Authored by Yves Smith via NakedCapitalism.com,

A vivid scene came in my first year Harvard MBA course, Business, Government and the International Economy, taught in my section by George C. Lodge, son of Henry Cabot Lodge, Jr. George Lodge said he still remembered the day in 1968 when he realized there were limits to US power, that we could not fight a war on poverty, send a man to the moon, and fight a ground war in Asia at the same time.

The lack of that insight still seems widespread inside the Beltway, with belief in American omnipotence renewed by the fall of the USSR and then the further decline of Russia in the 1990s.

Under a story initially published with a page-wide banner headline, The US is Not Yet Ready for the Era of “Great Power’ Conflict. The article curiously omits that it is the US that has been fomenting these clashes. And even though the URL banner on the article proper reads, The US is Not Yet Ready for the Era of “Great Power’ Conflict with China and Russia, the piece treats Russia dismissively, in passing, and treats escalating with China as a perfectly reasonable thing to do, not just now. We’ll turn to Russia in due course, particularly in light of Ukraine deciding Monday to try to break into the Bakhmut cauldron.

If you read the article carefully, you’ll see the reverse, that any meaningful improvement in US preparedness against China is based on hopium, like the US developing, manufacturing, and deploying new weapons that are on the drawing board or in early stages. Similarly, it fails to admit a huge weakness in the US dealing with China: that our Navy is badly overinvested in the floating pork known as aircraft carriers. Informed observers like Scott Ritter has said China has the capability to take them out without too much difficulty if they get within menacing range. Sinking only one aircraft carrier would result in roughly 6000 deaths, a humiliation the US would not tolerate. Ritter has long worried that our response would be to fire a tactical nuke at the Chinese hinterlands. Ritter is certain that China would immediately light up the entire US West Coast.

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The point of this article may be to provide cover for a minor US de-escalatory move with China: that rather than having new House Speaker stir the Taiwan independence pot as Nancy Pelosi did with a visit to the island, the Taiwanese leader will instead come to the US to meet McCarthy.

Note the article repeats the CIA claim that China intends to invade Taiwan by 2027. Ex CIA analyst Larry Johnson has warned that the agency has outsourced a tremendous amount of its purported intelligence-gathering, which in Ukraine has resulted in the government retailing Ukraine propaganda. There’s no reason to think China will invade even it decides it has had enough. A blockade would do. That would also put the US, in the eyes of the international community, as being the aggressor were it to try to do anything about it, since just about no one recognizes Taiwan.

The belief among cynics was the CIA (or its pro-Taiwan sources) focused on 2027 as close to the end of the window when the US could challenge China over Taiwan, in light of the growth of the Chinese economy and among other things, its ship-building capability. But this piece implicitly throws cold water on this timeline and keeps hammering at the idea that the US can surpass China, when there’s no reason to think we can create and deploy a whole bunch of new-gen systems and upgrade our forces too.

The article is also heavily anecdotal, generally not a good sign in a story on a “hard” topic like geopolitics. It start with an Air Force lieutenant general realizing as a result of 2018 wargames that China had enough missiles to do serious damage to US bases in the region. It ominously continues:

Five years ago…the U.S. started tackling a new era of great-power competition with China and Russia. It isn’t yet ready, and there are major obstacles in the way….

Corporate consolidation across the American defense industry has left the Pentagon with fewer arms manufacturers. Shipyards are struggling to produce the submarines the Navy says it needs to counter China’s larger naval fleet, and weapon designers are rushing to catch up with China and Russia in developing superfast hypersonic missiles.

When the Washington think tank the Center for Strategic and International Studies ran a wargame last year that simulated a Chinese amphibious attack on Taiwan, the U.S. side ran out of long-range anti-ship cruise missiles within a week.

The military is struggling to meet recruitment goals, with Americans turned off by the long conflicts in Iraq and Afghanistan, potentially leaving the all-volunteer force short of manpower. Plans to position more forces within striking range of China are still a work in progress

Yet it lards that sober message with faith in eventual success via vaporware or hopium:

The U.S. military is still more capable than its main adversaries. The Chinese have their own obstacles in developing the capability to carry out a large-scale amphibious assault, while the weaknesses of Russia’s military have been exposed in Ukraine….

New tactics have been devised to disperse U.S. forces and make them less of an inviting target for China’s increasingly powerful missiles.

The Pentagon’s annual budget for research and development has been boosted to $140 billion—an all time high. The military is pursuing cutting-edge technology it hopes will enable the military services to share targeting data instantaneously so that U.S. air, land, sea and space forces, operating over thousands of miles, can act in unison, a current challenge….

Many of the cutting-edge weapons systems the Pentagon believes will tilt the battlefield in its favor won’t be ready until the 2030s, raising the risk that China may be tempted to act before the U.S. effort bears fruit.

We’ll interrupt this recap to point out that the US bizarrely assumes it will be able to gain meaningful ground on China, that China will either stand still or not progress as quickly. Yet if you look at the ASPI critical technologies study we cited yesterday, you will see China dominates in categories relevant to military hardware and battlefield coordination: advanced materials and manufacturing; artificial intelligence, computing and communications; defense, space, robotics, and transportation.

Back to the Journal:

Deterring China from invading Taiwan, a longstanding U.S. partner that Beijing claims as Chinese territory, defines the challenge….The U.S. needed to demonstrate it could prevent Beijing from seizing the island in the first place—a requirement included in the Biden administration’s National Defense Strategy issued in 2022…

A more recent wargame conducted by the Pentagon’s Joint Staff showed the U.S. could stymie a Chinese invasion of Taiwan and force a stalemate if the conflict was fought later in the decade, although high casualties on both sides would result. That simulation assumed that the U.S. would have the benefit of new weapons, tactics and military deployments that are currently being planned at the Pentagon.

So the US will only be able to fight China to a draw if US new wunderfaffen become operational soon enough and the US succeeds in executing a major revamp too.

More on capability-building:

The Army, which saw its electronic warfare, short-range air defense and engineering capabilities atrophy amid budget pressures and the previous decades’ wars, is moving to develop a new generation of weapons systems that can strike targets at much longer ranges. It is planning to deploy a new hypersonic missile in the fall though its utility against Chinese forces will depend on securing basing rights in the Pacific.

The Navy, which is confronting budget pressures, personnel shortages and limits to American shipbuilding capacity, is currently planning to expand its fleet to at least 355 crewed ships, a size still smaller than China’s current navy. In the near term, the U.S. will have around 290 ships.

A CBO report dated January 31, 2023 is much less bullish about hypersonic missiles, including their combat-ready date:

CBO reached the following conclusions:

Technological challenges must still be overcome to field hypersonic missiles. The fundamental remaining challenge involves managing the extreme heat that hypersonic missiles are exposed to by traveling at high speeds in the atmosphere for most of their flight (unlike cruise missiles, which fly in the atmosphere at lower speeds, or ballistic missiles, which mainly fly above the atmosphere). Shielding hypersonic missiles’ sensitive electronics, understanding how various materials perform, and predicting aerodynamics at sustained temperatures as high as 3,000° Fahrenheit require extensive flight testing. Tests are ongoing, but failures in recent years have delayed progress.

Both hypersonic and ballistic missiles are well-suited to operate outside potential adversaries’ antiaccess and area-denial (A2/AD), or “keep-out,” zones. The Department of Defense has developed a strategy to use accurate, long-range, high-speed missiles early in a conflict to neutralize the A2/AD zones being developed by potential adversaries, such as China and Russia. Both hypersonic missiles and ballistic missiles equipped with maneuverable warheads could provide the combination of speed, accuracy, range, and survivability (the ability to reach a target without being intercepted) that would be useful in the military scenarios CBO considered. However, many missions do not require such rapid strikes. For those missions, less costly alternatives to both hypersonic and ballistic missiles exist, including subsonic cruise missiles. Hypersonic weapons would mainly be useful to address threats that were both well-defended and extremely time-sensitive.

Again to the Journal:

The general [Clint Hinote] has pushed to equip cargo planes with cruise missiles to boost allied firepower, the use of high-altitude balloons to carry sensors and electric “flying cars” to carry people and equipment throughout the Pacific island chains—ideas that have led to experiments but so far no procurement decisions.

He thinks a future Air Force could rely more on autonomous, uncrewed aircraft and deploy fewer fighters.

Mind you, Russia went down that path a long, long time ago, resulting its layered offensive missiles and its best-in-breed air defense systems.

The cheery closing thought, from Hinote:

“I think we’ve got a recipe for blunting” a Chinese attack, he said. “I just think you have to reinvent your force to do it.”

Now if this article isn’t worrisome enough merely based on a careful reading for relying on magic technological saves or massive operational improvements, another big red flag is its few, scathing mentions of Russia. The article does acknowledge the danger of China and Russia cooperating and Russia’s strong capabilities in hypersonic missiles. But the references to Ukraine are dismissive:

…the weaknesses of Russia’s military have been exposed in Ukraine….

A conflict in the Western Pacific might also give Russia’s military, which has been badly battered in Ukraine, the confidence to carry out President Vladimir Putin’s goals of reviving Russian power in what it believes to be its traditional sphere of influence in Central and Eastern Europe.

Mind you, I do not believe this take is entirely or even mainly the result of Pentagon spokescritters hewing to the party line. My impression is most of them believe it. We discussed the latest Defense Intelligence Agency’s Worldwide Threat Assessment, particularly regarding its underestimation of Russia. If we can’t get that right, when we’ve been trying to gin up a war with them since 2014, why should we have any more confidence in our assessment of China?

The US is managing to talk itself into a different type of delusion with respect to Russia. Remember the Anthony Blinken interview with the Washington Post’s David Ignatius, which was widely depicted as presenting a peace plan? In fact it did no such thing. It was a formula for keeping the conflict going, just at a lower boil. As we wrote:

The Blinken/State vision seems to be:

US and NATO support Ukraine > *Magic* > War ends > US and NATO support Ukraine

We and others have speculated that Blinken’s peace gestures are insincere, merely to appease various constituencies that want to see the war end and also intended, if possible, to depict Russia as not interested in negotiating.

The latter claim is to a fair degree true, but that is due to the now-clear Western position that the most it is prepared to do is stop a hot war but continue arming Ukraine so as to restart at a convenient time. Russia recognized that it is at war with NATO and it needs a durable solution. Given the West’s stated lack of interest in a lasting peace, plus its pride over its duplicity, Russia has no choice but to keep going until it has prostrated NATO or alternatively, increased pressure on major fault lines (for instance, Douglas Macgregor has said NATO would fracture if Poland were to enter Ukraine).

Consider this section from a February Wall Street Journal story, in which NATO plans to make Ukraine an official, as opposed to de facto, NATO-lite member:

Germany, France and Britain see stronger ties between NATO and Ukraine as a way to encourage Kyiv to start peace talks with Russia later this year, officials from the three governments said, as some of Kyiv’s Western partners have growing doubts over its ability to reconquer all its territory.

U.K. Prime Minister Rishi Sunak last week laid out a blueprint for an agreement to give Ukraine much broader access to advanced military equipment, weapons and ammunition to defend itself once the war ends…

A British official said another goal of the NATO pact would be to change the Kremlin’s calculus. If Moscow sees that the West is prepared to scale up its military assistance and commitments to Ukraine over time, it could help persuade Moscow that it can’t achieve its military objectives.

This must be one of the British officials that also believes (per British MoD press reports) that Russia has committed 97% of its armed forces to Ukraine and Wagner forces in Bakhmut are fighting with shovels

The West is completely open that it plans to keep arming Ukraine no matter what. It expects Russia to agree to a peace deal despite Ukraine being a ticking time bomb by design. It further expects Russia to negotiate when it’s becoming obvious that the US/NATO ability to supply enough artillery and equipment will drop off even further come sometime in the summer. Recall that the press has reported that Ukraine’s daily ammo fire has dropped from 3,000 to 4,000 shells to more like 2,000 and Ukraine is demanding 250,000 shells a month. Not only can the West not provide that, but even that is not enough to match Russia’s estimated 600,000 shells a month.

In addition, and due to the pressure of time, I was not able to confirm the sourcing, but in recent broadcast, Alexander Mercouris, citing a Western source (perhaps the BBC?) said Ukraine had only 300 artillery platforms, which he noted was down from about 1000 when the war started. If that it true, you can stick a fork in Ukraine. We pointed out that Russia had recently deployed a very effective counter-battery device called the Penicillin, which allowed Russia to detect the location of artillery fire using sound waves and ground impact. Unlike radar, the Penicillin does not put out signals that can be read, so it can’t be located and destroyed.

Since the Penicillin was put into production, various commentators have pointed out that Russia has been taking out many more weapons platforms. My impression from Dima at Military Summary is that the average is over 2 a day.

Even if only 2 a day, 60 platforms in a month is 1/5 of what Ukraine is alleged to have left. And as Brian Berletic has repeatedly documented, US weapons deliveries and the dollars attached to them keep falling, to the degree that the US has stopped disclosing the numbers of what it is sending, merely naming the type of weapon or support.

And so the delusion produces confused messages. Again from the February story:

President Emmanuel Macron of France and Chancellor Olaf Scholz of Germany told Ukrainian President Volodymyr Zelensky that he needed to start considering peace talks with Moscow when the three leaders met in Paris earlier this month, people familiar with the conversation said….

While London, Paris and Berlin see the possibility that Kyiv may have to seek talks with Russia after an expected counteroffensive this spring that could help it regain more territory, other Ukraine backers think there should be no negotiations as long as Russian troops remain on Ukrainian soil

Ukraine’s backers are acting like gamblers hoping they can wager their way out of big losses. No, Ukraine is not to sue for peace now. It’s to settle after a win, even if it were to prove to be a modest win, mainly for the sake of the face of its funders.

And how is that supposed to happen?

Russian officials have reported that Ukraine is massing more troops, up from 25,000 to now over 30,000 in Zaporzhizhia, presumably to try an offensive to the south, aimed either at Melitopol or Mariupol. The wags speculate that Ukraine will assemble 40,000 and perhaps as many as 60,000 men, with the target time expected to be late March/early April.

But these troops will be short on tanks, ammo, and air cover. And Russia has been building major fortifications in the region since Surovkin took over in October, and per Alexander Mercouris, has about 90,000 there now. If an attack looked likely, Russia would almost certain increase its force level there.

And while Ukraine is supposedly preparing for its big, last ditch counter-offensive, it is also wasting more men and materiel in Bakhmut. Russia has achieved operational encirclement. Men can’t get out without serious survival risk. But Ukraine announced Monday it is still contesting Bakhmut, most experts believe by attempting to force open a transportation route. But even if they succeed, to what end? If they can get enough troops out to recover the cost of forcing open a corridor, that might be a worthy gamble. But if they think they can do more than further delay the full capture of Bakhmut, it’s more evidence they have lost their minds.

For much more detail on the grim state of play in Bakhmut, see Moon of Alabama’s new post Why Bakhmut Is Falling.

Now of course wars are uncertain, and perhaps Russia will make a spectacular blunder. But absent that, it’s hard to see any reason for Russia to end the war before its aims are met. And the US and NATO keep feeding more cannon fodder into the Russian killing machine.

A scathing new op-ed in the Washington Examiner this week calls for Democratic voters in Philadelphia to offer up an apology to the rest of the city for helping usher in what is being called the city’s “worst violent crime surge in three centuries of its history”. 

The piece was written by Christopher Tremoglie and published yesterday. It opens by calling Philadelphia’s criminal justice policies and reforms “radical” and “incompetent”:

It’s no secret that Philadelphia’s voters elected a mayor and district attorney so incompetent that the city has experienced its worst violent crime surge in three centuries of its history. This is mainly because of the radical (and incompetent) left-wing criminal justice policies and reforms that were put into effect during their terms. Nor is it a secret that Philadelphia is one of the worst poverty-stricken cities in the nation. It is consistently ranked as the “poorest” of the country’s biggest cities.

Tremoglie writes: “As a lifelong resident of the City of Brotherly Love, its continued allegiance to Democrats boggles my mind. No matter the horrors of the reality of living in the city, Philadelphians overwhelmingly continue to vote for Democrats who just keep making things worse. Something has to change. It’s time, well beyond time really, for Philadelphia’s Democratic voters to apologize to the rest of the city for the mess they have caused.”

He says that “Crime, poverty, and corruption are the hallmarks of cities under Democratic control, and it has been since there was an Elvis Presley (the last Republican mayor was elected in 1948). The city’s voters are to blame because they never learn.”

The op-ed also pointed out recent corruption among the ranks of the city government:

“Last week, a former Democratic City Council member was sentenced to three-and-a-half years in prison after being convicted on bribery and fraud charges. Among his crimes was his involvement in a scheme in which he tried to force the Children’s Hospital of Philadelphia to use labor unions to install MRI machines. Bobby Henon attempted to extort a hospital dedicated to helping terminally ill children to make money. There were other crimes too, but this was the most egregious.”

“Henon won his most recent election in November 2019. During the campaign, it became public knowledge that he was under federal indictment for the crimes mentioned above, including the shakedown of the children’s hospital. Yet the voters still elected him. His opponent at the time, a local community organizer named Pete Smith, tried to warn residents about Henon’s corruption. They didn’t care — they knowingly voted for a crook,” the op-ed concludes.

“Philadelphia’s voters are harming their communities. At some point, people will have to admit that those in cities like Philadelphia who routinely vote to keep the status quo deserve the crime, poverty, and other misfortunes that result from their decisions.”

Meanwhile, as the city crumbles in the background, Philadelphia Mayor Jim Kenney has famously all but gone on record in stating that he “hates his job as mayor”, as was reported late last year. To those who live in Center City Philadelphia and have spoken to waitstaff that have served Kenney, it appears to be an open secret that he does not, in fact, like his job.

“I’ll be happy when I’m not here,” Kenney said back in summer 2022. “When I’m not mayor and I can enjoy some stuff”. 

BREAKING/LISTEN: “I’m waiting for something bad to happen all the time. I’ll be happy when I’m not here. When I’m not mayor and I can enjoy some stuff.” @CoconnellFox29 follow-up question “You’re looking forward to not being mayor?” @PhillyMayor “Yeah.” @FOX29philly pic.twitter.com/yC1f96Uhw9

— Steve Keeley (@KeeleyFox29) July 5, 2022

“F- you,” Kenney more recently responded to Brian Tierney, previously the editor of The Inquirer and Daily News, at a late 2022 event, when questioned about whether or not he liked his job. 

Tierney responded: “That’s a terrible mayor. He says he doesn’t like his job. stop it Go ahead and do something different.”

Authored by Joseph Lord via The Epoch Times (emphasis ours),

A Chicago dad who found himself on a watchlist after opposing pornographic content in his kids’ school says he faced further harassment this weekend from the Transportation Security Administration (TSA) on the way to and from the Conservative Political Action Committee (CPAC) conference in Maryland.

Terry Newsome of Chicago, found out in December 2022 that he had been placed on a terror watch list when he tried to fly from O’Hare Airport to Phoenix. On March 1, Newsome attempted to fly to Washington’s Ronald Reagan National Airport and learned that, despite positive signs to the contrary, his name remained on the watch list.

Though he is still permitted to fly, having his name on the list—which federal law enforcement agencies have not explained—means invasive and embarrassing extra screening for Newsome.

In spite of his efforts to have his name removed from the list, Newsome continues to wrangle with the labyrinthian bureaucracies of the Department of Justice, Department of Homeland Security, FBI, and TSA.

Ongoing Battle With Cancer

Since learning that he had been placed on the list, Newsome has worked incessantly to restore his good name even as he was undergoing “brutal” radiation therapy for stage four cancer.

“A week and a half ago, I finished like seven weeks of intense radiation five days a week,” Newsome told the Epoch Times in an interview.

The treatment left his immune system weakened and left him fatigued, he said, adding that he was worried about flying with his immune system so compromised by the radiation therapy.

“I really shouldn’t have went anywhere because my immune system is pummeled from the radiation, right?” Newsome said.

Despite his usual opposition to masks—quipping “I’m a Republican” to explain—Newsome said he took precautions and wore a mask on the plane to protect his health.

Though the journey made him nervous, Newsome said he felt he had to go to CPAC as part of his ongoing mission to clear his name. Thus, despite his weakened state—and defying his family’s wishes that he not go—Newsome boarded a plane to Washington last week to attend CPAC, where he hoped to find more assistance with his TSA problem.

Invasive Screening

On his arrival at Chicago’s O’Hare on March 1, Newsome learned that his ticket still carried the “quad-S” (SSSS) designation, despite his being a Transportation Security Administration (TSA) pre-check-approved flier for over a decade before.

Earlier, the TSA had responded to a query by Newsome, indicating at the time that he would go through “standard screening protocol” moving forward.

In addition to much more rigorous screening of bags, SSSS fliers are typically on the receiving end of a full-body pat down. They also have their hands (and sometimes, according to some reports) their feet swabbed to check for explosives.

Just how invasive this search can be depends on circumstances, but fliers with the SSSS designation can also expect to be prodded on questions like whether they packed their own bag, where they’re headed, why they’re going there, and so on.

Newsome said that the specifics of SSSS screening are minor on their own, but that the inconveniences add up.

On Feb. 28, 24 hours before his flight was due to take off, Newsome attempted to check in for his flight on the American Airlines app.

As an American Platinum Flier, Newsome is entitled to several cushy benefits, including the chance for his seat to be bumped up to first class depending on availability. When he tried to check in, however, Newsome realized he couldn’t—the first indication that his flight status had not been resolved.

Upon arriving at the airport on March 1, Newsome found that he was still having trouble printing his ticket. As it happened in December, he was required to get federal approval before the airline could print his ticket.

“For me, it’s not like I’m just an enhanced security whatever else it is,” Newsome said. “I can’t even—not only can I not enhance [my ticket], I can’t even get a boarding pass until there’s somebody from the government to give American Airlines the approval to print the ticket.”

Realizing that he was still on the list, Newsome decided simply to check his bag in order to avoid the embarrassment of having all his clothing, medicines, and personal items taken out of his bag in front of everyone.

After checking his bag and receiving his ticket, Newsome proceeded to the TSA checkpoint.

When TSA agents began going through the line examining other fliers’ boarding passes, Newsome knew they were looking for him and told the TSA agents as much. At that point, he was pulled from the line and brought to an empty line for enhanced screening.

Newsome described his experience, citing how embarrassing the extra screening was even knowing he had done nothing wrong.

“They stopped the whole line,” Newsome said. “They actually made everybody get out … And they had supervisors come and took me through the enhanced screening. All these people were watching.”

Newsome and his bag were brought through a metal detector and X-ray scanner, as is the norm for most fliers.

However, they required much more of Newsome: “I had to take off my shoes. Then they take my bags and everything else and I stand there while they go through everything.” Newsome also had his crotch area patted down in view of other fliers.

Newsome added later, “They swabbed everything for bombs.”

Just 30 minutes later, a similar scene played out as Newsome was trying to board his flight.

The TSA announced over a loudspeaker near his gate that they would be checking everyone’s passports, IDs, and boarding passes before they could get on the plane. At the same moment, several TSA agents, joined by what appeared to be an undercover agent wearing sunglasses and coordinating security procedures with the TSA agents, began screening all boarders’ documents.

“I just knew it was for me,” Newsome said.

Thus, he drew attention to himself, telling a TSA agent, “It’s me, I’m the quad-S.”

Newsome was pulled out of line at this point for further screening. Depriving him of yet another American Airline Platinum Flier benefit, Newsome was the last person to board; his ticket entitled him to be in the second group of boarders.

Newsome said this was even more embarrassing for him than the first screening, as that could have been written off as a standard random search.

‘Anti-Porn, Not Anti-Gay’

Earlier, Newsome had been politically active in his school district after learning about sexually explicit images in a book at his children’s school library—activities which Newsome believes may be responsible for his placement on the list in the first place.

Newsome had never been involved in school board meetings or politics until mid-2021, when he attended a district school board meeting after his then-eighth-grade son came home and said his teacher had told him that “there is no American dream.”

Newsome, a descendant of Italian immigrants who himself had lived the American dream, was shocked to hear that. He called his children’s principal to discuss the issue, and suspected that these issues would only get worse when his kids, fraternal twins, got to high school.

In July 2021, Newsome attended his first school board meeting at Downers Grove’s Community High School.

Newsome immediately began a crusade on several hot-button topics, ranging from mask mandates to critical race theory, becoming the unofficial spokesman for several concerned mothers who were more hesitant to speak out.

“The moms are so happy to have an aggressive, type-A-personality father to join them. They had mostly fought this battle alone, against the giant system of public schools,” Newsome told The Epoch Times.

Newsome’s most controversial activism came with his opposition to the book “Gender Queer” by Mia Kobabe, a book containing sexually explicit images that teaches children about oral sex and controversial notions of gender identity.

Selections from the book show a biological female adolescent struggling over her “gender identity.” The girl is also depicted wearing a device known as a “binder,” a tight-fitting brassiere-like garment meant to reduce breast size. At some points in the book, the girl is shown engaging in oral sex with another biological female identifying as male.

Newsome’s opposition to the book led to his receiving a litany of ad hominem attacks from left-wing agitators in the Chicago area. However, he has insisted throughout his activist work that he and other parents are “anti-porn, not anti-gay or homophobic.”

Newsome has coordinated events in his area with Gays Against Groomers, an organization made up of homosexual and transsexual people who have been outspoken against inundating minors with gender ideology.

After Newsome began speaking out against the book and the left-wing ideology that had inundated his children’s schools, he began facing attacks from all corners, ranging from threats by Antifa to opposition by Rep. Sean Casten (D-Ill.).

Two days after the publication of an Epoch Times article about his activism, Newsome found threatening messages against him on a locally run Twitter account called Antifascist Rumor Mill.

“Action items announced soon in regard to Terry Newsome—time to Drop Pops and his hateful agenda,” the tweet read, referencing Newsome’s nickname “Pops.”

“Terry trying to make a name for himself, look at his stupid face in the Epoch Times, the extreme #disinformation rag that echoed all the lies, the Big Lie, the ‘Plandemic’ lie, etc.,” said another tweet from the account.

Newsome told The Epoch Times that many of those who have spoken against him and threatened him, including members of the school board, are in league with Casten.

“The school board and the superintendent are all controlled by radical, radical leftists … that are very vocal in the Downers Grove Community and all supportive of Sean Casten,” Newsome said. “So anybody that speaks out with a different opinion is brutally attacked on social media and called racist, homophobic, and so forth, no matter the truth.”

“To make a point, I’ve said it from the very beginning, through now: Me and the other parents are not anti-gay or homophobic—we’re anti-porn,” Newsome said.

Judith Rose, communications director for the group “Gays Against Groomers,” told the Epoch Times that opposing gender ideology being imposed on children is not homophobic or bigoted.

Rose explained that the goal of the organization, a group made up of gay and transgender people, is to protect children from sexual content.

“Our goals involve getting legislation put in place to make education more appropriate for children to keep adult material away from children [and] to classify drag shows like a burlesque or strip club type situation where they have to be away from children,” Rose explained.

Asked about Newsome’s situation, Rose called it “heartbreaking.”

“I think it’s really heartbreaking, that there’s this wedge being formed between parents and schools,” she said. “And I just think it’s awful what’s happening, trying to classify parents as terrorists for standing up for how they want their kids to be raised or educated. Sometimes it’s not always an option to homeschool your kids.”

Rose argued that the gender push on children was also bad for LGBT adults, saying “it creates an even bigger wedge between our community and people who don’t necessarily approve of us,” Rose said. “I respect their beliefs; I understand.

“However, I really wish that more people could see that it’s time to put our differences aside for the children—Gays Against Groomers represents a part of the LGBT community that understands not everyone is going to accept us or wants to accept us. They have their religious beliefs, whatever it is. We respect that,” she said.

Rose continued, “We don’t want kids to be raised in an environment where they’re heavily saturated with ‘queer ideology’ or ‘queer culture.’ And every parent deserves the right to know what’s going on with their children.”

“We have people on the far left and people on the far right who don’t like us. We’re trying to find that middle ground—that’s really all we want to do,” she stated.

“At the end of the day, it’s about the kids: it’s not about us, or our feelings or our identities even. It’s about making a safe environment for children.”

Jan. 6 Rally

Some of Newsome’s critics have in the past pointed out that he was present at the Jan. 6, 2021, “Stop the Steal” rally.

Newsome candidly admits that he attended the rally, but said he had no bad intentions and broke no laws that day.

“I went to January 6, with my friend, a retired police officer,” Newsome said.

According to Newsome, the FBI previously investigated his friend who attended the event, a retired Cook County police officer, and had cleared him of any wrongdoing.

The officer, who asked that his name be excluded from the story, has been Newsome’s friend for decades.

Asked whether he had observed Newsome committing any act that could be construed as a crime, he quickly said he had not, and that the two were together “100 percent of the time” in DC.

Additionally, Newsome was undergoing immunotherapy for cancer at the time, leaving him in a weakened state.

The day before, Newsome noted, “I had been on the IV for my cancer.”

While, at the time, Newsome was undergoing immunotherapy rather than radiation treatments, he was nevertheless weakened by the treatments. He said at one point he felt so exhausted he had to lie down on the sidewalk for a few minutes before he could continue to the rally.

Newsome and his friend said their only reason for attending the rally was to hear President Donald Trump speak and to ensure people were safe.

“We went down there for two things, one to see our president speak. Two, because we’re both still big guys even though we’re older,” Newsome said. “We saw in November, December, families, parents overly attacked by Antifa [and] BLM in front of their hotels.”

Newsome said he had left by the time order broke down at the rally. As proof, he provided time-stamped photos.

Newsome’s companion backed up his story: “When the alleged insurrection happened we were already gone,” he said. “We were halfway to our hotel, which was approximately three quarters to a mile away. Halfway during the course of our walk, we saw a bunch of squad cars, lights and sirens on, going in the direction of the Capitol.”

It was not until after the two men returned to their hotel that they learned about the Capitol breach, they said.

Newsome’s photos and time stamps from that day show that he did not trespass on Capitol grounds and was gone before the breach ensued.

Newsome said that he and his friend would not have attended the rally if they had known about the bad intentions some had that day.

“It’s not a crime to have been in DC on Jan. 6, whatever the Nancy Pelosis and Liz Cheneys would like you to believe,” Ed Martin, a top attorney for Jan. 6 defendants, told the Epoch Times. “The American people are so disgusted by this stuff.”

“If anyone that was there in Washington on Jan. 6 committed a crime in so doing, that’s a mockery of what America’s about. That’s not the standard and that’s not America.”

Ambivalent Replies

Newsome has gotten lukewarm or ambivalent replies, or none, from the federal agencies with which he has discussed the issue.

Following his experience in December, Newsome sent a Freedom of Information (FOIA) request to the FBI, seeking more information about his newly discovered status as an alleged terror risk.

The FBI refused to discuss details with Newsome.

The FBI letter Newsome received in response to his request, says in part: “The U.S. Government can neither confirm nor deny whether a particular person is on any terrorist watch list. Maintaining the confidentiality of government watch lists is necessary to achieve the objectives of the U.S. Government, as well as to protect the privacy of individuals who may be on a watch list for a limited time and later removed. If the U.S. Government revealed who was listed on any government watch list, terrorists would be able to take actions to avoid detection by government authorities. Thus, the FBI neither confirms nor denies the existence of your subject’s name on any watch lists pursuant to FOIA exemption.”

Because the federal government refuses to so much as acknowledge that Newsome has been placed on a list, it is unclear why Newsome’s name was flagged for enhanced screening.

Newsome told the Epoch Times that he thinks the addition of his name to the list may be in response to his past political activities.

In their response to an Epoch Times inquiry about Newsome, the FBI’s press office insisted that the agency does not open investigations solely on the grounds of protected First Amendment activity.

“The FBI can never open an investigation based solely on protected First Amendment activity,” the agency wrote.

Told about this reply, Martin immediately pointed out the key word in that reply: “solely.”

“The wiggle word is ‘solely,’ so that means they have to say something else,” Martin explained. “So it’s not solely because you asked about the pornography, it’s because you got a speeding ticket when you were 18 that wasn’t resolved, or because you were in January 6.

“So it’s not ‘solely’—[the FBI is saying they] would never do it solely on constitutionally-protected grounds,” Martin said, adding that the FBI had effectively named itself “the judge of what adds up to something dramatic.”

The FBI reply continued: “We cannot and do not investigate ideology. We focus on individuals who commit or intend to commit violence and criminal activity that constitutes a federal crime or poses a threat to national security.”

After hearing this reply, Martin made another observation of what he called a “wiggle” phrase: “intend to commit.”

“[The FBI is] saying here that they’re gonna read minds, and they’re gonna tell us who is intending to commit a crime,” Martin said. “They didn’t say ‘a propensity for crime.’ At least with a ‘propensity’ you can look at some factors—if you have a previous conviction, if you have were arrested multiple times, and others—so with the word ‘propensity’ you can at least make an argument.

“They’re gonna be the mind readers? They’re gonna read the minds of the American people? That’s insanity,” Martin ruled.

The spokesperson expressly refused to answer questions relating to the process of placing someone on a watch list, including questions about oversight of the FBI’s ability to place Americans on flight watch lists.

“It’s just stupid, ya know?” Newsome said of the reply. “Clearly I already know I’m on the list, that’s why I’m writing to you.”

Additionally, Newsome also reached out to the TSA.

In his query, Newsome requested information and tried to get back on the TSA pre-check list.

In its reply, the TSA said he was no longer eligible for its pre-check list, but suggested that Newsome would no longer be subject to enhanced screening. Newsome thought after receiving the letter that he had been removed from the list before his most recent flight.

“As a result of recurrent checks and based on a comprehensive background check, TSA was unable to determine that you pose a sufficiently low risk to transportation and national security to continue to be eligible for expedited airport security screening through the TSA Pre-[Check] Application Program,” the reply said. “As a result, TSA has determined that you are no longer eligible to participate in the TSA Pre-[Check] Application Program.

“This eligibility determination for the TSA Pre-[Check] Application Program is within the sole discretion of TSA,” the letter added. “Although you have been found ineligible to continue your participation in the TSA Pre-[Check] Application Program, you will continue to be screened at airport security checkpoints according to TSA standard screening protocols.”

Told about these replies, Martin sighed, “The bureaucrats will all say ‘It’s not me, it’s not me.’ At this point do we even know who has the oversight for this? Part of the problem with this government is now, when an official says ‘I’m not in charge of that,’ we can’t believe it.”

Newsome has been in contact with other legal and political figures as well, and remains committed to clearing his name.

Powell’s remarks today led to the biggest jump in the dollar since November…

… and a1.5% selloff in SPX, reversing almost of the gains from last Friday’s rally, and with eminis now back below 4000 all three CTA “threshold” levels are on the verge of being broken to the downside.

The reason for the market spasm is that the terminal rate was repriced 16bp higher to 5.63% as Powell put 50bp back on table.

As JPM’s chief economist Michael Feroli explains (in a delightfully titled note available to pro subs), the Fed chair did so by once again jeopardising the Fed’s credibility: “whereas the plan prior to that data round was to hike by 25bps until there was more evidence of disinflation, Chair Powell indicated today that they are prepared to throw out that playbook if the February data don’t reverse some of the January strength.”  In other words, yet another painful U-turn by a Fed which after ripping up the forward guidance book, is clearly even more clueless now what is going on.

To JPM’s head of market intel, Andrew Tyler, Powell’s speech today indicates that the “Fed will heavily depend on near-term data for upcoming rates decisions. With January’s macro data mostly printing on the hawkish side, NFP Friday and CPI next Tuesday are the most critical catalysts for Fed’s decision between 25bp and 50bp. Keep in mind that the Fed will start its blackout period this Saturday so CPI will be released during the blackout period, so data itself will be more impactful in absence of guidance from Fedspeeches.” And also recall that last June, having set market expectations for a 50bps hike, the Fed was reduced to using its WSJ mouthpiece, Nick Timiraos, to alert the market 75bps was coming.

Some more from Feroli’s full note:

The strength of the January data seems to have spooked the Fed Chair. Whereas the plan prior to that data round was to hike by 25bps until there was more evidence of disinflation, Chair Powell indicated today that they are prepared to throw out that playbook if the February data don’t reverse some of the January strength: “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” The phrase “totality of the data” has in the past indicated that data dependency didn’t mean just one month’s data: in this context it apparently means two months’ data. Less surprising was the Chair’s previewing that the March dots are likely to move higher: “…the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

At several points, Powell made note of monetary policy lags, such as, “In light of the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation, the Committee slowed the pace of interest rate increases over its past two meetings.” That reasoning, however, seems to have less sway now (hard to say how much that reflects the departure of Vice Chair Brainard).

So, what does this mean for March and beyond? Prior to today, remarks from the centrists suggested 25bp was the base case, so that the data just needed to return to the trend prevailing prior to the January round to stick with that plan. Now that Powell has opened the door to 50bp, the bar now has likely changed such that the February data need to reverse some of the January strength to stay at 25bp. If the data push them to 50bp at the March meeting, what does that mean for the May meeting? Either they embrace the sort of hyper-data dependency that then-Governor Stein cautioned against ten years ago, or 50bp is the new incumbent, in which case they could be on a path to getting off three 50s just as the economy heads into the debt ceiling crisis in mid-summer. For now, we are sticking with 25bp for the March meeting, though that is now obviously much more contingent on what the next two weeks of data deliver.

Bottom line: the Fed is looking to accelerate its tightening just as the US economy plaxicos itself, with a debt ceiling crisis on top.  Not for nothing Michael Hartnett said that the bear market will end with a credit event in the second half.

And until we wait for the next collapse, here is an excerpt from JPM’s ultra bearish technician Jason Hunter (full note also available to pro subs) on how Powell’s comments could impact the market in the coming days:

The S&P 500 Index slides to retest the key confluence of levels near 3900 after rejecting 4060-4089 tactical pattern resistance. We believe a break through the 3900 inflection can lead to accelerated selling pressure, as that area has acted as a bifurcation for the index from May 2022. It also currently aligns with several trend-following trigger levels for momentum-based strategies. We see the 3760-3764 area as an initial target for a breakdown.

Our base-case forecast that looked for a 1H23 3500 Oct 2022 low retest to set the bottom for the cycle was in part leaning on the fact that the 5s/10s UST curve had already bottomed in Sep 2022. In the supply-constrained period of the 1970s when the sequence of inflation shocks dominated the macro environment, the equity market became positive correlated with the yield curve and bottomed within a 1–5-month period after the curve set the cycle lows. With the recent hawkish repricing pushing the curve through the Sep 2022 trough, that countdown needs to restart whenever the curve bottoms in the future. As such, we think the probability for a deeper S&P 500 Index slide to next support near 3200 and a bottom later within the first half of 2023 has increased.

That takes care of JPMorgan, what about Goldman? In his market wrap analysis, Goldman’s John Flood writes that “Powell said the US central bank is prepared to increase the pace of hikes if data warrant, and sees the ultimate peak Fed rate likely to be higher than expected. In prepared testimony before the Senate Banking Committee, he said the process of getting inflation back to 2% “has a long way to go and is likely to be bumpy.”

Some more from Goldman trader Michael Nocerino on today’s market reaction:

Today’s commentary possibly opens the door for a 50bps hike at the next meeting. This morning the market was pricing in a 22% chance of 50bps hike…post the statement market is now pricing 63% chance.

Yesterday felt like a build up into today and it disappointed for the bulls. Another round of hawkish commentary from Powell and hotter than expected Manheim data (wholesale used vehicle prices rose 4.3% in February (the largest for the month since 2009) spurred a largely risk off session. Off the back of the Powell commentary, rates spiked (especially on the front end, 2yr @ highest level since ’06, 2s10s most inverted since summer of ’80 ), markets rolled and investors are now bracing for the possibility of 50bps at the March meeting (higher for longer getting louder). Surprisingly, the response on the desk was muted (5 out of 10) and when taking a look at our PB the gross up in risk has been swift – investors willing to ride this out until we get more data? Asset Managers had a -19% sell skew which was highest since 2/20/23 and 92nd percentile vs previous 52 weeks. HFs had a -542bp sell skew highest since 2/16/23. All eyes are now on this Friday’s NFP, but a watchful eye remains on JOLTS where GS estimates 10,200k openings vs. 10,500 consensus.

Putting it all together, Goldman Research added 25bps to their forecast: “Whether the FOMC hikes by 25bp or 50bp, we now expect that the median dot in the March Summary of Economic Projections will rise by 50bp to a peak of 5.5-5.75% in 2023. One reason for this is that even if FOMC participants decide on a 25bp hike in March but are split on the pace, they might compromise by engineering a 50bp increase in the peak funds rate shown in the dot plot. We have raised our own forecast of the peak fed funds rate by 25bp to 5.5-5.75% as well by adding a 25bp hike in July.”

Much more in the full notes available to professional subs.

Authored by Samantha Flom via The Epoch Times (emphasis ours),

A group of Republican senators is calling on Director of National Intelligence Avril Haines to turn over the materials that informed her office’s latest assessment on the origins of COVID-19.

In a March 6 letter (pdf), the senators—led by Sen. Roger Marshall (R-Md.)—asked that Haines provide the “memoranda; emails; interim and final assessments provided by each IC [intelligence community]; and any other information” that her office considered in developing its assessment by March 20.

Other senators who signed their names to the letter include Sens. Marsha Blackburn (R-Tenn.), Mike Braun (R-Ind.), Susan Collins (R-Maine), Joni Ernst (R-Iowa), Chuck Grassley (R-Iowa), Rick Scott (R-Fla.), and Roger Wicker (R-Miss.).

“Congress should be able to review the independent evaluations without filters, ambiguity or interpretations of the intelligence,” the lawmakers wrote. “There is clear bipartisan support in Congress to make these assessments available immediately in full as evident by the unanimous March 1, 2023 Senate passage of the COVID-19 Origin Act to declassify information related to the origin of COVID-19.”

Senate Vote

The Senate voted last week to declassify all information on the origins of COVID-19 following the wide circulation of a Wall Street Journal report that the Department of Energy had concluded the pandemic likely originated from a laboratory leak at the Wuhan Institute of Virology in China—a conclusion that the FBI has also reached.

Yet the White House asserted on Feb. 28 that there is “no consensus” in the U.S. government on the origins of the pandemic, echoing the inconclusive messaging of the Office of the Director of National Intelligence’s (ODNI) previous assessment (pdf).

Read more here…

U.S. Customs and Border Protection (CBP) has dispatched 25 more agents to a sector of the Canadian border that’s seeing a large increase in Mexican migrants using the northern frontier to do an end run that bypasses the southern border.  

Some if not all of these agents are being temporarily reassigned from the Mexico border, NBC News reports, citing a source familiar with the resource shift. “The deployed team will serve as a force multiplier in the region and assist to deter and disrupt human smuggling activities,” a CPB spokesperson said. 

An increasing number of illegal immigrants — mostly Mexicans — are buying one-way commercial plane tickets to Montreal or Toronto and then crossing the U.S. border. The odds of being rejected by agents on the northern frontier is lower than down south, reports NBC:

“On a per capita basis, the Border Patrol invokes Title 42 to block migrants from claiming asylum less frequently at the northern border than at the southern border.”

The burst of activity is concentrated in the “Swanton Sector,” a Border Patrol division that encompasses Vermont and parts of New York and New Hampshire, including 203 miles of land border and 92 miles of aquatic border. Along that stretch, apprehensions of illegal immigrants soared 846% from Oct 2022 through January, compared to the same period a year earlier. 

The absolute number of migrant encounters is still relatively modest — 367 migrants stopped in January — but the explosive upward trajectory is concerning. New Hampshire Governor Chris Sununu this week asked state legislators to appropriate $1.4 million to bolster patrols along the Granite State’s own 58-mile stretch of border. 

While the Mexican and American deserts are notoriously perilous, the northern border has its own dangers, especially during the winter. “Not only is it unlawful to circumvent legal means of entry into the United States, but it is extremely dangerous, particularly in adverse weather conditions, which our Swanton Sector has in abundance,” Swanton sector chief Robert Garcia said last month. 

On Feb 3, as temperatures hit negative-four, Border agents encountered a family in Vermont that included a 2-year-old and an infant. 

If Mexicans are willing to brave those winter conditions, imagine what the traffic will look like as we turn to spring…as if those invading Canadian super pigs weren’t enough to deal with. 

Authored by Omid Malekan via Medium.com,

I spent the weekend at the ETH Denver crypto developer conference and left feeling rejuvenated. Thousands of energetic young people, fueled by the desire to build something new and better, converging in one place to learn, code, debate and innovate. Attendance was twice last year’s event, and there was little talk of FTX, coin prices or regulatory challenges. As one friend put it, it was like all the negativity of last year never happened.

Then I returned to an American regulatory crackdown best described as shambolic. Regulation of the crypto industry was always inevitable and in many ways desirable. Blockchain technology is uniquely capable of building trust in a digital setting, but the industry built on top of it has a lot of growing up to do. Sensible regulations can pave the way for growth and mass adoption.

But that’s not what we are getting in the U.S. Here we have a hodgepodge of uncoordinated actions best described as a Pincer movement, forcing responsible companies into dangerous corners they can’t get out of. The goal, to the extent there is one, seems to be to either prevent the industry from growing or to drive it offshore. Here are a few examples:

Banking

For years, federal bank regulators have told the biggest American banks to keep away from crypto. This has forced the industry to rely on smaller state and regional banks for basic services. But concentration of any sector in a handful of small banks is always dangerous and risks runs, like the one that happened at Silvergate. Now those same regulators are telling small banks they need to limit their exposure to crypto as well.

The result? Companies like exchanges and stablecoin issuers have no choice but to look offshore.

Custody

Most institutional investors are not allowed to custody their own assets and have been relying on fully-regulated state chartered institutions to store their coins. Now the SEC is saying those custodians may not be good enough, with the implication that registered investment advisors should look to bigger, federally regulated custodians.

But those companies don’t want to offer crypto custody because another SEC guidance forces them to fully reserve against client assets, an unprecedented decision that makes crypto custody cost-prohibitive.

The result? Institutions may need to go offshore for compliant custody.

Stablecoins

Stablecoins are arguably the killer app of crypto, offering a win-win where foreigners get access to digital dollars and the federal government gets a new source of demand for its debt. Oddly, American regulators keep trying to kill them.

New York-based Paxos has been a pioneer in issuing fully regulated and generally trustworthy stablecoins. It is the only issuer that has a Trust charter and the first to publish transparent reserve reports down to the CUSIP. But now it is being investigated by both the New York Department of Financial Services and the SEC, forcing it to abandon BUSD, the 3rd largest dollar coin.

Its loss has been Tether’s gain, and the unregulated offshore issuer is laughing all the way to the bank (it will make billions in profits this year but pay little American taxes). Meanwhile established payment providers like PayPal are being ordered to stay away from stablecoins.

The result? American companies who want to offer innovative payment products can’t.

Securities

Governments in Europe, the Mid East and Asia have created classifications for different kinds of digital assets so they can regulate each smartly, taking into account unique features and risks. America keeps going in the opposite direction, applying a broad analogue brush to anything that lives on a blockchain. Here, we have no choice but to treat tokens needed to pay for cloud storage, U.S. dollars meant for payments and digital basketball cards the same as Apple stock. It’s absurd.

The result? American projects have a harder time raising money, American developers have a harder time finding work, and American users are blocked from new products.

ETFs

Most developed countries have spot Bitcoin ETFs that give people direct exposure to the cryptocurrency via existing market infrastructure. America does not, despite repeated attempts by both crypto natives and veteran Wall Street firms to create one. What we do have are far more complex, inefficient ETFs tied to Bitcoin futures.

The result? American ETF issuers lose out to foreign counterparts and American investors get inferior products.

…

The list goes on, but I’ll stop here. We can speculate on the motivations of the US regulatory apparatus, but that won’t change the outcome.

Unless something changes, an ecosystem that began as an American phenomenon will succeed elsewhere, taking all of its jobs, tax revenues and influence with it.

The U.S. has always been the envy of the world for both tech and finance. We seem content to lose the lead on both, unless Congress and the courts intervene.

Update (2002ET): Elon Musk has responded to the Journal‘s report on the invasive FTC probe, as revealed by the House Select Subcommittee on the Weaponization of the Federal Government.

“A shameful case of weaponization of a government agency for political purposes and suppression of the truth!” Musk tweeted Tuesday evening.

A shameful case of weaponization of a government agency for political purposes and suppression of the truth!

— Elon Musk (@elonmusk) March 7, 2023

Musk called the Biden administration’s ‘casual violation of the First Amendment’ (as Jay Bhattacharya put it), calling it a “serious attack on the Constitution by a federal agency.”

This is a serious attack on the Constitution by a federal agency.

— Elon Musk (@elonmusk) March 7, 2023

*  *  *

The Federal Trade Commission has demanded that Twitter hand over internal communications related to owner Elon Musk, including detailed information about mass layoffs he instituted shortly after his purchase of the social media giant.

And what did the FTC cite as justification? Concerns that staff reductions could compromise the company’s ability to protect users, the Wall Street Journal reports.

In 12 letters sent to Twitter and its lawyers since Mr. Musk’s Oct. 27 takeover, the FTC also asked the company to “identify all journalists” granted access to company records and to provide information about the launch of the revamped Twitter Blue subscription service, the documents show.

The FTC is also seeking to depose Mr. Musk in connection with the probe. -WSJ

“We are concerned these staff reductions impact Twitter’s ability to protect consumers’ information,” wrote an FTC official in a Nov. 10 letter to Twitter attorneys, shortly after the company’s initial wave of layoffs.

The demand letters were obtained by the GOP-led House Judiciary Committee which published limited excerpts in a Tuesday staff report concerning the ‘weaponization’ of federal agencies.

As recently as January, the FTC felt that Twitter was engaging in a “troubling pattern of ongoing delay” which raised “serious concerns about its compliance.”

In response to the Journal‘s questions, FTC spokesman Douglas Farrar said that “Protecting consumers’ privacy is exactly what the FTC is supposed to do,” adding that the agency is “conducting a rigorous investigation into Twitter’s compliance with a consent order that came into effect long before Mr. Musk purchased the company.”

The FTC inquiries have raised concerns over whether the company can comply with a $150 million settlement related to allegations of privacy violations which predated Musk’s purchase of the company.

According to the Judiciary Committee report, “There is no logical reason, for example, why the FTC needs to know the identities of journalists engaging with Twitter,” adding “There is no logical reason why the FTC, on the basis of user privacy, needs to analyze all of Twitter’s personnel decisions. And there is no logical reason why the FTC needs every single internal Twitter communication about Elon Musk.”

According to a November statement from Musk to Twitter employees, the company will follow both the letter and the spirit of the 2022 FTC settlement. In December, he announced that the company’s headcount had been reduced from roughly 8,000 employees to 2,000.

In letters ranging from Nov. 10 through Feb. 1, the FTC asked Twitter to quantify the number of layoffs and resignations, and requested an in-depth accounting of what new executives are responsible, and who would be overseeing privacy and security matters.

One letter pressed for an explanation of the departure of Jim Baker, the former Justice Department official who until December was a senior Twitter lawyer with responsibilities for ensuring compliance with the FTC order.  

The FTC also asked for all internal Twitter communications “related to Elon Musk,” or sent “at the direction of, or received by” Mr. Musk.

Mr. Musk was scheduled to be deposed by the FTC on Feb. 3 but had a potential conflict related to court testimony in a securities lawsuit, according to a Jan. 24 FTC letter. The deposition hasn’t happened, said a person briefed on the matter. -WSJ

On Dec. 13, the FTC asked Twitter for information regarding journalists Musk has granted access to view internal communications as part of the so-called “Twitter Files” disclosures. The agency asked Twitter to describe the “nature of access granted each person,” and explain how allowing access “is consistent with your privacy and information security obligations under the Order.” They also asked if Twitter conducted background checks on the journalists, as well as whether they could access the personal messages of Twitter users.

Finally, as The Wall Street Journal points out, the Judiciary panel’s report accuses the FTC of overstepping its authority at the urging of progressive groups unhappy with Mr. Musk’s acquisition of the company.

Given the depth of the demands above, it is hard not to see their point.

Authored by Gail Tverberg via Our Finite World blog,

Most people have a simple, but wrong, idea about how the world economy will respond to “not enough energy to go around.” They expect that oil prices will rise. With these higher prices, producers will be able to extract more fossil fuels so the system can go on as before. They also believe that wind turbines, solar panels and other so-called renewables can be made with these fossil fuels, perhaps extending the life of the system further.

The insight people tend to miss is the fact that the world’s economy is a physics-based, self-organizing system. Such economies grow for many years, but ultimately, they collapse. The underlying problem is that the population tends to grow too rapidly relative to the energy supplies necessary to support that population. History shows that such collapses take place over a period of years. The question becomes: What happens to an economy beginning its path toward full collapse?

One of the major uses for fossil fuel energy is to add complexity to the system. For example, roads, electricity transmission lines, and long-distance trade are forms of complexity that can be added to the economy using fossil fuels.

Figure 1. Chart by author pointing out that energy consumption and complexity are complementary. They operate in different directions. Complexity, itself, requires energy consumption, but its energy consumption is difficult to measure.

When energy per capita falls, it becomes increasingly difficult to maintain the complexity that has been put in place. It becomes too expensive to properly maintain roads, electrical services become increasingly intermittent, and trade is reduced. Long waits for replacement parts become common. These little problems build on one another to become bigger problems. Eventually, major parts of the world’s economy start failing completely.

When people forecast ever-rising energy prices, they miss the fact that market fossil fuel prices consider both oil producers and consumers. From the producer’s point of view, the price for oil needs to be high enough that new oil fields can be profitably developed. From the consumer’s point of view, the price of oil needs to be sufficiently low that food and other goods manufactured using oil products are affordable. In practice, oil prices tend to rise and fall, and rise again. On average, they don’t satisfy either the oil producers or the consumers. This dynamic tends to push the economy downward.

There are many other changes, as well, as fossil fuel energy per capita falls. Without enough energy products to go around, conflict tends to rise. Economic growth slows and turns to economic contraction, creating huge strains for the financial system. In this post, I will try to explain a few of the issues involved.

[1] What is complexity?

Complexity is anything that gives structure or organization to the overall economic system. It includes any form of government or laws. The educational system is part of complexity. International trade is part of complexity. The financial system, with its money and debt, is part of complexity. The electrical system, with all its transmission needs, is part of complexity. Roads, railroads, and pipelines are part of complexity. The internet system and cloud storage are part of complexity.

Wind turbines and solar panels are only possible because of complexity and the availability of fossil fuels. Storage systems for electricity, food, and fossil fuels are all part of complexity.

With all this complexity, plus the energy needed to support the complexity, the economy is structured in a very different way than it would be without fossil fuels. For example, without fossil fuels, a high percentage of workers would make a living by performing subsistence agriculture. Complexity, together with fossil fuels, allows the wide range of occupations that are available today.

[2] The big danger, as energy consumption per capita falls, is that the economy will start losing complexity. In fact, there is some evidence that loss of complexity has already begun.

In my most recent post, I mentioned that Professor Joseph Tainter, author of the book, The Collapse of Complex Societies, says that when energy supplies are inadequate, the resulting economic system will need to simplify–in other words, lose some of its complexity. In fact, we can see that such loss of complexity started happening as early as the Great Recession in 2008-2009.

The world was on a fossil fuel energy consumption per capita plateau between 2007 and 2019. It now seems to be in danger of falling below this level. It fell in 2020, and only partially rebounded in 2021. When it tried to rebound further in 2022, it hit high price limits, reducing demand.

Figure 2. Fossil fuel energy consumption per capita based on data of BP’s 2022 Statistical Review of World Energy.

There was a big dip in energy consumption per capita in 2008-2009 when the economy encountered the Great Recession. If we compare Figure 2 and Figure 3, we see that the big drop in energy consumption is matched by a big drop in trade as a percentage of GDP. In fact, the drop in trade after the 2008-2009 recession never rebounded to the former level.

Figure 3. Trade as a percentage of world GDP, based on data of the World Bank.

Another type of loss of complexity involves the drop in the recent number of college students. The number of students was rising rapidly between 1950 and 2010, so the downward trend represents a significant shift.

Figure 4. Total number of US full-time and part-time undergraduate college and university students, according to the National Center for Education Statistics.

The shutdowns of 2020 added further shifts toward less complexity. Broken supply lines became more of a problem. Empty shelves in stores became common, as did long waits for newly ordered appliances and replacement parts for cars. People stopped buying as many fancy clothes. Brick and mortar stores did less well financially. In person conferences became less popular.

We know that, in the past, economies that collapsed lost complexity. In some cases, tax revenue fell too low for governments to maintain their programs. Citizens became terribly unhappy with the poor level of government services being provided, and they overthrew the governmental system.

The US Department of Energy states that it will be necessary to double or triple the size of the US electric grid to accommodate the proposed level of clean energy, including EVs, by 2050. This is, of course, a kind of complexity. If we are already having difficulty with maintaining complexity, how do we expect to double or triple the size of the US electric grid? The rest of the world would likely need such an upgrade, as well. A huge increase in fossil fuel energy, as well as complexity, would be required.

[3] The world’s economy is a physics-based system, called a dissipative structure.

Energy products of the right kinds are needed to make goods and services. With shrinking per capita energy, there will likely not be enough goods and services produced to maintain consumption at the level citizens are used to. Without enough goods and services to go around, conflict tends to grow.

Instead of growing and experiencing economies of scale, businesses will find that they need to shrink back. This makes it difficult to repay debt with interest, among other things. Governments will likely need to cut back on programs. Some governmental organizations may fail completely.

To a significant extent, how these changes happen is related to the maximum power principle, postulated by ecologist Howard T. Odum. Even when some inputs are inadequate, self-organizing ecosystems try to maintain themselves, as best possible, with the reduced supplies. Odum said, “During self-organization, system designs develop and prevail that maximize power intake, energy transformation, and those uses that reinforce production and efficiency.” As I see the situation, the self-organizing economy tends to favor the parts of the economy that can best handle the energy shortfall that will be taking place.

In Sections [4], [5], and [6], we will see that this methodology seems to lead to a situation in which competition leads to different parts of the economy (energy producers and energy consumers) being alternately disadvantaged. This approach leads to a situation in which the human population declines more slowly than in either of the other possible outcomes:

• Energy producers win, and high energy prices prevail – The real outcome would be that high prices for food and heat for homes would quickly kill off much of the world’s population because of lack of affordability.

• Energy consumers always win, and low energy prices prevail – The real outcome would be that energy supplies would fall very rapidly because of inadequate prices. Population would fall quickly because of a lack of energy supplies (particularly diesel fuel) needed to maintain food supplies.

[4] Prices: Competition between producers and customers will lead to fossil fuel energy prices that alternately rise and fall as extraction limits are hit. In time, this pattern can be expected to lead to falling fossil fuel energy production.

Energy prices are set through competition between:

[a] The prices that consumers can afford to pay for end products whose costs are indirectly determined by fossil fuel prices. Food, transportation, and home heating costs are especially fossil fuel price sensitive. Poor people are the most quickly affected by rising fossil fuel prices.

[b] The prices that producers require to profitably produce these fuels. These prices have been rising rapidly because the easy-to-extract portions were removed earlier. For example, the Wall Street Journal is reporting, “Frackers Increase Spending but See Limited Gains.”

If fossil fuel prices rise, the indirect result is inflation in the cost of many goods and services. Consumers become unhappy when inflation affects their lifestyles. They may demand that politicians put price caps in place to somehow stop this inflation. They may encourage politicians to find ways to subsidize costs, so that the higher costs are transferred to a different part of the economy. At the same time, the producers need the high prices, to be able to fund the greater reinvestment necessary to maintain, and even raise, future fossil fuel energy production.

The conflict between the high price producers need and the low prices that many consumers can afford is what leads to temporarily spiking energy prices. In fact, food prices tend to spike, too, since food is a kind of energy product for humans, and fossil fuel energy products (oil, especially) are used in growing and transporting the food products. In their book, Secular Cycles, researchers Peter Turchin and Sergey Nefedov report a pattern of spiking prices in their analysis of historical economies that eventually collapsed.

With oil prices spiking only temporarily, energy prices are, on average, too low for fossil fuel producers to afford adequate funds for reinvestment. Without adequate funds for reinvestment, production begins to fall. This is especially a problem as fields deplete, and funds needed for reinvestment rise to very high levels.

[5] Demand for Discretionary Goods and Services: Indirectly, demand for goods and services, especially in discretionary sectors of the economy, will also tend to get squeezed back by the rounds of inflation caused by spiking energy prices described in Item [4].

When customers are faced with higher prices because of spiking inflation rates, they will tend to reduce spending on discretionary items. For example, they will go out to eat less and spend less money at hair salons. They may travel less on vacation. Multiple generation families may move in together to save money. People will continue to buy food and beverages since these are essential.

Businesses in discretionary areas of the economy will be affected by this lower demand. They will buy fewer raw materials, including energy products, reducing the overall demand for energy products, and tending to pull energy prices down. These businesses may need to lay off workers and/or default on their debt. Laying off workers may further reduce demand for goods and services, pushing the economy toward recession, debt defaults, and thus lower energy prices.

We find that in some historical accounts of collapses, demand ultimately falls to close to zero. For example, see Revelation 18:11-13 regarding the fall of Babylon, and the lack of demand for goods, including the energy product of the day: slaves.

[6] Higher Interest Rates: Banks will respond to rounds of inflation described in Item [4] by demanding higher interest rates to offset the loss of buying power and the greater likelihood of default. These higher interest rates will have adverse impacts of their own on the economy.

If inflation becomes a problem, banks will want higher interest rates to try to offset the adverse impact of inflation on buying power. These higher interest rates will tend to reduce demand for goods that are often bought with debt, such as homes, cars, and new factories. As a result, the sale prices of these assets are likely to fall. Higher interest rates will tend to produce the same effect for many types of assets, including stocks and bonds. To make matters worse, defaults on loans may also rise, leading to write-offs for the organizations carrying these loans on their balance sheets. For example, the used car dealer Caravan is reported to be near bankruptcy because of issues related to falling used car prices, higher interest rates, and higher default rates on debt.

An even more serious problem with higher interest rates is the harm they do to the balance sheets of banks, insurance companies, and pension funds. If bonds were previously purchased at a lower interest rate, the value of the bonds is less at a higher interest rate. Accounting for these organizations can temporarily hide the problem if interest rates quickly revert to the lower level at which they were purchased. The real problem occurs if inflation is persistent, as it seems to be now, or if interest rates keep rising.

[7] A second major conflict (after the buyer/producer conflict in Item [4], [5], and [6]) is the conflict in how the output of goods and services should be split between returns to complexity and returns to basic production of necessary goods including food, water, and mineral resources such as fossil fuels, iron, nickel, copper, and lithium.

Growing complexity in many forms is something that we have come to value. For example, physicians now earn high wages in the US. People in top management positions in companies often earn very high wages. The top people in large companies that buy food from farmers earn high wages, but farmers producing cattle or growing crops don’t fare nearly as well.

As energy supply becomes more constrained, the huge chunks of output taken by those with advanced degrees and high positions within the large companies gets to be increasingly problematic. The high incomes of citizens in major cities contrasts with the low incomes in rural areas. Resentment among people living in rural areas grows when they compare themselves to how well people in urbanized areas are doing. People in rural areas talk about wanting to secede from the US and wanting to form their own country.

There are also differences among countries in how well their economies get rewarded for the goods and services they produce. The United States, the EU, and Japan have been able to get better rewards for the complex goods that they produce (such as banking services, high-tech medicine, and high-tech agricultural products) compared to Russia and the oil exporting countries of the Middle East. This is another source of conflict.

Comparing countries in terms of per capita GDP on a Purchasing Power Parity (PPP) basis, we find that the countries that focus on complexity have significantly higher PPP GDP per capita than the other areas listed. This creates resentment among countries with lower per-capita PPP GDP.

Figure 5. Average Purchasing Power Parity GDP Per Capita in 2021, in current US dollars, based on data from the World Bank.

Russia and the Arab World, with all their energy supplies, come out behind. Ukraine does particularly poorly.

The conflict between Russia and Ukraine is between two countries that are doing poorly on this metric. Ukraine is also much smaller than Russia. It appears that Russia is in a conflict with a competitor that it is likely to be able to defeat, unless NATO members, including the US, can give immense support to Ukraine. As I discuss in the next section, the industrial ability of the US and the EU is waning, making it difficult for such support to be available.

[8] As conflict becomes a major issue, which economy is largest and is best able to defend itself becomes more important.

Figure 6. Total (not per capita) PPP GDP for the US, EU, and China, based on data of the World Bank.

Back in 1990, the EU had a greater PPP GDP than did either the US or China. Now, the US is a little ahead of the EU. More importantly, China has come from way behind both the US and EU, and now is clearly ahead of both in PPP GDP.

We often hear that the US is the largest economy, but this is only true if GDP is measured in current US dollars. If differences in actual purchasing power are reflected, China is significantly ahead. China is also far ahead in total electricity production and in many types of industrial output, including cement, steel, and rare earth minerals.

The conflict in Ukraine is now leading countries to take sides, with Russia and China on the same side, and the United States together with the EU on Ukraine’s side. While the US has many military bases around the world, its military capabilities have increasingly been stretched thin. The US is a major oil producer, but the mix of oil it produces is of lower and lower average quality, especially if obtaining diesel and jet fuel from it are top priorities.

Figure 7. Chart by OPEC, showing the mix of liquids that now make up US production. Even the “Tight crude” tends to be quite “light,” making it less suitable for producing diesel and jet fuel than conventional crude oil. Chart from OPEC’s February 2023 Monthly Oil Market Report.

Huge pressure is building now for China and Russia to trade in their own currencies, rather than the US dollar, putting pressure on the US financial system and its status as the reserve currency. It is also not clear whether the US would be able to fight on more than one front in a conventional war. A conflict with Iran has been mentioned as a possibility, as has a conflict with China over Taiwan. It is not at all clear that a conflict between NATO and China-Russia is winnable by the NATO forces, including the US.

It appears to me that, to save fuel, more regionalization of trade is necessary with the Asian countries being primary trading partners of each other, rather than the rest of the world. If such a regionalization takes place, the US will be at a disadvantage. It currently depends on supply lines stretching around the world for computers, cell phones, and other high-tech devices. Without these supply lines, the standards of living in the US and the EU would likely decline quickly.

[9] Clearly, the narratives that politicians and the news media tell citizens are under pressure. Even if they understand the true situation, politicians need a different narrative to tell voters and young people wondering about what career to pursue.

Every politician would like a “happily ever after” story to tell citizens. Fortunately, from the point of view of politicians, there are lots of economists and scientists who put together what I call “overly simple” models of the economy. With these overly simple models of the economy, there is no problem ahead. They believe the standard narrative about oil and other energy prices rising indefinitely, so there is no energy problem. Instead, our only problem is climate change and the need to transition to green energy.

The catch is that our ability to scale up green energy is just an illusion, built on the belief that complexity can scale up indefinitely without the use of fossil fuels.

We are left with a major problem: Our current complex economy is in danger of degrading remarkably in the next few years, but we have no replacement available. Even before then, we may need to do battle, in new ways, with other countries for the limited resources that are available.

The last time we checked in on China’s debt, the IIF calculated that it was just shy of 300% its GDP, a record high, and more than double where it was a decade ago. So to say that China has a debt problem isn’t exactly a surprise.

What may surprise, however, is that as China has been busy trying to sweep all this massive, growth-crushing debt under the rug (yes, there is a reason why the Politburo’s latest GDP target was a disappoint 5% and it begins with “d” and ends with “ebt”), it is starting to run out of hiding spaces and as the WSJ reports overnight, China’s economy is “being weighed down by the colossal debts of its local governments, which swelled during the pandemic and are starting to come to a head” and nowhere is this more visible than at the city level.

Xi Jinping’s now defunct zero-Covid campaign buried cities under billions of dollars in unplanned expenditures for mass testing and lockdowns. At the same time, Beijing’s crackdown on excessive property-market leverage led to a sharp drop in land sales, depriving cities of one of their biggest revenue sources.

As a result, the WSJ notes that according to S&P Global calculations, two-thirds of local governments are now in danger of breaching unofficial debt thresholds set by Beijing to signify severe funding stress, with their outstanding debt exceeding 120% of income last year.

About a third of China’s major cities are struggling to pay just the interest on debt they owe, according to a survey by Rhodium Group, a New York-based research firm. In one extreme case, in Lanzhou, the capital city of Gansu province, interest payments were the equivalent of 74% of fiscal revenue in 2021. This is rapidly approaching the infamous “Minsky Moment” now that debt has moved beyond “mere” Ponzi financing levels.

Making matters worse, big chunks of debt are coming due soon: according to research by Lianhe Ratings Global, a subsidiary of a large domestic rating agency, about 84% of the $84.2 billion in offshore debt owed by local government financing vehicles will mature between this year and 2025.

Still, as the WSJ, the main concern isn’t that cities will default and trigger a financial crisis – although that can certainly happen assuming Beijing let’s them fail, which is unlikely – it is that cities will have to keep cutting spending, delay investments or take other actions to keep creditors at bay, impairing growth for years.

In Zhengzhou, home to a Foxconn assembly site for Apple’s iPhones, bus drivers say their salaries were cut in 2021 and haven’t been restored. Street sweepers report to work even though some say they haven’t been paid in months.

“Our salary isn’t high. Why does the country even owe us this kind of money?” said Xu Aiqiang, 67, as she swept a park on the west side of Zhengzhou. She said her company, a city contractor, hasn’t paid her monthly salary of around $320 for seven months. “Even if they aren’t paying me, I’m still keeping my areas clean, so I can see it for myself.”

At the same time, teachers in the southern megacity of Shenzhen are complaining on social media about sharp cuts in bonuses, an important pay component. In January, a heating company in the rust belt city of Hegang in northeastern China told residents to prepare for a cutoff in heat after the company failed to get subsidies from the local government.

As a result of these spending cuts, protests have broken out in recent weeks in cities such as Wuhan (best known for being the site of the infamous Covid lab leak), Dalian and Guangzhou over public healthcare system overhauls that have included cuts in medical benefits due in part to strained government finances.

In response to this growing social unrest, on Sunday, at annual meetings of China’s legislature in Beijing, Chinese policy makers offered only modest support for local governments, signaling they want to promote fiscal discipline. While fiscal transfers from central authorities to local governments, which Beijing provides annually, are set to increase to around $1.5 trillion this year, the 3.6% increase in 2023 is a far cry from last year’s 18% increase. Municipalities will be allowed to issue around $550 billion worth of local government special-purpose bonds this year, down from last year’s actual issuance of $580 billion.

A few days earlier, Chinese Finance Minister Liu Kun played down financial strains faced by local officials, saying on Wednesday that the situation remained mostly stable last year and is expected to further improve this year as the economy recovers.

The good news is that Beijing still has plenty of fiscal room to intervene in individual cases if necessary to prevent major defaults, according to economists. Local governments can also sell off assets, if they can find buyers. However, the central government’s balance sheet isn’t strong enough to bail out every contingent liability in China, wrote Nicholas Borst, director of China research at Seafarer Capital Partners, a San Francisco-based investment firm, in a research paper on local debt released this month.

“Moreover, a one-off series of bailouts would increase moral hazards and not change the underlying dynamics that led to the problem in the first place,” he wrote, encapsulating the problem facing not just China but every western central bank.

That means local residents—especially civil servants—may see more salary cuts and reduced services, as well as fewer infrastructure investments to power growth and employment. 

Similar to Europe’s period of austerity, “the real cost of the debt won’t be a financial crisis but it’ll lead to many years of struggling to allocate the cost of that debt,” said Michael Pettis, a finance professor at Peking University.

Officially, China’s 31 provincial governments owe around $5.1 trillion, including bonds held by local and foreign investors. However, those figures don’t include a variety of off-balance-sheet debts typically raised through so-called local government financing vehicles, which have proliferated in recent years to fund infrastructure and other spending obligations. The debts from those vehicles are expected to reach nearly $10 trillion this year, according to the International Monetary Fund.

As the WSJ puts it in context, the debt from those vehicles is more than the combined government debt of Germany, France and Italy as of the third quarter of 2022.

Interest on the debts crowds out other spending. The Rhodium Group research found that interest costs accounted for at least a fifth of fiscal resources in 25 Chinese cities in 2021. Anything over 10% — the case in more than 100 cities—leads to “meaningful constraints,” Rhodium said.     

As discussed before, local governments’ debt problems have been building since the global financial crisis. Many became addicted to launching projects—which juiced growth—and selling land and borrowing more to pay for all of it. In addition, China’s local governments must shoulder most of the costs of services such as public education and healthcare. Beijing restricts how they can raise money, compelling them to send most of what they collect in taxes to the central government, while limiting what they can borrow.

Zhengzhou, with nearly 13 million residents, has healthier finances than many other cities. Its streets are vibrant, with residents crowding eateries. Yet in the past three years, Zhengzhou’s fiscal revenue dropped by 14% on average each year while total debt grew by 14% annually. Its debt-to-fiscal income ratio rose to 178% in 2022, from 75% in 2019.

Another street sweeper told The Wall Street Journal he hasn’t been paid by his company, also a city contractor, since he joined nearly two months ago. Another two months’ worth of salary remains unpaid from his last job, at a local sanitation department. He said he was told the district government hasn’t sent his company the money to pay his salary, equivalent to around $370 a month.

“Sooner or later they’ll have to pay me,” he said as he kept picking up discarded tissue paper and dried leaves. He relies on his son, a truck driver, to assist him financially, he said.

In late February, a bus company in Shangqiu, a city about two hours’ drive from Zhengzhou with around 7 million residents, said it would suspend bus service starting March 1 due to a “lack of sufficient fiscal support” along with other factors. The decision was retracted after Shangqiu’s government apologized for “negative social impact.”

Similar scenarios have played out in at least three other cities, according to local media. 

While some analysts believe the odds of a financial system meltdown are low, stress could spread if more local borrowers struggle to repay loans on time. In December, Zunyi Road and Bridge Engineering Construction Group, a local government financing vehicle based in Guizhou, one of China’s most indebted provinces, struck a deal with banks to get another 20 years to repay loans worth more than $2 billion. The deal raised fears that other banks could have to bear restructuring costs.

At the end of the day, the concern is that Beijing is unwilling to make changes that could put local government finances on a more stable footing, such as implementing a property tax to raise more funds, because doing so would be politically unpopular and could undermine central authorities’ control over localities. It would also lead to even more social upheaval and protests: the one thing Beijing is truly scared of.