The myth of the US labor shortage is about to come crashing down courtesy of the Philadelphia Fed (just as we have been warning for months), but it is about to be replaced with the stark reality of China’s all too real lack of workers.

Consider the following story from the SCMP: two years after Zhao Yanfang’s mandatory retirement from her blue-collar job in the canteen of a state-owned enterprise, the 52-year-old is back to work – this time at a noodle restaurant in Beijing. On a recent slow day, she taps buttons on a mobile device, inputting orders for patrons who present various coupons acquired through different channels – including the company’s own app, and food-delivery platforms – while reading off the day’s specials for dine-in customers.

“It’s all for the sake of my son,” she says, explaining how the father of her twin grandchildren lost his job during the pandemic. “Were it not for supporting his family, I would never have bothered working after retirement, trying to learn this complicated ordering system.

“I thought my three decades of work experience would be enough for waitressing. I didn’t expect it would be so challenging.”

Zhao is among the millions of China’s retirees who have re-entered the job market or are looking to do so as the financial burden on Chinese families mounts from the government’s disruptive zero-Covid strategy that has crippled business and hammered the economy. Beijing has also been encouraging retirees to return to work as the rapidly aging country faces a long-term decline in its workforce.

China’s working-age population, aged 16-64, is forecast to drop by 35 million over the next five years and to plunge by more than 60% over the next eight decades, according to a report released by the United Nations in July. At the end of 2020, there were 264 million people over the age of 60 in mainland China, and that total is projected to surge to 400 million and account for more than 30% of China’s population by 2035, according to the National Health Commission.

With fewer workers contributing to the public pension system, and with a growing number of seniors to be supported, China’s urban state pension fund – similar to the US social security fund – could be out of money by 2035, according to a 2019 projection by the Chinese Academy of Sciences (also similar to the social security).

One problem that looks to finally be addressed is China’s decades-long adherence to mandatory retirement ages: 60 for men, 55 for female office workers and 50 for female blue-collar workers. The ages date back to a time when life expectancy at birth in China was nearly half of what it is today, and demographic and labor experts have long argued that they need to be raised, especially for women.

In February, China’s State Council confirmed that it would gradually start pushing back its long-mandated retirement ages in the coming years, in line with Beijing’s plans to better accommodate the needs of the elderly and adjust to new realities stemming from the nation’s rapidly ageing population.

President Xi Jinping reiterated that sentiment in his report delivered during the 20th party congress in October, when he said China would “gradually push back the legal retirement age”. Though few details of the plan have been released, the State Council said changes would “gradually” be made during the country’s current 14th five-year plan (2021-25).

Meanwhile, China’s state media campaign has been promoting the value of working longer to achieve one’s career ambitions. And the government launched a special website in August to match elderly jobseekers with potential employers, with McDonald’s being among the first to recruit retirement-aged waitstaff in Beijing, with a posted salary of up to 3,500 yuan (US$488) per month for a full-time job with 40 hours a week.

“Longer life expectancies, as well as fewer workers per older person, are increasing the financial burden of pension payments,” said Joseph Chamie, an international demographer and former director of the UN’s Population Division. “To offset those rising costs, as well as the declining labor forces, governments worldwide are considering raising their official age of retirement.”

It’s not just China that is stealthily seeking to devalue retirement age: last year, Japan approved bills requiring companies to retain their workers until they are 70 years old, effectively raising the retirement age from 65 to 70. Germany plans to increase its state pension age from 65 to 67, but not until 2031. And in France, the official age of retirement is 62 – low among the 38 member countries in the Organisation for Economic Co-operation and Development. This year, the government attempted to incentivise people to continue working until 65, but the proposal naturally set off strikes.

“China’s retirement ages for men and women are relatively low compared with many other countries,” Chamie said. “Delaying retirement encourages workers to remain in the labor force. I expect that more of China’s older population will be working in the next one or two decades. Due to age-related differences in education and skills across the Chinese population, I suspect that the majority of China’s elderly in the labor force will be working in low-level manufacturing and services sectors.”

What a prospect: a generation of geriatric McDonalds line cooks and waiters.

Remarkably, more than two-thirds of Chinese at retirement age are keen to re-enter the workforce, according to a report last month by Chinese recruitment platform 51jobs.com. It did not provide the survey size perhaps because it is as “real” as any “data” out of China.

A total of 68% of older people said they had a strong desire to be employed after reaching retirement age, whether out of financial necessity or a desire to stay busy. The service and labor-intensive manufacturing sectors were the most popular areas for them to seek employment, especially among those lacking qualifications, the survey showed.

Meanwhile, China’s reputation as the “factory of the world” was built largely on the backs of young migrant workers who left their rural hometowns for opportunities in bustling export hubs. However, over the last decade, the average age of migrant workers in China has increased steadily, as fewer young people enter the workforce and older workers with no pension protection are forced to continue working.

China had 292 million migrant workers as of last year, according to the National Bureau of Statistics. The average age was 41.7 years, compared with 34 years in 2008. More than a quarter of all migrant workers are now over the age of 50. And more than half are over 40, compared with just over a third in 2010.

Kent Huang, a second-generation businessman in Guangdong province who produces hardware and furniture for export, said there are many workers aged over 40 in factories in southern China’s Pearl River Delta.

“There are about 200 workers in my factory, and 80 per cent of them are in their mid-forties or early fifties, and it’s rare to see young manufacturing workers in their twenties,” Huang said.

The older workers get paid about the same as their younger peers. All are hired for piecework, not on a monthly wage, he said. When the pandemic and China’s stringent curbs have crippled global demand, they have borne the brunt.

“Due to the epidemic and globally sluggish demand, workers’ income is actually much lower than last year. Many factories nearby have had to lay off workers,” Huang said. “Order volume has plummeted to less than 40 per cent of last year. Those female workers in their late 40s will be among the first required to take compulsory leave with minimum wage, which is far from enough to cover their living cost in urban areas, let alone support their families in their hometowns.”

Lu Zhou, an operations director at an original equipment manufacturer in Taicang in the eastern province of Jiangsu, said that for traditional manufacturing, such as shoes and garments, there can be an advantage in hiring older workers who are more likely to “cherish the job, unlike young people who jump ship very easily”.

“But, of course, in those industries that are accelerating technological upgrades, older workers struggle to find a place. They generally flow into the service industry that does not require new skills, or into the low-end traditional manufacturing industry,” he said.

Helen Wu, a founding partner of the Sunshine Immensity headhunting service in Beijing, said that it is rare to see people older than 50 selected for high-end positions: “In my 14-year career as a headhunter, chances of high-end positions have been few and far between for the elderly, unless they are well-connected or former senior executives,” Wu said.

“While China is emphasizing ‘high-quality’ development and has reduced the importance attached to GDP growth, the job prospects for most elderly will not be very rosy in the next decade, given that competition in China’s job market is already so intense,” she said.

Huang Wenzheng, a demographer who has written extensively on China’s birth rate and labour issues, said it was a harsh reality that many retirees must continue working to support their families.

“However, the elderly shouldn’t be pushed to work just to increase the labour force. People live to enjoy their life, not to work for the sake of work,” Huang said and stressed the importance of boosting China’s falling fertility rate, which fell to just 1.15 last year from 2.6 in the late 1980s and remains well below the replacement level of 2.1 needed for a stable population.

By comparison, the fertility rate in the United States is 1.6 births per woman, while in ageing Japan it is 1.3.

“The government should increase welfare for workers and couples with children,” Huang said of Beijing. “The ageing problem can only be eased by improving couples’ willingness to give birth.”

Of course, such willingness will only come if future parents are optimistic about the economic prospects both for them and their children. And that, unlike everything else in China, can not be faked which is why China is about to slip into the demographic spiral of doom.

Summary: Zelensky spoke for a little over 30 minutes and in English, at times invoking key US historical moments from the Battle of Saratoga to the Battle of the Bulge (and comparing the courage of Ukrainian soldiers), after he was greeted as a ‘hero’ in a minutes-long standing ovation. He asserted that Ukraine is winning “against all odds”. He was throughout frequently interrupted by standing ovations from a partially filled Congress, which was missing a lot of Republicans, in part given a number of lawmakers had already traveled home for the holidays ahead of the unexpected in-person visit, and facing incoming severe weather.

Zelensky peppered the speech with positive and optimistic statements like “Ukraine holds its lines and will never surrender,” and “but our defense forces stand” – especially offering the latest example of Bakhmut, in the Donbas. As expected, a major theme was the need for continued US support, for which he thanked the Biden administration, Congress, and the American people.

“The occupiers have an advantage in artillery and much more heavy equipment like tanks and airplanes,” he began a section of the address in which he appealed for continued aid. “Your support is crucial… to get to the turning point on the battlefield.”

“We have artillery, is it enough? Not really.” He explained that Ukraine needs enough ammo and weapons to be able to completely expel Russian forces from Ukrainian territory. He also spoke of the misery that Russian-operated Iranian drones are unleashing on the civilian population in attacking energy infrastructure. “I would like to thank you for the financial packages,” he said, and followed with: “Your money is not charity” but an investment in “global security” that Ukraine will “handle in the most responsible way.”

Among the more interesting statements was the moment he indirectly pressed for the US to provide tanks and warplanes. While he stressed that Ukraine has never asked American troops to fight on Ukraine’s behalf on its soil, he asserted: “I can assure you that Ukrainian soldiers can perfectly operate American tanks and planes themselves.” 

On the potential for a negotiated peace, he called attention of his prior “10-point plan” which he said should be implemented (and which Russia previously firmly rejected), and which he said Biden approved of during the Wednesday meeting at the White House.

Zelensky additionally called on Congress to join Ukraine in bringing every Russian “criminal” to justice. “Let the terrorist state” be held accountable, he said. He emphasized millions of Ukrainians will have no heating or water as they celebrate Christmas. 

“Only victory!” he stressed near the end of the speech, and also quoted from Franklin D. Roosevelt’s famous “Day of Infamy” speech. “The American people in their righteous might will win through to absolute victory,” Zelensky said, and followed by pledging that Ukraine too will achieve “absolute victory.” 

Meanwhile in Moscow…

⚡️#BREAKING Kremlin says no chance of peace with Kyiv after Zelensky Washington trip

— War Monitor (@WarMonitors) December 21, 2022

* * *

Update (1920): Zelensky is expected to make an “appeal to the American people” – as he previewed earlier – at 1940ET. House Speaker Nancy Pelosi in welcoming him about an hour ago to the Capitol building compared the Ukrainian leader to Winston Churchill. Watch live:

Throughout the afternoon, CNN’s live coverage has been talking a lot about the below tweet by Donald Trump Jr…

Zelensky is basically an ungrateful international welfare queen. https://t.co/WclnckMoCj

— Donald Trump Jr. (@DonaldJTrumpJr) December 21, 2022

* * *

Summary: President Biden in his written remarks read aloud turned to Zelensky to assure “you haven’t stood alone” and that the United States “will stand with you”. He said Putin is escalating by targeting Ukrainian energy infrastructure, including “targeting orphanages and schools.” A key theme throughout the remarks is the US belief that Putin will “fail” and that Ukraine will have continued “success” on the battlefield with US help.

Biden further pointed out it’s been 300 days since Putin launched an “unprovoked, unjustified all-out assault” on Ukraine, part of the “imperial appetites of autocrats”. Interestingly, Biden affirmed that even before the invasion the US was helping Ukraine to prepare to defend itself. 

Biden hailed that the Ukrainian military has “won” in the battles for Kyiv, Kherson and Kharkiv. Biden additionally claimed Zelensky is “open” to pursuing a just peace while Putin is not. Further, continued unreserved support was pledged, with no hint of peace talks or a ceasefire…

There had been thoughts, questions that Biden would pressure Zelenskyy to make a (potentially bad) deal with Russia to end the war at any price. It didn’t happen, at least not in public. Instead unreserved US support to help Zelenskyy on battlefield.

— Richard Engel (@RichardEngel) December 21, 2022

“I look forward to signing the omnibus bill soon which includes $45 billion for Ukraine,” Biden said, while also unveiling 1.8 billion of security assistance that includes both direct transfers as well as contracts for future ammo supplies. In total, it will constitute “$2.2 billion in new support,” Biden said. The package will include a patriot missile battery, Biden said, as previewed. While emphasizing that Patriot systems will be a “critical asset” for Ukraine, he admitted that training “may take some time”. Biden as expected also stressed the “defensive” nature of the Patriot system.

Biden further in the Q&A said that Putin had “strengthened NATO” with the decision to invade.

Zelensky for his part, said he’s “thankful” for all that the American people have done, and that this is currently a “historic” visit. He said he’s especially “grateful” to President Biden for his strong stance in support of Ukraine. Every dollar of this investment is toward “strengthening global security,” Zelensky said. He repeatedly referred to “terrorist” Russia and its decision to invade, based on “tyranny”. He pledged that ultimately Ukraine will “win” – and that “we will win together”. 

Biden pledged during the press conference that US support will remain “for as long as it takes”. 

* * *

Update (1425ET): Watch live as President Biden kicks off a joint press conference with Zelensky.

* * *

Update(1340ET): Zelensky has arrived on a large Air Force jet. He’s expected to soon meet Biden at the White House, after which there will be a joint presser at 1630ET.

Zelenskiy was greeted by Biden’s protocol officer Rufus Gifford on arrival.

📸 from Zelenskiy’s Telegram channel pic.twitter.com/PUKhxRxBv1

— annmarie hordern (@annmarie) December 21, 2022

* * *

Update(10:45ET): Zelensky is reportedly arriving to Washington D.C. aboard a US Air Force plane, according to US officials cited in CNN, after taking a high risk train ride into Poland. White House national security communications coordinator John Kirby said of the impending visit with President Biden, “The President really believes that as we approach winter, as we enter … a new phase in this war, of Mr. Putin’s aggression, that this is a good time for the two leaders to sit down face to face and talk.” But this is how Reuters somewhat cynically previewed the visit: 

Ukrainian President Volodymyr Zelenskiy headed to Washington on Wednesday to meet President Joe Biden, address Congress and seek “weapons, weapons and more weapons” in his first overseas trip since Russia invaded Ukraine 300 days ago.

Surprisingly, the Associated Press additionally highlighted the latest video address by Zelensky, who yesterday while visiting a frontline fighting area in Bakhmut, said the following at a moment Congress is set to to approve $45 billion more in aid for Ukraine in the proposed massive omnibus package:

“We will pass it on from the boys to the Congress, to the president of the United States. We are grateful for their support, but it is not enough. It is a hint — it is not enough,” Zelensky said.

Zelensky is apparently prepared to tell Congress that whatever the US has given Ukraine — $45 billion in new aid now under consideration — it is not enough. From @AP: https://t.co/kbyyqF5t5X pic.twitter.com/5BkSu9Dsaj

— Byron York (@ByronYork) December 21, 2022

The US is about to reach $100 billion in total aid committed to Ukraine, and as Glenn Greenwald points out, this far surpasses the total current Russian military budget…

Good morning. The US Congress is about to send another $44 billion to Boeing, Raytheon and the CIA “for the war in Ukraine.”

That’s a total of $100 billion sent by the US in 10 months.

The entire Russian military budget for the year is $65 billion.https://t.co/wszK7RHFos

— Glenn Greenwald (@ggreenwald) December 21, 2022

And yet Zelensky and the constant refrain of top Ukrainian officials has been essentially that despite the blank check approach of the Biden administration, it is never enough. Apparently even the mainstream media is beginning to recognize this.

Looks like Zelensky flying to Washington on a US Air Force plane. Dramatically reduces the possibility of anything happening to the Ukrainian President on his first trip abroad since the Russian invasion began… https://t.co/7QXkGSWm0h

— Mark MacKinnon (@markmackinnon) December 21, 2022

However, over at CNN Zelensky is being compared to Winston Churchill…

“Zelensky’s arrival will draw poignant echoes of British Prime Minister Winston Churchill’s arrival in Washington, 81 years ago,” writes Stephen Collinson | Analysis https://t.co/2o5FJBbQGM

— CNN International (@cnni) December 21, 2022

* * *

With Ukraine’s Zelensky reportedly in the air en route to Washington where he’s is to deliver a “very special” in-person speech to US lawmakers, it’s being widely reported Wednesday morning that President Biden is expected to announce the US will deliver the Patriot missile defense system, along with another $2 billion in defense aid.

An admin official quoted in Axios said Zelensky’s visit to Washington is expected to last just “a few short hours,” and marks the first known trip the Ukrainian leader has taken outside the country since the war began. He’s expected to hold an “in-depth, strategic discussion” with Biden, and the Congressional address is set for 7:30pm EST.

The unnamed official further said the White House wants to put on a “big show of bipartisan support for Zelensky” in hopes of shoring up political “momentum” for continued assistance to Kiev, which is also coming in the form of the enormous omnibus spending package which includes $45 billion in military, economic, and other foreign aid to Ukraine.

White House Press Secretary Karine Jean-Pierre said in a statement that the Ukrainian president’s visit will be received with “strong, bipartisan support for Ukraine.”

She said “The visit will underscore the United States’ steadfast commitment to supporting Ukraine for as long as it takes, including through the provision of economic, humanitarian, and military assistance.”

Zelensky in the meantime tweeted confirmation while en route…

On my way to the US to strengthen resilience and defense capabilities of 🇺🇦. In particular, @POTUS and I will discuss cooperation between 🇺🇦 and 🇺🇸. I will also have a speech at the Congress and a number of bilateral meetings.

— Володимир Зеленський (@ZelenskyyUa) December 21, 2022

Meanwhile, some initial reaction coming out of Moscow…

• PUTIN: INTERBALLISTIC MISSILES SARMAT WILL BE DEPLOYED FOR COMBAT DUTY IN NEAREST FUTURE
• RUSSIAN DEFENCE MINISTER SHOIGU: WE ARE READY FOR TALKS
• RUSSIAN DEFENCE MINISTER SHOIGU: JOINT FORCES OF WEST ARE FIGHTING RUSSIA IN UKRAINE
• WEST TRIES TO OVERLOOK NUCLEAR BLACKMAIL, INCLUDING OVER ZAPORIZHZHIA NUCLEAR POWER STATION
• WEST TRIES TO DRAG ON THE FIGHTING IN UKRAINE
• RUSSIAN DEFENCE MINISTER SHOIGU: WE ARE FIGHTING TO SAVE PEOPLE IN UKRAINE FROM GENOCIDE AND TERROR
• MILITARY POTENTIAL OF UKRAINE IS BEING DESTROYED

It will be interesting to see whether Zelensky’s appearance before Congress is greeted with the same level of enthusiasm from all corners of the GOP.

The GOP wouldn’t fund a $5 Billion Border Wall but have happily sent $130 Billion to Ukraine over 9 months.

— Mostly Peaceful Memes (@MostlyPeacefull) December 20, 2022

developing…

Authored by Jonathan Turley,

There is an interesting controversy this week after ABC’s Martha Raddatz took Texas GOP Governor Greg Abbott to task for public comments about the open Southern border as fueling the crisis. Raddatz is being criticized for her claim that President Joe Biden has never encouraged migrants to come over the border — a statement that many objected to as demonstrably false. However, I am more interested in a different aspect of her remarks: the objection to Abbott’s language. It is the type of objection that one finds from a system of state media where the narrative is supposed to be replicated and uniform.

Abbott has criticized the Biden administration’s “open-border policies” and Raddatz immediately objected to that language in her interview:

You talk about the border wall, you talk about open borders, I don’t think I’ve ever heard President Biden say, ‘We have an open border, come on over.” But people I have heard say it are you, are former President Trump, Ron DeSantis. That message reverberates in Mexico and beyond. So, they do get the message that it is an open border.”

Critics immediately pointed out past Biden comments criticized as seemingly encouraging such border crossers: 

“They deserve to be heard. That’s who we are. We’re a nation that says, ‘If you want to flee, and you’re fleeing oppression, you should come.’”

They also point out that Raddatz herself was told by one border crosser that he “basically” made the trip because Biden was elected.

However, it was the objection to the use of divergent language that was equally striking. ABC and other mainstream media sites have been accused of echoing the narrative of the Biden Administration and largely ignoring (until recently) the crisis at the southern border. Those who raise the issue have been denounced as exaggerating or inventing a crisis.

Raddatz’s interview is reminiscent of the interview by Leslie Stahl on CBS with former President Donald Trump where she shutdown Trump referring to the spying on this campaign by declaring that there is no evidence of such spying. There was already ample evidence of such spying, but Stahl simply told viewers that it was untrue.

The Raddatz interview raises again the danger of a de facto state media where media echoes the position of the government by choice rather than coercion. Her objection was that Abbott and others keep referring to a crisis when the Administration and mainstream media do not use such terms. As a journalist, she is objecting to a public official in a border state calling out a crisis as thousands pour over his border on a daily basis.

Raddatz’s objection was notably virtually identical to the talking point put out by the White House.

White House press secretary Karine Jean-Pierre has declared “It would be wrong to think the border is open. It is not open.” She added “anyone who suggests otherwise is simply doing the work of these smugglers who, again, are spreading misinformation which is very dangerous.”

It is unclear what Raddatz is suggesting. Was the governor of Texas supposed to stop responding to the outcry of border cities to the massive influx? Was he supposed to insist that the border is not open as videos show hundreds just walking over the border?

Raddatz is an accomplished journalist and I have great respect for her career. We can all craft questions or comments poorly. However, the concern is that this interview occurred in the context of ABC and other networks steadfastly ignoring the growing crisis at the border.

Widespread cold air is already pouring into the Plains and Deep South. This cold will last through Christmas weekend into early next week and could threaten citrus groves across Florida. 

America’s top orange juice maker is already battling a record decline in crop this season because of citrus greening, a devastating crop disease, and damage sustained by Hurricane Ian and Tropical Storm Nicole earlier this year. Now a cold blast could damage crops even more. 

Citrus farmers are certainly hoping for the best. Orange production is way down. Florida had 2 Hurricanes this year, record-breaking heat and drought, and now several days of very frigid weather ahead. N. Florida won’t see highs above 40 for 6 days. Lows in 20s for several days. pic.twitter.com/VpuUk6Y0Hr

— Inspiration by John 🎄 (@LifeWithJohn) December 19, 2022

Bloomberg quoted Paul Markert, a meteorologist with Maxar Technologies Inc., who said South Florida could see temperatures as low as 31 degrees Fahrenheit on Friday.

World Weather Inc.’s Drew Lerner said computer models are evolving, and temperatures could dip even lower. He said four hours or more of sub-28 degrees could damage citrus crops. He added the cold shot could cause irreversible damage to the state’s cane harvest, much of which still needs to be harvested. 

Weather Channel meteorologist Jim Cantore tweeted, “You can see the Arctic front scream through the southeast on the 23rd and the COLD just lock in for days afterward. Protect your pipes even into Florida. Yes those are teens in the panhandle!”

You can see the Arctic front scream through the southeast on the 23rd and the COLD just lock in for days afterward. Protect your pipes even into Florida. Yes those are teens in the panhandle! pic.twitter.com/DThDA3E7xa

— Jim Cantore (@JimCantore) December 20, 2022

The decimation of Florida’s citrus crop has caused shortages for beverage makers, including Minute Maid owner Coca-Cola Co. and PAI Partners, which owns Tropicana. This means orange prices at the supermarket will continue to rise. Orange juice futures are near record highs. 

With Disease, hurricanes, and now cold, Florida’s citrus industry is going through a historic beatdown by Mother Nature. 

All of a sudden China seems content in trying to live with Covid and re-opening the country…it’s funny what happens when your citizens have had enough and decide they are no longer going to put up with it. The softer stance on the virus is coming just weeks after protests rocked major cities in China. 

As part of China’s “new” policy on how it is dealing with the virus, it is setting up “a nationwide network of hospitals to monitor mutations of the virus”, according to a new report from the South China Morning Post. 

As the SCMP notes: “Mass PCR testing was cancelled in early December and negative test results are no longer required to return to work or enter public places, including hospitals. There is no encouragement for people to get tested.”

Now, the country is bracing for new variants of the virus as a result of “waves” of the infection hitting the country in a short period of time, the report says. 

The Chinese Centre for Disease Control and Prevention has now assigned one hospital in each city (with three cities in each province) responsible for collecting “samples from 15 patients in the outpatients and emergency room, 10 from patients with severe illnesses, and all fatalities.”

Xu Wenbo, director of the China CDC’s National Institute for Viral Disease Control said this week: “This will allow us to monitor in real time the dynamics of the transmission of Omicron in China and the proportion of its various sub-lineages and new strains with potentially altered biological characteristics, including their clinical manifestations, transmissibility and pathogenicity.”

“This will provide a scientific basis for the development of vaccines and the evaluation of diagnostic tools, including PCR and antigen tests,” he continued. More than 130 Omicron sub-lineages had been detected in China in the past three months, he said. He also predicts that new subvariants will continue to spread and mutations will continue. 

“As long as it circulates in the crowd, when it replicates, it will mutate,” he concluded.

Authored by John Tammy via RealClear Wire,

On June 6, 2021 I published a column titled “We’ll Know Crypto Is For Real When Its Coins Start Collapsing.” More than most want to admit or realize, failure is growth. A “market” for crypto money defined by the various “currencies” going up, up, and up is less information pregnant. It’s real, but upward speculation is a signal of many unknowns. A market defined by collapse signals reason and realization entering prices. Information is progress.

As I point out at the beginning and end of my new book, The Money Confusion, what was true in June of 2021 is true today. Carnage is the life of the crypto industry. It signals long-term staying power as investors get serious about putting the bad out to pasture in favor of the good. History supports this truth, at which point it’s useful to digress, or move sideways.

In particular, it’s useful to address what has so many up in arms: the collapse of Sam Bankman-Fried’s former blue chip crypto concept, FTX. There’s a view that the latter is a signal of something amiss, and worse, artificial about the whole private money concept. FTX’s decline has birthed endless skepticism.

Take the Wall Street Journal’s Joseph Sternberg. Sternberg writes that “Easy money fuels speculative manias as surely as night follows day.” But that’s not true. If true, then it would certainly be true that Japan’s economy would have been the face of by endless speculation beginning over 30 years ago as the Bank of Japan went to “zero.” In reality, the Nikkei is still well below highs reached back in 1989.

From there, Sternberg tacks to the popular notion about a search for yield as “individual savers desperate to find returns poured billions of dollars into cryptocurrency ‘investments’.” See above to understand the limits of such a belief, and then imagine retail investors calling their brokers with “I can’t get enough yield now, so please buy BitcoinBTC for me.” It’s not realistic to believe that retail buyers can move markets in this way. If in possession of such power, then it stands to reason that hedge funds working in concert with one another could forever move markets in any direction desired….Except that they couldn’t. 

After which, there’s just no evidence of central banks being able to stimulate soaring markets. If they could, the markets and the underlying economy would be so destroyed as to not rate discussion. If anyone doubts the previous truth, just look up the most valuable companies in the year 2000 to see just how awful the U.S. economy would presently be if central bankers could prop up prices artificially in the way that Sternberg seems to suggest.

The columnist believes that “The greatest financial fiasco so far this business cycle couldn’t have happened without the Fed,” which is Sternberg arguably getting what happened in recent years backwards. More realistically, it’s the happy truth that equity markets routinely reshuffle the flow of capital that speaks to why cryptocurrencies became a thing. Put bluntly, investors would never have found cryptocurrencies if the Fed’s zero rates had pushed “individual investors desperate to find returns” into higher-yielding assets simply because they wouldn’t have needed to. 

All of which brings us back to Bankman-Fried. While the guess here is that the commentary meant to vilify him today will age as well as that which lionized him not too long ago, and while this column would never condone lying, fraud or theft assuming any of three reveal themselves, the whole FTX saga will ultimately be viewed by sober minds as progress. George Gilder has long referred to what the lazy and simplistic in thought refer to as “bubbles” as “growth spasms.” Exactly. It’s through the production of information that we progress.

Looking back in time, in the early parts of the 20th century thousands of carmakers or would-be carmakers were matched with capital. Just about every single company created failed. Fast forward to the end of the 20th century, something similar happened with the internet. One supposes Sternberg would find the fingerprints of “the Fed” on both growth spasms, but the happier reality is that copious investment in world-changing technology of the automobile and internet variety thoroughly transformed how we lived and live. Put another way, what Sternberg contends is a Fed creation is actually history repeating itself as investors with serious skin in the game search for the future.

As The Money Confusion asserts, something similar is afoot now. Just don’t give the Fed credit for this surge of investment. The simple truth is that if the Fed had control of credit and its cost as the pundit class imagines, there wouldn’t exist enough credit for intrepid investing of this kind to begin with.

While liberals in Hollywood take every opportunity possible to espouse the Biden administration’s current policies and ignore the fact that U.S. cities are turning into third world crime ridden hell holes, criminals are literally breaking into their homes and stealing their stuff. 

And when its a big, well known Hollywood actor that winds up the victim to the rising tide of crime in the country, all of a sudden everybody who has been quiet while the everyday citizen is being victimized is outraged. 

Such was the case this week when legendary actor Robert De Niro’s New York City townhouse was broken into in New York City. While many fans took to social media to wish De Niro well, liberal politicians have mostly been mum on the crime, which is an obvious microcosm of the deteriorating state of U.S. cities. 

30-year-old Shanice Aviles was arrested for breaking into the townhome while De Niro and his daughter were both at home. She stole Christmas presents from the home after breaking in through the basement, Fox News reported. 

And of course, she’s a repeat offender – her rap sheet includes “more than two dozen arrests just this year comprised of petty larceny and burglary charges”.

You can tell by the photo provided by Fox News that she looks real scared of the forthcoming consequences for her actions. Here she is smiling, knowing she’ll probably be out on bail in just a matter of weeks, if not days.

New York City councilman Joe Borelli is officially done keeping his mouth shut. Appearing on Fox News this week, he said that the break-in was indicative of exactly how bad the situation in New York City has gotten. 

“When you speak to any one of the progressive people on the council or the state legislature, they continue to advocate for less criminal justice rules, for the closing of Rikers Island, for the de-carceration of the carceral system, whatever that even means, and really spend more time fighting for the rights of criminal justice perpetrators rather than the victims of the criminal justice system,” he said.

“People who get burglarized are real victims of a very scary crime. It was probably not pleasant, Robert De Niro, to have a burglar in his house, and again, until we change the laws here, we’re not going to see drastic changes in our crime rates,” he continued, according to Fox News. 

He concluded: “This was sort of a run-of-the-mill burglary, which unfortunately has become more commonplace in New York City. Robert DeNiro may not like Republicans, he may have an ax to grind with the former president, etc., that doesn’t mean that I want him to get burglarized. I don’t want any New Yorker to get burglarized.”

“But we see this catch and release system where a person who was arrested 16 times in the last 12 months, that person still gets offered de minimis cash bail. She gets referred to drug treatment programs instead of jail, and the net result of having no consequences is that she’s out there to burglarize people’s homes, including Robert DeNiro.”

“There is no explanation other than in a state legislature who refuses to act, even though the evidence is right before their eyes that repeat criminals are the ones causing all the crimes. The 19th police precinct did a fantastic job. They knew this person was likely to be burglarizing. They saw this record of her actions previously and were actually following her and tailing her, knowing that she was going to commit a crime.”

“If that doesn’t tell you all you need to know about the just systemic, broken nature of New York’s criminal justice system, then I’m not sure whatever will.”

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Capital represents the resources and labor used to produce goods and services.

“Ism” is a system.

Capitalism is an economic system based on the private ownership of the means of production and the incentives which drive their for-profit operation.

Capitalism differs from other economic systems as it allows for the private ownership of production and the resulting profits. Most other economic systems rely to varying degrees on the government to decide how resources and labor are used and how profits get distributed.

Almost everyone uses the word capitalism to define the United States economy. Unfortunately, the U.S. is straying from capitalism. The United States government and Federal Reserve increasingly pick winners and losers by dictating how capital is employed and how profits and losses get distributed.

This article focuses on one facet of government interference; the Federal Reserve’s distortion of the price of capital and the negative economic and social consequences its actions have.

Productivity is Paramount

Before harping on the Fed, it’s worth appreciating productivity, the most critical cog in any economic engine and a vital element of capitalism.

A country’s economic growth and the financial well-being of its citizens can be directly linked to how effectively an economy deploys capital. In a purely capitalistic economy, the incentive for profit is the leading factor promoting the most effective use of a nation’s available capital, labor, and resources.

Economists use the term productivity when discussing said effectiveness.

The greater the productivity, the more wealth generation occurs, with the fewest resources requiring the least amount of labor. The more productive society is, the wealthier its citizens are.

Conversely, if there is little to no productivity growth, economic growth is limited by the amount of labor and resources. In developed economies such as ours, labor and resources have finite growth. Over time as natural resources become scarcer and more expensive and demographic contributions to growth weaken, flat or negative productivity growth becomes likely.

Measuring Productivity

Like many economic measures, productivity is impossible to measure precisely, but there are ways to gauge it. For instance, many economists consider total factor productivity (TFP) a reliable measurement of productivity. It may not be exact, but it provides valuable insight into productivity trends over various time frames.

TFP boils down to the ratio of GDP to its inputs. The greater the proportion, the more the economy grows per its usage of resources.

The San Francisco Federal Reserve provides historical TFP data.

Since 1980 TFP growth has stagnated from 0% to 2% annually. Such change is well below the 4% to 6% range in the thirty years following WWII. The graph below shows how the trend of the productivity index shifted to a lower growth rate in the early 1970s. The dotted lines highlight where it would be, assuming the productivity growth trend from 1948 to 1971. The green area graph highlights that the ten-year productivity growth rate is now below 1%.

Not surprisingly, GDP growth followed the declining path of productivity growth. As we share below, it’s possible GDP could run much higher if the pre-1970 productivity trends continued. 

The following graph shows the strong correlation between productivity and economic growth. For every 1% decline in productivity growth, real GDP falls by .41%.

The Price of Money Drives Capitalism

Why is productivity growth and, therefore, economic growth slowing? There are many reasons, including government policies and regulations, societal behaviors, demographics, and geopolitics, to name a few. Our focus is on the gasoline of the capitalism engine, the price of money, or interest rates.  

Those investing capital are incentivized to earn the most they can for their investment. Therefore, they should want to invest in the most productive ventures.

Money, via wages, incentivizes people to work hard and maximize their earnings potential.

Why, then, is money not providing the proper incentives?

In 2008, President George Bush went on CNN and provided a clue.

I’ve abandoned free-market principles to save the free-market system.

George Bush is one of many recent leaders from both sides of the aisle that ignore free-market principles for what they believe is for the greater good.

Letting the Fed manipulate the price of money versus letting the market determine the price of money was a systematic way to achieve the “greater good.” In some instances, the price of money was compromised to bail out those taking on too much leverage. In other cases, it was used to prop up economic growth to win elections. Sometimes it was for wars to flex our geo-political muscles.

Whether you agree with the politics of such actions or not, counteracting free market principles removes the profit incentives that drive labor and production. Worse, the consistent non-capitalistic reaction to “crisis” creates a circular problem. The further we stray from capitalism, the more government interference is needed to hide economic ills.

Interest Rates Drive Investment

Lower than natural interest rates result in unproductive debt.

Per our article Wicksell’s Elegant Model:

On the other hand, if market rates of interest are held abnormally below the natural rate, then capital allocation decisions are not made based on marginal efficiency but according to the average return on invested capital. This explains why, in those periods, more speculative assets such as stocks and real estate boom.”

The graph below from Brett Freeze highlights that the percentage of debt allocated to unproductive investments flourishes during periods when the Fed pushed interest rates below market levels.

The following graph shows total debt outstanding has risen significantly greater than GDP. If the debt were used for productive purposes, GDP would have increased even more than the debt.

Rinse, Wash, Repeat

Let’s revisit the monetary policy in the aftermath of the financial crisis. The graph below charts the Fed Funds Rate versus a proxy rate developed by Fed researchers Jing Wu and Fan Xia. The proxy rate quantifies a truer Fed Funds rate incorporating Fed Funds and QE. As it shows, the Wu-Xia rate ranged from negative one to negative three percent from 2009 to 2015.

The Fed was effectively employing negative interest rates. While such a policy may have helped speed up the recovery, it led to greater leverage, additional unproductive debt, and more significant financial imbalances. For example:

• Corporations use cheap funding to buy back stock. The rationale is to reduce the share count, which boosts the earnings per share. Unfortunately, the money they spend promoting share prices is not going toward productive ventures.

• Government debt as a percentage of GDP is up two-fold since 2007. Almost all government spending is unproductive. Simply, it does not create income in which to pay it back. Therefore, the government must issue more debt to pay back interest and maturing debt. To fund deficits, the government relies on the economy’s investable dollars. Those ever-increasing investable dollars that must fund the Treasury cannot fund productive investments.

• In the latter half of 2020 and most of 2021, when the Wu-Xia real Fed Funds rate was negative, rampant speculation was occurring in the riskiest asset classes. SPACs and cryptocurrency were all the rage. The bored ape yacht club #8817 (digital NFT) sold for $3.4 million. Indeed there is a more productive use of $3.4 million!

Summary

Nothing is free. Every time the Fed lowers rates to boost the economy or prop up stock prices, there is a future price to pay. Repeatedly manipulating the price of capital results in weaker productivity growth and ultimately reduced economic activity. Ultimately it is the citizens that pay the price.

Adapting free market principles does not guarantee a utopia. But over time, it provides the economy and its operators the best chance to be as productive as possible. Letting markets decide the price of money based on the economic environment will produce better outcomes than twelve bankers, with little real-world experience, determining the price of money.

New York city is back! And by that, of course, we mean, is shuttering hours for its subway during the week.

Blaming the move on a “post-pandemic landscape”, Bloomberg reported this week that some subway lines could wind up seeing less service on Mondays and Fridays, while others may see an increase on weekends.

The MTA is apparently “adjusting” to the new landscape, which smells a lot to us like ridership is likely lower due to (1) frightened citizens fleeing the city for other destinations to live in and (2) remaining citizens frightened to ride the subway, the core of where attacks and crime have riddled New York City over the last several years.

Either way, subway ridership is about 75% of pre-pandemic levels on weekends, the report says, higher than the 60% of pre-pandemic levels during the week.

The report cites more people working from home as a key reason for the lower ridership. To support that assumption data shows that an average Thursday sees about 380,000 riders, while a Friday only sees 280,000.

Rich Davey, head of MTA’s subways and buses, said this week: “The changes reflect what our customers are asking for and how our customers are using our service, which is more weekend service proportional to pre-Covid and less on Mondays and Fridays.”

The 1, 6, 7, E ,F, L and Q lines on Mondays and Fridays will see service reduced. According to the MTA, it should only cost riders an additional “3 to 30 seconds” of wait time. That is, on top of the hour you’ve likely already spent on the platform watching rats drag around slices of pizza…

The MTA is proposing that the changes take place in June – and they are still subject to a vote. 

By Russell Clark of Capital Flows and Asset Markets substack

Finally, the BOJ decides to stop impoverishing Japanese workers.

The BOJ has not exactly raised interest rates, but is has allowed the yield curve to steepen somewhat. There was a time when a 4% strengthening of the Yen would be seen as the beginning of the end of the world. Broadly speaking, a rallying Yen, as we saw from 2007 to 2011 (falling here is Yen strengthening against US Dollar), would be associated with falling 10 year bond yields, or a generally deflationary outcome.

That being said, the surprise change in yield curve control today saw a 4 % yen rally, and rising US treasury yields. You could argue a weak dollar is inflationary causing treasuries to sell off.

However, even more surprising is that 30 year bond yields in Japan sold off, despite a 4% rally in yen. A yen rally should be deflationary for Japan.

How does this all fit into a pro-labor move? Politically wages have to rise, and there are two ways you can do this, particularly for a nation that imports most of its commodities. It can raise wages, or it can strengthen the currency. My view is that politically wages have to rise, but politicians (and central bankers) will come under pressure to reduce all other types of inflation – namely financial assets. The move by the BOJ has been pretty good for my main recommendation – Long GLD/Short TLT.

There was a time a few years ago when BOJ tightening would have destroyed this trade. No longer. BOJ – welcome to the pro-labor party.