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Politics & Religion / Stratfor: The future of cryptocurrencies
« on: August 22, 2019, 09:53:55 PM »

The Future of Cryptocurrencies
By Ksenia Semenova

A visual representation of bitcoin on display on April 3, 2019, in Paris.
(CHESNOT/Getty Images)
Contributor Perspectives offer insight, analysis and commentary from Stratfor’s Board of Contributors and guest contributors who are distinguished leaders in their fields of expertise.


    Cryptocurrencies hold tremendous potential as an alternative over traditional banking, but they deeply concern many governments, including lawmakers in the United States.
    Growing geopolitical instability will increase the desire for a decentralized nonsovereign digital currency no matter what the United States wants. And interest in digital assets can increase when a country such as Zimbabwe is undergoing economic upheaval.
    But as developments in the Marshall Islands and elsewhere indicate, cryptocurrencies need not be nonsovereign, nor have benefits limited to individuals.

More than 10 years since the first bitcoin transaction in January 2009, and almost two years since a speculative spike pushed the price per bitcoin to almost $20,000, cryptocurrencies are moving beyond cypherpunks and anti-government culture into the world of governments and traditional institutions. The transition is impossible to ignore. While some governments, central banks and financial companies see cryptocurrencies as a threat, others want to harness the advantages they offer. And some governments see cryptocurrencies as a way to save their own struggling economies.

To understand whether nonsovereign currencies can serve as a default currency and what threat they pose to governments or how beneficial they might become, it's useful to examine some of the most interesting geopolitical and corporate use cases available.

United States

The media outlets that specialize in cryptocurrency magnify, at least momentarily, the importance of any news concerning blockchain and bitcoin, Ethereum and other digital currencies. The problem is, the rest of the world often has trouble understanding what's what or is confused about what developments in that realm mean.

That's what happened in May when U.S. Rep. Brad Sherman of California urged his colleagues to "nip bitcoin in the bud." Sherman pointed out that "an awful lot of our international power comes from the fact that the U.S. dollar is the standard unit of international finance and transactions. It is the announced purpose of the supporters of cryptocurrency to take that power away from us, to put us in a position where the most significant sanctions we have against Iran, for example, would become irrelevant. So, whether it is to disempower our foreign policy, our tax collection enforcement or traditional law enforcement, the advantage of crypto over sovereign currency is solely to aid in the disempowerment of the United States and the rule of law."

The cryptocurrency community reacted to Sherman's remarks swiftly, generally equating them to the opinion of the whole of the U.S. government. Investor, influencer and podcaster Anthony Pompliano reminded readers of his Off the Chain blog that Sherman wasn't as ignorant of nonsovereign currencies as some of their defenders were claiming and instead "knows exactly what is happening. He sees the increased probability that we are moving to a world where nonsovereign currencies are the default, and it sounds like he is scared." But what Sherman doesn't understand, Pompliano wrote, is "the improbability of being able to ban ownership of these decentralized digital currencies. The laws could be created but they would be nearly impossible to enforce." Groups on Telegram, the instant-messaging platform of choice for most blockchain companies and for discussions related to cryptocurrencies, vigorously debated whether U.S. officials had declared cryptocurrencies an existential threat to the United States' global financial dominance or not.

The mainstream media reacted more modestly — when it reacted at all. Bloomberg, The New York Times and The Washington Post, for example, did not report about Sherman's statement. To try to say why would be nothing more than a guess. The position of the U.S. dollar in the global economy remains solid. But by imposing sanctions on Russia, Venezuela and Iran, and by deepening its trade war with China, the United States has motivated those countries and others to attempt to find a substitute for the dollar.

Other recent cryptocurrency news couldn't be ignored. Widespread attention greeted Facebook's announcement in June that it will launch a proprietary cryptocurrency, Libra, in 2020. Libra will be a so-called stablecoin, a digital asset backed by a basket of international currencies, such as the dollar, euro and yen. Facebook has formed the Libra Association to oversee the cryptocurrency's development and governance. The Libra Association will be based in Geneva, Switzerland, and will be run as an independent, not-for-profit organization with more than two dozen founding partners, including Mastercard, Visa, PayPal, eBay, Uber, Lyft, Spotify, Vodafone and Coinbase.

By imposing sanctions on Russia, Venezuela and Iran, and by deepening its trade war with China, the United States has motivated those countries and others to attempt to find a substitute for the dollar.

Opinions vary. Despite Facebook's privacy failures and monopoly superpower, the cryptocurrency community sees Libra's potential to drive global acceptance of nonsovereign currencies. Meanwhile, Chris Hughes, a Facebook co-founder who has been critical of the company's recent decisions, worried in a Financial Times op-ed that a currency like Libra "could threaten the ability of emerging market governments to control their monetary supply, the local means of exchange, and, in some cases, their ability to impose capital controls." Lawmakers and central bankers are wary, too. U.S. Rep. Maxine Waters, chairwoman of the U.S. House Financial Services Committee, asked Facebook to stop Libra's development until it can clarify questions about potential privacy violations concerning consumer data. Numerous questions during a U.S. Senate Banking Committee hearing on July 16 centered on whether Facebook can be trusted to run its own cryptocurrency. Central bankers in the United Kingdom, France, Germany and Australia agreed with their U.S. counterparts that Libra must answer many regulatory questions to ensure it will not jeopardize financial systems or be used to launder money.

News about Facebook's plans has played out well for bitcoin so far. Bitcoin's value remains volatile, but as a decentralized currency beyond the control of governments or corporations, bitcoin suggests new options for countries tired of the dollar's dominance. Growing geopolitical instability will increase the desire for a decentralized currency infrastructure no matter what the United States wants or whether Facebook succeeds with Libra.


Russian authorities have given mixed signals about cryptocurrencies. On the one hand, for example, there have been reports that Russia is exploring the creation of a gold-backed cryptocurrency; on the other, there have been statements by Elina Sidorenko, chairwoman of the State Duma's cryptocurrency group, that "the Russian Federation is simply not ready to combine its traditional financial system with cryptocurrencies. And to say that this idea can be implemented in Russia for at least the next 30 years is unlikely." Russian officials have also leveled the usual accusations about money laundering, tax evasion and supporting terrorism against the use of bitcoin and other digital currencies.

During his annual televised "Direct Line" with the public in June, President Vladimir Putin was asked if Russia would have its own cryptocurrency. "Russia cannot have its own cryptocurrency by definition — just as any other country cannot have its own cryptocurrency," Putin said. "Because if we are talking about cryptocurrency, this is something that goes beyond national borders." He added that the government treats issues like mining cryptocurrency "very carefully," even if they aren't yet regulated, and said that "the central bank believes that cryptocurrency cannot be a means of payment, settlements, cannot be a means of accumulation, and they are not secured in any way." But Putin also said the Russian government was carefully analyzing this "phenomenon" to understand how it can participate and use it.

The rate of adoption of bitcoin and other cryptocurrencies is rather low in Russia, and a year of official bearish sentiment toward them combined with the country's economic struggles has decreased Russian interest in cryptocurrencies. But interest in using blockchain and digital assets can increase when a country is undergoing a social-economic ordeal. Such is the case with Zimbabwe.


Many Zimbabweans are tech-savvy despite the country's poor technological development, and many have embraced bitcoin. The country's hyperinflation is one factor behind that trend. The government abandoned its national currency after a trillion-Zimbabwean dollar note was introduced in 2009, allowing the use of foreign money, including the U.S. dollar, euro and South African rand. (Zimbabwe reintroduced the Zimbabwean dollar this year and enacted other fiscal changes that have reinforced interest in bitcoin.) This decision, in turn, created other problems such as shortages of foreign cash. To address that problem, the government tightly controlled the amount of U.S. dollars available for withdrawal. So, Zimbabweans started to look for ways to control their money without government restrictions. For many, bitcoin, delivered by Zimbabwe's cryptocurrency exchange Golix, was the answer.


With an inflation rate above 50 percent, a falling peso and tumbling markets, Argentines (at least those in the tech industry) have shown an increased interest in bitcoin and other digital currencies. So has the government. In March, Deputy Finance Minister Felix Martin Soto said the Argentine government should use cryptocurrencies and blockchain technology to reduce the country's demand for U.S. dollars and encourage global investment. (Half of Argentina's population doesn't have bank accounts and prefers to keep savings in dollars.) President Mauricio Macri has met with cryptocurrency investor and advocate Tim Draper, who argues that Argentina could disrupt the devaluation of the peso and other economic problems by embracing blockchain and legalizing bitcoin. The Argentine government has co-invested in blockchain projects and promoted the use of bitcoin to sell exports. (In February, for example, Argentina sold pesticides and fumigation products to Paraguay, settling the transaction using bitcoin.) Though the cryptocurrency may be volatile, it's less volatile than the Argentine peso and other South American sovereign currencies, which makes it an attractive alternative.


Venezuela is the first country to introduce its own cryptocurrency, El Petro. Venezuela's traditional currency, the bolivar, has become practically worthless as the country's economy has spiraled downward. But economic despair can encourage bitcoin adoption and Venezuelans, motivated by the country's strict capital controls, instability and financial insecurity, have turned to cryptocurrencies, which are more stable than the hyperinflated bolivar and can be fully owned.

Petro, supposedly backed by Venezuelan oil assets, also should be more stable than the bolivar and help Venezuela weather U.S. sanctions and its economic crisis. So far, it hasn't worked out as promised. Experts criticize Petro for lacking transparency and global exposure, and for it being fully centralized with all control in the government's hands. For instance, whether or not Venezuelan oil actually backs it remains an unknown. U.S. officials have warned that Petro is a "scam" perpetrated by President Nicolas Maduro's government to undermine democracy in Venezuela. There is little evidence of Petro's actual use. As Reuters reported last year, it's not traded on any major cryptocurrency exchange and apparently, no shops accept it. Meanwhile, bitcoin usage continues to grow in Venezuela.

Marshall Islands

Real progress with a decentralized sovereign cryptocurrency — and a positive and promising use case — is being made in the Marshall Islands. Last year, the Pacific nation announced its plan to create an independently governed digital currency called the Sovereign (SOV). In June, the government said it has established a not-for-profit organization to develop and manage the SOV, which will circulate alongside the U.S. dollar, the currency currently in use in the Marshall Islands. A decentralized, government-supported cryptocurrency designed with transparency and security can become an important point of adoption. Success in the Marshall Islands might prove that cryptocurrencies can substitute for the U.S. dollar.

Whither Cryptocurrencies?

When government control over currency is too tight, disaster can follow. A famous example of this occurred on Sept. 16, 1992, when George Soros and other speculators took advantage of an overregulated British pound to short the currency. The pound collapsed, and the United Kingdom was forced to withdraw from the European Exchange Rate Mechanism, which was designed to stabilize European currencies. Meanwhile, "breaking" the Bank of England reportedly earned Soros more than $1 billion in a single day. For a contemporary example, consider Venezuela. Its government's tight control over the economy has fostered inflation so intense that Venezuelans become poorer every minute. The International Monetary Fund projected that Venezuela's inflation rate could reach 10 million percent by the end of the year.

Cryptocurrencies don't need to be non-sovereign, with their benefits limited to individuals. Countries can benefit, too.

Instability and uncertainty stir distrust in government. And for many who feel excluded from a central financial system, who lack economic opportunity or have no banking account (more than 1.7 billion adults remain unbanked worldwide), or resent third parties chewing into their profits, a currency that doesn't depend on a government or authoritative leader, and which allows anonymity, simplifies transactions and minimizes third-party interference, is appealing.

Government concerns about cryptocurrencies are understandable. They are a new form of money not limited by national borders or controlled by central banks. They conjure visions of individual control over earnings, investments and transactions free of government interference. But they don't need to be nonsovereign, with benefits limited to just individuals. Countries can benefit, too. For small countries like the Marshall Islands, Malta or Estonia, establishing a proprietary sovereign cryptocurrency or adopting bitcoin as the main currency can be a means of attracting innovative companies and entrepreneurs, which in turn can boost economic and technological development.

Still, in their early stages of development and acceptance, cryptocurrencies hold tremendous potential as an alternative to traditional banking. It seems inevitable they will only gradually strengthen that position.

Politics & Religion / Stratfor: A decisive moment draws nigh
« on: August 22, 2019, 09:47:25 PM »
A Decisive Moment for China Draws Nigh
The 2019 Beidaihe meeting of Chinese officials was thought to have started on Aug. 3.
(SIMON SONG/South China Morning Post via Getty Images)


    Following this year's annual gathering of political elites in Beidaihe, China’s response to the ongoing protests in Hong Kong, as well as the next phase of its trade war with the United States, could soon take shape.
    China's tougher stance in trade negotiations is likely an attempt by its leaders to appear strong against Washington — the country's most formidable external threat for the foreseeable future.
    That approach risks drawing even more U.S. trade salvos, which could further damage China's already slowing economy and increase the likelihood of social instability in the country's wealthier coastal and urban areas.
    Domestic economic and political unease will compel China to further solidify control over its buffer regions, a driver that could tempt Beijing to directly intervene in Hong Kong's political crisis.

Nearly 70 years after its founding, China has once again found itself at a historic crux. As Beijing's rivalry with the United States grows increasingly hostile, its future relations with Hong Kong hang in the balance — all while the country grapples with an economic slowdown that risks blunting 30 years of unrestrained expansion. Suffice it to say, China's political leaders had their plates full when they gathered in Beidaihe this year for their annual meeting, which reportedly just wrapped up.

But while China has faced similar internal threats over the decades, its leaders are unlikely to find answers in precedent this time around. And that's because the economic and political challenges the country faces today are occurring in a vastly different domestic context. Any speculation or leaks from this year's summit won't cover all the solutions to the complex challenges Beijing's leaders now face both at home and abroad. But any decision made behind closed doors during the summer retreat could very well dictate not only China's trajectory in the coming decade but also the rest of the world's.

The Big Picture

For decades, the summer resort of Beidaihe, about 300 kilometers (186 miles) east of Beijing, has served as the site of numerous historical decisions — as well as a microcosm of factional struggles among China's ruling elite. Amid Hong Kong protests and a trade war with the United States, coupled with a 30-year ebb in economic growth, this year's meeting took place at a particularly crucial moment for the world's second-largest economy. 

A Perfect Storm

The U.S.-China trade war — punctuated by a cycle of negotiation, truce and retaliation — recently entered its 18th month. Since the last round of talks broke down in late April, Beijing has notably hardened its negotiating position. China, for example, has frozen its purchases of U.S. agricultural goods until Washington extends export licenses or reduces controls on the Chinese tech giant Huawei Technologies. But such a stringent position risks further escalating the trade war — the effects of which have already taken a sizable toll on China's domestic economy. This raises the question of whether Chinese leaders will be able to maintain their tough stance without exacerbating the country's economic slowdown.

Even with the trade war bubbling in the background, the unfolding situation in Hong Kong undoubtedly garnered its share of attention in Beidaihe. Protests — drawing anti-government demonstrators and members of radical and more violent cells to Hong Kong's streets — have entered their third month with no immediate end in sight. The demonstrations, sparked by the city's now-tabled extradition bill, have evolved into a symbol of Hong Kong's anxiety over deepening economic and cultural integration with China, mixed with antagonism over Beijing's tightening political influence there.

That said, the prospects of seeing an independent Hong Kong in the near future remain unlikely. But the ongoing protests nonetheless risk undermining the city's 50-year transition under China's one country, two systems policy. At the bare minimum, Chinese leaders will have to figure out some sort of short-term solution to quickly de-escalate the volatile issue — ideally before the People's Republic of China celebrates its 70th anniversary on Oct. 1. But the high-profile and unrelenting unrest will also continue to pose critical questions about what red line must be crossed before Beijing ultimately takes matters into its own hands and directly intervenes.

More Money, More Problems

Compared with other eras, China's current economy is in much better shape. After all, both the massive push to reform state-owned sectors in the late 1990s and the global financial crisis in 2008 put tens of millions of Chinese citizens out of work. And even the most pessimistic estimates project that the costs of the current trade war will pale in comparison to those inflicted by post-1989 international sanctions, which virtually isolated China from Western economies for more than a year.

There's only so much more that China's cooling economy can absorb before U.S. tariffs begin to generate greater domestic pressure.

Unlike past economic crises, though, the issue this time around won't be the scope of the damage itself, but rather how that damage is perceived by the country's now wealthier population — and whether that perception leads to a significant backlash against the government. China's economic transformation over the past 30 years has made its citizens more affluent, on the whole, than they've ever been. But that also means they'll be much less tolerant of any disruptions of the lifestyles to which they've grown accustomed. Thus, should China's economic slowdown start to directly affect jobs and pocketbooks, it could increase the likelihood of social instability — particularly in the country's urban and coastal economic hubs — by bringing brewing political grievances to the surface.

Keeping Up Appearances

Beijing's tougher stance in trade talks could risk making that a reality by drawing further retaliation from the United States — something Chinese leaders surely want to avoid. But at the same time, with their global rivalry only set to grow, Beijing's current position against Washington could very well set the tone for how the country will be perceived — and positioned — as international power shifts in the coming decades. And thus, the Chinese leadership will hesitate to let down its guard for fear of appearing weak against the United States.

China's political leaders have always been highly sensitive to perceived external threats, even when internal challenges linger. This mindset likely stems from an astute understanding of the difficulties that come with ruling such a geographically massive and socially diverse country whose position also makes it uniquely vulnerable to outside influence.

There's a chance, then, that Beijing will bet on its authoritarian strength and still-intact nationalist support to give it room to maintain its hard line against the United States. But with more U.S. tariffs set to take effect Sept. 1., and more trade pressures likely to follow, there's also only so much more that the country's already cooling economy can absorb before the repercussions start to generate greater domestic problems.

Peripheral Power Grabs

Meanwhile, China's economic slowdown is propelling its leaders to diversify trade routes and develop new financial footholds in more remote regions of the world. Combined with the subsequent risk of domestic social instability, this outreach will compel Beijing to grasp its buffer regions even tighter.

This could increase the likelihood of Beijing intervening in Hong Kong's political crisis, should the situation continue to escalate before the national day in October. But in the longer term, it also means that Beijing will likely further tighten its already heavy security and surveillance regimes along its Western periphery. For decades, China had pursued a much more hands-off approach to Tibet and Xinjiang's incremental assimilation. But the need to develop its peripheral states amid economic restructuring has worn Beijing's patience thin — hence its decision to pursue a more ruthless and discriminatory approach in recent years, including the establishment of re-education camps. And as external and internal threats continue to rise, ensuring that these two historically restive buffers remain firmly under control will become all the more important to Beijing.

With Bated Breath

The measures Beijing takes in response to these challenges will undoubtedly have significant implications for China and elsewhere. And as a result, the importance of this year's Beidaihe summit has been elevated. For decades, the rumored policy and personnel decisions made at the private gathering have closely intertwined with the country's political path. Many of its key national strategies — including the Great Leap Forward, the hallmark economic and social campaigns of the Mao era — had their genesis at Beidaihe.

Over the intervening years, the annual meeting had become more of an informal forum. But at a time when so much affecting China's future remains in flux, the world will be waiting with bated breath to see what decisions the elite leaders made to respond to the myriad challenges that lie at their feet.

Politics & Religion / WSJ: Saladin
« on: August 21, 2019, 12:42:27 PM »

The Life and Legend of the Sultan Saladin’ Review: A Portrait of a Champion
The legend of Saladin as an ideal Quranic leader who fought back invaders remains a potent symbol in the Islamic world’s public memory.
By Christopher Tyerman
Aug. 20, 2019 6:45 pm ET

Until the 21st century, Salah al-Din Yusuf ibn Ayyub (Righteous of the Faith; Joseph, son of Ayyub), known in Europe as Saladin, was probably the most famous Muslim in Western culture after the Prophet Muhammad himself. The historical reputation of Saladin (1137-93) rests on a few celebrated achievements, each recounted and analyzed in Jonathan Phillips’s learned and engaging biography. He created a new Near Eastern empire that united Egypt with Syria, in the process suppressing the heretical (to orthodox Sunni Muslims) Shiite Fatimid caliphate in Cairo (1171); he recaptured Jerusalem for Islam (1187), defeating Christian rulers who had held the city since the First Crusade in 1099; and he resisted the massive Third Crusade (1188-92) led, in part, by Richard the Lionheart.
Photo: WSJ
The Life & Legend of the Sultan Saladin

By Jonathan Phillips
Yale, 478 pages, $32.50

Saladin’s legendary status was burnished early on by elaborate Western fantasies that emphasized his supposed chivalric qualities of bravery and mercy, and in later fictions from Walter Scott ’s “The Talisman” (1825) to the movie “Kingdom of Heaven” (2005), which similarly portray him as a worthy opponent. These depictions employ Saladin as a sophisticated, tolerant, just and generous cipher, intended to contrast with Western leaders’ supposed narrow-minded aggression or myopic enthusiasm. This anachronistic rebranding of an archenemy into an icon of praiseworthy rule is only equaled, perhaps, by the admiration some have for Napoleon Bonaparte.

In the Islamic world, Saladin’s actual achievements were also, if less tendentiously, refashioned to create a lasting portrait of a champion of Muslim tradition and power, a hero who successfully overcame heretics and infidels. The image of Saladin as the ideal pious Quranic leader remained a potent symbol in regional public memory, serving as an abiding challenge to politically divisive or corrupt local rulers. As Western powers encroached on the eastern Mediterranean over the last two centuries, he also came to be seen as the epitome of resistance for proponents of Arab unity and independence, from secularists such as Gamal Nasser, Hafez Assad or Saddam Hussein to the religious radicals of the Muslim Brotherhood, al Qaeda and Islamic State.
Portrait of Saladin. Photo: Bridgeman Images

Thus there are two Saladins, the 12th-century ruler and the equally historical subsequent political and literary invention. Not the least virtue of “The Life and Legend of the Sultan Saladin” is Mr. Phillips’s wide-ranging scrutiny of both. Saladin’s achievements as a Kurdish mercenary captain who founded an empire are startling on any scale—the result of skill and luck, as well as the fluid political and social setting of the 12th-century Near East, which Mr. Phillips captures well.

Inevitably Saladin has inspired many previous scholarly biographies, most recently a rich investigation of evidence by Anne-Marie Eddé (2008), translated from the French by Jane Marie Todd in 2011. Unlike his predecessors, however, Mr. Phillips is not an Arabist; he is a professor of history at Royal Holloway, University of London. Nonetheless, aided by existing translations and new ones (not least those of his former research pupil Osman Latiff ), Mr. Phillips has fruitfully extended the range of Arabic source material to create a rounded portrait of Saladin’s world, often sketched in sharp, unexpected detail.

The author makes telling observations on the importance of Saladin’s Ayyubid family, particularly the loyalty of his father (Ayyub), brother (al-Adil), and nephew (Taqi al-din), who all held land and power under him. His speculations on Saladin’s psychological and physical state in his exhausting final years are finely judged, drawing on biographies by the sultan’s intimates. The taxing bodily burdens of life as politician, administrator, ruler and warrior come across well, and the picture is lent immediacy by Mr. Phillips’s own travels in the region, from the sands around Acre to Saladin’s mausoleum in Damascus.

Mr. Phillips draws in the reader with vivid accounts of people, places and events, relying on apt quotation from primary sources of scenic descriptions and direct speech. Yet the unwary might miss a central difficulty: Much of the biographical material about Saladin was composed after his success by apologists following formal patterns to create an image of an ideal prince, or was written many generations later. More generally, it is a bit odd that a third of Mr. Phillips’s biography is dedicated to the climactic confrontation with the Franks and crusaders between 1187 and 1192—well-trodden territory in which Mr. Phillips can excavate little new. This account also underplays the important effects within the Islamic world of Saladin’s suppression of the Shiite Fatimids.

The picture that emerges of the historical Saladin is admiring. Mr. Phillips sidesteps what he calls the “eternal dilemma” of seeing Saladin either as a pious holy warrior or a grasping dynast, a paragon of sanctity or of selfish ambition. The two are not mutually exclusive. Because he was a Kurdish upstart, Saladin needed to wrap himself in the aura of holy warrior and upholder of orthodox Islam. It justified his own usurpation of power and lent respectability to followers of previous regimes who were changing allegiances.

All medieval rulers lived their lives—domestic no less than official—in public. Saladin’s austere, Quranic lifestyle, even if gilded by his eulogists, could be seen as a necessity; it hardly opens a window into his soul. After all, he failed to complete the Hajj, sending a proxy, and spent most of his career fighting fellow Muslims (Sunnis as well as Shiite). Only after the capture of Jerusalem did the mission to expel the Christians—with whom he previously had made a series of alliances—appear an inevitable trajectory.

Mr. Phillips’s book concludes with an innovative and sweeping final section on posthumous images of Saladin, demonstrating precisely how memories of the past are unfixed and easily manipulated. He has been recast as everything from a chivalrous knight to a tolerant gentleman of the Enlightenment to a modern jihadist fighter. Whatever the truth behind this image-making, Saladin’s was a truly astonishing career, one to which Mr. Phillips does justice.

Mr. Tyerman is a professor at the University of Oxford and the author, most recently, of “How to Plan a Crusade.”

Espanol Discussion / GPF: Zapatistas extend authority in Chiapas
« on: August 21, 2019, 12:25:35 PM »
Competing for control in Mexico. The Zapatista Army of National Liberation, a Mexican militia that controls large swaths of territory in Chiapas state, claimed that it extended its authority to 11 more zones in Chiapas, giving it a total of 43 areas of control. Mexican President Andres Manuel Lopez Obrador responded cautiously, saying the expansion was welcome so long as it was not violent. Domestic security is still a challenge for Mexico, as self-defense groups like the Zapatistas have created obstacles to restoring order in certain parts of the country. Chiapas is also a key part of the route for migrants heading north from Guatemala, and maintaining control of the area is critical to controlling the flow of migrants.

Politics & Religion / GPF: Zapatistas extend authority in Chiapas
« on: August 21, 2019, 12:24:46 PM »
Competing for control in Mexico. The Zapatista Army of National Liberation, a Mexican militia that controls large swaths of territory in Chiapas state, claimed that it extended its authority to 11 more zones in Chiapas, giving it a total of 43 areas of control. Mexican President Andres Manuel Lopez Obrador responded cautiously, saying the expansion was welcome so long as it was not violent. Domestic security is still a challenge for Mexico, as self-defense groups like the Zapatistas have created obstacles to restoring order in certain parts of the country. Chiapas is also a key part of the route for migrants heading north from Guatemala, and maintaining control of the area is critical to controlling the flow of migrants.

Politics & Religion / EDJ: Forked Tongue Warren's crisis has arrived
« on: August 21, 2019, 10:05:29 AM »

Elizabeth Warren’s Crisis Has Arrived
She claimed taxpayers would profit from the scam that helped make her rich.
By James Freeman
Aug. 21, 2019 12:52 pm ET
Presidential candidate Sen. Elizabeth Warren (D., Mass) at Macalester College in St. Paul, Minnesota on Monday. Photo: craig lassig/Shutterstock

Sen. Elizabeth Warren’s past claims of minority status may not be the most embarrassing fraud she’ll have to explain as she continues to seek the Democratic presidential nomination. A Journal editorial outlines the scale of a Warren-backed disaster that is goring taxpayers even as it has helped the Massachusetts lawmaker accumulate a small fortune.

Sen. Warren has done as much as anyone in Washington to support the taxpayer-financed bubble in higher education by serially demanding expansions in student loans and pretending the government would make money off the program. But now the cost to taxpayers—including those who never went to college— is getting too big to ignore. A report from the Federal Reserve Bank of New York notes the disturbingly high delinquency rates on student loans compared to other types of debt.

The senator made headlines recently by predicting an economic crisis. But the crisis has already arrived for taxpayers—and her fingerprints are all over it. The Journal explains:

    About 10% of the $1.5 trillion federal student-loan portfolio is 30 days or more past due. Another 20% is in deferment or forbearance, and about 30% is in income-based repayment plans that allow most borrowers to cap monthly payments at 10% of discretionary income and discharge the remaining balance after 20 years or 10 for folks in “public service.”

Sen. Warren spent years demanding more subsidies and claiming that taxpayers would make a fortune off student loans. But it was all based on fraudulent Washington accounting that would land private financiers in prison. The Journal adds:

    Using fair-market accounting that prevails in the private economy, CBO now projects a $306.7 billion cost to taxpayers over the next 10 years. The red ink will be far worse beyond that 10-year budget window.

Federal administrative costs are also running at more than twice the level promised by Washington. “The government’s overhead tab this year was $2.9 billion,” notes the Journal.

The editorial also helpfully notes that because of the many ways politicians like Ms. Warren have created to let borrowers avoid payment, even non-delinquent borrowers can still contribute to a taxpayer fleecing:

    As long as borrowers are making de minimis monthly payments on student loans, their credit scores won’t be hurt. The upshot is that student-loan borrowers collectively are paying down a mere 1% of their balance each year, according to a recent Bloomberg News analysis. At this rate the U.S. Treasury’s existing student-loan portfolio wouldn’t be repaid for 100 years.

Perhaps to avoid more bad delinquency news in the future, Sen. Warren has proposed to “cancel debt for more than 95% of the nearly 45 million Americans” with student loans. Taxpayers will eat the losses, not the faculty and college administrators who have been gorging on all this subsidized education spending. Ms. Warren is coincidentally a former law professor and Forbes recently estimated her household net worth at $12 million. Reported Forbes:

    Teachers aren’t paid so poorly after all—at least not Harvard professors. Warren and her husband, Bruce Mann, both longtime instructors at the university, have built up a small fortune through years of teaching, writing and consulting.

Given all the taxpayer money continuing to flow into education, one place where no one should expect a financial crisis is the Warren household.


Politics & Religion / Re: US Foreign Policy
« on: August 20, 2019, 07:53:24 PM »
The world retains its ability to suprise-- me too!


We Stand With Hong Kong
Sooner or later, the rest of the world will have to do what the protesters are doing—confront Beijing.
By Mitch McConnell
Aug. 20, 2019 6:51 pm ET
Protesters outside the Central Government Offices in Hong Kong, Aug. 18. Photo: roman pilipey/Shutterstock

The Hong Kong crisis is something the world has seen time and again: authoritarian rulers seeking to repress the innate human desire for freedom, self-expression and self-government. The scenes remind us of Budapest in 1956 and the Prague Spring of 1968, of Tiananmen Square in 1989 and Moscow in recent weeks. The next chapter is unfolding today as the Chinese Communist Party terrorizes the people of Hong Kong.

An estimated two million Hong Kongers—about one-fourth of the population—are demonstrating for the freedoms and autonomy that have made their city a global success. They are protesting the government in Beijing and its determination, in violation of its promises, to chip away at those freedoms.
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The protestors want their liberties preserved, the territory’s autonomy respected, and justice for those the security services have detained, brutalized or murdered. Contrary to Communist propaganda, this citizens’ uprising is no foreign conspiracy. If anything, the world’s leading democratic nations have been slow to respond. Only one capital is responsible for what is unfolding in Hong Kong: Beijing. The demonstrators are responding to its efforts to exert ever more influence and control over what is supposed to be an autonomous region.

It is crucial to recognize that the dynamics that led to this crisis didn’t begin in Hong Kong and won’t end there. The turmoil is the result of Beijing’s systematic ratcheting up of its domestic oppression and its pursuit of hegemony abroad.

Years ago, it was reasonable to think that China’s rapid development and integration into the global economy might lead it to embrace prevailing international rules, that success would give Beijing a stake in the systems that uphold peace and prosperity. Now it is clear the Communist Party wants to write its own rules and impose them on others.

For evidence of China’s hunger for power, consider the fate of its other supposedly autonomous regions. In Tibet, Beijing’s brutal response to unrest in 1959 drove tens of thousands into exile and killed tens of thousands more. In Xinjiang, a mostly Muslim province, the state has displaced ethnic Uighur minorities through population transfers and established an elaborate architecture of social and political surveillance, including ethnic prison camps. Xinjiang is no autonomous region; it is a modern gulag. In both cases, Beijing spent decades methodically tightening its grip.

Beijing has sought to write a similar story in Hong Kong, albeit more subtly. But Hong Kongers are not cut off from the truth by China’s “Great Firewall.” They recognized a bill to allow extradition to the mainland as a significant threat to their legal and political autonomy. So China’s leaders now face a choice. Will they intensify pressure on Hong Kong, gambling that the rest of the world will look the other way? Or will Beijing conclude that further repression in Hong Kong would bring further consequences?

China’s trading partners, including the U.S., should make it clear that any crackdown would have real and painful costs. I wrote the Hong Kong Policy Act of 1992, which extended special privileges to the region because of its unique status. This special access to the U.S. and other nations helped drive the investment and modernization that have enriched Hong Kong, and Beijing by extension. Beijing must know the Senate will reconsider that special relationship, among other steps, if Hong Kong’s autonomy is eroded.

I support extending and expanding the law’s reporting requirements to illuminate Beijing’s interference in Hong Kong. And the Senate will do more. I have asked Jim Risch, chairman of the Foreign Relations Committee, to examine Beijing’s actions in Hong Kong and its efforts to expand the Communist Party’s influence and surveillance across China and beyond. I am working with Lindsey Graham, chairman of the Appropriations Subcommittee for State and Foreign Operations, to fund democracy and human-rights programs across Asia. I will maintain our strong focus on rebuilding and modernizing the military, continuing the huge strides of the past 2½ years, so that our ability to project power and defend American interests keeps pace with this major competitor.

But it is not America’s task alone to address these threats. The world is awakening to China’s abusive and aggressive practices, from unfair trade actions to intellectual-property theft to offshore expansion. Now Hong Kong has plastered front pages with yet another cautionary tale about how the Chinese regime treats those within its envisioned sphere of influence and disregards international agreements that govern them.

Every trading nation and democracy that values individual liberty and privacy has a stake here. Their choice is not between the U.S. and China but between a free, fair international system and the internal oppression, surveillance and modern vassal system China seeks to impose.

The U.S., for its own interests, seeks international peace, a good relationship with China, and a mutually prosperous future for our peoples. Hong Kong is only one piece of the complex set of interests that makes up the U.S.-China relationship. But China’s treatment of the people of Hong Kong will shape how the U.S. approaches other key aspects of our relationship.

As Beijing grapples with growing domestic unrest and slowing economic growth, it should pause before threatening a key engine of its growth and provoking the international community. Beijing can step back from chaos to pursue freer and fairer trade and greater respect for sovereignty and human rights. These basic steps can ensure a more prosperous and peaceful future for all of our citizens.

Mr. McConnell, a Kentucky Republican, is U.S. Senate majority leader.

Politics & Religion / WSJ Trump losing trade war
« on: August 20, 2019, 12:35:31 PM »
rump Is Losing the Trade War With China
The markets doubt tariffs will bring about any major concessions. The U.S. needs a multilateral approach.
By Jason Furman
Aug. 19, 2019 7:00 pm ET
Chinese President Xi Jinping speaks alongside President Trump in Beijing, Nov. 9, 2017. Photo: ANDY WONG/ASSOCIATED PRESS

President Trump’s China strategy is failing. His tougher approach has yielded no meaningful Chinese concessions but is increasingly damaging the U.S. economy. Today China is more integrated with the rest of the world while the U.S. is more isolated. To combat China’s unfair, statist economic practices effectively, the U.S. must change its approach, enlisting allies and international institutions to advance a more focused set of demands.

Tariffs on China have caused clear harm to the U.S. economy in the short run. In the second quarter of this year they contributed to the decline in business fixed investment, and they’re likely subtracting about half a percentage point from growth in gross domestic product this year. This isn’t necessarily an indictment of Mr. Trump’s policy. When workers go on strike, they do so knowing they will lose wages in the short run, but they expect to recoup those losses through larger long-run wage increases.

Yet equity markets have made clear that investors don’t expect potential concessions from China to make up for the short-run losses. The decline after the president announced a new round of tariffs Aug. 1 indicates that, in present value, the strategy is a negative.

China’s growth has also slowed, but much of the downturn can’t be credited to U.S. trade actions. Instead, the slowdown largely reflects the limits of Beijing’s tendency to prop up growth through short-term investment and state-owned enterprises, even as its demography worsens and productivity growth slows.

Market movements have also blunted some of the impact that tariffs might have had, reducing U.S. leverage in the trade war. The yuan has weakened, which offsets the tariffs by making Chinese exports cheaper. This is the inevitable result of Mr. Trump’s de facto strong-dollar policy, driven by larger budget deficits that have increased foreign demand for U.S. dollars as well as tariffs on China that have reduced U.S. demand for the yuan. Before the latest round of the tariff war, China was helping bring about Mr. Trump’s desired weak dollar by intervening in currency markets to keep the yuan strong. Yet when Beijing gave markets more latitude, the administration branded China a currency manipulator.

In January 2018 China had average tariffs of 8% on imports from the U.S. and the rest of the world. In response to U.S. actions it raised its average tariffs on the U.S. to 20.7% by this June while cutting its tariffs on the rest of the world to 6.7%, according to Chad Bown at the Peterson Institute for International Economics. China has cut its imports from the U.S. but increased its imports from elsewhere. China’s exports to the rest of the world are also growing.

No wonder China isn’t in a hurry to make the major concessions Mr. Trump has demanded. It isn’t even clear what concessions would get the U.S. to settle. One set of Trump administration demands is the “shopping list,” insisting that China purchase more U.S. products like soybeans and Boeing jets. Another set is that China change its economic model, relying less on state-owned enterprises, opening more to foreign direct investment, and honoring intellectual property. A third set, regarding alleged national-security threats from companies like Huawei, has moved in and out of negotiations as the administration has sought bans on Chinese technology.

The administration needs to change its strategy radically. The first step should be to work with, rather than against, U.S. allies. That means shelving Mr. Trump’s threatened trade wars against close partners, such as across-the-board tariffs on Mexico or tariffs on car imports from Europe. The U.S. should deepen ties with partners, including by re-entering the Trans-Pacific Partnership, which doesn’t include China.

The U.S. should also use multilateral organizations and international rules, bringing cases against China at the World Trade Organization, where past U.S. administrations have had a remarkable success rate. The Trump administration instead has chosen to undermine the WTO by blocking the appointment of appellate judges who likely would rule in America’s favor.

Another positive step would be to drop the shopping list. Demanding that China buy more Boeing jets isn’t a way to get Europe on our side in the trade dispute. Such a demand could also further entrench China’s statist economic model while doing little for the U.S. economy in the medium and long run.

The final change would be to adopt a consistent protocol for responding to Beijing’s national-security threats. If state-directed espionage through telecommunications equipment is a serious threat, the U.S. should address it as such and not signal that it’s willing to trade security for slightly more purchases of U.S. products. The notion that national-security concerns are merely another trade bargaining chip suggests that the U.S. is negotiating in bad faith, again making it more difficult to gain allies’ support.

These three changes would allow the U.S. to focus on combating China’s forced technology transfers, weak intellectual-property laws, biased treatment of foreign companies in antitrust law, unfair preference for domestic companies through state-owned enterprises, and many other practices about which the U.S. has legitimate grievances.

Such an approach could also win the support of reformers inside China, who understand that most of the practices America wants it to end are impeding China’s ability to shift to a new phase of innovation-led growth. But can it win over President Trump?

Mr. Furman, a professor of practice at the Harvard Kennedy School, was chairman of the White House Council of Economic Advisers, 2013-17.

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Aug. 15, 2019

By George Friedman

George Friedman’s Thoughts: China and a Global Economic Contraction

The protests in Hong Kong must be understood in the context of a global economic slowdown.

There has been much talk recently about economic problems in key economies around the world. Early Wednesday morning, for example, I spoke on Bloomberg Surveillance about the situation in China. Before I went on air, Bloomberg News was covering multiple stories on the decline in bond yields and its effect on the U.S. economy, weakness in the German economy, and so on. I then realized how closely this issue is linked to the protests in Hong Kong.

It has been about 10 years since the last U.S. recession, and we would expect to see another one soon. Since the United States is the world’s leading importer, an American recession always leads to a weakening of the global economy. Massive exporters like Germany and China are particularly vulnerable to such downturns. China’s economy was significantly weakened by the 2008 financial crisis. It has, until recently, managed to stave off U.S. attempts to try to level the imbalance between Chinese exports to the U.S. and U.S. exports to China. But it has now lost the ability to manage the United States. And at the same time, Hong Kong is rising.


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The uprising occurred because China was increasing its control over Hong Kong, including taking much greater control of the criminal justice system. In 1997, when the United Kingdom relinquished control of Hong Kong to China, Beijing was willing to allow Hong Kong to have a high degree of independence because Hong Kong was the financial interface between China and the world. China could not afford to undermine Hong Kong’s dynamism.

But China is in a very different position today, and it can no longer accept a strong and independent Hong Kong. Even before the U.S. trade actions, the Chinese economy was in serious trouble, and its banking system was nearly in shambles. The introduction of new tariffs by its largest customer has created deeper problems in the economy, which are seen in industrial production data and other sector statistics. The accuracy of these statistics is always uncertain to me, but that China is publicly revealing its economic weakness is significant. When it admits that it has problems, it likely means the problems are serious indeed.

Today’s China was built on economic growth and the promise of prosperity. Maoism still exists, but it is on the margins. Chinese elites, like elites everywhere, expect greater wealth and, at minimum, that the wealth they have already accumulated will be protected. And the public expects a better life for themselves and especially their children. The Communist Party of China, therefore, now derives its legitimacy not from communist ideology but rather from the promise to deliver prosperity to the people, coupled with national pride. But as the economy weakened, China engaged in major international initiatives to try to encourage pride in its global standing, from exaggerating its military power, to lending money to other countries, to building a route to Europe. The more concerned China was about delivering prosperity, the more it leaned on pride in Chinese power and the idea that the U.S. would be bypassed by the Chinese in every way possible.

But the Chinese realize that their relationship with the United States has gotten out of control. On one hand, they depend on the U.S. to buy their goods. On the other hand, they want to show that they are pushing back against the United States. In the end, national pride goes only so far in a country that is divided into many social classes, with millions left out of the economic boom and others having benefited but remaining resentful of the avariciousness of the elite. The foundation of China is prosperity; national pride is just a substitute.

Right now, that prosperity is threatened not only by U.S. demands to redefine economic relations between the two countries, but also by the last thing China needs: a global economic slowdown. It is always the exporters who are hurt the most by such downturns.

China tried to dramatically increase its control of Hong Kong, not out of confidence but out of fear. If the Chinese economy contracts, Hong Kong doesn’t want to be taken down with it. But the people of Hong Kong couldn’t predict how far they would be able to separate the island from China’s problems, so they wanted to ensure their security apparatus had control of Hong Kong. The Chinese resistance to these steps was what really led to the uprising. From my point of view, it also points to a critical Chinese weakness. China relies on its internal intelligence system to maintain order, but it failed to anticipate the uprising in Hong Kong. That raises the question of whether a pillar of the Chinese system, its internal controls, is weakening.
Another major concern for Beijing is that the unrest in Hong Kong may spread to the rest of the country. People in other Chinese cities might sense Beijing’s weakness and, facing tough economic conditions, take their concerns and resentments into the streets. This is why Beijing cannot appear to have lost control of Hong Kong. If it does, China’s global image as a confident, leading power would be transformed into one of a brutal and repressive regime, fighting its own people.

Hong Kong has not triggered a reaction on the mainland, but Chinese President Xi Jinping has been wrong on several fronts, so the Central Committee may not be in the mood to let him handle this problem. But it is caught between its need to suppress the protests in Hong Kong and its fear of the consequences if it does. When decisive action becomes a threat, it’s a sign that a regime is in trouble. China has tried to appear patient, but it is increasingly appearing impotent to its own people. And that is the one thing it can’t tolerate.

Economic downturns have a tendency to trigger political responses. Consider 2008 and how the political landscape changed in many countries in the following years. While 2019 may not be as intense as 2008, many countries’ economies are struggling, having never fully recovered from the global financial crisis. It is in this context that I am beginning to think of China. It’s easy for an exporter to prosper in a robust global economy. It’s much harder to sell to a world facing an economic downturn. Such exporters are battening down the hatches – China’s approach to Hong Kong is one example. Having encountered resistance, it fears the consequences of decisive action. And it fears not acting. China doesn’t know quite what to do, and that is not the behavior of a formidable rising power.

Politics & Religion / GPF:China, currency manipulator?
« on: August 17, 2019, 01:41:29 PM »
Aug. 14, 2019
By Phillip Orchard

In the Yuan, Washington Finds Its Latest Trade War Target

The U.S. is running out of ways to escalate the trade war with China.

Last week, after nearly two decades of threats from U.S. President Donald Trump and his predecessors, the U.S. Treasury formally labeled China a currency manipulator. This followed Trump’s announcement that new 10 percent tariffs on some $300 billion in Chinese goods would kick in on Sept. 1, which sent the Chinese currency crashing to less than 7 yuan to the dollar for the first time since 2008.

The move has been widely characterized as a dramatic escalation in the trade war, expanding the U.S. offensive from tariffs, tech controls and investment to asset prices. But by the United States’ own definition, China hasn’t actually been intentionally weakening its currency. Quite the opposite, in fact. And the label itself won’t do anything to pressure China into major concessions. What it really suggests is that the U.S.-China trade war has entered a new phase – one marked by waiting around for a change in conditions that forces one side or the other to blink.

How China Manages the Yuan

For more than a decade beginning in the early 2000s, Beijing was indeed quite transparently keeping the yuan artificially weak, buying up some $4 trillion in U.S. treasuries in the process to maintain a peg of around 8.2 yuan to the dollar. Given China’s large balance of payments surplus and large net investment inflows, had the yuan been allowed to float relatively freely like the dollar, yen or euro, it’s estimated to have been less than 6 yuan to the dollar. China kept its currency weak to offset some of the stiffening headwinds facing its export sector, which had begun grappling with factors like rising wages that threatened its low-cost export growth model. This accelerated the exodus of U.S. manufacturing jobs while suppressing demand for U.S. goods among Chinese consumers. Naturally, this generated no small amount of political backlash in the U.S., sowing the seeds for the political consensus in the U.S. today that China’s rise has been aided by an unlevel playing field.
Around 2014, however, China switched course and began allowing the yuan to move more in line with market forces. Narrowly speaking, China has continued to “manipulate” the yuan; to avoid wild swings in value, it sets a daily trading band allowing just 2 percent change in either direction. But this doesn’t meet the U.S.’ own criteria for currency manipulation. In fact, by and large, whenever the People’s Bank of China has been forced to intervene to keep the value within the daily trading band, it’s been to strengthen the yuan. The U.S. Treasury has consistently admitted as much, including in its most recent report on the yuan published in May. Between 2014 and 2015 alone, China spent more than $1 trillion of its foreign exchange reserves defending the yuan.

China switched gears for several reasons. For one, it’s been keen to reduce its dependence on exports by boosting domestic consumption (which generally benefits from a stronger yuan) and the private sector (much of which relies on dollar-denominated bonds, which get more expensive to repay when the yuan weakens). For another, a strong, stable yuan is critical to its sweeping reform and financial de-risking efforts. Most important, a range of macroeconomic factors began placing downward pressure on the yuan and raising fears of capital flight. This was underscored in the August 2015 stock market crisis, which was triggered by China’s decision to allow the yuan to fall more than 4 percent – in line with market forces – in two days.

Defending the yuan has become considerably harder – and more expensive – since Trump launched the trade war 18 months ago. In the year before tariffs kicked in, the yuan had strengthened more than 9 percent. Since then, it has dropped around 5.4 percent. This is not artificial.


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To be sure, the weak yuan has taken much of the sting out of U.S. tariffs. But China fears an uncontrollable cycle of depreciation (akin to what it experienced in 2015 and what Turkey faced earlier this year) and the risk of a cascading wave of defaults far more than it fears the tariffs. The numbers make this plain: In 2018, China exported some $550 billion in goods to the U.S. By comparison, it’s estimated to now have more than $3 trillion in external debt. If the yuan weakens, the cost of servicing this debt goes up – as does the risk of lenders refusing to roll over loans, putting Chinese firms in a major fix. This dynamic is what sparked the 1997 Asian financial crisis. Moreover, China’s ongoing liquidity crunch is already biting; bond defaults between 2017 and 2018 quadrupled and are on pace to triple yet again this year, according to Bloomberg figures.
Rather, the yuan’s devaluation is a natural result of the tariffs, which have pushed the dollar up against nearly all currencies largely in tandem while reducing dollar flows into China. For most of the past two years, to improve the prospects of a trade deal and guard against capital flight, Beijing has continued defending the yuan. But this is expensive; China’s foreign exchange reserves have dropped to around $3.1 trillion. On Monday, in response to Trump’s announcement of a dramatic expansion of tariffs, China didn’t intervene to weaken the yuan in retaliation. Rather, it merely took a break from propping it up. What the U.S. is demanding now, in other words, is that China manipulate it more forcefully.

So, What’s the Point?

The Trump administration’s goal in slapping China with the manipulator label isn’t exactly clear. To be sure, the U.S. has ample economic reason to want to narrow the gap between the two currencies; it’s hard to imagine the bilateral trade deficit ever disappearing if the yuan remains so much weaker than the dollar. And there’s some support on both sides of the aisle for dramatic efforts to weaken the dollar.

But the label won’t do much to move either currency in the direction the Trump administration wants. The next step outlined by U.S. law doesn’t involve any sanctions – it’s merely a consultation with the International Monetary Fund, which is unlikely to agree with the Trump administration. (Like the U.S. Treasury, the IMF has consistently concluded that China doesn’t meet its criteria for currency manipulation.) This may dash U.S. hopes to build a multinational consortium to force China to strengthen the yuan. International support has proved invaluable to the U.S. in the past, particularly in the 1985 Plaza Accord, when the U.S. persuaded France, Germany, the United Kingdom and Japan to manipulate exchange rates and bring the dollar down as much as 50 percent against the yen and Deutschmark. This time around, with the U.S. lacking a valid case against China and launching trade disputes with most of the allies it would otherwise court on currencies, such a consortium seems far-fetched.
It’s possible the U.S. is just building a case for greater unilateral escalation. Even when Beijing was flagrantly inflating the yuan from 2002 to 2014, past U.S. administrations repeatedly declined to do anything more than threaten the manipulator label, primarily because none were prepared to follow up with punitive measures like tariffs that may not have survived a World Trade Organization challenge. Trump has no such qualms about wielding tariffs or ignoring the WTO. Still, there’s only so much further Trump can go without tanking the U.S. economy once the next round of tariffs starts to kick in in September (to avoid sticker shock during the holiday shopping season, several big-ticket consumer items will be exempted until mid-December) – effectively taxing nearly every Chinese product exported to the U.S. And the White House can continue its economic offensive without the manipulator label, anyway.

Ultimately, for the move to have any teeth, the U.S. would have to make the leap into direct intervention in currency markets, using tools like the Exchange Stabilization Fund to essentially buy up the yuan as it claims China should be. But intervening against the yuan won’t be easy. Unlike the yen and euro, the supply of yuan available to offshore buyers just isn’t very high, meaning the impact of such a move would likely be limited – and, in some ways, it could weaken U.S. leverage by essentially funding China’s development. The U.S. has more capacity to try to weaken the dollar by buying up a range of foreign currencies. But this is expensive and would have an unpredictable impact on already-spooked markets and potentially undermine the U.S. dollar’s invaluable role as the global reserve currency. It would also further expose U.S. consumers to sticker shock after implementation of the next round of tariffs, which cover consumer goods that had thus far been spared, raising the risk of a political backlash that makes waging a trade war of attrition untenable. (After the last round of tariffs kicked in, the U.S. Federal Reserve estimated that the trade war will cost the average U.S. household $831 per year.) On Friday, Trump backtracked on earlier statements and ruled out the possibility of direct intervention against the dollar – for now.
All this illustrates a critical point: The U.S. is running out of ways to pressure Beijing into major trade concessions, and the tools it has left in its arsenal all have major costs attached. Tariffs are approaching the point of diminishing returns, and trade negotiations have stalled. China has proved more resilient to tariffs than many expected, in part because the yuan’s depreciation and tools like tax cuts, diversion of exports to other markets, and transshipments have offset some of the pain, but also because U.S. consumers and firms have eaten much of the costs. Beijing can’t stomach most of the major structural concessions the U.S. is demanding, and it thinks its economy has stabilized enough to hold steady and wait to see if the political and economic risks of sustaining the trade war in an election year – one that may very well coincide with the start of a recession – force the U.S. to back down.

In these conditions, the White House loses leverage if Beijing thinks it can simply run out the clock, so it needs to counter the expectation that it’ll be desperate to strike a deal before November 2020 – and persuade Beijing that the U.S. is the one better positioned to hold the line until China’s immense structural economic and political vulnerabilities force Beijing to back down. (Trump has pointedly begun lowering expectations that a deal will be reached anytime soon.) Blaming yuan manipulation (and, for that matter, the Fed) for the lack of success of Trump’s tariff-centric trade strategy in bringing down the trade deficit, however disingenuous the case, is one way for the White House to try to prevent domestic political constraints from forcing it to bow out of the trade war prematurely. Meanwhile, raising the possibility of a direct U.S. intervention in currency markets, however steep the costs, may give the U.S. some leverage; Beijing would rather not find out if the White House is serious, and it’s reportedly willing to at least agree to a non-depreciation pact. In other words, there’s negotiating leverage to be had from stoking uncertainty – market jitters and conventional economic wisdom be damned.

Politics & Religion / GPF: Geprge Friedman: China, Mexico, and US Trade
« on: August 17, 2019, 01:21:50 PM »

By George Friedman

China, Mexico and US Trade

China is no longer the United States’ top trade partner. What does this mean for Mexico?

Last week, it was widely reported that in the first half of 2019 Mexico replaced China as the United States’ top trade partner. China is now in third place, while Canada is in second. There has been a great deal of discussion in the media about what this means for U.S.-China economic relations. Much less attention has been devoted to what this new alignment means for economic relations within North America.

A Third World Country?

The importance of U.S.-Mexico trade may surprise some. In the minds of many Americans, Mexico is still a Third World country whose largest export is poor people looking for jobs. Truth is, Mexico has the 15th largest economy in the world measured in U.S. dollars. Australia ranks just one spot above Mexico, and countries like Spain, South Korea and Canada are not too far ahead either.

Measured in purchasing power parity, however, Mexico ranks as the 11th largest economy in the world. PPP measures economic activity against the ability of a country’s currency to buy goods. Both PPP and nominal gross domestic product measurements have their flaws. Measuring purchasing power in a country as diverse as Mexico is tough, to say the least. Measuring it against the dollar is also difficult, as currencies fluctuate against the dollar all the time, thereby changing their GDP totals and rankings even though the economy itself hasn’t grown or declined. (Those who already knew this – and those who didn’t want to know this – please forgive me for explaining this in detail.)

The important point here is that Mexico’s economy, whether it’s ranked 11th or 15th, isn't a developing economy. It is a major economy and a major target for investment. Some parts of Mexico, particularly those in the south and some areas of major cities, resemble the Third World. But most countries have major regional inequalities. Mexico’s are somewhat larger than the average, but its economy is nonetheless substantial. The U.S. and Chinese economies are highly intertwined, but so too are the U.S. and Mexican economies – Mexican auto parts, for example, are indispensable to U.S. car makers. Mexico is also an aeronautical hub, housing Airbus and Bombardier manufacturing plants.

We’re presented, then, with two geopolitical realities. First, North America’s trading bloc is now larger than the European Union in terms of both population and GDP. Many believe that the alternative to globalism is insular nationalism. Many also believe that the only path to regional integration is a high degree of political integration. The European Union demonstrates that excessive politicization of a trade block can breed potentially uncontainable tension. The North American trade system has no significant joint political structure. The U.S., Canada and Mexico have not compromised their sovereignty, yet they are part of a successful trade system that was renegotiated in such a way that maintained the level of interdependence between the three major trade partners, despite expectations that renegotiation would lead to a decline in trade.


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The second geopolitical reality is that increased trade creates increased vulnerability. China learned that excessive dependence on exports to the U.S. gives Washington leverage. Exports are essential to economic development but pose political risks. Interdependence – particularly in economic terms – seems an innocuous concept. But it also means vulnerability to forces in other countries that are less reliant on the trade relationship.

In Mexico’s case, the sense of vulnerability goes back to the 19th century, when the United States defeated Mexico in the Mexican-American War and seized much of what is today the American southwest. Mexico remained in a subordinate position to the United States for more than a century. In emerging from its past and becoming an increasingly potent economic player, Mexico can neither avoid the relationship nor feel comfortable with it. The size of the U.S. economy makes it less dependent on Mexico than the Mexican economy is on the United States. And that leads to political friction.

Political friction between nations is inevitable. It also exists between Canada and the U.S. The U.S. has the same economic advantage over Canada that it has over Mexico. But having economic advantage doesn’t necessarily mean a country will use it – at least, not without political cause, as the U.S. had with China. Even in unequal relationships, the less powerful party can still have an economic impact on the more powerful party.

The Migration Issue

The problem is that there are both historic and contemporary political issues with Mexico, primarily over migration. Mexican migration to the U.S. has declined significantly. Mexicans used to migrate north for economic reasons, but economic conditions in Mexico over the past few years make it more attractive to remain in Mexico than to go north. The current wave of migrants crossing the U.S. southern border comes from Central America. In an ironic twist, Mexico doesn’t want Central American migrants to enter Mexico, but like the U.S., it can’t seal its southern border to stop them from crossing into its territory. Until recently, Mexico did not want to give them asylum, and those it could not block or expel were permitted to move north to the U.S. border.

Migrants are often the cause of tensions between and within countries. Historically, the U.S. metabolized Mexican immigrants. Mexico has had more difficulty metabolizing Central American migrants because the regions they entered in the south were among the poorest in Mexico, Mexican institutions are not well-equipped to handle the influx, and some Mexicans have objected to the influx. Mexico, therefore, sought to shift the burden north, triggering a political confrontation with the U.S.
Mexico knows that it cannot press the U.S. too hard. Mexican politicians threaten impractical retaliations, but they know the U.S. can absorb an economic rupture with Mexico more than Mexico could bear one with the United States. The U.S. can’t press Mexico too far, either. Imposing a heavy economic penalty on Mexico would not only disrupt access to the agriculture and manufacturing supplies on which the U.S. economy depends and hurt the economies of border states like Texas and California, but it would also threaten to energize 130 million people with a historic grievance and an economy that is now world-class.
Mexico has come a long way and is now the United States’ leading trade partner. But that position makes it vulnerable and limits its political options against the U.S. China has discovered what that vulnerability can lead to if it engages in political actions unwelcomed by its biggest trade partner. Mexico understands the U.S. far better than China did. But what will happen if Mexico moves from the 11th-largest economy to the fifth-largest? At a certain point, the risk-reward ratio shifts.

A final point on what Mexico becoming the United States’ largest trade partner means for China. China is following Japan’s path. Japan was the leading exporter to the United States in the 1980s, but it was increasingly squeezed by higher costs, falling profit margins and competition from other countries. There was also significant political tension between the United States and Japan over informally closed Japanese markets. It did not lead to massive tariffs because Japan buckled under the weight of its own economic weakness and became a less-important trade partner for the U.S.

China was doing the same before the U.S. imposed tariffs. Its products were facing stiff competition, inflation was pushing its own costs higher, and profit margins in key sectors were falling. As with Japan, China faced serious problems with its banking system. U.S. tariffs compounded China’s problems and perhaps accelerated the process, but the path it is following is not new.

Martial Arts Topics / Suarez: Getting to the Shot Part One
« on: August 17, 2019, 01:15:02 PM »

Today on my forum,, a member commented in incredulity on the El Paso shooting. That a place like Texas, with so many CCW licensees, and likely many in the Walmart being covertly armed, that nobody shot the gunman. The same could be said of any mass shooting that takes place in any state where CCW is prolific. A great question.

Here is what I think.

1). Most people, whether police or private citizens, have a trained aversion to kill and will do everything possible to not engage. The guys that interdict active shooters are outliers in society. When most people on scene are of the violence-avoidance types, they will most likely not engage the shooter. See my prior articles on Fear Aggression , and The Predator Mind.

2). The information flow is always the same, but many will not be able to process it fast enough to act upon it. A great deal has to do with proximity, but also what the individual’s perception of events is. The man on scene receives information first hand but may or may not understand it.

Were those shots?
Why are people running?
Where is the shooter?
What does he look like?
What can I do?
What will I do?

The more internal debate that takes place, the more one will talk themselves out of action and into submission or flight. And CCW folk are nothing special. They are everyday average people that happen to have a pistol with them, but their self-identity is no different from the fleeing masses of victims. Running to cover with everyone else and allowing someone “more qualified” is far more comfortable than doing the opposite of the herd, and I expect many will take the easy way out. And they likely have already prepared a myriad of “reasonable” excuses to justify themselves.

The flow of information for police may be different as they are receiving justification data on the radio. But at the risk of being labelled anti-police, I saw the same thing when I was on the job. Officers who had the shot, were justified ten times over, but failed to act. Society has not changed and police that come from that society will not be very different.

The officers that speed to the scene to kill the gunman are outliers in their field and likely passing by other officers that are somehow not moving as fast…or not taking the same direct route to contact…or are waylaid by victims and other things not directly involved in killing the gunman. That is human nature. Sometimes we get a perfect confluence of events with the outlier officer and the gunman and he is eliminated in minutes. Other times we get debacles like Broward County and Thousand Oaks. In my opinion, the conclusion will depend on who arrives on scene in time to act.

But what of the guys that are not already soul-snatching meat eaters, but want to be? Becoming that is not difficult if the will is there to do so.

First is understanding what you want to be and do. What is your self image? Are you just another armed but helpless victim, or are you the one that will interdict the active shooter? How do you see yourself? Decide now and engrave that deep in your mind. The rest will follow easily.

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