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

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

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

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

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

Senate Vote

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

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

Read more here…

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

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

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

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

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

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

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

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

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

Authored by Omid Malekan via Medium.com,

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

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

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

Banking

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

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

Custody

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

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

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

Stablecoins

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

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

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

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

Securities

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

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

ETFs

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

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

…

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

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

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

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

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

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

— Elon Musk (@elonmusk) March 7, 2023

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

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

— Elon Musk (@elonmusk) March 7, 2023

*  *  *

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Authored by Gail Tverberg via Our Finite World blog,

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

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

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

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

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

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

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

[1] What is complexity?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Energy prices are set through competition between:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Authored by Steve Watson via Summit News,

Twitter owner Elon Musk suggested Monday that he may be compelled to place propaganda warnings on tweets posted by CNN after it emerged that the network actively discouraged staff not to look into or share any COVID lab origin information.

Fox News reports that an inside source at CNN has charged that the former president Jeff Zucker gave the order to everyone at CNN to back off any talk about COVID having originated in a Chinese lab, labelling it a “Trump talking point.”

After a bombshell leak revealed that the Department of Energy has concluded, in addition to the State Department and the FBI, that the virus did likely leak from the Wuhan lab, the CNN insider said “People are slowly waking up from the fog,” adding “It is kind of crazy that we didn’t chase it harder.”

Not only did CNN back off the lab leak theory, it began actively trying to debunk it with minions like Oliver Darcy writing stories headlined “Here’s how to debunk coronavirus misinformation and conspiracy theories from friends and family.”

With all of this in mind, Musk responded Monday to a Twitter user who asked him, “When are you going to label CNN as State Affiliated Media?”

Good point. If an organization portrays itself as balanced, but is not, it should be labeled to inform the public.

— Elon Musk (@elonmusk) March 6, 2023

Musk also responded to a tweet from Dr Jay Bhattacharya, noting that Fauci “egregiously betrayed the public trust,”:

Exactly. Fauci egregiously betrayed the public trust.

— Elon Musk (@elonmusk) March 6, 2023

Musk previously called for prosecuting Fauci, before releasing a host of Twitter Files in December that exposed how the Biden government attempted to control the pandemic narrative with censorship and suppression of information.

Elon Musk Triggers Deep State Operative With ‘Prosecute Fauci’ Tweet

*  *  *

Brand new merch now available! Get it at https://www.pjwshop.com/

In the age of mass Silicon Valley censorship It is crucial that we stay in touch. We need you to sign up for our free newsletter here. Support our sponsor – Turbo Force – a supercharged boost of clean energy without the comedown. Also, we urgently need your financial support here.

OPEC Chief Haitham Al-Ghais and top US shale bosses wined and dined on Monday evening at a Houston energy conference to discuss the alarming concerns about the lack of global spare production capacity, according to Bloomberg. 

Al-Ghais is the 29th Secretary General of OPEC. He assumed office last year and had his first private dinner with Chesapeake Energy Corp CEO Nick Dell’Osso, Pioneer Natural Resources CEO Scott Sheffield, Hess Corporation CEO John Hess, Occidental Petroleum CEO Vicky Hollub, Talos Energy CEO Tim Duncan, and Devon Energy Inc. CEO Richard Muncrief on the sidelines of the energy conference CERAWeek by S&P Global. 

Bloomberg spoke with two shale bosses who attended the dinner. They said the main takeaway was that the global oil market has very little spare capacity. 

• Devon Energy’s Muncrief said, “There’s not a lot of spare capacity right now.”
• Hess Corp.’s Hess said lackluster production is certainly a “challenge.”

Previously, OPEC regarded shale as an uncontrolled force that undercut its revenue by bringing new oil supplies to the market. However, relations between OPEC and shale companies have dramatically improved in recent years as shale has been more reserved about increasing production while rewarding shareholders with stock buybacks and dividends. This has led to a slowdown in production. 

Pioneer’s Sheffield told Bloomberg in an interview at CERAWeek that the Permian Basin will peak in five to six years — another worrying sign about tight capacity. 

Last year, Saudi Arabia, the world’s largest crude oil exporter, warned the world is structurally short production capacity at a time demand growth remains robust.  

Tight capacity comes as the International Energy Agency forecasts oil demand to exceed supply later this year as China’s reopening increases oil consumption. Also, Russia has reduced oil production, and OPEC pledged to hold its own production steady after agreeing to a 2 million barrel-a-day cut last year. There are limited signs in the US that shale companies will boost production significantly this year. 

Meanwhile, Jose Fernandez, Undersecretary of State for Economic Affairs, Energy and the Environment, said at the energy conference that the Biden administration would like to “see more consumption. And therefore we’d like to see supply meet demand.” 

Now, the strategic petroleum reserve is at four-decade lows because of the Biden administration’s relentless drain to cap oil prices. There’s a bigger problem at hand, and it’s all about spare production capacity. This might be enough to shift crude prices back to triple-digit territory per barrel later this year or next if demand remains robust and the Federal Reserve and other central banks don’t spark a worldwide depression.

Authored by Jonathan Turley,

There is a deeply disturbing legislative proposal in Florida where Sen. Jason Brodeur of Lake Mary has called for bloggers to register with the state if they want to write about the state’s governor, lieutenant governor, cabinet members or legislative officials.

It is a highly intrusive, dangerous, and presumptively unconstitutional effort. Yet, it is also important to note that this is just a proposal from a single legislator with little real chance of passage. What I find interesting is the historical underpinnings of such a law. The comparison is not favorable for Sen. Brodeur.

The bill would require bloggers to file periodic reports with the state if they are paid for posts about the state’s governor, lieutenant governor, cabinet members or legislative officials. They could be fined $25 for each day the report is late, up to a maximum of $2,500 for each report. The legislation would exempt content on “the website of a newspaper or other similar publication.”

It is a vague and unnecessary law. In a Twitter post, Brodeur explained that he simply wants to bring greater transparency to blogs that advocate or lobby for specific causes. He notes that it is directed at those who are paid to write about elected officials in Florida.

In fairness to Sen. Brodeur, there are requirements for media to obtain press credentials to get full access to press areas in the federal or state capitals. However, the requirements are minimal and press can always cover events without such credentials by using public access.

Moreover, bloggers cover a wide range of speech and speakers. Blogs are part of the new media with a wide array of people covering or opining on contemporary events. It can range from the popular “citizen journalist” to minor “influencers” to satirical writers. Many blogs are now quite large and rival traditional newspapers or media outlets. They are a new and critical component in our free speech community.  Many look to blogs as an alternative to what they see as a biased mainstream media.

I understand Brodeur’s motivation and his concern for bloggers who hide paid agendas or serve as surrogates for others. However, this is a really bad idea and it is not a new idea.

At the creation of our Republic, free press advocates like Thomas Paine were focused on state licensing laws that were abused in England by the Crown to control the media.

The licensing laws became a rallying cause in 1644 for many after John Milton wrote his famous pamphlet Areopagitica. Milton objected to the requirement of prior licensing of writers with the Crown, objecting that “debtors and delinquents may walk abroad without a keeper, but unoffensive books must not stir forth without a visible jailer in their title.” The licensing law ended in 1694. It was a defining moment of press freedom in fighting the need to secure permission to publish. Figures like Thomas Paine wrote against prior restraints and licensing systems as the core threats to free speech and the free press.

The Florida proposal would return us to mandatory licensing or registry as a prerequisite for free speech or the free press. I have no reason to assume that Sen. Brodeur has nefarious or authoritarian motives in this ill-conceived effort. However, he is on the wrong side of history in proposing a registry and should withdraw his bill.

In his most hawkish speech since Jackson Hole, Fed Chair Powell made it very clear: if economic data keeps coming in as hot as February, the Fed will not only hike higher for longer, but may revert back to 50bps rate hikes (or even higher) at the next FOMC. Which begs the question: what will the barrage of economic data that starts with tomorrow’s ADP and JOLTs reports, goes through Friday’s Nonfarm Payrolls, and culminates with next week’s CPI, PPI and retail sales, show?

Well, as we have previously noted, January’s data was a one-time outlier across the board: not just jobs and inflation, but also retail sales. In fact, last Friday we showed that the latest BofA card data indicated a sharp slowdown in retail spending after the January splurge.

Also, three weeks ago we reported that Goldman found the layoffs/initial claims data is also artificially propped up, because when looking at state-level WARN notices which were coming in far hotter than expected…

… the layoffs rate translated into a far higher number than that indicated by the November JOLTS report.

Now, in a follow up analysis, Goldman has also found that the number of job openings signaled by the JOLTS report is also delayed in showing the true state of the labor market (at best), or simply rigged, and in a report by the bank’s chief economist Jan Hatzius (available to pro subs in the usual place), he writes that while “timelier alternative measures of job openings track official data reasonably well in most countries, but the official JOLTS job openings measure looks relatively high in the US.”

Some more details:

Given the importance of labor demand to the wage growth, inflation, and monetary policy outlook, timelier alternative measures of job openings have recently become useful metrics for tracking labor market rebalancing progress. These alternative measures generally track official job openings data reasonably well (left chart, Exhibit 3), although the official job openings measure from the Job Openings and Labor Turnover Survey (JOLTS) currently looks relatively high in the US (right chart, Exhibit 3).

Almost as if there is a political mandate under the Biden administration to fabricate data with the purpose of making the labor market appear stronger than usual. Of course, Goldman would never admit that political apparatchiks planted in the Dept of Labor and BLS have been tasked with “seasonally adjusting” numbers to make Biden look good. Instead it offers the following two explanations why the official data no longer represents reality:

We see two explanations for why the most recent JOLTS report likely overstates job openings.

• First, the spurious evolution of seasonal factors during the pandemic likely biased JOLTS job openings upwards by 300-400k in December, but should have a negligible effect on the level of job openings in January.
• Second, the response rate to the JOLTS survey collapsed from just below 60% in 2019 to 31% in December 2022. We see no reason why the lower response rate should imply a directional bias, but it does imply increased volatility that argues for discounting the recent JOLTS report, especially because it is so far out of line with timelier job openings indicators.

Goldman’s conclusion: since the BLS will find it difficult to rig the data any longer various adjustments fall out in the latest dataset, the bank sees “scope for a large pullback in official job openings in the US and forecast that job openings will fall by 800k to 10.2mn in next week’s January JOLTS report.”

A nearly 1 million drop in JOLTS will quickly reprice much of the recent tightening driven by expectations of “no landing” which has sent the terminal rate to 5.65% and the 2s10s below -100bps.

And once the JOLTS report confirms that the recent trend was spurious (at best) expect Friday’s jobs report to also come in far below the January level, and an extension of the previous downward sloping trendline, something which BofA already expects…

… as does Morgan Stanley, which writes that it expects “re-normalization of the economic data, starting with the payrolls print. Seasonal factors, warmer weather, and underlying changes in corporate behavior due to labor hoarding likely gave the January print a substantial boost. In non-seasonally adjusted terms, the economy will need to add close to 800k jobs in February for seasonally adjusted payrolls to net to zero, while in January, anything less than 3mm job losses would have delivered a positive number.”

Much more in the full reports available to professional subs.