The world continues to chisel away at the dollar’s reserve status.

In the first of the two most recent examples of how non-western nations plan to avoid the weaponized dollar, late last week Argentina made a loan repayment to the International Monetary Fund worth the equivalent of $2.7 billion “without using dollars” on Friday, using Chinese yuan and special-drawing rights notes instead, Reuters reported.

The operation is expected to deplete Argentina’s $1.65 billion in SDRs, according to a central bank source, “with yuan making up the difference.” While Reuters’ take home message here is that the “use of yuan underscores how desperate the country’s dollar position has become”, an alternative conclusion is that when it comes to international obligations – at least as far as the IMF is concerned – the yuan is as good as the greenback, an observation that will make China quite happy.

As a result of the payment, Argentina’s foreign currency reserves saw a sharp decrease to around $27.933 billion for end-June, the same source told Reuters, bringing foreign reserves to their lowest since March 2016. Still, the move gave a boost to Argentina’s markets on the last day of the month, which overall in June saw the stock index tick up nearly 25% and bonds up almost 13%.

Both parties are now locked in talks to speed up disbursements from their $44 billion program and ease economic targets, as a major drought continues to hammer vital grains exports.

Argentina’s economy ministry said a team will travel to Washington early next week to continue negotiations.

“IMF staff and the Argentine authorities will continue to advance their work in the coming days, with the aim of reaching agreement on the fifth review of the Fund-supported program,” the fund said separately on Friday, after a “standard informal Executive Board briefing on Argentina” was held Thursday.

But wait, there’s more.

Indian refiners have also begun paying for some oil imports from Russia in Chinese yuan, Reuters also reported citing “sources with direct knowledge of the matter” as Western sanctions force Moscow and its customers to find alternatives to the dollar for settling payments.

In other words, it is the weaponization of the dollar that is forcing the world to find alternative to – drumroll – the dollar, something we have been warning would happen ever since Russia was effectively blacklisted and targeted by the entire dollar-based monetary platform.

And just in case there is still some confusion about the long-term viability of the petrodollar, China has also switched to the yuan for most of its energy imports from Russia, which overtook Saudi Arabia to become China’s top crude supplier in the first quarter this year.

“Some refiners are paying in other currencies like yuan if banks are not willing to settle trade in dollars,” said an Indian government source.

Indian Oil Corp, the country’s biggest buyer of Russian crude oil, in June became the first state refiner to pay for some Russian purchases in yuan, three sources familiar with the matter said. At least two of India’s three private refiners are also paying for some Russian imports in yuan, two other sources said.

According to Reuters, it could not immediately be determined how much Russian oil Indian refiners have bought with yuan, although Indian Oil has paid in yuan for multiple cargoes.

The rise in yuan payments has given a boost to Beijing’s efforts to internationalise its currency, with Chinese banks promoting its use specifically for Russian oil trade.

Since the imposition of sanctions on Moscow, Indian refiners have mostly bought Russian crude from Dubai-based traders and Russian oil companies such as Rosneft, the Litasco unit of Russian oil major Lukoil, and Gazprom Neft, according to shipping data compiled by Reuters.

Indian refiners have also settled some non-dollar payments for Russian oil in the United Arab Emirates’ dirham, sources have said.

“First preference is to pay in dollars but refiners sometimes pay in other currencies such as dirham and yuan when sellers ask them,” said the government source, who did not elaborate further and declined to identify any Indian companies paying in yuan for Russian oil.

Reuters previously reported in March that India had asked banks and traders to avoid using the yuan to pay for Russian imports because of long-running political differences with China. And while it was not immediately clear whether recent purchases represent a change in that view, clearly this “directive” is now being ignored as US influence in the region wanes with every passing day.

Furthermore, India’s imports from Russia rose to a record in May, with Russian crude oil accounting for 40% of India’s overall oil imports compared with 16.5% a year earlier, denting purchases from Iraq and Saudi Arabia.

While Western sanctions against Moscow are not recognized by India and its purchases of Russian oil may not violate them, Indian banks are wary of clearing payments for such imports:

• In May, State Bank of India, the country’s top lender and a key banker for state refiners, rejected IOC’s planned payment in dollars for a cargo delivered by Rosneft, two sources said. The cargo was loaded on tanker NS Bora, handled by Dubai-based Sun Ship Management, an entity connected to Russia’s largest state shipping company, Sovcomflot, which the European Union sanctioned in February and the United Kingdom in May.
• In June, IOC used ICICI Bank (ICBK.NS), a private-sector Indian lender, to settle this trade with Rosneft by paying in yuan to Bank of China (601988.SS), two sources with direct knowledge of the matter said. One private refiner has also been using the same mechanism for payments for Russian oil, one of the sources said.

Since then, IOC has used the same method to pay with yuan for other cargoes from Rosneft, one of the sources with direct knowledge of the matter said.

“Whenever IOC will face problems it would push for payment in yuan,” the person said, adding that IOC had asked Rosneft to consider supplying oil in vessels not managed by sanctioned entities.

Another state refiner, Bharat Petroleum Corp Ltd (BPCL.NS), is also exploring yuan payment for Russian oil, a separate source said.

“Many traders (sellers) are insisting for yuan payments,” the source said.

That pretty much says it all.

Authored by Frank Fang via The Epoch Times (emphasis ours),

A former Anheuser-Busch executive is calling on Brendan Whitworth, the beer company’s U.S. chief executive officer, to step down from his position over his handling of Bud Light’s partnership with transgender influencer Dylan Mulvaney.

Anson Frericks, who once was president of sales and distribution for Anheuser-Busch, wrote in a column published by The Daily Mail on July 1 that Whitworth “has clearly shown himself to be incapable of solving the Mulvaney crisis.”

“He’s had multiple chances and he’s failed,” Frericks wrote. “It’s time he did the right thing and stepped aside to make way for someone capable of righting the sinking Bud Light ship.”

The controversy surrounding Bud Light started in April after the company rolled out a personalized beer can featuring the face of Mulvaney. The marketing fiasco has cost Bud Light billions in sales and the beer company lost its top position in the U.S. beer market in May, dethroned by Modelo Especial.

“After all, the beer company’s decision to make trans-activist Dylan Mulvaney the face of Bud Light has cost a staggering $20 billion–and counting–in lost market cap value,” Frericks wrote.

Mulvaney

Frericks criticized Anheuser-Busch for giving a “weak and indecisive” response recently, following Mulvaney’s outcry slamming Bud Light for failing to provide support amid the backlash. Frericks added, “Mulvaney did something Whitworth should have had the wisdom to do weeks ago–cut ties.”

Mulvaney, in an Instagram video published on June 29, said, “For a company to hire a trans-person and then not publicly stand by them is worse, in my opinion, than not hiring a trans-person at all because it gives customers permission to be as transphobic and hateful as they want.”

In response to Mulvaney’s remarks, Anheuser-Busch said, “We remain committed to the programs and partnerships we have forged over decades with organizations across a number of communities, including those in the LGBTQ+ community,” without mentioning Mulvaney by name.

“As we move forward, we will focus on what we do best—brewing great beer for everyone and earning our place in moments that matter to our consumers,” Anheuser-Busch added.

“What does that mean?” Frericks asked about Anheuser-Busch’s response. “Absolutely nothing. And it will only deepen the chasm between the brand and its customers.

“As such—and I take no pleasure in passing this judgement—it’s clear to me that it’s time for the shareholders and board of Anheuser-Busch to ask Whitworth to step down.”

Read more here…

China announced export controls on two rare earth metals, gallium and germanium, starting on August 1. According to the Ministry of Commerce, the move is to “safeguard national security and interests.”

The Ministry of Commerce said Gallium-related items and germanium-related items are prohibited from export unless a license is obtained: 

“Export operators should go through export licensing procedures in accordance with relevant regulations, submit an application to the Ministry of Commerce through the provincial commerce department, fill out the application form for export of dual-use items and technologies and submit the following documents.”

The ministry continued by saying the metals have a “major impact on national security,” which is the reason for tighter export controls. 

What’s most alarming is China controls the world’s processing and refining of rare earth metals. These metals have become essential for producing electric vehicles, wind turbines, solar panels, and high-tech defense weapons. 

Gallium is most common in semiconductors, transistors, and small electronic devices. It’s also used to make LEDs. As for military-grade Gallium Nitride, it’s found in cutting-edge weapon technology that US defense companies produce.

Three of the most common uses for germanium are rectifiers, transistors, and weapons-sighting systems.

Here’s a breakdown of rare earth metals used in US defense weapons. 

Meanwhile, China has already placed Lockheed Martin and a unit of Raytheon Technologies on an “unreliable entities list” over weapon sales to Taiwan. 

Suppose China intends to limit the export of rare earth metals crucial for manufacturing high-tech chips for the US defense industry. In that case, this is a major wake-up call to the military-industrial complex that would need to quickly rejigger its supply chains and or boost domestic spending to increase mining and refining capabilities. 

The ministry’s move is likely a response to the Biden administration’s chip crackdown in recent weeks and months. 

Authored by H.P. Smith via AmericanThinker.com,

Let’s be honest: the Diversity Hire does no one any good…least of all the Diversity Hire.  Last week’s SCOTUS decision to do away with race-based Affirmative Action policies in higher education finally took a step towards fixing a grievous wrong.  

But if you listen to Senator Elizabeth Warren (infamously known as Fauxcahontas, Lie-Awatha, and Sitting B——-), what happened is that the “extremist” Supreme Court “rolled back the march toward racial justice, and narrowed educational opportunity for all.”  For that comment, she was deservedly roasted on Twitter.  I won’t spoil the fun…go check it out!

In Warren’s mind, ending the blatant discrimination against historically higher-achieving Asians and whites (sorry, just the facts) means marching away from racial justice.  Evidently, “racial justice” means fighting racism with even more blatant racism, as long as that racism helps out whichever protected group is in favor today. 

Warren benefited from these racist policies by being employed at Harvard Law for over twenty years because she claimed to be “American Indian,” so why wouldn’t she support affirmative action?  Ironically, she had to cheat in order to get ahead as a boring old white chick, even back then.  Further irony is that Warren presumably took the place that Harvard’s quota system had set aside for an actual Native American!

Why are race and other quotas for higher education such a terrible thing?  Isn’t it nice to be able to give someone who is under-privileged the opportunity to go to a prestigious and expensive university like Harvard?  Shouldn’t we be looking to give a chance to achieve excellence?  Of course we should.  And we are, through scholarships, grants, and student loans to allow for those who are economically less capable to be able to attain higher education.  We shouldn’t be lowering the bar for entrance so that we can check off boxes and boast that “now we have one in every color!”  And virtue-signal our enlightenment in today’s upside-down world.

Here is what actually happens when you lower the standards of a university like Harvard in order to artificially boost your diversity numbers.  If your standard results in a very low percentage of black or Hispanic students being qualified for acceptance at Harvard, such that a larger percentage of white or Asian students are accepted, where does the fault lie?

A) With the students?

B) With their parents? 

C) With their high school?

D) With Harvard?

In a world with any personal accountability, the answer is “A, B and/or C.”  But in our racially charged Bizarro World, the fault lies with Harvard; asking a lot of those who attend a once-great institution is clearly racist.  And clearly the solution is more racism.

So Harvard and hundreds of other schools simply lower the bar.  Problem solved, right?  Those Asian smarties can always go to Yale, Dartmouth, or maybe (gasp) Brown, right?  A new generation of black and Hispanic students can now enjoy the benefits that all those over-privileged white kids have had for decades.  Except that perhaps when the under-qualified student gets to Harvard, maybe he can’t keep up…or he’s passing, but just barely…or even failing.  We can’t have that!  It would show the obvious fault in the logic that the only problem was getting into the fancy college.

The next illogically logical step is to lower the grading standards…or the difficulty level for the curriculum itself.  Now those Cs jump up to As, and everyone is happy again, right?  Harvard can boast that it graduated the highest number of whatever group is in the current cultural spotlight.  Yay!

Except not “yay.”  Since they have dumbed down the qualifications to get into, perform at, and graduate from Harvard, the once highly valued degree is now essentially meaningless.  No one, including the student, will ever know whether he actually achieved anything.  Once he graduates and moves into the post-academic “real world,” he is doing so with a watered down education, and also heading into a world that is increasingly indulging the same woke nonsense.  Companies are now increasingly hiring candidates on the basis of skin color, gender (real or imagined), and sexual orientation rather than, you know, actual qualifications for the job in question.

“Big deal!” you might say.  “Where’s the harm?  We’re just giving people an opportunity to succeed in a patriarchal system full of systemic racism!”  The Big Deal is that maybe that person who has been artificially helped through the system is flying your 747, performing your medical procedure, running your company, or being appointed to the Supreme Court of the United States.  People who are actually qualified will have opportunities taken away from them in favor of people who are not, and those unqualified people will not only do damage to the world around them, but also do damage to themselves. 

The end result of affirmative action is generations of people who can never know if they accomplished anything on their own merits or were simply handed things based on their race or superficial characteristics.  Never.

Has self immolation ever been an effective form of modern protest?  Or is it just the act of a person with delusions of grandeur?  This anti-gun veteran doesn’t set himself on fire, but the intended message is the same – “Look at my sacrifice for the greater good; now all of you follow me or you don’t care about humanity as much as I do…”

I’m an Army veteran.

And I’m sick of all the guns here in Texas, so I’m starting with mine: pic.twitter.com/38YYJIeNQf

— Jason Rogers (@Rogers4Texas) July 2, 2023

As some commenters on social media noted in response: Why doesn’t he just castrate himself in order to stop rape?

Jason Rogers is not the first veteran to come out against civilian gun rights (though there are not a lot of them), and the clear assumption among them is that because they were once in the military this makes them keenly positioned to comment on the 2nd Amendment.  However, their veteran status is irrelevant.  The 2nd Amendment was not drafted for the sake of a standing military, but for the citizenry as a whole as a shield against tyranny.  In fact, the Founding Fathers were distinctly suspicious of any government that sought to establish a standing army because they believed such a force might be used to oppress the populace. 

Luckily, most veterans do not share the sentiments of the activist above.  In the gun world, these people are often referred to as “Elmer Fudds” or “Fudds” – People who come from conservative regions or who travel in traditionally conservative circles but are, for whatever reason, aggressive gun control advocates.  In the case of veterans and police officers the philosophy often stems from an elitist mindset; the notion that firearms are for the warrior class alone, and only the government can dictate who is allowed to be a part of that class. 

Other Fudds suggest that the 2nd Amendment is for basic self defense and for hunting but not for defense against a corrupt government, and they argue that “military-style weapons” should not be in the hands of civilians.  At bottom, gun enthusiasts and 2A patriots do not care what these people say.  They’ve heard all the spin and propaganda before, and with the world becoming more chaotic by the day there is little chance that anti-gunners are going to convince anyone who already owns firearms to give them up.            

More ugly ‘soft’ survey data with both ISM and PMI showing serious contraction the US Manufacturing sector (and don’t forget, this does not cycle independently of Services, there is a lead-lag relationship).

Source: Bloomberg

Equities were volatile early on (especially Small Caps) but by the close, The Dow, S&P, and Nasdaq all hugged the unch-line while Russell 2000 outperformed…

Banks outperformed today alomg with Discretionary stocks, Tech and Healthcare lagged…

Treasuries chopped around, with yields dropping on the manufacturing data but rebounding back top unch pretty quickly. By the close all yields were marginally higher on the day with the short-end underperforming…

Source: Bloomberg

The dollar ended lower for the second day in a row…

Source: Bloomberg

Bitcoin recovered all of Friday’s puke, and got back above $31,000 today…

Source: Bloomberg

Gold extended its gains off the $1900 tick last week…

Oil prices ended lower, despite an early spike on headlines that Russia and Saudis would extend their production cuts. WTI rallied back above $71, but faded back into the red by the early close…

Finally, we note that ‘The Buffett Indicator’ is on the march once again into the danger zone…

Source: Bloomberg

Do you feel luck again, punk? Do ya?

Authored by Michael Maharrey via SchiffGold.com,

A note recently published by two Federal Reserve economists reveals a looming catastrophe…

The Fed’s interest rate hikes have already precipitated a financial crisis. The central bank managed to paper over that problem and get it out of the headlines with a bailout program. But it didn’t solve the problems. Banks continue to tap into the bailout loans as they struggle in this high-interest-rate environment.

And there are even bigger problems on the horizon.

As Peter Schiff put it, the Fed has screwed up everything that is a function of interest rates. With more than a decade of easy money, the central bank created an economy that depends on artificially low interest rates and periodic quantitative easing. It simply can’t function in a high-interest-rate environment. I have been saying that it’s only a matter of time before something else breaks.

It appears that economists at the Federal Reserve know this too.

In a note, Ander Perez-Orive and Yannick Timmer reveal that an unprecedented number of distressed companies could collapse due to the recent increase in interest rates.

According to their analysis, more than one-third (37%) of non-financial US companies are in financial distress.

The share of nonfinancial firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s.”

Distressed means close to default.

What does this mean for the economy?

Our results suggest that in the current environment characterized by a high share of firms in distress, a restrictive monetary policy stance may contribute to a marked slowdown in investment and employment in the near term.”

In other words, a deep recession.

To put this situation into perspective, consider the fact that there are more significantly distressed firms today than there were when the Fed tightened monetary policy prior to the financial crisis and the Great Recession.

The paper concludes that the high number of over-leveraged firms in distress “is likely to have effects on investment, employment, and aggregate activity that are stronger than in most tightening episodes since the late 1970s.”

In other words, the impacts of this tightening cycle could be worse than the Great Recession.

This is a problem of the Fed’s own creation.

More than a decade of artificially low-interest rates coupled with massive stimulus injected into the economy during the pandemic incentivized companies to load up on low-interest debt. That was fine and dandy as long as rates were near zero. But with interest rates now pushed up to over 5%, many companies can’t service their massive debt loads. Many will undoubtedly go under.

According to the Fed paper, this will likely have “substantial effects on investment and employment.”

The paper also notes the typical lag between a change in monetary policy and its impact on the economy, noting we may not start seeing a wave of defaults until next year.

This shouldn’t come as a shock. The Fed has addicted the economy to easy money. When you take an addict’s drug away, he goes into withdrawal. The economy already has the shakes. It’s just a matter of time before it goes into full DTs.

Authored by Mike Shedlock via MishTalk.com,

This summer, the Supreme Court will decide if ‘income’ under the law can include an unrealized gain. Guess what…

Unsplash image courtesy of Bermix Studio

Coming Up, Moore v. United States

The issue, as Wikipedia details is whether the 16th Amendment authorizes Congress to tax unrealized gains as income.

Background

Charles and Kathleen Moore invested $40,000 in an Indian business named KisanKraft in 2005, in exchange for 11% of the company’s equity. KisanKraft is a controlled foreign corporation. The company has made a profit every year of its existence, and rather than distributing its earnings to shareholders, it has reinvested profits in the business. Prior to the passage of the Tax Cuts and Jobs Act in 2017, income tax on such earnings generally did not have to be paid until they were distributed to shareholders. The 2017 law changed the corporate and Subpart F tax regime to focus on domestic profits, and imposed a one-time mandatory repatriation tax on profits held overseas. The Moores paid the $14,729 in tax owed and challenged the law in the United States District Court for the Western District of Washington as violating the Sixteenth Amendment’s requirement that income be realized before it can be taxed, as set forth in Eisner v. Macomber (1920). The district court ruled for the government, and the United States Court of Appeals for the Ninth Circuit affirmed. joined by three other judges, dissented.

The Moores filed a petition for a writ of certiorari on February 21, 2023. The Supreme Court granted certiorari on June 26, 2023, meaning that it would head the case.

Wealth-Tax Watershed for the Supreme Court

The Wall Street Journal comments on a Wealth-Tax Watershed for the Supreme Court

The Moores sued for a refund, but a three-judge panel of the Ninth Circuit ruled that “realization of income is not a constitutional requirement.” This defies the traditional understanding in U.S. tax law, and in Supreme Court doctrine, that income must be realized before it can be taxed. That is, the income must be real income, not merely an increase in the value of an asset in market value or on some company’s books.

A 1920 case, Eisner v. Macomber, held that a gain in asset value qualifies as income only if it is “received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal.” The fight will be whether that precedent still holds under the Constitution’s Sixteenth Amendment that allowed the income tax.

Bernie Sanders, Elizabeth Warren, and  Senate Finance Chairman Ron Wyden are all on board for a wealth tax.

State Exit Taxes

California, New York, Massachusetts, Hawaii, and Washington have all proposed exits taxes on unrealized gains when someone moves out of state.

A proper Supreme Court ruling would kill these ideas before they take hold.

Slam Dunk

This case is a slam dunk for the Supreme Court. In short, the constitution authorizes a tax on “income.”   Fluctuations in value of an asset have been ruled not to be income and for good reason, given the meaning of the word income. 

People with illiquid assets would be punished. Family farms would be crushed when the principle owner moved.

The case is simple. Expect a huge majority decision. Then expect Elizabeth Warren, President Biden, and Bernie Sanders to piss and moan when their Marxist wealth grab ideas bites the dust.

The Supreme Court is on a roll this year, all of it good.

Supreme Court Strikes Down Student Debt Cancellation, Cites Nancy Pelosi

Also consider my June 30 post Supreme Court Strikes Down Student Debt Cancellation, Cites Nancy Pelosi

My follow-up post was Flouting the Supreme Court Ruling, Biden Sets Student Debt Repayment to Zero for Many

Expect a legal challenge to Biden’s actions.

*  *  *

Subscribe to MishTalk Email Alerts.

Washington DC police are trying to track down whomever is responsible for a Sunday morning attack on three businesses that used two explosive devices and one Molotov cocktail, and shared a photo of a suspect and the suspect’s vehicle with the public.

Police say the attacks at three different locations all took place in the span of just 15 minutes in the early Sunday-morning hours:

• The first target was a Truist Bank branch in the 2300 block of Washington Place, Northeast, with the suspect detonating some type of explosive device on the sidewalk next to the bank’s ATM at 4:30 am before fleeing in a car.

• Six minutes later, the suspect hit a Nike store in the 700 block of H Street, Northeast, again detonating an explosive and driving off.

• At 4:45 am, the suspect hurled a Molotov cocktail through a Safeway store window in the 300 block of 40th Street, North

No casualties were reported, and the timing of the attacks suggest the villain sought to avoid inflicting injuries or deaths. No associated theft was reported. Nearby residents say they were startled awake by the loud explosions.   

Loud explosion noise heard at 4:30am here at Rhode Island Row/Ave Metro Stop. Truist bank glass is shattered and a fireman says there was an “incident at the bank” MPD is now blocking off the street @PoPville pic.twitter.com/wA0vPz6YHi

— Amanda Koski (@AJKoski16) July 2, 2023

“BOOM and it woke me up out of my sleep…It shook my living room. It knocked all my security cameras off the wall. It knocked my pictures off the wall. It pretty much rattled me,” a man who lives in an apartment above the Truist Bank branch told NBC4 Washington.

Physical damage varied, with the Truist bank appearing to have fared the worst of the three targets. Photos posted to social media suggest the explosive shattered plate glass in a large exterior window, the door, and another window on the other side of the entrance vestibule. The awning was left in tatters, and a drain downspout appears to have been bent out of alignment.  

Early Sunday evening, Washington DC police released a photo of the suspect and the suspect’s vehicle — a champagne-colored Acura TL with Maryland license plate 17971CK. They didn’t say what, if anything, they’d learned about the license plate or the vehicle it’s associated with — which may not be the one the plate was affixed to during the attack. 

While DC police endeavored to describe the vehicle with words, they chose not to do the same for the suspect — perhaps out of fear of misgendering the bomber or reinforcing other stereotypes. One would think police captured at least a few angles on the individual, but they only shared one — an over-the-shoulder look in which the suspect’s face is hidden from view by a hood.

The race cannot be conclusively determined from the photo: One hand that’s visible appears to be dark, but we can’t rule out the possibility that the perpetrator wore a glove — or, worse, dressed in blackhand; if the latter, such an act would likely elicit more condemnation from leftists than the bomb and fire attacks themselves.

In their release about the incident, DC police refer to plural “suspects,” but do not definitively declare that more than one person was involved. The Bureau of Alcohol, Tobacco, Firearms and Explosives and DC police are together offering a $20,000 reward for information that leads to an arrest and a conviction.   

While observers of current events will find the attacks on a DC bank, shoe store and grocery reminiscent of the rampages taking place across France, there’s no hint of a motive yet.