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Thread: The Changing / Emerging Global Landscape

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    Default Re: The Changing / Emerging Global Landscape

    Ray Dalio from Bridgewater hedge fund gives his reasoning for why he believes a global financial paradigm shift is imminent:



    ===========
    The World Has Gone Mad and the System Is Broken
    Published on November 5, 2019

    I say these things because:

    Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up.

    The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. This dynamic is creating a “pushing on a string” dynamic that has happened many times before in history (though not in our lifetimes) and was thoroughly explained in my book Principles for Navigating Big Debt Crises. As a result of this dynamic, the prices of financial assets have gone way up and the future expected returns have gone way down while economic growth and inflation remain sluggish. Those big price rises and the resulting low expected returns are not just true for bonds; they are equally true for equities, private equity, and venture capital, though these assets’ low expected returns are not as apparent as they are for bond investments because these equity-like investments don’t have stated returns the way bonds do. As a result, their expected returns are left to investors’ imaginations. Because investors have so much money to invest and because of past success stories of stocks of revolutionary technology companies doing so well, more companies than at any time since the dot-com bubble don’t have to make profits or even have clear paths to making profits to sell their stock because they can instead sell their dreams to those investors who are flush with money and borrowing power. There is now so much money wanting to buy these dreams that in some cases venture capital investors are pushing money onto startups that don’t want more money because they already have more than enough; but the investors are threatening to harm these companies by providing enormous support to their startup competitors if they don’t take the money. This pushing of money onto investors is understandable because these investment managers, especially venture capital and private equity investment managers, now have large piles of committed and uninvested cash that they need to invest in order to meet their promises to their clients and collect their fees.

    At the same time, large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments—amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long. Where will the money come from to buy these bonds and fund these deficits? It will almost certainly come from central banks, which will buy the debt that is produced with freshly printed money. This whole dynamic in which sound finance is being thrown out the window will continue and probably accelerate, especially in the reserve currency countries and their currencies—i.e., in the US, Europe, and Japan, and in the dollar, euro, and yen.

    At the same time, pension and healthcare liability payments will increasingly be coming due while many of those who are obligated to pay them don’t have enough money to meet their obligations. Right now many pension funds that have investments that are intended to meet their pension obligations use assumed returns that are agreed to with their regulators. They are typically much higher (around 7%) than the market returns that are built into the pricing and that are likely to be produced. As a result, many of those who have the obligations to deliver the money to pay these pensions are unlikely to have enough money to meet their obligations. Those who are recipients of these benefits and expecting these commitments to be adhered to are typically teachers and other government employees who are also being squeezed by budget cuts. They are unlikely to quietly accept having their benefits cut. While pension obligations at least have some funding, most healthcare obligations are funded on a pay-as-you-go basis, and because of the shifting demographics in which fewer earners are having to support a larger population of baby boomers needing healthcare, there isn’t enough money to fund these obligations either. Since there isn’t enough money to fund these pension and healthcare obligations, there will likely be an ugly battle to determine how much of the gap will be bridged by 1) cutting benefits, 2) raising taxes, and 3) printing money (which would have to be done at the federal level and pass to those at the state level who need it). This will exacerbate the wealth gap battle. While none of these three paths are good, printing money is the easiest path because it is the most hidden way of creating a wealth transfer and it tends to make asset prices rise. After all, debt and other financial obligations that are denominated in the amount of money owed only require the debtors to deliver money; because there are no limitations made on the amounts of money that can be printed or the value of that money, it is the easiest path. The big risk of this path is that it threatens the viability of the three major world reserve currencies as viable storeholds of wealth. At the same time, if policy makers can’t monetize these obligations, then the rich/poor battle over how much expenses should be cut and how much taxes should be raised will be much worse. As a result rich capitalists will increasingly move to places in which the wealth gaps and conflicts are less severe and government officials in those losing these big tax payers will increasingly try to find ways to trap them.

    At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps. Also contributing to these gaps are the technological advances that investors and the entrepreneurs that I previously mentioned are excited by in the ways I described, and that also replace workers with machines. Because the “trickle-down” process of having money at the top trickle down to workers and others by improving their earnings and creditworthiness is not working, the system of making capitalism work well for most people is broken.
    This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.
    ========

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    Default Re: The Changing / Emerging Global Landscape

    Not so much about the changing landscape, more about the consistency of the problems, these are excerpts from an interview with former Soviet president Mikhail Gorbachev.



    Well worth watching, only 8 minutes.
    *I have loved the stars too dearly to be fearful of the night*

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    Default Re: The Changing / Emerging Global Landscape

    Financial and economic institutions are getting in on the climate change policy programme:



    Here’s the agenda for the conference linked in the tweet above:
    Quote The Economics of Climate Change
    Friday, November 8, 2019

    This conference will bring together researchers from around the globe to discuss quantifying the climate risk faced by households, firms, and the financial system; measuring the economic costs and consequences of climate change; accounting for the effects of climate change on financial asset prices; and understanding the potential implications of climate change for monetary, supervisory, and trade policy.

    Conference attendance is by invitation only; presentations will be livestreamed on this page the day of the conference starting at 8:45 a.m. PT. All times listed are Pacific Time Zone and approximate.


    Agenda with approximate livestream times (pdf, 102 kb).

    Welcome and Introduction: 8:45–9:00 a.m.
    Mary C. Daly, President and CEO, Federal Reserve Bank of San Francisco

    Read speech: Why Climate Change Matters to Us

    Session 1 Chair:
    Glenn D. Rudebusch, Federal Reserve Bank of San Francisco

    Session 1A: 9:00–9:25 a.m.
    Labor Supply in a Warmer World: The Impact of Climate Change on the Global Workforce
    Presenter: Solomon Hsiang, University of California, Berkeley
    Discussant: David Card, University of California, Berkeley

    Session 1B: 9:37–10:02 a.m.
    Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis
    Presenter: M. Hashem Pesaran, University of Southern California
    Discussant: Francis X. Diebold, University of Pennsylvania

    Download paper (pdf, 2 mb)

    Session 2 Chair:
    Galina B. Hale, Federal Reserve Bank of San Francisco

    Session 2A: 10:45–11:10 a.m.
    Integrated Assessment in a Multi-region World with Multiple Energy Sources and Endogenous Technical Change
    Presenter: Conny Olovsson, Central Bank of Sweden (Sveriges Riksbank)
    Discussant: Larry Karp, University of California, Berkeley

    Download paper (pdf, 470 kb)

    Session 2B: 11:22–11:47 a.m.
    On the Implications of Pollution for the Measurement of Output, Volatility, and the Natural Interest Rate
    Presenter: Nicholas Z. Muller, Carnegie Mellon University
    Discussant: François Gourio, Federal Reserve Bank of Chicago

    Download paper (pdf, 1 mb)

    Session 3 Chair:
    Sylvain Leduc, Federal Reserve Bank of San Francisco

    Session 3A: 1:00–1:25 p.m.
    Climate Change Risk
    Presenter: Dana Kiku, University of Illinois
    Discussant: Thomas Mertens, Federal Reserve Bank of San Francisco

    Download paper (pdf, 752 kb)

    Session 3B: 1:37–2:02 p.m.
    Carbon Risk
    Presenter: Ryan Riordan, Queens University
    Discussant: Harrison Hong, Columbia University

    Download paper (pdf, 2 mb)

    Session 4 Chair:
    Òscar Jordà, Federal Reserve Bank of San Francisco

    Session 4A: 2:40–3:05 p.m.
    A Run on Oil: Climate Policy, Stranded Assets, and Asset Prices
    Presenter: Michael Barnett, Arizona State University
    Discussant: Robert Ready, University of Oregon

    Download paper (pdf, 4 mb)

    Session 4B: 3:17–3:42 p.m.
    The Environmental Bias of Trade Policy
    Presenter: Joseph S. Shapiro, University of California, Berkeley
    Discussant: Katheryn Russ, University of California, Davis

    Download paper (pdf, 2 mb)

    Session 5 Chair:
    Glenn D. Rudebusch, Federal Reserve Bank of San Francisco

    Session 5A: 4:20–4:45 p.m.
    The Systemic Risk of Climate Policy
    Presenter: Stephie Fried, Arizona State University
    Discussant: Tony Smith, Yale University

    Download paper (pdf, 2 mb)

    Session 5B: 4:57–5:22 p.m.
    Climate Change: Macroeconomic Impact and Implications for Monetary Policy
    Presenter: Sandra Batten, Bank of England
    Discussant: Warwick McKibbin, Australian National University

    Download paper (pdf, 1 mb)

    Closing Remarks: 5:35–5:45 p.m.
    Lael Brainard, Governor, Federal Reserve Board

    Session 6: 7:15–7:55 p.m.
    Introduction
    Glenn D. Rudebusch, Federal Reserve Bank of San Francisco

    Dinner Speaker
    Frank Elderson, Member of the Governing Board, Netherlands Central Bank (De Nederlandsche Bank, DNB) and Chairman, Network for Greening the Financial System (NGFS)
    From: https://www.frbsf.org/economic-resea...limate-change/
    *I have loved the stars too dearly to be fearful of the night*

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    Default Re: The Changing / Emerging Global Landscape

    It seems we might be seeing some rapprochement in relations between Europe and Russia. This is not the case for all counties but certainly some of them.

    ~~~

    As posted here, here and here, the Nordstream 2 gas pipeline now has approval from Denmark and Germany has passed legislation to “create” some conditions to make it easier to implement.

    Also recently there have been some financial moves made by Russian organisations to support the Euro. For example, Novatek issued a statement that going forward, most contracts would be in Euros:
    Quote Russia's largest producer of liquefied natural gas Novatek also said on Thursday it had switched to euros in most of its contracts...
    From: https://www.marketscreener.com/NK-RO...ions-29449686/

    ~~~

    Now we have French President Macron presiding over a meeting between new Ukrainian President Zelensky and Russian President Putin:



    Quote M. K. Bhadrakumar
    @BhadraPunchline
    Light at end of tunnel? It was coming but stunning when it actually appears! Kudos to Macron. Gaullism on march? Snub to Pompeo after recent tirade against Russia at Berlin. But Trump himself is on board, who sees no vital US interests at stake in Ukraine.
    https://news.yahoo.com/france-host-p...172047314.html
    The article:

    Quote France to host Putin, Zelensky in bid to end Ukraine conflict

    Paris (AFP) - Russian President Vladimir Putin will meet his Ukranian counterpart Volodymyr Zelensky in Paris on December 9 for their first face-to-face encounter, seeking to end the half-decade conflict in Ukraine, the French presidency said Friday.

    The leaders will join French President Emmanuel Macron and German Chancellor Angela Merkel for the four-way summit aimed at resolving the conflict in the east of Ukraine, where pro-Moscow separatists have declared breakaway regions, the Elysee Palace said.

    Macron, who has been spearheading a drive for peace in Ukraine, had hoped to host the summit in September but it was held up by numerous obstacles that highlighted the difficulty of resolving the conflict.

    The Elysee said there had been "major progress" recently in talks between the sides, which had allowed troops to pull back from some key conflict areas.

    The presidency said the meeting "will allow the opening of a new series of steps to put in place the Minsk agreements" of 2014 and 2015 which sought to end the conflict, but have yet to be properly implemented.

    The Ukrainian presidency confirmed the date of the meeting, adding that Macron has spoken to Zelensky by telephone.

    ...
    From and continues: https://news.yahoo.com/france-host-p...172047314.html

    ~~~

    Of course there is a back story here: apparently Zelensky’s main backer, Kolomoisky, has “changed sides”. See for instance this narrative in Bloomberg:

    https://www.bloomberg.com/opinion/ar...n?srnd=opinion

    I’m not sure sure it’s quite the “movie script” being portrayed here.
    *I have loved the stars too dearly to be fearful of the night*

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    Default Re: The Changing / Emerging Global Landscape

    This may well be very significant. China and South Korea have signed a defense agreement.

    Quote China signs defence agreement with South Korea as US angers Seoul with demand for $5bn troop payment

    Julian Ryall
    18 NOVEMBER 2019 • 2:05 PM

    The defence ministers of South Korea and China have agreed to develop their security ties to ensure stability in north-east Asia, the latest indication that Washington’s long-standing alliances in the region are fraying.

    On the sidelines of regional security talks in Bangkok on Sunday, Jeong Kyeong-doo, the South Korean minister of defence, and his Chinese counterpart, Wei Fenghe, agreed to set up more military hotlines and to push ahead with a visit by Mr Jeong to China next year to “foster bilateral exchanges and cooperation in defence”, South Korea’s defence ministry said.

    Seoul’s announcement coincided with growing resentment at the $5 billion (£3.9bn) annual fee that Washington is demanding to keep 28,500 US troops in South Korea.

    That figure is a sharp increase from the $923 million that Seoul paid this year, which was an 8 per cent increase on the previous year.


    Seoul's decision to terminate the intelligence sharing pact with Japan risks sending the "wrong message", said General Robert B. Abrams, commander of United States Forces Korea Credit: STAFF SGT. MARCUS BUTLER/UNITED STATES FORCES KOREA/AFP via Getty Images

    An editorial in Monday’s edition of The Korea Times warned that the security alliance between the two countries “may fall apart due to Washington’s blatantly excessive demands”.

    Mr Trump has previously threatened to withdraw US troops if his demands are not met, with the editorial accusing the president of regarding the Korea-US mutual defence treaty “as a property deal to make money”.

    The vast majority of Koreans agree, with a recent survey by the Korea Institute for National Reunification showing that 96 per cent of people are opposed to Seoul paying more for the US military presence.

    There is also irritation at the pressure that Washington is applying to the South to make Seoul sign an extension to a three-way agreement on sharing military information with the US and Japan.

    The General Security of Military Information Agreement is due to expire at midnight on November 23 and South Korea insists that it will only agree to an extension if Japan cancels restrictions on exports of chemicals critical to the South’s microchip industry.

    Japan is widely believed to have imposed the restrictions as the latest incident in its troubled relationship with South Korea, which includes the issue of compensation for labourers put to work during Japan’s colonial rule of the Korean Peninsula.

    The two nations' defence ministers held discussions with Mark Esper, the US defence secretary, at the weekend but hopes that a breakthrough might materialise came to nothing.

    Just days before an agreement designed to protect the allies from North Korean belligerence runs out, Tokyo and Seoul merely reiterated their long-held positions.

    The US demanded in July that Japan pay $8 billion a year to keep 54,000 US military personnel in the country, Foreign Policy reported late last week.

    Tokyo currently contributes $2 billion a year to US military costs in Japan.

    “This kind of demand, not only the exorbitant number, but the way it is being done, could trigger anti-Americanism”, Bruce Klinger, an analyst at the Heritage Foundation think tank, told Foreign Policy.

    “If you weaken alliances, and potentially decrease deterrence and US troop presence, that benefits North Korea, China and Russia, who see the potential for reduced US influence and support for our allies”.

    Daniel Pinkston, a professor of international relations at the Seoul campus of Troy University, was more blunt in his assessment.

    “It’s just extortion”, he told The Telegraph. “It’s little more than a mob boss going around and demanding protection money. The numbers that the US is demanding are politically impossible for Seoul and Tokyo to swallow and that is just fuelling resentment."
    From: https://www.telegraph.co.uk/news/201...ul-demand/amp/
    *I have loved the stars too dearly to be fearful of the night*

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