DELUSION AND REALITY

2 December 2024

https://youtu.be/YD9ZD0DLUHQ?si=uNfLOQMD-MuFMe-V

Alistair Crooke argues that Washington clings to the "end of history" belief in eternal American hegemony, driven by a quasi-religious faith in liberal democracy as global salvation. He contrasts this narrative-driven Western mindset with the reality-driven approaches of Russia and China, predicting eventual crises unless compromise, humility, and realism are embraced.

Alistair Crooke makes a couple of interesting points. He says that the end of history theme (meme), following the collapse of the Soviet Union is still strong in Washington; and he also says that there is this quasi religious belief that the world is on an upward path towards salvation, salvation that only a liberal democracy can offer. Well, same thing said two different ways: American hegemony is eternal.

Or put it another way, the American military is the strongest in the world and America will prevail.

So this is a root of what we recognise as delusional thinking. Aswhere, reality is that we are in a multipolar world and we are getting back to the old idea of sovereign states, rather than being vassels of an American empire.

Maybe the Empire has another 10 or 20 years, if it continues down this road. Maybe more realistic is to think that it would be possible to negotiate a few compromises and prolong that hegemony, just by sharing a bit, by listening, by conceding something to a common good.

Anyway... It's the usual argument that we are familiar with, which is that the west is narrative-driven while russia and I guess china are reality-driven.

On the one hand, we have "the art of the deal" Trump who thinks that you can go in and start shaking sticks, and then in this atmosphere of fear, cut a deal 

And yet there's also the hope that Trump will permit some debate i.e. listen and understand the point of view of the other side, ie introduce a glimmer of reality.

More likely is that there is all this excitement and hope that Trump will overcome and solve our problems, and then there'll be the honeymoon period.

But by Q225, imho, we'll find ourselves back in crisis with the realisation that debt and the deep state are still there and that, actually, Trump is their new spokesperson, that's all.

The trouble with soaring on the wings of your dreams is that you risk getting burnt and the only place you have to land, is in the sea of reality!

Bit gloomy? Happy Christmas!

Read More

THE RETURN OF UK INFLATION

20 November 2024

With update 21 November 2024

Return of Inflation in the UK

1. Introduction

The recent UK Budget has introduced policies likely to rekindle inflationary pressures, threatening the current downward trajectory of consumer price inflation (CPI).

Bank of England Governor Andrew Bailey warns that Budget measures could delay further rate cuts and stoke inflation.

2. Key Inflationary Drivers

a. Corporate Cost Pressures

Businesses, particularly in labour-intensive sectors, face higher costs due to:

National living wage increases.

Employer National Insurance Contribution (NIC) rate hikes.

Impact:

Companies like BT, Sainsbury’s, and JD Wetherspoon are expected to raise prices to offset increased payroll costs.

Suppliers may pass on cost increases, amplifying inflationary pressures.

b. Wage Growth

Wage growth remains strong at 4.8% in the private sector, well above the target of 2–3%.

Public sector pay increases further push average earnings upward, influencing private sector pay negotiations.

c. Public Spending

Increased government spending on hospitals, schools, and public services is deemed inflationary:

The Office for Budget Responsibility (OBR) predicts a 0.5% rise in CPI due to Budget policies.

3. Changes to Rate Cut Expectations

Pre-Budget forecasts of a 4% base rate by mid-2024 have been revised upward, with rates now expected to fall more gradually:

Analysts at Pantheon Macroeconomics foresee rate cuts occurring quarterly instead of at every meeting.

Berenberg estimates the terminal rate to be 4.25% by Q2 2024.

Capital Economics increased its 2026 CPI forecast from 2% to 2.2%.

4. Additional Pressures

External risks, such as US election outcomes and potential trade wars, could exacerbate inflationary pressures.

A weaker sterling may contribute to imported inflation, further complicating the Bank of England’s policy decisions.

5. Conclusion

The Budget’s fiscal policies, while aimed at boosting public spending and wages, risk reversing recent progress in controlling inflation.

Analysts and market observers caution that the Bank of England may slow down or halt rate cuts, prioritising inflation control over economic stimulus.

Update 21 November 2024

Yes, it's difficult to get a handle on what's going on. But basically, before the budget, the data said that inflation was on the way down, then along came the budget,

- up go employers' national insurance contributions and the minimum wage, and this will translate through into higher prices

- then wages are still on the rise and for a few very interesting reasons. Main one being the hangover from covid

- and the government is going to spend more on infrastructure, so it says.

And the consequences are to push inflation up. But over the next year or so, the Bank of England should get it back down, so that by 2026, it will be near 4.5%.

But take a careful look at that graph. The forecasts made in March and then there's the new forecast made after the budget.

What do you read for 2026?

Of course, economists are always wrong and no one is worse than the Bank of England...

Read More

THE FUTURE UNDER TRUMP

20 October 2024

The day of the Donald - how America ducked oblivion

Europe

Sean Foo in his prog this week, states the blimmin obvious: the only way europe can survive is if it turns back on the nordstream pipelines.

He goes on to say, rather optimistically, that this would have as a consequence a rise in the energy costs for china and thus bring european goods, relatively speaking, into a more competitive position.

Hmmmmm ... first of all, try persuading russia to undo all its re-architecturing, and in the face of what must be extreme bitterness towards the EU, start re-supplying europe with cheap energy. 

I don't think so.

America

America, on the other hand, looks like under trump might concentrate on increasing the output of its manufacturing sectors, ie rebalance away from financials, which did well over twenty years of cheap money, into production of goods. 

How did China lift those hundreds of millions out of poverty? 

Nixon's 1972 visit to China re-opened diplomatic channels. Then it was under Carter in 1979 that Deng Xiaoping got agreements for economic cooperation between US and China.

The deal was that corporate america could invest in china, where labour costs were very much lower, and in return, china could sell to the american middle class. (China also insisted that foreign companies had to partner with a local and that there must be technology transfer.)

The result was that America lost its manufacturing base, gained the deplorables, switched into consumerism and financials, and lost its IP advantage 

An American recovery

And now under trump will hack the problem with massive tariffs, to encourage the outsourced to in-source back into american manufacturing, if they want to sell to the world's greatest consumer market.

So this might be the way that america retains its top spot as World No. 1 Hegemon, leaving europe and china in its wake, not in physical ruin by war this time,  but in financial ruin by tariffs. (Trump doesn't like making war, it's so bad; he prefers to ruin competitors by making deals, it's so good).

Trump, grandpa of the nation

This article takes absolutely no account of the rise of the BRICS. Doesn't look at the effects of a trump win or massive sanctions on the markets. Doesn't consider the situation where america has lost its top spot, but will not be replaced by china alone, but rather a West v. The Rest; or a more pluralistic world Order with no dominant grouping..

Read More

DOLLAR DOWN, CURRENCIES DECOUPLING

27 September 2024

Gold has been rising in US dollar terms but since April of this year has remained relatively stable or within a trading range when priced in BRICS and Global South currencies. To understand why, we need to understand the causes of dollar weakness and the attractions of gold in times of uncertainty.

As I interpret this graph, the price of gold in dollar terms is going up, on its way soon to $3,000, some say. 

This while the dollar, as measured against a basket of currencies (DXY), is weakening. This would likely be due to falling interest rates, But equally with the death of 35 trillion and interest payments Of over a trillion a year this cannot instill confidence in lenders Who were likely to ask for a greater risk premium, surely. 

Notice the decline since April this year. Gold, which pays nothing, becomes more attractive - this was the moment when rate cuts began to be talked about seriously. Also the time when the BRICS started talking about creating some alternative reserve currency and began moving towards de-dollarisation in their trading, especially after the geopolitical shifts caused by the Russia-Ukraine war.

Normally, currencies follow the dollar: 70-80% of int.l contracts are written in USD and staying more or less pegged keeps income and expenses in balance and avoids importing inflation. But we can see that the currencies of some countries of the global South are decoupling. Same against sterling. 

Maybe their central banks, for the reasons we know about, are buying gold instead of dollars, as a place to store their surpluses. This would reduce their dependence on the dollar. Rising commodity prices and moves up the value chain into refining could also be expected to strength and their currencies.

For countries that buy gold, priced in dollars, and are decoupling, this means gold is effectively cheaper, encouraging more purchases, raising demand. 

The United States is using the world's reserve currency (70-80% of int.l contracts are written in USD) as a tool of foreign policy. Countries taking this coercion as an infringement on their economic sovereignty would be looking at alternatives.

Having said that, in times of uncertainty from inflation or geopolitical tensions, these same countries would still seek a refuge in the dollar for some stability and certainty.

So while the dynamics of falling US rates, inflation and global uncertainty are driving up the price of gold in dollar terms, the impact on currencies of the BRICS nations is different. The weakening dollar offsets the rise in gold prices, keeping the price of gold in local currency terms relatively stable, in a trading range. This is the case since April, when talk of reducing interest rates began, even though it appears to be hitting all-time highs in dollar and sterling terms.

Conclusion

So while gold has surged in US dollar terms, this has not been mirrored in many BRICS and Global South currencies. The relatively stable prices in these currencies can be explained by stronger local currencies, better inflation control, and reduced dependence on the dollar. The turning point around April 2023 seems likely tied to shifts in both US monetary policy expectations and global de-dollarisation trends.

Read More