Will a new succession be firmed up by the end of this month?
- Humanity's 'Broken Clocks' & "Correcting" Back To Stone Age Barbarism
Authored by Robert Gore via Straight Line Logic blog,
Sometimes the reasons you’re wrong turn out to be the reasons you’re right.
Even a broken clock is right twice a day.
Old Wall Street adage
Anyone who has consistently sounded cautionary or outright bearish notes during the last nine years of relentlessly rising equity markets has been cast aside. Wall Street is bipolar. You’re either right or wrong, and wrong doesn’t buy mansions and Maseratis. Like that broken clock, the so-called permabears have had a couple of minutes when they were right, far outweighed by those 1438 minutes when they were wrong.
Or maybe it’s all a matter of perspective, and it’s the last nine years that amounts to two minutes. In geologic time nine years isn’t even a nanosecond. Perhaps even on time periods scaled to human lifetimes and history, the last nine years will come to be seen as an evanescent flash that came and ignominiously went.
Markets don’t listen to reasons. They’re exercises in crowd psychology and crowds are emotional and capricious. That doesn’t mean that reason is a useless virtue in market analysis, quite the opposite. It’s reason that allows the few who are consistently successful to separate themselves from the crowd and capitalize on its emotion and caprice.
Reason identifies rising stock markets as one symptom of a sugar high global economy. Since 2009, staring into the abyss of debt implosion, central banks acting in concert have promoted furious debt expansion as the finger-in-the-dike remedy. Governments expanded their fiat (aka out of thin air) debt, and central banks monetized that debt with their own fiat debt. Not only did that create loanable reserves within the banking system—private debt fodder—it drove interest rates so low that yield-deprived investors were herded into the stock market. Borrowers won, savers lost.
The reason markets rose is also the reason they will fall. How can central banks exchanging fiat debt for governments’ fiat debt produce economic growth or anything else of lasting value? That metaphysical query pinpoints the artificiality of the expansion since 2009. That you can’t get something for nothing has not been repealed. The stock market has been the great and powerful Oz telling us not to pay attention to the fiat debt charade going on behind the curtain.
However, the expansion has been extraordinarily weak. It’s not clear that there has been any growth at all if you back out the debt necessary to produce what the government reports as growth. What is clear is that across developed country economies, each currency unit of debt is buying successively less growth and adding to an increasingly onerous debt burden.
Is a mechanic who warns that if you don’t don’t replace an engine part your car will break down a broken clock, simply because it may not break down this month? Is a doctor who warned that if you didn’t stop drinking your liver will fail a broken clock if it hasn’t failed yet? Objectively analyzing economies and equity markets hooked on rising levels of debt that generate diminishing returns, the conclusion is inescapable: this can’t work.
As the burden of debt becomes too much for the economy to bear, corporate profits slow and then vanish, creditors stuck with bad debt must write down assets values, and isolated credit brush fires merge and become a raging conflagration. We saw it in 2008 and 2009. Elevating the perspective beyond the last nine years, there are reasons to predict that this conflagration will be much worse, a once-in-many decades, perhaps a once-in-many centuries, disaster.
There is more global debt, either absolutely or relative to global production, than there has ever been. All financial assets are debt or equity claims. Most income streams, financial assets, and real assets are pledged as sources of debt repayment. The global economy and asset values are inextricably interlinked in a vast morass of debt, unfunded liabilities, collateral claims, inexorably declining production and inexorably mounting debt service. It can’t work and when if fails, the question becomes how far financial markets and the economy fall. If they fall far enough, the last nine years will indeed seem like an evanescent flash.
Today’s debt superstructure is built on the gradual separation of the dollar from its gold backing since 1913, when the Federal Reserve was established, to 1971, when Nixon abandoned the last vestiges of the gold standard. Central banking is a something for nothing proposition. The impending crash may well wipe out much of the ostensible something that rests on that foundation of nothing. Financial market technicians use the term “correct back” to denote the time when a market was last at a level to which that market has fallen. Markets and the economy may “correct back” to at least 1913, and the correction could extend even farther back than that.
The US’s peak economic growth was during the period between the Civil War and World War I. Growth has been in an irregular downtrend ever since as steady dollar depreciation and the growth of debt after 1913 have exacted their inevitable economic toll. During the gold standard era, there was a gentle deflation due to increased productivity and something close to laissez-faire capitalism. Nowadays only “fringe” elements endorse the gold standard, productivity-caused deflation, or capitalism, and even more fundamental ideas are under attack.
Because government is institutionalized violence, war is the oldest statist institution. What followed World War I can only be described as massive intellectual default. There was no recoil from state-sponsored carnage and the state after the world’s then deadliest war. There was no reexamination of its premises and practices, no calls for somehow limiting this deadly institution, and no reaffirmation of freedom and individual rights.
The intellectuals went the other way. They hailed Marxism, socialism, welfare statism, the income tax, central banking, and virtually anything else that increased the size and power of governments. They deplored pesky notions of individual rights, ordered liberty, and constrained government tracing their roots back to the American Revolution, the Enlightenment, the Renaissance, and ancient Greece. Such impractical precepts impeded their vision of rule by self-appointed elites who supposedly knew and protected the “common good” better than the commoners they were to rule. The cherry on this statist sundae would be global governance.
The world’s deadliest war and the introduction of weapons that could destroy humanity only twenty-seven years after the World War I armistice didn’t slow this intellectual freight train. Somehow tens of millions dead and a world in ruins thanks to the depredations of its governments was an argument for still more government and the United Nations, the camel’s nose under the tent for global government. There was nary a peep of protest from the intellectual mainstream, most of which became servants of the state. Only a few rebelled, and they were ignored, snubbed, marginalized, maligned, threatened, and exiled until they repented.
As the intellectuals sow we all reap: a world on the cusp of its worst financial crisis and quite possibly wars that could annihilate humanity. Faced with the irrefutable death and destruction wrought by statism over the 100 years, statist intellectuals no longer pretend their schemes will lead to a better world. Instead, they denigrate the reason, applied logic, intellectual rigor, initiative, hard work, science, technology, contract and property rights, markets, and voluntary exchange that accounts for what value that remains in this world. Their vision offers less than nihilism and promises to destroy that residual value. The world will reflect the chaos, panic, and blind hatred that fills their heads. If that sounds too dire, just listen to their vacuous intellectual progeny on most college campuses.
If their “vision” triumphs and the values that made civilization civilized are discarded, humanity could “correct” back to Stone Age barbarism. The broken clocks’ minute is upon us. Unfortunately, it may well last many hours.
- "A Daisy Chain Of Defaults": How Debt Cross-Guarantees Could Spark China's Next Crisis
On November 8, China shocked markets with its latest targeted stimulus in the form of an “unprecedented” lending directive ordering large banks to issue loans to private companies to at least one-third of new corporate lending. The announcement sparked a new round of investor concerns about what is being unsaid about China’s opaque, private enterprises, raising prospects of a fresh spike in bad assets.
A few days later, Beijing unveiled another unpleasant surprise, when the PBOC announced that Total Social Financing – China’s broadest credit aggregate – has collapsed from 2.2 trillion yuan in September to a tiny 729 billion in October, missing expectations of a the smallest monthly increase since October 2014.
Some speculated that the reason for the precipitous drop in new credit issuance has been growing concern among Chinese lenders over what is set to be a year of record corporate defaults within China’s private firms. As we reported at the end of September, a record number of non-state firms had defaulted on 67.4 billion yuan ($9.7 billion) of local bonds this year, 4.2 times that of 2017, while the overall Chinese market was headed for a year of record defaults in 2018. Since then, the amount of debt default has risen to 83 billion yuan, a new all time high (more below).
Now, in a new development that links these seemingly unrelated developments, Bloomberg reports that debt cross-guarantees by Chinese firms have left the world’s third-largest bond market prone to contagion risks, which has made it “all the tougher for officials to follow through on initiatives to sustain credit flows”, i.e., the growing threat of unexpected cross- defaults is what is keeping China’s credit pipeline clogged up and has resulted in the collapse in new credit creation.
The risk of cross-defaults is what also appears to be behind the recent official directive for banks to boost lending to private corporations.
As Bloomberg explains, private companies have long had to be innovative in getting financing in Communist-run China, where state-owned enterprises have had preferential access to the banking system. Extending guarantees to each other helped businesses boost some lenders’ confidence enough to extend funding to them.
While this was not a concern when times were good, now that China is going through a record run of debt defaults, these often opaque and hard-to-follow links pose the risk of “a daisy chain of distress” with price moves are reflecting that.
Take, for example, tire-maker China Wanda Group which has seen the yield on its bonds due in 2021 soar almost threefold, from 8% to over 20% since end-September, thanks to having provided guarantees to iron-wire maker Shandong SNTON Group Co., one of whose units failed to repay a bank loan two months ago.
“Large cross-guarantees could set off a chain effect that could quickly spread from one firm to another,” said Clifford Kurz, a credit analyst from S&P Global Ratings in Hong Kong, who probably rues the day he was tasked with figuring out which company is linked to which other company in cross-default obligations.
And there’s a lot of it: like pledged shares, where private companies and executives pledged corporate shareholdings as collateral for bank loans and which emerged as a major risk factor for China’s financial system in late October when a flood of margin calls sparked a “liquidity crisis” and panic selling in Chinese stocks and prompted the regulators and local authorities to demand that banks ease restrictions on pledged shares, cross guarantees are a Chinese phenomenon less familiar in global markets. Last year, cross-guarantees in China amounted to nearly 4 trillion yuan ($575 billion), the China Securities Journal reported in October 2017.
Which brings us back to China Wanda and Shandong SNTON, which are both based in the eastern province of Shandong, which has an economy of about $1 trillion and benefited from a dynamic private sector; however that growth now appears to have ground to a halt, and according to Kurz, slides in a number of corporate bonds across the province “may suggest that investors are seeking to avoid the risks posed by such cross-guarantees — regardless of the underlying performance of such companies.”
And with a record pace of 83.4 billion yuan of defaults this year, both share pledging and cross guarantees have found themselves to topic of intense scrutiny
“Cross-guarantees were not built up overnight,” said Li Guomao, head of financing at Shandong SNTON, which has seen its own bonds tumble 30% since October thanks to a lawsuit over a guarantee to a subsidiary that failed to repay a loan. “It is unlikely to solve this problem soon.”
There is another way that the province of Shandong has emerged as the potential epicenter for the next debt crisis: here, at least 20 private firms provide guarantees that account for at least 10% of their total net assets – a ratio surpassing all other regions, according to Lv Pin, an analyst from CITIC Securities Co.
“Private firms in Shandong have been exposed to more risks as they are caught up in the cross-guarantee trap, with bonds being dumped on the secondary market,” said Chen Su, bond portfolio manager at Qingdao Rural Commercial Bank Co.
And, as noted above, local companies started suffering more financing difficulties as banks cut lending to this region earlier this year, Su said.
What makes this particular problem especially vexing is that, like a loose thread, once one company with cross-guarantees finds itself unable to fund its debt obligations, a cross-guarantee cascade is sprung, and dozens of other firms may end up unable to either satisfy their “guaranteed” commitments to the original debtor, until – ultimately – they are unable repay their own creditors.
Bloomberg notes that cross-guarantee troubles have been cropping up for a while:
When a disclosure last year showed that Shandong Yuhuang Chemical Co. had guaranteed 1.35 billion yuan of obligations tied to Hongye Chemical Group Holdings Co., yields on Yuhuang’s 2020 dollar note shot up more than 2.30 percentage points in a week.
For now, there hasn’t been a default serious enough to drag down numerous firms at the same time, although that may soon change.
However, to make sure it doesn’t, China is engaging in what it does best to avoid a credit crisis: government funded bailouts. Sure enough, the province of Shandong is making efforts to avert any credit collapse. Its state assets regulator said a government-backed 10 billion yuan fund will be set up to address liquidity risks at listed companies, the China Securities Journal reported on Friday. More broadly, as we reported two weeks ago, China’s central bank has launched initiatives to aid credit to small and medium enterprises, and support bond issuance.
And while the S&P analyst Kurz said that most companies surveyed by S&P are scaling back those cross-guarantees, for Beijing to make the unprecedented demand that banks allocate a third of new credit issuance to private companies, the problem must be far more dire than has been made public so far. And just as was the case with share loans, it is only a matter of time before cross-guarantees emerges as the focal point of China’s next financial crisis.
- Weather Models Forecast Coldest Thanksgiving On Record In Northeast
According to new weather models, the US mid-Atlantic and Northeast regions are expected to experience the coldest/earliest temperatures to the start of any winter season on record.
Weather Prediction Center: “Highs 20-35 degrees below normal”
The culprit: a massive area of high pressure from the Arctic Circle will descend across Canada and into the Northeast, collapsing temperatures to life-threatening conditions ahead of Thanksgiving and into Black Friday.
“Very cold air will make its way into the Northeast just in time for Thanksgiving and Black Friday. Most major cities along the I-95 corridor will rival coldest maximum temperatures for the date, including New York City, Boston, Providence, and Philadelphia. Most cities will run 20 to 25 degrees below average for late November, and combined with breezy conditions, will make for brutally cold “feels like” temperatures even colder than the air temperature. This will make for an interesting dilemma for shoppers on the fence about heading out for Black Friday, with temperatures Thursday night in the single digits and teens for most. With this increased cold risk, natural gas continues to be heavily influenced by weather model forecasts through the end of the month,” said Ed Vallee, head meteorologist at Vallee Weather Consulting.
The National Digital Forecast Database (NDFD) released new weather models that indicate the blast of arctic air could affect much of the mid-Atlantic and North East regions, threatening to keep America’s consuming herd indoors, crippling shopping intentions and keeping tens of millions of Americans away from their favorite retailer of choice.
NDFD Low Temperatures For Thanksgiving
“November is running more than 4°F below normal across the Lower 48. Unprecedented cold coming by Thanksgiving will turn this map dark purple across the Northeast,” said Ryan Maue of weathermodels.com.
“New York City has only had three Thanksgivings dating to 1870 when the high temperature failed to rise out of the 20s, according to National Weather Service statistics. The coldest was a high of 26 degrees on Nov. 28, 1901.
Forecast highs Thursday could be near that all-time record coldest high set almost 117 years ago.
In southern New England, Boston could come within a couple of degrees of its coldest Thanksgiving high of 24 degrees, also set Nov. 28, 1901.
Providence, Rhode Island, Philadelphia and Burlington, Vermont, may also see highs within striking distance of the coldest on record for Thanksgiving Day in each city.
Low temperatures Thanksgiving morning and Black Friday will likely be 15 to 25 degrees below average for late November.
The temperature for the Macy’s Thanksgiving Day parade in New York City is expected to be in the low- to mid-20s. It will feel even colder when you factor in the wind chill, possibly in the mid-teens.
A low temperature of 20 degrees Thursday morning would also be near the record coldest Thanksgiving low at New York City’s Central Park.
Elsewhere, low temperatures Thursday and Friday mornings will be in the single digits and lower teens across the interior Northeast. Closer to the coast, it will be in the teens or lower 20s.
A few cities may flirt with daily record lows for Nov. 22 (Thursday) or Nov. 23 (Friday).
This includes Albany, New York, and Providence, Rhode Island, where the daily record-low temperature Thursday is 9 degrees and 16 degrees, respectively.
Although it will be cold, the air will also be dry, which means there won’t be any snowfall to worry about Thursday and Friday,” said the Weather Channel.
With weather models pointing to record low temperatures, it has been no surprise that natural gas prices have been moving higher, besides OptionSellers.com and other funds who were recently blown out of their short positions when price popped almost 18% last Wednesday.
NatGas Chart
The Energy Information Administration reported that natural gas storage in the lower 48 states was below the five-year average as of October 31.
Storage Inventory Forecast, US Lower-48, Latest GFS
US Lower-48 EC Heating Degree Day (HDD) Operational
With some regions along the North East expected to smash 100-year lows in the coming days, it is also noted that the sun is currently entering one of the deepest Solar Minima since the 1800s when the last mini ice age was observed.
If the next few days are a habinger of what to expects, the US Northeast is going to have a brutal winter ahead, an excuse which Wall Street analysts will gladly use to explain why the economy is rapidly slowing and potentially throwing a wrench in any Fed plans to deviate from its tightening course if Jerome Powell once again assumes that it is not the economy, stupid, but the cold weather.
- "Democratic Socialist" Ocasio-Cortez Couldn't Name The 3 Branches Of Government
If you needed more evidence that “Democratic Socialist” Alexandria Ocasio-Cortez – who, at 29, is the youngest woman ever elected to Congress – isn’t ready for prime time, here it is.
During a conference call with prospective far-left candidates over the weekend, Ocasio-Cortez advised her comrades that the time for revolution is at hand: “[We need to] work our butts off to make sure that we take back all three chambers of Congress – Uh, rather, all three chambers of government: the presidency, the Senate, and the House” – in 2020. We can’t start working in 2020.”
For the record, the three branches of government are the legislative, the executive and the judiciary.
Socialist Alexandria Ocasio-Cortez: “If we work our butts off to make sure that we take back all three chambers of Congress — Uh, rather, all three chambers of government: the presidency, the Senate, and the House.”
The 3 branches of government: executive, legislative, judicial. pic.twitter.com/8rPSpzottE
— Ryan Saavedra (@RealSaavedra) November 19, 2018
Ocasio-Cortez then blasted Republicans for “drooling” over every minor slip up that she “corrects in real-time.”
Maybe instead of Republicans drooling over every minute of footage of me in slow-mo, waiting to chop up word slips that I correct in real-tomd, they actually step up enough to make the argument they want to make:
that they don’t believe people deserve a right to healthcare. https://t.co/fMOijEa7tF
— Alexandria Ocasio-Cortez (@Ocasio2018) November 19, 2018
But this is only the latest in an embarrassing stream of slip ups and gaffes from Ocasio-Cortez, who has a degree in economics from Boston University, but has spent most of her time since graduating working in restaurants and non-profits. Since being thrust into the limelight after her upset primary win, Ocasio-Cortez has claimed that unemployment is low because everybody has two jobs (that’s not how it works), struggled to explain Israel’s occupation of Palestine, claimed that the “upper-middle class doesn’t exist anymore” (it’s actually growing) and wrongly accused Joe Crowley, the Democratic leader whom she defeated in an upset primary win, of plotting a third-party run against her (he wasn’t, and didn’t). And perhaps most memorably of all, Ocasio-Cortez told Chris Cuomo over the summer that Medicare for All would be much cheaper than the current system because the current health-care cost data don’t factor in the funeral costs for all those who die for lack of health care.
That’s right: Ocasio-Cortez’s health-care plan is so good, it’s going to stop people from dying. Now that’s something even libertarian venture capitalist Peter Thiel could get behind.
- Does China Have Enough Gold To Move Toward Hard Currency?
Authored by Alasdair Macleod via The Mises Institute,
Are the Chinese Keynesian?
We can be reasonably certain that Chinese government officials approaching middle age have been heavily westernised through their education. Nowhere is this likely to matter more than in the fields of finance and economics. In these disciplines there is perhaps a division between them and the old guard, exemplified and fronted by President Xi. The grey-beards who guide the National Peoples Congress are aging, and the brightest and best of their successors understand economic analysis differently, having been tutored in Western universities.
It has not yet been a noticeable problem in the current, relatively stable economic and financial environment. Quiet evolution is rarely disruptive of the status quo, and so long as it reflects the changes in society generally, the machinery of government will chug on. But when (it is never “if”) the next global credit crisis develops, China’s ability to handle it could be badly compromised.
This article thinks through the next credit crisis from China’s point of view. Given early signals from the state of the credit cycle in America and from growing instability in global financial markets, the timing could be suddenly relevant. China must embrace sound money as her escape route from a disintegrating global fiat-money system, but to do so she will have to discard the neo-Keynesian economics of the West, which she has adopted as the mainspring of her own economic advancement.
With Western-educated economists embedded in China’s administration, has China retained the collective nous to understand the flaws, limitations and dangers of the West’s fiat money system? Can she build on the benefits of the sound-money approach which led her to accumulate gold, and to encourage her citizens to do so as well?
China’s economic advisors will have to display the courage to drop the misguided economic policies and faux statistics by which she will continue to be judged by her Western peers. If she faces up to the challenge, China should emerge from the next credit crisis in a significantly stronger position than the West, for which such a radical change in economic thinking undertaken willingly is impossible to imagine.
Post-Mao Financial and Monetary Strategy
Following Mao Zedong’s death in 1976, the Chinese leadership faced a primal decision over her destiny. With Mao’s demise, the icon that forcibly united over forty ethnic groups was gone. It was the end of an era of Chinese history, and she had to embrace the future with a new approach. Failure to do so risked the fragmentation of the state through civil disobedience and would probably have ended in a multi-ethnic civil war.
Wise heads, which had observed the remarkable successes of Hong Kong and Singapore being driven by Chinese diasporas, prevailed. It was clear that in order to survive, the Communist Party would have to embrace capitalism while retaining political control. Mao’s nominated successor, Hua Gofeng, lasted no more than a year, being promoted upstairs out of harm’s way. It was his successor, Deng Xiaoping, who reinvented China. In the late-1970s, Deng, hating the Soviets for their involvement in Vietnam, reaffirmed the USSR as China’s main adversary. At this crucial point in China’s pupation she secured a strategic relationship with America by sharing a common enemy.
The seeds for the relationship with America had already been sown by Nixon’s first visit to China in 1972, so the Americans were prepared to help ease China into their world. Through the 1980s, the relationship opened China up to inward investment by American and other Western corporations, and there was a rush to establish new factories, taking advantage of a cheap diligent labour force and the lack of restrictive regulations and planning laws.
By 1983 it was clear that China’s central bank, the Peoples Bank (PBOC), had a growing currency problem on its hands, because it bought all the foreign exchange against which it issued yuan for domestic circulation. Inward capital flows were added to by the policy of managing the yuan exchange rate lower in order to stimulate economic development. Accordingly, as well as foreign currency management the PBOC was tasked with the sole responsibility of the state’s gold and silver purchases as a policy offset.1 The public was still banned from owning both metals.
In those days, China’s gold objective was simply to diversify her reserves. The leadership grasped the difference between gold and fiat money, just as the Arabs had in the 1970s, and the Germans had in the 1950s. It was prudent to hold some physical gold. Furthermore, Marxist economic theory taught in the state universities impressed on students that western capitalism was certain to fail, and that being the case, their fiat currencies would become worthless as well.
China’s secret accumulation of gold in the 1980s was also an insurance against future economic instability, which is why it was spread round the institutions that were fundamental to the state, such as the Peoples Liberation Army, the Communist Party and the Communist Youth League. Only a relatively small portion was declared as monetary reserves.
In the 1990s, inward capital flows were beginning to be supplemented by exports, and a new wealthy Chinese class was emerging. The PBOC still had an embarrassment of dollars. Fortunately, gold was unloved in Western markets, and bullion was readily available at declining prices. The PBOC was able to accumulate gold secretly on behalf of the state’s institutions in large quantities. But there was a new strategic reason emerging for buying gold, following the collapse of the USSR.
The end of the USSR in 1989 meant it was no longer America’s and China’s common enemy, altering the strategic relationship between the two. This led to a gradual change in China’s foreign relationships, with America becoming increasingly concerned at China’s emergence as a super-power, threatening her own global dominance.
These shifting relationships changed China’s gold policy from one where gold acted as a sort of general insurance policy against monetary unknowns, to its accumulation as a strategic asset.
Bullion was freely available, partly because Western central banks were selling it in a falling market. The notorious sale of the bulk of Britain’s gold by Gordon Brown at the bottom of the market was the public face of Western central banks’ general disaffection with gold. China was on the other side of the deal. Between 1983 and 2002, mine supply added 42,460 tonnes to above-ground stocks, when the West were net sellers.
The evidence of China’s all-out gold policy is plain to see. She invested heavily in gold mining and is now the largest national miner of gold by far. Chinese government refiners were also importing gold and silver doré to process and keep, and they set a new four-nines standard for one kilo bars. Today, China has a tightening grip on the entire global bullion market.
A decision was taken in 2002 by China to allow the public to buy gold, and the benefits of ownership were widely promoted by state media. We can be certain this decision was taken only after the State had accumulated sufficient bullion for its supposed needs.
China’s public has accumulated approximately 15,000 tonnes to date, net of scrap recycling, based on deliveries out of the Shanghai Gold Exchange’s vaults. Given the public is still banned from owning foreign currency, gold ownership should continue to be popular as an alternative store of value to the yuan, and currently between 150-200 tonnes are being delivered from SGE vaults every month.
Other than declared reserves, it is not known how much gold the state owns. But assessing capital flows from 1983 and allowing for the availability of physical bullion through mining supply and the impact of the 1980-2002 bear market, the PBOC could have accumulated as much as 15,000-20,000 tonnes before the public were permitted to buy gold. If so, it would represent approximately 10% of those capital flows at contemporary gold prices.
The truth is unknown, but we can be sure gold has become a strategic asset for China and its people. China must have always had an expectation that in the long-term gold will become money again, presumably as backing for the yuan. Otherwise, why go to such lengths to monopolize the global bullion market?
But there is a problem. As time goes on and a newer, western-educated generation of leaders emerges, will they still fully recognize the value of gold beyond being simply a strategic asset, and will they recognize the real reasons behind the West’s economic failures, given they have successfully embraced its economic and monetary policies?
Were the Chinese to take a turn toward hard-money policies, it is hard to see how the US could match a sound-money plan from China. Furthermore, the US Government’s finances are already in very poor shape and a return to sound money would require a reduction in government spending that all observers can agree is politically impossible. This is not a problem the Chinese government faces.
Whether China implements such a plan, one thing is for sure: the next credit crisis will happen, and it will have a major impact on all nations operating with fiat money systems. The interest rate question, because of the mountains of debt owed by governments and consumers, will have to be addressed, with nearly all Western economies irretrievably ensnared in a debt trap. The hurdles faced in moving to a sound monetary policy appear to be simply too daunting to be addressed.
Ultimately, a return to sound money is a solution that will do less damage than fiat currencies losing their purchasing power at an accelerating pace. Think Venezuela, and how sound money would solve her problems. But that path is blocked by a sink-hole that threatens to swallow up whole governments. Trying to buy time by throwing yet more money at an economy suffering a credit crisis will only destroy the currency. The tactic worked during the Lehman crisis, but it was a close-run thing. It is unlikely to work again.
[Adapted and shortened from the original.]
- Saudis Agree To Yemen Peace Talks – Ceasefire In Effect For First Time Since War's Start
The prospect for peace – or at least a lasting ceasefire – is advancing rapidly following a surprise weekend proposal by Yemen’s Houghis to halt all attacks on Saudi coalition forces. On Sunday the head of Yemen’s Iran-backed Houthi Supreme Revolutionary Committee Mohammed Ali al-Houthi, said “We are willing to freeze and stop military operations” — something which now appears to have taken effect, according to a breaking Reuters report.
In the biggest turning point in the war which has raged since 2015, Reuters confirms:
Houthi rebels in Yemen said on Monday they were halting drone and missile attacks on Saudi Arabia, the United Arab Emirates and their Yemeni allies, responding to a demand from the United Nations.
“We announce our initiative…to halt missile and drone strikes on the countries of aggression,” an official Houthi statement reads. Crucially, it appears this halt in fighting was precipitated by a Saudi agreement to the Houthi extension of an olive branch as according to the AFP Yemen’s internationally recognized Saudi-backed government says it has informed UN envoy Martin Griffiths it is ready to take part in proposed peace talks with Houthi rebels to be held in Sweden.
Pro-Saudi forces in Yemen, via Getty images “The [Saudi-backed Yemen] government has informed the UN envoy to Yemen … that it will send a government delegation to the talks with the aim of reaching a political solution,” Yemen’s pro-Saudi foreign ministry said, quoted by the official Saba news agency.
The development is of monumental importance and has broader geopolitical implications as crown prince MbS remains under international scrutiny following the early October killing of journalist Jamal Khashoggi. Following the murder at the hands of Saudi operatives the plight of millions of suffering Yemeni civilians under Saudi coalition bombs suddenly found its way into the media spotlight after the mainstream had long ignored the conflict, partly due to the fact that the United States and Western allies have played a lead role in the devastating bombing campaign.
On Monday Saudi King Salman told his country’s top advisory body, the Shura Council: “our support for Yemen was not an option but a duty… to help the Yemeni people confront the Iran-backed militias” — choosing to frame the ceasefire as if Riyadh has been on the side of “the people” the whole time. The King agreed there should be a “political solution” and a “comprehensive national dialogue” in Yemen, according to Reuters.
UN envoy Griffiths is expected to be in the Yemeni capital of Sanaa this week seeking to finalize preparations for peace talks in Sweden, though a date for the negotiations has yet to be set.
The broader picture is that the Saudis appear to be bowing to U.S. pressures over reducing the Saudi coalition’s actions and atrocities in Yemen as media and western public outrage builds in the wake of the Khashoggi killing.
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