Authored by Conor Gallagher via NakedCapitalism.com,

Turkish President Recep Tayyip Erdogan has another five years in power after defeating opposition leader Kemal Kilicdaroglu in Sunday’s runoff election.

Kilicdaroglu was in the impossible position of trying to make up ground by simultaneously keeping the pro-Kurdish Peoples’ Democratic Party voters on board and attracting the voters of nationalist candidates from the first round.

It didn’t work.

The Turkish opposition has now started to say that “we lost because some HDP/YSP voters did not go to the polls”. However, the HDP/YSP votes fell not because of Erdoğan’s politics, but Kılıçdaroğlu’s agreement with the ultra-nationalist Özdağ.

— Levent Kemal (@leventkemaI) May 28, 2023

While Umit Ozdag backed Kilicdaroglu, another nationalist candidate went for Erdogan. Both candidates’ pet issue was the repatriation of the 3 million-plus Syrian refugees in Turkiye (as well as millions from other countries) – even doing it by force if necessary.

While both Erdogan and Kilicdaroglu were in favor of repatriation, neither had previously gone that far. Kilicdaroglu tried to talk tough on the issue in the two weeks between the election and the runoff, calling for the urgent expulsion of “10 million refugees” in the country, but while his new stance wasn’t enough to win him the election, it did provide a bipartisan blessing for the anti-refugee stance.

One reason Erdogan has been so successful at remaining in power is his ability to move with public opinion. If he continues to do so, Turkiye might see a more dramatic turn to the right. While Erdogan beat expectations in the presidential vote, his party lost seats at the parliamentary level as nationalist parties outflanking him on the refugee issue were the big winners in the elections.

The Nationalist Movement Party gained one spot in the 600-seat Turkish parliament and is now at 10.4 percent – a high amount for a party that has ties to the Ulku Ocaklari, or Grey Wolves, an ultra-nationalist group long associated with political violence.

All in all, far right parties got more than 30 percent of the parliamentary vote as working class and low income voters in both urban and rural areas opted for nationalist and/or Islamist candidates. Duvar reports:

As one of the most crucial elections of modern Turkey’s history ends, the Turkish parliament now hosts plenty of far-fight MPs while the vote share of the far-right parties is even higher than in the previous elections. …

Turkey has been experiencing a similar path with its global counterparts. The leftist and center parties struggle to capture the voters who have been facing detrimental consequences of the economic crisis and allured by the far-right discourse.

As Turkiye’s inflation began to take off in recent years and Erdogan’s government followed an unorthodox policy by continuing to slash rates, purchasing power has been severely eroded as the inflation rate was 44 percent in April and as high as 85 percent last October.

At the same time frustration has risen with the enormous number of refugees and migrants in the country, mostly as a result of the war in Syria. Although Erdogan’s previous support for the overthrow of Syrian President Bashar Assad al-Assad helped create the problem, he ultimately didn’t pay the price at the ballot box. But he will be under even more pressure now to undo the situation his Syrian escapades brought about.

Turkiye has been building housing in areas of Syria occupied by the Turkish army and wants to resettle Syrian Arabs there – possibly to dilute the Kurdish population. Ankara, with the support of Russia, is also working to improve relations with Assad. At the same time, Erdogan’s foreign affairs minister Mevlut Cavusoglu is saying that some Syrian refugees will remain as a source of cheap labor.

Resentment towards refugees and migrants is likely to only grow as Turkiye’s economy faces a perilous path ahead. Erdogan went on a generous spending spree in recent months, moving roughly 500,000 public employees from temporary contracts to permanent positions with strong benefits, hiking pension payments, extended cheap credit for small businesses, and offered early retirement benefits to more than 2 million Turks. The government also raised the minimum wage. The problem is that the country’s runaway inflation lessens the impact of such policies while the long term finances continue to take a hit.

Turkiye had a budget deficit of roughly $12.9 billion over the first three months of this year, and it’s possible it reaches six percent of GDP or higher by year’s end. Turkiye’s hard currency reserves were further drained ahead of the election, which was likely an Erdpogan attempt to boost the lira before voters went to the polls. The country’s foreign currency reserves are possibly in negative territory now. The earthquakes that hit southern Turkey in February will require massive spending, exacerbating these trends.

Pressure in the financial markets continued to build in the days between the May 14 election and Sunday’s runoff. Turkiye’s central bank was forced to ask some lenders to step in and buy the country’s dollar bonds. The country’s sovereign dollar bonds and equities have fallen off a cliff, and the cost of insuring exposure to Turkish debt has jumped.

Should Turkiye’s economy continue to flounder, resentment of the refugees will likely only grow.

The lira began to hit turbulence back in August 2018 when the US imposed sanctions on Turkish exports, and the Erdogan administration has continued to cut interest rates despite the record-breaking inflation.

The rough economic road ahead combined with the refugee situation could help the nationalists continue to add support and is  food for thought when thinking about who could potentially succeed the 69-year-old Erdogan if he doesn’t seek reelection in 2028. From Al-Monitor:

Had they contested the elections as a united bloc, they would have become the second-largest force in parliament after the AKP. In a viral tweet after the May 14 vote, Tugrul Turkes, a prominent nationalist figure who joined the AKP in 2015, declared that “Turkish nationalism is the only true winner of the elections.” It could become the country’s largest political force in the next elections, he continued, if the scattered nationalist groups come together.

New Cold War Status Quo?

One of the few things going right for the Turkish economy is how it has navigated the conflict between the West and Russia. Ankara has refused to join sanctions against Moscow and has instead only grown closer to its neighbor across the Black Sea.

Turkey’s booming trade links with Russia carry big risk. The dependence on Russian energy (black) means growing exposure to the whims of Putin, while the rise in exports carries substantial sanctions risk (blue). US sanctions in 2018 pushed Turkey into recession. Not worth it… pic.twitter.com/u4Odh1hSL1

— Robin Brooks (@RobinBrooksIIF) May 22, 2023

Exports from Germany to Turkey jumped nearly 37 percent during the first quarter of this year compared to last. Most of those goods are believed to make their way to Russia as a sanctions workaround. Turkey has been in a customs union with the EU since 1995, and the economic relationship is strengthening despite the EU’s public hand wringing over Ankara’s trade with Moscow:

📣Today,Türkiye🇹🇷has joined the🇪🇺EU’s #SingleMarket Programme, specifically its part dedicated to supporting the dev of SMEs
This agreement will
🔹support to businesses
🔹promote economic growth📈
🔹stimulate a more dynamic&cross-border business environment@eu_eeas @EU_Growth pic.twitter.com/FkH24U3gqH

— AB Türkiye Delegasyonu🇪🇺EU Delegation to Türkiye (@EUDelegationTur) March 31, 2023

Unless the West unwisely forces Turkiye’s hand (which of course can’t be ruled out), this arrangement will almost certainly continue under Erdogan’s new term.

There were reasons to believe the opposition would have chosen a different course. In previous posts I wrote about the opposition’s mixed signals on Russia and Kilicdaroglu’s odd decision to tour the US and UK last year. It appears Moscow was of the believe the a Kilicdaroglu presidency would have moved Turkiye towards the West. From WSWS:

A commentary in the pro-Kremlin newspaper Vzglyad explained why Erdoğan, maneuvering between NATO and Russia, was preferred by Moscow: “In terms of personalities, most Russian experts were rooting for Erdoğan… there were serious reasons to suppose that in case Kilicdaroglu wins, Turkey will join Western policy of blockading Russia.”

It continued: “That is, simply put, it would abandon Erdogan’s ‘both ours and yours’ line, after which it would rigidly enforce anti-Russian sanctions, supply more weapons to Ukraine and foment the Russian periphery.”

Erdogan often painted Kilicdaroglu as a western stooge during the campaign – a description that was given more weight when the latter accused Moscow of interfering in the election with deep fake videos despite his charge lacking evidence and commonsense. This likely damaged Kilicdaroglu’s prospects since taking the side of the West in the new Cold War is a toxic position in Turkiye. A December poll by the Turkish company Gezici found that 72.8 percent of Turkish citizens polled were in favor of good relations with Russia. Compare that to the nearly 90 percent who think the US is a hostile country.

Kilicdaroglu also claimed Western money would pour into Turkiye should he win – a claim backed by western financial institutions. According to Bloomberg, “Vanguard Says Erdogan Loss Would Make Turkey Bonds Loved Again.”

Alas, it was not to be.

It remains to be seen how Washington and Europe will react to Erdogan’s victory. It was made clear the West wanted him gone – from Biden’s declaration during his 2020 election campaign that Washington should help the Turkish opposition “take on and defeat Erdogan” to the recent Economist cover with the title “The Most Important Election of 2023” with the tags “Save Democracy” and “Erdoğan Must Go.”

The US has in recent years tried various forms of pressure against Erdogan and Turkiye (sanctions, threat of sanctions, strengthening Greece, arming Cyprus, etc.) all to no avail. The EU has also kicked around the idea of secondary sanctions to stop Turkiye’s role as a go between.

Could we see the West double down on those efforts now? While such policies would only serve to drive Turkiye closer to Russia and China, it’s difficult to rule out any self-defeating policy by the West. The rise in Turkish nationalism demonstrated by the elections will mean even less patience for Washington’s pressure campaigns.

Remarkable statements by Turkey’s Interior Minister, Soylu, over the last couple of days:

🔹”Those who pursue pro-American strategy will be considered traitors!”

🔹”We will wipe out whoever is causing trouble, including American troops”

🔹Fighting against “Western oppression… pic.twitter.com/ysWEdmye7W

— S.L. Kanthan (@Kanthan2030) May 28, 2023

Erdogan will likely continue to try to navigate the middle ground as it’s a profitable space to be. Russia, for its part, continues to offer carrots.

Moscow has helped Ankara prop up its foreign currency reserves with the purchase of Turkish bonds via a scheme involving the construction and development of Turkey‘s Akkuyu nuclear power plant.

On Thursday, Erdogan also said that Gulf states recently sent funding to Turkiye, briefly helping relieve the central bank and markets, and he added that Ankara will show them gratitude after the election.

Another recent agreement between Ankara and Moscow allows Turkiye to postpone up to $4 billion in energy payments to Russia until next year, both sources told Reuters under condition of anonymity. Ankara has already deferred payment of a $600 million natural gas bill. (Prior to the election Erdogan enacted a policy to provide free natural gas to households for a month.) A deal for Turkiye to pay for Russian gas in rubles has also helped Ankara reduce its foreign-currency demand.

Elsewhere, Erdogan could face increased pressure from the more nationalist parliament to take more military action against Kurdish groups in Syria and Iraq, although this would complicate relations with Moscow and Damascus.

Sweden’s path to joining NATO also likely got more difficult. Erdogan has hinted that his opposition to Sweden’s NATO membership application would continue until Stockholm extradites dozens of Kurdish exiles who Turkiye accuses of being terrorists. The strengthened nationalist forces in the Turkish parliament makes it even less likely to ratify Sweden’s accession.

Long term, the nationalists are likely to gain even more power as there are no easy fixes to Turkiye’s economic troubles nor a quick solution to its refugee crisis.

Authored by Beth Brelje via The Epoch Times (emphasis ours),

A small, loose-knit group of certified public accountants (CPA) hopes to convince states to apply the same methods that accountants use to assure integrity in business to bolster voter confidence in elections.

“What we want to do is make sure that eligible voters can find it very easy to vote, and people who are not eligible to vote can’t,” retired Marine Reserve Col. Frank Ryan told The Epoch Times. “Then, we want to make sure that every vote that is cast is counted.”

Ryan, a CPA, is a retired state representative in the Pennsylvania House. He left the seat in December, specifically to work on election security, believing he could have a bigger effect on public policy outside the legislature than from within.

It isn’t the first time that he’s been involved in election security. In 2005, when Iraq held its first free election in years to choose an entirely new National Assembly, Ryan facilitated the country’s election. That year, Iraqi voters stuck their fingers in dye so no one could vote twice.

More Than Math

While many think of CPAs as the arithmetic wizards who handle tax returns, Art Werner of the Philadelphia firm Werner-Rocca Seminars, which trains CPAs, says they do more than math. The CPA code of ethics and the work they do make CPAs the perfect profession to add oversight to elections.

They also set up systems to show how to avoid fraud and can forensically determine if there’s been fraud or mismanagement.

“The main function of a CPA is to do two things: one, to tell people what happened in the past,” Werner told The Epoch Times. “To do so, they design systems that can be reviewed in a manner that can guarantee that they are impartial and can guarantee that the results are proper, which allows, for example, banks to have confidence in financial statements that a CPA prepares.”

For example, when banks loan money, they rely on the CPA reports, balance sheets, and income statements prepared by CPAs to determine the health of a company.

“The CPA can design internal systems well beyond this financial structure that do the same thing. Can they design a system of internal controls so that people could redeem trust in elections? The answer is, a CPA can easily do that,” he said.

Adding CPA systems to elections in every state would increase much-needed trust, Werner said.

“Even if every state right now has a system that is working, if the people of the United States have a suspicion that there’s a problem, it lends to the fact that people will then walk away and say that we have an unfair election,” he said. “Maybe the CPA, by their involvement, can establish a system that will say [that] we have set up something that guarantees that it’s fair.

“Even if it turns out the results are the same, people will trust it.”

Inaccurate Voter Records

The Pennsylvania Auditor General’s damning 2019 performance audit of the Statewide Uniform Registry Electors (SURE) system, which is administered by the Department of State, caught Ryan’s attention when it was released.

“We identified tens of thousands of potential duplicate and inaccurate voter records, as well as voter records for nearly three thousand potentially deceased voters that had not been removed from SURE,” the audit stated. “We found that voter record information was inaccurate due to weaknesses in the voter registration application process and the maintenance of voter records in SURE.

“Specifically, voter registration applications remain in pending status for long periods of time—indefinitely in some cases, and although list maintenance activities are performed by counties, insufficient analysis and monitoring has resulted in inaccurate data in the voter records.”

Ryan said he was shocked by the report, which was written by a Democrat auditor general, Eugene DePasquale, to a Democrat-led administration.

“We are very discouraged by management’s response to our draft findings,” the report reads. “We were quite surprised that the DOS’ [Department of State’s] response indicates that it strongly disagrees with many of our findings and mischaracterizes information that was provided, or not provided to us in many instances, during the course of our audit.

Weeks after Russia’s former head of the Roscomsmos space agency cast doubt on the US moon landing in 1969, China announced plans to put a person on the moon by 2030.

In a Monday announcement, Lin Xiqiang, the deputy director of China’s Manned Space Agency, said that the CCP’s moon landing project – part of the country’s broader Lunar Exploration Project (Chang’e Project, named after the Chinese moon goddess) – had only “recently” been kick started. The project seeks to eventually enable short-term stays on the lunar surface, as along with the collection of samples and other research, The NY Times reports.

Chinese scientists have previously nodded at a 2030 goal in a less formal capacity; for example, the chief designer of China’s lunar exploration program said last month that a 2030 landing would be “no problem.”

The Monday announcement came at a news conference to mark the liftoff of three new astronauts on Tuesday to China’s new space station, which was completed late last year.

A manned lunar landing would be a major milestone for China’s, and the world’s, space exploration: No human has been on the moon since the United States’ Apollo missions in the 1960s and ’70s. And it could mark a significant achievement for China in its burgeoning competition with the United States in space. China’s top leader, Xi Jinping, has said that the country should become a “great space power.”

The announcement follows one by NASA, which announced a plan to put a team on the moon by 2025 as part of the (repeatedly delayed) Artemis program.

Both Beijing and Washington want to build research stations on the moon, and to land people on Mars.

The Times frames the announcement as a point of contention between the US and China, echoing the space race between the United States and the Soviet Union during the Cold War.

NASA’s administrator, Bill Nelson, has said that the United States should “watch out” for Chinese attempts to dominate the lunar surface and keep Americans out. A Pentagon report last year warned that China could overtake American capabilities in space by 2045. -NY Times

China has accelerated its space program in recent years, and is currently the only country (known) to have landed anything on the moon in the 21st century. The CCP also landed a lunar probe on the moon’s far side for the first time in history in 2019.

If the moon is next for humans, it might be a good time to bone up on your Heinlein.

Careful, China. You never know what’s up there!

Authored by Brooke Rollins via RealClearPolitics.com,

The Christmas season of 1942 was clouded by war in the small town of Waterloo, Iowa, but for Mrs. Alleta Sullivan, it was especially dreadful. A rumor was going about town, and it was about her sons. Or rather, it was about all five sons, each of whom had volunteered for the Navy — and elected to serve together aboard the same ship. The brothers meant to fight as they lived, as a team, as a family, each helping the other out — on the vast and distant Pacific as much as in idyllic Iowa. 

The rumor that reached their mother was that their ship, the light cruiser Juneau, had sunk off Guadalcanal. But Mrs. Alleta Sullivan had received no news. 

So, she did something very American. She wrote to the Navy. “Dear Sirs,” she began, “I am writing you in regards to a rumor going around that my five sons were killed in action in November. A mother from here came and told me she got a letter from her son and he heard my five sons were killed.”

The next line, even softened by 80 years, still breaks the heart in its simplicity and directness: “It is all over town now, and I am so worried.”

Mrs. Sullivan would have been entirely justified in demanding news of her boys. She would have been justified in demanding that the Navy account for them, that she did not have to endure the quiet hell of rumors of her sons. Instead, she does something remarkable, and reading it now is a window into a different — and better — America. She writes that even if her five sons are gone, she will still do her own duty. 

“[P]lease let me know the truth. I am to christen the U.S.S. TAWASA, Feb. 12th, at Portland, Oregon. If anything has happened to my five sons, I will still christen the ship as it was their wish that I do so.”

Stop there for a moment and re-read that. Even in the shadow of the most terrible prospect a mother can face, Mrs. Alleta Sullivan tells the Navy it can count on her to keep her commitments. She would never have said it, but here you can see from whom her five sons inherited their own sense of sacrificial devotion. 

“I hated to bother you,” she continued as if she had anything at all to apologize for, “but it has worried me so that I wanted to know if it was true. So please tell me. It was hard to give five sons all at once to the Navy, but I am proud of my boys that they can serve and help protect their country.”

Mrs. Sullivan did not have to wait long for her answer. Her letter went to the Navy and crossed paths with the inbound casualty notification. Her letter went out in early January 1943. On the early morning of January 11, three Navy officers arrived at the little house on 98 Adams St. in Waterloo. Mr. and Mrs. Sullivan knew why they had come. The officer in charge knew he could not soften the blow.

“I’m sorry,” he said, “All five.”

The story of the Fighting Sullivans is a famous one, notable for its contrast of great virtue — five brothers, on fire with duty imparted by their parents — and great tragedy, in their death together on a black day off the Solomon Islands. We have an obligation to remember. We should also remember that it is not the only tale of its kind. We today are as far from World War II as it was from the Civil War. In that war, there was the heartbreaking episode of Mrs. Bixby and her five sons, all fallen in battle, of whom President Lincoln wrote that they were “so costly a sacrifice upon the altar of Freedom.” In his 2013 “The Guns at Last Light,” Rick Atkinson tells a lesser-known tale of an elderly widower in Missouri, one Henry A. Wright, who waits at his small-town train station for the casket bearing his son, killed on Christmas Eve 1944 in the Ardennes.

He also received the remains of another son, who died in a German prison camp. He also received the remains of still another son, who died in combat in Germany, 10 days before war’s end.

Atkinson writes that the three brothers were buried “side by side by side beneath an iron sky.”

These stories of the grievous loss of the young, strong, brave, and parents burying their children, hit us hard. They should. If they do not, then we are undeserving of the fallen. The five Sullivans, the five Bixbys, and the three Wrights seize our attention and hearts because of the numbers. But make no mistake: the mother, the father, the brother, and the sister who lose a single son at war, do not grieve less because it is just one. 

For them, there is the consolation in the grace that is only God’s to give.

On this Memorial Day, we remember all the fallen — and we remember those whom they left behind. We have a sacred obligation “to care for him who shall have borne the battle, and for his widow, and his orphan” — and that obligation increases a hundredfold because the battle was borne, and the wife was widowed, and the child was orphaned, for us. “Freedom is not free” is an overused phrase, almost cliche, which does not mean it should not be said. But this Memorial Day, when you say it, think of what it means on the most human level. You live in the greatest nation, among the greatest people, in the history of the world.

You have that privilege because, across three centuries, unnumbered Americans laid down everything for it.  

A young man died in battle on a sunny morning on the road to Concord.

A loving father fell in the wheatfield at Gettysburg. 

A draftee determined to make his father proud died on the Imjin.

A bright and eager student breathed his last at Khe Sanh.

A young woman took her final flight over Fallujah. 

Remember them. Let the memory steel you – to deserve them.

Late last week, we were the first to correctly summarize what the bottom line of the so-called “debt ceiling deal” meant for the US, for future generations of Americans, and for the ridiculous melodrama gripping Washington: a -0.2% of GDP cut in nominal spending.

Hey @mattgaetz, the debt ceiling deal “cuts” spending by 0.2% of GDP or about $50 billion.

Is that good enough?

— zerohedge (@zerohedge) May 28, 2023

That’s right: that 0.2% cut in spending is what all the brewhaha was over, a cut which will not only push total debt to $35 trillion by the end of Biden’s term, but will not even put a dent in the long-term US debt trajectory which even the CBO has no problem as showing in its full, hyperinflationary glory.

Still, to Kevin McCarthy who “negotiated” on behalf of America’s conservatives, that paltry, laughable nominal “spending reduction” was apparently something to be very proud of, as he repeatedly pointed out on his twitter feed…

It is simple:
– President Biden wanted to spend more and raise taxes.
– Republicans fought—and won—to reduce spending and stop Biden from radical overreach.

The systemic reforms we set in place mark the beginning of historic change in Washington. https://t.co/rjMNsSf5oX

— Kevin McCarthy (@SpeakerMcCarthy) May 29, 2023

… if only a closer look reveals that not all is as it seems.

In its post-mortem of the debt ceiling deal published this evening, Goldman summarizes the outcome as follows: “the spending deal looks likely to reduce spending by 0.1-0.2% of GDP yoy in 2024 and 2025, compared with a baseline in which funding grows with inflation. That said, the boost to funding Congress approved late last year for FY23 was so large (nearly 10% yoy) that overall discretionary spending is likely to be slightly higher in real terms next year despite the new caps.”

Translation: the “deal” may result in a nominal 0.1% drop in spending (just for next year, after that it ramps up again), but adjusted for inflation, spending in 2024 will be higher yet again!

Below we excerpt several highlights from the Goldman note, first focusing on the probability of the deal becoming enacted; according to Goldman, the deal is “very likely to pass both chambers of Congress in the coming week” although there are two points of uncertainty in the House.

• First, the Rules Committee will meet to vote Tuesday (May 30) afternoon/evening on the rule for debate on the debt limit bill, a necessary step before the vote on the House floor. The committee has 9 Republicans and 4 Democrats, but 2 of those Republicans (Reps. Roy and Norman) appear to oppose the bill, with the position of a third (Rep. Massie) unclear. If all three vote against and no Democrat votes in favor, the bill will fail. (Goldman thinks the Rules Committee is very likely to send the bill on to the House Floor, as a majority of the committee will vote for the package even if it takes Democratic support  – it is uncommon but not unheard-of for the minority party to support the majority party’s efforts in the Rules Committee).
• Assuming Rules Committee passage on Tuesday, the House is likely to vote late on Wednesday (May 31). While it is not entirely clear how Republican and Democratic lawmakers will divide the responsibility for passing this legislation–most lawmakers likely want it to pass but few want to vote for it. As such Goldman is confident that a failed vote in the House is very unlikely. Assuming the House clears the bill Wednesday, the Senate is unlikely to vote on final passage before Friday (June 2) and procedural delays could easily push the vote into the weekend. That said, there is less uncertainty regarding support in the Senate than there is in the House, so this is more a question of timing than outcome.

… and second, why the so-called spending cuts are a joke:

The main source of budgetary savings in the deal is a two-year cap on federal discretionary spending. Congress appropriates this segment of spending annually and it accounts for around 25% of total federal spending, with slightly more than half dedicated to defense and the remainder to other “non-defense” spending (generally domestic programs outside of the major benefit programs). The Congressional Budget Office (CBO) will estimate that the spending caps in the deal will reduce discretionary spending by $1.5 trillion over the next 10 years and reduce interest expense by around $160-170bn over that period. On paper, this would reduce projected deficits over the next decade by an average of 0.4-0.5% of GDP.

That said, the actual spending cut will be much smaller, for two reasons.

• First, the caps apply for only two years, so most of the projected savings will depend on policy decisions made after the next election. (The description of the deal states that caps apply for 6 years, but they are only enforceable via sequestration for 2024 and 2025 and should have little effect thereafter.)
• Second, the deal included other details that lessen the effect of the cuts, particularly in 2024. This includes counting the bill’s rescissions of unused COVID funding against spending for the coming year, pre-funding certain items so the spending is excluded from the caps, and a side agreement that $20bn in IRS enforcement funding that would have been spent later in the decade will be redirected toward domestic spending without counting toward the cap. With these adjustments, the White House has indicated it believes non-defense spending will be roughly flat in nominal terms in FY24 compared with this year.

The chart below provides a rough estimates of the effect of the spending caps with and without the adjustments just described, compared with the White House’s initial reported offer (a freeze in discretionary spending for FY24, and a 1% increase for FY25) and the Republican bill the House passed in April.

Other things equal, the adjusted caps look likely to reduce spending by 0.1-0.2% of GDP yoy in 2024 and 2025 (lower left chart).

And here is the punchline: because the increase in funding for FY23 that Congress approved late last year was so large (nearly 10% yoy) some of that spending boost will spill over into FY24 and overall spending is likely to be higher in real terms next year despite the new caps (lower right chart).

And just like that the uniparty has sold America down the river yet again.

* * *

More in the full Goldman note available to professional subscribers in the usual place.

Authored by Wendy McElroy via The Mises Institute,

A “civil society” is a community of individuals who are linked together by common interests and activities. Common interests include being able to walk the streets safely (peace) and to exercise such rights as freedom of speech (individual freedom). These shared interests allow common activities to flourish, including commerce and the education of children.

Civil society is possible only because most people want to live securely, protect their loved ones, and prosper. This laissez-faire attitude used to be a defining characteristic of Americans, but an engineered and well-financed cultural war is destroying America’s renowned tolerance. If the common interests of society break down and peace and freedom are replaced by violence and privilege, then common activities like free-market commerce and education cannot function.

One movement captures the raw destruction of this culture war against civil society – a demand for “Trans rights!” blasts across America. But a sharp backlash against it has also developed, epitomized by the boycott of Bud Light beer over the company’s use of trans activist Dylan Mulvaney as a new “woman” ambassador for its brand.

The media characterizes this backlash as antitrans hatred by conservatives, Christians, and other troglodytes. But few people care about the sexual or gender orientation of their neighbors. Critics of the trans movement are rebelling against the forced redefinition of biology, the destruction of women’s sports by trans athletes, the hijacking of children’s education, the medical experiment of gender-transitioning children, and the intrusion of penises in women-only spaces like bathrooms, locker rooms, prisons, and shelters. Critics don’t want to oppress anyone; they want a return to civil society of peace and individual rights.

To understand why the “trans rights” movement has caused such damage, it is necessary to ask three questions.

1. What is a “transgendered” person?

2. What are “rights”?

3. What is produced by the actions the movement takes?

What is a transgendered person? Already we’re in trouble. Many prominent intellectuals today can’t even answer the simpler question, What is a woman? This article uses a common definition: “Transgender describes people whose gender identity does not match their assigned gender at birth.” It is one of many gender categories being advanced by social justice. There are as many as eighty-one distinct categories, all of which are said to be fluid or constructed over time.

Politically speaking, transgenderism and the other gender categories are a continuation of identity politics. This is a fairly standard definition of identity politics: “The politics of group-based movements claiming to represent the interests and identity of a particular group, rather than policy issues relating to all members of the community. The group identity may be based on ethnicity, class, religion, sex, sexuality, or other criteria” (emphasis added). It is an attempt to splinter society into groups and categories, all of which are at war with each other because their interests are said to conflict. What does this war look like?

Consider a controversial example: gender transitioning. This is when a person uses reassignment therapy, hormone replacement, and sex reassignment surgery to change their birth sex. Few argue against the gender transition of adults who pay for the process themselves. But the trans movement demands the gender transitioning of children, often at taxpayer expense; that is, a tomboy might become a “boy” through methods that include irreversible surgery.

There are at least two flash points here. One is the minimum age at which a person should transition. The World Professional Association for Transgender Health claims hormones can start at age fourteen and some surgeries at fifteen—in other words, at the height of a teenager’s sexual confusion. Recently, a licensed social worker at a children’s medical center in Austin, Texas, was reportedly recorded as saying the center provided gender modification to children as young as eight. On April 25, Senator Ted Cruz and Representative Chip Roy submitted a formal request to the center for information on how gender dysphoria is diagnosed, how federal dollars are spent in the process, and whether patients under eighteen underwent “experimental medical procedures.”

The group war here is between a child’s right against physical abuse and trans activists’ demands for children’s access to transition. The other flash point is that transitions are often performed without parental consent or despite parental objections. The rights war here—trans activists are usurping traditional parental rights, and parents are outraged.

The idea that the rights of one group conflict with those of another is perverse because it destroys the very basis of human rights. Human rights are universal because they are rooted in human nature. All human beings possess the same rights to the same degree. Rights are not based on secondary characteristics such as gender; they rest on a shared humanity. In other words, a trans person has the same rights to the same degree as every other person in society. No more, no less.

The “rights” demanded by trans activists are actually entitlements or group privileges. This is made clear by the claim of historical oppression, which is used to justify many demands. What is really being claimed is victimhood, upon which their entitlements are based. For trans activists to sustain their victimhood status, however, those who oppose them must be cast as oppressors and endless haters. Conveniently, this characterization removes the need to deal with any argument the “haters” present, such as the need for real human rights.

Again, this trans stance is a perversion. If the trans movement has been historically oppressed—and I do not argue against this—then the movement should value individual rights more than the average person. These freedoms are how an aggrieved individual rises to his or her feet. But trans activists do not want to be treated as equal individuals; they want to be a privileged group that imposes huge costs on the majority of society to their great benefit. Individual rights are an obstacle.

Gender transition is one area in which civil society is being replaced with civil warfare, but there are many others:

• Trans “women” housed in women-only venues, like prisons and shelters, put biological women there at risk of sexual assault. Rapes are already happening.

• Trans curricula in American public schools indoctrinate children at the expense of teaching basic life skills, like math and literacy.

• A prominent doctor on Fox News warned, “First-year medical students [are] exposed to woke ‘sex and gender primer’ lesson.” This shifts the focus away from medical problems; it could also damage relationships with patients who do not share woke ideology or are not in a privileged group. The same is happening in law schools.

• The trans agenda violates constitutionally guaranteed freedom of speech in myriad ways, from forcing schools to use pronouns like “xe” and “hir” to shouting down speakers or violently attacking them.

• Draconian hate speech laws are destroying meaningful public discourse. A new bill passing through the Irish parliament, for example, outlaws communication or the possession of material that might incite hatred against “protected” classes, including gender. This is punishable by up to five years in prison.

• The demand to include trans athletes in women’s sports is destroying the entire field.

• Transitioned children who deeply regret transitioning are generally silenced or dismissed.

One way detransitioners are dismissed is through studies and statistics into which little trust can be invested. An article in the Associated Press claims, “In a review of 27 studies” of transgender surgeries, “1 percent on average expressed regret.” If this is true, it is good news. But is it true? The incessant ideology pumped through academia and the airwaves is yet another cost to civil society. Academics, journalists, and so-called experts have earned the public’s scorn. Studies and research have become just one more front in this war of all against all.

The media and authorities richly deserve this summary judgment from the public. Consider how they handle acts of violence. Every act of violence against a trans person seems to be widely reported and condemned, as it should be. But trans violence against biological women or other outsiders seems to be ignored or excused. Even the trans shooter in Nashville who killed three nine-year-old school children and three adults is protected by authorities who refuse to release the shooter’s manifesto. And media reports often expressed more concern about a backlash against trans people than about the dead children. SAVE Services, an agency that works to assure due process and fairness in schools, has an interesting page called “Stop the Wave of Transgender Violence” where many cases of trans violence are documented. In this environment, it is simply not possible to know what’s true about the levels of violence and against whom.

I would end by asking, can a more general violence—a savage civil unrest—be far behind? I believe it is already here.

Over 2,000 stores across all retail sectors have closed in the past 12 months according to a recent report from UBS retail analyst Michael Lasser (available to pro subs in the usual place), and that is just the beginning. “As of 3Q’22 (latest available data), retailers shed -1,500 net stores. This number is already up significantly in ‘23 with the likes of Bed Bath & Beyond, Foot Locker, Tuesday Morning and others closing stores recently” the UBS economists wrote.

“We believe this trend should continue in the years to come, with consumers consolidating their trips and shifting towards online channels. As underperforming retail stores are shuttered, it should help the store productivity of surviving locations,” the report authors said, and predicted that over the next 5 years, “another 50,000 stores will close on the current store base of ~940K stores in the US (ex. gas and food service).”

“This simply implies that there will be -5% fewer stores by the end of ’27. As this happens, we believe this trend will benefit the large, well-capitalized retailers HD, LOW, WMT, TGT, COST) and those with unique differentiations (FND, ASO, EYE) who stand to capture a disproportionate amount of market share.” In other words, just like with US banks, the big players will only get bigger while the small ones disappear.

To put this in perspective, UBS calculates that assuming 50k stores close over the next five years and that the average sales per store is $5.7mm, it would translate to $285b of retail sales that are “up for grabs”. Assuming that 26% of these sales go online (the bank’s ’27 estimate for penetration), it would mean that retailers like WMT, HD and COST have the potential to attract $210b in sales. This translates to $1,600 annual spend per household that has the potential to shift to the leading retailers.

The good news for big retailers is bad news for the small ones:

In our view, these smaller chains and mom & pops are most at risk of closures given these firms typically have less access to capital needed to invest in developing a robust omni-channel offering. As of 2020, 57% of retail stores are operated by firms with less than 20 employees and 68% of stores are operated by chains with less than 500 employees. These smaller chains shed -40K stores in the past 10 years while chains with 500+ employees added 17K stores.

It could get even worse: the base case scenario assumes that retail sales growth continues at 4% annually which is inline with the long-term trend. However, in a downside case, the protracted US recession would put downward pressure on the UBS store closure forecast where if retail sales only grow 3.0-3.5% it would result in 70K-90K closures

UBS highlighted several factors that are driving retail store closures. They include higher costs, which raise the bar for keeping stores open; a decline in units per store in most retail sectors; and the likelihood that store closures will disproportionately affect smaller chains.

From 2007 to 2019, firms with less than 500 employees closed about 40,000 stores, or 5% of their base, while retailers with more than 500 employees added 17,000 stores. The overall cost of doing business rose significantly in the last 12 months, due in part to higher wages. Retail hourly wages, which are typically the largest cost component of running a store, increased about 5% over the last years, the analysts said.

On top of that, retailers will need to increase store productivity by 4.5% annually as retail rents per square foot increase for neighborhood and community centers. “These costs will likely continue to move higher, increasing the hurdle rate to keep stores open,” UBS said.

As RetailDive notes, about 14,000 of the estimated closings will be in the softlines sector. UBS forecasts that department stores and specialty retailers will remain net store closers. And while retailers with a heavy mall presence will continue store closings, there is a faint silver lining for off-price retailers who should grow units.

The report also singles out consumer electronics and home furnishings as retail sectors that also need to shrink their store footprint. Consumer electronics retailers should close about 9,000 stores, while home furniture stores should shrink by about 4,000 locations.

One change that’s become essential versus discretionary for retailers is an increasing embrace of digital investments like buy online, pay in store; ship from store; same-day delivery; and buy online, return in store. UBS says online retail spending per household was $9,900 in 2022, up from $8,900 a year ago and up from $4,000 in 2015. Companies with a strong DTC focus combined with high brand loyalty, like Nike and Levi’s, are best positioned for the ongoing shift to digital fulfillment.

Finally, while there is much more in the full report, here are the 9 main takeaways:

• Takeaway #1: We estimate 50K+ stores will close by ‘27 if online penetration goes to 26% & retail sales grow 4%
• Takeaway #2: Store closures will vary by subsector
• Takeaway #3: In 2022, there were net store closings, a reversal from strong store openings in 2021
• Takeaway #4: We assume 4% retail sales growth until 2027, in-line with its long-term average
• Takeaway #5: A step change in banks willingness to lend tends to be a leading indicator of an acceleration in store closures
• Takeaway #6: Higher costs raises the hurdle rate on keeping stores open
• Takeaway #7: Store closures will likely impact smaller chains disproportionately
• Takeaway #8: Several sectors are at or near peak store productivity
• Takeaway #9: Units per store declined for most sub-sectors in 2022 (trends vary by sub-sector)

Much more in the full report and slideshows available to pro subs in the usual place.

Authored by Daisy Luther via The Organic Prepper blog,

Imagine this.

A woman, for the sake of my story, is in a marriage with a partner who does not respect her. He insults her regularly, belittles her efforts to improve herself or her situation, and minimizes her feelings.

In fact, when she tries to stand up for herself, things get even worse. The partner calls into question her memories of the event. He dismisses the way things made her feel, calling the emotions “ridiculous” or “stupid.” He convinces her she’s overreacting and that he was only trying to do what was best for her. When she brings something up, he completely rewrites the event, causing her to doubt what actually happened because she’s in a vulnerable state due to the constant abuse.

In a situation like this, the abused partner often feels powerless, confused, and unable to leave the situation. They are at a disadvantage because they’ve been influenced to doubt their own reality. This leaves them trapped deeper and deeper in the abusive scenario. They feel unable to escape because they’re really not sure what actually happened. Were they blowing things out of proportion? Are they, in fact, stupid, forgetful, and inept?

Abusive relationships follow a pattern. There’s a period of breaking the victim down, isolating them from their support systems, and making them dependent on the abuser. Then, the abused partner is maneuvered into the belief that she can’t get by on her own.

This master manipulation is how people become trapped in abusive relationships.

And, as I’m about to show, not all abusive relationships are one-on-one romantic relationships.

What is gaslighting?

Medical News Today defines gaslighting.

Gaslighting is a form of psychological abuse in which a person or group causes someone to question their own sanity, memories, or perception of reality. People who experience gaslighting may feel confused, anxious, or as though they cannot trust themselves.

The term “gaslighting” comes from the 1944 classic film (and before that, the play), Gaslight. In the story, a husband tries to make his wife believe she is suffering from a mental illness. Starring Ingrid Bergman and Charles Boyer, it’s well worth a watch.

Gaslighting is a form of narcissistic abuse. For a quick refresher on the definition of a narcissist and the techniques they use, go here.

Forbes offers the following signs you are being gaslit:

Signs to watch for include:

The “Twilight Zone” effect. Victims of gaslighting often report feeling like a situation is surreal—like it’s happening on a different plane from the rest of their life.

Language describing you or your behavior as crazy, irrational or overemotional. “When I asked women about their partners’ abusive tactics, they often described being called a ‘crazy bitch,’” Sweet writes in “The Sociology of Gaslighting” in American Sociological Review. “This phrase came up so frequently, I began to think of it as the literal discourse of gaslighting.”

Being told you’re exaggerating.

Feeling confused and powerless after leaving an interaction.

Isolation. Many gaslighters make efforts to isolate victims from friends, family and other support networks.

Tone policing. A gaslighter may criticize your tone of voice if you challenge them on something. This is a tactic used to flip the script and make you feel that you’re the one to blame, rather than your abuser.

A cycle of warm-cold behavior. To throw a victim off balance, a gaslighter may alternate between verbal abuse and praise, often even in the same conversation.

Gaslighting is a deliberate attempt to provoke self-doubt, confusion, and dependence.

How does someone gaslight another person?

Again, let’s look to the experts. Medical News Today provides these examples of how gaslighting might take place:

• Countering: This is when someone questions a person’s memory. They may say things such as, “Are you sure about that? You have a bad memory,” or “I think you are forgetting what really happened.”
• Withholding: This involves someone pretending they do not understand the conversation, or refusing to listen, to make a person doubt themselves. For example, they might say, “Now you are just confusing me,” or “I do not know what you are talking about.”
• Trivializing: This occurs when a person belittles or disregards how someone else feels. They may accuse them of being “too sensitive” or overreacting in response to valid and reasonable concerns.
• Denial: Denial involves a person refusing to take responsibility for their actions. They may do this by pretending to forget what happened, saying they did not do it, or blaming their behavior on someone else.
• Diverting: With this technique, a person changes the focus of a discussion by questioning the other person’s credibility. For example, they might say, “That is just nonsense you read on the internet. It is not real.”
• Stereotyping: An article in the American Sociological Review says that a person may intentionally use negative stereotypes about someone’s gender, race, ethnicity, sexuality, nationality, or age to gaslight them. For example, they may say that no one will believe a woman if she reports abuse.

After a period of time, this emotional barrage results in the target of the gaslighting suffering from confusion, doubt, and self-blame.

• feeling uncertain of their perceptions
• frequently questioning if they are remembering things correctly
• believing they are irrational or “crazy”
• feeling incompetent, unconfident, or worthless
• constantly apologizing to the abusive person
• defending the abusive person’s behavior to others
• becoming withdrawn or isolated from others

The Forbes article offered these specific examples of gaslighting in romantic relationships.

“Ebony’s partner would steal her money and then tell her she was ‘careless’ about finances and had lost it herself.”

“Adriana’s boyfriend hid her phone and then told her she had lost it, in a dual effort to confuse her and prevent her from communicating with others.”

“Jenn described her ex-boyfriend as a ‘chameleon’ who made up small stories to confuse her, like lying about what color shirt he had worn the day before to make her feel disoriented.”

“Emily described her ex-husband stealing her keys so she could not leave the house and then insisting she had lost them ‘again.’”

But if you think this phenomenon is limited to women being abused by their husbands or boyfriends, you’d be wrong.

Gaslighting doesn’t just happen in romantic relationships.

Gaslighting is a complicated thing. While it’s common in abusive romantic relationships, it can also occur in unhealthy parent-child relationships, sibling relationships, or even workplaces. But that’s not all. It can also occur on a much broader scale.

Racial gaslighting

According to an article in Politics, Group, and Identities, racial gaslighting is when people apply gaslighting techniques to an entire racial or ethnic group in order to discredit them. For example, a person or institution may say that an activist campaigning for change is irrational or “crazy.”

Political gaslighting

Political gaslighting occurs when a political group or figure lies or manipulates information to control people, according to an article in the Buffalo Law Review.

For example, the person or political party may downplay things their administration has done, discredit their opponents, imply that critics are mentally unstable, or use controversy to deflect attention away from their mistakes.

Institutional gaslighting

Institutional gaslighting occurs within a company, organization, or institution, such as a hospital. For example, they may portray whistleblowers who report problems as irrational or incompetent, or deceive employees about their rights.

This often occurs to cover up a mistake that could result in the person who erred facing punitive consequences or to keep people “in their place.” It’s a control mechanism, pure and simple.

Have we been gaslit by our own government?

I don’t think it’s farfetched to say that we, the people of the United States of America, have been gaslit.

Does this sound familiar? Lockdowns that keep you away from friends and loved ones? Losing your income and becoming dependent on handouts doled out by the government? Being censored and mocked when you say anything that is not in line with the official narrative? Being treated like a crazy conspiracy theorist who should be punished because of the harm you’re causing to others if you refuse to go along?

When you look at it this way, it feels like the entire US government and media have colluded to abuse the people. Many of the Covid-related “truths” that were promoted by the government and the media that we were not allowed to dispute have now been proven to be false. Stories we couldn’t question about the origins of the pandemic have been proven false. In another incident of broad-scale gaslighting unrelated to the pandemic, a lot of evidence has been produced that shows the Biden family may have received money from influence-peddling, but the media tells us not to believe it.

And like good little victims, it seems like a hefty portion of the country is refusing to believe the evidence, instead believing in the good intentions of their abusers. They’ve been gaslit, brainwashed, and are unable to break free of the manipulation.

And it’s still going on.

Recently Supreme Court Justice Neil Gorsuch wrote a scathing opinion of the US government’s handling of the Covid pandemic, saying that we “have experienced the greatest intrusions on civil liberties in the peacetime history of this country.”

“Executive officials across the country issued emergency decrees on a breathtaking scale. Governors and local leaders imposed lockdown orders forcing people to remain in their homes. They shuttered businesses and schools, public and private. They closed churches even as they allowed casinos and other favored businesses to carry on. They threatened violators not just with civil penalties but with criminal sanctions too. They surveilled church parking lots, recorded license plates, and issued notices warning that attendance at even outdoor services satisfying all state social-distancing and hygiene requirements could amount to criminal conduct. They divided cities and neighborhoods into color-coded zones, forced individuals to fight for their freedoms in court on emergency timetables, and then changed their color-coded schemes when defeat in court seemed imminent,” he said.

At the federal level, he highlighted not only immigration decrees but vaccine mandates, the regulation of landlord-tenant relations and pressure on social media companies to suppress “misinformation.”

The gaslighting blowback was immediate, with breathlessly outraged headlines.

Slate eloquently opined, “Neil Gorsuch’s List of “Civil Liberties Intrusions” Is, Uh, Missing a Few Things.” making sure to throw plenty of insulting talking points into their introductory paragraph in their attempt to liken a Supreme Court Justice who was educated at Harvard Law, Oxford, Georgetown, and Columbia, to an ignorant relative one merely tolerates. And they insinuated he was a racist.

Gorsuch has long railed against such policies, and his opinions have taken on an increasingly shrill tone, like the Fox News–poisoned uncle who hectors you about the plandemic in 3,000-word Facebook comments. The justice’s rant in Arizona v. Mayorkas, however, hits a new low, moving beyond the usual yada-yada grievance parade to issue a thesis statement of sorts…

…As Vox’s Ian Millhiser quickly pointed out, this sweeping claim leaves out two “intrusions on civil liberties” that any person with a basic grasp of history and sanity would surely rank as worse than pandemic policies: slavery and Jim Crow.

An opinion piece published in the NY Times gasped, “Neil Gorsuch Has Given Himself Away,” made it seem as if the Justice was belittling every other civil rights mishap in the history of America while also blithely disregarding the folks who died during the pandemic.

The New Republic condescendingly liberal-splained to the rest of us “What Neil Gorsuch Got Wrong About the Pandemic,” stating that “The justice’s vision of the judiciary’s role in public health may be more dangerous than any Covid-era restriction.”

The site Above The Law literally said Gorsuch was stupid in the piece, “For An Originalist, Gorsuch Is Clearly Slacking On His Definitions And Their Historical Meanings.” The subheading reads, “Is what he said stupid? Yes. But let’s be technical here.”

Law and Crime website also played the race card and did so right in the headline: Neil Gorsuch implies COVID restrictions were worse than slavery and Jim Crow, and the internet noticed.

Let’s look at that definition of political gaslighting again…

For example, the person or political party may downplay things their administration has done, discredit their opponents, imply that critics are mentally unstable, or use controversy to deflect attention away from their mistakes.

Oof. If that textbook case of gaslighting isn’t embarrassing, it should be.  Then again, narcissists are rarely embarrassed.

The gaslighting will escalate.

Another thing about narcissists: they just get angry when they’re called out. They will respond by gaslighting you harder or seeking to “ruin” you. (source) They’ll punish you with a loss of “privileges,” money, material goods, and freedom. We’ve watched it happen again and again in our cancel culture media. Some of us have been unfortunate enough to have personal relationships with narcissists and learned this the hard way.

The only way to end narcissistic abuse and gaslighting is to recognize it and remove yourself from the situation as much as you can. Obviously, when it’s our entire government and society, that becomes complicated. You may be stuck with just recognizing it. But that in itself gives you a certain amount of freedom and personal power. It helps you get off the hamster wheel, and you begin to spot the manipulations more easily.

One thing we can be sure of is that this will escalate as more and more people say, “No, that’s not what happened.” This is something we can expect, and in some small way, maybe we can take comfort in the response. Perhaps we can smile to ourselves because we know those who were trying to manipulate us all are on the defensive.

In its attempt to reboot China’s real estate property market bubble, which burst spectacularly in late 2021 when most housing developers blew up in the aftermath of Evergrande’s historic bankruptcy amid Beijing’s ill-fated deleveraging push, and which according to Goldman calculations is the world’s largest real estate bubble…

… China’s real estate agencies have been quietly resorting to some of the oldest tricks in the US housing bubble book, such as marketing homebuying with “zero down payment” or “negative down payment” so that consumers not only don’t need to pay for down payment but also can obtain funds for future renovation, according to media reports.

Of course, with Beijing still stuck in some bizarro Schrodinger economic purgatory where the government both wants housing to reclaim its pre-bubble all time highs yet is loath to inject the massive amounts of credit required, the It didn’t take long for some local overzealous bureaucrat to spill the beans, and as the Global Times reports, the Shenzhen Real Estate Intermediary Association in South China’s Guangdong Province released a notice on Friday, cautioning local agencies to avoid participating in or assisting the illegal practices of “zero down payment” and “negative down payment,” which have sparked discussion among homebuyers.

One real estate agency based in Shenzhen reportedly was telling clients that if a property is evaluated at 5.7 million yuan ($806,828) the owner would sell it at 5.2 million yuan, the homebuyer could then buy the property in full using a bank loan of 5.7 million yuan while using the remaining 500,000 yuan for renovation, cnr.cn reported.

As for the so-called “negative down payment,” the report said that it is executed through developers using down payment installments and returning down payment to buyers or setting a relatively high contract price for consumers to apply for a larger bank loan.

If the funds returned to the buyer from the developer, or the bank loan secured against the property exceed the original down payment, the a “negative down payment” is “achieved,” per the report from cnr.cn.

The Shenzhen Real Estate Intermediary Association on Friday issued the reminder to caution the market, stressing that the so-called practices of “zero down payment” and “negative down payment” violate China’s financial and credit policies. It warned local agencies and practitioners to strictly abide by the principle that “houses are for living in, not speculation,” calling for review and adjustment of agency management and prohibiting any form of participation in similar practices.

If local agencies and practitioners are found to have been involved in offering assistance in implementing these illegal practices, the association will immediately report these parties to the competent administrative departments for investigation and punishment in accordance with the law.

The so-called “negative down payment” is essentially the creation of a fictitious purchase agreement, which in turn inflates the purchase price of a home in order to fraudulently obtain a larger loan for the down payment, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times.

Yan stressed the importance for financial regulators to monitor the situation, aiming to prevent the emergence of financial instability or financial risk, calling for a greater effort to regulate fraudulent contracts, falsified loan materials, and lax bank audits.

Yan also noted that the concept of a “negative down payment” is illegal and comes with high risk. The leverage will be easily raised if a home purchase is not backed by a real down payment, burdening subsequent payment pressure for homebuyers and resulting in a higher risk of mortgage default.

Chinese authorities issued a notice in 2017, strictly banning domestic developers and real estate intermediaries to engage in illegal practices such as providing down payment financing or down payment installments.

Earlier in May, Huizhou in Guangdong issued a notice to further strengthen regulation and on property sales tackling the aforementioned illegal practices, according to media reports.