Flash Economic Commentary No. 1445

(SGS Subscription required) • Mounting, Fundamental Risks for Hyperinflation and Systemic Instabilities Promise New Highs for Gold and Silver Prices, Irrespective of the August 11th Sell-Offs
• Historic GDP Collapse Wiped Out the Last Five Years of Economic Growth
• Second-Quarter 2020 Real GDP Plunged at an Unprecedented, Albeit Consensus, Annualized Quarterly Pace of 32.9% (-32.9%), Down Year-to-Year by 9.5% (-9.5%)
• Given Limited-Quality Hard Data, Has Headline Reporting Turned to the Consensus?
• Benchmarked GDP Received a Boost from New Trade-Deficit Reporting Gimmicks
• Nonetheless, Rebound from the Pandemic-Driven Economic Collapse Is Faltering
• L-Shaped Economic Recovery Has Begun to Take Form, as July Jobs and Unemployment Improvement Decelerated, Amidst Continuing Pandemic-Disrupted Surveying and Reporting Quality Issues
• Labor-Market Stress Has Intensified as Unemployment Claims Gyrate Around Still-in-Depression Levels; Fed Sees Early Indications of Renewed Pullback in Consumer Activity
• U.S. Sovereign Credit Rating Rumblings Mount as Congress and the White House Negotiate a Second Round of Massive, Expanded Deficit Spending
• Stalled Recovery Will Generate Even Greater Spending and Monetary Excesses
• Federal Reserve Record Money Supply Expansion Continues, Despite Benchmarked Money Numbers Showing Minimally Slower Growth

Despite The Diplomatic Bluster, China’s State-Run Banks Are Quietly Complying With Trump’s Hong Kong Sanctions

Despite The Diplomatic Bluster, China’s State-Run Banks Are Quietly Complying With Trump’s Hong Kong Sanctions

Tyler Durden

Wed, 08/12/2020 – 22:45

On the surface, there is a non-stop tide of daily diplomatic drama and escalating jawboning between the US and China which – quite theatrically – will be at each other’s throat at least until the conclusion of the Nov 3 election. However, behind the scenes, one can discern just who has the upper hand.

According to Bloomberg, China’s largest state-run banks operating in Hong Kong have taken “tentative steps” to comply with US sanctions imposed on officials in the city, seeking to safeguard their access to crucial dollar funding and overseas networks, and putting their financial future above their patriotic duty to defend questionable Hong Kongers who have fallen in the crossfire. As a reminder, last week Trump sanctioned Chinese and Hong Kong officials including Hong Kong Chief Executive Carrie Lam, Xia Baolong, director of the Hong Kong and Macau Affairs Office of China’s State Council, and Chris Tang, commissioner of the city’s police for their role in implementing a security law in Hong Kong. The officials will have property and assets in the U.S. frozen; they also will be increasingly frozen by their own financial institutions.

Hong Kong Chief Executive Carrie Lam

China’s bank giants, most of which have operations in the U.S. including Bank of China, China Construction Bank, and China Merchants Bank have turned cautious on opening new accounts for the 11 recently sanctioned HK officials, including Lam, and at least one bank has suspended such activity. To avoid Trump’s ire, at some banks transactions via the U.S. are banned, while compliance must now review and sign off on others that would previously have been immediately processed, Bloomberg sources said.

At the same time, foreign banks operating in Hong Kong such as Citigroup have already taken aggressive steps to suspend accounts or are increasing scrutiny of Hong Kong clients.

The quick capitulation by China’s biggest lenders once again underscores how Trump has weaponized the greenback and the ability of the U.S. to use the dollar’s dominance in international transactions as a critical pressure point in the standoff with China. And since China’s state-owned lenders need to preserve their access to global financial markets – with the Yuan years if not decades from even thinking about thinking about becoming a global reserve currency – they have quietly bent the knee to Trump to preserve dollar access at a time when Beijing has leaned on them to prop up the economy from the fallout of the coronavirus.

The bottom line is that China’s “big four” banks had $1.1 trillion in dollar funding at the end of 2019; it is that $1.1 trillion that gives Trump virtually unlimited scope to extract any concessions he wishes, and despite Beijing’s angry and belligerent rhetoric, China has no choice but to fall in place.

Not that any of this is a surprise to China: as we reported last week, Yu Yongding, a former adviser to the nation’s central bank, said at a forum this week that China faces a series of threat from a potential financial war with the US, including sanctions on banks, financial ransom, freezing of Chinese assets offshore and a push for a capital flight. Yu recalled when Washington  sanctioned Bank of Kunlun in 2012 for its oil financing dealing with Iran, cutting the small Chinese lender off from the greenback payment system and suffocating its cross-border business.

To save face diplomatically, China on Monday retaliated by sanctioning 11 individuals including U.S. senators Marco Rubio and Ted Cruz, but the retaliation was seen as a paper tiger as Beijing stopped short of putting any senior American government officials on its list. Its top diplomat, Yang Jiechi, on Friday said the door for talks with the U.S. remains open. It didn’t clarify the potential implications for any financial institutions that keep doing businesses with those named.

“China’s position on the U.S. sanctions is clear and consistent,” Foreign Ministry spokesman Zhao Lijian told reporters in Beijing on Wednesday in response to a question about the banks’ move to comply. “The U.S. sanctions are irrational and groundless. They are unanimously opposed and condemned by all Chinese people, including our residents in Hong Kong.”

Sure they are, but none of that matters because the US has the world’s reserve currency and China doesn’t. The rest is just political theater, full of sound and fury, signifying nothing.

In an attempt to ease tensions, on Saturday the Hong Kong Monetary Authority, i.e., the city’s de facto central bank, said lenders in the city have no obligation to follow U.S. sanctions under local law, urging banks to treat customers fairly in assessing whether to continue to providing services. However, as the Bloomberg report suggest, none of the lenders decided it was prudent to test Trump’s resolve.

Indeed, despite the HKMA’s announcement, “banks that have U.S. operations or conduct dollar businesses may still need to consider their U.S. compliance obligations,” JPMorgan wrote in a note. “Risks for listed China banks are relatively muted, in our view, as the four China officials on the list may obtain banking services with local unlisted Chinese banks that do not have dollar or U.S. businesses.”

Letters From Melbourne: A “Ghost Town Police State” Under Brutal COVID Lockdown

Letters From Melbourne: A “Ghost Town Police State” Under Brutal COVID Lockdown

Tyler Durden

Wed, 08/12/2020 – 22:25

Authored by Robert Bridge via The Strategic Culture Foundation,

The citizens of Australia’s second most populous city are suffering under the harshest lockdown conditions of all Western democracies. Their voices need to be heard.

In the last several weeks, Melbourne has introduced shockingly draconian anti-Covid measures, imposed on the metropolis of some 5 million souls. What tragedy was responsible for spurring officials to leap into action? To blame was a fractional uptick in the number of coronavirus deaths – seven to be exact, and all involving citizens above the age of 70 years old.

The media jumped on the “new single-day record in Victoria,” which brought the state death toll to 56. I repeat, 56, and the overwhelming majority of those cases involved elderly people in nursing facilities, some of which are under investigation for their handling of patients. While it goes without saying that elderly lives matter, do seven elderly deaths really warrant the shutdown of one of Australia’s busiest cities?

Fascism is alive and well we see @VicGovAu.

Dystopian hell in Melbourne Australia pic.twitter.com/U3bKb1Pihh

— Minitrue (@BanTheBBC) August 7, 2020

Despite the extremely low death rate, Melbourne residents – or shall we call them what they really are, prisoners – must adhere to the following rules:

  • No traveling more than 5 kilometers (3.1 miles) from their homes;

  • No traveling to other states inside of the country;

  • Those under house arrest are permitted to leave home for just one hour each day for exercise;

  • Only one person is permitted to go shopping per family each day; shopping is to be done within 5 kilometers from home;

  • Unlike traditional prisons, visitations are not permitted to house arrestees;

  • All school activities are to be conducted online;

  • All businesses, services and construction cancelled;

  • Organized sport, forget it;

  • In the case of funerals, try and delay your demise if at all possible, otherwise, expect just 10 guests;

  • Ditto for weddings;

  • Curfew in effect between 8 pm and 5 am.

These restrictions will be in place for (at least) six weeks.

Meanwhile, as to be expected, the authorities have been enthusiastic about meting out their street justice on people who allegedly violate the regime’s rules. And not just on the street. The police have been authorized to enter private residences without a warrant.

Shane Patton, Police Chief Commissioner of Victoria, told reporters that “there are consequences” for not going along with the lockdown.

“In the last week, we’ve seen a trend, an emergence, if you like, of groups of people, small groups, but nonetheless concerning groups, who classify themselves as ‘sovereign citizens,’ whatever that might mean, people who don’t think the law applies to them,” Patton, wearing all black attire for the occasion, explained.

“We’ve seen them at checkpoints…not providing a name and address. And at least on three or four occasions in the last week, we’ve had to smash the windows of people in cars and pull them out of there…”

This is getting outta hand. Guy was arrested at the Shrine of Rememberance today. This guy was not only arrested but forcibly made to wear a mask. Hitting someone with a fake $200 fine is one thing, but forcibly masking is another. This is straight up brute intimidation people. pic.twitter.com/gexKUfTMiJ

— ✖️RISEUPMELBOURNE✖️ (@riseupmelbourne) July 31, 2020

Needless to say, there have been other examples of people losing their patience with the lockdown conditions. Local media reported that an unidentified 38-year-old Melbourne woman was arrested after “repeatedly bashing a 26-year-old female police officer’s head against a concrete sidewalk.” The police officer was reportedly attacked for asking the woman why she wasn’t wearing a mask.

In the same week, a mother was fined $1,652 for breaking with regulations after she was tackled to the ground and handcuffed by three cops. Her daughter filmed the incident, while begging the police, “get off my mum, she’s in pain.”

An American acquaintance, who requested to remain anonymous, sent me the following message from Melbourne where he lives with his family:

All three of my working kids are in enforced idleness – mandatory masks and, as you might expect in a place with its fair share of inadequate people, mask nazis are the new danger for sane citizens. I was in Argentina in the 70s during the Dirty War and this is the closest I have felt to that kind of experience since those days. Dark days indeed – and did I mention the press? They are specializing in singling out people who voice opposition and shaming them in really vile terms.”

Anika Stojkovski, a corporate compliance and governance consultant based in Melbourne, also offered her personal impressions on the situation.

“I sensed there was something very wrong with all this and predicted what is happening now,” Stojkovski told me via email. “I could tell they were lying.”

“I really think there is more to it and it is all about total control and heading towards the agenda for us all to be vaccinated… [Victorian Premier Dan] Andrews says he wants every man, woman and child vaccinated. There is no vaccine!! So will we be kept in isolation till when?”

Speaking on the medical situation in the city, Stojkovski was struck by the fact that “all consulting rooms in hospitals are closed, and all appointments are conducted by specialists by phone.”

This still doesn’t add up … they are not admitting to hospital for Covid unless severely ill with life threatening symptoms, while most people cannot be tested for the virus without traveling beyond the 5-kilometer point.”

When I inquired if there was anything happening out of the ordinary in Australia aside from the pandemic, Stojkovski mentioned that the Australian federal government [Canberra] was “not happy with the contracts our Victorian State Premier was making with China. Our prime minster [Scott Morrison] said they were not in the national interest.”

In terms of geopolitical significance, this is huge. Victoria is the only Australian state to formally sign on to the People Republic of China’s major foreign-policy initiative, the Belt and Road Initiative. This contradicts the position of the federal government to not join the BRI as it raised serious geostrategic concerns. According to a report by the Australian Institute of International Affairs, the BRI Framework Agreement “places Victoria in an awkward position as Australia has formally signed onto the ‘Blue Dot Network’ with the US to assist in developing infrastructure in the Indo-Pacific region to counter the BRI.”

At the very least, the timing of an agreement between Victoria and communist China, happening just months before the economic shutdown of Melbourne over a minuscule increase in Covid deaths, which will halt, possibly indefinitely, China’s spread into a major Western economy, is astonishing. Although it would be hard to prove cause and effect, future historians would certainly find the connection – involving as it does the momentous geopolitical battle between Beijing and Washington – worth examining in greater detail. To that end, the media is already busy portraying anyone who questions the logic of the lockdowns with its favorite conversation stopping term, “conspiracy theorist.”

Whatever the case may be, the alleged ‘super spread’ of Covid in Melbourne is already causing political fractures between Canberra and Victoria, in much the same way it is in the United States between the Democrats and the Republicans. Meanwhile, the residents of Melbourne continue to suffer under a lockdown that appears more tenuous with each passing day.

CEO Behind ‘Sputnik V’ Says US Waging “Major Information Warfare” Against Russian Vaccine

CEO Behind ‘Sputnik V’ Says US Waging “Major Information Warfare” Against Russian Vaccine

Tyler Durden

Wed, 08/12/2020 – 22:05

The global race among multiple nations to be the first to produce a coronavirus vaccine – especially the US, China, and Russia – has sparked not just competition to see who’ll be first, but an information war in the wake of Moscow’s announced breakthrough COVID-19 vaccine this week.

The announcement of Russia’s Sputnik V vaccine, developed by Moscow’s Gamaleya research institute with help from the Russian defense ministry and expected to be available to the Russian public by October almost immediately drew widespread scorn and mockery in the West based on allegations Russia is skipping large-scale clinical trials.

One Russian official told CNBC this week the US is waging “major information warfare” against the possibility of a successful Russia-produced vaccine.

Image: EFI/CNN/Shutterstock 

Kirill Dmitriev, the CEO of the Russian Direct Investment Fund – which is backing the Sputnik V vaccine – said in comments Wednesday, “It really divided the world into those countries that think it’s great news … and some of the U.S. media and some U.S. people who actually wage major information warfare on the Russian vaccine.”

“We were not expecting anything else, we are not trying to convince the U.S. Our point to the world is that we have this technology, it can be available in your country in November/December if that works with your regulator … [while] people who are very skeptical will not have this vaccine and we wish them good luck in developing theirs,” he added.

Dmitriev claimed further that Russia does plan on sharing its data from the vaccine with the rest of the world, also at a moment World Health Organization officals said they wil move to review the COVID-19 vaccine candidate approved by Russian regulators on Tuesday. The WHO said it will require “a rigorous safety data review” before being available for use among citizens.

Kirill Dmitriev, head of Russia’s sovereign wealth fund, speaking with President Putin. Image source: Sputnik/Reuters

“We agree that nothing in detail has been published yet, we are just sending some information to some of our partners today on the results of the first phases of the clinical trials and it will all be published in August,” Dmitriev said.

Currently, a total of 165 candidate vaccines are being tested around the world, according to a WHO tally. 139 of these are still in pre-clinical evaluation, while 26 have progressed to various phases of human testing. The 6 market leaders have already reached Phase 3.

Portland Prosecutor Likely To Drop Charges Against Rioters Who Injure Cops, Citing “Instinctive Reaction” To Police

Portland Prosecutor Likely To Drop Charges Against Rioters Who Injure Cops, Citing “Instinctive Reaction” To Police

Tyler Durden

Wed, 08/12/2020 – 21:45

Authored by Victoria Taft via PJMedia.ocm,

Well, we’ve heard it all now. Rioters have been given what is tantamount to carte blanche in Portland. It’s open season on Portlanders, open season on cops, and open season on the rule of law.

Scores of the 500 people who were arrested during the nearly 75 days of violent Portland riots will have their charges dropped by the new Black Lives Matter-approved district attorney.

Multnomah County District Attorney Mike Schmidt announced that his default position is not to prosecute and that most crimes by rioters will be forgiven and forgotten.

That list of crimes includes interfering with a police officer, disorderly conduct, and rioting.

  • interfering with a police officer

  • disorderly conduct

  • criminal trespass

  • harassment

  • escape in the 3rd degree

  • riot (sometimes in some circumstances)

Multnomah DA Mike Schmidt on crimes that presumptively fall under this category:

-interfering with a police officer
-disorderly conduct
-criminal trespass
-escape in the 3rd degree
-riot (somtimes in some circumstances) pic.twitter.com/kzzP22fsiu

— Sergio Olmos (@MrOlmos) August 11, 2020

Attacks on police officers and resisting arrest will be scrutinized based on whether – and we’re not making this up – police caused rioters to react because they used tear gas or other crowd-control measures causing rioters to “instinctively lash out.”

…the instinctive reaction of people who have been gassed repeatedly, who have been struck with kinetic projectile weapons, and who have seen other protestors arrested in ways they deeply disapprove of.

He told Oregon Public Broadcasting that “his attorneys will scrutinize every case to determine if the person’s intent was to resist arrest or injure a police officer.”

Multnomah DA Mike Schmidt says some of the actions of protestors represent “the instinctive reaction of people who have been gassed repeatedly, who have been struck with kinetic projectile weapons, and who have seen other protestors arrested in ways they deeply disapprove of” pic.twitter.com/L7B4ue5ucH

— Sergio Olmos (@MrOlmos) August 11, 2020

That’s right. Schmidt basically said that if an assault on a police officer or resisting arrest occurred when police were clearing an area with tear gas, for example, that he would consider dropping those charges.

[We’ll take] a particularly hard look at resisting arrest and assault of a public safety officer if those cases occurred when an individual was being tear gassed or otherwise exposed to a use of force at the time of the resistance.

His staff plans to determine the intent with which the rioter used violence to determine whether he or she is worthy of prosecution or “restorative justice.

He told the local taxpayer-funded radio station that “the presumption on a lot of these cases that are listed out there is that we won’t prosecute… But if there are egregious circumstances or something about the case that stands out, we can always choose to prosecute.”

Schmidt told reporters at a news conference today that being caught up by police while simply protesting will not be prosecuted.

… [I]f you are a person who is out there demonstrating and you get caught up in the melee and you get arrested … those are the kind of cases we’re talking.

Violating curfew during civil unrest will no longer be prosecuted.

Good luck, Portland. The city is at 75 days of riots and now most of the rioters won’t see the inside of a courtroom much less the inside of a jail cell. That means there will be almost no disincentive to rioting. It’s open season on Portland.

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