The "F" Word
- A little myth-busting: You can’t fight crazy
- G7 comrades double down on Russian sanctions (again)
- Russia’s oil and gold cushion the blow (again)
- Hot “blackout” summer
- Heartening news for free expression… ROTFL: JP Morgan… Uncle Sam’s checkbook (Social Security)… And more!
We begin the end of the week with a little myth-busting: There’s no evidence Albert Einstein ever said, “The definition of insanity is doing the same thing over and over again and expecting different results.”
The actual origins of the quip are murky. Variations go back to the 1800s. The contemporary version may have originated in a Tennessee newspaper’s account of an Alcoholics Anonymous meeting in 1981. Or maybe a novel called Sudden Death published in 1983.
How it got around to Einstein – who knows? In any event, it’s listed as “misattributed to Einstein” in The Ultimate Quotable Einstein published by Princeton University Press.
Still, the observation about insanity and repetition is a wise one. Which brings us to today’s summit of G7 leaders – and sanctions against Russia.
As the specter of nuclear war continues to linger over the globe, Joe Biden and his compatriots from the UK, France, Germany, Italy, Japan and Canada are unironically gathered in… Hiroshima, Japan.
The buzz is that Ukraine’s jet-setting rock-star president Zelensky will drop in on Sunday to ask for fighter jets. Although maybe he should slow down his relentless pace?
No sooner did the G7 leaders sit down today than they declared they’re doubling down on sanctions targeting Russia. Not all the details are public yet, but about 70 companies will be cut off from U.S. exports… while another 300 sanctions will target “individuals, entities, vessels and aircraft.”
The UK’s jug-eared prime minister Rishi Sunak announced his country will ban diamond imports from Russia. “We believe in democracy, freedom, the rule of law – and it’s right that we stand up for those things,” he babbled to the BBC.
At least these blowhards have dialed back their rhetoric about how “the whole world” or “the international community” stands against Russia. After 15 months, even they realize that leaders of most of the world’s countries are in fact sitting out this sanctions campaign.
Amusingly, if you do a Google image search for “the international community” these days, you get some snarky results that Google’s algorithm hasn’t managed to suppress yet.
The G7 subset of “the international community” overestimates its impact: The seven countries accounted for 70% of global economic output when the Cold War was winding down in 1989. Today, it’s closer to 45%.
If Sunak read his country’s own elite media a little more carefully, he’d realize what Paradigm’s Jim Rickards has said from the outset.
They’re even invoking the “F” word when discussing sanctions — failure.
After 15 months, the conclusion is inescapable, even for the UK’s mainstream: “Why the Economic War Against Russia has Failed,” says the headline of an article at The Spectator – the venerable magazine where mop-haired Boris Johnson was the editor before he became mayor of London and later prime minister.
“It soon became clear that while the West was keen on an economic war, the rest of the world was not. As its oil and gas exports to Europe fell, Russia quickly upped its exports to China and India – both of which preferred to buy oil at a discount than to make a stand against the invasion of Ukraine…
“The results of the miscalculation are there for all to see. In April last year, the IMF forecast that the Russian economy would contract by 8.5% in 2022 and by a further 2.3% this year. As it turned out, GDP fell by just 2.1% last year, and this year the IMF is forecasting a small rise of 0.7%.”
“Russia was meant to have collapsed by now,” says an article at the Spectator’s sister publication, the equally venerable daily newspaper The Telegraph.
“Britain, America and Europe’s gambit was that drastic trade, financial and technological sanctions, a cap on the price of Russian seaborne oil, and substantial help to Ukraine would be enough to defeat Moscow. It hasn’t worked…
“China has quietly stepped in, bailing out Putin’s shattered economy on a transformational scale, swapping energy and raw materials for goods and technology. The sanctions are a joke…
“There may no longer be any McDonald’s in Moscow, but sales of Chinese cars are buoyant. We were told Russia couldn’t survive without Western technology, but it is switching instead to China’s rival systems.”
Again, none of this should be any surprise if you’ve been reading this e-letter the last 15 months.
The day of the invasion, Jim Rickards said in the face of Western sanctions, “Russia will simply increase its energy sales to China, which will defeat the purpose of U.S. sanctions.”
Oil production of 10 million barrels a day? And a gold stash that’s the biggest in the world as a percentage of its economy? Those are huge buffers with which Russia can withstand sanctions. “This sanctions war,” Jim said, “will do more harm to the global economy and Western interests than it will to Russia.”
But that’s all water under the bridge: What about the economic and investment outlook for the rest of 2023?
As you probably know by now – because we keep reminding you! – Jim joined former Federal Reserve insider Danielle DiMartino Booth on Wednesday for a wide-ranging discussion. They gathered at Jekyll Island, Georgia, site of the secret meeting where the creation of the Fed was plotted in 1910.
The information is still fresh – but not for much longer. Take the time now to give it a look.
It’s shaping up to be a “down day” but an “up week” for the U.S. stock market – with the S&P 500 at a critical threshold.
The S&P closed yesterday at 4,198. At last check, it’s down a skosh to 4,193. Paradigm trading authority Alan Knuckman and Rude Awakening editor Sean Ring agree on little – but they do agree that if the S&P can break out over 4,200, a sustained rally will be underway.
Precious metals are gamely trying to recover their losses from earlier this week, but gold is still more than $25 below $2,000 and silver has more work to do to reclaim $24. Crude is down, but not much, at $71.44.
Heads up: A hot summer could lead to “load shedding” – planned blackouts – across two-thirds of North America.
The North American Electric Reliability Corporation – basically the power grid’s reliability monitor – is out with its annual “Summer Reliability Assessment.” In a worst-case scenario, we’re looking at rolling outages across most of the central and western United States.
Here’s a map we nicked directly from the NERC’s website…
More vulnerable than most are the folks served by the MISO and SPP interconnects – mostly because they’re more reliant on wind power.
MISO warned a year ago that its summer capacity will be strained into at least 2024 because so many coal and nuclear plants in its territory are being mothballed. (It was MISO’s warning that prompted your Upper Midwest-based editor to break down and buy a generator last year.)
The new NERC report also pointed to the shutdowns of coal and nuke plants: “Increased, rapid deployment of wind, solar, and batteries have made a positive impact,” said the NERC’s Mark Olson. “However, generator retirements continue to increase the risks associated with extreme summer temperatures.”
Bottom line: The super-reliable power grid we’ve come to take for granted won’t be nearly as reliable going forward. Plan accordingly.
Good news for the internet giants, and for free expression: The Supreme Court turned away a chance to upend “Section 230.”
Section 230 is a provision in the Communications Decency Act of 1996 that shields online platforms from liability for content posted by users.
That might sound obscure… but “large swaths of the internet exist because of it,” says venture capitalist and MIT professor Sinan Aral.
“Facebook, the commenting section of The New York Times, Wikipedia, review sites, if you repealed Section 230, they just couldn’t exist,” Aral explained in 2021 on the Hidden Forces podcast.
“Because there’s no way that they would fold under the legal burden of civil liability for what any one of the 3–4 billion people on the platform could say about any other of the 3–4 billion people. Do the math and it turns out to be a very large number of potential lawsuits.”
In two unanimous decisions yesterday, the court turned away claims that Twitter, Google and Facebook were culpable for attacks by ISIS a few years ago because they hosted terrorist posts and videos.
It was a narrowly-tailored decision; the court more or less punted on whether Section 230 should be upheld or overturned.
“With social media companies constantly in the hot seat these days,” writes Elizabeth Nolan Brown at Reason, “it’s likely we’ll see similar cases before the Supreme Court again in the future.”
And Congresscritters on both sides of the aisle are eager to rewrite or repeal Section 230. The battle is nowhere near over.
“J.P. Morgan? Ha Ha Ha,” writes a reader on the question of which Big Four bank is the most despicable.
“Around Wells Fargo they have a name for what J.P. Morgan did. They call it Tuesdays.”
“How is it possible that Social Security came close to not getting paid back in 2011?” a reader writes on the subject of the debt ceiling.
“The government brings in income every month. If the debt ceiling isn’t raised then the government would have to make hard choices about how to spend their money just like the rest of us.
“If seniors don’t get paid it’s because the feds chose to spend the money on ‘more important’ things… likely so they could get points on the plight of the elderly against the Republicans. So long as interest is paid all would be well and everything else would get paid or not paid as the bureaucrats choose.
“Of course this scenario would scare the swamp critters but frankly it’s time they pay the price. Thanks as always for the insightful comments! It’s much appreciated.”
The 5: We can’t say it often enough: Cash flow is a day-to-day thing for Uncle Sam. And some days there’s less revenue coming in than needs to go out to pay interest on the debt.
“That’s a great point,” says one of our regulars after we observed that in the event of a default, the Fed could simply buy the defaulted debt – but that’s the stuff of banana republics.
“Unfortunately, Team [Bidan] seems to pride itself on two things:
- Doing banana-republic stuff.
- Feeding us paper-thin lies to let us know they (a) are tyrants and (b) will do whatever the hell they please at our expense.
“The consequences of default would not be good.
“But these corrupticrats act as if the pain — and mendacity — is the point!”
The 5: In my darker moments, I can imagine the fallout from a default would be the pretext to usher in a CBDC. Not sure all the infrastructure is in place to throw the switch yet, though.
Thus, the banana-republic option seems more likely. In this morning’s Wall Street Journal, the paper’s Fed mouthpiece Nick Timiraos harks back to a debt-ceiling dustup 10 years ago…
“The Fed’s options include buying Treasurys shunned by investors because of the risk of a delayed payment or allowing banks to pledge defaulted securities as collateral for loans from the central bank, according to the transcript of an October 2013 conference call.”
So there you go. It’s on the table. Jerome Powell was a Fed governor at the time. He acknowledged it was a “loathsome” option, but “the economics of it are right.”
Those bananas are ripening quickly, no?
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
